Aramark Stock

All right. Good morning, everyone. Thanks so much for being here. I am incredibly excited for this next session of our Global Retail and Consumer Conference with Aramark, which has so much going on. I feel like we're going to pack so much into this next 35 minutes. But my name is Lizzie Dove. I cover gaming, leisure lodging here at Goldman. And it's my pleasure to have here Jim Tarangelo, Executive Vice President and CFO of Aramark; Pat Liebler, CEO of Nexus, and we have Felise Kissell here in the audience, too, Head of Investor Relations and Corporate Development.

So welcome, Jim and Pat, thanks so much for being here. And Pat, I think this is your debut with Wall Street Investors. So very, very excited to hear all of what you have to say about Nexus, which we'll get into very shortly. But maybe just to start off, if we kind of just step back and see Aramark today, it feels like broadly is growing faster, retaining clients at a higher rate. Margins are kind of firing on all cylinders, a lot of new contracts that you've been winning. And that's before we even talk about Nexus, which we absolutely are going to talk about. But what do you think has kind of structurally changed over the last few years when it comes to the core business? And how sustainable is that higher growth algorithm?

Well, it's a culmination of years of work after the company implemented a new transformation toward a growth-oriented model and really reigniting the hospitality culture that always existed in our DNA. With that, we implemented a number of specific actions to enable that. We realigned the incentives for the organization where growth, composing of both new business wins and retention is a significant part of our incentive-based comp. We decentralized the organization. We made sure we had seasoned leaders with extensive industry experience, like Pat here on my left to be running those businesses, and we invested significantly, nearly doubling the size of our growth and retention organizations as part of that as well.

And with this growth model firmly in place, we've been delivering the results that you've seen. And we think that the elevated retention levels, record levels of new business, double-digit underlying growth that we've seen, we do think is very much sustainable.

Definitely. And just on the core business as it pertains to the U.S., it feels like things have really been firing on all cylinders this year to use that phrase again and really on track this year with kind of momentum really across the board. What are you seeing overall in terms of demand? Are there particular kind of subsegments or industries that have been driving that? Or how would you categorize the U.S. overall this year?

Yes. I mean the good news is that growth is broad-based across really all the sectors within the U.S. portfolio, the retention levels, the new business wins and base business, which is our term for same-store sales has remained robust throughout the U.S. portfolio. The businesses that have been growing very rapidly, including B&I, which includes refreshment and micro markets -- this is Pat's, usually, has grown double digits now for 20 or 21 quarters in a row. Our sports business -- 21. He is counting, Pat. Our sports business and entertainment business continues to show very strong growth as well with a really good performance of the playoffs, the World Cup, underlying performance of Major League Baseball in the third quarter.

And now on top of that, I think it is really the exciting thing, 2 of our larger businesses, health care and collegiate hospitality, which is our higher ed business, have really accelerated their growth as well. In health care, we've had 2 of the largest wins in the company's history with Penn Medicine last year and RWJBarnabas this year, and that's ramping up. So we had double-digit growth in health care. So that's really the some of the key contributors to the U.S. growth accelerating.

Yes, makes sense. So let's maybe move on to Nexus, which has certainly been highly topical over the last 6 months to say the least. And the kind of speed of progress has been astounding since you only announced it just a few months ago and already you have multiple sites in mobilization and planned in another announcement today, which we'll get into in a little bit. And so Pat, maybe you can start with the basics for us. I mean, firstly, for those not familiar, maybe you could take a second just to kind of give a little bit of your history with the company. And then for anyone that's not familiar, what -- can you explain what exactly Aramark does for a data center site or a colocator? And why is a hospitality company the right partner in these types of segments?

Yes. So I've been with Aramark now 20 years, spent the last 5 as President and CEO of Aramark Refreshments and was given the opportunity to lead Nexus about 6 months ago. It's been in the works about a year that we've been talking about what this is going to look like. But we're excited about change in the industry and what's happening. So you think about what typically was known in the oil and gas business as land camp or man camps. We really have intended and have begun to bring an elevated service when it comes to hospitality. So when you think about on-trend food concepts and hotel-like amenities, activities similar to what you see at colleges and universities with intramural-type sports, wellness centers, fitness centers, will be golf courses, really to create an environment for those who are building these data centers, which are being tasked to build at a high rate of speed and quickly to really make sure that they are feeling comfortable and appreciated when they go back to their place to live at the end of the day.

And our focus is really driving that experience for them and really, again, I would say, setting us apart. So we've kind of shifted that mindset from what was, hey, we just want a hot food option and a place for somebody to sleep to really creating an environment for a person to live on a day-to-day basis. It's important for a couple of reasons. And the biggest one is statistics are saying that the country will be short about 500,000 skilled laborers by 2028. So the competition for those skilled labors, whether electricians, plumbers or whatnot, is going to be key. So it's important for the speed at which these data centers are to be built. It's important to make sure that the hyperscalers are bringing the best people and giving them the right environment to work within to be excited about coming in.

And the other statistic that we're excited about and being able to impact day-to-day is statistics will say 68 -- an employee who is satisfied with their workforce community, their housing environment, where they eat, where they sleep, is 68% more productive. So we're tasked with bringing that level of satisfaction to the community, to the data center to make sure that they're building up the speed they are. So if you can't tell, I'm excited about it.

Yes. No, it seems great. It definitely is very premium, very elevated experiences, so definitely differentiated there. And I'm curious, when we think of the TAM, one of the top questions I get is like what is this addressable market over time? And also more specifically, what is Aramark's realistic kind of share of that? And so how do you think about that? And has that changed even over the last 6 months as you've been kind of going through this and seemingly winning a lot of contracts in the process?

Yes, I'll kick it off. I mean we know it's an enormous market. I think your research shows $40 billion to $50 billion in market size. I think it's probably larger than that to some estimates at $100 billion market. So Aramark is well positioned. Very few players have the size and scale that we do. And to be able to roll this out in sort of a first-mover advantage positions us very well to sort of capitalize on that. We've announced a number of significant wins already this year. But there's no reason this can't be a $2 billion to $3 billion business over the next few years that we think about the size.

Yes. No, it's very impressive. And even just this morning, it was great timing. I was happy we're doing our fireside today because you just announced that you've been selected as the premier hospitality partner for another workforce community at a new data center in Texas. And my understanding, correct me if I'm wrong, is this is a completely new client. And in the press release, it says there's opportunities for more. So could you maybe just talk a little bit about that? This was news to me this morning, so I'd love to kind of hear more.

Yes. So when you think about the ways to penetrate the opportunity, really come through -- directly through the hyperscaler, through what is a colocator land developer and this latest one through housing partners. So this housing partner opportunity partnership that we were talking about this morning is where they had brought us in a lot of the hyperscalers will delegate the responsibility to find hospitality providers to the general contractor through the colocator and/or the housing company. So they tapped into us hearing about our expertise and what we're intending to do in this space and have given us the opportunity to partner with them. So what we're excited about is the -- like I said, the areas to penetrate the opportunity really are coming in different buckets, and we feel pretty bullish on where we sit in each one of those and how we're tackling it.

Yes, definitely. And at least last earnings, maybe this has changed with this new contract, but at least last earnings, it was -- you talked about a $400 million to $500 million opportunity ramping through 2027 and 2028. And so when you think about that number, what are the kind of biggest variables of where -- what determines where you hit within that range? Is it just number of sites or if they get upside? Is it timing or pace of construction or what quarter they open? How do we kind of think about the variables within those?

Yes. I think just again, to level set on the earnings call, we talked about sort of 3 sites, 2 related to the hyperscaler and the third related to the colocator that are in various stages of mobilization, one where we're actively serving meals today. Each of those 3 sites represents about $150 million of annualized revenue. So that's sort of the $400 million to $500 million we referenced on the call. The new win today is still developing, but likely larger than $100 million as well. So exciting news for us, ramping up probably in the first half of calendar year '27 and maybe sooner. So with that, we have this active annualized development pipeline sort of in the $450 million to $550 million range. A portion of that obviously being recognized in fiscal '27. So that gives you a sense for the overall trajectory.

Yes. And one thing I thought was super interesting on the last earnings call, you said that those initial 2 of the contracts, I believe it was, the scope of it had increased by 40% in terms of the revenue that you were going to be ramping up to that. Could you maybe talk more in detail about what exactly kind of drove that between your first estimate and then how that has kind of increased over time?

Yes. It really comes down to beds and the number of workers that are on site. So as these businesses ramp up, the need for more workers given the size and scale of these facilities. In addition, additional service amenities, as Pat said, they're looking to make sure they get a premium experience, a combination primarily driven by more beds and more residences at the camp is the main driver for the increase in the outlook as well as additional services that they're asking Aramark to perform.

You think about the schedule itself, it's -- that drives a lot of what happens. So once things are in a position to move forward. What isn't changing is the end date. The end date is they still want it done. They want it done as fast as possible. So in the case that you're referencing on the increase, it was more about, hey, we've got to accelerate the growth of this to make sure that we're ready. So they doubled down on the speed at which they were going.

Yes, makes total sense. And the other thing I think that's so appealing about this new segment is it seems like from what you said, the margins are just structurally higher than the existing kind of core Aramark business today. Could you maybe share more about why exactly that is? Is it something structural about it, the scale, the scope of services, the labor productivity? I'd love to hear more about why those economics are more attractive than some of the other segments.

Yes, I'll start with the economics. Pat will comment on how we differentiate our services. But you're right, these are primarily structured as what we call fee contracts, which are cost reimbursable with margins higher than the Aramark margin in particular. It's a low capital intensity, capital-light model as well. So that leads to a nice return on these projects as well. In addition, the working capital is generally more attractive than the remainder of our business. So it's a nice economic proposition. For us, it's really -- Pat can comment, it's the elevated premium complexity of these projects where the providers want to make sure those employees are being retained and being offered really top-tier products, which allows us to have those margins higher than the average.

Yes. I mean cost is always obviously important. That said, what's more important today is having the boots on the ground to build the data center. So in order to do that, we have to build the right experience. And that's what we're doing, and that's how we're looking at this. So that warrants them to -- for us to get the fees that we get to provide that level of service and really be differential. So that hyperscaler can say, "Hey, you come work at this site, here's the amenities and services that you're going to get, and it will be drastically different than what they're used to.

Yes. And I think one of the things you kind of touched on it earlier, the beauty of this is the opportunity in the TAM is so large. But also even despite that, you've kind of been the first mover. To me, it feels like you certainly have a lot of experience with these kind of remote sites with what you do in Chile with the mines and whatnot. But so could you talk to me about that and how you think about the competitive environment and why kind of Aramark is positioned to take its fair share or more than its fair share.

I'll start. I mean, just given compared to some of the smaller players, which historically really focused more on the lodging and infrastructure part, just the scale we have, right? Aramark spends over $20 billion of spend that we manage. And historically, that spend -- remember, rooted in Avendra, which is a hospitality-focused organization. So all the things that Pat is procuring is something that we're sort of market leaders in doing. We've been really experts and leaders in rolling up large complex projects in general. We've operated 17 Summer Olympic Games, gives you a sense of the scale and the capabilities we have. Within North America, we're a leading provider in destinations and leisure. We operate 1,000 people, 10,000 feet up in the mountains at Yosemite National Park.

We're a leader in remote services, which means the mines in Chile, the tar sands in Canada. So that capability to lead large complex projects, right, in an expedited time line, often in the middle of nowhere at the scale that we have, I think, is a key differentiator for Aramark. On top of that, this is something we've been working at for over a year now with this opportunity publicly announced sort of a few months ago with Nexus. It's a complex market. So unlike maybe traditional B&I, where it's clear who the buyer is here, this complexity actually leads to the first mover having even more advantage in working out the routes and building up the sales organization. So that positions us particularly well.

Yes. And standing up Nexus as its own line of business was clearly the right thing to do because you take a company celebrating 90 years right now this year in hospitality, but through facilities, through hotel, through our amenities, through our sales, we were able to build and find the best from each one of those lines of business to bring in under one umbrella. So it's not where you're being asked to deal with 4 or 5 different CEOs and driving the strategy. It's really one strategy, bringing the best expertise and tap it into Aramark, which is, again, that's making us from a competitive advantage is really important. And the biggest one is scale. I mean the conversations that we're having, it's inevitable that the question quickly becomes how fast can you scale and how many can you do? And that's what we're focused on. And that answer is comforting to them knowing that we've got the backing of a company like Aramark.

Definitely. And I guess with some of the ones that you've announced, they have many more projects kind of in the pipeline, and so you kind of have that as more share to go after over time. I want to touch on what do you think about the risks for this. I started to get questions just on the politics of AI and data centers and some of the kind of moratoriums that we've seen put out there. Could you kind of help us just separate like back from fiction here and how you -- what you think of this and how it impacts Aramark, if at all?

I'll start. Sure. I think if you look at the computational needs of data centers, that will continue and that will advance regardless of sort of there's sort of maybe a sort of slowdown in how we develop the algorithm. So yes, what we're seeing on the ground is the continued advancement of these projects. There's going to be a need for these data centers that are likely going to continue to grow in terms of size and scale. We've -- the first few sites that we're launching are in Texas and Wyoming, generally states that are conducive to data center expansion. Even within Texas, there's some talk of a moratorium. That's only for new projects that are tapping into new electrical needs that might disrupt communities. Our projects are already approved and progressing from there. So I think the reality on the ground is that there will continue to be an enhanced need for data centers and hyperscalers regardless of whether there's a slowdown in sort of how those algorithms work, and they will continue to progress.

Makes sense. And so when I kind of put all of this together, it sounds incredibly exciting over the next few years. And so there's -- you've already been doing this very successful algo of, call it, 5% to 8%, 6% to 9%, whatever you want to call it, of the core business in terms of organic revenue growth. Now you're going to be exiting this year, I believe, in the -- somewhere in the low double digits, and that's before a lot of these kind of new projects have ramped and you keep adding more. And so does Nexus structurally change this long-term algo? I know this is early to be asking, but I'd love to high level hear your thoughts on it.

Yes. So as you said, like if the algorithm for this business historically has been 5% to 8% growth. That's the growth that's needed to sort of fuel the scale in our overheads, fuel the supply chain efficiencies to generate the margin accretion that we've seen. We've obviously been operating north of that algorithm, particularly with the U.S. business, accelerating their growth. International continue to growing at double-digit rates as well. I talked about on the call for the fourth quarter of fiscal '26, we would expect the Nexus opportunity to drive about 1% of the growth, gives you a sense of the impact, and that will continue to scale and grow over time as these projects become a larger part of our portfolio. So with that, with the foundation for the strong retention -- exceptional retention levels we've had, record new business, so the core business being strong and on top of that, all the exciting things we're doing in Nexus, that does give us a good trajectory to sort of operate above that algorithm.

When you think about, as I said, about standing up the line of business with Nexus, this particular year, with 10 other lines of business that have had banner years in looking at it. And you look at this particular year for us, it's Nexus, we've got our own marching orders. It's not a distraction for the organization. What we're doing continue. And I think that, again, makes us -- puts us in a great spot is we know the task at hand. We know the size of the opportunity that we have in Nexus. But simultaneously, the rest of the company is going.

And I guess, similarly, on the margin side, as these margins are structurally higher and as Nexus becomes a bigger and bigger piece over time of the overall company, is there also kind of a margin profile opportunity here where you might start to see things edge above where the typical algo on the margin side?

We've made very good progress on improving margins, generating sort of 30 to 40 basis points of underlying margin improvement over the past few years. We've always talked about at some point, the business reach a sort of steady state of 20 to 30 basis points of margin improvement as we reach a certain size and scale. I think certainly, with this Nexus opportunity, we have the opportunity to operate above that and continue to sustain the 30 to 40 basis points of margin accretion, which puts us in a really good spot.

Yes. Anything else on the Nexus side that you think I've missed or flagged or is kind of important for investors to know before I come on to some of my other questions.

Yes. I think if I could say anything, it's -- we are committed and intending to be -- I use the word disruptive, but to change the way these services are provided. The early read is that story is appreciated and expected. Frankly, I think that some maybe thought they didn't realize they didn't know what they needed. And now knowing what they needed and how important it is, I think it really puts us in a great spot.

Definitely. I might sneak another one in, in a second. But before I do that, let's go on to the international side of the business because we talked about the U.S., talked about Nexus within that. But international has also been excellent over 20 quarters of double-digit growth. That seems to be a consistent theme that we have going here. And so could you maybe talk about are there certain geographies or industries that are driving that in particular? And every quarter, I think it has to slow down at some point. And it hasn't in the last few years that I've been looking at it. So how do you think about the kind of sustainability of that, too?

Sure. And I spent nearly half of my career in the international business. Really proud of what the team has done to continue to elevate the performance there. And like you said, 20 quarters in a row of double-digit growth, really remarkable performance. So yes, growth has really always been at the core. If you look historically, the retention levels, the new business, again, base business growth, and it's been broad based across geographies and sectors, which is good. The growth, particularly in the large countries in this last quarter, we had really nice growth coming out of the U.K. and Germany, Canada and in Chile and South America.

The team has also done a really nice job targeting and differentiating across specific sectors across the portfolio. So as an example, sports and entertainment is an area that we were -- outside of Germany, where we've done soccer and concessions for many years. Carl and team has done a nice job building up our capabilities in Europe. You had an event at Everton, which is one of the top hospitality providers you ever see in a stadium in Europe. On top of that, we now have a real core capability with festivals and concert activity through some of the tuck-in deals that we've done. So sports and entertainment, a good example where we've differentiated our offer.

Similar with remote services. So we've had a strength, #1 provider of food and facilities to the mines in Chile, where you might have thousands of workers and whether it's in a tunnel environment or thousands of feet in the mountains is something we've been able to differentiate, not unlike what we're doing with Nexus. It's similar with the tar sands in Canada, again, these remote complex environments. And then dozens of miles offshore in the North Sea with these remote rigs in the U.K. So again, a targeted sector where we have capabilities that we've been able to take advantage across the countries that we operate.

Yes. And that's an interesting point and a great segue into my one more Nexus question that I have, which is today, it's all been kind of on the U.S. side of things. But longer term, is there an opportunity, especially because you have these remote capabilities in Europe and other kind of regions that you've been doing ex U.S., could that be something that you consider going overseas with longer term with the Nexus opportunity?

Yes. I think we've definitely tapped into that expertise as we've built it out. That said, we want to make sure that we're balancing the elevated service to what we provided in Nexus to where it sits today. But is there a world that could possibly be the case. But I would tell you right now, our focus, initial focus is grow North America, grow quickly.

Yes. And with the international core business, I think you said before that it's not about planting flags here. Is that still the same today where there's enough opportunity to increase penetration in your existing geographies that it's not necessarily about kind of expanding into new countries at this point?

That's right. We're in the countries that we need to be and have plenty of runway within each of those respective countries to continue to grow our market share. In many countries, we have the opportunities to grow certain sectors as an example. So as an example, we've had a historic strength in B&I and sports in Germany due to some regulatory changes as an example. Health care is now a very attractive opportunity. So we're able to leverage our health care experience in other countries to sort of expand there. So the same thing would be said for other countries where we could expand the sectors we're in and sort of a natural market to grow without having to plant additional flags, which is often a challenging thing to do in international portfolio.

Definitely. And then going on to kind of just a big picture theme that was -- I do get asked about quite a lot and was kind of -- I feel like initially a concern and now an opportunity that people see is just on the outsourcing penetration side of things. It felt like to me, at least, correct me if I'm wrong, that COVID really accelerated that outsourcing kind of pacing that happened. And there was a fear, I think that, that would then -- that was a pull forward and would slow down, and it hasn't. In fact, net new business is, I feel like higher than it's ever kind of been in terms of the growth there. And so with the, say, remaining 50% of the industry that it still isn't outsourced, like how do you think about that? What's the runway there? And what kind of catalyze is that to keep kind of moving?

There are a lot of opportunities to convert first-time outsourcing. And if you look at our new business wins, the percentage coming from first-time outsourcing has remained elevated, probably 40% or north of that. And there's a few reasons for that. One is just simply scale, right? We're spending $20 billion and compared to try to do that at a single site to the school where you're spending $5 million to $10 million. We're just going to have better economics and better deals with the suppliers and manufacturers.

Second is the technological requirements, which has become an increasingly important part of our offer. And think about embedding AI into our culinary production tools, we call Culinary CoPilot. The way we plan labor, a product called Labor IQ. Mosaic is a tool our supply chain and GPO team use to sort of analyze and assess our spend across our products and SKUs. So that's all stuff that's been embedded with AI technology and something we've built into our run rate. We have a key part of our technology organization. So that's very hard to do if you're trying to do it on your own.

Secondly, there's some industries as an example that I think propensity to move towards outsourcing. So think about like collegiate athletics, right, with the introduction of NIL and additional funding requirements into collegiate athletics, we've been able to professionalize, help these organizations professionalize their stadiums. So the same folks that are running Citi Field and Citizens Bank Park, leveraging those capabilities to expand our offer, we've been able to double average checks in the collegiate environment. And that, in turn, leads to concessions coming back to the schools just at a time when funding both from a sports and obviously, federal funding being cut back, they increasingly need to monetize those operations as an example.

Definitely. So I have to talk about the balance sheet because you're in such a great spot now. And I think that could be below 3x net leverage by the end of this year. And it seems to me as if the business is accelerating too in terms of some trends that are going on. And so with that higher AOI growth and with the progress that you've made in terms of delevering and cash flow and everything else, like how do you think about that longer term in terms of the balance between buybacks, dividend, potential M&A, just investments in the business? Like where do each of those things kind of rank?

Yes. We're really proud of what we've done on the capital structure. We were recently upgraded by both Moody's and S&P, with S&P to BB+. So it's like really the lowest leverage the company has had in my tenure, which is over 23 years. Now being at under 3x leverage has really been the foundation for our capital allocation strategy. With that, we've had a lot more institutional investors, particularly over in Europe and Australia coming in to the stock and Felise and the team has done a nice job proactively bringing that additional demand into play.

Once we're under 3x, this is a company that resilient cash flow, obviously, very comfortable with higher amounts of leverage, but it gives us tremendous amounts of financial flexibility, gives us the fuel to continue to invest in our capital to drive growth in the business, which is very predictable as basically remains at about 3.5% of sales. Targeted and disciplined M&A is a key part of what we do as well. Pat's old world refreshment services is where we've done some targeted smaller deals, elevating our brands and then expanding in our GPO or just a few examples, sort of small strategic bolt-on M&A.

With that, as you model it out, there's really no reason to go much lower than sort of 2.6x or 2.7x. There's a lot of additional cash flow being generated to reward shareholders. That will come in the form of low double-digit dividend growth. It will come in the form of increased elevated share repurchase activity over the next couple of years.

Yes. No, it's exciting. It's exciting. And then just final one, I suppose, just to close this out. I mean, we've heard so much great stuff today, amazing insight from both of you, and it feels like a very exciting time for Aramark. And so if we were sitting here, hopefully, a year from now or 2 years from now, and Aramark had really outperformed versus what we kind of see today, what do you think would have gone right? And what do you think people might have underappreciated?

Yes, I'll start and let Pat chime in. I mean I think we talked about the growth model basically transforming the business. For me, one of the things we don't know just the cultural change of the organization. That's actually the harder part. So with John Zillmer coming back to the company and laying out this plan and really changing the culture of the business so that we're so growth focused, right, really used to be P&L focused and driving costs down. And now when we do our operating reviews, it's really starting with growth, retention and sort of -- that's a key driver of how we think about the business. And I think the lasting impact of the cultural change on the financials is going to be something that I think we will be very proud of years out.

Yes. I'll just add as cliche as it may sound, the people. I think there's a high level of energy at every level that works for Aramark right I often use the phrase, feel like a winner. I think they feel like winners. And I think that's important for anybody. Everybody who wakes up in the morning wants to win and to be a part of a team that wins is important to them. And I think when they feel and see the win, it's contagious, and I think that's the exciting part.

That's a great place to leave it off. Well, Jim, Pat, thank you so much for the time today. This has been great. I really appreciate you being here.

Thank you for having us.

Thanks for having us.

Appreciate it.

Appreciate it.

Thank you.

Good morning, and welcome to Aramark's Third Quarter and Fiscal 2026 Earnings Results Conference Call. My name is Kevin, and I'll be your operator for today's call. At this time, I'd like to inform you this conference is being recorded for rebroadcast. [Operator Instructions] I will now turn the call over to Felise Kissell, Senior Vice President, Investor Relations and Corporate Development, Ms. Kissell, please proceed.

Thank you, and welcome to Aramark's earnings conference call and webcast. This morning, we will be hearing from our CEO, John Zillmer; as well as our CFO, Jim Tarangelo. As always, there are accompanying slides for this call that can be viewed through the webcast and are also available on the IR website for easy access.

Our notice regarding forward-looking statements is in our press release. 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 SEC filings.

We will be discussing certain non-GAAP financial measures A reconciliation of these items to U.S. GAAP can be found in our press release and IR website. I will now turn the call over to John.

Good morning, everyone, and welcome to our fiscal third quarter earnings call. Thank you for joining us. Jim and I are pleased to be here with you to review our financial results, provide an update on the business and discuss our strategic growth agenda, which continues to drive strong, sustained performance.

We're heading into the fourth quarter with significant momentum across the portfolio, including industry-leading client retention at record levels of approximately 98%, underscoring the strength of our client relationships and the excellence of our service and execution. Accelerating organic revenue growth in every U.S. sector, absent the calendar shift in education and across all regions within international. New client wins totaling more than $1.6 billion fiscal year-to-date, 51% higher than the comparable prior year period, reflecting strong demand for our hospitality capabilities and the depth of our sales pipeline, and the launch of operations just weeks ago under our recently awarded multiyear engagement with a top global hyperscaler, alongside the continued expansion of Aramark NEXUS, which now includes providing premium hospitality services to workforce communities for an AI data center colocation leader.

In the third quarter, organic revenue for the company grew 9% to $5 billion and would have increased another approximately 2% if not for the calendar shift. Once again, our strong revenue performance was driven by broad-based net new business and base business growth across sectors and geographies. These results are a testament to the dedication of our teams whose commitment to serving our clients, delivering exceptional hospitality experiences and performing at a high level every day has been instrumental in our success.

Moving to the business segments. FSS U.S. organic revenue grew 8% to $3.5 billion and would have increased more than 10% excluding the calendar shift. Education would have achieved more than 7% growth absent the shift, which is expected to be fully recaptured in the fourth quarter. Collegiate Hospitality is benefiting from increased residential meal plan enrollment, record retention and the strongest selling season in recent history.

U.S. revenue growth in the quarter was further driven by Sports & Entertainment strong year-over-year performance, which reflected higher revenue from the ongoing Major League Baseball season along with an expanded client portfolio, including a Major League Soccer and Collegiate Athletics.

We demonstrated the strength of our capabilities during the 15 FIFA World Cup matches hosted at the stadiums we serve, delivering premium fan experiences amid unprecedented attendance and record per capita spending, with an additional 4 matches held after quarter end. We also proudly supported our NHL and NBA clients throughout the playoffs, and extend our congratulations to the San Antonio Spurs on reaching the NBA finals.

Our S&E team was hard at work last month during the MLB All-Star game here in Philadelphia, providing hospitality services throughout the 3-day series of events with merchandise revenue a particular highlight. Healthcare Plus built upon the successful launch of Penn Medicine with our team actively mobilizing multiple lines of service across RWJ Barnabus Health 18 locations, while continuing to deliver strong base business performance. And workplace experience and refreshments achieved double-digit compounded growth for the 19th consecutive quarter, reflecting the contribution from new business, exceptional client retention and continued base business performance across the portfolio.

Now turning to Aramark Nexus. We began operations at our first Texas-based site supporting a top global hyperscaler, which contributed to revenue and profitability late in the third quarter as we started scaling our service offerings. We're currently mobilizing a second site for this client and the scope of work across both locations is now expected to increase by approximately 40% from original estimates. In addition, the client has indicated we should anticipate supporting additional sites as new locations come online.

We remain in active dialogue with other leading hyperscalers as well, reflecting the strong demand for our integrated suite of capabilities.

We continue to expand the reach of Aramark Nexus recently announcing a significant multiyear engagement with a leading AI data center colocation provider to deliver premium hospitality services to workforce communities across multiple locations, including in Wyoming and Texas. The initial site is scheduled to mobilize in the first half of our new fiscal year.

Data center colocators develop, own and operate facilities that supply the power, cooling and infrastructure relied upon by technology companies. As these projects increase in scale and geographic reach, we believe that Nexus is uniquely positioned to help clients attract and retain skilled labor through differentiated hospitality solutions and premium amenities that enhance the employee experience and support project success.

During the quarter, FSS U.S. continued to build on its strong momentum as we were awarded several additional client wins, including our first collaboration within the University of Colorado system at Colorado Springs, Grand Canyon University, Ohio Westland University and Texas State University and Collegiate Hospitality. Texas State and Florida State University Athletics and Sports, the Camden City School District in Student Nutrition and Paul Weiss and workplace experience as we expand our hospitality services into top-tier law firms.

The International segment continued its strong growth trajectory, delivering another quarter of impressive results with organic revenue increasing 11% to $1.5 billion. Performance was broad-based across geographies and sectors, led by Spain, Canada, the U.K. and Germany. Concert and festival activity was especially strong with many of our venues further benefiting from major touring artists adding performances across Europe. We are also -- we also successfully served more than 300,000 fans during the multi-day Formula One Grand Prix in Barcelona, leveraging nearly 100 food and beverage locations across several event areas.

Every country within the international portfolio delivered strong new business performance, underscoring the breadth of our service offerings and focus on excellence. International was awarded nearly 200 client location accounts during the quarter, including continued expansion in the mining industry, providing remote hospitality services for Discovery Silver mine in Canada as well as Codelco's Chickamada and AMSA's Los Palomas copper mines in Chile. We also concluded our international Guest Chef's Cup in Dublin, celebrating the very best of Aramark's culinary talent from around the world, following a year of in-country competitions. It was especially meaningful to see our host chefs from Ireland take top honors this year.

On to global supply chain. Our global supply chain and GPO business maintained strong momentum, delivering more than $1.1 billion of annualized new spend globally fiscal year-to-date. This performance reflects the differentiation of our value proposition, market-leading procurement capabilities and disciplined execution. We believe Avendra International is well positioned as a premier global hospitality procurement solution with multinational clients increasingly consolidating spend with us across regions and continents, leveraging our scale, local expertise and extensive global supply network.

We're also seeing inflation trends remain slightly more favorable than our original expectations across regions.

Lastly, I would like to welcome Tony Spring as the newest member of Aramark's Board of Directors. As Chairman and CEO of Macy's, Tony brings deep executive leadership expertise and valuable strategic insights, particularly in integrating AI to enhance consumer experiences and leading a large diverse workforce.

Before handing the call over to Jim, I want to reiterate that we are extremely confident in our ability to continue building on our strong results. We believe that the opportunities before us from the outperformance of our core business to the expansion of Aramark Nexus and our global supply chain platform position us well to capitalize on the substantial value-creating actions underway at the company. Once again, I would like to thank our teams around the globe for embodying our culture and values, which remain the foundation of who we are as a company.

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

Thanks, John, and good morning, everyone. We had another record-breaking quarter, delivering impressive top and bottom line results, driven by broad-based performance across sectors and geographies. As John mentioned, we continue to experience strong momentum with the execution of our growth strategies creating significant opportunities throughout the company that position us well for the remainder of the year and beyond.

Regarding profit growth in the third quarter, operating income grew 18% to $216 million versus the prior year period. Adjusted operating income increased 13% to $261 million, with AOI margins expanding nearly 20 basis points. The calendar shift reduced AOI by an estimated $20 million. AOI growth would have increased approximately 21% without the calendar shift with margin expansion of nearly 50 basis points on a constant currency basis. This double-digit profit growth and margin expansion were driven by higher revenue levels, expanded supply chain capabilities and effective cost management.

Turning to the business segments. FSS U.S. reported AOI growth of 11% with AOI margins expanding more than 20 basis points. Excluding the calendar shift, AOI growth would have increased approximately 22% and with margins gaining almost 65 basis points.

Profitability and margin expansion in the quarter was a result of greater revenue from base and new business, particularly in Sports & Entertainment, the Workplace Experience Group, refreshments in Healthcare. FSS U.S. also benefited from supply chain efficiencies and productivity gains from effective cost management.

The International segment delivered AOI growth of 24%, with margins expanding nearly 60 basis points on a constant currency basis. AOI growth was driven by higher base business volume and net new business, along with strengthened supply chain economics. Our strong quarterly performance resulted in GAAP EPS of $0.36 and adjusted EPS of $0.52, an increase of nearly 30% versus the prior year and almost 45%, excluding the calendar shift, reflecting the successful execution of our growth strategies.

With respect to cash flow, net cash provided by operating activities in the third quarter grew $41 million and free cash flow increased $42 million. These positive cash flow results were driven by strong business performance and earnings growth. As always, we expect to generate a large inflow in the fourth quarter, primarily from Collegiate Hospitality and Sports & Entertainment.

The higher cash flow generation in the quarter enabled us to proactively repay $100 million of term loans subsequent to the quarter end. We remain committed to achieving a leverage ratio below 3x by fiscal year-end. We will continue to pursue additional capital allocation opportunities with a focus on maximizing returns.

At quarter end, the company had over $1.4 billion in cash availability.

And finally, let me wrap up with our performance expectations for the remainder of fiscal '26, with only a few months to go. We are benefiting from the consistent execution of our teams across the business from industry-leading client retention to broad-based revenue growth across the U.S. and international to record levels of new client wins and the continued expansion of Aramark Nexus.

Our sales pipeline remains substantial with first-time outsourcing at elevated levels. As a result, we have raised our fiscal '26 organic revenue growth outlook to an increase of 9% to 10%, reflecting continued momentum across Aramark's portfolio as well as the early contribution from commencing operations with a top global hyperscaler.

We are also reaffirming our expectations for AOI growth of 12% to 17%, and adjusted EPS growth of 20% to 25%, both of which are aligned with Wall Street estimates as we look at the fourth quarter.

We anticipate accelerated AOI growth and margin expansion in the fourth quarter, driven by our multiple operating levers and the early contribution from Aramark Nexus. We are mobilizing a record level of new business throughout the company and adding Aramark Nexus growth resources as appropriate to further capitalize on the significant new business opportunities before us.

In summary, the strength of our financial performance this quarter, combined with the continued momentum we are seeing across the business, reinforces our confidence in Aramark's growth trajectory. We believe the company is well positioned to drive significant shareholder value creation.

Thank you for your time this morning. Operator, we will now open up the call for questions.

[Operator Instructions] Our first question comes from Curtis Nagle with Bank of America.

I guess first, just focusing on that additional Nexus contract, great numbers to hear, right, the 40% increase in scope in new sites. I guess, would you be able to provide an update on potentially how much larger this contract could be? I think initially, we were thinking several hundred million? And would the duration of this contract also potentially expand in a longer than you might think? And then I'll have a follow-up.

Sure. The initial contract, we estimated at about $100 million annualized over the life of the contract -- I'm sorry, annually over the life of the contract. And with this 40% increase in scope, we expect it to be somewhere in the range of $140 million per year. The life expectancy of the contract, we continue to believe, is somewhere in the range of 4 to 5 years dependent upon the speed of development and also determined ultimately by the total number of employees that they bring on board. So very attractive contract, very attractive returns, as we've talked about. This is a capital-light strategy for us, immediately accretive to margins above company average and will be a strong contributor going forward.

Just a quick clarification. Just it's $100 million, I guess, now $140 per site, right?

Per site, per year. That's the initial contract at that first site. The second site that we will be -- that we are currently beginning to mobilize will actually be slightly larger and approximately the same duration. So that would tend to be around $160 million a year based on the expected size of the second site.

Got it. Okay. I guess just more of a holistic question, just your confidence in being able to maintain this, call it, 9% to 10% organic growth range. Just look at your current book of business, the [ 1.6 ], the retention normalized pricing and then let alone perhaps more upside from data centers, it seems like it's pretty achievable in the next year, but just -- yes, it would be great to your level of confidence [indiscernible].

Yes. Again, we're -- the metrics on new business or great record levels of new business at this point in the year, exceptional retention levels, we're seeing broad-based growth, and as you mentioned, on top of that, the Nexus business that we are mobilizing. If you look at the underlying growth rate in Q3, excluding the calendar shift, it's in the 10% to 11% range. I think you see implied at a similar level for the fourth quarter. So that's all very sustainable, and that's exactly how we're thinking about the exit rate and the outlook as we think about 2027.

Our next question comes from Lizzie Dove of Goldman Sachs.

As on a great print I just wanted to ask more now that you're kind of several months into this, some great updates on Nexus. Like any latest thoughts on just how to think about the TAM that you have? And within that kind of addressable market, how you think about your kind of market share opportunity within that specifically?

Sure. I think total addressable market is something we're still working on. But obviously, there are hundreds of these projects that are currently under consideration for construction across the United States and elsewhere around the world. So I think to extrapolate to the total addressable market is a little bit difficult at this stage. We do think it's in the many billions of dollars in terms of the total addressable market, and we'll continue to refine those estimates as we get a better understanding of the actual construction pace and the implementation across the U.S. But right now, we feel like we're very well positioned in this segment. We are investing in resources to go ahead and bring this business to life. We've already established a very good leadership structure, committed sales resources against this business. And so I like our positioning. We currently have 8 sites that are signed and under active development in various stages. So there is a lot of runway to this business.

I also think that this business is going to be very large, and it's -- I think we'll achieve very significant share gains very rapidly. But I do think this will be a competitive marketplace, and there's more than enough room for all the companies who serve these industries to succeed given the demand that appears to be out there.

Great. And then great to hear that it sounds like the 9% to 10% range you feel is sustainable over the next year. I guess any way that we should think about margins specifically on the impact of that on Nexus? It sounds like you've said in the past that Nexus margins are accretive. They're higher than the total company right now. But then I guess there's still maybe a bit of a ramp phase. And so kind of putting those pieces together, I am not asking for guidance, but just any way to think about as we move into '27 and longer term, how we think about kind of margin impact from all of this?

Yes. I think the -- certainly, the Nexus opportunity and the above company margin certainly will be a tailwind to the longer-term picture on margins. we've been consistently generating 30 to 40 basis points of margin accretion, and that's implied by the guidance for this year as well. As John mentioned, we're mobilizing 2 sites with a large hyperscaler, the colocator on top of that. The first site alone expected to add about $150 million million of revenues. So it is the $400 million to $500 million of revenue that will ramp up over the course of fiscal '27 and to '28 with above company margins. So that's how we're thinking about it. So we'll certainly be a tailwind to that picture.

Yes. And I would just add, Lizzie, that we're committed to -- as we have said over the past, we're committed to seeing significant margin accretion in the core business without the impact of Nexus. Nexus will be additive and we feel very good about that positioning, but we're also very much focused on continuing the margin expansion that exists in the core business that comes just through the normal growth of the organization as well as the supply chain discipline and SG&A leverage. So we continue to have expectations in that 30 to 40 basis point range on the core business in addition to the margin accretion that will come from Nexus.

Our next question comes from Ian Zaffino with Oppenheimer.

Really good quarter. Question, I guess, if we could just maybe move away from Nexus for just a second here. It does seem like the broader portfolio in general has had just a ton of success here. I don't know I explain other than just kind of firing on all cylinders here. But maybe talk about what the greatest opportunities you're seeing out there, again, putting Nexus aside and kind of focusing on the core business?

Sure. Thanks for the question, Ian. We absolutely do see continued growth in the core business. We've had a very strong selling season across the enterprise, both domestically and internationally, experiencing very strong growth and reactive pipelines across the range of the portfolio. So I think we've maintained our commitment to each of the businesses. We're driving performance. We've got a great management team in place, and we're executing well in terms of serving our customers' needs through adding new solutions every day. So we continue to see great opportunities in the health care sector as continued self-op conversion takes place. We see continued expansion in the collegiate sports area but we're experiencing growth in all of our businesses, even those that have been highly contracted for a long period of time, we're seeing exceptional growth in workplace experience, both domestically and internationally. So feel very confident in the long-term growth trajectory of the organization and believe our long-term prospects are excellent.

Okay. And then I'm going to ask a question here on Nexus. I just kind of want to be -- and I appreciate you guys are being prudent and kind of disciplined in managing, I don't know, call it, maybe expectations here. But when we think about just the business in general and maybe again, the margins, why are the margins higher? Is it a factor of -- or maybe let me ask it differently. How do we expect the margins to ramp? Typically, in the core business, we see some dilution as you win large contracts initially and then it kind of ramps throughout the contract. Is that something similar we're going to see here? And how should we kind of wrap our brains around this, so we kind of keep everything in check and retention is in line with Nexus? And what you're seeing actually on the ground, et cetera?

Yes, sure. So the -- there is some moderate ramp with Nexus as we ramp up the number of folks that we are serving. But the primary underlying structure of these contracts is cost reimbursable. We don't want to get into too much detail for competitive reasons, but that's how we structure them. The margins are attractive, especially if you compare it to some of the smaller players in the industry, margins are actually much higher than that on their model. So it's low capital intensity with that cost reimbursable primarily. There are some moderate cost upfront, but it scales much faster than a sort of a typical, say, higher education or sports contracts so that we have very good visibility into the margins, very predictable. So there's not significant start-up costs like we see typically in a contract of that size.

Next question comes from Leo Carrington with City.

Please ask some follow-ups on the AI data center progress you've made. Firstly, that point about the scope of work on the hyperscaler contracts having increased 40%, can you give some more color on what kind of services you've been able to add and how this came about? Is there scope for further increases with the -- in terms of scope with hyperscaler.

Really -- I'm sorry, go ahead. Go ahead and finish, Leo.

I was just going to just ask sort of a similar question on the co-location side. it'd be interesting just to hear the similarities and differences versus the hyperscaler contract. And if there was anything you could add in terms of the revenue opportunity for this co-locator contract versus the numbers for the hyperscaler one you've already given us?

Sure. Typically, what drives the difference in scale is the number of people expected to be employed on-site, which you could roughly translate into beds. And remember, these are residential communities. These are workforce communities that are being created in remote areas. And so you can kind of think of the number of beds as being kind of an indicator of scale and scope. So our initial site was originally projected to be about 3,500 employees. The increase in size and scale is directly related to the number of beds that they will have on site. So second location estimated to be 4,000 beds, the co-locator site originally looking at like 4,500 beds. So that's the primary driver. The scope of services that we'll be offering across the communities is consistent. It's essentially hospitality, food, retail, housekeeping, facilities management, unarmed security which we will subcontract and not perform ourselves, but that's not included in our revenue estimates.

So it's a full suite of amenities and services provided to those people who are residing in these communities in a remote environment. So scope is very broad. I think fitness centers, pickleball courts, basketball courts, volleyball, it's it's a community that we're building. So the best indicator of overall size of the scope of a contract is related to the number of people, or a number of beds that are affiliated with the site.

We currently have essentially under contract with those first 3 locations, approximately 12,000 to 13,000 beds, and they can scale up or down based on the size of the facility that's being built.

Next question comes from Andrew Steinerman with JPMorgan.

I just wanted to maybe touch on the medium-term algo. I surely haven't heard the figures in maybe about a year's time. But for a long time, we were talking about a medium-term 5% to 8% organic revenue growth algo. Surely, you're growing faster than that now and into next year. My question is, has the whole portfolio evolved to a point where the medium-term algorithm has to be increased?

I'll start, Andrew. I mean the algo, as you mentioned, is -- has been 5% to 8%, right? That's the growth we need to fuel the 30 to 40 basis points. We're obviously operating well above that this year as we exit into '27 as well, and we're evaluating continue to update in terms of what that algorithm will be. If you look at the components of growth on that, right, the main change there is obviously the net new impact, right? If you look at the quarter, we're now realizing the 5% to 6% net new realized, right, continuing with the pricing, say, 3.5%, volume 1% to 2%, minus calendar year for this quarter, obviously, but that's generally how we're thinking about the quarters, and we're in the early stages of planning for fiscal '27. But certainly, the expectations that we'll be operating above the algorithm that we initially established as part of Investor Day.

Okay. That's good. Could I just ask a real quick second one. New bookings that you just talked about, just give an update on the mix between your kind of self-op conversions versus competitive win ways?

Yes. I think it's probably consistent with our past disclosures. We're somewhere in the range of 40% to 45% self-op conversions. And what will skew that number up is whether or not you would call Nexus, which isn't really included in those numbers yet, a self-op conversion. It's a brand-new site, first-time outsourcing, so hard to really characterize it one way or the other. But I would say in the core business, we're still seeing in that range of 40% to 45% self-Op conversion.

Our next question comes from Toni Kaplan with Morgan Stanley.

I wanted to start off on Nexus. It sounds like you have a really complete service offering there. I was hoping you could just talk about the differentiation that you're able to provide because I'm sure a number of your large competitors are also trying to go after that business. And so I was hoping you could talk about maybe what customers have really liked and what makes your offering more unique or differentiated?

Yes. Sure. I'll take that, Tony. First of all, yes, there are a couple of smaller companies that are currently competing in this space. And I think the differentiated offerings that we brought to bear when we began to work with this global hyperscaler was a significantly differentiated hospitality approach that transition from a typical, call it, [indiscernible] line, if you will, to a much more retail-oriented fine dining approach that offers a range of opportunities for those employees that are living there.

So it's not just walking through a cafeteria line for breakfast, lunch and dinner, it's having multiple outlets and multiple opportunities to choose how you want to be served, whether it's a full-service restaurant, whether it's buffet-style or whether it's some other kind of retail components. So what we brought to bear was a very significant change in the approach, and that's what they recognized. And that's the kind of quality that they wanted to achieve.

And the reason for doing so is pretty obvious. They want to recruit and retain high quality, high numbers of employees in remote environments. And to do that, they wanted to give them a solution that was significantly enhanced from the norm. And so we were able to deliver design and deliver and execute against that kind of an approach, including those other amenity offerings, which are consistent with what we do for our own employees in the national parks, what we do in remote mines in Chile and Canada. So it was bringing to bear that full suite of capabilities.

The other companies that focus on this segment have typically been construction-oriented organizations that focus more on the build as opposed to the hospitality. We're not in the build business. We're there to support the build business through our infrastructure, but we're there to provide hospitality for the employees. And that was the key differentiator.

Terrific. And shifting gears to sports, terrific quarter there. I know you called out World Cup in the release. I wanted to also understand how much of sort of the the growth there was attributable to World Cup, but also wanted to find out about any sort of recent wins because you also talked about expanding the client portfolio in sports. So any recent wins for new teams, that would be awesome.

Yes, it was really a strong quarter in general for the sports group. The underlying performance in Major League Baseball is good. We have a number of teams buying for the playoffs at this point. We've -- in terms of the new business, Florida State University Athletics in Texas State Athletics were rolled out as part of the new business. We had -- did have significantly more playoff gains in the NHL and NBA this year with the Spurs obviously going to the championship. And as John mentioned, we did have about 15 World Cup games in the quarter as well. So all that combined really led to the strong double-digit growth that we saw -- excess of double-digit growth in sports this quarter. So really, underlying strength is strong. The World Cup had a sort of a moderate impact as well. But all told, the combined business is really what drove the exceptional performance.

Our next question comes from Jasper Bibb with Truist Securities.

On Nexus, I just wanted to clarify how many sites you're signed up for right now? I think you said 2 with each -- 2 on the hyperscale side, 2 with colocation by -- I thought I heard sites total signed in response to an earlier question. So I just wanted to clarify how many kind of total sites you have signed up on the Nexus side?

And then if it's [indiscernible], I guess I'm wondering what the time line might be looking like for the sites that they're signed but are active or mobilizing today?

Yes. So we have the 2 sites that we're currently mobilizing with the top hyper global -- the top hyperscaler, sorry, and with a third under discussion and then there are 5 additional sites with the AI co-locator that are in various stages of development, one which will begin to ramp up in the early '27. The total Number of beds, if you were to extrapolate the number of beds for those additional 5 sites, you would estimate around 2,000 per site. So somewhere in the range of between 12,000 and 20,000 total beds under development at this point in time with the first 3 sites really under active engagement.

Awesome. Then my second question was just, I guess, I'm wondering if you could bridge the increased organic growth guide against reaffirming AOI and EPS ranges. Is that a little bit of new business start-up on some of these wins? Is that some selling commission because new business is up so much? Just any detail there would be great.

Yes. That's right. Yes, the increase in the guide, really just the general broad-based favorable trends we're seeing in the business, then obviously, we put in the Nexus impact into the fourth quarter as well on the top line. On AOI and EPS, as you said, we're rolling out and mobilizing record levels of new business. And the businesses that hit the fourth quarter in particular, so higher education, we've had one of the best selling seasons in recent memory, and those accounts will ramp up in August and September.

In destinations. We have Stone Mountain, one of the largest accounts we rolled out in many years. And then in Healthcare, we continue to ramp up Robert Wood Johnson. So with that, as we've always talked about, there is a mobilization costs and those margins will ramp up into fiscal '27.

Next question comes from Jafar Mestari with BNB Paribas.

I just wanted to start by clarifying 1 thing. You mentioned in the release that your initial Aramark Nexus site has begun providing revenue. But there's reasonable sources out there that would suggest that that's July. So I just wanted to make it extra clear that in Q3, in the 11% organic growth, there is no contribution from Nexus?

Yes, they did ramp up at the first site with the hyperscaler did ramp up in late fiscal period. So it's just a very moderate amount amount affected July, primarily it's going to be in the fourth quarter.

Okay. Super. And I guess related to that, you've mentioned 2 clients, 3 firm sites, another 5 sites under discussion, and you said $400 million to $500 million revenue that could be ramping up over the next 2 years. I just wanted to make sure they're all on the same definition. And if those figures, $400 million to $500 million in particular, are included in the signings figure, $1.6 billion, how should we look at the signings ex-Nexus? The core businesses ex-Nexus last year in 25 signed $1.6 billion. So I know there's few months left to the year, but yes, if I do a very quick math, is it $1.1 billion, $1.2 billion of signings in your core segments of Education, healthcare, corporate, et cetera? And is it a good figure, if you did $1.6 billion. we'd do the same segments last year?

Yes, I'll start. Yes, in terms of -- again, we're not going into too much detail on the components of the $1.6 billion. There's a portion of that $450 million, and that is a relatively small portion that's built in that is in the $1.6 billion. Just on the revenue question, just to confirm, right, we talked about 3 sites mobilizing, an active mobilization in development, the 2 with a hyperscaler and 1 with the co-locator. Those 3 sites is where I was referencing the $400 million to $500 million. And as John mentioned, there's additional sites and opportunities with a co-locator. That's not part of the $400 million to $500 million.

That's the annualized value. We're still planning in terms of when that will ramp up over the course of, but no, the underlying new business is driven by the core, excluding Nexus.

Yes. And sorry, to belabor that point, but what's the definition reason why if the $400 million to $500 million are all based on 3 sites that are the most defined the [indiscernible], why is it not all included in your one1.6 billion signings?

Yes. At this point, we typical -- some of it has not the end to the week. So some has to do when we finalize contracts versus develop and roll them out. So there's just some particular things that we adhere to in terms of when we actually record the new business.

Our next question comes from Faiza Alwy with Deutsche Bank.

I wanted to follow up on Nexus also. I guess you talked about sales resources that you're putting into this particular business. And I'm just curious how you're approaching the go-to-market, and kind of how the competitive environment has evolved? It sounds like a lot of your core larger competitors are not participating in the same way that you are. And I'm just curious if that's how you're viewing that and if it's more related to just your go-to-market approach?

Yes. I think, first of all, we recognized very quickly the attractiveness of the market and began to frame an organization to serve it very, very quickly. So we installed a CEO for the business who is an experienced Aramark executive who's run multiple businesses and has an extraordinary background related to hospitality. And so recognizing the attractiveness of it, we also committed resources from the sales organization to this go-to-market strategy, particularly related to this initial set of contracts. And as we began to explore the potential and the size of the market, we began to add additional sales sources focused on the other hyperscalers as well as other key participants in the industry, whether that's construction and engineering or other related firms.

So I do expect that the other large companies will find a way into the business. They have divisions that do some of these things in other parts of the world. I just think we were first to move in recognizing the significance of the opportunity and established a business very quickly. But I fully expect that this will be a competitive marketplace.

I also -- as I said earlier, I also believe that the size and the scope of this total market is so large and the demand will be so significant that there's plenty of room for all the organizations to be successful competing in it. And we want to be first, we want to be the biggest, and we want to get our fair share. But ultimately, I think this will be competitive.

Understood. And then not to belabor the point around contribution from Nexus this year, but just want to understand, in the fourth quarter, like do you expect to fully ramp at at least the initial 2 sites, or is it a slower build up? Just trying to get a sense of how much revenue contribution you're expecting from Nexus in the fourth quarter?

Yes. I mean, roughly in the fourth quarter, that probably about 1% or so will come from Nexus. None of the sites are fully ramped up yet. So they all will be ramping up to their peak during the course of fiscal '27.

Sorry, I would just add a couple of comments on this. The ramp-up schedule is really not something that we are in control of. It is based on how these companies bring employment to bear in the site. So the ramp-up schedule is one that we're still working to define. And so it -- we'll be able to provide more clarity as we get through the fourth quarter and into the planning for fiscal '27.

Our next question comes from Justin Hack from Baird.

Yes. Great. I just have 1 here. I guess, just given the geographical concentration that you called out for Nexus and being in Texas, and with the development pipeline that you have of those, I guess, the 5 additional sites, not so much the 3 that are kind of under a firmer commitment. But I'm just curious about the Texas governor recently putting in moratorium or an audit on some of the new developments and just, I guess, your thoughts on that and if there's any exposure on kind of that development pipeline you have right now?

Yes. I would say there's no exposure on the development pipeline that we have under active development that we expect that the regulatory environment will continue to evolve across multiple states. I do think the state of Texas is very committed to the business in particular and that they will -- that these projects, which are already under construction and already underway will comply with whatever regulatory requirements are established by the state. That's the risk that the hyperscaler has, not us in providing service to them. So it could defer or delay a little bit implementation or the rollout of various projects, but we think, in the long term, the demand for the services, the demand for compute capacity in addition to the AI compute capacity that's being built will have to be met. And so we'll -- we want to participate. We believe that it's going to be a strong marketplace, and we think the regulatory risks are -- will get managed.

These facilities have to be built over time. And so we want to be there to support the customers as they build them.

Our next question comes from Josh Chan with UBS.

Maybe on Nexus, could you talk about the hundreds of sites that are technically possible, but why you ended up with these locations? Are they the largest? Are they do they make the most sense geographically? Just kind of like how did you end up with these deals?

Well, that would be -- unfortunately, that would be revealing some competitive insights and information that I really prefer not to do. I will say that we began the relationship with this top global hyperscaler as a result of a reach out from them to us. And it was was to focus on these sites that they had under active development and active planning. And so we pursued them aggressively, and we're awarded these these sites by that top global hyperscaler.

And so in addition to that, this co-locator is developing sites, and we are under contract or under an agreement with them for those 5 additional sites. And again, those relationships were established as a result of the competitive process. So again, we're trying to take advantage of this marketplace in a very efficient way. And we're also trying to keep our competitive advantage close to the vest, if you will. And so I think that's about all I can say.

Okay. Yes. I appreciate that. And then I guess on the retention side, 98% through Q3 seems to be quite good. I guess what's driving this? And then how does the retention pipeline look like as you kind of go into next year?

I think it's execution and performance. Obviously, it speaks to the strength of our customer relationships and the quality of the performance that we bring to bear every day. We are hyper focused on doing the right thing in terms of serving our customers and our clients. And this has been the focus of the organization for the last 5 years, and we've continued to get better and better at it. It's something that we hold our people accountable for and -- hold accountable to, and we compensate them for. So as you know, 40% of our incentive comp is related to net new, which is a complete measurement, which is focused on retention and growth. And when you focus incentives on something, it gets done. And so we're very proud of the retention rate. We look at this literally every month, and we think it's service and execution that drives it.

Our next question comes from Shlomo Rosenbaum with Stifel.

There's a lot of focus on Nexus and for good reason. But I want to go back to one of the questions about the rest of the business that seems to be getting a little bit overshadow about the fact that you seem to be having really good bookings and really good execution there. I was wondering if you could parse out the 51% of growth year-to-date in bookings? If you were to strip out those Nexus bookings, what kind of growth would we be looking at just on the core business? And I know you talked a lot about the strength in the education business. And we've been through the strongest selling season, is that continuing as well? And then I have a follow-up.

Yes, I'll start. Like I said, the increase in new business, the record levels of new business, is primarily driven by the core business, right? So there's only a small piece of Nexus in that. But, as you said, it's been broad-based. In B&I, we continue to see record levels of new business, both in the underlying corporate business as well as the vending and refreshment services. Collegiate, as we talked about, had a record selling season and mentioning and opening the accounts that we talked about. Healthcare, second year in a row, last year, we had PEN this year, RWG [indiscernible]. So Healthcare has really picked up the levels of net new business.

In destinations, as I mentioned, Stone Mountain, one of the largest wins they've had in recent memory as well. And then broad-based growth across the international portfolio, right, nearly, I think it's over 5 years of double-digit growth. Strength across all the large countries, Europe, in particular. From an industry perspective, done really well in broadening out our Sports & Entertainment business in Europe, both in terms of underlying soccer and then now festivals and concerts. And then remote services strength in Canada in the sands, in the mining business in Chile and in the offshore business in Europe. So broad-based across the portfolio in terms of geographies and sectors.

Okay. Great. And then just getting back to free cash flow, that is a metric you used to give out in terms of guidance. And you haven't given it out recently, and I was wondering if you can just give us some direction on what to expect? Because clearly, the revenue is outperforming, the margin is expanding. And how should we think about where the free cash flow should go this year? And how should we be thinking about it over the next several years? And then frankly, you're going to get to your target of below 3x leverage. How should we be thinking about that? Is that going to be funneled more into driving additional organic growth in terms of pursuing more Nexus contracts? Should we see dividend raises? Should we see more share repurchases? Just how should we think about the scope, magnitude of free cash flow or what you're going to use it for?

Yes, I'll start with, yes, really, the foundation for the capital structure strategy has been to be under 3x leverage, a clear line of sight to achieving that by year-end. I think I've always -- I've been with the company over 20 years. I think it's the lowest ever we've had during my tenure. So we like where we are in terms of the capital structure.

On free cash flow, I talked about targeting a conversion rate of about 40% of AOI. So that gives you a sense of where that will be. As we grow levels, we are, there may be a little bit more of a moderate use of working capital, kind of a good problem to have. Capital expenditures have been in the 3%, I think, is closer to 3.5% this year as a result of the record levels of new business. And as you model that out over the coming year, ample of capital there to continue to invest in growth. But again, it's been pretty consistent capital of 3.5%.

With respect to M&A, we'll continue to be targeted and disciplined. And then we'll have capital to potentially accelerate share repurchases in the coming year as well as we balance that all out. But again, the foundation of that is really getting under 3x levered.

There are no further questions at this time. I'd like to turn the call back over to Mr. Zillmer for closing remarks.

Yes. Well, thank you, everybody for the support of the company and for joining us this morning. I'd like to say thank you again to the dedicated Aramark family around the world. Thank you for all your performance for everything you've done for the organization and your commitment to serving your customers and each other. Again, thank you very much, and good day.

Thank you for participating. This concludes today's conference. You may now disconnect.

So -- all right, everybody. We're going to get going on the next section here.

I'm Andy Wittmann. I'm the senior research analyst that covers Facility Services. And this next section is with Aramark. We've got somebody maybe that you haven't met before. Autumn Bayles is the EVP of Supply Chain. This is a really important role inside the organization at Aramark. This is probably one of the biggest margin opportunities inside of the company. So we're really happy that she's here. And while we'll talk about the whole company, I do plan to kind of take advantage of you being here to talk about that specifically.

So maybe just -- my first question is always same with everybody, but why don't you just give us like 1 minute for people who aren't unfamiliar with Aramark, who the company is and what you do. And then we'll kind of launch from there.

All right. Great. So the best way to describe Aramark, it is a food and facilities outsourcer, global. So we operate internationally as well as here in the U.S.

So if you're a university, a hospital, a sports team and you want an expert to come in and run your food and beverage or your facilities and save you money while we're doing it, we will come in and do that.

So we have thousands of clients all over the world. in numerous industry verticals. We also run some GPO companies where we're allowing clients to use our contracts and our price books.

Great. All right. So one of the new things that everybody wants to talk about is data centers. And while most people don't think of a contract catering food supply company as a data center play, it turns out that in the last month that Aramark is getting labeled with that. And so let's just start with what everybody wants to ask about this. Nexus project was press released a couple of months ago. And since then, you've gone on to announce a couple of large wins. So why don't you just talk about what that is? And then I'll ask some further questions to kind of talk about the opportunity from here.

Okay. Sure. So Nexus brand-new line of business for Aramark brought on because of the opportunity from the AI data center build-out, and we have secured a client that we're working with. We have confidentiality, so we're not going to say too much about them, but a client that we're working with to be their provider while the construction project is going on for food service and some other amenities around that.

It's really exciting for Aramark. This is something we're good at. We're used to working in large complex remote environments. So if you think of our mining business, our national parks business, the remote camps that Aramark operates in. This is something that is in our DNA, and we're used to doing. And so this opportunity stood before us. We realize there's a nice market out here for this. We've gotten a lot of attention from everybody involved with this type of area, and we're really excited to roll out this new line of business.

I understand there's been two sites that have been won. One of them has actually started to ramp as we sit here today. And the company has mentioned that these could be about $100 million of annual revenue. And that's on a per site basis, if so I'm not mistaken, right?

Yes.

So I guess my question would be is when you look at the environment out there, while these two sites are with one customer, how many more sites like this are really in your pipeline? What are you looking at, recognizing that maybe not every data center is this gigantic or this remote, but there's certainly lots of data centers getting built. So just maybe you could frame up the opportunity that sits out there, I think it would be helpful for everyone to...

I'll just speaking some generalities. You can think there's probably several hundred of these going to be built over the next several years. We are talking to multiple prospective clients around this, and we're looking to cultivate a sustainable business off of this amazing opportunity that's sitting in front of us.

I said it's leveraging on all of Aramark's strengths already. So it's something that we're good at. And it's the new industry vertical that has been sets up is meant to go attack this opportunity.

There's also some nice synergies with our Avendra GPO. So this is our GPO that services hotels and hospitality. So a lot of the things -- a lot of our competitors focus on just food and beverage. We certainly have that. But our Avendra GPO also focuses on linens, textiles, mattresses, all the things that hotel needs to operate, that these sites will need as well. So we come ready, prepared with great deals for our clients to maximize their economics on.

And just for context here, how long is the typical construction cycle supposed to last on one of these?

Everybody talks about 3 to 5 years. And you ramp up, if you figure there will be some ramp up like this where one is nearing completion. The other one is going to ramp up another site for a particular client. So that's how we're looking at it as, there'll be some rolling business here.

Right. Okay. We could keep talking about that a lot more, but I think those are the key highlights on the data in a anything else that's going on. Right now, I guess there would be -- the only other thing would be talked about is like some of your competitors have these offshore remote businesses as well, but it sounds like you guys feel like you've really carved out a niche here that you've got a leadership position. Is that...

There's going to be -- the market is going to be big enough for others to play in as well. So there's plenty of stake here for everybody. But we feel that we have a head start on the market. We feel that it speaks to Aramark's sweet spot and then having the Avendra hospitality GPO product line ready is also an advantage for us.

Okay. Let's dig into the supply chain work that you've done. Maybe just the best place to start here is how important is the supply chain? Just for context, like, I mean, the business at the gross margin level is really people and supplies, right? I mean that's what it is. And so just to frame up for everybody how important supply chain is as part of your cost structure and what the opportunity is for you to address it and make more efficient.

Sure. And I'm not just saying this because I'm a supply-chain person, but I think it's super critical. It's at the heart of every part of the Aramark operations and our GPO operations is providing the right products and services that our clients want and need. And we want to make sure we're providing different clients have different levels of quality they're looking for different economics we're looking for different mix of products. So we want to make sure we're servicing that with a client-centric focus.

And that is one of our specialties that we look at what the client needs, not just what might be synergistic across the different verticals, but we're really looking at a client-focused perspective around supply chain. So given that it's on the underpinnings of all of our operations and the GPO companies also fall under our purview, we know we're an important part of Aramark's margin story.

Yes. Over the years, we've covered Aramark a long time. There's always been menu standardization, SKU reduction, things to really consolidate purchasing. It seems like it's never at the promise line. It's always something that can get better. Kind of where are you on that journey today? Just SKU rationalization and purchasing scale?

So there's a little bit of a balance here. So what we want to rationalize is things that make economic sense. But at the same time, we want to make sure we have the innovative products and the variety that clients are looking for. So you think -- you want to balance the synergies of optimization with the variety and the selection that clients want. So there is that perspective that we bring to the table there. We want our chefs to be excited to serve. We want our clients excited to eat what we're serving.

But we're always looking at how do we optimize whether it's a GPO client or the Aramark business, how do we optimize the offering to show that breadth of product variety, product quality and great economics and an optimized efficiency. So we may present as brands, we may present as the Aramark business, the Avendra GPO or the HPSI senior living GPO, but behind it is just one organization, so we're leveraging those synergies in the back end.

And then how important is technology to like getting those synergies? And are you making investments today that are going in a different way or taking advantage of maybe like AI?

Technology is super important to what we do. You think of the $20 billion plus of spend. That's a lot of data, and we're getting it from thousands of suppliers that we're processing on a daily basis, millions of transactions a day. So tech is the -- we're actually probably more of a tech organization than anything else in supply chain. That's really the foundation of what we do. We used AI a couple of years ago before it was cool to do so, and we did it because we were trying to solve a problem of really understanding all the products that we bought from all these different sources. And we recognize we were getting the big stuff right, but not the little stuff.

So we put in an AI system, Mosaic, which I think we've talked about publicly. And that has -- that harmonization engine that operates underneath the covers has given us visibility and insights that are unparalleled compared to what we could accomplish before.

And then that's just spawned more AI use cases. So all of our client dashboards, all of the Aramark internal dashboards, all AI fueled and now we're just having some fun with it. We have chatbots. You need an answer to a question. I don't have to go to my desk anymore. I pull out my phone, I ask the chatbot. It will tell me the answer. So we just keep rolling out more and more AI tech.

When you look at this, you mentioned that you're buying $20 billion worth of food and supplies and that's obviously probably a little bit more than half of that, I think, is for other people through the GPO. But substantial part of it is for your own consumption.

When you look at your own consumption, how -- is it fair to think about like how much is purchased through one of these preferred relationships? And what could that be? Is that a fair way of looking at it?

Yes. So if you think of the $20 billion plus, the way we talk about it, that's our contracted spend. We actually buy more than that. if you look at our AP spend. But that's what's running through our contracts. And so things that supply chain has said, "Yes, I want you to buy here." So the business is very well behaved. And with the AI tech, it allows us to see things that maybe we missed before. So compliance is at an all-time high for the Aramark business.

On the GPO side, clients also want this economic optimization and advantage. So they ask us to do those same types of thought processes on their spend as well. So we've been doing that type of work using the AI tech.

Yes. I mean -- and so recently, it seems like the GPO initiatives have been focused a little bit more internationally. I think you did an acquisition they are not too long ago. And I think you've taken your Avendra brand, which was mostly, I guess, a North American thing, and you're kind of co-branding that internationally. So it feels like you're seeing something there, an opportunity to be a little bigger, a little better. Why don't you just talk about that? And maybe talk about the role that M&A might have in the future internationally?

So we started on the international journey a couple of years ago, and we really made -- put some investment into broadening Avendra to be Avendra International, which is what it's branded us today. And for years, we have been buying some GPOs in Europe and some other places. And all of that now is underneath the Avendra International umbrella, has really paid some dividends for us.

So the European business, the flywheel is really turning there. LatAm, the Caribbean, Mexico. We've put some investment in those areas as well. So that's how we've been able to grow the GPO. So quickly, I think we've had double-digit growth for the past several years. on the GPO side of the house, and it's both organic as we've done things to -- we have a very customer-centric perspective, clients like that. So we've been able to grow organically. And then we've also made these M&A investments so we can have some accretive growth from those bolt-ons.

Are they difficult to integrate when there are different platforms and your -- the whole benefit of scale? It feels like they might buy in different parts of the market. Internationally, you've got regional language company differences. Is it just harder to do internationally? I'm just...

I wouldn't say it's harder. I mean you do have to do work. So when we bought a vendor that was a North America primarily, and we integrated that in North America. I wouldn't say that was any easier or harder than the international ones. But immediately, what you're doing is looking at your contracts. That's not as hard as integrating systems. So you have a contract with one, so I have a contract with so and so and you put those together to get some synergies that come pretty quickly. And then you can take those monies or those economics, you give back to the clients to make sure we retain them, and then you keep some of that to invest in the tech and the systems integration. And so we usually do that over time on the system side.

Got it. One of the things I haven't thought about for quite some time would be like the food distribution, logistics behind your supply chain. I remember at the IPO, you had a very large food distributor, Sysco was held -- delivered the majority of your stuff. Where does that stand today in terms of like the amount that they're delivering for you? And how do those contract? Is there an opportunity there to leverage your scale even further, I guess?

I mean we use food distributors, just like you said, for our big, what we call broadline. So Sysco, obviously, a very important partner of Aramark. We use US Foods and PFG with some of our GPOs. So we make sure we have great relationships there that helps not only with economics, where we think we have some great really strong deals, but also in redundancy and risk. So those are probably our most important relationships. We meet with them quite frequently. I think that our partnerships there are very strong.

Okay. And then I always think about those businesses as particularly strong in North America. Are there distributor relationships internationally? Absolutely that you can launch and leverage the same way?

Absolutely. So we have an MFD, Master Food Distributor, which is like the broad line in all of our large geographies. And then we do use a lot of regional players as well for some specialty products and some areas where maybe a broadliner doesn't exist. So we probably have several hundred distributor relationships across the globe.

Got it. And as we step back, I mean -- so talk about margins. the company over the last, I think, 3 years has been delivering on average for lease, you could correct me 40 basis points or so in the last 3 years of annual margin expansion. It was a pretty punchy number.

As you look forward, how much can the supply chain you think deliver over the -- maybe the next 3 years on average?

Yes. Look, we were a big piece of that margin expansion. And we take that very seriously that responsibility. So we enjoy growing both organically and with M&A to help the company because you're getting a 2-punch with our growth because, first of all, you're getting the economics of the scale. So that tends to bring margin forth. And then you're also getting as the GPO grows because of the structure of it, it helps pull the enterprise up.

Yes. It really feels like -- when I think about your margin, it's like labor optimization, supply chain optimization and then SG&A leverage are really the three big areas, right? Am I missing a big bucket? So I guess that brings us to the next thing, maybe a little bit further outside of your expertise, but let's talk about labor optimization. I mean you think about -- like I always think about like I did a stadium tour a few years ago. And I thought about low attendance night, which raining out, you're able to just kind of head count last minute to make sure the heads were right for the attendance that you're expecting. Great way example of how to optimize your labor cost. What are the things like that inside the company are having right now to really get at optimizing what you can do on the labor side?

Andy, it's your lucky day because before I was the Head of Global Supply Chain, I used to run the global operational excellence team which was food and labor productivity. So this is right.

Yes. So we studied a lot of these things, and what we would do is -- and today, now there's an AI tool called LaborIQ, that all the things that we develop those models now is in this tool that makes it easier for the operators to do this. But you're absolutely right.

Let's take a stadium. And what we would learn is, okay, early on, everybody is buying beer and hotdogs, later on, they're going for ice cream. These -- nobody is going to be at these places in the seventh inning, but these ones will be crowded, so we would flex the labor accordingly. And it works the same in the other parts of Aramark with day parks and these days are bigger than those days. So created a bunch of models to really optimize when you use your labor and when you scale up and when you scale back. So it's very much a thoughtful exercise.

Is this deployed across when you say all business B&I, education, K-12 education. Is this applicable to all businesses and rolled out at the same level in all businesses?

Yes. So the concepts are now different businesses behave different ways. If you're K-12, you're serving lunch, maybe some breakfast and then everybody is gone. And it's a very consistent demand curve. If you're in the stadium, it's going to look more like this. And there are certain days that nothing is going on in certain days. So it does vary a little bit business by business, but the concept is the same. You want your labor there when you need it. It's as simple as that, right?

If you were to look at other metrics like the things that you obviously want to avoid is overtime or having to do agency, these were things that were happening after COVID that we just had to because that was the nature of the world, where do those things stand today?

It's all part of the KPI chart, right? So it's my sales as a percent of labor is a KPI that is used. The percent of overtime, the percent of agency labor, those are all monitored and watching and are we fully optimized in what we're doing from the operations perspective.

What's your valuation today on those things?

I think we do a pretty strong job drop. I mean, that's how we're driving some of our performance. And you want to make sure you have enough labor to serve the customer. Nobody wants to stand in line. At the same time, you want to maximize your clients' economics as well. So you want to make sure you have that balancing act.

The tech makes it easier because you can see it in real time and then know where do I deploy my labor and where do I not? And what are my historical patterns that way? If I'm playing a certain team, I know I'm going to have a full stadium, so I'm going to flex up my labor. If it's on Tuesday night and versus Saturday night, I know I'm going to have a certain pattern. Those are the kinds of things that matter.

Yes. Okay. We've spent most of our time, and we haven't even really talked about the top line. So let's do the top line next. I wanted to kind of start with customer retention and just talk about kind of where you are. And year-to-date, I think it's been really good. Why don't you talk about how the year-to-date performance has tracked versus the last couple of years. and what the company's goals are around customer retention.

Sure. So we've been really thrilled and grateful that our retention has been above 98%. It's a really strong showing for us. I think that speaks to the performance of the enterprise and how we're really being client-focused and really trying to keep those customers happy and make sure we're delivering value to those clients. I mean the normal bar for us is 96%. So that means we're above where we normally are. So very happy about that. And we'd love to see that continue.

So our intention is to continue to stay in a great place with retention, that allows then the engine of net new to churn out. We've been targeting 4% to 5% of net new. We'd love to exceed that. And if we can keep the retention where it's at and continue to drive this high top line new business, it will really put up.

Yes. I mean it seems like it's coming through right now. I mean the gross new wins that are the other side of that net new. Obviously, if you're living at 98%. I think just mathematically, that as the year progresses, you're halfway through your fiscal year, I think the way you've calculated is like that number drops a little bit every quarter until the full year number is in just mathematically.

Just the way the mechanics work.

Yes, right. Yes. But it's still very good. You're tracking ahead of schedule the gross new wins, the company has won some of the largest contracts in the company's history really in like the last 6 months. So it feels like a little unusual that way, but like you keep putting points on the board. It's like UPenn Healthcare, Barnabas Healthcare, then this Nexus thing kind of came. Were these like long-cycle sales? I mean, it's no secret that John Zillmer when he took over in '19, '20 and COVID kind of screwed everything up for a while, it's tough on the industry. But like you invested in sales, in service, the -- were these the type of long-cycle sales that we're kind of gestating for a while, that came to be after getting there? And the reason why I ask that is like that might suggest that there's more large wins that have been worked on for years. And so I'm just trying to understand kind of how the sales process on some of these real big ones came about.

Yes. I think you saw John Zillmer come back and really focus on growth, profitable growth, but growth invested in the sales force, added feet on the street, as we call it, really pounding the pavement, working on generating new client wins. And yes, we always have a full funnel. So we're always looking to pull in more and more and more because we want to make these KPIs happen. So I think that we're always working on something.

Okay. So one of the other things that just -- so last year, it was actually another really good year for gross new sales. And as should happen, your employees took their incentive comp and actually kind of hit the margins a little bit in the fourth quarter. There was a source of probably too much investor angst at the time, but you're selling the heck out of the business again. Do the accruals for those costs, have they been running through so that it doesn't have the unusual fourth quarter effect that it had last year. I know that's kind of...

Yes. I mean, I think our finance folks try to keep that. But look, it's a great problem to have where you had to pay your people too much money because they sold too much business, right? So we'll take that one every day. And what do you think...

I just don't want to surprise of the market what I'm saying is like. And it feels like it's in the guide.

Yes, they try to keep it in pace so that -- but that's -- I won't speak for my finance, but the sales guys were very enthusiastic coming into the sales year.

Yes. And they're incentivized on new sales and they're incentivized on retention.

Retention, yes.

Absolutely. And then just as it relates to pricing that's out there right now, how would you kind of evaluate the competitive environment on price? And actually, maybe we should talk about capital too, because sometimes new contracts are won on the basis of a renovation of the facility, you'll put that in the food price and get a long-term contract to earn it back, but price and capital are the two of the service quality obviously matters. But can you just talk about what the company is seeing regarding those two things right now?

Right. So on the pricing side, we're about 3%. We try to keep in line with inflation. We're not pricing for profit per se. So we're trying to keep in line with where we see the inflationary trends. And capital is just part of our business. We certainly will invest in a client's capital, if that's something that's part of their value proposition. It's always part of our DNA.

Got it. What else you want to -- we've done gross new sales. We've done retention. We've done pricing. I guess the last piece would be to talk about volumes. It seems like the volumes have actually been pretty good. We've seen -- I think the last quarter was kind of punctuated by some volumes in sports and entertainment that kind of juiced the numbers a little bit, certainly good to see.

But there's other things like in the B&I, how are you seeing volumes in that business that's always been kind of a tricky one. People -- the COVID recovery is part of it. Now there's the AI talk about like what does AI do to some of those jobs. Maybe you can talk about volumes in B&I in particular and what your thoughts are on that.

Okay. You started with sports. People are paying for experiences out there. And our per caps are great and the attendance is great. So it's been really nice. And there's always something coming. We've got FIFA coming up. We have the NBA playoffs going on right now. So there's always something going on in the world of sports that's driving people to pay for these experiences. And we haven't seen any softness there. It's been really strong.

On the B&I side, I think it's just you're replacing volume in one place with volume in another place. So obviously, the COVID impact of some people being less in the office on Mondays and Fridays, we've seen some of that back off as more people are coming back to the office. But then we just now have more -- we fill it with more clients. So maybe some of the clients have fewer days than historical clients, but now we just have more of those. So the volumes continue to grow and continue to climb. I think we've had double-digit growth in B&I. So it's -- from a supply chain perspective, we're just buying more stuff, and I love it.

Yes. One of the things that it seems like it's happening is it feels like entertainment venues that typically host sports seem to be hosting more events that are non-sports. Is that something that Aramark is realizing as a benefit to the business overall?

It's always been part of the...

Service more or whatever else.

Well, I think the market relates to people pay for experiences. And as you look at the music industry has shifted away from people buying CDs, now everybody is just digital and the income stream is different. So now there's more concerts out there. But hey, we'll take a Taylor Swift Eras Tour any time that really boosted our stadiums.

Yes. Do you have a view on the kind of the summer lineup this year as it compares to last year? It's, some question that we get periodically. Just wondering in terms of...

There's a lot of great concerts going on, FIFA.

FIFA is a big show. There's -- I think I calculated 19 games that you'll be hosting. I think Felise, didn't she say that this was something that is not really considered very much because it's an offset to the -- some of the other things that might be happening anyway. So this would be upside.

There's always something, yes.

Yes. This is kind of a big something that with FIFA.

Yes, FIFA is big. Yes, we've got four stadium, 17 games. We're hoping to -- that this will really -- we're just thrilled to be able to participate in it. It's really exciting for us.

In the summer concert lineup, it looks good to me, too.

Okay. Great. Any thoughts on the cash flow or the balance sheet in terms of the company's willingness to think about doing share buybacks. Certainly, the company has made some comments about where the leverage will be at the end of the fiscal year, which is a lower level of debt than frankly, has been seen in like 20 years. what's the point that you have to kind of be around to know that the company has been highly levered and it's going to be at a totally different place. So I know investors are thinking that buybacks could be coming back in a more meaningful way pretty soon. Was -- are we thinking about that incorrectly, do you think?

No, I think you're right on that, that will be part of our -- has been and will be part of our program. You think our free cash flow, about 40% of AOI, and we are excited about the leverage at the end of 2026 being under that 3x ratio.

And then just in terms of like M&A, is that -- I mean, you talked about on the supply chain, how you're looking for GPOs, it seems like that has been one of the higher priorities for the company. Any other areas that you think are standing out as areas that maybe you'd like to invest in, in terms of the marketplace?

I think all three -- if you think of the U.S., international and GPO space, like our three operating areas here, we're always looking for M&A. So in some places, the U.S. is probably more small to medium type of bolt-on types of opportunities. International, they're looking at enhancing capabilities.

Our two recent purchases there. We're around a premium offering that really helped bolt on some of our capabilities. And in the GPO space, we're looking for scale that's accretive to us. So accretive on margin, clearly. And then also accretive in where hospitality and senior living is our two big spaces, something that can help us there.

Great. All right. Well, we're out of time for this room, but the good news is that we've got a breakout session for this. So if you want to meet us there, we're headed to the Aster Suite 1A. We'll be there in about 5 minutes, and we hope to see you there. Thanks for the presentation.

Thank you.

Good morning, and welcome to Aramark's Second Quarter Fiscal 2026 Earnings Results Conference Call. My name is Kevin, and I'll be your operator for today's call. [Operator Instructions] at this time, I would like to inform you that this conference is being recorded for rebroadcast. [Operator Instructions] I will now turn the call over to Felise Kissell, Senior Vice President, Investor Relations and Corporate Development. Ms. Kissell, please proceed.

Thank you, and welcome to Aramark's earnings conference call and webcast. This morning, we'll be hearing from our CEO, John Zillmer; as well as our CFO, Jim Tarangelo. As always, there are accompanying slides for this call that can be viewed through the webcast and are also available on the IR website for easy access.

Our notice regarding forward-looking statements is scheduled in our press release. 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 SEC filings.

We will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in our press release and IR website. So with that, I will now turn the call over to John.

Good morning, everyone, and welcome to our fiscal second quarter earnings call. Thank you for joining us. Our financial results underscore the continued momentum occurring at the company, driven by our unwavering focus on growth through delivering hospitality excellence. Jim and I will review the key contributors to the quarter's outperformance and our confidence in achieving the outlook for fiscal '26.

We entered the second half of the year with exceptionally strong business trends, including, first, a client retention rate exceeding 98% across the company; second, organic revenue growth at record levels in both FSS U.S. and international; third, new client wins that have already reached an unprecedented total of $1 billion this fiscal year-to-date; and lastly, we're very excited about our entry into the hyperscale AI data center market, where we believe Aramark is uniquely positioned to deliver an integrated suite of capabilities, as we execute on our newly awarded multiyear engagement with a top global hyperscaler to provide comprehensive hospitality and facility services across multiple AI data center locations. This client is expected to become the largest in our portfolio. We see significant runway for additional growth with this client and other hyperscalers.

In the second quarter, Aramark's organic revenue grew 12% to $4.8 billion, including an estimated 3% benefit from the calendar shift. As a reminder, the calendar shift will ultimately have no bearing on the full year results. Our strong revenue performance was due to broad-based net new business and base business growth across sectors and geographies. Throughout the organization, our client-led growth strategies consistently offer a differentiated guest experience while providing operational rigor, unparalleled supply chain capabilities and advanced technology solutions.

Moving to the business segments. FSS U.S. organic revenue increased 12% to $3.4 billion and would have increased approximately 8% without the calendar shift benefit, which occurred primarily in education, with Collegiate Hospitality also experiencing growth in residential meal plans associated with higher student enrollment.

Revenue growth in the second quarter for the U.S. was additionally driven by sports and entertainment, which had a strong opening day for Major League Baseball with increased plan attendance and record per capita spending. Sports & Entertainment also participated in several marquee events, including the World Baseball Classic and the NCAA basketball tournament.

Workplace Experience sustained double-digit growth as a result of significant new business contributions, exceptionally high retention rates and elevated catering demand. Refreshments expanded its client base building incremental route density across several key geographic areas, including Central New York, the Southeast, the Pacific Northwest while increasing the average size of new wins by 15%. And Healthcare completed the successful launch of Penn Medicine, which is now fully operational and as reviewed on the last earnings call, the team is set to mobilize WRK Barnabas Health this summer.

During the quarter, FSS U.S. achieved several notable client wins, including Suffolk University, and the University of Wisconsin OshKosh and Collegiate Hospitality, which will fully launch in the new academic year. Toyota and workplace experience where we recently began operations at their North American headquarters the Oklahoma Department of Correction is an example of our expanding presence in state-run correctional facilities and Stone Mountain and destinations, the most visited attraction in Georgia, where we start offering food and beverage, lodging, retail, tours and camping next month ahead of the peak summer tourist season.

As hyperscale AI data center development accelerates and demand for support services grows in tandem, we launched Aramark Nexus, a new platform delivering integrated hospitality and workforce support services in large scale, complex and often operating environments, where we believe to have proven expertise -- where we believe we have proven expertise and an established competitive advantage.

We've been selected by a top global fiber scaler to support thousands of workers and providing employee housing, dining and hospitality hubs with modern lifestyle amenities and entertainment, transportation to and from construction sites and full housekeeping and guest services, delivered through a unified management structure. Our engagement is underway and set to begin this fiscal year.

We expect this new suite of services to generate margins above the company average and achieve attractive investment returns. The significant growth opportunity currently is not reflected in our fiscal '26 financial outlook, but we will provide updates as we launch, grow and scale the business. As I mentioned earlier, we see substantial growth potential in hyperscale data and operation centers.

The International segment achieved another quarter of consistent compounded growth, with organic revenue increasing 13% to $1.4 billion, inclusive of an estimated 1% benefit from the calendar shift. This exceptional revenue performance was broad-based across every region, attributed to double-digit growth in Europe and Canada and high single-digit growth in emerging markets. Business momentum was led by Sports & Entertainment, Education, Extractive Services and Business and Industry, highlighting the depth of our in-country expertise and strong cross-border collaboration.

All countries within our International portfolio are driving favorable net new business, underpinned by an extensive sales pipeline. Second quarter new client awards range from an increased presence in festivals such as Brockwell Live in the U.K., serving hundreds of thousands of visitors, to the new T-Mobile Arena in the Czech Republic scheduled to host its first event later this fall, and [indiscernible] Hospital in China, a leading institution in clinical care and medical education.

Now to global supply chain. We continue to see rapid PPO expansion in multiple categories, including sizable growth in golf and spa destinations within the U.S. and internationally across the hospitality industry. Inflation continues to track in line with our expectations throughout all regions. Aramark remains resilient amidst geopolitical uncertainty, including the recent volatility occurring in the energy markets. The significant scale of our food service agreements provides efficient cost flexibility and enables us to remain proactive in managing strategic pricing and sourcing actions.

Bottom line, we believe the organization is well equipped to navigate a broader macro backdrop.

Before handing the call over to Jim, I want to reinforce the message we've been sharing with our teams across the country. We are executing our growth strategies with focus and discipline. Our ambitions for Aramark have never been higher, and we are consistently setting new milestones. We're proud of the performance the teams have delivered, and we remain fully committed to working together to build on this continued momentum and drive the business to even greater levels of success.

Jim, I'll now turn the call over to you.

Thanks, John, and good morning, everyone. We've made great progress across our key operating metrics during the first half of fiscal '26, delivering strong financial performance. Our results in the second quarter reflected continued momentum in driving both top and bottom line results from strategies that have not only advanced the current state of the business that we believe have also positioned us for sustained success.

As we move into the second half of fiscal '26, we remain focused on disciplined execution of our growth efforts across the organization with a mindset of creating significant shareholder value.

As John reviewed, we reported organic revenue growth in the second quarter of more than 12% versus the prior year period, led by broad-based net new business, higher like-for-like volumes and the favorable impact of the calendar shift, which was approximately 3%.

For the first half of fiscal '26, organic revenue growth was 8.5%, with a calendar shift having no effect on the first half growth results.

Regarding second quarter profit growth, operating income was $220 million, up 26% versus the prior year. Adjusted operating income was $258 million, up 24% on a constant currency basis and AOI margins increased 50 basis points. The strong profit growth was a result of higher revenue, productivity gains in food and labor supported by our technology capabilities, supply chain efficiencies and disciplined above-unit cost management. The calendar shift also benefited AOI in the quarter by an estimated $25 million or 12%.

Turning to the business segments. The U.S. reported AOI growth of 27% compared to the same period last year. Growth was driven by increased revenue levels, technology-enabled productivity gains in food and labor, supply chain efficiencies and disciplined above unit cost management. The calendar shift also benefited AOI growth by approximately 13%.

Once again, the International segment had double-digit AOI growth in the quarter, increasing 12% on a constant currency basis. This performance reflected higher base business volume, new business majority and strengthen supply chain economics, which more than offset some in-country investments during the quarter to support significant growth.

Turning to the remainder of the income statement. Interest expense was $82 million in the quarter, and the adjusted tax rate was 25.3%. Our quarterly performance resulted in GAAP EPS of $0.38 and adjusted EPS of $0.49, an increase of 40% compared to the prior year period on a constant currency basis.

The calendar shift benefited adjusted EPS growth in the quarter by approximately 20%.

With respect to cash flow, we generated a significant cash inflow in the quarter from the contribution of higher earnings and favorable working capital. Net cash provided by operating activities in the second quarter was $400 million, an increase of $144 million or 56% compared to the prior year period, and free cash flow was $305 million, which improved by $164 million or 116% year-over-year. The strong free cash flow in the quarter enabled us to proactively repay $55 million of term loans.

We also continued to repurchase shares under our current share repurchase program. To date, we have repurchased approximately $194 million of Aramark stock. We remain disciplined in our capital allocation priorities as we are committed to reaching a leverage ratio below 3x by the end of the fiscal year.

At quarter end, the company had more than $1.4 billion in cash availability.

And finally, let me wrap up with our performance expectations for the remainder of fiscal '26. We are extremely pleased with our year-to-date financial results and the positive trends occurring in the business, including a strong revenue trajectory from the net new business and continued base business expansion. As a result, we have updated our fiscal '26 outlook for organic revenue growth to the high end of our 7% to 9% range, and we are reaffirming our expectations for AOI growth to be up 12% to 17% and adjusted EPS growth between 20% and 25%.

We continue to expect accelerated AOI margin expansion this fiscal year, consistent with our expectations, capitalizing on the company's multiple operating levers while mobilizing a record level of new business openings.

As John mentioned, the outlook for fiscal '26 does not currently reflect the multiyear engagement with a top global hyperscaler that is currently underway.

In summary, we are seeing strong momentum throughout the company as our teams continue to execute our growth strategies, led by extensive new business wins and high client retention rates. We also believe our entry into the hyperscale data center market further advances the company's growth opportunities. These positive trends in the business are translating into strong revenue and profitability, positioning the company well for continued success this year.

We are confident in our ability to build on this momentum into fiscal '27. As John always says, we wouldn't be where we are today without our teams around the world, and we thank them for all their efforts. We could not be more excited about the future.

Thank you, everyone. Operator, we will now open the call for questions.

[Operator Instructions] Our first question comes from Jaafar Mestari with BNP Paribas.

I had 2 questions, please. Firstly, on your $1 billion of signings to date. We don't have the exact context for where you were at the same stage last year, but it certainly looks strong. You ended the year at $1.6 billion last year. If you look at the fabric of what you counted in this $1 billion, would you say that the time line over which these signings are expected to ramp up is fully comparable to historical signings? It's a big number. So just wondering, if to some extent, there are some longer projects in there, things that would ramp up over '27, '28, for example.

And then on your guidance updates, small upgrades to where you see organic growth, no change to where you see adjusted EBIT and EPS for the full year. It's a very, very small delta, but effectively, you're implying 5 basis points lower margins, if my math is correct? Am I [indiscernible] here? Or are you accounting for contract start-ups or just some caution because another year of record signings would mean another year of high incentive compensation for our sales teams eventually?

Okay. Jim, I can take it. Go ahead Jim.

Yes. So I'll start, John, you can chime in. So yes, in terms of the pacing, far, we are certainly ahead of schedule with the $1 billion of signings. As you noted last year, the total was 1.6. So we are ahead of where we expected to be at this point. And with those signings, we signed a number of large accounts this year and opening RWJ Barnabus and Stone Mountain, Oklahoma Department of Corrections. So very large accounts, which are opening in years. So one of the good things is, right, we signed a lot of large accounts. We're opening many of those accounts in the second half of the year. And that leads to your your second question on margin. So thanks for the success we've seen in selling, we're opening a record level of new business in year. And we're still covering those start-up costs and expect to achieve the 30 to 40 basis points of margin improvement that we've been generating. Those margins will scale up as they normally do, and we'll continue to provide tailwinds into fiscal '27.

Yes. And I would just add that I think the scale-up of that new business, obviously, is very important to us. We haven't included in the projection in the second half of the year any revenues and/or profitability from the hyperscale ramp-up, which will take place beginning very soon. And so there will be some impact from that, that hasn't been projected into the forecast. So I think all in all, we do expect continued margin acceleration through the balance of the year. And we think it was prudent to go ahead and be slightly conservative, but we have very strong expectations for the business going forward.

Our next question comes from Ian Zaffino with Oppenheimer.

Really nice quarter here. It seems like these are some of the best results, really trajectory of the business that you've delivered since effectively covering the stock, it's been a while here. It seems like you're firing on all cylinders. Is that kind of the right and accurate read? Maybe talk about the sustainability of kind of what we're seeing now into future quarters?

Yes. Thank you very much, Ian. Absolutely. We believe in the sustainability of the business. We think we have a very strong leadership team delivering across the board in all geographies and just see continued momentum throughout the business. We have worked very hard to build the organization. It's delivering on those commitments and on those results. And so yes, I do believe we're operating on all cylinders. That does not mean that we don't have opportunities for continued improvement and continued growth in the organization. I think the company is very disciplined and focused on that. And we are proud of where we are, but want to get better every day.

I do think that this quarter, it was very important to us. We believe in the growth narrative that we have been describing over the last several quarters and what you're seeing is it coming to fruition and us delivering on those expectations. So we're confident in our ability to maintain this trajectory and to continue into '27 and beyond.

Okay. And then if I could just drill down on NEXUS a little bit. I know you have some agreements and confidentiality stuff going on here. But can you maybe give us an idea of maybe a little bit more of the economics here as far as will you be doing or overseeing any of the construction? I'm just trying to think about it from a CapEx perspective.

And then also, can you talk about maybe your market position here, your competitive advantage, and maybe also what margins might look like in this business vis-a-vis our other businesses? I know there's a lot there, but any color you could give me would be helpful.

Yes. I'll start off and Jim can add to this as well. First of all, yes, we are under a confidentiality agreement with this customer. And so we can't disclose the terms of the agreement. I think what we've talked about is the fact that they'll be above company average margins, and we expect very strong financial returns. I would characterize this as a capital-light business for us. We are not investing in the construction process as partners in this engagement. And so that will limit our capital requirement for it.

We won't be overseeing the actual construction, but we'd be overseeing all the activities that support the workforce doing the work. So it's very comprehensive and from hospitality with lodging, entertainment, food, support services you name it, we'll be doing it. And it's a one-stop solution for the company buying these services. That's what's attractive to them. This unique set of capabilities is what we deliver in the national parks. It's what we deliver in extractive services in the mines in Chile and the remote camps in Canada. So it's something we're very good at and have strong management disciplines and capabilities around it.

So as you know, there are hundreds of these kinds of projects under consideration in the U.S. alone and many more globally. And so we see it as a very significant addition to the total addressable market that is uniquely positioned against the capabilities that we have. So we like the growth trajectory coming from it. We're investing significant resources and talent in the execution of this, and that's also why this company selected us because they saw the commitment we were willing to make to it right upfront. So it's exciting, and we'll be able to talk more and disclose more as the summer goes on. But I would say at the simplest or lowest possible level, it is going to be accretive to margins and going to be accretive to earnings significantly.

Our next question comes from Andrew Steinerman with JPMorgan.

I just want to go back to the quarter, the second fiscal quarter organic revenue growth. Could you just give us a sense of quantity of how much net new and base growth contributed to the quarter, which drove the kind of upside to budgeted figures?

Sure. Andrew. Yes, for Q2, specifically the contribution from new was about 5%. Base business was about 4%. That was comprised of 3% pricing and about 1% volume. So that totals to 9%. And then as we mentioned, there was a 3% benefit from the 53rd week, which got you to the 12%. Year-to-date, I would say similar, more like 4.5% on the new business. I would say a combination of -- in terms of exceeding expectations, a little bit on the new as we mentioned opening more than we expected in year and then good base business performance, particularly in sports. We talked about a great successful opening of the baseball season. The season did open a little bit earlier this year with a few more games in Q2 than Q3, but those are the main drivers.

Our next question comes from Toni Kaplan with Morgan Stanley.

This is Yehuda Silverman on for Tony. Just wanted to focus on retention a little bit. 98% extremely high following a similar path to last year so far, can you talk about what particular is driving your customers or for longer? And are you seeing any difference in terms of contract ratio and in your cost and deal structure with new renewals?

I'm sorry, you were breaking up a little bit on the second half of the question. Could you repeat that?

Yes. Sorry, I'll repeat it. So retention, 98% was very high, following a similar path to last year. I was just curious if you could talk about what's driving customers to remain for longer? And if you're seeing any difference in terms of contract duration or cost or deal structure with these new contracts?

Yes, first of all, I think it's performance related. We are retaining more business because our customers recognize the value that Aramark brings to their operations. And that's always when you retain customers, it's generally because you're doing a good job. And so we are hyper focused on that discipline on making sure that we're delivering on our customers' expectations, and that's leading to these higher retention levels that occurred both last year and are occurring this year. So we're -- feel very good about that discipline.

I would say no difference in terms of tenure of contracts. Those contracts that have expiration dates are coming up as they normally would. We continue to try to proactively retain that business and renew those contracts. But I would say, in general, the trends we're seeing in the retention rate are basically aligned to our improved performance overall and our continued discipline around customer relationship management and it's really driving the results.

Great. And just 1 quick follow-up on facilities. You've highlighted the commitment to sales opportunities within B&I and Education. Can you talk about how these have gone so far and when we could expect this to meaningfully show?

I'm sorry, I'm -- again, I'm having trouble. I am remote, unfortunately today, so my -- the speaker phone that I'm on is not working very well. So could you repeat that?

Yes. Sorry about that. Just highlighting facilities. I was curious if you could talk a little bit more about the commitment to sales opportunities within B&I and Education, and how these have gone so far and what the expectations for this could be going forward?

Sure. Absolutely. I apologize for my miss. It's -- there is a significant commitment to selling facility services in the B&I marketplace and in higher education. We continue to be very successful in that regard. Our B&I sales for facilities are generally focused on large institutions and providing services to the food production industry and others. We are not doing facility services, white collar, building, cleaning. This is not a janitorial company, this is a fully integrated suite of facility services that we bring to large customers. And we've had very good results across the board in all the verticals that we serve. So it's a business we're very committed to, and we'll continue to invest in it.

Our next question comes from Andrew Wittmann with Baird.

I wanted to continue to go on more Nexus questions, I guess. But I mean, just for clarify, did I hear you say that you believe that this contract could be the largest in the company? And are you saying that for this customer specifically or for this idea of these types of services to data centers? And just related to that, I'm curious as to -- now that you've got this contract, why you didn't put it in guidance? Does it start timing? Is it something else? Those things would I think be helpful for us to understand.

Yes. Good question, Andy. Thank you. So this marketplace, obviously, is very, very large. And each of these data center locations represents a potential value in the hundreds of millions of dollars over the life of the contract. And so this first contract with this particular hyperscaler is initially for multiple locations and will scale up to being several hundred million dollars on an annualized basis. So yes, this particular contract will be the largest in the company's portfolio when it's fully ramped. And the reason for really not including again is we're still understanding the ramp-up period in terms of when employment starts in the location, when the housing begins. And so there's 2 different time frames, 2 different locations and a couple of different entry points and start points.

So we're making significant progress. The work is already beginning. The team is already engaged and -- but we're still working through the scale up, if you will, in terms of how rapidly we can begin to recognize revenues coming from the employment and the delivery of services to those customers. So that's really all the -- there is. It's just a question of how fast does it scale up and when do we have definitive information that we can provide.

That's really helpful. I'm going to keep going on this a little bit more. Just for all of our benefits, what is the duration of a typical site on one of these things? And maybe for context here, once the center is built, do you anticipate maintaining some level of, what I'd call, base revenue, recognizing that -- I have to imagine that revenue is going to be down significantly if you're not having to transport a lot of people and house them and just be kind of normal day-to-day. But I was wondering, is there an opportunity there? Is that part of this? Is that material at all? Any of those thoughts would be helpful as well, I think.

Yes, you bet. Well, obviously, during the construction phase, that's where the real revenue production will take place. These are multiple year developments, if you will, the time frame for building these is variable depending on the size and the complexity of the operation. So it's multiple years. It could be 3 to 5 dependent upon the size and scale and the timing of construction. So they do have a shelf life, if you will. But our anticipation is that as we expand our share of this market and our capabilities in this market and our relationship with these customers is that we'll be moving from one location to the next as they begin to move on to their next opportunity and their next construction site. So we see it as kind of a rolling process here moving forward, starting with these first 2 and moving on to other opportunities as that process continues.

There will be opportunities to serve the location for normal services, whether it be refreshment services or Workplace Experience group or Food Service and the like on a continuing basis for a smaller number of employees. But the real revenue and profit opportunity is in the construction phase on these particular sites. We'll ramp these and then we'll rotate on to new opportunities. As I said, there are several hundred of these projects on the board. As you know, across the United States, I think some accounts as high as 700. So it remains to be seen how many actually get built, but in the meantime, there is a lot of opportunity for us to pursue and significant profitability for us to earn.

Our next question comes from Faiza Alwy with Deutsche Bank.

So following up around the same line of questioning. Are you anticipating sort of just -- you talked about the ramp-up in revenues and cost. I'm curious given that you talked about an asset-light model, are you expecting costs to come before the revenues roll in? And if you could talk about the timing of that? Or is it going to be more of a 1 to 1 situation where you incurred the costs when you start getting the revenues?

Yes. I would say -- I'll let Jim talk a little bit about the accounting of it, but generally, these contracts will be cost reimbursable. And so it's the costs that we incur to start up. While there won't be any customers initially, we'll be ramping to serve those people either lodging and/or working on site that will incur no operating costs in the early stages. So Jim, do you want to talk about the accounting of this?

Yes. I mean I'll keep it pretty high level again, for competitive reasons. But yes, our model does not entail investing significant capital for housing or lodging as part of our balance sheet per se. So with that. It's not a situation where there is significant cost in advance of the revenues ramping up. So again, the way we've structured it is more aligned with our cost will be ramp up in line with the revenues and services that we are providing. So it's a situation where there is not significant start-up costs. It reaches the targeted margins very quickly. And as John mentioned, those margins are above average for the company.

It's very -- it's a light capital, so low capital investment. And generally, the working capital is favorable as well.

Okay. Wonderful. That's very helpful. I guess I'm curious, like there are some companies out there that are -- that seem to be in a similar line of business, but are taking on sort of more CapEx and it's a more asset-heavy approach. I'm curious, competitively, what are you hearing from your customers? Is there a reason for them to prefer companies that are willing to take on that CapEx investment? Or are they neutral? And just give us some context around that piece.

Yes. I would say, first of all, I think that's a philosophical decision for the potential client to make. And we would not necessarily be opposed to investing if the client desired it and we could earn appropriate returns attached to that investment. But it's not the way we've engaged to date and it's not anticipated that it would be a significant requirement going forward that these projects are so significant and require so much capital that this -- and there's such a degree of uncertainty in terms of the ramp-up schedules, construction schedules, permitting all those things that go into the development process that the capital investment is not a significant consideration for those clients. Their cost of capital are lower. And frankly, the investment that they're making is very significant.

So this -- the housing is a part of the expression of a drop in the bucket compared to the actual total cost of building a hyperscale data center. So I think we're positioned well, and we believe that this is a significant opportunity that we can scale that we've got these unique advantages and capabilities that we can bring to bear, we can offer a very, call it, a one-stop shop solution, reduce a lot of complexity in the process so that they're not having to deal with multiple subcontractors and the like. And I think they find that option attractive. So we're going to build it, and we're very excited about it.

Our next question comes from Curtis Nagle with Bank of America.

This is Ryan [indiscernible] on for Curt Nagle. Can you touch on the sports event calendar for the remainder of F 26? Any upcoming events that would -- that can meaningfully impact revenue or profit? Or would you say that growth is more dependent on adding new stadiums and teams? And then finally, is the World Cup still expected to be a neutral event for the company?

Sure. Yes. John, I can kick it off. So as I mentioned, the second quarter did benefit from MLB schedule starting early. We also had strong per caps and good performance with the opening of that baseball season. We did have the World Baseball Classic in Q2 as well. So I think that maybe contributed about 1% to the second quarter growth.

In terms of the outlook, in terms of FIFA, as we've mentioned, we see that relatively neutral versus the prior year as there will be less concentrated events as we roll out those games at the games -- 17 games scheduled as part of FIFA operating across for Aramark stadiums.

And then if I can squeeze in another one. Can you touch on the enhanced tech capabilities that are driving productivity. What are these key initiatives behind this? How are they tracking versus expectations? And what inning would you say that you're in on these productivity benefits?

We've targeted our tech and our AI really at the most impactful areas for the organization and the performance, right? So targeting food and labor, in particular, and price. With respect to food, we've talked in the past about culinary Copilot tool that optimizes our menu planning, factoring in contractual requirements, consumer preferences and the optimal cost structure. Really, I'd say going forward, we're implementing a tool called LaborIQ, which is an insights-based dashboard and facilitates our general managers at frontline to essentially plan and optimize labor better. As an example, it allows us to fill roles labor scheduling across Aramark employees and reduces reliance on agency labor. As this tool makes it easier to find Aramark employees to fill shifts, it helps our GMs to staff labor based on peak and nonpeak times. So it's a tool that's rolling out very rapidly across the U.S. at this point. We're seeing favorable trends in labor and favorable trends in labor productivity as we continue to roll this tool out.

Our next question comes from Jasper Bibb with Truist Securities.

Maybe I'll follow up on Nexus, too. I think you said the $100 million-plus earlier with multiple projects. I just wanted to ask if we could break it down to a typical kind of data center construction project, and how much revenue you can expect per location? I think some of these larger ones, there might be like a 1,000-plus people on site building these things. So it sounds like a lot of opportunity there. Just any more detail on the scope of kind of a normal site and the drivers of the revenue opportunity there from all the services you're providing would be helpful.

Sure, you bet. Well, the size and scale can vary rather dramatically. Some locations with thousands of employees up to 9,000 or 10,000. So yes, they can be -- they can vary significantly site to site. So there's no average data center site. And each of these contracts will look very different based on the size, scale, location and the degree of complexity. Is it a remote site? Is it an urban site? Those are -- what kind of workforce needs to be brought to bear? So very difficult to give you an average.

I would say the best data that we can give you is related to the sites that we have currently under agreement. And as I said, we see the revenues for those to be well over $100 million each annually and over the life of the contract, several hundred million dollars in terms of size and scale.

So again, I apologize for not being able to be more definitive. As I said, we're under an NDA. We have 2 issues here. First of all, we have a customer who we are absolutely committed to doing the right thing with respect to their confidentiality. And we also have a competitive environment where we want to maintain the ability to go ahead and be -- to have first mover advantage, to have a competitive advantage. And so we're being very careful not to disclose a number of things from a competitive perspective. But as the business ramps and it becomes -- the results become clear in our results, it will be much more transparent for our investors and clients to see. But this first opportunity, many hundreds of millions of dollars of opportunity over the course of this particular contract.

That's helpful. Maybe one on the pivot to higher education, I think in the past month or so, you picked up a new contract at Texas [indiscernible], also impacted by some restructuring at the University of Kentucky. I guess, how did you do from a net new perspective so far in the selling season? I think you're not all the way through that. So are there potentially some more opportunities that could come through for Fall 2026 on the new business front?

Yes. I would say we're positioned again for another record net new performance in the aggregate for the company and in their respective businesses, very positive results. As you said, Texas State was also an award that we had. And University of Kentucky is a disappointment and -- but I will say this that we saw the opportunity to rebid Kentucky as an opportunity for us to improve the overall financial returns for that contract, which frankly has been the worst performing contract we've had since it was sold. So we saw the opportunity to potentially grow the relationship by taking on either health care facilities and keeping the current agreement for higher education, but failing that, we saw the opportunity to improve returns of the company and to redeploy the capital to higher return opportunities, and that's precisely what happened.

And so we never like to lose, but this is one where I feel like, ultimately, the financial returns for the company are better as a result of not moving forward in that relationship, having to commit significantly greater sums of capital and operating it on very thin margins. So on a total basis, net new, again, we're -- we've had extraordinary results year-to-date and expect to achieve another record net new performance this year.

Our next question comes from Josh Chan with UBS.

Maybe a broader question on kind of customer inquiry levels on some of these new businesses that you have won in terms of Nexus, but also in health care, are you seeing similar types of customers inquiring about your services in these types of offerings since you have announced them? How have those been trending?

Yes. We see momentum, yes. The short answer is yes. We see obviously momentum in the health care space, particularly with the successful opening and scaling up of Penn as well as the anticipated opening of RWJ Barnabus. So we do have significant momentum in the health care space, and we're very pleased with that. And yes, the announcement of Nexus and its -- and the award of the initial contract has opened the door to a number of other opportunities that we're currently engaged in and evaluating, none of which I'm prepared to disclose right now.

Sure, sure. That sounds great. And then on the -- I think around now is when you start to have pricing discussions with your customers that we set annually, so could you just talk about posture and what might be a reasonable outcome in terms of those pricing discussions?

Jim, do you want to take that?

Sure. Yes. So I'll start with inflation. We're seeing total inflation come in, in line with our expectations at about 3.5% or so. And as we've talked about, we don't price for profit, we essentially price to mitigate inflation. And so the discussions we're having are in that range of 3.5% to 4% on the contractual base portion of the business. And as you know, about 2/3 of the business, as we refer to as dynamic pricing that is sort of more rapidly adjusted to the inflation expectations. But inflation is coming in line with the expectations. We have tools at our disposal to counter inflation should it escalate in the second half of the year.

Next question comes from Karl Green with RBC Capital Markets.

Just a couple of questions on U.S. organic growth. Firstly, just in Sports & Entertainment, the higher per cap spending, I just wondered if you could indicate if there is -- you're seeing any limit to how high you can push that in terms of price elasticity? Or is it still kind of powering along at levels you've seen over the last 12 to 18 months?

And then on B&I, within that segment in the U.S., clearly, new business and very -- you described it as exceptionally high client retention rates are doing the heaviest of lifting there for the double-digit growth. But could you just talk a little bit more about how like-for-like volumes are trending there just in terms of higher participation rates, your expanded formats, et cetera, just to give us a sense of how robust that like-for-like volume position is, please?

Yes, I'll kick it off on Yes, on Sports and Entertainment, a good quarter in sports. Sports leisure and correction is growing at about 7% underlying, a really great start to the MLB season. I'd say base business growth and volumes more or less in line with what I mentioned earlier, 3% to 4% for the companies is what we're seeing in sports. We obviously have to be sensitive to pricing there and making sure we're providing experience and economics that are good with the team and appropriate and so forth.

Within B&I, again, we grew over 20% year-to-date, really strong outlook. The new business at the end of the day, I think, is the main driver there, along with the exceptional retention levels. We had a nice performance with premium catering in the quarter benefiting from the partnership we did with Daniel Balud. And then refreshment services and micro markets also falls into the B&I segment as well and that business is growing at a similar level. We've seen nice geographic expansion in the West Coast and in the New York area, in particular, and continue to enhance and increase the route density of those -- that business as well as some of the drivers with a strong performance there.

Our next question comes from Neil Tyler with Rothschild & Co Redburn.

Just one left for me really. I wanted to go back to the topic of inflation and and ask you about sort of learnings that you take from perhaps 2022, '23 in terms of identifying areas in the customer suite of friction that might create opportunities and whether there's -- how you expect those to materialize manifest over the next year or 2?

Yes. So we have a number of levers at our disposal. As I mentioned, we generally try to have pricing in line with inflation on that contractual based portion of the business where the pricing is locked in a little bit longer. We have a number of operating levers. We can substitute our menu. The tool I just mentioned a little bit earlier with LaborIQ allows us to flex and optimize our staffing levels. So those are some of the other tools we have at our disposal to counter inflation. It's a very flexible business model.

I think the organization is well equipped based on the experience we had a few years ago. It's a topic of all of our operating reviews. Our supply chain team does a nice job, first of all, mitigating inflation. We have tend to have longer-term contracts given our scale. And as part of all the business reviews that we have, we're always talking about the inflation outlook and what are we doing to mitigate that impact.

And then -- sorry, John, go ahead. I was just going to say, in terms of where the new growth opportunities from first-time outsourcing might be shaken out by sort of a higher inflation environment.

Yes. I think that's a very good point. And I think it's not just the inflation environment, it's the total macro environment with respect to things -- that's why you're seeing higher levels of outsourcing in health care because not only are they're challenged with overall inflation in the -- in that backdrop, but they're also significantly under pressure from reduced reimbursements from the government that where we operate. And so there is an overall cost pressure that's occurring that's been really building it for a number of years. And so more and more institutions have recognized that they are, in fact, disadvantaged. And so that's one of the reasons you're seeing significant outsourcing from people like Penn and RWJ Barnabas to systemize the outsourcing approach to take advantage of that ability to reduce costs in the long run, not only from a product cost perspective, but from an operations, administration and efficiency perspective as well.

So integrating all those services that helps to really manage the total employment level and the ability to deliver the right outcomes for patients. So there is significant opportunity there, and we see that manifesting itself in particular in health care, but we see that in other segments as well.

Next question comes from A.J. Nanda with Citi.

this is [indiscernible] on for Leo. One question for me, please. Compass Group at its earnings call alluded to adverse weather conditions impacting their business to some extent in the U.S. during the month of February and March. Did you see any such impact on your business? And if yes, can you kind of quantify that.

We had a little trouble hearing you. Could you just repeat that question, please?

Yes, sure. Just wanted to check that Compass Group at its call alluded to adverse weather conditions impacting their business development during the months of Feb and Marh. Do you see any such impact?

Sure. So we did have an unusual amount of snow and ice, particularly in the Northeast, a little bit of the South on the quarter, which did have an impact on our higher-ed and K-12 business. I'd say maybe $15 million to $20 million of revenue and a few million of AOI. Despite the weather return, we still achieve the targets that we had communicated.

So should that reverse in this quarter?

Yes, that was in the second quarter. Yes, that will be something we're lapped next year.

Our last question comes from Stephanie Moore with Jefferies.

Great. I wanted to touch a little bit on what you might be seeing from just a base standpoint and general customer customer health. Clearly, it's not embedded in your results at all, but I think there's some maybe questioning or scepticism out there about the overall health of the consumer just given higher fuel prices and the like. So just curious and maybe the aspects of your business where you would be more sensitive to discretionary income by the consumer. If you've seen anything in the last couple of months that could suggest any kind of pulling back of activity would be helpful.

Yes, happy to take that. As a matter of fact, we are still seeing strong consumer demand in those consumer sensitive businesses that we operate. And when you think about us, think about Sports & Entertainment. That's clearly an area where there is some customer sensitivity or the potential for it. We're seeing very strong results both in per capita spending as well as in attendance. We're seeing strong reservation capacity in the national parks, a significant consumer -- those businesses are generally significantly impacted by the consumer behavior, but strong reservations and the outlook very good for those businesses as well. So the short answer is we're not really seeing a consumer impacted yet in those businesses. And so we see the consumer as being a very resilient at this point and not seeing it impact our business to date. And we do believe that this business has been historically very resilient in times of higher inflation. And generally, we're serving people where they work, where they are getting medical care, where they're studying. People are going to continue to consume in those environments, and we're not seeing a significant impact as a result of a change in the consumers' attitude at this stage.

Understood. And then just a follow-up. You touched a little bit about this, but clearly really strong new wins in performance. Can you kind of maybe speak to the competitive environment if you -- how you would frame some of your increased wins from your own, obviously, actions over the last several years, which have been very favorable, but at the same time, maybe due to any kind of competitive changes as well where you're able to kind of capture some incremental share. So any way to frame that would be helpful.

Sure. I would say we are continuing to enjoy significant success in all the markets where we operate, both domestically and internationally, and across all the different businesses. And I think it's as a result of the investment that we've continued to make in the growth algorithm, if you will, in the growth initiatives inside the organization. And the competitive environment has always been robust. We've always had the competitors that are very interested in growth as well. And -- but we've always been able to maintain a solid growth rate. And I think it's a result of our increased investment in growth, our performance throughout the services that we provide to our customers and the unique proposals that we develop for those prospective customers and the quality of the earning -- of the capabilities that we bring to bear.

So I don't -- this has always been a competitive marketplace. I think we are well positioned to compete in it. We're seeing enhanced throughput as a result of first-time outsourcing. It is a significant proportion of our new wins. And we're also still maintaining the competitive dynamic against our large competitors as well as the regional competitors. So we're being very successful. We're being very diligent and we're being very focused on growth. And right now, we continue to win disproportionate numbers of these opportunities. So we're hyper focused on it, and we continue to enjoy success.

I'm not showing any further questions. I'd like to turn the call back over to Mr. Zillmer for any further remarks.

Perfect. Thank you very much. Again, thank you all for your support of the company and participating this morning, and we are extraordinarily excited about the results that we've delivered and about the prospects for the balance of fiscal '26 and '27. We're executing our growth strategies with focus and discipline. As I said earlier, our ambitions for Aramark has never been higher, and we are consistently setting new milestones. We expect to continue to do that. And we believe that we have all the capabilities and the best team in the industry, and we're going to make that happen. So thank you very much.

Thank you for participating. This does conclude today's presentation. You may now disconnect, and have a wonderful day.

Great. Good morning, everyone. I'm Curtis Nagle. I'm the Senior business and information services analyst here at BofA. Session right now is Aramark. Very pleased to have Chief Executive Officer, John Zillmer. We'll structure this as a fireside. And then if there's time at the end, we'll field any questions.

Welcome, John. Thank you very much for joining.

Great to be here.

So -- yes, I think maybe starting from the top. So exit last year in a record gross new business, record wins going into '26, right, some very large contracts, Penn and then RWJBarnabas. In terms of perhaps any structural changes in your go-to-market or anything else, what's been the driving this really impressive increase in win rate? Is it more on the client end? What's driving, I guess, them to choose Aramark over whoever?

Yes. First of all, I would say, strategically, it's really a result of a focus on the growth of the enterprise over the last several years. We've invested significant resources and leadership, in sales management and we've created a new growth culture in the organization that is just hyper-focused on results. We've aligned compensation structures in a way that really incent the entire team to focus on growth, not only new accounts, but the net new retention of the business. So culturally, we've really shifted the organization dramatically over the last several years, and that's led to these multiple years of record results that we're so excited about and that we continue to be very focused on.

From a client perspective, I think there is a recognition that we have some unique capabilities in certain verticals that really align well with the needs of organizations today, in particular the 2 you mentioned, as health care institutions need to find a way to effectively managing today's health care environment with lower reimbursements, higher cost containment requirements, they look to organizations like ours to go ahead and bring value. And we have a unique set of capabilities that we can bring to bear to systemize large operations and that -- that we've demonstrated that in large client institutions. And that led Penn and RWJBarnabas to go ahead and make the decision to select Aramark as well. That unique capability in that particular vertical was very important.

Could we maybe dig a little bit more into that? Specifically, I mean, scale would be one, operational prowess would be another. But whether you want to use examples within health and I understand that you're taking over very large systems, and that's very complex. But maybe more specific competitive assets that you have that are really driving that?

Yes, I think it's different by vertical and different -- both domestically and internationally. We've spent a lot of time building some unique capabilities from both leadership perspective as well as a technical perspective that we can bring to bear against a range of different opportunities. And those are AI-based tools like Culinary Co-Pilot and others that give us unique operating capabilities and focused capabilities that the clients recognize can really bring value to them. And that cuts across verticals. Those kinds of opportunities exist in literally every industry, and we're uniquely positioned to be able to take advantage of them.

Okay. We've touched about on this just a little bit, but just digging a little bit more into Health and Penn. Again, largest -- I think the largest win in your history. I guess how does that maybe change, again, the go-to-market, the blueprint, right, or maybe the opportunity set within health care?

Yes. It's -- more and more systems are going to be faced with this decision of trying to find a way to systemize their operations. And many have already outsourced components of their business. Some have multiple providers, but there is a unique value that's created by having one provider, by having one organization provide patient transport, food retail, food dietary, integrated call systems or call center operations. And having one organization to work with helps to drive cost out of the system, drives consistency throughout the system so that a system like Penn that had -- was being served by multiple providers and was self-operating was doing it 5 different ways throughout the system. And they recognize that by consolidating systemizing and taking one approach that it could significantly change their operating structure. So -- more and more health care institutions are considering that. RWJ followed on very quickly. They made the same decision. But I think you'll see that applied across the country as more and more systems decide to take that approach.

Was there a specific catalyst because I think perhaps it's just the burden of cost is getting bigger and bigger, right? But I think, I don't -- most of these issues are relatively long-standing and consolidation and multiple operators. So...

Yes. I think there's -- I think the catalyst is the ever-changing higher level of pressure in terms of cost containment, the increasing need to reduce cost in the health care arena, if you will. So government reimbursement is continuing to contract and making it more and more difficult for companies -- for health care institutions to survive. And frankly, just -- I think part of it is leadership as well. So institutions are modifying their approaches to leadership. You have much more progressive leadership. CEOs of these health care systems are looking at this as a business opportunity in a cost containment opportunity where before it was more a philosophical decision. This is more of a business oriented, we need to get this done kind of a decision.

Understood. Okay. And then maybe this is sort of staying on the subject of health, but just maybe more broadly talking about I guess, contract uptake, not so much -- no capacity issues at this point more. It's just the sequencing of when deals come on and...

Right, right.

Right. Okay. Okay. That's good. And then I guess, just thinking about -- we've seen some of this in the numbers this year and to some degree last year. What is that -- from like a profitability standpoint, the arc right of, I guess, scaling? And from -- I don't know if you want to give the example of from 1 year to -- year 1 to 3, right? But just how does the sequencing of the margins from these larger contracts evolve or over...

Definitely. When you sell a new complex contract, there is a learning curve associated with taking on that new business, opening it and operating it. It's different by the line of business, sort of the vertical. Health care tends to be cost reimbursable contracts or management fee, if you will. So the ramp-up is shorter to full profitability. So you're going to be earning your normal margin much more quickly than, say, in a complex P&L environment in sports or the national parks or something like that, that might take a little bit longer to scale up on the learning curve.

I will say, I believe our learning curve is actually accelerating because of the tools we've been able to provide the field organization. When you think about the management tools that we put in people's hands like Culinary Co-Pilot, like LaborIQ and like a number of the other tools, we've been able to accelerate that learning curve activity and ramp up to full profitability more rapidly because managers have the tools to go ahead and get the job done more quickly. Jobs that used to take multiple iterations of menu cycles, for example, to determine what their optimal cost structure should look like, they can now do with AI in a matter of hours and sometimes in a matter of minutes. And so there's really a broad application to those tools, and it helps accelerate that learning curve.

Yes. Good for the client, good for you.

Absolutely.

Fair enough. Okay. So I guess just going back to the -- thinking about the revenue mark for this year, right, you're outpacing your run rate to hit the 4% to 5% full year target. In terms of -- again, just somewhat going back to the question, we've talked about kind of where are these wins coming from? To some degree, it sounds like it's just -- it's move to self-serve. How much of it is it coming away from competitors? And then maybe just talk about, again, this theme of outsourcing more broadly across your verticals? And then a follow-up on that.

Yes, certainly. So this year, historically, we would sell about 1/3 of new outsourcing, 1/3 from the major competitors and 1/3 from the smaller regional competitors. For the last several years since COVID, the amount of first-time outsourcing has been accelerated. And so this year, we're somewhere north of 40% of our new business is coming from self-operated first-time outsourcing. Now some of its combination because, for instance, Penn, was served by our competitors before as well as had significant components that were self-operated. So it's really kind of a combination win. It was a competitive win as well as a self-op conversion. That's the same for RWJBarnabas. So we are seeing first-time outsourcing at an accelerated level or an elevated level, I guess I would characterize it as north of 40% this year. And we think that that's likely to continue for a period of time. There's still a lot of first-time outsourcing runway available to us.

Okay. And then again, just thinking about how you outlay the guidance, you're running ahead of it. I guess confidence level at kind of staying at that rate and what are the puts and takes in terms of either staying above or what could -- at the margin are probably not below, but just how to think about, again, the puts and takes.

Yes, we have a very strong pipeline of opportunity that we are working on. And I would say, the -- we got off to a very strong start from both a new account sales as well as retention perspective. We see very strong indications in the second quarter continuing good results. I'd say it's a little early to make the call on the full year, but we're very confident in the trajectory that we've outlined the guidance we've provided, and I would say the indications are very positive.

Okay. Very good. Right. So we talked about new wins a bit on retention. Again, terrific numbers, above 95%, which is a fantastic number. In terms of that stickiness, maybe we could just aggregate a little bit just how much of that is due to, again, the enhanced execution, right, the company has had over the past 5 years and incentivization versus, I guess, what you would call stickiness and kind of complexity of integration with you and your clients?

Right. I would say, first of all, the predominant reason for the lift in retention is execution and focus. It's discipline. It's a combination of both the incentives that we've put in place on net new, which is a measurement of both new sales and retention, which is 40% of the comp of not only the executive team, but the leadership team throughout the organization is focused on those two elements. So that's a very important part of it. It's also this consistent relentless focus that we, as an organization, have placed on it. Last year, almost 97% retention trending very high this year, just extraordinary numbers. And we have a review process. We call them operating reviews, sexy name. Every month, we get together with the leadership teams of all the businesses and talk about the financial results, not only for that month, but their pipeline of opportunities that are available to them, new account sales that they're focused on and the retention opportunities that they're working on as well.

So we spend about 10 minutes on the financials and we spent about 1.5 hours on new sales and retention. So it's literally deliberate relentless focus on the execution of those two areas that have kind of led us to this place. And culturally, that's who Aramark has always been. We kind of lost our way in the, call it, '12 to '19. But we've refocused the organization, and reenergized the culture and really recommitted to the growth of the enterprise as the way to grow earnings for the company, which ultimately, that's what shareholders get rewarded by.

We are a business, too, right?

Absolutely.

Which is, I think, very important and a theme, right, sort of across the sector. I want to go back to the point you made about the operating reviews. It's kind of an interesting point. I guess -- could you give examples of, let's just say, best practice, right? So information sharing, right, best practices, where one -- they've been picked up in a particular segment and then spread through the organization and just I guess that flywheel...

Yes. The great thing is these operating reviews are not done in a vacuum, they're done with the entire team. So everybody participates in these processes. So the entire U.S. domestic leadership team is in the room hearing about the results from the individual businesses. So the presence of each of those businesses there, the sales executives are there. They're all describing those results. They're all describing the circumstances. And so everybody is learning from each other in that operating review environment. So it's not just me and the group President or the COO listening to that single business. It's everybody as a leadership team together in the room, both functional leadership as well as the operating leadership. And it does facilitate the exchange of great ideas and best practices throughout the organization, and it's just part of the way we operate.

Okay. Any specific examples of where best practice was -- well, in one segment and was deployed elsewhere?

Sure. Some of the AI initiatives, for example, are -- were initially focused on the individual businesses. Culinary Co-Pilot, for example, was originally focused on the corrections business where you have a very high level of predictability with respect to the number of customers, you have a very specific menu demand that led to very significant operating improvement results. We then applied that discipline and learning to the K-12 business, which has regulatory requirements that are different by school district, by state and the USDA. So applying that model to that enterprise quickly had an impact on their results as well. So that's a very specific example. It's very timely. It's obviously AI-oriented. And it's a way that we've been able to take advantage of that cross learning, if you will.

Okay. Good example. I guess the next thing I want to discuss is think about wallet share with our existing customers. Cross-selling, I think, has been pretty important driver. I think, particularly education is like a good example in campus and sports, vice versa. But in terms of, I guess, the -- one, like how much growth that -- is that driving now to in terms of maybe in innings, right? And then maybe more specifically across the organization, I don't want to call it like a new muscle, but maybe stronger muscle and how is that contributing?

Yes. Interestingly, it's something that we've always done, but I think the discipline and the focus on it as we've built an enterprise leadership team and enterprise sales team focused on looking for those kinds of opportunities has really brought it to a new level. And there is a lot of runway in terms of the opportunity, particularly, you think about the normal ones between business and industry and let's say, refreshment services, those businesses have been linked together for many, many years, and there is good synergistic growth between the two, particularly as customers evolve their needs. So those two organizations have always had a high level of cross-selling between them.

And another opportunity is the facilities business and health care. Because the unique needs of facilities in the health care environment can draw upon the resources of our highly skilled engineering team in our facilities organization. When they need a solution, they can draw on that team to go ahead and help them learn how to solve the problem and begin to operate it. And so there is a significant amount of cross-selling there.

And then frankly, there is significant cross-selling opportunity between our existing clients and supplier partners and the various business units. So we -- many of our suppliers are also large customers of Aramark in multiple ways. And so there is the cross-selling opportunity that comes out of supply chain as well. So really, the opportunity is significant, and it's one we're definitely hyper focused on.

Okay. Good. Sticking on education, Collegiate sports, I think, very topical and one where you're executing well. So I think some high-level themes, right? So professionalization, right, new sources of income for institutions for a variety of reasons. Maybe, John, sizing this opportunity again, I'll just ask a question in terms of early innings, bid process. And the importance of that, if I'm thinking about the whole sort of pie for Aramark?

Sure. It is a significant opportunity. And you're right. It is a change in the industry as NIL has created a significant need for funding in higher education, particularly in NCAA football and other programs. And so we have a unique set of capabilities that we can bring to bear to help them both accelerate their -- the revenue generation and profit through improved concessions operations, but also by applying the discipline around alcohol sales. Many universities didn't allow alcohol in their football stadiums for many, many years, and they're adopting very rapidly the opportunity to sell alcohol, and you need professional systems and processes in place. You need to understand the -- not only the economics, but you need to understand the legality and the functional requirements that are necessary for that.

And so we're -- we have a very strong position and a very unique position in that regard. This last year, we've been successful selling several major new universities. Arizona state is a great example. We had served them for years as a dietary or a food service customer, they put that business out to bid after 20 years because it was necessary, they were required by the state to do it. We retained the food service program. We also picked up the athletics, which was operated by one of our competitors. We also picked up some B&I operations that were operated outside of that contract in a conference center in addition to it as well as some other additional foodservice operations. So having the opportunity -- having the ability to do both is extraordinarily important. And we're seeing successes we sell. We are the largest operator in college football in the country, and we believe we have significant runway to grow it as more and more stadiums consider outsourcing.

Sure. So a clean multiyear opportunities?

Yes. No doubt about it.

Very good. Okay. Turning quickly to international. So -- sorry, FSS International, 19 quarters, hopefully 20 DD growth. In terms of maybe just a basic question of which regions or maybe specific segments are leading this. And then the margin opportunity there, right? I don't want to maybe call it a catch-up, but just in terms of increased leverage ability, right, on a very strong momentum, I would imagine stronger execution. What is the margin opportunity set look like as a secondary question?

Yes. First of all, we are very excited by the performance of the international group, and they've had extraordinary results for, as you said, 19 quarters going on 20. It's been very broad-based. It cuts across geographies. Literally, every country is contributing to that growth. They've had extraordinary results and great success, cutting across multiple verticals in each of those individual countries. And we continue to see a long-term growth opportunity in that segment. Not only as a result of growing in the core businesses, but also expanding into other verticals in those markets where we have significant runway. Consider Germany, for example, we're the #1 B&I operator in Germany. Yet we had -- and the #1 sports operator in the Bundesliga, but we had very little business in health care, which is a market that was ripe. And we've just in the last couple of years, sold health care in that country. So we've got both vertical expansion opportunity, and we're very excited about the geographies we operate in. I don't need to go plant new flags. I just -- bigger in the individual countries where I already operate, and they've been able to do that very successfully.

And with respect to margins, that business as it continues to grow scale, we'll naturally have margin accretion. The SG&A, we continue to grow at a very -- at a much slower pace than the revenue growth, less than half of our revenue growth. So you'll see natural margin accretion and the profitability will continue to ramp up in that business.

Okay. Maybe I'll turn to the U.S. for margins. [ I've been covering you ] guys for a few weeks now, but a common question I got is what prevents you getting back to '19? I understand very clearly different organization, different leadership, reinvestment was needed, right? But just given all the things we've talked about in terms of business momentum, operating prowess, AI, whatever it might be, why couldn't you get to 2019 levels?

We certainly, certainly can. Our expectation is that we'll get to those levels and beyond them over the course of the next couple of years. And we won't specify the actual timing yet. But we see continued margin expansion. We've been able to consistently deliver, call it, 40 basis points a year, we continue to see a runway or a pathway to improve upon that. We have multiple levers, multiple tools in order to help us achieve that. One of them is that SG&A leverage that we also have in international. The other is continuing growth in the supply chain and continued growth in the national volume discounts that we earn as a result of the growth in that spend.

So growth is the catalyst. That's why we're so hyper-focused on it. We believe that the best way to grow earnings in the organization is by disciplined management, by growing the business steadily and by taking advantage of those levers, supply chain, SG&A. And then we manage the middle of the P&L by using those tools so effectively that we've talked about.

Okay. So we're still 30% to 40%, maybe closer to 40%, maybe better, but probably not changing the framework for conservatism, but -- I think a little more optimistic?

I think we've been consistent in terms of the messaging around margins. I think we believe that, that expansion opportunity will consist, but that's part of the algorithm that -- we have this growth rate that we've talked about. We believe we're going to be traded at the higher end of that growth rate. That should lead to trading at the higher end of the margin improvement scale as well over time.

Okay. Fair enough. And consistent?

Yes, that's right.

Okay. The GPO business, I want to spend -- Avendra, I want to spend a couple of minutes there. It's growing, I think, double digits at the moment.

That's right.

$20 billion in terms of procurement. I guess just a basic question, why is this an attractive market? Why focus for investment? I think historically, it's pretty competitive, but you're obviously doing well. So in terms of, again, just the attractiveness and I guess, maybe the value you bring to your consumers by scaling that network?

Yes, absolutely. It is very attractive for us. It is a source of significant earnings accretion and opportunity. It is growing double digits. We continue to be focused on both domestically as well as internationally. We continue to look for bolt-on acquisitions as well in that space. They come at high value, and they're generally accretive immediately as long as you're disciplined in the purchase price, and we feel very strongly that we can maintain that discipline. So the value proposition for the GPO customer is that they get the opportunity to take advantage of the supply chain of a much larger organization and get advantaged pricing and significant services.

Our GPO Avendra is not only known for delivering great value in terms of pricing, but it's also known for delivering extraordinary service to our customer, to our end users. So that hotel owner or that supply partner looks at Avendra as a great service organization, which is different than some of the other GPOs that are just cost focused. So we've always had that service differential that's been recognized by many organizations over time. And -- so we'll continue to deliver a combination of great value and great pricing. And every time we do market baskets against our competitors, we end up having the best market basket of pricing for the customer, and we provide a range of services and a level of service that's unmatched by anybody in the industry.

I imagine scale but get scale there?

Absolutely.

Yes. I know more recently, you talked about, I think, theme parks, cruise ships as maybe near-term attractive. Anywhere else that looks -- would be attractive either for entry or scaling, I suppose?

Yes. I think there are other verticals that we can look at that we believe represents significant opportunity for us. Remote camps, in particular, when you think about the construction of the data centers in the United States and the opportunity to serve those potential needs, supply chain is an important component of that, particularly since you're building generally in locations that don't have significant infrastructure. And so the GPO can be a significant component of that. We also have other parts of our business that are uniquely positioned and capable in that space as well. So there are a number of verticals that I think we can expand in that way. And so the growth opportunity is dramatic. We believe we're well positioned to take advantage of it.

Okay. Maybe specific on the data center point, I would imagine, in terms of your expertise and presence in data extra -- or not data, material extraction, resources, that's probably...

Yes. When you think about remote camps, mines, [indiscernible], oil derricks in the middle of the Gulf of Mexico or in the North Sea, mining operations in Chile. We have some very unique capabilities that you can bring to bear. And I think that, that will serve us well.

So yes, data centers should be a walk in the park, fair enough. A couple of ones on AI. One, just kind of very high level one. And again, I get somewhat frequently white collar exposure within B&I?

Yes, it's really de minimis. If you really think about it, I think we've -- when you apply the math, it gets down to about a 3% potential impact in terms of the white collar workforce that would be potentially susceptible to what the AI trade is focused on.

That's just the pool, not the -- if we were to go away...

Yes, that's the pool. And my belief is that jobs will evolve. And today, there are very few AI engineers inside of organizations. And 10 years from now, there'll be a lot. And so the jobs will evolve. I don't believe that the jobs will go away, that entry-level jobs will be modified and changed. People will be refocused. And frankly, jobs may become more revenue-producing and orientation as opposed to back office, fundamental, administrative. So I would always make the trade-off. I'd take another salesperson over in an administrative position any time. So having the ability by reducing costs through the application of AI, having the ability to focus resources on growth, I think that's a great trade-off, and would do that every day.

Okay. And then maybe sticking on AI and sort of cost benefits. So we've talked about a little bit, hospitality and Culinary IQ, seem like pretty important initiatives. In terms of, I guess, adoption in terms of how it's impacting the cost structure for your clients, menu profitability, stuff like that. Could you touch on that a little bit, John?

Sure. Absolutely. It is -- they are very important tools, and we are constantly looking at ways to expand the application of them across the businesses. Culinary IQ, LaborIQ, Culinary Co-Pilot, a number of these tools are -- had the opportunity to help us manage the business much more effectively, not only for our own operations, but in particular, for our clients as well. And keep in mind that a number of our operations are management fee, client cost focused. And so anytime you can apply these tools and help to reduce the cost of the end user, whether it be B&I customer or a health care customer or enhance your operations in literally any business. It's a great application.

And -- so the terrific thing is we've been able to build these tools internally using existing resources and our existing IT budget. So we don't have some significant technology stack cost requirement that we're trying to overcome. We have a normal operating budget, and we have the ability to develop these tools within it. So we're not making any extraordinary investment. We're just applying the resources that we have a little bit differently, and the results so far have been very dramatic.

So kind of an interesting point, quick deployment, cost efficient, leading to better outcomes. I guess, maybe two questions. One, maybe benchmarking those capabilities versus competitors. And then does that theoretically kind of open the moat a little bit in terms of their ability to scale up sort of similar tools or no?

Yes. I'm certain that they're all working on the same kinds of tools. I would expect that they -- yes, I would expect that they will. Our business is very stable, consistent. You've got large competitors that are well capitalized and understand the business. And I'm sure that they have tools that they're bringing to bear as well. I can only tell you that we're getting much more efficient day in and day out by the application of these tools and we're able to demonstrate to our clients. When they hire us, they get the opportunity to take advantage of that. And we're winning at an elevated rate because we're demonstrating things that our competitors haven't been able to demonstrate so far.

Okay. So a leading edge?

Yes.

Okay. Capital allocation. So leverage getting in a much more -- that's not the right way to put it, getting into a comfortable spot below 3% or close to it by the end of the year. Cash flow conversion is getting better, all good things. So maybe just the balance in terms of bolt-on M&A. And then maybe more near term, you started to buy back a little bit of stock. And how to think about the potential for shareholder returns through buybacks?

Yes. I think certainly below 3x by the end of the year. We'll get to that level and probably keep it in that range, that's a very comfortable range for us to be operating in. We have the capital to deploy to do bolt-on M&A that's -- we'll continue to be able to do that. Will accelerate share repurchases when we're below 3x. And we'll continue to maintain a focus on raising the dividend as well because we have a large shareholder base that's -- that are dividend-oriented funds that love the company. They're long-term holders, and we'll continue to be able to serve the needs of both sets of shareholders. Ultimately, we're very comfortable operating at this level of indebtedness. We'll continue to pay down debt slowly. But through the operating leverage, we'll continue to get the ratio down below 3, and it's our intent to keep it there.

Okay. Waiting round, word association to end it, if that's okay with you.

Sure.

AI.

I would -- the first word that comes to mind is awesome.

Awesome. I like it. Health care?

Challenged.

Challenged, which is good for you.

Yes.

Unfortunately. Margins?

Going up.

Up. Buybacks?

Yes.

Yes. I love it. M&A?

Some.

Some. And Big Ten football?

I'm a fan of all football and...

I think you're Northwestern...

I am the Northwestern grad. My daughter went to Wisconsin, and actually, she went to Colombia as well. So I don't have a college football favorite because I serve too many customers. I need to be loyal to all of them.

Very fair. All right, John, thanks so much. Really appreciate it. And thank you for the time. Informative.

Thank you. Appreciate it.

Thank you.

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

Appreciate it. Nice to be here.

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

Yes, sure. Just to kick it off. And for those who are new to the story, we're a leading global provider of food and facility services across a 15-country footprint with a range of sectors, including education, which includes colleges, universities and K-12 schools; B&I or business and industry; health care, which includes hospitals and senior living facilities; and sports, leisure and corrections.

We reported our earnings about a month ago. We're off to a really solid start this year. Adjusting for a calendar shift, which I know we'll talk about, we're growing at about 8%, which is at the high end of our algorithm. And I think more importantly than that, our forward-looking metrics, which for us are retention and new business, we're off to a really strong pace in the first quarter, which bodes well for the overall momentum of the business.

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

Unlike a traditional retailer or fast casual restaurant, we operate in the segments that I just mentioned, which are particularly resilient and predictable. So the headline is that our consumer remains strong and healthy. The metrics we use by sector to measure that vary. So for example, within higher education, the health of our consumer is really driven by enrollment and meal plan. And Aramark is very well positioned with heavy exposure to large southern warmer climate schools and the enrollment trends are healthy there.

You shift over to even B&I and sports and entertainment, we tend to operate at the higher end of the K curve. So we continue to see strong robust spending. And the outlook overall, we talk about base business growth, which I think for traditional retailer would be same-store sales, we're anticipating 3% to 4% base business growth for the full year. So it gives you a sense of the confidence we have with respect to the consumer outlook.

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

It all starts with growth. We're a growth-oriented company. We've implemented a growth-oriented model as part of the company's transformation. And that's important for a number of factors. For us, growth leads to scale in procurement. So we manage over $20 billion of spend. The more we grow, the more we manage with our procurement, the better deals we get with our suppliers and manufacturers.

We also scale our overhead. We look to essentially grow our overhead at half the rate of sales. So some natural margin accretion on top of that. So that's really core to the model. On top of that, obviously, we look for continual improvements in the middle of the P&L.

The second thing is really execution. So with the strong net new business, the strong start on new business, successfully rolling out those accounts this year is a key priority for the business.

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

It's really the culmination of years of work, new business and strong retention doesn't change overnight. But again, if you flash back a few years to when Aramark implemented this new model, this growth-oriented model, we did a number of things to better position the company. So we realigned the incentives of the business so that 40% of our incentive-based compensation is based on net new business, combination of new and retention.

We decentralized the business, investing in the respective lines of business, putting the decision-making closer to the field and where the operations are and elevating our overall client satisfaction scores. And then we literally invested heavily in retention and sales resources, doubling the size of those groups over the past few years. So with those things and on top of that, a change in the culture, those are the key drivers to the improved retention and new business that we're experiencing.

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

There are definitely some trends that are occurring in health care, right? If you sort of take a step back, there's -- health care institutions are facing reductions in funding from government and insurance companies. And as context, right, a lot of these larger health care networks have been built up over a series of acquisitions, acquiring additional hospitals. So as a result, you end up with hospitals with different incumbents providing food and facilities, different technologies, really disparate processes and systems.

So one of Aramark's strengths is being able to simplify that, bringing disparate incumbents under one roof, streamlining the processes, simplifying the operations, harmonizing the technology, even things like POS, getting a common POS across the business, putting in a common labor management system as an example. And with that, you're able to not only generate better economics, but elevate the experience for the clients and consumers at those organizations.

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

They've had a great year, right? So we -- I mentioned we won Penn Medicine, which is one of the largest health care institutions in the country. That was won in fiscal '25. We're in the process of rolling that out. We've rolled out 8 or 9 hospitals, have a few more to go over the next couple of months.

And then as part of our earnings call earlier in February, we announced the win of RWJBarnabas, again, one of the largest health care institutions in the Northeast. That will commence in June. So yes, with that, I'd say that the sales force has had a pretty strong year, and they're well positioned for continued momentum in the business.

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

There's still a lot of opportunity. As you know, the collegiate athletic programs are changing quite a bit. You have athletes at top-tier Division 1 programs literally making millions of dollars per year. So with that, there's enhanced funding requirements for those programs. And collegiate institutions are partnering with Aramark, and we're well positioned to help them professionalize the collegiate stadium. So we have our senior leader in that business who used to run a number of large stadiums in our sports and entertainment business.

So professionalizing the experience, elevating the fan experience. And then with the introduction of alcohol into the majority of our stadiums as well, the average checks have significantly increased, doubled over the course of a couple of years within those programs. So that, in combination with capital -- disciplined capital investment that we can deploy is a good way for us to help college and universities meet those additional funding requirements.

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

B&I has been remarkably successful for many, many years in a row. We've had 17 quarters in a row of double digit growth. And I think if I'm sitting here a year from now, I'd probably be talking about 21 quarters, and that's the confidence we have in that business. It really starts with strong retention, strong execution at your underlying accounts and strong new business, underlying the success that they've had.

On top of that, our refreshment services, micro markets or convenience retail, as some might call it, fits within that business as well. And they've been able to expand in a good way, take advantage of technology, introduce more frictionless experiences and enabling Aramark to serve small- and medium-sized clients that might have been a little bit more difficult previously.

And then within our traditional B&I group, we've taken what we call a portfolio approach, which means we have a senior leader that governs a range of services from coffee services, micro markets, vending to traditional dining for corporations all the way to catering for premium catering for the Board. That's all under -- managed under one senior relationship manager, larger clients like that. So some of our competitors have a bit more of a siloed approach. So we've been able to umbrella all of those brands into one -- basically under one roof, which has been effective for how we compete in the market.

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

We've had a good track record with new stadiums. So we won the Las Vegas A's, which will be a marquee new stadium in Major League Baseball. That will start up roughly 2 years from now. And we've partnered with Will Guidara, many of you from New York would know, a prominent entrepreneur restaurant here in branding and elevating the fan experience at the A's. So we're excited about that.

With that, professional sports is a market that is pretty heavily outsourced. And so when a new stadium does come up, it is a fairly competitive process. We remain very disciplined in how we allocate capital in those areas. Of the stadiums you mentioned, we plan to continue to operate for many years to come, and we'll see how things play out with the new stadiums there.

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

Yes. As context, historically, we win about 1/3 of our new business from first-time outsourcing, about 1/3 from small and regional players and about 1/3 from the larger competitors. The percentage that we've been winning from first-time outsourcing has remained elevated, about 40% or north of 40%. And that's really driven by a couple of items.

First, the size and scale and procurement advantage that a larger enterprise has going back to the $20 billion of spend that I mentioned earlier, provides economic advantages to outsourcing. Second, the technological requirements of self-op have become more challenging. I think about frictionless experiences, unattended convenience stores on a campus and then more recently, the introduction of AI, which we leverage into our labor, culinary experience, supply chain. We've had a nice steady investment in that area. And to do that in-house is proving to be more challenging.

Any questions from the audience?

[indiscernible].

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

And with RWJBarnabas, just given our experience with Penn, the contractual structure, we feel pretty confident about what those start-up costs will be. And it's already -- and that's baked in and reflected into our guidance.

[indiscernible].

There is. In general, we measure that in terms of what we call participation rates. So we look at when we run, say, a financial institutions' cafeteria, we know how many people are coming to the building each day, and then we know how many folks are eating at Aramark's cafeteria. In general, if you look across the business, that tends to be at about 50%. So there's always more opportunity to sort of increase participation rates. And that's one of the drivers.

You look at our B&I business, we've been growing, we said double digit for many quarters in a row. The other thing within B&I, 80% of those operations are subsidized, which means that the cost for a meal in-house should be better and cheaper than going out to retail is another driver of getting folks in the door. And if you look at sort of some of the higher-end financial institutions with the elevated culinary experiences and what sort of the younger generation expect, another advantage to sort of elevate that with Baristas and micro markets experience, so that's been a key driver of the B&I-based business growth.

[indiscernible].

We have a rigorous process for reviewing the financials. And there's approval levels that come to the regional Finance Director, the CFOs of the business and then to my level. And we're targeting a 15% to 20% IRR across the business. Now some of those are -- some of the more competitive can get obviously tighter. But overall, it's really a portfolio approach and that we -- what we expect from the business.

Ultimately, the measure of how we're doing there is going to say, "Hey, is the market becoming sort of too competitive?" If you look at the margins in the industry, not just Aramark, the margins generally are improving. The industry is growing and the capital levels over time have remained relatively steady. So those for me are the markers that the industry has remained rational and disciplined. There are certainly cases like a new stadium would be a good example where those do get competitive, but we expect our operators to balance that out overall.

[indiscernible].

We have about 2/3 of our business is what I call sort of dynamic pricing where we generally either have full autonomy or partnership with our clients can adjust pricing. So think of a beer or a hot dog at a stadium, that could actually change literally from event to event. You price differently for a game than you might at a concert. About 1/3 of the business is what I call contractually based pricing. So think about like residential meal plans and higher ed or board plans. K-12 is another good example. We should a set of price for the year.

A lot of those discussions happen now, and we embed our expectations into those pricing discussions. On top of that, this is a very flexible business model, right? So we can execute menu engineering. We can substitute products. If chicken is expensive, you could put more pork on the menu, unlike a fast food restaurant. So that provides a lot of flexibility. We look to get productivity through labor on top of that. So given the general pricing capabilities that we have on top of the productivity gains, that's how we mitigate any potential effect from inflation.

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

Again, it's similar to the new. It's a culmination of, I'd say, years of work to get the retention levels improved in the business. On top of the structural things that we did to improve that, the cultural and operational changes at the company have been palpable as well. John Zillmer and I, our CEO, on a monthly basis when we do our operating reviews with the businesses, I mean, we are reviewing the top prospects in terms of new business, in terms of retention, the ones that are coming out to bid. And there's very much a proactive culture at the company to resign accounts before they come out to bid. Now sometimes it's state and you have to have a bidding process.

So we're proactive. It's a key part of our operating review process. And with that, we've seen the retention elevated, right? We're doing about 93% to 94% retention for many years. And then the last few years, we've been operating at about 96%. Last year, I think it was 96.3%. And as we mentioned, off to a really strong start this year.

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

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

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

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

In terms of the competitive situation to the question earlier, similar, right, in terms of the market has generally remained disciplined in terms of capital levels, margins generally improving and the industry and most of the large players are growing.

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

Yes. I think we just take a step back in terms of the overall exposure or lack thereof to AI disruption. I think if you go down the segments we're in, right, one of our largest segments, sports and entertainment. I don't think folks are going to stop going to baseball games due to AI. We talked about education earlier. And I think if anything, COVID proved that people want to be in person with a collaborative experience.

So within K-12, and I mentioned the enrollments being favorable overall. We're in parks and destinations and the experience-based economy is leading to that business growing as well. When you get to B&I, in particular, I'd estimate our overall global B&I is maybe 15% to 20% of the company's revenues. Within that, I'd estimate sort of pure white collar, maybe it's 20% of that or so. So down to sort of a few low single-digit percentage of pure white collar. Within that, we're operating at the very high end of the job curve.

So it's hedge fund -- large investment banks, financial services, it's portfolio managers like the folks in this room. And -- so with that and with the contractual structure within B&I, which, as I said earlier, about 80% of that is cost reimbursable, we think we're well positioned. I would just add, generally speaking, our clients continue to add employees. The participation rates remain good. And this has been the strongest performing sector for us over the past 4 years. So we just think the overall exposure is really de minimis.

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

Yes. Certainly, obviously, data centers is an area that's receiving a tremendous amount of investment through the large tech companies here in the U.S. Aramark is very well positioned and able to serve clients in remote locations, right? We do -- that's what we do every day, whether it's serving miners in Chile at 12,000 feet in the mountains, whether it's serving doing food and facility services and rigs offshore in the Canadian sands in Canada to extract oil.

Within destinations, we're operating almost 1,000 people at the top of Yosemite National Park. So with that, we have the capability to operate in challenging remote locations. We're able to offer comprehensive food, hospitality and food services in those locations. So if you think about how those infrastructure and data centers will be rolled out, there's clearly will be an opportunity, I think, for Aramark in that area.

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

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

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

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

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

Correct. Yes. Without getting into too much detail on it, with the 53rd week in fiscal -- we're a September fiscal year. So with that extra week in fiscal '25, we have a high activity week, particularly in education, think about colleges and universities shift into fiscal '25 out of Q1. The opposite impact will happen in Q2 where they're going to gain a high activity week.

So the real simple way to think about it as a headwind of 3% in Q1 becomes a tailwind of roughly 3% in Q2, and that will play out in a similar way for the year, have no impact on the full year. And if we look at the first half results, again, that will be -- it will be negated in terms of how we look at it.

[indiscernible].

In terms of the fuel cost, I think of it our visibility with our distributors is pretty well set for the next 3 to 4 months. So we have essentially locked in pricing on the fuel cost for -- through the distributors. So good visibility with respect to how that will play out for a significant part of the remainder of the year. And then it gets back to potential inflation impact, I think, is sort of where you're going with that question.

And we have a number of tools in place with a flexible operating model in 2/3 of the business, we have what I call this dynamic pricing and then always looking for productivity opportunities to offset inflation. So that, coupled with generally longer-term agreements with our suppliers and distributors gives us pretty good visibility as to the outlook of the business.

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

We're going to be operating 19 World Cup games across 4 Aramark venues. So we're looking forward to showcasing our capabilities on the world stage. It's a really important event for the organization. In terms of the overall financials, we essentially will be neutral because while they're setting up and operating those stadiums, you're essentially missing out on concerts and things like that during the summer months.

So what's baked into the guidance is essentially a neutral impact on it, and we'll see how things play out depending on the level of activity and what the average checks that those games are.

[indiscernible] .

Right. It gets back to employers wanting the collaboration, wanting folks in the office as opposed to leaving the office being unproductive. If you look back over 10 to 15 years, that subsidy percentage has been in the neighborhood of about 75 -- 2/3 to 75%. So there's always been heavy subsidies in that sector just because of the conditions sort of trying to operate. So we've seen sort of almost the opposite where high-end tech firms, high-end financial services are looking to improve the overall experience and collaboration.

I think initially, it was sort of coming out of COVID, how do we entice people back into the office. But when you look at the cost of those programs versus the benefits of having folks in-house and enhancing and fostering collaboration, the trend has been pretty good. I just haven't seen any reduction in folks talking about bringing those back.

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

International has been a growth engine for Aramark for many, many years. We've had 19 quarters of double-digit growth. And similar to B&I, I think if we're sitting here a year from now, it's probably 23 quarters of double-digit growth. We're literally growing in all geographies and countries, particularly in the larger countries, which bodes well for that business. The team has done a nice job really targeting sectors where we can differentiate and have strong capabilities.

So an example would be remote services. That means mining capabilities in South America. It means extracting oil and providing services to those companies in the remote areas, oil in Canada. And again, offshore, as an example, in the North Sea. So global strong capability that we're able to take advantage of and are very well positioned in that business. So it's been really, again, years of work to put in a growth-oriented culture, seasoned experienced team that are generating those consistent results.

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

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

Okay. And labor availability has been fairly reasonable?

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

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

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

Yes.

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

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

Just as a reminder, within Q1, right, we had about -- due to the calendar shift, we had about a $25 million headwind on margin, again that will unwind in the second quarter. So if you adjust for that, margins were up about 20 basis points in the first quarter.

The second thing I'll add is we had significant headwinds from the prescription drug costs for GLP-1s in fiscal '25. And we phased out coverage of those programs, again just for weight loss starting January 1. So the first quarter still had some headwinds from higher and elevated prescription drug costs, and I think it was about $10 million to $20 million in the prior year. So we're now lapping that impact.

We also had higher incentive-based comp in the prior year that primarily hit the second half of the year, mostly the fourth quarter due to the exceptional performance on net new business. Again, not a bad problem to have, but the incentive-based comp was higher in the prior year. So we will lap that in the second half of the year, so that we'll build on the sort of run rate of about 20 basis points that we've had in the first quarter, getting to that range that you talked about.

And then, yes, it's doing all the things we typically target in terms of margin drivers. It's scale in our supply chain, improving compliance across the business to improve supply chain and then managing to the middle of the P&L with improving food and labor costs versus the prior year.

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

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

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

Right.

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

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

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

The model is essentially a 40% conversion rate on AOI is how we think about the cash flow. Over the sort of mid and longer term, there's certainly an opportunity to improve that as we optimize working capital. So we're always looking to improve our collection days with our operators, continue to extend payments on [ AP ]. Those are sort of the core operational things that we do. As we deleverage, bring down debt, there's less cash coming into interest expense.

So I'd expect that to improve over time. Now offsetting that is the faster you grow, we do have a moderate use of working capital when the business is growing. Our receivables are essentially double our accounts payable on the balance sheet. So again, as you grow, moderate use of working capital, but not a bad problem to have.

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

The deleveraging to under 3x is really the cornerstone of our capital allocation strategy. And a couple of drivers there, and we were talking a little bit earlier about it. But once we're under 3x, the interest level from large institutional investors outside the U.S., as you know, in Australia, Japan and Europe, as an example, sometimes there's an aversion -- an optical aversion.

So we've seen a significant increase in interest in the demand and our Investor Relations teams have been out in those respective regions and having those conversations. So under 3x as that part of our line of sight has simply increased demand for the story, which we like. There was also evidence, as you know, companies that are under 3x have higher trading multiples. So in terms of creating overall shareholder value, that's an important metric for us.

So we're operating at a very comfortable level today at 3.2x. It's the lowest leverage we've had in decades. It's a very resilient cash flow business. But this idea of being under 3x is important for the organization. So -- and that will come primarily from -- there will be debt paydown, but just from EBITDA appreciation is the main path to getting under 3x.

The natural deleverage.

Yes.

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

[indiscernible].

Did you say positive to date?

[indiscernible].

Yes. It's one of these businesses where all the sectors that we're in have a lot of runway. So there are some companies who are trying "Hey, should we devote more capital here or deemphasize this business?" We're pretty fit-for-purpose organization, having spun the uniform business out. The sectors that we're in, the countries that we're in have plenty of runway. So our starting point for establishing budgets starts with new business. And again, the model is targeting new business roughly 10% to 11%. That's the foundation for the discussion with all the lines of business.

So it's not like there's any businesses where we don't see the growth engine, the growth-oriented model to play out as expected. So there's no real need for sort of a change in strategy. The strategy is working, right, generating the results. So that makes those discussions easier overall.

[indiscernible].

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

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

Our M&A strategy primarily is sort of small and medium-sized strategic bolt-on deals. I just wouldn't anticipate anything transformational. If you think about -- there's a significant drop in size and scale after the big 3. So our M&A strategy generally revolves around doing small deals in refreshment services and micro markets. Those deals are highly accretive. You're able to add on additional business onto an existing route that really elevates the overall productivity of that business. So that's been a successful area where we've deployed capital.

Within international, we focused on brands, capabilities that can elevate and enhance the core Aramark brand. So we did Wilson Vale and Gray's Inn, 2 examples in the U.K., that have really furthered us into the premium segment of high-end museums, high-end blue-chip B&I clients as an example. And then GPOs. GPO is a business that has very attractive economics. Working capital is actually negative. It's accretive to the margins. And then it contributes back to where we started on the strategy. It increases the overall scale of what we're managing to spend. We had a lot of success increasing our GPO presence in Europe as an example. And by building it up, we've actually just signed a very large hotel, one of the larger hotel chains in the world that is now a large customer in Europe because of the GPO groundwork that we've laid.

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

Thank you, guys. Thank you. Appreciate it.

Thanks for being here.

Thank you.

Good morning, and welcome to Aramark's First Quarter Fiscal 2026 Earnings Results Conference Call. My name is Kevin, and I'll be your operator for today's call. At this time, I'd like to inform you this conference being recorded for rebroadcast. [Operator Instructions] I will now turn the call over to Felise Kissell, Senior Vice President, Investor Relations and Corporate Development. Ms. Kissell, please proceed.

Thank you, and welcome to Aramark's earnings conference call and webcast. This morning, we will be hearing from our CEO, John Zillmer; as well as our CFO, Jim Tarangelo.

As always, there are accompanying slides for this call that can be viewed through the webcast and are also available on the IR website for easy access. Our notice regarding forward-looking statements is included in our press release. 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 SEC filings. We will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in our press release and IR website.

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

Good morning, everyone, and welcome to our fiscal first quarter earnings call. Thank you for joining us. We're very pleased with the strong results delivered in the quarter, even when considering the calendar shift referenced in the earnings release. The company has significant business momentum, which Jim and I will share in greater detail. We believe we're well positioned to record record-breaking financial performance driven by our growth mindset, operational discipline and unwavering commitment to service.

We're seeing multiple positive growth trends throughout the organization, including extraordinary client retention in both FSS U.S. and International, levels we've never seen before achieved at this point in the fiscal calendar combined with significant new client wins already awarded to us early in the fiscal year, particularly in healthcare, education and corrections within the U.S. And in sports, mining and energy within International, with substantial new business opportunities immediately upon us, giving us great confidence in reaching our net new target of 4% to 5% in fiscal '26.

And lastly, adding new purchasing spend in our global supply chain GPO network within hospitality areas such as theme parks, hotels and now cruise lines, in addition to benefiting from increased volume and scale occurring more broadly at the company.

In the first quarter, organic revenue for Aramark grew 5% to $4.8 billion and would have increased approximately 8%, if not for the calendar shift. Growth resulted from both strong base business and net new business. We expect performance acceleration to occur as we successfully onboard a record level of new account wins, combined with maintaining the unprecedented retention levels I just mentioned. Notably, this doesn't factor in sizable new client wins, which would drive our business momentum even further, and we're expecting those to begin this fiscal year.

Moving to the business segments. FSS U.S. organic revenue increased to $3.4 billion or 2%. It's worth highlighting that the segment would have grown approximately 5% if not for the calendar shift, which primarily affected education. Of course, this growth will simply be recaptured in the second quarter as part of our results, ultimately having no impact on the full year. Top line revenue growth drivers in the quarter were led by workplace experience which delivered a 17th consecutive quarter of double-digit growth from launching significant new business wins in addition to strong holiday catering activity.

Refreshments mobilized new accounts at an accelerated rate and identifying additional growth opportunities from an integrated enterprise-wide strategy. Healthcare experienced strong base business -- based business, specifically from vertical sales success and the expansion of multiservice offerings. Sports and Entertainment expanded our college football portfolio by providing a pro-level hospitality experience, where alcohol unit sales are now becoming comparable to NFL stadiums. And corrections continue to add state-wide systems as our end to work program is nationally recognized for the ability to provide pathways for education, career development and rehabilitation.

Just last week, we successfully launched operations at Penn Medicine, the largest contract win ever in the U.S., as you recall. As the fiscal year progresses, we'll continue to roll out services across Penn Medicine's nearly 4,000 bed, 7 hospital system, including patient and retail foodservice, environmental services, patient transportation and an integrated call center to support operations.

I'm extremely excited to announce that our success in demonstrating Aramark's enterprise-wide capabilities and collaboration resulted in our newest healthcare win, RWJ Barnabus Health; the largest, most comprehensive academic health system in New Jersey covering 8 counties, serving over 5 million people. RWJ Barnabus Health has 18 primary locations with 5,700 beds. Anticipated to launch this summer, we will support their patients in retail dining, environmental services and patient transport. This represents one of the largest contracts awarded in healthcare in recent history.

Other clients added to the portfolio include the University of Albany, where we began operations this semester to redefine the student dining experience through innovation, inclusivity and community engagement as well as a new statewide relationship with the Alabama Department of Corrections to deliver food services, integrating our proprietary AI platforms for menu planning and operational efficiency across 27 facilities. As you can see, we're already off to a great start for the fiscal year in new account wins.

We anticipate the U.S. growth trajectory to continue from strong new business, high retention rates and increased volume growth. Once again, International delivered outstanding results with revenue reaching $1.5 billion in the first quarter, an increase of over 13% year-over-year on an organic revenue basis with International revenue results largely unaffected by the calendar shift. International reported a 19th consecutive quarter of double-digit growth, maintained an exceptional client retention level and every country contributed to revenue growth in the quarter with the U.K., Spain, Germany and Chile leading the way.

New business in the first quarter within International included the Welsh Rugby Union highlighted on the last earnings call. In just a few days, we'll be serving 74,000 fans of Principality Stadium, the largest stadium in Wales and the fourth largest in the U.K. and the location for the upcoming highly attended Six Nations Rugby Championships.

We were also awarded copper mining and state-owned giant Codelco and other meaningful mining contracts in Latin America. The -- the International team achieved well over 100 core account wins in the first quarter, providing us with the ability to establish additional business development and operational scale in the countries we serve.

Now for an update on global supply chain. Performance was strong in the quarter as the team is focused on growing and optimizing spend in offering superior products, services, economics, analytical insights and sourcing solutions for our clients. Inflation continues to actualize in the range we anticipated with all global regions in line or favorable to our assumptions. We remain highly committed to GPO growth and are actively pursuing meaningful opportunities. Double-digit growth propelled well over $20 billion worth of contracted spend as we expand business in international regions, increased penetration in adjacent hospitality areas and further scale through select strategic acquisitions.

AI-driven technology continues to differentiate our supply chain and GPO capabilities, delivering back-end efficiencies and actionable business insights. Tools such as mobile AI chatbots and AI enhanced analytics provide GPO clients real-time visibility into their business. In our own internal supply chain operations, AI systems are accelerating back-end efficiency and productivity gains.

Before handing over the call to Jim, I want to reiterate our confidence in realizing the numerous growth opportunities ahead for the business this fiscal year, driven by the strategic and operational actions underway at the company. Our success comes from the teams throughout the organization and around the globe who show up every day with purpose, serving with integrity, solving problems with ingenuity and delivering consistent excellence. Jim?

Thanks, John, and good morning, everyone. We're off to a great start to fiscal '26. The unprecedented levels of success, with our annualized gross new range in client retention last year have built the foundation for our strong outlook and we believe we're well on track to deliver on our financial targets for '26. More importantly, this momentum in the business has continued and we are extremely excited about our growth prospects going forward.

I'll now provide some insights into our first quarter financial performance before reviewing our expectations for the second quarter as well as for the overall fiscal year. Just to level set regarding the calendar shift, as a reminder, our fourth quarter fiscal '25 had a 53rd or extra week. While this has no impact on our full year '26 results, it does affect the cadence of quarterly comparisons. Due to the 53rd week in '25, each quarter in '26 starts and end a week later than the comparable quarter last year, shifting strong activity and low activity weeks between reporting periods.

With that context, as John mentioned, organic revenue growth in the first quarter was up 5%, on track with what we anticipated. As we discussed on our previous earnings calls, we expected the calendar shift to have a 3% to 4% unfavorable impact on growth in the first quarter, and that's exactly what occurred as the estimated impact of this shift was approximately $125 million, or about 3% on revenue. Excluding the impact from the calendar shift, organic revenue growth in the quarter would have been up approximately 8%, at the high end of our long-term growth algorithm.

Now for the second quarter, we have the opposite occurrence and that a low activity week falls out of Q2 and is replaced with a strong activity week. We estimate the positive effect of this shift to be a benefit and a similar contribution of about 3% on revenue. Turning to profitability in the quarter. Operating income was $218 million, up slightly versus the prior year. Adjusted operating income was $263 million, up 1% on a constant currency basis compared to the same period last year. The calendar shift reduced AOI by an estimated $25 million. AOI growth would have been approximately 11% without the calendar shift. The quarter benefited from higher revenue levels, the leveraging of technology capabilities, particularly in supply chain, and disciplined organizational cost management.

Now to the business segments. The U.S. had AOI at a 1% decline compared to the same period last year, with a calendar shift impacting growth by an estimated 10%. The U.S. AOI growth would have been approximately 9% without the calendar shift. The Workplace Experience Group, Refreshments and Corrections had strong performance in the quarter, driven by revenue drop-through, enhanced technology driving efficiencies and supply chain productivity and above-unit cost management.

The International segment had year-over-year AOI growth of 12% on a constant currency basis. Profitability growth was led by strong results in the U.K., Spain and Chile, which was partially offset by some mobilization costs in a couple of countries from new business within sports and entertainment and higher ed as well as a slight impact from the calendar shift.

Moving to the remainder of the income statement. Interest expense was $81 million, and the adjusted tax rate was approximately 25%. Our quarterly performance resulted in GAAP EPS of $0.36 and adjusted EPS of $0.51 with a calendar shift impacting adjusted EPS growth by approximately 13%.

Regarding cash flow, as expected and consistent with our typical first quarter cadence, we saw a cash outflow that reflects the natural seasonality of the business. This increased compared to the prior year due to greater working capital use, driven by strong growth in the business. Capital expenditures were higher from the timing of commitments associated with sizable new business wins and certain client renewals.

We continue to advance our capital allocation priorities by repurchasing another $30 million of Aramark shares as part of our share repurchase program. We also took steps to optimize our financial flexibility by proactively repricing $2.4 billion of 2030 term loans at lower interest rates. The repricing resulted in interest expense savings of 25 basis points. We will continue to pursue opportunities to further enhance our capital structure with a focus on shareholder value creation. At quarter end, the company had approximately $1.4 billion in cash availability.

Turning to the outlook. Our second quarter is progressing well and in line with our expectations. We believe revenue growth will continue to be strong as we onboard and roll out new business, including those recently commencing operations, DePaul University and the University of Albany and Collegiate Hospitality and the University of Pennsylvania Healthcare System, as John mentioned.

Regarding profitability, we also expect AOI to benefit from our key operating levers driven by strong supply chain efficiencies, effective cost discipline and, of course, higher revenue levels. With all that said, we anticipate performance in the second quarter to be right in line with current Wall Street expectations. We're also well on track and highly confident in achieving our full year guidance, particularly given the phenomenal trends we are seeing in the business.

As a reminder, our full year outlook for fiscal '26 is as follows: Organic revenue growth of 7% to 9%; AOI increasing 12% to 17%, adjusted EPS growth of 20% to 25% and a leverage ratio below 3x.

In summary, we are off to a strong start to the year as we continue to advance our growth strategies, fueled by extensive new business wins and outstanding client retention. We are energized about the opportunities ahead and remain highly focused on delivering exceptional top and bottom line performance.

Thank you for your time this morning. John?

I want to personally thank our teams for maintaining virtually flawless client retention to date while continuing to drive exciting new business opportunities. Our efforts are centered on our ability to create a consistently strong and sustainable business focused on providing valued hospitality services to our clients. We expect to build upon our growth momentum throughout this fiscal year and beyond. I'm extremely excited about what's next to come.

Operator, we'll now open the call for questions.

[Operator Instructions] Our first question comes from Ian Zaffino with Oppenheimer.

It seems like you guys are winning a lot of, call it, competitive business here. And some larger competitors are included in that mix. Is this a trend we should expect here? And then maybe what do you kind of attribute the success to?

Yes. I would say we have enjoyed significant success over the last -- certainly, over the course of the last year and going into '26 in competitive new account wins. Some of those wins are very complex, large organizations that are part self-op and part served by our competitors, and we've been lucky enough to win two very large opportunities in Penn and RWJ Barnabus that represent very significant both competitive wins and self-op conversions.

So we see that trend continuing. We're positioned extraordinarily well to win in these situations, the capabilities that our teams have built, the systems that we can bring to bear that serve our clients well and can demonstrate to them and the sales processes are significant. And so each of these decisions is independent. All of these clients make judgments based on the -- on what's best for their needs. And we've been able to demonstrate a very unique capability and have been lucky enough to be selected in those opportunities. So we're very pleased with the performance to date and lots of wind in our sails, if you will.

Okay. And then just as a follow-up, kind of like a multiparter here. What I wanted to see is or find out, are there any other large bidding opportunities upcoming? Or also rebidding that's happening, any larger ones that are coming in that would be dovetailing into just retention in general? Like what are you guys doing here that you just continue to improve retention and seeing it at these exceptional levels?

Yes, thank you. Good question. And absolutely, we are focused every day on retention, and it is the #1 driver of our ultimate success. When we retain the clients that we serve, it's very important. And so the first part of the question with respect to new bidding opportunities, I'm not going to comment on other large pursuits that we have ongoing at the present time because they are competitive in nature, and I don't want to signal our strategy to our competitors. There are a number of large opportunities that we are pursuing.

I would say for the bidding cycle this season, we have a kind of a normalized bidding cycle, as you know, it's the time of year where K through 12 and higher ed are going through their bid processes. But we are achieving record high retention at a time in the fiscal year when normally we would have lost a little bit of business by now. So we're very pleased with the results to date. We're hyper focused on it. It's a very important part of our compensation systems. People are very aware of how seriously we all take this as an organization. So we're pleased. We're driving for success, and we want to get better every day.

Our next question comes from Neil Tyler with Rothschild & Co. Redburn.

I just wanted to zoom in on a couple of the subsegments that you called out and ask for some help in sort of framing their materiality. Specifically, within sports and leisure, the sort of the absolute relative scale of the College athletic sort of revenues where they've sort of got to. If you can give us any help on how to think about those because that's something you've been sort of talking very enthusiastically about for a little while now. And similarly, in Business & Industry, the refreshment component seems to be sort of outpacing everything else. So just -- are these sort of stand out sufficient to drive the levels of growth on their own? Or is there is a lot going on elsewhere, presumably as well? So I wonder if you could help us there, then I'll give just a quick follow-up on margins, if that's okay.

Sure. The revenue growth is very broad-based and wide ranging across the lines of business and geographies. So we're seeing very good, strong net new business performance, both in FSS U.S. and in International. And it's not really driven by one group or another. When we highlight these, it's because they've had outstanding performance. but the other businesses are all performing well as well. So we feel very good about both the broad-based nature of it and the success of the entire organization, as we pursue these growth opportunities.

With respect to the Sports and Entertainment business, we haven't really disclosed the breakdown between collegiate sports and our pro teams, and we don't intend to disclose that at this point. I will say that when you think about the scale and the size of opportunities in collegiate athletics, is very significant. We're certainly the largest player in that segment to date and continue to pursue significant opportunities going forward. And we may, at some point in the future, make the decision to disclose that information separately, but at present, we have not.

Yes. And I'll just add, you asked about refreshments with. That's a significant piece of our Business and Industry segment. And as we mentioned, that segment has grown double-digit 17 quarters in a row, and it's both our B&I and underlying B&I business. and our refreshment service business that is benefiting from very high retention levels, really strong new business. So they both are growing double digit and contributing to the success that we're seeing in that segment.

Got it. And then just if I can follow up on margins. Jim, I wonder if you could just sort of remind us or sort of handhold a little bit on the puts and takes in the adjusted operating margin this quarter compared to what we should expect over the year, just sort of the major items, if that's okay?

Yes. Sure. I think at the first call and as I mentioned in the script was we have about $25 million of sort of cost associated with the 53rd week in the first quarter that will unwind. So if you adjust for that impact, margins to be up about 20 basis points in Q1. We do have the last quarter lapping the impact we mentioned the GLP-1s and elevated medical cost during the last earnings call. We revamped that program so that will no longer be a factor starting January. So those are two of the items I'd point to in Q1, but it's primarily the 53rd week impact that will unwind in the second quarter.

So when you look at the first half, it will be more normalized. And then for the full year, on track for the 30 to 40 basis points that we've consistently delivered and talked about and embedded in the guidance that we provided in the beginning of the year. So margins are falling in line with our expectations.

Our next question comes from Leo Carrington with City.

If I could perhaps on this net new growth you've been experiencing, what's your expectations in terms of the duration that this could persist especially as it's driven more by very strong retention rather than acceleration in gross wins, as I understand it? I mean at what point in the year do you have the confidence to perhaps exceed the target?

And then secondly, can I ask the two questions on AI? I mean firstly, how do you perceive the risks or opportunities around your revenues for instance, what is your blue chip office clients reporting into in terms of the audience of catering in the context of hiring and investing in the office environment? Is there an opportunity in data centers for you? And then secondly, on the cost side, you referenced the back-end efficiencies and supply chain productivity. To what extent are your AI initiatives are paying off already?

Yes. That's a lot. So let's break it down into chunks and talk about AI first, and that is let me break that into a couple of different pieces. First of all, in terms of the back-office productivity and the impact on our costs, we're already seeing the impact of AI, particularly on supply chain as we use it to both accelerate the data capture process as well as the negotiating process, if you will, for the services and the products that we buy. So it's already had a significant impact.

And it's important to note that our investment in AI is really relatively small. It is part of our normal IT operating budget. We don't have any significant program investment or significant capital investment targeted towards AI implementation. We're able to do this as part of our ongoing IT spend and driving significant performance improvement already through it. So we feel very confident in the use of AI, both as it relates to our organization, as well as the improved profitability.

With respect to the business opportunity, we see the evolution of jobs in the United States as one that will be productive for us. As you can tell from our revenue growth that's occurring in B&I and in Refreshment Services, we have lots of runway to grow the business, and we serve customers in all kinds of locations, whether it's manufacturing, office, mining, remote camps, all of those kinds of -- the national parks. The vast majority of our businesses will probably see an opportunity coming from the application of AI in their respective segments.

And so we don't see it as a threat to the business. We see it as an opportunity, an opportunity for further growth. Obviously, if data centers are under construction, we would certainly have an opportunity to pursue and to bid on those kinds of opportunities. It's very analogous to our remote camps and mining businesses, if you will. So we see it as a long-term opportunity for the company, not a threat to our organization. And I think I'm old enough to probably be able to say, listen, I remember the days when everybody thought robotics was going to replace everybody in a plant -- in an automotive plant. And workforces adjust, processes adjust, companies adjust.

We see it as a long-term opportunity with a changing marketplace and the jobs may change, but people will still be employed. And so anyway, we see it as a long-term opportunity. Jim, do you want to take the other half of the question?

Yes. The other we talked about, I think you started with the run rate and opportunity and pipeline. So we're certainly running ahead where we expect it to be in terms of net new and well on track to deliver and perhaps exceed on the 4% to 5%. So we're in a really strong position in terms of retention. As John mentioned earlier, just not the size and scale of retention risk that we may have at this point in the year. That, coupled with a number of the large wins we talked about.

And then on top of that, very robust pipeline of opportunities, many active discussions and many of those pretty close to finalizing. So we've kicked off the year in a very good spot, and we will keep you posted over the next couple of months here.

Yes. And I'll just add one last comment on that. We see the long-term growth algorithm in this company continuing to improve as a result of our operational discipline and we're getting better and better every day with respect to both elements of the business, which is selling these new accounts and these new opportunities by applying great systems and processes to these client organizations as well as continued operational improvement, which leads to higher client retention. And so both elements are important.

Our gross new wins last year were the highest we've ever had, and we continue to see very strong success in both new business wins and retention.

Our next question comes from Jaafar Mestari with BNP Paribas.

First question, please, on just pricing and volumes. Curious if you could quantify contribution to organic growth in the quarter and maybe update your views for where like-for-like pricing and like-for-like volumes land for the full year, please?

Sure. Yes, so for Q1, pricing essentially about 3%, in line with inflation in line with our expectations. That's offset essentially by 3% as we talked about for the 53rd week and the remainder of the growth coming from growth and volume for Q1. For the full year, I think we're still on track. We still anticipate pricing being about 3%, volumes sort of 0.5% to 1%. And then at this point, just at the middle of the range and perhaps better for net new would be about 4.5%. That would put you right in the middle of the guidance.

And as we talked about on track, we're encouraged by the trends we're seeing in net new and opportunities to exceed that.

Super. And just a follow-up on cash flow. It's a normal cash burn quarter but that normal seasonal outflow was $200 million more than last year. Can you perhaps detail some of the moving parts there? It looks like CapEx in the narrow sense, you're buying facilities and building stuff was actually exactly in line, but then payments to clients were $40 million higher. And if that's correct, then is the balance of $160 million all working capital outflow, does it stay there, or it reverts?

Yes, we -- the payments to clients we essentially view as capital investment in our clients. It's more of an accounting distinction. So -- but yes, for the first quarter, CapEx was about 4.5% of revenues, so that is elevated, right? And that's a result of the success we've seen with our new business and a little weighted toward sports and higher education, which as you know, that does require a higher percentage of capital, some of the business, a higher proportion of the business we rolled out in Q1 was from those sectors.

We do expect that to normalize. Historically, if you look, we're running about 3.5% capital spending as a percentage of revenue. By the end of the year, we should be back in that range. So Q1 was a little skewed with the capital. And then in terms of working capital, as this business grows, right, we do have a use of working capital, seasonal use that was a little bit higher than the prior year as growth accelerates, additional working capital goes in. So it's in line with our expectations and how we planned it out.

Our next question comes from Andrew Steinerman with JPMorgan.

It's Andrew. I just wanted to make sure I heard you correctly about the assumption for client retention in the fiscal '26 guide. I think you said you're counting on maintaining the same high client retention percentage that you experienced in fiscal '25. I just wanted to make sure that I heard that correctly. And then also, the second question is, is there anything else that you want to add directionally about trends in the start of this current second quarter outside of the calendar shift and the Penn Hospital start?

Yes. In terms of retention, as we said, Andrew, we're actually at a better spot in terms of retention this year than prior year. And as you know, last year was a record retention for the organization. So it's in early days, but I think we're on track to be consistent or even better than what we delivered in fiscal '25. And sorry, your question on trends...

Yes, nothing other than what we've already modeled, I think, is probably fair, Andrew, nothing different. We obviously have a start-up of new accounts, but nothing that's really impacting the second quarter differently than we've already disclosed.

Next question comes from Andrew Wittmann with Baird.

Okay. There was a comment in your prepared remarks about inflation. I think you guys said that it was running kind of in line or maybe slightly better than you'd anticipated. John, maybe I thought you could elaborate on that a little bit more, maybe decompose it into maybe food and supplies prices versus the labor that you're seeing out there, and if it is running better. I was just wondering if it's just kind of materially better or if there's an offset somewhere else in the P&L that kind of keeps the profit guidance where it is.

Yes, I would -- thanks, Andrew. I would say it's roughly 3% on a food basis, and that cuts across multiple geographies, a little higher in one, a little lower in others. So it's -- in the aggregate, it's right in that range of what we anticipated we still see some elevated risk on certain commodities, but everything else kind of coming in line. Obviously, the big commodity in the U.S. is beef which continues to -- demand continues to outstrip supply. So pricing is fairly high but we're able to mitigate that through the menu design and the like.

So we think that inflation number is very consistent with what we expected and what we're seeing unfold. From a labor cost perspective, I would say it's still probably in that range as well, different across geographies in various countries. But in the aggregate, again, in that range. So we expect the overall impact of inflation to be about 3% to offset it through appropriate pricing strategies in market and various other changes. So really nothing, yes, extraordinary in the inflation environment for us at this stage.

Our next question comes from Josh Chan with UBS.

I guess you mentioned the unprecedented retention trends. So I'm just wondering what is changing or improving this year? And how does the retention pipeline, if you will, or the defense pipeline kind of look for the rest of the year?

Yes. It's -- I would say, again, that we are just extraordinarily focused on retention as being a key driver of our success. And so we continue to get better and better at it. We continue to have very high expectations for our teams. And frankly, their performance has been extraordinary. And so it's a combination of a lot of different things, but mostly, it's about performance and it's about delivering the services that our clients expect in meeting their expectations.

So with respect to the pipeline, we have a fairly normalized year, nothing very large on the horizon in terms of retention risks, I would say, it's just -- it's a fairly normal year.

Okay. Great. And are you seeing any change in terms of customer spend in average spend per transaction? Is that trend continuing to move up? Or kind of what are you seeing there?

Yes. And we continue to see broad consumer support, particularly if you go -- if you break down the consumer transactions in Sports and Entertainment, we're seeing very good per capita spending, very good attendance levels in the various leagues, obviously, somewhat driven by team performance, but overall attendance in the NBA and NHL at good levels. And so I think we're -- we feel very good about the trends that exist within the business. We're not seeing any consumer pushback or any strong concern with respect to the economic environment overall, I'd say it's steady as she goes.

Our next question comes from Toni Kaplan with Morgan Stanley.

This is Yehuda Silverman on for Toni. Just had a quick question or two on the Sports segment. So we wanted to talk a little bit about the World Cup and if there's any update on how this contract might work. We've heard that could be 1 contract for all the games spread across the country. we're wondering if, a, there's been an update in the selection process and how that's gone? And b, if it really is one contract across the many different stadiums how that might play out in terms of the states that are operated by given providers at the moment?

Yes. That's not -- I'm not sure where you're getting that, but we have the contract to operate the games in the stadiums we operate, and that's true of the other -- our competitors as well. So we will have the games at Lincoln Financial Field at Energy Stadium in Houston and in Kansas. And in Kansas City, we'll have the games there. So there isn't one single contract. There isn't one operator. The services are being provided by the company that's under contract to operate that stadium.

So the -- we anticipate having positive revenue trends from the World Cup, but also keep in mind that those stadiums, while they're being used by the World Cup, can't be used for concert activity and other events. So all in all, we see it as being relatively revenue and profit neutral to us, not a significant upside or downside to our projected financial results for the year.

Got it. And then just one quick follow-up also on the sports segment. Similarly, I guess, coming up in 2Q, there's potential tailwind from March 9 is being held in a couple of stadiums that weren't held previously. Curious if it's a similar scenario where it might be neutral to as they can't have other entertainment or, I guess, sports events at the stadium at the same time? And alternatively, is there an expected headwind from the NFL playoffs seeing less home games this year than last or line just like the NLB?

Yes. No, I would say, first of all, that anything that's scheduled in our stadium has been on the calendar for quite some time. So if the NCAA final 4 or Suite 16 or whatever is in 1 of our stadiums, we'll have the opportunity to serve those events, and that would have already been baked into our expectations and into our planning process because we know that those things are scheduled well in advance. So doesn't represent a real change to us in terms of our overall planning process.

And we were lucky enough to have some teams in the NFL playoffs and it was a good playoff season. We're very pleased to say that our clients in Seattle, the Seattle Seahawks won the Super Bowl. We served their facilities needs there in the stadium in Seattle, and we're very proud to be of service to them. But I would say, overall, our expectations for the sports year are pretty consistent with our plans and really no expectations for either windfalls or downside.

Yes. I'll just -- now in terms of Q1, we did have less 9 or so less major relief games, right? We had the Philly's in the prior year. So that had some headwinds in Q1 and returned to a more normalized growth rate in Q2, as John just mentioned.

Our next question comes from Jasper Bibb with Truist Securities.

A couple from me on the RWJ Barnabus contract. I guess, should we think about this as comparable in size to the Penn Medicine win? And I think I heard launching this summer. How should we think about the time line for that hitting a mature run rate? Is that going to be more of a fiscal '27 driver? Or is it in your contribution at '26 would be material, too?

Yes. I think it will be a staged opening that will begin this summer. I think we're still working to finalize the actual opening schedules, if you will. So there will be a significant impact in '26, and we anticipate beginning to serve them in June and then throughout the balance of the summer should be transitioning. So but that schedule is still yet to be determined. Yes, we're very proud to have been selected to operate Robert Wood Johnson, Barnabas Health System. It's a terrific win and as you know, the system is actually larger than Penn Medicine's. And ultimately, the potential revenues are likely to be as strong as patents. So feel very good about it, and there will be impact in '26, and we'll know more here over the next few weeks as we develop the implementation schedule.

Great. And then the Europe growth was really strong again this quarter. It's been a really nice couple of years for that business. Just hoping we could step back and talk about the drivers of your growth in Europe, where you see more opportunity there. And what the pipeline looks like for that business over the balance of the year?

Yes. It's -- I can't say -- I can't be the I'm sitting here looking for superlatives because they've just done an extraordinary job of building that business over the last several years. They've been hyper focused on growth. And frankly, it's been a result of improving performance and demonstrating to our clients that we're the company that can deliver to them across a range of countries and a range of geographies. And we've been committed to that growth. We've invested in sales resources and processes and systems and frankly, in leadership.

So we've got great teams on the ground, really focused on building their organizations and enterprises and they've been able to demonstrate it here now over several years running and we have very high expectations for them this year as well. So I can't say enough about them. I think really, really excited by the work that they've done and their performance to date. And we believe that, that success will continue.

Our last question comes from Stephanie Moore with Jefferies.

Actually, my first question is just a follow-up to maybe the prior question and the prior discussion here. Could you talk a little bit about some of these larger platform wins. Is this a change in strategy or change in go-to-market strategy? Or is it just timing of some of these wins, but it does seem like you're seeing some larger wins unless I'm missing something here? So I just wanted to understand if there's a strategic shift happening behind the scenes? And I have a follow-up as well.

Sure. I would -- first of all, I would say, yes, there is a strategic shift, and it's really on the part of our clients as they begin to recognize the need to both systemize their operations in order to take advantage of cost synergies and operating synergies. A great example of that is Penn Medicine. Obviously, they had multiple service providers and they were also self-operating a lot of their business. Their CEO made a very strategic decision to go ahead and consolidate and systemize so that they could capture the cost savings and the synergies and ultimately to reduce cost to patients and to control expenses for the medical institution.

So you're seeing more and more of that in healthcare systems. Obviously, we are very proud of the services we provide to Baylor Scott & White in Texas who are really one of the first organizations to apply the systematic approach or the system-wide approach to this. Very proud to be selected to serve Robert Wood Johns Barnabas as they apply that same strategy. And my guess is, my belief is that more and more organizations particularly in healthcare will continue to pursue that as they recognize the need for cost containment and control. In a world of declining reimbursements from the federal government, they need to operate more efficiently.

And we've got the tools and processes and systems in place to enable them to do that in a consolidated way. So I think there is a strategy shift. It's really on the part of our clients and customers and their philosophical change. And we've had great success, and we believe we'll continue to enjoy outsized results as a result of our ability to go ahead and apply those systems and processes to that strategy.

And then just as a follow-up, I wanted to touch on your timing to contract profitability or breakeven, if however, you want to kind of speak to it. Has there been any change in terms of the timing that new contracts are able to kind of start contributing at a faster pace just based on some of the operational improvements and investments, as you just noted, specifically? Any changes, especially as we think about maybe some of these larger contracts as well?

Some of the larger contract wins this year, as John just mentioned, within healthcare, there's just typically less capital, other large and complex unlike a large sports and entertainment opening, there's just less capital required. And the contractual structure and healthcare is often significantly more geared toward cost plus or cost reimbursable, which helps mitigate some of the large start-up costs.

So I think you're right, this year with some of those large contracts rolling out the start-up costs may be the ramp-up to profitability is a little faster, and that was embedded in the plan and the guidance that we set out at the beginning of the year.

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

Terrific. Thank you very much. And thank you all of you for your support of the company and your questions. Always happy to provide as much information as we possibly can. We like to be as transparent as possible and make this easy. I want to thank the Aramark team for their extraordinary devotion and commitment to customer service. These financial results that we're enjoying now and that we'll enjoy in the future a direct result your efforts. So Aramark team, thank you, and we look forward to talking to you again soon. Take care.

Thank you for participating. This concludes today's conference. You may now disconnect, and have a wonderful day.

Good morning, and welcome to Aramark's Fourth Quarter and Full Year Fiscal 2025 Earnings Results Conference Call. My name is Kevin, and I'll be your operator for today's call. [Operator Instructions]

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

Thank you, and welcome to Aramark's earnings conference call and webcast. This morning, we will be hearing from our CEO, John Zillmer; as well as CFO, Jim Tarangelo. As always, there are accompanying slides for this call that can be viewed through the webcast and are also available on the IR website for easy access.

Our notice regarding forward-looking statements is included in our press release. 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 SEC filings.

We will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in our press release and IR website.

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

Thanks, Felise, and thanks to all of you for joining us. On today's call, Jim and I will review our fourth quarter and full year results including the strategic, financial and operational milestones accomplished in fiscal '25. We've built upon our historically strong consistent performance and advanced a number of initiatives that position us well for the years ahead, which will be discussed in more detail.

First and foremost, we take delivering on our commitments very seriously, and it's important to understand that as we onboard an unprecedented level of new business, we took the appropriate time to work closely with certain large clients in preparing for a seamless transition to Aramark becoming their new hospitality partner. In some cases, this led to a shift in the timing of new account openings, which impacted revenue in the fourth quarter. With many of these sites now up and running, we are well positioned for strong revenue performance in the quarters ahead. We are more resolved than ever to meet and even exceed the high yet very attainable bar we set for ourselves.

This past year has represented many consequential firsts for the company, all of which contribute to the strong growth trajectory for the businesses, including annualized gross new wins of $1.6 billion, which is 12% higher than fiscal '24 and reflects the largest contract awarded in FSS U.S. history and the second largest globally. An industry-leading client retention rate of 96.3%, with many lines of business and countries in the portfolio above this retention level. All combined, resulting in net new of 5.6%. Over $1 billion of new purchasing spend added for a second consecutive year in our supply chain GPO network. And lastly, achieving a leverage ratio of 3.25x, a number we haven't seen since prior to when Aramark went private in 2007.

Our new business pipeline across the organization is significant, including first-time outsourcing opportunities, and we are already off to another strong start at this early stage of the fiscal year. This includes adding Blue Origin, Pennsylvania's Eastern Public Schools, the Wealth Rugby Union as well as expanding our services for Airbus. I have great confidence in the company's continued ability to achieve net new of 4% to 5% of prior year revenue, with retention levels exceeding 95% in fiscal '26 and beyond.

And when we over-deliver on this metric, we reward our teams appropriately, as was the case particularly in the fourth quarter, reflected in additional incentive-based compensation from net new business, an objective representing 40% of the company's incentive plan for leaders across the organization.

Moving to our results in the quarter. Aramark's organic revenue increased 14%, largely from net new business and base business growth. Excluding the 53rd week, organic revenue was toward the higher end of our long-term growth model. FSS U.S. grew organic revenue 14% in the fourth quarter. Again, excluding the 53rd week, organic revenue was up mid-single digits, led by Workplace Experience and Refreshments continuing its pace of record net new business, Collegiate Hospitality with strong retention rates, meal plan optimization success, and benefiting from higher student enrollments, particularly from our portfolio of academic institutions in the popular South and Southeast.

And Healthcare reporting its best performance in over 2 years. Our Healthcare+ business was recently named #1 in Best Places to Work by Modern Healthcare for our commitment to a people-first culture and operational excellence across the industry.

While we are encouraged with our roster of high-performing teams as -- while we were encouraged with our roster of high-performing teams as the MLB playoffs approached, the outcome was not what we anticipated with the majority of our teams ultimately falling out of playoff contention. We've now entered the NFL, NBA and NHL seasons where fan attendance has been strong to date. Leveraging our expertise in professional sports, Aramark's Collegiate Sports business is experiencing double-digit revenue growth with per capita rates up 14% year-over-year, driven by increased concession spending and expanded premium services.

I also want to commend our employees in the Destinations business, who worked closely with the National Park Service to assist during and following the devastating Dragon Bravo fire in the Grand Canyons North Rim. We had been operating the historic Grand Canyon Lodge, which was severely damaged. While it's still early, we are supporting the recovery and rebuilding efforts in the region and are optimistic about what's ahead for their visitor experience at the North Rim.

We continue to expand our enterprise-wide capabilities and collaboration, which resulted in our new multiyear agreement with the University of Pennsylvania Health System, the largest contract win ever in the U.S. from one of the most prestigious medical systems in the world. We are proud to put our understanding of sophisticated and complex health care systems to work in new settings. We will be providing patients in retail food, environmental services and patient transportation, alongside an integrated call center to support these operations at sites across a nearly 4,000-bed, 7 hospital system.

Among our many technologies offered at Penn Medicine will be an AI-driven patient menu platform that configures patient meals based on diagnosis and dietary requirements, in addition to proven robotic applications for both environmental services and meal preparation. Our proprietary AIWX platform will be used to map staffing and other needs, as well as our Quick Eats micro markets and mobile ordering platforms. We look forward to launching operations early in calendar '26 and are working closely with Penn Medicine to identify other opportunities to further grow the partnership.

Additional clients added to the U.S. portfolio in the fourth quarter included Chicago's DePaul University in Collegiate Hospitality, where we'll begin operating next semester. Discover, following the acquisition by Capital One, also a client, as well as expanding our hospitality services into top-tier law firms within Workplace Experience.

Now on to International. Once again, International delivered consistent double-digit organic revenue growth increasing 14% in the fourth quarter, with approximately 3% growth coming from the 53rd week, led by substantial new business, high retention and strong base business growth. All geographic regions contributed to this performance, with particular strength in the U.K., Canada, Ireland, Spain and Latin America.

Toward the end of the quarter, International experienced its highest revenue ever for a single 1-day event when the NFL's Pittsburgh Steelers played the Minnesota Vikings at Croke Park Stadium in Dublin, Ireland, all Aramark clients. We also just had great success at Olympic Stadium in Berlin, Germany with another NFL match-up as the league's fan base continues to quickly grow in Europe.

International was awarded new clients in the fourth quarter across sectors and geographies. This included expanding our growing presence in the UEFA Champions League and Bundesliga with the addition of Bayern Leverkusen Football Club in Germany, the health care network of Hospital Italiano in Argentina, energy exploration and developer, ENAP, in Chile, and mining leader, IAMGOLD, in Canada. Looking forward, we expect international to maintain its strong business momentum, delivering on a growth agenda focused on culture, team, capabilities and process.

Turning to global supply chain. Avendra International added another $1 billion of new purchasing spend in its GPO network this past fiscal year, primarily from travel and leisure, health care, senior living and education. The supply chain team is also leveraging enhanced technology capabilities to optimize client compliance and contract productivity. We're making the appropriate investments to build upon our strong analytics and client mobile chatbot platforms. These powerful tools put the answers our frontline clients need in the palm of their hand and continue to deliver back-end efficiencies in our supply chain operations. We are now deploying these solutions globally.

We are expanding our international footprint and supply chain, and the Quantum acquisition has fit well into the portfolio, contributing accretive growth to both Europe and Latin America. Inflation levels have been as expected, and we currently estimate inflation around the 3% range heading into the new fiscal year as we continue to effectively manage the broader macro environment. Our teams are closely monitoring any changes in the marketplace and will leverage our extensive capabilities to support our clients.

Before turning the call over to Jim, I want to reiterate that our teams across the company are hard at work and focused on accelerating performance, and we are already seeing success entering the new fiscal year in leveraging enterprise-wide capabilities, starting operations for a record number of new clients, maintaining our client retention momentum, optimizing global supply chain strategies and, lastly, pursuing substantial growth opportunities. Jim?

Thanks, John, and good morning, everyone. We reported another year of commendable operational performance on both the top and bottom line, a testament to the capabilities of our business model. We are experiencing unprecedented levels of success in key leading indicators of performance, annualized gross new wins and client retention, which provide us the momentum to deliver our expected growth in fiscal '26 and even beyond. I want to now provide some insights into our fiscal '25 financial performance before reviewing our expectations for the upcoming fiscal year.

As John reviewed, fourth quarter organic revenue was up 14%. The growth was driven by new business, high retention levels, increased base business and the benefit of the 53rd week which contributed approximately 7%, more than offsetting a shift in the timing of new account openings. For the full fiscal year, we reported revenue on a GAAP basis of $18.5 billion, up 6% compared to the prior year, with approximately 1% of foreign currency impact. Organic revenue grew 7% versus the prior year, again from net new business, base business and 2% from the 53rd week. And as you know, also reflects the company's portfolio exits in Facilities in the prior year.

Adjusted operating income for the quarter was $289 million, and grew 6% on a constant currency basis, led by higher revenue levels, leveraging technology capabilities, particularly in supply chain, and above-unit cost discipline. The increase more than offset higher incentive-based compensation of $25 million recorded in the quarter associated with achieving record net new business.

As a reminder, our growth-oriented model is structured with 40% of our incentive-based compensation tied to an annualized net new business metric. Throughout the fiscal year, we accrued this compensation based on expected performance. The Penn Medicine win in the fourth quarter, in particular, resulted in a maximum payout under the incentive plan for this metric.

Additionally, we did have higher prescription claims in the quarter along with some new business start-up costs in Higher Ed and Collegiate Sports, areas of attractive growth for the company. Excluding these expense items in the quarter, AOI margin would have been higher by 70 basis points. The company has taken decisive actions to decrease future medical expenses related to elective lifestyle prescription, specifically GLP-1 coverage.

For fiscal '25, AOI was $981 million, up 12% on a constant currency basis, which represented AOI margin expansion of nearly 25 basis points. This growth was led by our operating levers and the estimated contribution from the 53rd week of approximately 2%, which more than offset the additional incentive-based compensation I just mentioned, affecting AOI growth by 3% or 20 basis points.

Turning to the business segments. The U.S. reported AOI growth of 2% during the quarter. Growth was due to higher revenue levels, enhanced technology capabilities and effective cost management. AOI growth in the quarter more than offset the higher expenses associated with incentive-based compensation, medical and some new business start-up costs already mentioned. We also took the opportunity to make some strategic reinvestments within Destinations, which included property development, digital marketing optimization and other enhancements to drive the guest experience. To a lesser extent, we did feel some effect from our MLB teams falling out of playoff contention.

For the full year, U.S. AOI was up 9%. We continue to benefit from and invest in advanced technologies that will further drive our financial performance. These capabilities are strengthening our operational efficiencies and enabling us to scale best-in-class digital experiences.

The International segment experienced AOI growth of 31% during the fourth quarter and 21% for the full year, both on a constant currency basis. AOI margin for the year improved by more than 40 basis points. AOI growth and margin expansion was led by higher revenue, effective cost management and supply chain efficiencies.

For the fourth quarter, adjusted EPS was $0.57, up 6% on a constant currency basis. For the full year, adjusted EPS was $1.82, an increase of almost 20% and on a constant currency basis. The additional incentive-based compensation impacted adjusted EPS by $0.07 in both the fourth quarter and full year.

On a GAAP basis, Aramark reported consolidated operating income of $218 million and EPS of $0.33 in the fourth quarter. And for fiscal '25, operating income was $792 million and EPS was $1.22. This included severance charges from restructuring initiatives to further optimize operations as well as a noncash asset write-down in the fourth quarter associated with a minority interest investment made in the previous fiscal year.

Moving to cash flow. Consistent with our normal seasonality of the business, the fourth quarter generated a significant cash inflow, which contributed to our strong cash flow for the full year. Net cash provided by operating activities in fiscal '25 was $921 million, and free cash flow was $454 million. Our free cash flow grew by more than 40% compared to the prior year period from higher cash from operations and favorable working capital, particularly from improved collections. Our cash flow performance and higher earnings resulted in our consolidated leverage ratio improving to 3.25x at the end of September, down from 3.4x a year ago and represent the company's lowest level in nearly 20 years.

We closed the fiscal year with more than $2.4 billion of cash availability. This provides us with the continued flexibility to execute on our capital allocation priorities, which effectively optimizes investing in the business, reducing leverage below 3x and increasing the quarterly dividend, which was just increased by 14%, while repurchasing stock utilizing excess cash generation.

I'll now wrap up with our outlook for fiscal '26. Based on our current expectations, we anticipate the following full year performance. Organic revenue of $19.45 billion to $19.85 billion, representing growth of 7% to 9%. For easier comparison purposes, the fiscal '25 revenue is on a 52-week basis. AOI of $1.1 billion to $1.15 billion, an increase of 12% to 17%. Adjusted EPS in the range of $2.18 to $2.28, reflecting growth of 20% to 25%. And a leverage ratio below 3x.

One point to keep in mind on the quarterly cadence for fiscal '26. There is a slight calendar shift from the 53rd week in fiscal '25, which has no effect on the full year fiscal '26 numbers, with more detail in the analyst modeling section of our earnings slides.

In summary, we remain resolved in driving our strategies to capitalize on the significant growth opportunities for the business centered on strong revenue growth and through new business wins, high client retention rates and base business growth. At the same time, we expect to continue accelerating our profitability from our multiple operating levers, including differentiated supply chain capabilities and disciplined cost management, enhancing our efficiencies and scale across the business.

With a resilient business model and a clear path forward, we are well positioned to deliver long-term value for our shareholders. We believe the future of the company is extremely bright, and we're energized about the opportunities ahead. Thank you for your time this morning.

John?

Thank you, Jim. With fiscal '26 now underway, we look ahead with great confidence. Our efforts are centered on building a high-performing, sustainable business focused on providing exceptional hospitality services to our clients. I want to reiterate that we are committed to creating significant value for our shareholders and are taking the appropriate actions to realize this unwavering objective.

And operator, we'll now open the call for questions.

[Operator Instructions] Our first question comes from Ian Zaffino with Oppenheimer.

Very impressive on the new win side. I mean, I guess this kind of just speaks to the culture of the company, retentions going up. And I guess this is just a culmination of a very kind of client-focused culture here. Glad you're taking the time to spend time with the clients to do so. But the question would be, when we're thinking about these new account openings, can you maybe just delve a little bit more into the shift in timing? Was this in particular sectors or areas? Do you think it will continue? Any economic related factors that you didn't mention? Or any kind of other color there would be helpful.

You bet. Yes. First of all, it was the calendar shift or the opening shift, if you will, really occurred in multiple businesses, corrections, Workplace Experience and Healthcare, all had kind of late-breaking opportunities for openings, which were deferred into calendar -- into fiscal '26. Without going into specifics, the impact was significant in the quarter, but it was appropriate from a timing perspective to make sure that we could open effectively. And frankly, it was also appropriate for the timing of the client. It was really ultimately their decision with respect to the opening timing.

So yes, it was significant. It's not typical. Generally, we -- when we sell accounts, we tend to open them in the year that we sell them. This was a result of a number of different opportunities, all of which were terrific for the company. And we're very excited about the overall results. As you know, we sold nearly $1 billion of new business -- of net new business this year, on a gross basis, $1.6 billion. So just a fantastic performance by the entire team delivering on the new business objectives, and with the retention rate exceeding 96.3%, just ends up being a great trajectory for '26.

Right. And since you mentioned new business, congratulations on this Penn deal, and this will bring me into my next question. Maybe you could talk about 2026 cadence here. Maybe talk about that UPenn contract, how that kind of ramps throughout the year. Do you have any other deals baked in to the guidance or how are you thinking about deals? And then also, just as you talk about cadence, just maybe day count, playoff lapping, which might mean maybe a better back half of the year. But any other color you can kind of give.

Sure. With respect to Penn specifically, Penn will begin -- we'll begin operating at Penn in February. That will be staged over the course of several months as we open up the operations in the individual locations over multiple cities and multiple institutions. So it is a very exciting process. As you know, much of it was self-operated, so we're converting self-op, we're converting some competitors' operations as well. So a very complex opening. So taking the time to do it effectively, I feel absolutely committed to delivering on the performance for Penn and, frankly, to taking the time to do it right for Aramark as well.

So in typical fashion, we have significant new business expectations for next year as well, but really don't have any cadence, if you will, on those opportunities. Our pipeline is very robust and very strong. We've had very strong early successes. As I mentioned, the Welsh Rugby Union and others, DePaul University opening as well. So the cadence, I think, is going to be more normal next year than it happened this year. So all in all, very strong results, and we're very pleased.

Our next question comes from Toni Kaplan with Morgan Stanley.

I wanted to start with a question on margins. Just wanted to understand with the new wins that you got this year, I know there's this cost dynamic where sometimes there is a ramp in higher costs when you ramp up on those contracts. And so I just wanted to understand the cost trajectory there. And then also, if you could talk about any AI initiatives or other efficiency initiatives that should contribute to '26 margins?

Yes. So we've had really good progress right on margins. I mean, from 4.6% to 5.1% to 5.3% this year. And if you look at the midpoint of the guidance I think for next year, to be at about 5.7%. So sort of consistent 30 to 40 basis points of margin appreciation has been generated. So yes, we do have some -- obviously, with the large wins coming in next year, that will be associated with maybe some incremental start-up costs. But I think we're able to offset that with the continued productivity we're seeing in our supply chain, in particular, leveraging AI in supply chain and across other functional areas.

And then continuing to scale our overhead. We have very good visibility with respect to our corporate costs and SG&A. We're able to take on this business really with not adding much in the way of new above-unit overhead costs. So I think we're fit for purpose and able to take this on and still continue to leverage the operating levers that have been working well for us over the past couple of years.

Yes. And Toni, I would just add, normalized opening costs are baked into our projection and into the guidance. So we don't anticipate opening costs impacting our guidance negatively next year. If we continue to see accelerating performance in terms of net new, that ramp does occur. But as Jim said, we're basically able to offset those cost increases through efficiency, through productivity, through SG&A leverage and through supply chain dynamics. So we're very comfortable with the continued margin accretion as we continue to grow the company.

Great. And then you mentioned the double-digit growth in Collegiate Sports, which is great. And just want to ask about the pipeline there and particularly how the progress is going with converting some of the education contracts, either sports to education as well or education to sports, et cetera, that would be great.

Sure, you bet. We have taken the opportunity. We do engage both the Collegiate Hospitality and the Sports & Entertainment teams collectively when we pursue those opportunities. As you'll remember, we added Arizona State's system this year. As we grew the relationship there, we added the sports. That's being run by our Sports & Entertainment team. And Oklahoma, that's being run by our Sports & Entertainment team. We are pursuing several large university athletic programs right now. They're currently underway and that we have engaged the S&E team on those opportunities. So we run them based on what we think the needs of the business are, particularly if there's alcohol involved. Our S&E team has extraordinary capabilities with respect to the delivery and the appropriate management of alcohol systems in university environments.

And so we engage both sides of the organization to do it. And we are seeing significant opportunities for growth there and major institutions that are currently self-operated and looking for support and help and also some competitors who are currently out for bid as well. So it's a great marketplace and we intend to -- we're the #1 company in that space and we continue to be focus aggressively on pursuing growing it.

Our next question comes from Leo Carrington with Citi.

If I could ask a follow-up on that Penn Medicine deal. What's the implications in terms of the potential for further hospital groups to follow suit and consolidate and outsource their catering? What can you tell us about the rest of that subsector, if you like?

And then secondly, on the B&I segment, the organic growth, even excluding the 53rd week, was quite a sharp acceleration. My understanding is this is the most consolidated segment. So can you elaborate on what is driving your market share growth here in terms of your capability?

Sure. I think both great questions. First of all, on the health care systems, yes, there are significant new opportunities that we're pursuing in health care for self-op conversion, large systems adopting strategies like Penn did to go ahead and find ways to become more effective and to reduce their overall cost of operation. And we're able to deliver very significant benefits to the institution as a result of both our supply chain capabilities as well as our systems that we're bringing to bear across their enterprise. And so the solutions that we offered to Penn are very, very transferable to other institutions, and we think the opportunity there is very large.

So in this particular case, Penn is such a wonderful institution and has such a stellar reputation that we do believe other systems will follow their lead in terms of consolidation and systemization, and we're already pursuing new opportunities in that regard.

With respect to B&I, Workplace Experience group, our team has just done a fantastic job growing that business, pursuing opportunities, competitive opportunities, and as you noted, continue to grow share across the organization. I think it's a function of both our capabilities, our different brand offerings, if you will, under the Workplace Experience umbrella, and frankly, just overall performance. Our team is delivering at a very high level. Our customers recognize that, our potential new clients recognize that. And so we've been able to grow that share in a number of niches where we haven't historically competed.

So we're very excited. It's got -- it has great leadership, and we're very confident in its future growth opportunities as well.

Yes. And John, I would just add that it also includes our refreshment services, coffee service and micro market, which is also growing very rapidly, very consistently. Both Workplace Experience, Refreshment Services, high levels of retention, high levels of net new as a result of the branding and success they've had with clients that John just mentioned. So we're seeing it from really all parts of that organization.

Our next question comes from Andrew Steinerman with JPMorgan.

It's Andrew. When you talk about base business growth, I'm pretty sure you're talking about both price increases and other base business growth like cross-selling. And so with that, in mind, could you just go through the organic revenue drivers between net new price increases and other base growth both in the fiscal '26 guide as well as '25 just completed?

Yes, I'll take that. So yes, in terms of the components of growth for fiscal '25, the base business growth was consist of volume and price. And pricing generally has been at about 3%, and so base business sort of 3.5% in '25. Net new contribution, that's the in-year contribution, about 1.5%, and then the 53rd week added about 2%. That gets you to the 7% for fiscal '25.

And in terms of the outlook for '26, we'd expect to gain about 3% to 4% base business growth, roughly 3% or so coming from price. And then again, given the strong levels of retention and record new, be in the 4% to 5% range on net new contribution in fiscal '26. And this is on an apples -- on a 52-week comparison to the prior year. That gets you to the guide of 7% to 9%.

Our next question comes from Jaafar Mestari with BNP Paribas.

I had just a follow-up on this net new business contribution in '26 in the year. Given where you ended at the end of '25 and given some of your KPIs in terms of new signings and retention being very much forward-looking, why is the outlook for '26 not a bit stronger in terms of the contribution in that year? The 5.6% wasn't reflected in '25 because of the timing of some of those signings and the ramp-up, should we now expect it to be reflected in '26 fully?

Yes. So there's a couple. So as we -- so Penn Medicine, remember, it's an annualized number, and Penn Medicine, for example, the largest one, is starting early in the year and will ramp up throughout the course of fiscal '26. And then the Oakland A's is another large win that will have more of an impact into the following fiscal year. So that's why there's some -- there's always a bit of timing between the annualized and in-year realization of those revenue.

That's clear. And then one follow-up on the margins. You're right, obviously, that the guidance in '26 will mean that the margin improvement year-over-year will be between 30 bps and 40 bps. But that's using as a starting point '25 with some of the items you flagged, including the exceptional sales team compensation in Q4. And so a similar question here, if we don't expect those to reoccur -- if they reoccur, fantastic, it's something you've signed a lot. But if we don't expect those to reoccur, shouldn't the margin in '26 normalize a touch for those and then grow 30 to 40 bps on a normalized basis?

Yes. If you look at the range of outcomes, so I think if you sort of the low end and high end of the range, right, sort of 5.6% to 5.8%, and as I mentioned, 5.7% in the middle. So the range of outcomes is wider. So correct, those items, if you don't -- if they repeat, it's a good problem to have. But sort of, yes, if you normalize fiscal '25 and you're in the 5.4%, 5.5% neighborhood. The other factor is, given the large ramp-up of these accounts, there will be some additional start-up costs in '26 that is baked into the guidance. You can think about that as sort of maybe 10 basis points as part of that.

It's baked in. And then just last point, very quickly. You've updated us on health care opportunities where you're saying you're still working on some material opportunities. Another area where you've been talking about some potential big wins to come was Corrections. Any update here? Is the decision-making process in that segment just very slow?

Yes. We actually had some significant Corrections new wins, some of which did actually get recorded as wins in the net new and are ramping up now. So we are continuing to pursue additional state systems and it continues to be one of our largest opportunities for self-op conversion. And so we think the pace of that business's growth will continue, both on the correctional feeding side as well as the commissary side of the business as well. So still a very significant total addressable market available to us to pursue and very confident in that team and its approach to the business and its ability to generate top line growth.

Our next question comes from Neil Tyler with Rothschild and Co.

I'm just interested in the restructuring measures that you've initiated in the International business. Can you talk a little bit about the thought process and maybe operational metrics that prompted you to initiate restructuring in a business that seems to be growing very healthily?

And then secondly, perhaps when you're talking -- when you refer to the postponement or sort of slightly delayed startup of some of the operations, can you talk a little bit -- give us a little bit of a sort of context or description around what sort of factors need to be considered when you decide to slow down the start-up of operations in a contract? Maybe give us some anecdotal evidence or anecdotal sort of description of why that might be the case.

Yes. It's really more client-driven than it is Aramark-driven. Clients have time frames that they have -- that they're working under, and in particular, they're dealing with multiple constituents. One of those opportunities, for example, using Penn as an example of an account that we anticipated potentially opening earlier, they had to work through a number of different decision processes. They needed to inform their employees, they needed to work through union relationships.

And so really, we tend to respond to our clients' needs and our customers' needs more than ours with respect to timing. And that was also very significantly evident in a couple of those correctional opportunities where decisions were deferred by states and in a couple of opportunities in the Workplace Experience group where we had a large client we were already serving that was making a decision to displace a competitor that was also a customer of theirs.

So as I said, more often than not, these deferrals tend to be related to customer timing, not Aramark timing. And we just had a number of them occur that affected our fourth quarter this year.

Yes. And on the restructuring in the International, again, the backdrop here, this -- the International group has had a long track record of success, multiple quarters, multiple years of up double-digit growth. So this is a business we're happy to invest where we need to, to make sure we're well positioned to achieve our financial targets and streamline the business a little bit. So it's geared toward streamlining some SG&A and optimizing some SG&A. As you know, it's fairly expensive to do that in certain parts of Europe. So that was a piece of it. Optimizing a little bit in mining in South America to position us for the coming year. And then there is a final piece that was related to some real estate consolidation as well, some of the bolt-on deals that we did presented an opportunity to bring those together more efficiently.

Got it. And then just going back to the first question just so I have it clear in my mind. When we think about the slight growth shortfall relative to the sort of lower end of your guidance that occurred in the fourth quarter, is it fair to characterize the majority of that as being down to contract timing as opposed to sort of the comp effect of things like the MLB playoffs and the like?

Yes. I think that was certainly the most significant part of it. The MLB impact was secondary. The closure of the Grand Canyon was certainly secondary to that. So there are a couple of items. Rather than giving you a laundry list of every reason, the one that I would really focus on is that, opening deferral mechanism and timing of that. But the other 2 impact items were also part of that fourth quarter.

Our next question comes from Jasper Bibb with Truist Securities.

I wanted to ask if you could give us a bit more detail on the organic run rate into fiscal '26, maybe using what organic growth looked like in October or September excluding the 53rd week?

Yes. Thanks, Jasper. Yes, so the cadence in '26, so just a couple of points here, I said that the 53rd week will have an impact on the cadence, as I mentioned in my comments, on '26. So essentially, we have a strong operating week in higher ed and K-12, in particular. That sort of gets absorbed into fiscal '25 with that extra week. So with that, you could think about losing a few days in Q1 that will come back in Q2. So first half growth will be kind of consistent with our run rate. But I think the first quarter, think that sort of minus 3%, 3.5% versus the run rate that will be captured back in the second quarter. So that's the cadence I wanted to note.

But we're exiting with good speed, good run rate here as we exited here in Q4, and good momentum as we expected in October and the outlook for Q1. So it's running according to track, but I just did want to note there's some timing of -- due to the 53rd week that will have no impact on the full year, just quarterly.

Maybe give us a bit more detail on the quarterly cadence of margin. I imagine with the contract ramps, you might be a little lower in the first half than is seasonally normal and stronger in the back half. Is that a fair interpretation? Or any other detail you can give us on what that will look like?

Yes. I think that's fair. But again, the larger driver on the margins will be the same thing. It's the drop-through on the revenue in Q1 versus Q2. So the first half will look normal. But given less revenue in Q1, there will be a margin impact on Q1 as well, but it will even out in the -- for the full first half.

Our next question comes from Andrew Wittmann with Baird.

I think the last question is actually a really important question. And I understand that you commented on percentages here, Jim, for the revenue first quarter down 3% to 3.5%, bigger -- sounded like bigger impact to margins just because you don't get the fixed cost leverage. Did you want to -- did you want to be even more precise on that one? I think we can all do math, but did you want to give revenue and EBIT kind of numbers for 1Q? I just feel like it's a big enough change. And then I think as we -- given kind of the last couple of quarters how numbers have been kind of moving around a lot, it might be even better to give actual numbers for 1Q. I know that's a big ask, but I just think it's important here.

Yes. Again, I think what I would just say there, if you think about the first half versus second half, and if you sort of again adjusting for the 53rd week, and I'll just give a sort of ballpark, if you're sort of running at sort of 7% to 8% in the first half, a little bit higher, in the second half, right, I mentioned about a 3% impact in Q1, you could think of that coming off of the 7% to 8% roughly, and then that will be captured back in Q2, just to give you a little bit of sense. But again, I don't want to be too specific, but that gives you a sense of some of the movements.

Okay. And then, John, maybe have you comment a little bit more on the pipeline. Obviously, it's been robust. Can you give a little bit more there, kind of what you're seeing, how the size of the pipeline compares today versus maybe this time last year? I think that would be kind of helpful to just build some mental model for all of us around how the top line might unfold this year.

Yes. I would say the pipeline continues to be very robust. And at least as good as last year at this point. So we continually build on those pipeline of opportunities and we continue to add new markets and new niches that we're pursuing aggressively to go ahead and expand our total addressable market, adding sectors, in particular, if you think about Workplace Experience, really aggressively pursuing new opportunities in the legal world, if you will, in top-tier law firms. If you look in International, pursuing new mining initiatives, new remote camp initiatives. So we continue to build the pipeline with lots of new opportunities, and it continues to be very robust.

So I would say there's really no fundamental change year-over-year other than we're continuing to invest in the growth of the enterprise. We expect it to continue. Very encouraged by the strong results this year. And also, again, encouraged by the very strong retention rate and the discipline inside the organization. And so all in all, I think it leads to fundamentally a very strong trajectory going into '26. And as Jim described, we'll have our seasonal kind of normal impacts on a quarter-to-quarter basis. But overall, I think our full year guidance is absolutely achievable and, yes, very comfortable with the ranges that we've talked about.

Our next question comes from Shlomo Rosenbaum with Stifel.

Can you just talk -- just getting back a little bit more to those contracts that didn't start quite as expected in the fourth quarter. Can you just talk a little bit more about whether there were carry costs that were incurred as part of that? And for some of those contracts, does that continue into the first quarter in terms of impacting margin? Or just trying to have a better understanding as to the impact financially. And then frankly, the visibility that you have in terms of managing your business towards those things. And then I have a follow-up.

Yes. I would say, yes, there is a little bit of ramp-up in starting costs, particularly for those accounts that have already opened in the first quarter on the correction side and in some of those other businesses. So yes, we were preparing to open them and incurring costs in the fourth quarter in terms of the run rate opening costs, if you will. So there is some -- a little bit of an impact there that dribbles into the fourth quarter or into the first quarter, I would guess. But I wouldn't characterize it as overly significant.

So I think all in all, the -- I would point you to 2 big items. Obviously, the medical costs last year were a significant impact on the total earnings of the company, both the medical claims cost as well as GLP-1s. And we have taken very decisive action with respect to the GLP-1 impact and which will go into effect in the -- in January and which will significantly reduce our costs year-over-year from that perspective.

So if you look at the 2 big impact items in the quarter, there are medical costs and the higher incentive compensation. I'll take those higher incentive costs every year if I can achieve those kinds of numbers, and drive permanently the growth trajectory of this organization by outperforming on new growth, I'll do it every time. And I feel very good about that. And I love the fact that I've got to pay the people of this organization for delivering on those results. The GLP-1s, we've taken care of that; that won't be an issue. So if I really look at year-over-year, the earnings miss in the quarter, I would be focusing on those items as opposed to the other details in the business. That's really where the fundamental miss was.

Okay. And then one of the things when you started years ago and you and I talked about the focus on retention, and you've done -- you really moved the retention up significantly. And I was wondering, are we looking at retention right now as a steady state? Or hey, it was kind of unusually high, we're usually looking for like around the 95%, but we had some big contracts that really skewed those numbers? Or is the bar just moving higher because of the operational changes that you've made within the business in terms of getting ahead of some of those contracts, better servicing the contracts, better in [indiscernible]? As we sit here next year, are we going to talk about 96% plus again or we should think that, hey, annually, you want to expect 95% and, if you can outperform, you outperform?

Well, I think I would love to be sitting here next year talking about 96% or higher again. We have very high expectations for our people. We hold them accountable. And so it's our expectation that we're going to get better, not worse. Part of that is both performance, part of it is negotiation. Part of it is continuing to find ways to extend agreements with clients and customers proactively. So this is a process we are fully engaged in all the time.

And so I would love to sit here and say next year, we'd love to hit 97%. I don't know if that's possible. But we're going to be striving to that and we're going to do the best that we possibly can. And so yes, 95% should be a floor. It should never be -- it should never fall below that. And frankly, we have high expectations that we can do better. And we're raising the bar for our people all the time.

Our next question comes from Josh Chan with UBS.

On that retention point, I know that some years, it's never easy, but some years, it's easier than others to retain business just because of the cadence of what comes up for renewals. Could you just like remind us what's happening in 2026 compared to '25 in terms of what of your contracts may be rebid or have to come up for renewal?

Yes. I would say it's pretty much a normal year, a normal expectation. Some of the businesses that have more cyclical contract renewals like K-12, like Corrections will have their normal cadence. And those are the ones that are really impacted and have different impact items -- or different cadences year-over-year.

I would say, we're very well positioned this year from a retention perspective. Last year, going into the year, we had Arizona State was our largest Higher Education contract. It was going out for bid for the first time in over 20 years because the State of Arizona dictated that it needed to. We retained that business and grew it. So that was a very exciting result.

But I would characterize '26 as kind of a normal year, really no high-impact items one way or the other. So we continue to be focused on delivering at a very high level from a retention perspective.

And then I think, Jim, you talked a little bit about the impact in Q1 from the calendar shift. I guess does Q1 not also have the Major League Baseball dynamic as well? And maybe could you just kind of put a finer point on whether that will have a material impact also on the growth rate, just so that everybody can be baselining off of the right numbers?

Josh, you're correct, there's less. You only had the Phillies advanced to less playoff games in '26 versus '25 Q1. But having said that, the overall strong retention and net new coming to the year should offset that. So I would say, more of a normal cadence aside from that. So a little downward pressure from playoffs, but offset by other areas of growth in the business. So the main factor I would say in Q1 is just simply the calendar shift.

Our next question comes from Stephanie Moore with Jefferies.

Maybe touching on a more of a higher-level question. I'd love to get your thoughts as you look at -- reflect back on fiscal '25 and you look towards fiscal '26. Just what you're seeing from an overall in-sourcing versus outsourcing trend, how '25 compared to maybe prior years? And then in the same vein, if you could touch on just the competitive landscape, especially given maybe some more changes with one of your competitors as of late.

Yes, I would say the level of first-time outsourcing continues to be in an elevated state. And in particular, for us this year, the single biggest impact item was the Penn contract and the fact that they were moving to first-time outsourcing in a number of those operations. But we continue to see elevated outsourcing in a number of the segments, in particular, Higher Education, particularly in their sports side and university athletic departments really seriously considering outsourcing as a strategic alternative, particularly as they cope with the realities of the NIL environment and their need for funding.

So I continue to see a very, very strong marketplace, a very strong opportunity set, if you will, across a range of sectors. It's not limited to just one; it's in multiple sectors where that first-time outsourcing continues. And we're enjoying very significant success.

As an organization, we have grown our share this year. We've had a very significant performance against self-op and against our competitors as well. And we just focus on those opportunities one at a time. We believe we focus on the strength of our operations and on our client relationships and we sell from a position of quality and consistency and program. And we've been very successful doing that against all elements of the market.

So we're very pleased with our overall results, but we are striving to do better day in and day out, and we'll continue to compete aggressively on quality and capability and client relationship. And that's how we win.

I'm not showing any further questions at this time. I'd like to turn the call back over to Mr. Zillmer for closing remarks.

So again, thank you all for your support of the organization. We're very pleased with the overall performance, most especially with the net new and with retention this year. Really very strong finish to the year. We're very excited about our prospects for 2026 and the future ahead for the company and for our shareholders. Thank you.

Thank you for participating. This does conclude today's conference call. You may now disconnect, and have a wonderful day.