Aramark

Good morning and welcome to Aramark's third quarter fiscal 2025 earning 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 that this conference is being recorded for rebroadcast and that all participants are in a listen-only mode. We will open the conference call for questions at the conclusion of the company's remarks. I will now turn the call over to Felice Gassel, Senior Vice President, Investor Relations and Corporate Development. Ms. Gassel, please proceed.

Thank you and welcome to Aramark's earnings conference call and webcast. This morning we will be hearing from our CEO, John Zomer, 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 the 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 US GAAP can be found in our press release and IR website. So with that, I will now turn the call over to John.

Thanks, Felice, and thanks to all of you for joining us today. This morning, Jim and I will review our third quarter performance, which reflected record revenue for any quarter in global FSS history, along with record profitability in the third quarter, resulting in adjusted EPS growth of nearly 30%. We will then turn to our expectations for the fiscal year, with just one quarter to go. Since our last earnings call, we've achieved a number of significant milestones for the company, including, first, we were recently awarded one of the largest new client wins ever in terms of revenue, specifically within sports and entertainment, in addition to winning several other high-profile accounts. Second, we maintained our unprecedented client retention rate, now exceeding 97% in both FSS US and international. And lastly, we continue to position ourselves to exit this fiscal year above our long-term revenue growth expectations. In the third quarter, Aramark's revenue grew to $4.6 billion, representing an increase of 6% with slight FX favorability. Organic revenue increased more than 5%, driven by base business growth and contribution from new client wins. Notably, this is the last quarter where the prior year facilities account exits affected revenue, as previously disclosed. Moving to the business segments. FSS-US organic revenue increased to $3.2 billion, or over 3% in the third quarter, led by strong performance and workplace experience and refreshments from higher participation rates, new client wins, and additional micro-market and vending services. Education, which benefited from additional volume in meal plans and a calendar shift within collegiate hospitality. Sports and entertainment, from higher per capita spending in Major League Baseball stadiums and sizable new business in corrections. This growth more than offset the facility's exits and less activity at arenas, primarily from the timing of concerts. Revenue growth would have been more than 2% higher if not for these factors. The U.S. segment is experiencing strong success from the team's strategic focus in driving vertical and cross-line of business opportunities. By leveraging the synergies across our diverse portfolio, we've unlocked additional revenue growth. A great example of this effort is the partnership between collegiate hospitality and sports and entertainment within collegiate sports. This upcoming college football season, we will be delivering exceptional food and beverage experiences now at 34 Division I stadiums, serving nearly 2 million fans during every home game weekend. Last week's announcement about our partnership with DAs as they moved to Las Vegas is very exciting, taking ballpark food service to the next level and represents one of the largest wins in the company's history. Our ability to have Will Goddara, the acclaimed restaurateur and author of Unreasonable Hospitality, on our team is groundbreaking. Aramark will be taking minority ownership interest in the A's franchise, deepening the relationship and underscoring a shared commitment to innovation, hospitality, and building an iconic fan destination in Las Vegas. Our new sales pipeline remains robust across the business. Most recently, we were selected by Howard University, a leader among historically black colleges and universities, to implement a transformative new campus vision called Howard University Hospitality. This collaboration marks a significant step in enhancing the campus experience through culinary innovation, cultural celebration, and community empowerment, and increases our growing HBCU presence as we now serve 15 of these historic academic institutions. Additional new business includes expanding our long-standing partnership with Citi in workplace experience, the Dorchester School District and Academy School District in student nutrition, as well as Marquette University in facilities. There is extraordinary momentum within FSS-US, and we expect to capitalize on the many opportunities ahead. Once again, international delivered double-digit organic revenue growth, increasing 10% in the third quarter to $1.4 billion. Every geography experienced growth, led by the UK, Chile, Canada, and Spain, driven by net new business and base business growth. Our team in the UK made health and safety history this quarter by becoming the first food service and hospitality company to win the prestigious Royal Society for the Prevention of Accidents, Sir George Earl Trophy, the society's highest honor, and a testament to our unwavering standards of excellence. Aramark UK also received the coveted Hotel and Catering Industry Sector Award, reflecting our strong leadership, innovative workforce, and a relentless focus on continuous improvement across client locations. We recently concluded our International Chef's Cup in Shanghai, China, which after a year of in-country competition, recognized our global culinary talent and celebrated the winning chefs from each country. Our Aramark chefs from Chile took top honors. In the third quarter, Aramark Chile also hosted its annual innovation summit, featuring some of the industry's most innovative solutions, providers, and thought leaders. Over 1,000 attendees across multiple industries experienced the latest innovation in hospitality within mining, healthcare, and facilities management, among others. More than 100 unique capabilities were presented this year, including nearly 50 technology-driven advancements focused on enhancing the client experience. Similar to the U.S., we continued our strong success and new business wins throughout the international portfolio, which included expanding our presence in Germany with the addition of West Falls Clinic and Healthcare, Samyuk Seoul Medical Center in Korea, and Valencia CF, a top football club in the Spanish La Liga League, with the team entering a new stadium, New Mistela, with capacity now exceeding 70,000 fans. Our seasoned international team has been a competitive advantage through aligning strategic priorities, partnering across borders, thoughtfully building scale and implementing best practices. Turning now to global supply chain. We're effectively managing the tariff environment and continue to believe our business model is well insulated from any heightened volatility. If there is a broader market change, we will implement sourcing alternatives where appropriate to benefit both our managed services business as well as GPO clients. Global inflation remains around 3% for us as we anticipated. We're focused on GPO expansion and are aggressively pursuing opportunities to build upon our double digit growth. This strategy includes investing in international geographies to increase our current footprint with multinational clients and others. We recently introduced additional AI driven technology in supply chain with expanded contract intelligence capabilities. Beyond client spend insights and back office efficiency tools, we now have automated agents that power next generation contract intelligence. These agents enable our sourcing team to instantly synthesize supplier requests, compare them to contract terms, assess compliance and opportunities, as well as generate responses within seconds, delivering unmanaged efficiency and visibility across our global spend and sourcing processes. Our supply chain optimization strategies have driven significant incremental value for our clients and the company. Lastly, we continue to advance our disciplined capital allocation strategies, which Jim will review in more detail, benefiting from a strong and flexible balance sheet designed to maximize shareholder returns. Our commitment remains focused on strategic investment in the business to drive and propel growth, ongoing debt repayment expecting to reach leverage around 3x by the end of this fiscal year and even lower thereafter, paying quarterly dividends, and utilizing excess cash generation to opportunistically repurchase Aramark shares. In summary, I'm proud of what we've achieved at the company and firmly believe there is tremendous value-creating potential in the business going forward. I'll now turn the call over to Jim.

Thanks, John, and good morning, everyone. As John mentioned, we had another record-breaking quarter, reflecting the commitment to our strategic priorities and focus on operational execution across the organization. We delivered strong growth in both revenue and profitability, reinforcing the power of our business model and our ability to consistently create value. We are well positioned to build upon this business momentum. Regarding third quarter profit growth, operating income was $183 million, up 13% versus prior year period. Adjusted operating income was $230 million, up 19% compared to the same period last year, and AOI margin increased 60 basis points. The strong profit growth and margin expansion resulted from higher revenue levels, expanded supply chain capabilities, and disciplined above-unit cost management. Turning to the business segments, the U.S. reported AOI growth of 16%, with AOI margins increasing more than 60 basis points compared to the same period last year. Profitability growth and margin expansion were driven by higher base business volume, effective above-unit cost management, and supply chain efficiencies, including leveraging AI-driven technology for purchasing compliance and contract productivity. Profitability growth in the US was led by the education and business and industry sectors, AOI growth in the U.S. would have been even higher in the quarter if it not for some additional medical expenses. The international segment had AOI growth of 11%, with margins up slightly year over year on a constant currency basis. AOI growth was a result of higher base business volume and strengthened supply chain economics, which more than offset labor expenses from additional observed holidays in the quarter, including in China, and the prior benefit from the men's European football championships in Germany. International AOI growth was led by Chile and Canada. In addition to leveraging AI-driven technology and supply chain, we also continue to integrate AI across our core operations, from dynamic menu planning to labor management, enhancing speed, accuracy, and scalability. Developing these additional capabilities is unlocking productivity while enabling our teams to focus on client innovation and engagement. These efforts have delivered greater value to our clients as well as driving efficiency and profitability throughout the business. Turning to the remainder of the income statement, interest expense was $86 million in the quarter and the adjusted tax rate was approximately 26%. Our quarterly performance resulted in gap EPS of 27 cents and adjusted EPS of 40 cents, an increase of nearly 30% versus the prior year, demonstrating our focus on profitable growth and operational execution across the organization. With respect to cash flow, the company generated cash inflow from operations in the quarter consistent with our normal seasonal business cadence. Net cash provided by operating activities in the third quarter was $77 million, and free cash flow with the use of cash was $34 million. This performance reflected stronger net income as well as increased working capital and capital expenditures from growth in the business, with CapEx still running at approximately 3% of revenue. As always, we expect to generate significant cash inflow in the fourth quarter, primarily from our collegiate hospitality and sports and entertainment businesses. During the third quarter, Aramark proactively repaid approximately 62 million of Terminal B due in June 2030 and repurchased approximately 31 million of its common stock. Since the authorization of the company's share repurchase program in November 2024, Aramark has repurchased nearly 4 million of its shares for an aggregate purchase price of approximately 140 million. We will continue to proactively enhance our capital structure focusing on optimal returns for shareholders. 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 25. We are seeing very strong business momentum from our prominent new client wins to expanding base business volume to client retention rates exceeding 97% across both FSS US and international. The sales pipeline continues to be broad-based, and first-time outsourcing remains elevated. Revenue performance in the fourth quarter is expected to benefit from this acceleration, with ongoing base business expansion and net new business across all sectors in the FSS U.S. segment and every geography in the FSS International segment. Additionally, we are pleased with the continued expansion of our profitability and the consistent execution of our key operating levers, including supply chain capabilities, operational cost management, and the maturity of new business. As John mentioned, we are effectively managing the current tariff environment. With our extensive capabilities and diversified portfolio, we remain confident in our ability to effectively navigate the broader marketplace. With that, we continue to anticipate our previously stated financial performance outlook for fiscal 25 based on the expected timing of commencing operations from new business, including certain large clients. As you know, our fourth quarter contains an extra week, or a 53rd week. In summary, we're pleased with our performance this quarter, delivering strong results, securing major business wins, and maintaining exceptional client retention rates across our portfolio. These achievements reflect the strength of our operating model and the dedication of our team. With continued discipline and focus, we remain highly confident in our ability to deliver long-term value for our shareholders. Thank you for your time this morning. That's John.

I'm immensely grateful for our employees across the globe who are creating our accelerated business momentum heading into the fourth quarter and beyond. Thank you everybody for your participation. An operator will now open the line for questions.

Thank you. We will now begin the question and answer session. If you have a question, please press star then 11 on your touchtone phone. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. In order to accommodate participants in the question queue, please limit yourself to one question and one follow-up. To remove yourself from the queue, please press star 11 again. One moment for our first question. Our first question comes from Ian Zafina with Oppenheimer. Your line is open.

Hi, great. Thank you very much. Thanks for all the color. So I can ask you guys, you know, great job on all the new business wins. Maybe, John, can you give us a perspective on kind of the revenue acceleration expected in the fourth quarter? Maybe help us understand the sequencing of all these big wins that have been awarded and expect to achieve. Any other kind of flow or color you could give us would be helpful. Thank you.

Sure, you bet. Jim and I will both comment on this. First off, we're off to a very strong start to the fourth quarter. We're very comfortable with the implied ramp. that's projected in the guidance. So let us just reiterate that we have a very strong belief in our ability to hit the guidance as we've projected, and we feel like we're in a very good position after the start of the fourth quarter. So there are a number of new contract wins that will be coming online. School districts obviously begin operation in August and in September. The collegiate operations that we've sold this year begin operations in August and September and contribute significantly to the year-over-year variance and growth trajectory. So, you know, I would say we're very comfortable given what we see in the business, what we've been able to achieve with the run rate in terms of new account sales and net new business, and with the high retention rate coupled along with normal pricing activity, we are very comfortable with the implied ramp. that we've described.

Yeah, John, I'll just echo that sentiment. And, again, obviously the sort of 5.5% organic in the third quarter is prior to the 2% lapping of the facilities that exist. And on top of that, all the items John just mentioned. In addition, if you think about the Major League Baseball outlook, we have a number of teams that are in the playoff hunt performing very well. So we're expecting continued solid performance with respect to our sports teams. business and base business acceleration as well.

Okay, thanks. And then if I could just ask one more question, just on the events business, what exactly happened? Were there cancellations? Did things just get pushed into the following quarter and then we expect a bigger quarter coming up because of events being pushed out? Or is this just sort of lost business And how much actually did events, how much of a headwind was that of the 2%, right? Because I know you're combining facility exits with events. So I'm just wondering if you could disaggregate that for us too. Thanks.

Sure. There are a couple of areas that were affected, particularly in the arena business. A lower level of concert activity that was not projected and renovations that in one of our facilities, particularly the Verizon Center, which was down for renovations and wasn't able to get booked and scheduled during that time period. We'd actually expected it to come up a little bit faster than it did. And then last year, you may remember, we had the DNC in Chicago, and so our Allstate Arena had significant operations last year that didn't repeat this year. So it was just a little bit of a drag, not something that we would think is significant, but in the long term, and really not pushing it out to the next quarter. It's really just business that we anticipated would occur but did not.

Okay, thank you very much. I'll get back in queue.

Thank you. Thanks. Our next question comes from Leo Carrington with Citi. Your line is open.

Good morning. Thanks for taking my questions. If I may first ask on the A's contract, some press outlets reported that you could be making an equity investment. If so, do you see co-investment as potentially increasingly a norm with these types of deals? And is that investment reflected in the contract duration or other attributes of the quality of that deal? And then secondly, I noticed that you're looking at an acquisition in the UK of NTA Catering. Can you outline the appeal of this and potential scale? And more broadly, as you are now deleveraging and buying back shares, is M&A becoming increasingly a focus for you in terms of capital allocation? Thank you.

I'll start with that last question with respect to Antigua. This is a relatively small bolt-on acquisition in our offshore oil remote services capabilities in the UK. On M&A overall, this is a little bit elevated compared to the prior few years, and we recall we executed the quantum acquisition, which is a proactive deal we had targeted for many years in the GPO space, one of the larger remaining independent GPOs in Europe. So, again, while that deal comes with – it was the largest in terms of the consideration for our – the M&A spend, it comes with relatively low revenues, so if you sort of exclude Quantum, I think that basically the normal track is 150 to maybe 200 million of M&A spend per year is consistent with where we were in prior years. Do you want to comment on the other question?

Yeah, and I would just add to that that we don't expect M&A to be a more significant part of our approach to growing the business. Our primary approach is organic growth, but we do opportunistically look at opportunities when they present themselves in certain segments of to either bolt on additional capabilities or increase scale in countries where we're already operating. So I wouldn't look at M&A as being a more significant part of our capital strategy going forward. It should be relatively consistent. Now, with respect to Ante, as Jim said, relatively small bolt-on, not material to the company in any meaningful way obviously brought some additional scale in the North Sea. And we remain committed to getting that deal closed. We'll work through the phase two process. And if remedies are needed, we'll figure that out. But again, even if we weren't able to close the transaction, it's not material to the company's operating results or strategy in the long term. With respect to the A's, yes, we did make them a small investment in equity in the team. That's not our preferred approach, but it's something the team felt strongly about and we were willing to do given the unique nature of the stadium and the build in Las Vegas. And so we did make that decision to move forward with a small equity investment. As you know, we've had equity investments in other teams before, the Red Sox being one of them that was probably most significant, the San Antonio Spurs, Pittsburgh Penguins at one time. So it's not unusual for us to make investments and ultimately monetize those later. We've always done extraordinarily well when we've monetized those investments in the future. Our contract is not tied to that equity investment and we have flexibility with it. So, again, not our normal practice, but one we were pleased to do because we really believe in this partnership with EAs and in the future of that Las Vegas opportunity.

Thank you very much.

Thank you.

Our next question comes from Shlomo Rosenbaum in Stiefel. Your line is open.

Hi. Good morning. Thank you for taking my questions. John, can you comment a little bit about how the selling season played out in the education segment? Because we should be pretty much done over there. Was it better than expected, as expected? You know, how should we think about the education revenue growth going forward based on what you're seeing over there? And then I'll just throw in my second question right now. Just retention has been very high and Could you just talk, is that proactiveness that you guys are doing in terms of servicing the customer? Are you having to be more competitive on your pricing in order to achieve this retention? Is it some kind of combination? Maybe you could talk about that as well.

Sure. I think Jim and I will both comment on those. First of all, the education selling season is still underway, believe it or not. We still have contracts we're working to sign and close with anticipated openings a little bit later this year. So we feel very good about the results. Obviously, feel very strongly about Howard University. We'll be making an announcement soon about another significant win and Loyola Marymount and many, many others. So the teams had a very good selling season in the higher education sector. And in K through 12, they've had a very successful net new business year as well, so we feel very good about the overall growth to both segments of the education business, and both had very strong retention rates as well. Overall, very good, net new business results for education. With respect to retention, it is an absolute everyday focus of the company. We're all engaged in it, proactive retention of our existing clients. working together with our customers to improve services, to create great value, and to continue to build partnerships and relationships that allow us to operate that business for a long time to come. We don't use pricing as a lever. We don't use investment as a lever to retain business. We do it on the basis of our performance and on the basis of our relationships with our customers, and we're proud of what we've been able to achieve. It is part and parcel, net new business is part and parcel to the incentive compensation structure in our company. So all of our people, from the operators in the field all the way to senior leadership, are incented to do a great job on net new, which implies retention in the equation. So it's a focus, and we feel very good about the results, but we're always striving to do better.

Thank you.

Our next question comes from Andrew Starneman of the J.P. Morgan. Your line is open.

Hi, guys. This is Alex Hess on for Andrew. Just wanted to dive in a little bit more to the implied fourth quarter organic revenue acceleration, which even if you strip out the extra week, it still looks like it's something like up 9% year-on-year at the low end of the guide. What sort of gives you confidence? I'm asking you guys to be as specific as possible about as it is with respect to the base business, new business and retention drivers of the fourth quarter growth rate. Um, you know, clearly we just exited a quarter where you guys were doing a bit stronger at the start of the quarter. I think you guys had set up six in April, then you guys ended up for the quarter. And, uh, there were some, uh, sort of unreal or unexpected items during the quarter. So just trying to see like what sort of visibility you have and sort of, you know, any sort of specificity you can give us around the, the, uh, What gives you such conviction in the revenue guide that you guys have out today? Thank you.

Yeah, Alice, good morning. I'll start again. In terms of just some of the math, right, we're running about 5.5% organic in the third quarter. Adding two, you get to about 7.5% sort of as your starting point. As John mentioned earlier, July was the strongest print we had in terms of growth. We saw significant acceleration in the U.S. business. On top of that math, we have rolling out a number of large accounts, including Howard University in the education sector, Everton over in the sports in the UK. We have elevated retention rates that are running higher than what we would have planned for the business. We've seen the base business pick up already, particularly in the sports business. As I mentioned, a number of teams, a handful of teams that are in playoff contention with good revenue trends and good attendance trends on top of that. So I think we have a pretty good line of sight to the path, and those are the key factors driving it.

Yeah, I would just add, as I said, we're off to a very strong start after July. That gives us a high degree of confidence in achieving that ramp that you just described at the rates that you described. So, you know, as Jim said, very high retention rates. Keep in mind that retention is In the in parts of our business like K through 12 and higher education is felt most in August and September those accounts that we did not lose impact our results. More effectively in those months and the new business, the net new business comes on so very high retention rate is most impactful in August and September in those lines of business. Then you have pricing that gets layered in in the K through 12 and higher education sector in the fourth quarter as the new terms begin, and you have pricing that accelerates in the corrections business as well. So all of those individual discrete elements add up to the trajectory that we've described and give us a very high degree of confidence in our ability to hit the numbers that we've outlined.

Got it. And just to clarify, because the fourth quarter is implies such a wide range of outcomes, both sort of on implied revenue growth step up and margins. Can you maybe give us a little bit of color on how July was and how you guys think the margin might progress in 4Q?

Well, I think we've given the full year guidance. I think that's where we're going to leave it. We have a strong belief in our ability to hit that full year guidance. and so I don't think I would add more color on the margin or profit side at this point, only to say that, again, we've reiterated the guidance, we believe in it, and we're off to a strong start in July.

Thank you. Our next question comes from Tony Kaplan with Morgan Stanley. Your line is open.

Thanks so much. First, I wanted to ask about where you stand with the universities and their sports teams, I know there's a really big opportunity for cross-sell across those different pieces of sort of a similar customer base. So I wanted to see if you've been making any progress there or how that stands right now.

Yeah, as I mentioned in my comments, we will be operating at 31 Division I schools this year and obviously in a lot of D2 and D3 schools as well. from an athletics perspective. So it's a very strong business for us. We've established leadership that's focused on that business, and we've got a great partnership between Collegiate Hospitality and our sports business to really bring the right talent and execution to bear against those initiatives. As you can guess, some of those Division I schools produce more revenues on a game day basis than some of our pro teams do. It's a significant focus for us moving forward. We expect to continue to grow that segment, and we clearly are the leader in it now, and we'll be continuing to build it.

Thanks. And then I wanted to ask about the recent Fenway Park strike. I think there was part of the situation where employees were concerned about the automation advancements. in the park impacting their compensation. And I was wondering just broadly, would you expect this to be a continued issue across sports in particular or some business lines where if you do have sort of more efficiency from automation, but it does sort of impact the labor, especially I think there's a little bit more unionized labor with the sports segment. Should this potentially be a labor disruption issue going forward in some cases and how to deal with that? Thanks.

Yeah, that's a great question, Toni. First of all, I would say that historically as we've implemented new systems and new technologies across the sports and entertainment business that we see it as a way to enhance customer service and customer throughput. We don't see it as a labor reduction strategy. What we want to do is improve the fan experience so they're not waiting in line while the game is going on. We want them to get to the stands and to be able to transact and be back in their seats to see the action, if you will. And that's what the teams want to have happen, and that's what we would like to have happen. And, frankly, it's what the fans want. So, as I said, we don't see it as a labor reduction strategy. We haven't. reduced significant numbers of employees as a result of deploying technology throughout sports. And so I really don't believe that that is a significant issue facing us going forward. I think we'll work very carefully to resolve the concerns of the workforce. And at Fenway, you know, we're actively engaged and in good faith negotiations and we'll find a way through as we have many times before. But we are fully prepared to operate in the face of what could be a labor action. So our commitment is to be there to service the fans and the team, and we'll do that. But I think the technology implementation is, as I said, not designed to reduce labor, but designed to enhance the fan experience. And if you've been to Fenway, you know that that is a park that is aged, is difficult to move around. All we want to do is get the fans back in their seats a little bit faster and let them enjoy the game.

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

Yeah, thank you. Good morning, John, Jim. Two from me, please. Firstly, you obviously made some confident comments around retention and and and your net new medium term is there anything preventing us from thinking about that those comments around net new as the sort of blueprint if you like for the in-year contribution in in FY 26 I'm not asking you to give us revenue guidance for FY 26 but in terms of the sort of timing of how how that lands you know so is there anything that would prevent that from being the case. And then secondly, around this year's guidance, you've obviously added those comments around commencement of contracts and the sort of dependency on those. But equally, you've expressed confidence in the momentum you're enjoying in the fourth quarter. So I suppose is the sort of caveat, if you want to call it that, around the commencement of contracts really just the influence that's preventing or that leads you to potentially not be able to narrow the range at this stage? Thank you.

Yeah, I think that's a good point. Jim can comment on this as well. I think we do have a range of outcomes, and the range is a little bit wider than normal as a result of anticipated activity. and potential new account startups that could drive us to higher levels of the range. That could also impact the AOI range as we open those new accounts and experience the opening costs associated with them. As I said, we're confident in the range and that's why we've reiterated the guidance. There are a few puts and takes with respect to the revenue side, and there's a few puts and takes potentially on the AOI side, depending upon the speed and rapidity of new openings, some of which could be very impactful in the long term. So some big opportunities in the pipeline that we're hoping to close here in the fourth quarter. And so it's an exciting time. We feel very good about our prospects, and we feel very good about delivering the guidance as we've talked about.

Yeah, I'll just add in terms of the – you talked about the sort of multi-year targets, you know, and the run rate headed into fiscal 26. We're not going to give a guide for 26, but absolutely, I think we're positioned for these, you know, really high net new, potentially on pace for record net new for the company, you know, and some of the larger wins we've had more weighted toward the second half of the year. And as John mentioned, there's a couple – Large ones outstanding that we hope to close over the next couple of weeks. And if things go as expected, we could be positioned to certainly be at the higher end of the multi-year growth rates. And as we said, exiting the year at the higher end of that range.

Thank you.

That's very helpful. Thank you. Our next question comes from Carl Green with RBC Capital Markets. Your line is open.

Yeah, thanks very much. Good morning, gentlemen. My first question is just about the fact that you called out the profitability improvements in education and B&I in the US. Could you just remind me how the profitability in those divisions is tracking versus fiscal 19 before all of the lockdowns? And then notwithstanding the drag from new openings in the short term, what you think the potential in those divisions is from here, please? And then the second question, much more straightforwardly, perhaps I missed it. Could you just indicate what the per capita spending increases were in the U.S. in sports and leisure? Thank you.

Sure. I'll take the per capita question first. Per capita in a major league baseball are running ahead of our expectations. What drives revenues in sports is attendance and per capita spending. Per capita spending, very strong attendance in those teams that are performing well, very good, meeting expectations. We do have a couple of teams that are struggling in terms of their records, that obviously their attendance is impacted. But on balance, the portfolio performing very well. So I feel good about the consumer. their level of spending and the per capita spending continues to support very strong results. So with respect to the margins in those business from 19, I think they're actually outperforming, but Jim will comment on that.

Yeah, in terms of the question on education, I think at this point compared to 19, both K-12 and higher ed, their revenues are significantly above where we were in 19. On margins overall, I think in the U.S., we're approaching where we were in 2019, as we've talked about. We've had to make significant investment in terms of net new and focusing the organization on growth. We've made significant investment in technology and cyber, some of the costs that have sort of affected the U.S. business. But we're on track toward being on or exceeding the fiscal 2019 base.

That's great. Thank you. Our next question comes from Jafar Mustari with BNB Paribas. Your line is open.

Hi, good morning. I've got two, if that's all right. So just again on this full year 25 guidance and the implied range for Q4, just trying again, your rate rating, does that mean, yeah, probably towards the midpoint? Or is the full range of outcomes still really on the table? I mean, the low end of 9% looks pretty much guaranteed with that bridge you've discussed. But at the top end, 16% organic revenue growth in Q4, that's X accounting. What's the scenario where you deliver that? Is that more signings and an immediate opening of anything extra you sign from here? And just related to that, to help us believe in that very big acceleration, you've given some useful ad hoc updates on retention, 97% year-to-date. Just curious if you have something equivalent in terms of signings, so something along the lines of the 1.4 billion of full year 24, where are you year-to-date would be very useful.

Yeah, I'll start. And again, I know we're relatively late in the year. What's unusual here is there are a few large accounts, particularly in healthcare and corrections, some very sizable accounts that if we're able to convert and we're feeling pretty good about those accounts, they would start up in fiscal 25. So that's one variable we've talked about. If you think about it, I've mentioned a few times now the base business within sports is quite a range, right? When you have a number of teams, five or six teams that we have that are in a playoff pursuit, that could lead to significant range and outcome on revenues as well. John mentioned the pricing actions going into place and executing those. And then again, the retention rates, typically if we plan at 95 or 96 and one point of retention is a point of growth, right? the outlook there remains pretty favorable as well. I think in terms of rebid activity and visibility and retention for the full year, we're in a good spot.

Yeah, I would just reiterate that given where we are today and given our understanding of the business, what is potentially to come, that the range of outcomes is pretty wide, and we understand that. And we believe there is an opportunity to get to the high end of the ranges based on the visibility that we have if certain circumstances occur, most of which we can't talk about because we're in active negotiations with clients and potential customers. And so we're confident. We've said it as many times as we can and repeated ourselves as often as we can to go ahead and And hopefully convey that confidence. We're strong believers. We're all the line shareholders here. We all want the same outcome. And so we're confident in the ramp. We're confident in the guidance. And that's about all the detail we can give you.

That makes sense, and apologies for belaboring the point, but just to triple-check, is there any suggestion, for example, that if you were to land at the top end of the organic revenue range, then we would need to assume immediately the bottom end of the profit growth range because of mobilization costs, or is that not what you're saying? It's open-ended on both sides. No.

They're late, but no, I don't think I would characterize it that way.

Thank you very much. Our next question comes from with Deutsche Bank. Your line is open.

Yes. Hi. Thank you. Good morning. I see that you've had some really nice acceleration in the B&I segment this quarter. And I know you mentioned, you know, new business, higher participation rates and, you know, micro market vending services. So curious if you could help disaggregate some of that for us and sort of how sustainable that acceleration is. You've also talked about, you know, sort of proactive approach to leveraging the strategic value in business dining. So maybe give us a bit more color in terms of what you're doing there.

The business, yeah, the B&I segment has performed really well throughout the year. I think it printed 13% growth in Q1, Q2, ramped up a little bit to 17% in Q3. As you know, that sector includes both corporate with B&I and refreshment services. Both businesses are generating very solid new business. I think record levels for both both groups, elevated retention rates for both groups as well, the acceleration really from continuing to rolling out new accounts, particularly in the refreshment services business. They've been particularly effective. Within B&I, the partnerships, the branding they've done, we have a LifeWorks brand, the partnership with Daniel Balloud in New York, additional catering activities, participation rates, continue to remain elevated, particularly in an environment where some high street pricing is elevated. Two-thirds of our accounts are subsidized, which I think is resulting in folks eating more in their corporate cafes. So all those factors, I think, are driving the strong performance that you're seeing in that sector.

Great. Thank you. And then just to follow up on margins and the point that you raised around opening costs for new business, Maybe give us a bit more perspective or, you know, any quantification that you can sort of, is there a rule of thumb? Just, you know, how, how margins typically will ramp for, you know, for new business, your years, one, two, three, just trying to get a sense of, you know, just level set on expectations for margin next year.

Yeah, sure. So again, great, really good margin progression this year, right? First quarter, 40 basis points. Q2 30 and 60 basis points at this quarter. So again, the ramp up of large accounts, we've always talked about typically margins are flat in that first year, and then they progress to our steady state margin over the course of three years. So occasionally if you have a significant amount of new business ramping up in a quarter, it could have a sort of a temporary drag on margins, but again, not a bad, problem to have. And the other factor that we're monitoring with respect to margins, we do have a record year with net new, and that's 40% of our compensation. So the incentive comp may be a little higher than a typical year. Again, not a bad problem to have, sort of rewarding folks for the great work that they've done.

All right, great. Thank you.

Our next question comes from Jasper Bibb with True Securities. Your line is open. Hey, good morning, everyone.

Hoping you could talk about competitive dynamics in education. Clearly bullish here on the pipeline of opportunities. Got some new wins picking up in the fourth quarter. Conversely, one of your large competitors actually talked about growth issues in their own U.S. education business. So just curious if you've seen any changes in the market, which might be driving what looks like market share gains for your own business.

First of all, I think our performance speaks for itself. We've been able to grow that business very effectively over time. We have particular strength in the higher education sector and our portfolio is unmatched. We've got very strong relationships and continue to retain that business at a very high level. Yes, some of our competitors have struggled more in the education sector than we have. I think it's primarily a result of leadership and focus and performance ultimately. That's what drives customers to make decisions and drives retention. So, you know, I would characterize us as just having a great leadership team doing a terrific job in the business, and I wouldn't comment on the reasons that they're not performing as well.

Thanks. And then maybe this is a little bit repetitive, but just hoping you could maybe talk about the run rate in the 26 again. I mean, it sounds like with one of the drivers of the sequential step up in the fourth quarter being some of those new education wins starting late in the quarter, that September should be better than July, I'd imagine. I guess, is that fair? And then can you talk about what's driving your confidence? And I think it's an 8% plus run rate organic growth in the 26th.

Yeah, I would say in general, and Jim can comment here as well, September is always one of our strongest months because it is the opening season for the K-12 and higher education new wins. So it does tend to drive our revenues tend to be the highest, and it's also the time when Major League Baseball attendance is at its peak, particularly for those teams that are in the playoff hunt. So September is always an exciting time at Aramark. for lots of different reasons. But yeah, I would anticipate that September's growth rate would be higher than July's in general. But that's kind of the normal step function that exists in the business.

Yeah, I think that's right. And again, as John mentioned earlier, that's the great thing about when you have high retention in education, both K-12 and higher ed, and you have a successful year of new, that primarily hits in August and September. So a key reason for why we expect some elevation or acceleration there and again this as i mentioned earlier that this sports season um when you have a number of good teams performing in attendance and base businesses looking good that really hits uh august and september as well so that i think with some of the key drivers of the acceleration we expect toward the uh the end of the year and again position us into that the high end of of the multi-year targets that we have established for the organization

Thank you. Our next question comes from Andrew Whitman with Barrett. Your line is open.

Oh, yeah. Great. Thanks for taking my question. I spoke about the A's being a large contract. Is that kind of the large contract that you referenced? I just want to be clear on this one because, if I'm not mistaken, that new stadium isn't slated to open until 2028, and I wanted to make sure that investors thought we're thinking about that when contributing at the right timing. Thanks.

Yeah, thanks, Andrew. Yeah, absolutely. That won't open until 2028. And it is a very large win, one that one that we're very proud of, but won't impact and is not included in our fourth quarter projections or next year's projections. But but it is an exciting win for us. So thanks for clarifying that.

Okay, I just want to make sure on that one. And then, um, I guess there was a comment on medical expenses in your U.S. segment, just mentioning that margins would have been higher. I don't know, Jim, if you wanted to put any meat on that bone for us, but just for context, I thought it might be helpful.

No problem. Medical costs were about $15 million higher in the quarter is what I was referencing, and really two factors. driving that just an unusual number of high cost claims in the quarter, as well as prescription drug costs with some of the GLP-1 drugs being up a little bit as well. So it's something we are monitoring closely. It's one of the things, as we said, what range of outcomes for the full year. So it's something we noted that was a moderate drag on margin in the third quarter.

Yeah, and I'll just add a little bit of color commentary on the GLP-1s. Obviously, that is a a benefit we provide our employees, there are long-term benefits to having your employees get healthier over time. And so as they use the opportunity to take advantage of that benefit, hopefully that leads to longer-term better health and better outcomes and lower healthcare costs. But the prescription costs early on when they're taking that medication are fairly high. And we're looking at ways to try to mitigate that over time. But yeah, the medical claims costs can be a little bit lumpy. Typically, we don't have that kind of impact on a quarter-to-quarter basis. But in this particular quarter, we did have a couple of large claims come through. And as you know, we're self-insured. So that was the impact.

Thank you. Our next question comes from Harold Antor with Jefferies. Your line is open.

Hello, this is Harold on for Stephanie Moore. So I guess there's just two quick ones for me. One just on Evandro, you know, I guess, could you give us an update on what's the spend there? You know, client receptiveness to you guys being able to provide that service and then just what the margins look like in that business and how you expect us to contribute in 2026. And then just on my second one, just I know you have some co-pilot and some hospitality, IQ, and some other AI-driven initiatives that has assisted in the supply chain improvement. So you can just discuss anything you're doing on the AI front and the supply chain, both of those would be helpful. Thank you.

Yeah, you bet. First of all, on Avendra, you know, we continue to grow the spend in that business and I currently call it somewhere between $21 and $22 billion of spend under management, which includes all of our contract catering spend as well as our third-party spend that we manage for companies like Marriott and others. So I'm very proud of the growth in that business. They've had very good results year over year in terms of net new business. and improving profitability throughout the year, contributing to our earnings potential and improved profits as well. So the margins in that business, as you know, are very strong, depending on whether it's a third party or whether it's contributing to our discount structure and our negotiated cost structure. A very, very big contributor to our profitability as a company. and they've had very good results this year. Jim, do you have any other comments?

You asked about, I think, AI and supply chain. We continue to elevate our capabilities with respect to AI. We've talked previously about leveraging AI to aggregate our spend. One of the tools we've recently introduced is actually a tool that can literally read and interpret correspondence from our suppliers. This is an example of a supplier is trying to implement a price increase. It will scan that letter, interpret it, and then literally find the contract and read the contract and determine whether that supplier is eligible for a price increase or not, and then generate the correspondence. So you can think about the efficiency that's gained when you're managing thousands and thousands of contracts over thousands of profit centers. So just an example of some of the efficiencies we're seeing with our supply chain and AI capabilities.

Thank you. Our final question comes from Josh Chan with UBS. Your line is open.

Hi, good morning. Just a quick one, I guess, on Q3. I think you had previously given the April growth rate and the quarter came in where it is. So I guess, did something slow down in May or June? Or how would you characterize that? Or is that normal fluctuation?

Yeah, no, I think we anticipated a little higher level of activity in the arena business. April came in at the 6% level and we had a slightly lower level of activity in the arenas over the course of the last couple of months, primarily related, as I said, to the renovations at Verizon Center and and a couple of other arenas. So not a significant change in the trajectory or our expectation for the full year.

I think during the fireside, we talked about 6% run rate. We didn't go as deep into the playoffs in the NBA and NHL as anticipated as well on top of the later concert activity. That's correct.

I'll now turn the call back to Mr. Zilmer for any closing remarks.

Terrific. Well, thanks again, everybody, for your interest and participation this morning. Again, we feel very good about the third quarter results. I want to thank the Aramark team for their extraordinary performance. Keep pushing for those high retention rates and the net new business. We have a great fourth quarter in front of us, and we'll look forward to talking to you when it's complete. Thank you. Take care.

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