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. At this time, I'd like to inform you 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. Please proceed. 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 Welsh 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 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 Canyon's 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 hands 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. 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 represents 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%. 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.

Thank you. We will now begin the question and answer session. If you have a question, please press star then 11 on your touch tone 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. Remove yourself from the queue, please press star 11. 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, retention going up. And I guess this is just a culmination of a very 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.

Certainly. The recent calendar shift affected several segments, including Corrections, Workplace Experience, and Healthcare. We experienced some last-minute opportunities for openings that were pushed into fiscal '26. While I won't go into details, the effect was considerable this quarter, but the timing was necessary to ensure effective openings, and it ultimately aligned with the clients' preferences regarding when to launch. This situation was significant and not the norm, as we generally open accounts within the same year they are sold. This arose from several excellent opportunities for the company, and we are very positive about the results. As noted, we secured nearly $1 billion in new business this year, totaling $1.6 billion in gross sales. Our team performed exceptionally well in meeting new business goals, with a retention rate surpassing 96.3%, suggesting a strong outlook 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 into 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. Regarding Penn, we will start operations there in February, and this will happen gradually over several months as we launch services in various locations across multiple cities and institutions. It's an exciting process, especially since a lot of it is self-operated, and we're also transitioning some of our competitors' operations. This makes for a complex opening, but I am fully committed to ensuring we deliver successful results for Penn, while also doing it right for Aramark. We have high expectations for new business next year, but we don’t have specific timelines for those opportunities yet. Our pipeline looks very strong, and we've already seen impressive early successes, including partnerships with the Welsh Rugby Union and DePaul University. Overall, I expect our business cadence next year to be more typical compared to this year, and we are pleased with our strong results.

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?

We have made significant progress on our margins, increasing from 4.6% to 5.1% and now to 5.3% this year. Looking ahead, the midpoint of our guidance for next year is around 5.7%. This indicates a consistent increase of 30 to 40 basis points in margin appreciation. While we expect to encounter some additional start-up costs related to our major new wins next year, we believe we can counterbalance these with enhanced productivity in our supply chain, particularly by utilizing AI across various functional areas. Additionally, we are effectively managing our overhead, with solid visibility regarding our corporate and SG&A costs, which allows us to take on this business without significantly increasing our overhead expenses. We are well-prepared to handle this growth while continuing to utilize the operational strategies that have proven effective for us over the past few 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, etc.

We have taken the opportunity to engage both the Collegiate Hospitality and the Sports & Entertainment teams together when pursuing these opportunities. This year, we added Arizona State's system and, as the relationship developed, we incorporated the sports aspect, managed by our Sports & Entertainment team. Oklahoma is also under the management of this team. We are currently exploring several large university athletic programs and have involved the S&E team in these initiatives. Our approach is tailored to the specific needs of the business, especially in cases involving alcohol, where our S&E team excels in managing alcohol systems within university settings. We are observing significant growth potential with major institutions that are currently self-operating and seeking our support, as well as competitors that are presently open for bids. It’s a promising market, and as the leading company in this sector, we remain committed to aggressively pursuing growth.

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 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 and Refreshment Services have high levels of retention and 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 will address that. For fiscal '25, the growth of our base business was driven by both volume and price, with pricing around 3%. The base business growth was approximately 3.5% for '25. The net new contribution, which reflects the in-year contribution, was about 1.5%, and the additional week contributed around 2%. This leads to a total growth of 7% for fiscal '25. Looking ahead to '26, we anticipate base business growth of about 3% to 4%, with roughly 3% expected from price increases. Given our strong retention rates and record new clients, we project the net new contribution to be in the range of 4% to 5% for fiscal '26, using a 52-week comparison to the previous year. This results in guidance 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. There are a couple of factors to consider. Penn Medicine is an annualized figure and it is starting early in the year, expected to increase throughout fiscal '26. The Oakland A's is another significant win that will have a bigger impact in the following fiscal year. This explains the timing differences between the annualized revenue and the revenue recognized within the year.

That's clear. And then one follow-up on the margins. You're correct that the guidance for '26 indicates that the year-over-year margin improvement will be between 30 basis points and 40 basis points. However, this is based on '25, which includes some factors you mentioned, such as the exceptional sales team compensation in Q4. So, if we don’t expect those factors to repeat—and if they do, great, you have emphasized that—shouldn't the margin in '26 adjust slightly for those, and then grow 30 to 40 basis points on a normalized basis?

Yes. When considering the range of outcomes, it appears to be between 5.6% and 5.8%, with 5.7% as the midpoint. The range is broader. If those items were to happen again, it would indeed be a positive situation. However, if we normalize for fiscal '25, the expectation is around 5.4% to 5.5%. Also, given the significant increase in these accounts, we should anticipate additional start-up costs in '26, which are already included in the guidance. This could amount to about 10 basis points.

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 interested in the restructuring measures you've implemented in the International business. Can you discuss the thought process and operational metrics that led to the decision to restructure a business that appears to be growing strongly? Additionally, when you mention the postponement or slightly delayed startup of some operations, could you provide context around the factors that are taken into account when deciding to slow down the initiation of operations in a contract? It would be helpful if you could share some anecdotal evidence or descriptions to illustrate why this might occur.

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. Regarding the restructuring in the International division, it's important to note that this group has a strong history of success, consistently achieving double-digit growth over multiple quarters and years. We are willing to invest where necessary to ensure we meet our financial goals and streamline the business. This involves optimizing some selling, general and administrative expenses, which can be quite costly in certain parts of Europe. Moreover, we are focusing on optimization in mining in South America to prepare for the upcoming year. Finally, we are also consolidating some real estate as part of the bolt-on deals we've made, which allows us to combine operations 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 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 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 two 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 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 reasonable. However, the main factor affecting margins will be the revenue drop-through from Q1 to Q2. The first half should appear normal, but due to lower revenue in Q1, there will be a margin impact for that quarter, which will balance out in the full first half.

Our next question comes from Andrew Wittmann with Baird.

I believe the last question is very significant. I understand you mentioned percentages, Jim, noting that revenue for the first quarter is expected to decline by 3% to 3.5%, which seems to have a larger impact on margins due to the lack of fixed cost leverage. Would you like to provide more precise details on that? While we can all do the calculations, could you share revenue and EBIT figures for the first quarter? It feels like a substantial change, and considering how figures have fluctuated over the last few quarters, providing actual numbers for the first quarter might be even more beneficial. I know that's a considerable request, but I believe it's necessary.

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 provide more details about the contracts that didn’t perform as expected in the fourth quarter? Specifically, were there any carry costs associated with those contracts? Also, will the impact on margins extend into the first quarter? I’m looking to better understand the financial implications and the visibility you have in managing these issues. I have a follow-up question as well.

Yes, there has been some increase in starting costs, especially for accounts opened in the first quarter related to corrections and other operations. We were preparing for these openings and incurring costs in the fourth quarter regarding the ongoing opening expenses. There is a slight effect that carries into the fourth and possibly into the first quarter, but I wouldn't say it's overly significant. Overall, I want to highlight two main issues. Last year's medical costs had a major impact on the company's total earnings, including medical claim expenses and GLP-1s. We have taken strong measures regarding the GLP-1 impact, which will take effect in January and significantly reduce our costs year-over-year. The two primary factors affecting the quarter are medical expenses and increased incentive compensation. I would gladly accept those higher incentive costs every year if it means achieving such impressive results and driving the organization's growth by succeeding in new ventures. I feel very positive about this and appreciate being able to reward our team for their achievements.

Okay. One of the things we discussed when you started years ago was the focus on retention, and you've significantly improved it. I'm curious if we see retention as a steady state now, or if the current high numbers are due to some large contracts that may have skewed the data. Are we raising our expectations because of the operational improvements you've implemented, such as better contract management and service? Looking ahead to next year, should we anticipate retention above 96% again, or is 95% the expected benchmark with the possibility of exceeding it?

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 are going to do the best that we possibly can. And so yes, 95% should be a floor. It should never fall below that. And frankly, we have high expectations that we can do better. We're raising the bar for our people all the time.

Our next question comes from Joshua 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, with typical expectations. Some businesses with cyclical contract renewals, such as K-12 and Corrections, will follow their usual schedule. These are the areas most affected, each with varying impacts year-over-year. From a retention perspective, we're in a strong position this year. Last year, our largest Higher Education contract with Arizona State was up for bid after more than 20 years due to a state requirement. We not only retained that business but also grew it, which was very encouraging. Overall, I would describe 2026 as a standard year without any significant high-impact events. We remain committed to maintaining a high level of retention.

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.

As you reflect on fiscal '25 and look ahead to fiscal '26, I would like your insights on the trends regarding in-sourcing versus outsourcing. How does '25 compare to previous years? Additionally, could you discuss the competitive landscape, particularly in light of recent changes with one of your competitors?

Yes, I would say the level of first-time outsourcing continues to be in an elevated state. And particularly 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 relationships. 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.