Good morning and welcome to Aramark's third quarter and fiscal 2026 earnings results conference call. My name is Kevin and I'll be your operative for today's call. At this time, I'd like to inform you of this conference 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 Cassell, Senior Vice President, Investor Relations and Corporate Development. Ms. Cassell, please proceed.

Thank you and welcome to Aramark's earnings conference call and webcast. This morning, we will be hearing from our CEO, John Zillmer, as well as our CFO, Jim Tarangelo. As always, there are accompanying slides for this call that can be viewed through the webcast and are also available on the IR website for easy access. Our notice regarding forward-looking statements is included in our press release. During this call, we will be making comments that are forward-looking. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties, and important factors, including those discussed in the risk factors, MD&A, and other sections of our annual report on Form 10-K and SEC filings. We will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in our press release and IR website. I will now turn the call over to John.

Good morning, everyone, and welcome to our fiscal third quarter earnings call. Thank you for joining us. Jim and I are pleased to be here with you to review our financial results, provide an update on the business, and discuss our strategic growth agenda. which continues to drive strong with significant momentum across the portfolio, including industry-leading client retention at record levels of approximately 98%, underscoring the strength of our client relationships and the excellence of our service and execution, trading organic revenue growth in every U.S. sector, education, and across all regions within international. More than $1.6 billion fiscal year-to-date, 51% higher than the comparable prior, lifting strong demand for our hospitality capabilities and the depth of our sales pipeline weeks ago under our recently awarded multi-year engagement with a top global hyperscaler alongside the continued expansion of aramark nexus which now includes providing premium hospitality services to workforce communities for an ai data center in the third quarter organic revenue for the company grew nine percent to five billion and would have increased another approximately 2% if not for the calendar shift. Once again, our strong revenue performance was driven by broad-based net new business and based business growth across sectors and geographies. These results are a testament to the dedication of our teams whose commitment to serving our clients, delivering exceptional, performing at a high level every day has been instrumental. Moving to the business segment, U.S. organic revenue grew 8% to $3.5 billion and would have increased seven percent growth absent the shift which is expected to be fully recaptured in the fourth quarter collegiate hospitality is benefiting from increased residential meal plan enrollment record retention and the strongest selling u.s revenue growth in the quarter was further driven by sports and entertainment strong year-over-year performance which reflected higher revenue from the ongoing major league baseball season along with an expanded client portfolio including in Major League Soccer and Collegiate Athletics. We demonstrated the strength of our capabilities during the 15 FIFA World Cup matches hosted at the stadiums we serve, delivering premium fan experience with an additional format. We also proudly supported our NHL and NBA clients to the San Antonio. Our S&E team was hard at work last month during the MLB All-Star Game here in Philadelphia, providing hospitality services throughout the three-day series of events with merchandise revenue a particular highlight. CarePlus built with our team actively mobilizing multiple RWJBarnabas' health 18 locations while continuing to deliver strong double-digit compounded growth for the 19th consecutive quarter, reflecting the contribution from new business and continued base business. Now turning to Aramark Nexus, we began operations at our first Texas-based hyperscaler, which contributed to revenue and profitability late in the third quarter. our service offerings we're currently mobilizing a second site for this client and the scope of work across both locations is now expected to increase by approximately 40 percent from original estimates in addition the client has indicated we should anticipate supporting additional sites as new locations come reflecting the strong demand for our integrated suite of cap we continue to expand the reach of aramark nexus recently announcing a significant multi-year engagement with a leading ai data center co-location providing hospitality services to workforce communities across multiple locations including in wyoming and texas the initial site is scheduled to mobilize in the first half of our new fiscal year data center co-locate facilities at selling and infrastructure relied upon by technology companies as these projects increase in scale and geographic reach we believe that nexus is uniquely positioned to help clients attract and retain skilled labor through differentiated hospitality solutions and premium amenities project success as US continued to build on its strong momentum including our first collaboration within the University of Colorado Springs Grand Canyon University it's a state university in collegiate hospitality Texas State and Florida State University athletics and sports the Camden City School District and student nutrition tell these services into top tier law firms the international segment continued its strong growth trajectory delivering another quarter of impressive results with organic revenue increasing eleven percent to 1.5 billion dollars with many of our venues further benefiting from major touring are also we also successfully served more than 300,000 fans during the multi-day Formula One Grand Prix in Barcelona leveraging nearly 100 food and beverage locations every country every country within the international portfolio delivered strong new business performance underscoring the breadth of our service offerings and focus on excellence international was awarded nearly 200 client location accounts during the quarter including continued expansion in the mining industry providing remote hospitality services for discovery silver mine in canada as well as cadelco's chicas los palombray's copper mines in Chile. We also concluded our International Guest Chefs Cup in Dublin, celebrating the very best of Aramark's culinary talent, following a year of in-country competition, meaningful to see our hope onto global supply chain. Our global supply chain and GPO business maintains strong momentum, delivering more than $1.1 billion of annualized new spend globally, fiscal year to date. This performance reflects the differentiation of our value proposition, market-leading procurement capabilities and disciplined execution we believe of ender international is well positioned as a premier global hospitality procurement solution with multinational clients increasingly consolidating spend with us across regions and continents leveraging our scale local expertise and extensive global supply network we're also seeing inflation trends remain slightly more favorable than our original expectations across regions i would like to welcome tony spring as the newest member of aramark's board of directors as chairman and ceo of macy's tony brings deep executive leadership expertise and valuable strategic insights particularly in integrating ai to enhance consumer experiences and leading a large diversity before handling we believe that the opportunity in our global supply chain platform substantial value creating actions underway at the company once again i would like to thank our teams around the globe for embodying our culture and values, which remain the foundation of who we are. With that, Jim, I'll turn the call over to you.

Thanks, John, and good morning, everyone. We had another record-breaking quarter, delivering impressive top and bottom line results, driven by broad-based performance across sectors and geographies. As John mentioned, we continue to experience strong momentum with the execution of our growth strategies, creating significant opportunities throughout the company that position us well for the remainder of the year and beyond. Regarding profit growth in the third quarter, operating income grew 18% to $216 million versus the prior year period. Adjusted operating income increased 13% to $261 million, with AOI margins expanding nearly 20 basis points. The calendar shift reduced AOI by an estimated $20 million. AOI growth would have increased approximately 21% without the calendarship, with margin expansion of nearly 50 basis points on a constant currency basis. This double-digit profit growth and margin expansion were driven by higher revenue levels, expanded supply chain capabilities, and effective cost management. Turning to the business segments, FSSUS reported AOI growth of 11%, with AOI margins expanding more than 20 basis points. Excluding the calendar shift, AOI growth would have increased approximately 22%, with margins gaining almost 65 basis points. Profitability and margin expansion in the quarter was the result of greater revenue from base and new business, particularly in sports and entertainment, the workplace experience group, refreshments, and health care. FSSUS also benefited from supply chain efficiencies and productivity gains from effective cost management. The international segment delivered AOI growth of 24%, with margins expanding nearly 60 basis points on a constant currency basis. AOI growth was driven by higher base business volume and net new business, along with strengthened supply chain economics. Our strong quarterly performance resulted in GAAP EPS of 36 cents and adjusted EPS of 52 cents, an increase of nearly 30% versus the prior year, and almost 45% excluding the calendar shift, reflecting the successful execution of our growth strategies. With respect to cash flow, net cash provided by operating activities in the third quarter grew $41 million, and free cash flow increased $42 million. These positive cash flow results were driven by strong business performance and earnings As always, we expect to generate a large inflow in the fourth quarter, primarily from collegiate hospitality and sports and entertainment. The higher cash flow generation in the quarter enabled us to proactively repay $100 million of term loans subsequent to the quarter end. We remain committed to achieving a leverage ratio below three times by fiscal year end. We will continue to pursue additional capital allocation opportunities with a focus on maximizing returns. At quarter end, the company had over $1.4 billion in cash availability. And finally, let me wrap up with our performance expectations for the remainder of fiscal 26, with only a few months to go. We are benefiting from the consistent execution of our teams across the business, from industry-leading client retention to broad-based revenue growth across the U.S. and international, to record levels of new client wins and the continued expansion of Aramark Nexus. Our sales pipeline remains substantial, with first-time outsourcing at elevated levels. As a result, we have raised our fiscal 26 organic revenue growth outlook to an increase of 9% to 10%, reflecting continued momentum across Aramorx's portfolio, as well as an early contribution from commencing operations with a top global hyperscaler. We are also reaffirming our expectations for AOI growth of 12% to 17% and adjusted EPS growth of 20% to 25%, both of which are aligned with Wall Street estimates as we look at the fourth quarter. We anticipate accelerated AOI growth and margin expansion in the fourth quarter, driven by our multiple operating levers and the early contribution from Aramark Nexus. We are mobilizing a record level of new business throughout the company and adding Aramark Nexus growth resources as appropriate to further capitalize on the significant new business opportunities before us. In summary, the strength of our financial performance this quarter, combined with the continued momentum we are seeing across the business, reinforces our confidence in Aramark's growth trajectory. We believe the company is well-positioned to drive significant shareholder value creation. Thank you for your time this morning. Operator, we will now open up the call for questions.

Thank you. We will now begin the question and answer session. If you have a question, please press star, then 1-1 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 1-1 again. One moment for our first question. Our first question comes from Curtis Nagle with Bank of America. Your line is open.

Terrific. Thanks very much for taking the question. I guess first just focusing on that initial nexus contract, you know, great numbers to hear, right, the 40%, you know, increase in scope, new sites. I guess, you know, would you be able to provide an update in, you know, potentially how much larger this contract could be? I think initially we were thinking several hundred million. And would the duration of this contract also potentially expand in a longer than you might think? And then I'll move on.

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

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

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

Got it. Very good. I guess just, you know, more of a holistic question, just your confidence being able to maintain, you know, this, you know, call it 9% to 10% organic growth range. Just look at your current book of business, right, the 1.6, the retention, normalized pricing, and then let alone, you know, perhaps more upside from data centers. It seems like it's pretty achievable in the next year, but just, yeah, it would be great to put out your level of confidence there.

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

Okay. All right. Thanks very much, John, Jim. I appreciate it.

Our next question comes from Lizzie Duff. Goldman Sachs, your line is open.

Hey, good morning. Thanks for taking the question and congrats on a great print. I just wanted to ask more, now that you're kind of several months into this, some great updates on Nexus, like any latest thoughts on just how to think about the TAM that you have and within that kind of addressable market and how you think about your kind of market share opportunity within that specifically?

Sure. You know, I think total addressable market is something we're still working on, But obviously, there are hundreds of these products across the United States, around the world. So, you know, I think to extrapolate to the total addressable market is a little bit difficult at this stage. We do think it's the many billions of dollars, and we'll, as we get a better understanding, we currently have eight sites that are signed and under active. This is going to be very large, and it's, you know, I think we'll think this will be a competitive marketplace, And there's more than enough room for all the companies who serve these industries to succeed, given the demand that appears to be out there.

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

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

Yeah, and I would just add, Lizzie, that we're committed to accretion in the core business. This nexus will be additive, and we feel we're continuing the margin that comes just through the normal growth of the organization as well as the supply chain discipline. We continue to have XPECT core business in addition to the margin accretion that will come from nexus.

Great. Thanks so much.

Thank you. Our next question comes from Ian Zafina with Oppenheimer. Your line is open.

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

We absolutely do see continued growth in the core business, experiencing very strong. I think we've maintained our commitment to each of the businesses. We're driving performance. We've got a great management team in place. And we're executing of serving our customers' needs. Continue to see great opportunities, continued self-op conversion takes place. We see continued expansion in the collegiate sports area. We're experiencing growth in all of our businesses, even those that have been for a long period of time. We're seeing exception and international in the long-term growth trajectory of the organization and believe our...

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

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

Okay, thank you very much, and congratulations.

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

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

Yeah, really, I'm sorry, go ahead and finish, Leo.

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

Sure. Typically, what drives the difference in scale is the number of people expected to be employed on site, which you could roughly translate into beds. Remember, these are residential communities. These are workforce communities that are being created in remote areas. And so you can kind of think of the number of beds as being kind of an indicator. It was originally projected to be 100 employees. The increase in size and scale is 1,000 beds. The co-locator site originally looking at like 4,500 beds. The services that we'll be offering are consistent. It's essential keeping facilities for ourselves, but that's amenities and services provided to those people who are residing in these communities in a remote environment. The community that we're building. So the best indicator of overall size of the scope of a contract is related to the number of people, relocations, all up to 13,000 beds, and to the facility that's being built.

Okay. Thank you very much, John. Thank you.

Our next question comes from Andrew Steinerman with J.P. Morgan. Your line is open.

I just wanted to maybe touch on the media figures. My question is, has the whole portfolio evolved to a point where the medium-term algorithm has to be increased?

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

New bookings that you just talked about. Just give an update on the mix between self-op conversions versus competitors.

Yeah, I think it's probably consistent with our past disclosures. There's somewhere in the range of 40% to 45% self-op conversions. What will skew that number up is whether or not you would call Nexus, which isn't really included in those numbers yet. Hard to really character our business. We're still seeing that range of 45%.

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

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

Yeah, sure. I'll take that, Tony. You know, first of all, yeah, there are a couple of smaller companies that are currently competing in this. And so we brought to bear, when we began to work with this global hyperscaler, was a significantly differentiated hospital transition from a typical college, more retail employees that are living there. Lunch and dinner, it's having multiple outlets and multiple opportunities to choose how you want to be served, whether it's a full-service restaurant, whether it's a retail component. What we brought to bear is significant change, and their reason for doing so is pretty recruit and retain high numbers of employees in remote environments. And to do that, they wanted to give them a solution that was significantly enhanced from the norm. And so we were able to deliver, design and deliver, including those other amenity offerings, which are consistent with what we do for our own employees in the national parks, what we do in remote mines in Chile, in Canada. So it was bringing to bear that Fulson-oriented organizations that focus more on the bill. We're not in the bill business. We're there to support, we're there to provide hospitality for the employees. And that was the key differentiator.

Terrific. And shifting gears to sports, terrific quarter there. I know you called out World Cup in the release wanted to also understand how much of you know sort of the the growth there was attributable to World Cup but also wanted to find out about any sort of recent wins because she also talked about expanding the client portfolio and sports so any recent wins for new teams that'd be awesome thanks yeah it was really a strong quarter in general for the sports group.

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

Thank you.

Our next question comes from Jasper Bibb with Truist Securities. Your line is open.

Hey, good morning, everyone. On Nexus, I just wanted to clarify how many sites you're signed up for right now. I think you said two with each, two on the hyperscale side, two with co-location, but I thought I heard eight sites total signed in response to an earlier question. So just wanted to clarify how many kind of total sites you have signed up on the Nexus side. And then if it's eight, I guess I'm wondering what the timeline might be looking like for the sites that are signed but aren't active or mobilizing today.

Yeah, so we have the two sites that we're currently mobilizing with the top hyperscaler, sorry, and with a third under discussion. and then there are a co-locator in various stages of development, one which will begin to ramp up in total number of beds. If you were to extrapolate the number of beds, 2,000 per site, so 20,000 total beds.

Thank you for the detail there. My second question was just, I guess I'm wondering if you could bridge the increased organic growth guide against reaffirming AI and ETS ranges. Is that a little bit of, you know, new business startup on some of these wins? Is that some selling commission because new business is up so much? Just any detail there would be great.

Yeah, that's right. Yeah, the increase in the guide, really just the general broad-based favorable trends we're seeing in the business. And obviously we've put in the nexus impact into the fourth quarter as well on the top line. On AOI and EPS, as you said, we're rolling out and mobilizing record levels of new business. And the businesses that hit the fourth quarter in particular, so higher education, we've had one of the best selling seasons in recent memory, and those accounts will ramp up in August and September. In Destinations, we have Stone Mountain, one of the largest accounts we've rolled out in many years. And then in health care, we continue to ramp up Robert Wood Johnson. So with that, as we've always talked about, there is a mobilization cost, and those margins will ramp up into fiscal 27. Great.

Thank you for taking the question. Our next question comes from Jafar Mastari with BNP Paribas. Your line is open.

Hi, good morning. I just wanted to start by clarifying one thing. You mentioned in the release that your initial Aramark Nexus site has began providing revenue, but there's reasonable sources out there that would suggest that that's July. So I just wanted to make it extra clear. In the 11% organic growth, there is no contribution from Nexus.

Yeah, they did ramp up. The first site, the hyperscaler, did ramp up in late fiscal Q series, just a very moderate amount, a small amount affected July. Primarily, it's going to be in the fourth quarter.

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

Yeah, I'll start. Yeah, in terms of, again, we're not going to do too much detail on the components of the 1.6, there's a portion of that $450 million, a relatively small portion that's built in that is in the 1.6. Just on the revenue question, just to confirm, right, we talked about three sites mobilizing, an active mobilization and development, the two with a hyperscaler and one with a co-locator. Those three sites is where I was referencing the $400 to 500 million. And as John mentioned, there's additional sites and opportunities with a co-locator. That's not part of the 400 to 500 million. That's the annualized value. We're still planning in terms of when that will ramp up over the course of 27. But no, the underlying new business is driven by the core, excluding Nexus.

Sorry to lower that point, but what's the definition reason why if the 400 to 500 million are all based on three sites that are the most defined, the firmest, why is it not all included in your 1.6 billion signings?

At this point, some of it has to do when we finalize contracts versus develop and roll them out. So there's just some particular things that we adhere to in terms of when we actually record the new business.

Thank you. Our next question comes from Faza Alway with Deutsche Bank. Your line is open.

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

Yeah, you know, I think, first of all, we recognized a very good market and began to be a CEO for the multiple business, extraordinary background recognizing the attractiveness of it we also committed resources from the sales organization particularly related to this and as we began to explore the potential and the the size of the of the market we began to add additional sales resource sources focused on the other hyperscalers as well as other key participants in the industry whether that's construction and engineering or other related firms. The fact that the other large companies will find a way into the business, they have divisions that do some of these things in other parts of the world, I just think we were first to move in recognizing the significance of the opportunity and establish that this will be a competitive marketplace. I also, as I said earlier, I also believe that the size and the scope of this total market is so large and the demand will be so significant that there's plenty of room for competing in it. We want to be first, we get our fair share, but ultimately I think this...

Understood, thank you. And then, you know, not to belabor the point around contribution from Nexus this year, but just want to understand in the fourth quarter, do you expect to fully ramp at least, you know, the initial two sites? where or is it you know a slower build-up just trying to get a sense of how much revenue contribution you're expecting from Nexus in the fourth quarter roughly in the fourth quarter it's probably about 1% or so will come from Nexus none of the sites are fully ramped up yet so they all will be ramping up to their peak during the course of fiscal 27 Great. Thank you so much. Sorry.

I would just add a couple of comments on this. The ramp-up schedule is really not something that we are in control of. It is based on employment is one that we're still...

Understood. Thank you.

Our next question comes from Justin. Your line is open.

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

Yeah, I would say there's no exposure on the development pipeline that we have under active development. We'll continue to have multiple states, in particular, and already underway, will comply with whatever regulatory hyperscaler has, and it could defer or delay a little bit implementation or the rollout, the demand for these services, the demand for compute capacity. in addition to the, that it's going to be a strong marketplace and I think the regulatory risk.

Our next question comes from Josh Chan with UBS. Your line is open.

Hi, good morning, John, Jim, great quarter. Maybe on Nexus, could you talk about, you know, the hundreds of sites that are, you know, technically, you know, possible, but why, you know, you ended up with these locations? You know, are they the largest?

Do they make the most sense geographically? you just kind of like how did you end up with these eight well that would be unfortunately that would be revealing some competitive insights and information that I really prefer not to do I will say you know that we began the relationship from them to us it was focus on these sites that they had under active development and and we pursued them aggressively and were awarded these global hyper... In addition to that, this co-locator with them for those five additional sites, which were established as a result of the competitive process. Again, we're trying to take advantage of this marketplace in a very efficient way, and we're also trying to keep our competitive advantage close to the vest, if you will.

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

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

Congrats on a good quarter.

Our next question comes from Shlomo Rousenbaum. Stiefel, your line is open. Shlomo Rousenbaum, Stiefel, your line is open. You can ask your question.

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

Yeah, I'll start. Like I said, the increase in new business, the record levels of new, is primarily driven by the core business, right? So there's only a small piece of nexus in that. But as you said, it's been broad-based. You know, B&I, we continue to see record levels of new business, both in the underlying corporate business as well as the vending and refreshment services. Collegiate, as we talked about, had a record selling season and mentioning and opening the accounts that we talked about. Healthcare, second year in a row. Last year we had Penn, this year RWJBarnabas. So healthcare has really picked up the levels of net new business. And Destinations, as I mentioned, Stone Mountain, one of the largest wins they've had in recent memory as well. And then broad-based growth across the international portfolio. I think it's over five years of double-digit growth, strength across all the large countries, Europe in particular, from an industry perspective, done really well in broadening out our sports and entertainment business in Europe, both in terms of underlying soccer and then now festivals and concerts, and then remote services, strength in Canada, in the sands, in the mining business, in Chile, and then the offshore business. in Europe. So broad based across the portfolio in terms of geographies and sectors.

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

Yeah, I'll start with, yeah, really the foundation for the capital structure strategy has been to be under three times leverage. There's a clear line of sight to achieving that by year end. I think it's the lowest, I've been with the company over 20 years, I think it's the lowest leverage we've had during my tenor. So we like where we are in terms of the capital structure. On free cash flow, you know, I've talked about targeting a conversion rate of about 40% of AOIs. That gives you a sense of where that will be. As we grow levels we are, there may be a little bit more of a moderate use of working capital, again, a good problem to have. Capital expenditures have been in the three, I think, closer to 3.5% this year as a result of the record levels of new business. And As you model that out over the coming year, ample capital there to continue to invest in growth. But, again, it's been pretty consistent, capital at 3.5%. With respect to M&A, we'll continue to be targeted and disciplined. And then we'll have capital potentially accelerate share repurchases in the coming year as well as we balance that all out. But, again, the foundation of all that is really getting under three times leverage.

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

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

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