Aramark (ARMK) September 2026 Conference Transcript

All right. Good morning, everyone. Thanks so much for being here. I am incredibly excited for this next session of our global retail and consumer conference with Aramark, which has so much going on. I feel like we're going to pack so much into this next 35 minutes. But my name is Lizzie Dove. I cover gaming, leisure, lodging here at Goldman, and it's my pleasure to have here Jim Tarangelo, Executive Vice President and CFO of Aramark, Pat Liebler, CEO of Nexus, and we have Felice Kissel here in the audience, too, Head of Investor Relations and Corporate Development. So welcome, Jim and Pat. Thanks so much for being here. And Pat, I think this is your debut with Wall Street Investors. So very, very excited to hear all of what you have to say about Nexus, which we'll get into very shortly. But maybe just to start off, if we kind of just step back and see, you know, Aramark today, it feels like broadly is growing faster, retaining clients at a higher rate, margins are kind of firing on all cylinders, a lot of new contracts that you've been winning. And that's before we even talk about Nexus, which we absolutely are going to talk about. But what do you think has kind of structurally changed over the last few years when it comes to the core business? And how sustainable is that higher growth algorithm?

Yeah, well, it's the culmination of years of work after the company implemented a new transformation toward a growth-oriented model and really reigniting the hospitality culture that always existed in our DNA. With that, we implemented a number of specific actions to enable that. We realigned the incentives for the organization where growth, composing of both new business wins and retention, is a significant part of our incentive-based comp. We decentralized the organization. We made sure we had seasoned leaders with extensive industry experience, like Pat here on my left, to be running those businesses. And we invested significantly, nearly doubling the size of our growth and retention organizations as part of that as well. And with this growth model firmly in place, we've been delivering the results that you've seen. And we think that at the elevated retention levels, record levels of new business, double-digit underlying growth that we've seen, we do think is very much sustainable.

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

Yeah, I mean, the good news is that growth is broad-based across really all the sectors within the U.S. portfolio. the retention levels, the new business wins, and base business, which is our term for same-store sales, has remained robust throughout the U.S. portfolio. The businesses that have been growing very rapidly, including B&I, which includes refreshments and micromarkets, Pat used to lead, has grown double digits now for 20 or 21 quarters in a row. Our sports business and entertainment business continues to show Very strong growth as well with a really good performance of the playoffs, the World Cup, underlying performance in Major League Baseball in the third quarter. And now on top of that, I think this is really the exciting thing, two of our larger businesses, healthcare and collegiate hospitality, which is our higher ed business, have really accelerated their growth as well. In healthcare, we've had two of the largest wins in the company's history with Penn Medicine last year and RWJBarnabas this year. and that's ramping up so that we have double-digit growth in health care. So that's really been some of the key contributors to the U.S. growth accelerating.

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

Yeah, so I've been with Aramark now 20 years, spent the last five as president and CEO of Aramark Refreshments, and was given the opportunity to lead Nexus about six months ago. It's been in the works about a year that we've been talking about what this is going to look like. But, you know, we're excited about changing the industry and what's happening. So you think about what typically was known in the oil and gas business as land camp or man camps. We really have intended and have begun to bring an elevated service when it comes to hospitality. So when you think about on-trend food concepts and hotel-like amenities, activities similar to what you see at colleges and universities with intramural-type sports, wellness centers, fitness centers, golf courses, really to create an environment for those who are building these data centers, which are being tasked to build at a high rate of speed and quickly to really make sure that they are feeling comfortable and appreciated when they go back to their place to live at the end of the day. And our focus is really driving that experience for them and really, again, I would say setting us apart. So we've kind of shifted that mindset from what was, hey, we just want a hot food option and a place for somebody to sleep to really creating an environment for a person to live on a day-to-day basis. It's important for a couple reasons, and the biggest one is statistics are saying that the country will be short about 500,000 skilled laborers by 2028. So the competition for those skilled laborers, whether electricians, plumbers, or whatnot, is going to be key. So it's important for the speed at which these data centers are to be built, it's important to make sure that the hyperscalers are bringing the best people and giving them the right environment to work within to be excited about coming in. And the other statistic that we're excited about and being able to impact day-to-day is statistics will say an employee who is satisfied with their workforce community, their housing environment, where they eat, where they sleep, is 68% more productive. So we're tasked with bringing that level of satisfaction to the community, to the data center, to make sure that they're building at the speed they are. So if you can't tell, I'm excited about it.

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

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

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

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

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

Yeah, I think just, again, to level set on the earnings call, we talked about sort of three sites, two related to the hyperscaler and the third related to the co-locator that are in various stages of mobilization, one where we're actively serving meals today. Each of those three sites represents about $150 million of annualized revenues. is that sort of the four to five hundred million we referenced on the call the new wind today still developing but likely larger than a hundred million as well so exciting news for us ramping up probably in the first half of calendar year 27 and maybe sooner so with that we have this you know active annualized development pipeline is sort of in the 450 to 550 million range a portion of obviously being recognized in fiscal 27. So that gives you a sense for the overall trajectory.

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

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

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

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

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

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

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

Yeah, I'll start. I mean, just given compared to some of the smaller players, which historically really focus more on the lodging and infrastructure part, just the scale we have, right? Aramark spends over $20 billion of spend that we manage. And historically, that spend, remember, rooted in Avenger, which is a hospitality-focused organization. All the things that Pat is procuring is something that we're sort of market leaders in doing. We've been really experts and leaders in rolling up large, complex projects in general. We've operated 17 Summer Olympic Games. Gives you a sense of the scale and the capabilities we have. Within North America, we're a leading provider in destinations and leisure. We operate 1,000 people, 10,000 feet up in the mountains at Yosemite National Park. We're a leader in remote services, which means the mines in Chile, the tar sands in Canada. So that capability to lead large, complex projects in an expedited timeline, often in the middle of nowhere, at the scale that we have, I think is a key differentiator for Aramark. On top of that, this is something we've been working at for over a year now with this opportunity, publicly announced a few months ago with Nexus. It's a complex market, so unlike maybe traditional B&I where it's clear who the buyer is here, this complexity actually leads to the first mover having even more advantage in working out the routes and building up the sales organization, so that positions us particularly well.

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

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

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

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

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

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

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

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

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

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

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

Sure, and I spent nearly half of my career in the international business really proud of what the team has done to continue to elevate the performance there. And like you said, 20 quarters in a row of double-digit growth, really remarkable performance. So, you know, growth has really always been at the core. If you look historically, the retention levels, the new business, again base business growth and it's been broad based across geographies and sectors which is good the growth particularly in the large countries in this last quarter we had really nice growth coming out of the UK and Germany Canada and in Chile in South America the team has also done a really nice job targeting and differentiating across specific sectors across their portfolio So as an example, sports and entertainment is an area that we were outside of Germany where we've done soccer and concessions for many years. Carl and team has done a nice job building up our capabilities in Europe. You know, you had an event at Everton, which is one of the top hospitality providers you ever see in a stadium in Europe. on top of that we now have a real core capability with festivals and in concert activity through some of the tuck-in deals that we've done so sports and entertainment a good example where we've differentiated our offer similar with remote services so we've had a strength number one provider of food and facilities to the the mines in Chile where you might have thousands of workers and you know whether it's in tunnel environment or you know thousands the feet in the mountains is something we've been able to differentiate not unlike what we're doing with nexus it's similar with the tar sands in canada again these remote complex environments and then dozens of miles off offshore in the north sea with these remote rigs in the uk so again a targeted sector where we have capabilities that we've been able to take advantage across the countries that we operate yeah and that's an interesting point and a great segue into my One more Nexus question that I have, which is, you know, today it's all been kind of on the U.S. side of things.

But longer term, is there an opportunity, especially because you have these remote capabilities in Europe and other kind of regions that you've been doing ex-U.S.? Could that be something that you consider going overseas with longer term with the Nexus opportunity?

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

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

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

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

There are a lot of opportunities to convert first-time outsourcing, and if you look at our new business wins, the percentage coming from first-time outsourcing has remained elevated, probably 40% or north of that. And there's a few reasons for that. One is just simply scale, right? We're spending $20 billion, and compared to try to do that at a single flight at a school where you're spending $5 to $10 million, we're just going to have better economics and better deals with the suppliers and manufacturers. Second is the technological requirements, which has become an increasingly important part of our offer. And think about embedding AI into our culinary production tools, as we call culinary co-pilot, the way we plan labor, a product called LaborIQ. Mosaic is a tool our supply chain and GPO team use to sort of analyze and assess our spend across our products in SKU. So that's all stuff that's been embedded with AI technology and something we've built into our run rate. We have a key part of our technology organization. So that's very hard to do if you're trying to do it on your own. Secondly, there's some industry that is just an example that I think propensity to move toward outsourcing. So think about like collegiate athletics, right? With the introduction of NILs and additional funding requirements into collegiate athletics, we've been able to professionalize help these organizations professionalize their stadiums so the same folks that are running you know Citi Field and Citizens Bank Park leveraging those capabilities to expand our offer being able to double average checks in in the collegiate environment that in turn leads to concessions coming back to the schools just at a time when funding both from a sports and obviously federal funding being cut back they increasingly need to monetize those operations as an example definitely so I have to talk about the balance sheet because you you're in such a great spot now and I think you're set to be below three

times net leverage by the end of this year and you know it seems to me as if the business is in is accelerating too in terms of some trends that are going on and so with that higher AOI growth and with the progress that you've made in terms of de-levering and cash flow and everything else Like, how do you think about that longer term in terms of the balance between, you know, FIVAC, dividend, potential M&A, just investments in the business? Like, where do each of those things kind of rank?

Yeah, we're really proud of what we've done on the capital structure. We were recently upgraded by both Moody's and S&P, with S&P to BB+. So it's, like, really the lowest leverage the company's had in my tenure, which is, you know, over 23 years. Now, being at under three times leverage has really been the foundation for our capital allocation strategy. With that, we've had a lot more institutional investors, particularly over in Europe and Australia, coming in to the stock. And Felice and the team have done a nice job for actively bringing that additional demand into play. Once we're under three times, this is a company that resilient cash flow, obviously very comfortable with higher amounts of leverage, but it gives us tremendous amounts of financial flexibility. It gives us the fuel to continue to invest in our capital to drive growth in the business, which is very predictable, as we basically remain in about 3.5% of sales. Targeted and disciplined M&A is a key part of what we do as well. Pat's Old War Refreshment Services is where we've done some targeted smaller deals, elevating our brands, and then expanding in our GPO are just a few examples, sort of small, strategic, both on M&A. With that, as you model it out, there's really no reason to go much lower than sort of 2.6 or 2.7 times. There's a lot of additional cash flow being generated to reward shareholders. That will come in the form of low double-digit dividend growth. It will come in the form of increased, elevated share repurchase activity over the next couple of years.

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

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

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

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

Thank you for having us. Appreciate it.

Thank you.