All right. Good morning, everyone. Thanks so much for being here. I am incredibly excited for this next session of our Goldman Sachs Global Consumer and Retail Conference with Aramark, which has so much going on. I feel like we are going to pack so much into these next 35 minutes. My name is Lizzie Dove. I cover gaming, leisure, and lodging here at Goldman, and it is my pleasure to have here Jim Tarangelo, Executive Vice President and CFO of Aramark, Pat Liebler, CEO of Nexus, and we have Felise Kissell here in the audience too, Head of Investor Relations and Corporate Development. Welcome, Jim and Pat.
Appreciate it.
Thanks so much for being here. Pat, I think this is your debut with Wall Street investors. So very excited to hear all of what you have to say about Aramark Nexus, which we will get into very shortly. Maybe just to start off, if we just step back and see, Aramark today feels like broadly is growing faster, retaining clients at a higher rate, margins are firing on all cylinders, a lot of new contracts that you have been winning, and that is before we even talk about Aramark Nexus, which we absolutely are going to talk about. What do you think has 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 is 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 have been delivering the results that you have seen, and we think that the elevated retention levels, record levels of new business, double-digit underlying growth that we have seen we do think is very much sustainable.
Definitely. 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 momentum really across the board. What are you seeing overall in terms of demand? Are there particular sub-segments or industries that have been driving that, or how would you categorize the U.S. overall this year?
Yeah, 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 micro markets. This is Pat usually, has grown double- digits now for 20 or 21 quarters in a row. Our sports business-
21.
21. He's counting, Pat. Our sports business and entertainment business continues to show very strong growth as well, with a really good performance of the playoffs, the World Cup, underlying performance in Major League Baseball- in the third quarter. 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.
Yeah.
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 healthcare. That's really been some of the key contributors to the U.S. growth accelerating.
Yeah. 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. The speed of progress has been astounding since you've 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. Pat, maybe you can start with the basics for us. Firstly, for those not familiar, maybe you could take a second just to 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 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, will be golf courses.
Really to create an environment for those who are building these data centers, which are being tasked to build at a high rate of speed and quickly, to really make sure that they are feeling comfortable and appreciated when they go back to their place to live at the end of the day. Our focus is really driving that experience for them, and really, again, I would say setting us apart. So we've kind of shifted that mindset from what was, hey, we just want a hot food option and a place for somebody to sleep, to really creating an environment for a person to live on a day-to-day basis. It's important for a couple of reasons, and the biggest one is statistics are saying that the country will be short about 500,000 skilled laborers by 2028.
The competition for those skilled laborers, whether electricians, plumbers, or whatnot, is going to be key. It is important for the speed at which these data centers are to be built. It is 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. The other statistic that we are 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. We are tasked with bringing that level of satisfaction to the community, to the data center, to make sure that they are building at the speed they are. If you cannot tell, I am excited about it.
Yeah. No, it seems great. It definitely seems very premium, very elevated experiences.
Yeah.
Definitely differentiated there. I am curious, when we think of the TAM, one of the top questions I get is, what is this addressable market over time? Also more specifically, what is Aramark's realistic share of that? How do you think about that, and has that changed even over the last six months as you have been going through this and seemingly winning a lot of contracts in the process?
Yeah, I will kick it off. We know it is an enormous market. I think your research shows $40 billion-$50 billion in market size. I think it is probably larger than that, there are some estimates at a $100 billion market. Aramark is well positioned. Very few players have the size and scale that we do. To be able to roll this out in a sort of a first-mover advantage positions us very well. To capitalize on that. We've announced a number of significant wins already this year. There's no reason this can't be a $2 billion-$3 billion business over the next few years, how we think about the size.
Yes. No, it's very impressive. Even just this morning, this is great timing, I was happy we're doing our fireside today, because you just announced that you've been selected as the premier hospitality partner for another workforce community at a new data center in Texas. 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. Could you maybe just talk a little bit about that? This was news to me this morning, so I'd love to hear more.
Yeah, I'll take that one. Yes, so when you think about the ways to penetrate the opportunity, really come directly through the hyperscaler, through what is a co-locator, land developer, and this latest one through housing partners. This housing partner opportunity partnership that we're talking about this morning is where they had brought us in. A lot of the hyperscalers will delegate the responsibility to find hospitality providers to the general contractor, through the 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, what we're excited about is, 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. At least last earnings, maybe this has changed with this new contract, but at least last earnings, you talked about a $400 million-$500 million opportunity ramping through- 2027 and 2028. When you think about that number, what are the biggest variables of what determines where you hit within that range? Is it just number of sites, or if they get upside? Is it timing, or pace of construction, or what quarter they open? How do we think about the variables within those?
Yeah.
Yeah.
I think just, again, to level set on the earnings call, we talked about three sites. Two related to the hyperscaler, and the third related to the co-locator that are in various stages of mobilization.
Yeah.
One where we're actively serving meals today. Each of those three sites represents about $150 million of annualized revenue, so that's sort of the $400 million- $500 million we referenced on the call. The new win today, still developing, but likely larger than $100 million as well. Exciting news for us. Ramping up probably in the first half of calendar year 2027 and maybe sooner. With that, we have this active annualized development pipeline as sort of in the $450 million- $550 million range. A portion of that obviously being recognized- in fiscal 2027. That gives you a sense for the overall trajectory.
Yeah. 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.
Right.
Could you maybe talk more in detail about what exactly drove that between your first estimate and then how that had increased over time?
Yeah, it really comes down to beds and the number of workers that are on site. 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 are looking to make sure they get a premium experience.
Yeah.
So combination primarily driven by more beds and more residences at the camp is the main driver.
Yeah.
For the increase in the outlook, as well as additional services that they are asking Aramark to perform.
You think about the schedule itself, that drives a lot of what happens. So once things are in a position to move forward, what is not changing is the end date.
Right.
The end date is they still want it done, and they want it done as fast as possible. So in the cases that you are referencing of the increase, it was more about, hey, we have got to accelerate the growth of this.
Yeah.
To make sure that we're ready. So they doubled down on the speed at which they were going.
Yep. Makes total sense. 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 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.
Yeah.
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, a 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, Pat can comment, it's the elevated premium complexity of these projects where-
Yeah.
The providers want to make sure those employees are being retained and being offered really top-tier products, which allows us to-
Yeah.
Have those margins higher than the average.
Yeah.
Cost is always obviously important.
That said, what is more important today is having the boots on the ground to build the data center.
Yeah.
In order to do that, we have to build the right experience, and that is what we are doing, and that is how we are looking at this. That warrants them for us to get the fee 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.
Yeah.
Here is the amenities and services that you are going to get. It will be drastically different than what they are used to.
Yep. I think one of the things you touched on earlier, the beauty of this is the opportunity and the TAM is so large, but also even despite that, you have 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. Could you talk to me about that and how you think about the competitive environment and why Aramark is positioned to-
Yeah.
Take its fair share or more than its fair share?
I will start. Just given compared to some of the smaller players, which historically really focused more on the lodging and infrastructure part, just the scale we have, right? Aramark spends over $20 billion of spend that we manage, and historically that spend, remember, rooted in Avendra, which is a hospitality-focused organization. So all the things that Pat is procuring is something that we are market leaders in doing. We have been really experts and leaders in rolling up large, complex projects in general. We have operated 17 Summer Olympic Games, gives you a sense of the scale and the capabilities we have. Within North America, we are a leading provider in destinations and leisure. We operate 1,000 people, 10,000 ft up in the mountains at Yosemite National Park.
Yep.
We're a leader in remote services, which means the mines in Chile, the tar sands in Canada. 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, now 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 an advantage in working out the routes and building up the sales organization.
Yeah.
That positions us particularly well.
Yeah.
Yeah. Standing up Nexus as its own line of business was clearly the right thing to do because you take a company that's celebrating 90 years right now this year, in hospitality, but through facilities, through hotel, through our amenities, through our sales. We were able to build and find the best from each one of those lines of business to bring in under one umbrella.
It's not where you're being asked to deal with four or five different CEOs in 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. The biggest one is scale. 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?
Right.
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 in the pipeline, and so you have that as more share to go after over time. I just want to touch on what you think about the risks for this. I started to get questions just on the politics of AI and data centers and some of the moratoriums that we've seen put out there. Could you help us just separate 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 the computational needs of data centers, that will continue, and that will advance regardless if there's maybe a sort of slowdown in how we- develop the algorithm. What we are seeing on the ground is the continued advancement of these projects. There is going to be a need for these data centers. They are likely going to continue to grow in terms of size and scale. The first few sites that we are launching are in Texas and Wyoming, generally states that are conducive to data center expansion. Even within Texas, there was some talk of a moratorium. That is only for new projects that are tapping into new electrical needs that might disrupt communities. Our projects are already approved and progressing from there.
Okay.
I think the reality on the ground is that there will continue to be an enhanced need for data centers and hyperscalers, regardless of whether there is a slowdown in how those algorithms work.
Yep.
They will continue to progress.
Makes sense. When I put all of this together, it sounds incredibly exciting over the next few years. You have already been doing this very successful algo of, call it, 5%-8%, 6%-9%, whatever you want to call it, of the core business in terms of organic revenue growth. Now you are going to be exiting this year, I believe, somewhere in the low double- digits, and that is before a lot of these new projects have ramped, and you keep adding more. Does Nexus structurally change this long-term algo? I know this is early to be asking, but I would love to high level hear your thoughts on it.
Yeah. As you said, if the algorithm for this business historically has been 5%-8% growth-
Yep.
That is the growth that is needed to sort of fuel the scale and our overheads, fuel the supply chain efficiencies to generate the margin accretion that we have seen. We have obviously been operating north of that algorithm, particularly with the U.S. business accelerating their growth. International continued growing at double-digit rates as well. I talked about on the call for the fourth quarter of FY 2026, we would expect the Nexus opportunity to drive about 1% of the growth, gives you a sense of the impact. That will continue to scale and grow over time as these projects become a larger part of our portfolio. With that, with a foundation for the strong exceptional retention levels we have had-
Yeah.
Record new business. The core business being strong, and on top of that, all the exciting things we are doing in Nexus, that does give us a good trajectory to operate above that algorithm.
Yeah.
You think about, as I said, about standing up the line of business of Nexus. This particular year, we have 10 other lines of business that have had banner years, in looking at it. You look at this particular year for us, it is Nexus, we have got our own marching orders. It is not a distraction for the organization.
Okay.
That what we are doing continue. I think that again, puts us in a great spot is, we know the task at hand, we know the size of the opportunity that we have in Nexus, but simultaneously, the rest of the company is going.
Mm-hmm. 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 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 30- 40 basis points of underlying margin improvement over the past few years. We've always talked about, at some point, the business reaches a steady state of 20- 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- 40 basis points of margin accretion, which puts us in a really good spot.
Yep. 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 onto 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-
Yes.
That we have going here. Could you maybe talk about, are there certain geographies or industries that are driving that in particular? Every quarter I think it has to slow down at some point, and it hasn't in the last few years that I've been looking at it. So how do you think about the kind of sustainability of that too?
Sure. I spent nearly half my career in the international business, really proud of what the team has done to continue to elevate the performance there. Like you said, 20 quarters in a row of double-digit growth, really remarkable performance. Yeah, growth has really always been at the core. If you look historically, the retention levels, the new business, again, base business growth. It's been broad-based across geographies and sectors, which is good. The growth, particularly in the large countries.
In this last quarter, we had really nice growth coming out of the U.K. and Germany, Canada, and in Chile and South America. The team has also done a really nice job targeting and differentiating across specific sectors across their portfolio. As an example, sports and entertainment is an area that we were, outside of Germany, where we have done soccer and concessions for many years. Carl and team has done a nice job building up our capabilities in Europe.
Yeah.
You had an event at Everton, which is one of the top hospitality providers you will ever see in a stadium in Europe. On top of that, we now have a real core capability with festivals and concert activity. Through some of the tuck-in deals that we have done. Sports and entertainment, a good example where we have differentiated our offer. Similar with remote services. We have had a strength, number one provider of food and facilities to the mines in Chile, where you might have thousands of workers, and whether it is in a tunnel environment or thousands of feet in the mountains, is something we have been able to differentiate, not unlike what we are doing with Nexus. It is similar with the tar sands in Canada. Again, these remote, complex environments. Then dozens of miles offshore in-
Yeah.
The North Sea with these remote rigs in the U.K. So again, a targeted sector where we have capabilities that we've been able to take advantage across the countries that we operate.
Yeah. That's an interesting point, and a great segue into my one more Nexus question that I have, which is, today it's all been 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 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 we've definitely tapped into that expertise as we've built it out. That said, we want to make sure that we're balancing the elevated service. To what we 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 initial focus is grow North America.
Yeah.
And grow it quickly.
Yep. 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 your existing geographies that it's not necessarily about expanding into new countries at this point?
That's right. We're in the countries that we need to be and have plenty of runway within each of those respective countries to continue to grow our market share. In many countries, we have the opportunities to grow certain sectors. As an example, we've had historic strength of in B&I and sports in Germany due to some regulatory changes, as an example. Healthcare is now a very attractive opportunity, so we are able to leverage our healthcare experience in other countries to expand there. The same thing would be said for other countries where we could-
Yeah.
Expand the sectors we are in-
Right.
And there is sort of a natural market to grow without having to plant additional flags-
Yeah.
Which is often a challenging thing to do in an international portfolio.
Definitely. Going on to just a big picture theme that I do get asked about quite a lot, and was, I feel like initially a concern and now an opportunity that people see, is just on the outsourcing penetration side of things. It felt like, to me at least, correct me if I am wrong, that COVID-19 really accelerated that outsourcing kind of pacing that happened, and there was a fear, I think, that 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 been in terms of the growth there. With the, say, remaining 50% of the industry that it still isn't outsourced, how do you think about that? What's the runway there, and what kind of catalyzes that to keep moving?
There are a lot of opportunities to convert first time outsourcing.
Yeah.
If you look at our new business wins, the percentage coming from first time outsourcing has remained elevated. Probably at the 40% or north of that.
Okay.
And there's a few reasons for that. One is just simply scale, right? We're spending $20 billion, and then compared to try to do that at a single site at a school where you're spending $5 million-$10 million, we're just going to have better economics and better deals with the suppliers and manufacturers. Second is the technological requirements, which is becoming an increasingly important part of our offer. 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 and SKUs. So that's all stuff that's been embedded with AI technology, and something we've built into our run rate. We have it in a key part of our technology organization. So that's very hard to do if you're trying to do it on your own. Secondly, there's some industries, as an example, that I think propensity to move toward outsourcing. Think about collegiate athletics, right?
With an 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 Citi Field and Citizens Bank Park, leveraging those capabilities to expand our offer, being able to double average checks in the collegiate environment. And that, in turn, leads to concessions coming back to the schools just at a time when funding, both from a sports and obviously federal funding being cut back, they increasingly need to monetize those operations.
Yeah.
As an example.
Definitely. I have to talk about the balance sheet, because you are in such a great spot now, and I think you are set to be below 3x net leverage by the end of this year. It seems to me as if the business is accelerating, too, in terms of some trends that are going on. With that higher AOI growth and with the progress that you have made in terms of delevering and cash flow and everything else, how do you think about that longer term in terms of the balance between buybacks, dividends, potential M&A, just investments in the business? Where do each of those things kind of rank?
Yeah, no, we are really proud of what we have done on the capital structure. We were recently upgraded by both Moody's and S&P, with S&P to double B plus. It is really the lowest leverage the company has had in my tenure, which is over 23 years.
Yeah.
Being at under 3x leverage has really been the foundation for our capital allocation strategy. With that, we have had a lot more institutional investors, particularly over in Europe and Australia, coming into the stock, and Felise and team have done a nice job proactively bringing that additional demand into play.
Yeah.
Once we're under 3x , this is a company that resilient cash flow, obviously very comfortable with higher amounts of leverage, but it gives us tremendous amounts of financial flexibility. 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 at about 3.5% of sales. Targeted and disciplined M&A-
Yeah.
Is a key part of what we do as well. Pat's old world refreshment services is where we've done some targeted smaller deals, elevating our brands, and then expanding in our GPO 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 2.6x or 2.7x . There's a lot of additional cash flow being generated to reward shareholders. That will come in the form of low double-digit dividend growth.
Yeah.
It will come in the form of increased, elevated share repurchase activity over the last couple of years.
Yeah. No, it's exciting. This final one, I suppose, just to close us out, we've heard so much great stuff today, amazing insights from both of you, and it feels like a very exciting time for Aramark. 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?
Sure. Yeah, I'll start, Pat chime in. I think we've 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 Zillmer coming back to the company and laying out this plan and really changing the culture of the business so that we're so growth-focused. We really used to be P&L-focused and driving costs down. Now when we do our operating reviews, it's really starting with growth, retention, and that's a key driver of how we think about the business. I think the lasting impact of the cultural change-
Yeah.
On the financials is going to be something that I think we will be very proud of-
Definitely.
Two years out.
Yeah, I'll just add, as cliche as it may sound, the people.
Yeah.
I think there's a high level of energy at every level that works for Aramark right now. I often use the phrase feel like a winner. I think they feel like winners.
Yeah.
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. I think when they feel and see the win, it's contagious.
Yeah.
I think that's the exciting part.
That's a great place to leave it off. Jim, Pat, thank you so much for the time today.
Appreciate it.
This has been great, and really appreciate you being here.
Thank you for having us.
Thanks for having us.
Appreciate it.
Appreciate it.