Aramark achieves 14% organic revenue growth and maintains 96.3% client retention, positioning for continued success in fiscal 2026.

OPERATOR - (00:01:23)

Good morning and welcome to Aramark's fourth quarter and full year fiscal 2025 earnings results conference call. My name is Kevin and I'll be your operator for today's call. At this time I'd like to inform you this conference is being recorded for rebroadcast and that all participants are in a listen only mode. We will open the conference call for questions at the conclusion of the company's remarks. I will now turn the call over to Felice Cassell, Senior Vice President, Investor Relations and Corporate Development. Ms. Cassell, please proceed.

Felice Cassell - Senior Vice President, Investor Relations and Corporate Development - (00:01:48)

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

John Zilmer - Chief Executive Officer - (00:02:50)

call over to John. Thanks, Felice. Thanks to all of you for joining us. On today's call, Jim and I will review our fourth quarter and full year results, including the strategic financial and operational milestones accomplished in fiscal 25. We've built upon our historically strong, consistent performance and advanced a number of initiatives that position us well for the year ahead, which will be discussed in more detail. First and foremost, we take delivering on our commitments very seriously and it's important to understand that as we onboard an unprecedented level of new business, we took the appropriate time to work closely with certain large clients in preparing for a seamless transition to Aramark becoming their new hospitality partner. In some cases, this led to a shift in the timing of new account openings which impacted revenue in the fourth quarter. With many of these sites now up and running, we are well positioned for strong revenue performance in the quarters ahead. We are more resolved than ever to meet and even exceed the high yet very attainable bar we set for ourselves. This past year has represented many consequential firsts for the company, all of which contribute to the strong growth trajectory for the businesses, including annualized gross new wins of $1.6 billion which is 12% higher than fiscal 24 and reflects the largest contract awarded in FSS US history and the second largest globally. An industry leading client retention rate of 96.3% with many lines of business and countries in the portfolio above this retention level all combined resulting in net new of 5.6%, over 1 billion of new purchasing spend added for a second consecutive year in our supply chain GPO network and lastly achieving a leverage ratio of 3.25 times a number we haven't seen since prior to when Aramark went private in 2007. Our new business pipeline across the organization is significant including first time outsourcing opportunities and we are already off to another strong start at this early stage of the fiscal year. This includes adding Blue Origin, Pennsylvania's Easton Public Schools, the Welsh Rugby Union as well as expanding our services for Airbus. I have great confidence in the company's continued ability to achieve Net new of 4 to 5% of prior year revenue with retention levels exceeding 95% in fiscal 26 and beyond. And when we over deliver on this metric we reward our teams appropriately as was the case particularly in the fourth quarter reflected in additional incentive based compensation from net new business, an objective representing 40% of the company's incentive plan for leaders across the organization. Moving to our results in the quarter, Aramark's organic revenue increased 14% largely from net new business and base business growth. Excluding the 53rd week, organic revenue was toward the higher end of our long term growth model. FSS US grew organic revenue 14% in the fourth quarter, again excluding the 53rd week organic revenue was up mid single digits led by workplace experience and refreshments, continuing its pace of record net new business, collegiate hospitality with strong retention rates, meal plan optimization success and benefiting from higher student enrollments, particularly from our portfolio of academic institutions in the popular south and Southeast and healthcare reporting its best performance in over two years. Our Healthcare plus business was recently named number one in Best Places to Work by Modern Healthcare for our commitment to a people first culture and operational excellence across the industry. While we are encouraged with our roster of high performing teams, while we were encouraged with our roster of high performing teams and as the MLB playoffs approached, the outcome was not what we anticipated with the majority of our teams ultimately falling out of playoff contention. We've now entered the NFL, NBA and NHL seasons where fan attendance has been strong to date, leveraging our expertise in professional sports, Aramark's collegiate sports business is experiencing double digit revenue growth with per capita rates up 14% year over year driven by increased concession spending and expanded premium services. I also want to commend our employees in the Destinations business who worked closely with the National Park Service to assist during and following the devastating Dragon Bravo fire in the Grand Canyon's North Rim. We had been operating the historic Grand Canyon Lodge which was severely damaged. While it's still early, we are supporting the recovery and rebuilding efforts in the region and are optimistic about what's ahead for the visitor experience at the North Rim. We continue to expand our enterprise wide capabilities and collaboration which resulted in our new multi year agreement with the University of Pennsylvania Health System, the largest contract win ever in the US from one of the most prestigious medical systems in the world. We are proud to put our understanding of sophisticated and complex healthcare systems to work in new settings. We will be providing patient and retail food, environmental services and patient transportation alongside an integrated call center to support these operations at sites across a nearly 4,000 bed 7 hospital system. Among our many technologies offered at Penn Medicine will be an AI driven patient menu platform that configures patient meals based on diagnosis and dietary requirements in addition to proven robotic applications for both environmental services and meal preparation. Our proprietary AWICS platform will be used to map staffing and other needs as well as our Quick Eats micro markets and mobile ordering platforms. We look forward to launching operations early in calendar 26 and are working closely with Penn Medicine to identify other opportunities. To further grow the partnership. Additional clients added to the US portfolio in the fourth quarter included Chicago's DePaul University and collegiate Hospitality, where we'll begin operating next semester. Discover, following the acquisition by Capital One, also a client, as well as expanding our hospitality services into top tier law firms within workplace experience. Now to International. Once again, International delivered consistent double digit organic revenue growth increasing 14% in the fourth quarter with approximately 3% growth coming from the 53rd week, led by substantial new business, high retention and strong base business growth. All geographic regions contributed to this performance with particular strength in the UK, Canada, Ireland, Spain and Latin America. Toward the end of the quarter, International experienced its highest revenue ever for a single one day event when the NFL's Pittsburgh Steelers played the Minnesota Vikings at Croke Park Stadium in Dublin, Ireland. All Aramark clients. We also just had great success at Olympic Stadium in Berlin, Germany with another NFL matchup as the league's fan base continues to quickly grow in Europe. International was awarded new clients in the fourth quarter across sectors and geographies. This included expanding our growing presence in the UEFA Champions League and Bundesliga with the addition of Bayer Leverkusen Football Club in Germany, the healthcare network of Hospital Italiano in Argentina, energy exploration and developer ENAP in Chile and mining leader IAM Gold in Canada. Looking forward, we expect International to maintain its strong business momentum, delivering on a growth agenda focused on culture, team capabilities and process Turning to Global Supply Chain Avendra international added another $1 billion of new purchasing spend in its GPO network this past fiscal year, primarily from travel and leisure, health care, senior living and education. The supply chain team is also leveraging enhanced technology capabilities to optimize client compliance and contract productivity. We're making the appropriate investments to build upon our strong analytics and client mobile chatbot platforms. These powerful tools put the answers our frontline clients need in the palm of their hand and continue to deliver back end efficiencies in our supply chain operations. We are now deploying these solutions globally, we are expanding our international footprint and supply chain and the Quantum acquisition has fit well into the portfolio contributing accretive growth to both Europe and Latin America. Inflation levels have been as expected and we currently estimate inflation around the 3% range heading into the new fiscal year. As we continue to effectively manage the broader macro environment, our teams are closely monitoring any changes in the marketplace and will leverage our extensive capabilities to support our clients. Before turning the call over to Jim, I want to reiterate that our teams across the company are hard at work and focused on accelerating performance and we are already seeing success entering the new fiscal year in leveraging enterprise wide capabilities, starting operations for a record number of new clients, maintaining our client retention momentum, optimizing global supply chain strategies, and lastly pursuing substantial growth opportunities.

Jim Tarangelo - Chief Financial Officer - (00:12:30)

Jim thanks John and good morning everyone. We reported another year of commendable operational performance on both the top and bottom line, a testament to the capabilities of our business model. We are experiencing unprecedented levels of success in key leading indicators of performance, annualized gross new wins and client retention which provide us the momentum to deliver our expected growth in fiscal 26 and even beyond. I want to now provide some insights into our fiscal 25 financial performance before reviewing our expectations for the upcoming fiscal year. As John reviewed fourth quarter organic revenue was up 14%. The growth was driven by new business, high retention levels, increased base business and the benefit of the 53rd week which contributed approximately 7% more than offsetting a shift in the timing of new account openings. For the full fiscal year, we reported revenue on a GAAP basis of $18.5 billion, up 6% compared to the prior year. With approximately 1% of foreign currency impact. Organic revenue grew 7% versus the prior year again from net new business base business and 2% from the 53rd week and as you know also reflects the company's portfolio exits and facilities. In the prior year. Adjusted operating income for the quarter was 289 million and grew 6% on a constant currency basis led by higher revenue levels leveraging technology capabilities particularly in supply chain and above unit cost discipline. The increase more than offset higher incentive based compensation of 25 million recorded in the quarter associated with achieving record net new business. As a reminder, our growth oriented model is structured with 40% of our incentive based compensation tied to an annualized net new business metric. Throughout the fiscal year we accrued this compensation based on expected performance. The Penn Medicine win in the fourth quarter in particular resulted in a maximum payout under the incentive plan for this metric. Additionally, we did have higher prescription claims in the quarter along with some new business startup costs in higher ed and collegiate sports areas of attractive growth for the company. Excluding these expense items in the quarter, AOI margin would have been higher by 70 basis points. The company has taken decisive actions to decrease future medical expenses related to elective lifestyle prescriptions, specifically GLP1 coverage for fiscal 25 AOI was 981 million, up 12% on a constant currency basis which represented AOI margin expansion of nearly 25 basis points. This growth was led by our operating levers and the estimated contribution from the 53rd week of approximately 2% which more than offset the additional incentive based compensation I just mentioned, affecting AOI growth by 3% or 20 basis points. Turning to the business segments, the US reported AOI growth of 2% during the quarter. Growth was due to higher revenue levels, enhanced technology capabilities and effective cost management. AOI growth in the quarter more than offset the higher expenses associated with incentive based compensation, medical and some new business startup costs already mentioned. We also took the opportunity to make some strategic reinvestments within destinations which included property development, digital marketing optimization and other enhancements to drive the guest experience. To a lesser extent, we did feel some effect from our MLB teams falling out of playoff contention for the full year. US AOI was up 9%. We continue to benefit from and invest in advanced technologies that will further drive our financial performance. These capabilities are strengthening our operational efficiencies and enabling us to scale best in class digital experiences. The international segment experienced aoi growth of 31% during the fourth quarter and 21% for the full year both on a constant currency basis. AOI margin for the year improved by more than 40 basis points. Aoi growth and Margin expansion was led by higher revenue, effective cost management and supply chain efficiencies. For the fourth quarter, adjusted EPS was 57 cents, up 6% on a constant currency basis. For the full year, adjusted EPS was $1.82, an increase of almost 20% on a constant currency basis. The additional incentive based compensation impacted adjusted EPS by $0.07 in both the fourth quarter and full year. On a GAAP basis, Aramark reported consolidated operating income of 218 million and EPS of 33 cents in the fourth quarter and for fiscal 25 operating income was 792 million and EPS was $1.22. This included severance charges from restructuring initiatives to further optimize operations as well as a noncash asset write down in the fourth quarter associated with a minority interest investment made in a previous fiscal year. Moving to Cash Flow Consistent with our normal seasonality of the business, the fourth quarter generated a significant cash inflow which contributed to our strong cash flow for the full year. Net cash provided by operating activities in fiscal 25 was 921 million and free cash flow was 454 million. Our free cash flow grew by more than 40% compared to the prior year period from higher cash from operations and favorable working capital, particularly from improved collections. Our cash flow performance and higher earnings resulted in our consolidated leverage ratio improving to 3.25 times at the end of September, down from 3.4 times a year ago and represent the company's lowest level in nearly 20 years. We closed the fiscal year with more than 2.4 billion of cash availability. This provides us with the continued flexibility to execute on our capital allocation priorities which effectively optimizes investing in the business. Reducing leverage below 3x and increasing the quarterly dividend which was just increased by 14% while repurchasing stock utilizing excess cash generation. I'll now wrap up with our outlook for fiscal 26. Based on our current expectations, we anticipate the following full year performance organic revenue of $19.45 billion to $19.85 billion representing growth of 7% to 9%. For easier comparison purposes, the fiscal 25 revenue is on a 52 week basis AOI of 1.1 to 1.15 billion, an increase of 12% to 17%. Adjusted EPS in the range of $2.18 to $2.28 reflecting growth of 20% to 25% and a leverage ratio below 3 times 1 point. To keep in mind on the quarterly cadence for fiscal 26, there is a slight calendar shift from the 53rd week in fiscal 25, which has no effect on the full year fiscal 26 numbers, with more detail in the analyst modeling section of our earnings slides. In summary, we remain resolved in driving our strategies to capitalize on the significant growth opportunities for the business, centered on strong revenue growth and through new business wins, high client retention rates and base business growth. At the same time, we expect to continue accelerating our profitability from our multiple operating levers, including differentiated supply chain capabilities and disciplined cost management, enhancing our efficiencies and scale across the business. With a resilient business model and a clear path forward, we are well positioned to deliver long term value for our shareholders. We believe the future of the company is extremely bright and we're energized about the opportunities ahead. Thank you for your time this morning, John.

John Zilmer - Chief Executive Officer - (00:21:25)

Thank you, Jim. With fiscal 26 now underway, we look ahead with great confidence. Our efforts are centered on building a high performing, sustainable business focused on providing exceptional hospitality services to our clients. I want to reiterate that we are committed to creating significant value for our shareholders and are taking the appropriate actions to realize this unwavering objective. An operator will now open the call for questions.

OPERATOR - (00:21:52)

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

Ian Defina - Equity Analyst - (00:22:22)

Hi Seth, thank you very much. Very impressive. On the new win side, I mean, I guess this kind of just speaks to the culture of the company. You know, retention's going up and I guess this is just seemingly a culmination of a very kind of client focused culture here, you know. Glad you're taking the time to spend time with the clients to do so, you know, but the question would be, you know, when we're thinking about these new account openings, can you maybe just delve a little bit more into the shift in timing? You know, is this in particular sectors or areas? Do you think it will continue? Any economic related factors that you didn't mention or any kind of other color there would be helpful. Thanks.

UNKNOWN - (00:23:13)

Great. You bet. Thank you.

John Zilmer - Chief Executive Officer - (00:23:15)

Yeah, first of all, it was the calendar shift or the opening shift, if you will, really occurred in multiple businesses. Corrections Workplace experience and healthcare all had kind of late breaking opportunities for openings which were deferred into calendar into fiscal 26. Without going into specifics, the impact was significant in the quarter, but it was appropriate from a timing perspective to make sure that we could open effectively. And frankly it was also appropriate for the timing of the client. It was really ultimately their decision with respect to the opening timing. So yeah, it was significant. It's not typical. You know, generally when we sell accounts, we tend to open them in the year that we sell them. This was a result of a number of different opportunities, all of which were terrific for the company and we're very excited about the overall results. As you know, we sold nearly a billion dollars of new business, of net new business this year and on a gross basis, 1.6 billion. So just a fantastic performance by the entire team delivering on the new business objectives and with a retention rate exceeding 96.3% just ends up being a great trajectory for 26.

UNKNOWN - (00:24:46)

Right.

Seth - (00:24:47)

And since you mentioned new business, you know, congratulations on this Penn deal. And you know, this will bring me into my next question. Maybe you could talk about 2026 CA here, maybe talk about that UPenn contract, how that kind of ramps throughout the year. Do you have any other deals baked into the guidance or how are you thinking about new deals? And then also just, you know, as you talk about cadence just did maybe day count playoff lapping, you know, which might mean maybe a better back half of the year, but any other color you can kind of get things.

John Zilmer - Chief Executive Officer - (00:25:25)

Sure. With respect to Penn specifically, Penn will begin will begin operating at Penn in February. That will be staged over the course of several months as we open up the operations and the individual locations over multiple cities and multiple institutions. So it is a very exciting process. As you know, much of it was self operated. So we're converting self op. We're converting some competitors operations as well. So a very complex opening. So taking the time to do it effectively, I feel absolutely committed to delivering on the performance for Penn and frankly to taking the time to do it right for Aramark as well. So in typical fashion, we have significant new business expectations for next year as well, but really don't have any cadence, if you will, on those opportunities. Our pipeline is very robust and very strong. We've had very strong early successes as I mentioned, the Welsh Rugby Union and others, DePaul University opening as well. So the cadence I think is going to be more normal next year than it happened this year. So all in all very strong results. And, and we're very pleased.

UNKNOWN - (00:26:50)

Great. Thank you very much. Appreciate that.

Tony Kaplan - Equity Analyst - (00:26:54)

Our next question comes from Tony Kaplan with Morgan Stanley.

OPERATOR - (00:26:57)

Your line is open.

Tony Kaplan - Equity Analyst - (00:26:59)

Thanks so much. I wanted to start with a question on margins. Just wanted to understand with the new wins that you got this year, I know there's this cost dynamic where sometimes there's a ramp in the, in higher costs when you ramp up on those contracts. And so just wanted to understand the cost trajectory there and then also if you could talk about any AI initiatives or other efficiency initiatives that should contribute to 26 margins.

Jim Tarangelo - Chief Financial Officer - (00:27:31)

Yeah, thanks for the question. So we've had really good progress right on margins. We went from 4.6% to 5.1% to 5.3% this year and if you look at the midpoint of the guidance, I think for next year it would be about 5.7%. So this sort of consistent 30 to 40 basis points of margin appreciation has been generated. So yeah, we do have some obviously with the large wins coming in next year that will be associated with maybe some incremental startup costs. But I think we're able to offset that with the continued productivity we're seeing in our supply chain and in particular leveraging AI in supply chain and across other functional areas and then continuing to scale our overhead. We have very good visibility with respect to our corporate costs in SG&A we're able to take on this business really, but not adding much in the way of new above unit overhead costs. So I think we're fit for purpose and able to take this on and still continue to leverage the operating levers that have been working well for us over the past couple of years. Yes.

John Zilmer - Chief Executive Officer - (00:28:39)

And Tony, I would just ask. Normalized opening costs are baked into our projection and into the guidance. So we don't anticipate opening costs impacting our guidance negatively next year. If we continue to see accelerating performance in terms of net new, that ramp does occur. But as Jim said, we're basically able to offset those cost increases through efficiency, through productivity, through SGA leverage and through supply chain dynamics. So we're very comfortable with the continued margin accretion as we continue to grow the company.

Tony Kaplan - Equity Analyst - (00:29:22)

Great. And then you mentioned the double digit growth in collegiate sports, which is great. And ask about the pipeline there and particularly how the progress is going with converting some of the education contracts, either sports to education as well or education to sports, et cetera. That would be great. Thank you.

UNKNOWN - (00:29:46)

Sure.

John Zilmer - Chief Executive Officer - (00:29:47)

You bet. We have taken the opportunity. We do engage both the collegiate hospitality and the sports and entertainment teams collectively when we pursue those opportunities as you'll remember we added Arizona State system this year. As we grew the relationship there, we added the sports that's being run by our sports and entertainment team in Oklahoma that's being run by our sports and entertainment team. We are pursuing several large university athletic programs right now. They're currently underway and we have engaged the S&E team on those opportunities. So we run them based on what we think the needs of the business are, particularly if there's alcohol involved. Our S&E team has extraordinary capabilities with respect to the delivery and the appropriate management of alcohol systems in university environments. And so we engage both sides of the organization to do it. And we are seeing significant opportunities for growth there in major institutions that are currently self operated and looking for support and help and also some competitors who are currently out for bid as well. It's a great marketplace and we intend to. We're the number one company in that space and we continue to be focused aggressively on pursuing growing it.

UNKNOWN - (00:31:16)

Thanks a lot.

Leo Carrington - Equity Analyst - (00:31:19)

Our next question comes from Leo Carrington with Citi.

OPERATOR - (00:31:21)

Your line is open.

Leo Carrington - Equity Analyst - (00:31:24)

Good morning. Thank you. If I could ask a follow up. On that Penn Medicine deal. What are the implications in terms of. The potential for further hospital groups to. Follow suit and consolidate and. Outsource their catering? What can you tell us about the. Rest of that subsector, if you like. And then secondly, on the FSS segment, the organic growth, even excluding the 53rd week, was quite a sharp acceleration. My understanding is this is the most consolidated segment. So can you elaborate on what is. Driving your market share growth here in terms of your capability? Thank you.

UNKNOWN - (00:32:12)

Sure.

John Zilmer - Chief Executive Officer - (00:32:12)

I think both great questions. First of all on the healthcare systems. Yeah, there are significant new opportunities that we're pursuing in healthcare for self-op conversion. Large systems adopting strategies like Penn did to go ahead and find ways to become more effective and to reduce their overall cost of operation. And we're able to deliver very significant benefits to the institution as a result of both our supply chain capabilities as well as our systems that we're bringing to bear across their enterprise. And so the solutions that we offered to Pennsylvania are very, very transferable to other institutions. And we think the opportunity there is very large. So in this particular case, Penn is such a wonderful institution and has such a stellar reputation that we do believe other systems will follow their lead in terms of consolidation and systematisation. And we're already pursuing new opportunities in that regard. With respect to BI and workplace experience group. Our team has just done a fantastic job of growing that business, pursuing opportunities, competitive opportunities, and as you noted, continue to grow share across the organization. I think it's a function of both our capabilities, our different brand offerings, if you will, under the workplace experience umbrella and frankly, just overall performance our team is delivering at a very high level. Our customers recognize that, our potential new clients recognize that. And so we've been able to grow that share in a number of niches where we haven't historically competed. So we're very excited. It's got has great leadership and we're very confident in its future growth opportunities as well.

Jim Tarangelo - Chief Financial Officer - (00:34:20)

John, I would just add that it also includes our refreshment services, coffee service and micro markets, which is also growing very rapidly, very consistently, both workplace experience refreshment services, high levels of retention, high levels of net new as a result of the branding and success they've had with clients that John just mentioned. So we're seeing it from really all parts of that organization.

UNKNOWN - (00:34:45)

Thank you, John. Thank you, Jim.

OPERATOR - (00:34:48)

Our next question comes from Andrew Steinerman with JPMorgan.

Andrew Steinerman - Equity Analyst - (00:34:51)

Your line is open. Hi there, it's Andrew. When you talk about base business growth, I'm pretty sure you're talking about both price increases and other base business growth like cross selling. And so with that in mind, could you just go through the organic revenue drivers between net new price increases and other base growth both in the fiscal 26 guide as well as 25 just completed? Yes, I'll take that. So yes, in terms of the components of growth for fiscal 25, base business growth consists of volume and price and pricing generally has been at about 3%. And so base business sort of 3.5% in 25 net new contribution, that's the in year contribution about 1.5% and then the 53rd week added about 2%. That gets you to the 7% for fiscal 25. And in terms of the outlook for 26, we'd expect again about 3 to 4% base business growth, roughly 3% or so coming from price and then again given the strong levels of retention and record on new we're in the 4 to 5% range on net new contribution in fiscal 26. And this is on an Apple on a 52 week comparison to the prior year. That gets you to the guide of seven to nine.

UNKNOWN - (00:36:15)

Thank you.

Jafar Masdari - Equity Analyst - (00:36:18)

Our next question comes from Jafar Masdari with BNB Paribas. Your line is open. Hi, good morning. I had just a follow up on this net new business contribution in 2016 in the year given where you ended at the end of 25 and given some of your KPIs in some new signings and Retention being very much forward looking. Why is the outlook for 26 not a bit stronger in terms of the contribution in that year? The 5.6 wasn't reflected in 25 because of the timing of some of those signings and the ramp up, should we not expect it to be reflected in 26 fully?

Jim Tarangelo - Chief Financial Officer - (00:37:07)

Yeah, so there's a couple. So as we. So Penn Medicine, as you remember, it's an annualized number and Penn Medicine for example, the largest one is starting early in the year and will ramp up throughout the course of fiscal 26. And then the Oakland 80s is another large win that will have more of an impact into the following fiscal year. So that's why there's some. There's always a bit timing between the annualized and in year realization of those revenue.

UNKNOWN - (00:37:33)

Thank you. That's clear.

Jafar Masdari - Equity Analyst - (00:37:35)

And then one follow up on the margins. You're right obviously that the guidance for 26 will mean that the margin improvement year over year will be between 30bps and 40bps. But that's using as a starting point 25 with some of the items you flagged including the exceptional sales team compensation in Q4. And so similar question here. If we don't expect those to reoccur, if they reoccur, will be fantastic. You've signed a lot. But you know, if we don't expect those to reoccur, shouldn't the margin in 26 normalize a touch for those and then grow 30 to 40bps on a normalized basis?

Jim Tarangelo - Chief Financial Officer - (00:38:19)

If you look at the range of outcomes. So I think if you sort of the low end and high end of the range. Right. Sort of 5.6 to 5.8 and as I mentioned 5.7 in the middle. So the range of outcomes is wider. So correct those items. We don't if they repeat, it's a good problem to have. But sort of yeah, if you normalize fiscal 25 and you're in the 5455 neighborhood. The other factor is given the large ramp up of these accounts, there will be some additional startup costs in 26 that is baked into the guidance. You can think about that as sort of maybe 10 basis points as part of that.

Jafar Masdari - Equity Analyst - (00:38:57)

And just last point very quickly you've updated us on healthcare opportunities where you're saying you're still working on some material opportunities. Another area where you've been talking about some potential big wins to come was corrections. Any update here? Is the decision making process in that segment just very slow?

John Zilmer - Chief Executive Officer - (00:39:18)

Yeah, we actually had some significant corrections. New wins Some of which did actually get recorded as wins in the net new and are ramping up and are ramping up now. So we are continuing to pursue additional state systems and it continues to be one of our largest opportunities for self op conversion. And so we think the pace of that business growth will continue both on the correctional feeding side as well as the commissary side of the business as well. So still very significant total addressable market available to us to pursue and very confident in that team and its approach to the business and its ability to generate top line growth.

UNKNOWN - (00:40:13)

Super, thank you.

Neil Towler - Equity Analyst - (00:40:15)

Our next question comes from Neil Towler with the Rothschild & Co. Redburn. Your line is open.

OPERATOR - (00:40:22)

Yeah, good afternoon.

Neil Towler - Equity Analyst - (00:40:23)

Thank you. Morning. Just interested in the restructuring measures that you've initiated in the international business. Can you talk a little bit about the thought process and maybe operational metrics that prompted you to initiate restructuring in a business that seems to be growing very healthily? And then secondly, perhaps when you refer to the postponement or slightly delayed startup of some of the operations, can you talk a little bit, give us a little bit of context or description around what sort of factors need to be considered when you decide to slow down on the startup operations in a contract? Maybe give us some anecdotal evidence or anecdotal description of why that might be the case.

UNKNOWN - (00:41:17)

Thank you.

John Zilmer - Chief Executive Officer - (00:41:18)

Yeah, it's really more client driven than it is Aramark driven. Clients have timeframes that they have that they're working under and in particular they're dealing with multiple constituents. One of those opportunities, for example, using Penn as an example of an account that we anticipated potentially opening earlier, they had to work through a number of different decision processes. They needed to inform their employees, they needed to work through union relationships. And so really we tend to respond to our clients needs and our customers needs more than ours with respect to timing. And that was also very significantly evident in a couple of those correctional opportunities where decisions were deferred by states and in a couple of opportunities in the workplace experience group where we had a large client we were already serving that was making a decision to displace a competitor that was also a customer of theirs. So you know, as I said, more often than not these deferrals tend to be related to customer timing, not Arrowmark timing. And just had a number of them occur that affected our fourth quarter this year.

Jim Tarangelo - Chief Financial Officer - (00:42:35)

Yes. And on the restructuring in the international, again the backdrop here, this international group has had a long track record of success, multiple quarters, multiple years of double digit growth. So this is a business. We're happy to invest where we need to to make sure we're well positioned to achieve our financial targets and streamline the business a little bit. So it is geared towards streamlining some SGA and optimizing some sga. As you know, it's fairly expensive to do that in certain parts of Europe. So that was a piece of it optimizing a little bit in mining in South America to position us for the coming year. And then there was a final piece that was related to some real estate consolidation as well. Some of the bolt on deals that we did presented an opportunity to bring those together more efficiently.

UNKNOWN - (00:43:26)

Got it.

Neil Towler - Equity Analyst - (00:43:27)

And then just going back to the first question, just so I have it clear in my mind, when we think about the slight growth shortfall relative to the sort of lower end of your guidance that occurred in the fourth quarter, is it fair to characterize the majority of that as being down to contract timing as opposed to sort of the comp effects of things like the MLB playoffs and the like?

John Zilmer - Chief Executive Officer - (00:43:51)

Yeah, I think that was certainly the most significant part of it. The MLB impact was secondary. The closure of the Grand Canyon was certainly secondary to that. You know, so there are a couple of items. Rather than giving you a laundry list of every reason, the one that I would really focus on is that opening deferral mechanism and timing of of that. But the other two impact items were also part of that fourth quarter.

UNKNOWN - (00:44:22)

Very clear. Thank you.

Jasper Bibb - Equity Analyst - (00:44:25)

Our next question comes from Jasper Bibb with True Securities.

OPERATOR - (00:44:28)

Your line is open.

Jasper Bibb - Equity Analyst - (00:44:30)

Morning everyone. Wanted to ask if you could give. Us a bit more detail on the organic run rate into fiscal 26, maybe. Using what organic growth looked like in. October or September, excluding the 53rd week. Thank you.

Jim Tarangelo - Chief Financial Officer - (00:44:46)

Yeah, thanks Jasper. Yes, so the cadence in 26, so just a couple of points here. Right. So the 53rd week will have an impact on the cadence, as I mentioned in my comments on 26. So essentially we have a strong operating week in higher ED and K12 in particular that sort of gets absorbed into fiscal 25 with that extra week. So with that you could think about losing a few days in Q1 that will come back in Q2. So first half growth will be kind of consistent with our run rate. But I think the first quarter think about sort of minus 3, 3.5% versus the run rate that will be captured back in the second quarter. So that's the cadence I wanted to note. But we're exiting with good speed, good run rate here as we exited here in Q4, and good momentum as we expected in October and the outlook for Q1, so it's running according to track. But I just did want to note there's some timing of due to the 53rd week that will have no impact on the full year, just quarterly.

UNKNOWN - (00:45:56)

Thanks.

Jasper Bibb - Equity Analyst - (00:45:57)

And maybe give us a bit more. Detail on the quarterly cadence of margin. I imagine with the contract ramps you. Might be a little lower in the. First half than is easily normal and. Stronger in the back half. Is that a fair interpretation or any other detail you can give us on what that will look like?

Jim Tarangelo - Chief Financial Officer - (00:46:16)

I think that that's fair. But again, the larger driver on the margins will be the same thing. It's a drop through on the revenue in Q1 versus Q2. So the first half will look normal, but given less revenue in Q1, there will be a margin impact on Q1 as well, but it will even out for the full first half.

Andrew Whitman - Equity Analyst - (00:46:41)

Our next question comes from Andrew Whitman with Baird.

OPERATOR - (00:46:43)

Your line is open.

Andrew Whitman - Equity Analyst - (00:46:47)

Great. Thanks for taking my questions. I think that last question is actually a really important question and I understand that you commented on percentages here, Jim, for the revenue first quarter down three to three and a half sounded like bigger impact to margins just because you don't get the fixed cost leverage. Did you want to be even more. Precise on that one? I think we can all do math, but did you want to get revenue and EBIT kind of numbers for 1q? I just feel like it's a big enough change and then I think just given kind of the last couple of quarters how numbers have been kind of moving around a lot, it might be even better to give actual numbers for 1Q. I know that's a big ask, but I just think it's important here.

Jim Tarangelo - Chief Financial Officer - (00:47:32)

Yeah, again, I think what I would just say there, if you think about the first half versus second half and if you sort of again, adjusting for the 53rd week and I'll just give a sort of ballpark, if you're sort of running at sort of 7 to 8% in the first half, a little bit higher in the second half. Right. And I mentioned about a 3% impact in Q1. You could think of that coming off of the 7 to 8% roughly. And then that will be captured back in Q2 just to give you a little bit of sense. But again, I don't want to be too specific, but that gives you a sense of some of the movements. Okay.

John Zilmer - Chief Executive Officer - (00:48:09)

And then John, maybe have you comment a little bit more on the pipeline. Obviously it's been robust. Can you give a little bit more there kind of what you're seeing how the size of the pipeline compares today versus maybe this time last year. I think that would be kind of helpful to just build some mental model for all of us around how the top line might unfold this year.

UNKNOWN - (00:48:30)

Thanks.

John Zilmer - Chief Executive Officer - (00:48:32)

Yeah, I would say the pipeline continues to be very robust and at least as good as last year at this point. So we continually build on those pipeline of opportunities and we continue to add new markets and new niches that we're pursuing aggressively to go ahead and expand our total addressable market. You know, adding sectors in particular, if you think about workplace experience, really aggressively pursuing new opportunities in the legal world, if you will, in top tier law firms, if you look in international, pursuing new mining initiatives, new remote camp initiatives. So we continue to build the pipeline with lots of new opportunities and it continues to be very robust. I would say there's really no fundamental change year over year other than we're continuing to invest in the growth of the enterprise. We expect it to continue very encouraged by the strong results this year and also again encouraged by a very strong retention rate and the discipline inside the organization. And so all in all, I think it leads to fundamentally a very strong trajectory going into 26. And you know, we'll, as Jim described, we'll have our seasonal kind of normal impacts on a quarter to quarter basis. But overall I think our full year guidance is absolutely achievable and yeah, very comfortable with the ranges that we've talked about.

UNKNOWN - (00:50:18)

Thanks.

OPERATOR - (00:50:21)

Our next question comes from Shlomo Rosenbaum. Stifel.

Shlomo Rosenbaum - Equity Analyst - (00:50:24)

Your line is open. Hi, thank you for taking my questions. Can you just talk, just getting back a little bit more to those contracts that didn't start quite as expected in the fourth quarter. Can you just talk a little bit more about whether there were carry costs that were incurred as part of that and for some of those contracts, does that continue into the first quarter in terms of impacting margin or just trying to have a better understanding as to the impact financially and then frankly the visibility that you have in terms of managing your business towards those things. And then I'll follow up.

John Zilmer - Chief Executive Officer - (00:51:02)

Yeah, I would say yeah, there's a little bit of ramp up in starting costs, particularly for those accounts that have already opened in the first quarter on the corrections side and in some of those other businesses. So yeah, we were preparing to open them and incurring costs in the fourth quarter, you know, in terms of the run rate, opening costs, if you will. So there is some, you know, a little bit of an impact there that dribbles into the fourth quarter or into the first quarter, I would guess. But I wouldn't characterize it as overly significant, you know, so I think, you know, all in all, the, you know, I would point you to two big items. Obviously, the medical costs last year were a significant impact on the total earnings of the company, both the medical claims costs as well as GLP1s. And, you know, we have taken very decisive action with respect to the GLP1 impact and which will go into effect in January and which will significantly reduce our cost year over year from that perspective. So if you look at the two big impact items in the quarter, their medical costs and the higher incentive compensation, I'll take that. You know, I'll take those higher incentive costs every year. If I can achieve those kinds of numbers and drive permanently the growth trajectory of this organization by outperformance on new growth, I'll do it every time. And I feel very good about that. And I love the fact that I've got to pay the people of this organization for delivering on those results. The GLP1s, we've taken care of that. That won't be an issue. So if I really look at year over year, the earnings miss in the quarter, I would be focusing on those items as opposed to the, you know, the other details in the business. That's really where the fundamental miss was.

Shlomo Rosenbaum - Equity Analyst - (00:53:06)

Okay, thanks. And then one of the things when you started years ago and you and I talked about the focus on retention and you've done, you know, you really moved the retention up significantly. And I was wondering, are we looking at retention right now as a steady state or, you know, hey, it was kind of unusually high. We're usually looking for like, you know, around the 95%, but we had some big contracts, you know, that really skewed those numbers or, you know, is the bar just moving higher because of the operational changes that you've made within the business, you know, in terms of getting ahead of some of those contracts better, servicing the contracts better. And in other words, we sit here next year, are we going to talk about 96% plus again? Or we should think that, you know, hey, annually you want to expect 95, and if you can outperform, you outperform.

John Zilmer - Chief Executive Officer - (00:53:57)

Well, I think I would love to be sitting here next year talking about 96% or higher again. We have very high expectations for our people. We hold them accountable. And so it's our expectation that we're going to get better, not worse. Part of that is, you know, part of that is both performance, part of it is negotiation. Part of it is, you know, continuing to find ways to extend agreements with clients and customers proactively. So this is a process we are fully engaged in all the time. And so I would love to sit here and say next year we love to hit 97. I don't know if that's possible, but we're going to be striving to that and we're going to do the best that we possibly can. And so, yeah, 95 should be a floor. It should never be. It should never fall below that. And frankly, we have high expectations that we can do better and we're raising the bar for our people all the time.

UNKNOWN - (00:55:06)

Thank you.

Josh Chan - Equity Analyst - (00:55:09)

Our next question comes from Josh Chan with ubs. Your line is open. Hi, good morning, John. Jim, thanks for taking my questions on that retention point. I know that some years it's never easy, but some years it's easier than others to retain business just because of the cadence of what comes up for renewals. Could you just remind us what's happening in 2026 compared to 25 in terms of what of your contracts might be rebid or have to come up for renewal?

John Zilmer - Chief Executive Officer - (00:55:39)

Yeah, I would say it's pretty much a normal year, a normal expectation. Some of the businesses that have more cyclical contract renewals, like K through 12, like corrections, will have their normal cadence, you know, and those are the ones that are really impacted and have different, you know, different impact items or different cadences year over year. I would say we're very well positioned this year from a retention perspective. Last year, going into the year we had, Arizona State was our largest higher education contract. It was going out for bid for the first time in over 20 years because the state of Arizona dictated that it needed to. We retained that business and grew it. So that was a very exciting result. But I would characterize 26 as kind of a normal year, really. No high impact items one way or the other. So we continue to be focused on delivery delivering at a very high level from a retention perspective.

Josh Chan - Equity Analyst - (00:56:44)

Thanks for the color, John. And then I think, Jim, you talked a little bit about the impact in Q1 from the calendar shift, I guess. Does Q1 not also have the Major. League Baseball dynamic as well? And maybe could you just kind of put a finer point on whether that will have a material impact also on the growth rate, just so that everybody can be baselining off of the right numbers?

Jim Tarangelo - Chief Financial Officer - (00:57:16)

Josh, you're correct. There's less. We only had the Phillies advance to less playoff games in 26 vs 25 Q1. But having said that, the overall strong retention and net new coming into the year should offset that. So I would say more of a normal cadence aside from that. So a little downward pressure from playoffs, but offset by other areas of growth in the business. So the main factor I would say in Q1 is just simply the calendar shift.

Josh Chan - Equity Analyst - (00:57:45)

Okay, that's great, Kyla. Thank you both.

Stephanie Moore - Equity Analyst - (00:57:49)

Our next question comes from Stephanie Moore with Jeffries. Your line is open. Hi, good morning. Thank you. Maybe touching on more of a higher level question. I'd love to get your thoughts as you look at reflect back on fiscal 25 and you look towards fiscal 26, just what you're seeing from an overall insourcing versus outsourcing trend. How 25 compared to maybe prior years. And then in the same vein, if you could touch on just the competitive landscape, especially given maybe some more changes with one of your competitors as of late. Thanks.

John Zilmer - Chief Executive Officer - (00:58:24)

Yes, I would say, you know.

UNKNOWN - (00:58:28)

The.

John Zilmer - Chief Executive Officer - (00:58:28)

Level of first time outsourcing continues to be at an elevated in an elevated state. In particular for us this year, the single biggest impact item was the Penn contract and the fact that they were moving to first time outsourcing in a number of those operations. But we continue to see elevated outsourcing in a number of the segments, in particular higher education, particularly in their sports side, and university athletic departments really seriously considering outsourcing as a strategic alternative, particularly as they cope with the realities of the nil environment and their need for funding. So I continue to see a very, very strong marketplace, a very strong opportunity set, if you will, across a range of sectors. It's not limited to just one, it's in multiple sectors where that first time outsourcing continues and we're enjoying very significant success as an organization. We have grown our share this year. We've had very significant performance against selfop and against our competitors as well. And we just focus on those opportunities one at a time. We believe we focus on the strength of our operations and on our client relationships and we sell from a position of quality and consistency and program and we've been very successful doing that against all elements of the market. So we're very, we're very pleased with our overall results. But we are striving to do better day in and day out. And we'll continue to compete aggressively on quality and capability and client relationship. And that's how we win.

UNKNOWN - (01:00:27)

Thank you.

OPERATOR - (01:00:28)

I'm not showing any further questions at this time. Will I turn the call back over to Mr. Zilmer for closing remarks?

John Zilmer - Chief Executive Officer - (01:00:34)

So again, thank you all for your support of the organization. We're very pleased with the overall performance, most especially with the net new and with retention this year. Really very strong finish to the year. We're very excited about our prospects for 2026 and the future ahead for the company and for our shareholders. Thank you.

OPERATOR - (01:00:58)

Thank you for participating. This does conclude today's conference call. You may now disconnect and have a wonderful.