Prepared remarks
Good morning, and welcome to Aramark's Third Quarter and Fiscal 2026 Earnings Results Conference Call. My name is Kevin, and I'll be your operator for today's call. At this time, I'd like to inform you this conference is being recorded for rebroadcast. I will now turn the call over to Felise Kissell, Senior Vice President, Investor Relations and Corporate Development. Ms. Kissell, please proceed.
Thank you, and welcome to Aramark's earnings conference call and webcast. This morning, we will be hearing from our CEO, John Zillmer; as well as our CFO, Jim Tarangelo. As always, there are accompanying slides for this call that can be viewed through the webcast and are also available on the IR website for easy access. Our notice regarding forward-looking statements is in our press release. During this call, we will be making comments that are forward-looking. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the risk factors, MD&A and other sections of our annual report on Form 10-K and SEC filings. We will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in our press release and IR website. I will now turn the call over to John.
Good morning, everyone, and welcome to our fiscal third quarter earnings call. Thank you for joining us. Jim and I are pleased to be here with you to review our financial results, provide an update on the business and discuss our strategic growth agenda, which continues to drive strong, sustained performance. We're heading into the fourth quarter with significant momentum across the portfolio, including industry-leading client retention at record levels of approximately 98%, underscoring the strength of our client relationships and the excellence of our service and execution. Accelerating organic revenue growth in every U.S. sector, absent the calendar shift in education, and across all regions within international. New client wins totaling more than $1.6 billion fiscal year-to-date, 51% higher than the comparable prior year period, reflecting strong demand for our hospitality capabilities and the depth of our sales pipeline, and the launch of operations just weeks ago under our recently awarded multiyear engagement with a top global hyperscaler, alongside the continued expansion of Aramark Nexus, which now includes providing premium hospitality services to workforce communities for an AI data center colocation leader. In the third quarter, organic revenue for the company grew 9% to $5 billion and would have increased another approximately 2% if not for the calendar shift. Once again, our strong revenue performance was driven by broad-based net new business and base business growth across sectors and geographies. These results are a testament to the dedication of our teams whose commitment to serving our clients, delivering exceptional hospitality experiences and performing at a high level every day has been instrumental in our success. Moving to the business segments. FSS U.S. organic revenue grew 8% to $3.5 billion and would have increased more than 10% excluding the calendar shift. Education would have achieved more than 7% growth absent the shift, which is expected to be fully recaptured in the fourth quarter. Collegiate Hospitality is benefiting from increased residential meal plan enrollment, record retention and the strongest selling season in recent history. U.S. revenue growth in the quarter was further driven by Sports & Entertainment's strong year-over-year performance, which reflected higher revenue from the ongoing Major League Baseball season along with an expanded client portfolio, including a Major League Soccer and Collegiate Athletics. We demonstrated the strength of our capabilities during the 15 FIFA World Cup matches hosted at the stadiums we serve, delivering premium fan experiences amid unprecedented attendance and record per capita spending, with an additional 4 matches held after quarter end. We also proudly supported our NHL and NBA clients throughout the playoffs, and extend our congratulations to the San Antonio Spurs on reaching the NBA finals. Our S&E team was hard at work last month during the MLB All-Star game here in Philadelphia, providing hospitality services throughout the 3-day series of events with merchandise revenue a particular highlight. Healthcare Plus built upon the successful launch of Penn Medicine with our team actively mobilizing multiple lines of service across RWJBarnabas Health's 18 locations, while continuing to deliver strong base business performance. And Workplace Experience and Refreshments achieved double-digit compounded growth for the 19th consecutive quarter, reflecting the contribution from new business, exceptional client retention and continued base business performance across the portfolio. Now turning to Aramark Nexus. We began operations at our first Texas-based site supporting a top global hyperscaler, which contributed to revenue and profitability late in the third quarter as we started scaling our service offerings. We're currently mobilizing a second site for this client and the scope of work across both locations is now expected to increase by approximately 40% from original estimates. In addition, the client has indicated we should anticipate supporting additional sites as new locations come online. We remain in active dialogue with other leading hyperscalers as well, reflecting the strong demand for our integrated suite of capabilities. We continue to expand the reach of Aramark Nexus, recently announcing a significant multiyear engagement with a leading AI data center colocation provider to deliver premium hospitality services to workforce communities across multiple locations, including in Wyoming and Texas. The initial site is scheduled to mobilize in the first half of our new fiscal year. Data center colocators develop, own and operate facilities that supply the power, cooling and infrastructure relied upon by technology companies. As these projects increase in scale and geographic reach, we believe that Nexus is uniquely positioned to help clients attract and retain skilled labor through differentiated hospitality solutions and premium amenities that enhance the employee experience and support project success. During the quarter, FSS U.S. continued to build on its strong momentum as we were awarded several additional client wins, including our first collaboration within the University of Colorado system at Colorado Springs, Grand Canyon University, Ohio Wesleyan University and Texas State University in Collegiate Hospitality. Texas State and Florida State University Athletics and Sports, the Camden City School District in Student Nutrition and Paul, Weiss in Workplace Experience as we expand our hospitality services into top-tier law firms. The International segment continued its strong growth trajectory, delivering another quarter of impressive results with organic revenue increasing 11% to $1.5 billion. Performance was broad-based across geographies and sectors, led by Spain, Canada, the U.K. and Germany. Concert and festival activity was especially strong with many of our venues further benefiting from major touring artists adding performances across Europe. We also successfully served more than 300,000 fans during the multi-day Formula One Grand Prix in Barcelona, leveraging nearly 100 food and beverage locations across several event areas. Every country within the international portfolio delivered strong new business performance, underscoring the breadth of our service offerings and focus on excellence. International was awarded nearly 200 client location accounts during the quarter, including continued expansion in the mining industry, providing remote hospitality services for Discovery Silver mine in Canada as well as Codelco's Chuquicamata and AMSA's Los Pelambres copper mines in Chile. We also concluded our international Guest Chefs' Cup in Dublin, celebrating the very best of Aramark's culinary talent from around the world, following a year of in-country competitions. It was especially meaningful to see our host chefs from Ireland take top honors this year. On to global supply chain. Our global supply chain and GPO business maintained strong momentum, delivering more than $1.1 billion of annualized new spend globally fiscal year-to-date. This performance reflects the differentiation of our value proposition, market-leading procurement capabilities and disciplined execution. We believe Avendra International is well positioned as a premier global hospitality procurement solution with multinational clients increasingly consolidating spend with us across regions and continents, leveraging our scale, local expertise and extensive global supply network. We're also seeing inflation trends remain slightly more favorable than our original expectations across regions. Lastly, I would like to welcome Tony Spring as the newest member of Aramark's Board of Directors. As Chairman and CEO of Macy's, Tony brings deep executive leadership expertise and valuable strategic insights, particularly in integrating AI to enhance consumer experiences and leading a large diverse workforce. Before handing the call over to Jim, I want to reiterate that we are extremely confident in our ability to continue building on our strong results. We believe that the opportunities before us from the outperformance of our core business to the expansion of Aramark Nexus and our global supply chain platform position us well to capitalize on the substantial value-creating actions underway at the company. Once again, I would like to thank our teams around the globe for embodying our culture and values, which remain the foundation of who we are as a company. With that, Jim, I'll turn the call over to you.
Thanks, John, and good morning, everyone. We had another record-breaking quarter, delivering impressive top and bottom line results, driven by broad-based performance across sectors and geographies. As John mentioned, we continue to experience strong momentum with the execution of our growth strategies creating significant opportunities throughout the company that position us well for the remainder of the year and beyond. Regarding profit growth in the third quarter, operating income grew 18% to $216 million versus the prior year period. Adjusted operating income increased 13% to $261 million, with AOI margins expanding nearly 20 basis points. The calendar shift reduced AOI by an estimated $20 million. AOI growth would have increased approximately 21% without the calendar shift with margin expansion of nearly 50 basis points on a constant currency basis. This double-digit profit growth and margin expansion were driven by higher revenue levels, expanded supply chain capabilities and effective cost management. Turning to the business segments. FSS U.S. reported AOI growth of 11% with AOI margins expanding more than 20 basis points. Excluding the calendar shift, AOI growth would have increased approximately 22% and with margins gaining almost 65 basis points. Profitability and margin expansion in the quarter was a result of greater revenue from base and new business, particularly in Sports & Entertainment, the Workplace Experience Group, Refreshments, and Healthcare. FSS U.S. also benefited from supply chain efficiencies and productivity gains from effective cost management. The International segment delivered AOI growth of 24%, with margins expanding nearly 60 basis points on a constant currency basis. AOI growth was driven by higher base business volume and net new business, along with strengthened supply chain economics. Our strong quarterly performance resulted in GAAP EPS of $0.36 and adjusted EPS of $0.52, an increase of nearly 30% versus the prior year and almost 45%, excluding the calendar shift, reflecting the successful execution of our growth strategies. With respect to cash flow, net cash provided by operating activities in the third quarter grew $41 million and free cash flow increased $42 million. These positive cash flow results were driven by strong business performance and earnings growth. As always, we expect to generate a large inflow in the fourth quarter, primarily from Collegiate Hospitality and Sports & Entertainment. The higher cash flow generation in the quarter enabled us to proactively repay $100 million of term loans subsequent to the quarter end. We remain committed to achieving a leverage ratio below 3x by fiscal year-end. We will continue to pursue additional capital allocation opportunities with a focus on maximizing returns. At quarter end, the company had over $1.4 billion in cash availability. And finally, let me wrap up with our performance expectations for the remainder of fiscal '26, with only a few months to go. We are benefiting from the consistent execution of our teams across the business from industry-leading client retention to broad-based revenue growth across the U.S. and international to record levels of new client wins and the continued expansion of Aramark Nexus. Our sales pipeline remains substantial with first-time outsourcing at elevated levels. As a result, we have raised our fiscal '26 organic revenue growth outlook to an increase of 9% to 10%, reflecting continued momentum across Aramark's portfolio as well as the early contribution from commencing operations with a top global hyperscaler. We are also reaffirming our expectations for AOI growth of 12% to 17%, and adjusted EPS growth of 20% to 25%, both of which are aligned with Wall Street estimates as we look at the fourth quarter. We anticipate accelerated AOI growth and margin expansion in the fourth quarter, driven by our multiple operating levers and the early contribution from Aramark Nexus. We are mobilizing a record level of new business throughout the company and adding Aramark Nexus growth resources as appropriate to further capitalize on the significant new business opportunities before us. In summary, the strength of our financial performance this quarter, combined with the continued momentum we are seeing across the business, reinforces our confidence in Aramark's growth trajectory. We believe the company is well positioned to drive significant shareholder value creation. Thank you for your time this morning. Operator, we will now open up the call for questions.
Questions and answers
Our first question comes from Curtis Nagle with Bank of America.
I want to focus on that additional Nexus contract. Great numbers to hear — the 40% increase in scope and new sites. Would you be able to provide an update on potentially how much larger this contract could be? I think initially we were thinking several hundred million. Would the duration of this contract also potentially expand longer than you might think? Then I'll have a follow-up.
Sure. The initial contract, we estimated at about $100 million annualized over the life of the contract — I'm sorry, annually over the life of the contract. And with this 40% increase in scope, we expect it to be somewhere in the range of $140 million per year. The life expectancy of the contract, we continue to believe, is somewhere in the range of 4 to 5 years dependent upon the speed of development and also determined ultimately by the total number of employees that they bring on board. So very attractive contract, very attractive returns, as we've talked about. This is a capital-light strategy for us, immediately accretive to margins above company average and will be a strong contributor going forward.
Just a quick clarification. That's $100 million now $140 million per site, right?
Per site, per year. That's the initial contract at that first site. The second site that we are currently beginning to mobilize will actually be slightly larger and approximately the same duration. So that would tend to be around $160 million a year based on the expected size of the second site.
Got it. Okay. More of a holistic question: your confidence in being able to maintain this 9% to 10% organic growth range. Looking at your current book of business, the $1.6 billion, retention, normalized pricing and perhaps more upside from data centers, it seems achievable next year. What is your level of confidence?
Yes. The metrics on new business are great — record levels of new business at this point in the year, exceptional retention levels, we're seeing broad-based growth, and on top of that, the Nexus business that we are mobilizing. If you look at the underlying growth rate in Q3, excluding the calendar shift, it's in the 10% to 11% range. I think you'll see something implied at a similar level for the fourth quarter. So that's all very sustainable, and that's exactly how we're thinking about the exit rate and the outlook as we think about 2027.
Our next question comes from Lizzie Dove of Goldman Sachs.
Congrats on a great print. Several months into Nexus, any latest thoughts on how to think about the TAM and, within that, the addressable market and your market share opportunity?
Sure. Total addressable market is something we're still working on. There are hundreds of these projects currently under consideration for construction across the United States and elsewhere around the world. To extrapolate to the total addressable market is difficult at this stage, but we do think it's in the many billions of dollars in terms of total addressable market, and we'll continue to refine those estimates as we get a better understanding of the actual construction pace and implementation across the U.S. We feel very well positioned in this segment. We are investing in resources to bring this business to life. We've established a strong leadership structure and committed sales resources against this business. We currently have 8 sites that are signed and under active development in various stages, so there is a lot of runway to this business. I think this business will be very large, and we expect to achieve significant share gains rapidly. It will be a competitive marketplace, but there's more than enough room for the companies serving these industries to succeed given the demand.
Great. Any way to think about margins and the impact of Nexus? You have said Nexus margins are accretive and higher than the company now, but there's a ramp phase. How should we think about margin impact into '27 and longer term?
The Nexus opportunity, with margins above company average, will be a tailwind to longer-term margins. We've consistently generated 30 to 40 basis points of margin accretion, which is implied by the guidance for this year as well. We're mobilizing two sites with a large hyperscaler and a colocator on top of that. The first site alone is expected to add about $150 million of revenues. So we expect $400 million to $500 million of revenue that will ramp up over fiscal '27 and into '28 with above company margins. That's how we are thinking about it; it will certainly be a tailwind.
And I'll add that we're committed to seeing significant margin accretion in the core business without Nexus. Nexus will be additive and we feel good about that, but we're focused on continuing the margin expansion that exists in the core business through supply chain discipline and SG&A leverage. We continue to have expectations in that 30 to 40 basis point range on the core business in addition to the margin accretion from Nexus.
Our next question comes from Ian Zaffino with Oppenheimer.
Really good quarter. Moving away from Nexus for a second: the broader portfolio has had a ton of success. What are the greatest opportunities you're seeing outside of Nexus, focusing on the core business?
We see continued growth in the core business. We've had a very strong selling season across the enterprise, both domestically and internationally, with active pipelines across the portfolio. We are committed to each of the businesses, driving performance with a great management team. Opportunities include continued growth in healthcare as self-op conversion takes place, expansion in collegiate sports, and exceptional growth in workplace experience domestically and internationally. We're experiencing growth across all our businesses, and we feel very confident in the long-term growth trajectory.
On Nexus margins: why are margins higher and how should we expect margins to ramp? In the core business, we often see dilution when winning large contracts that ramp. Will Nexus be similar?
There is some moderate ramp with Nexus as we increase the number of people we serve. The primary structure of these contracts is cost reimbursable. The margins are attractive, particularly compared to some smaller players in the industry. It's low capital intensity with primarily cost reimbursable structures. There are some moderate upfront costs, but it scales faster than a typical higher education or sports contract, so we have very good visibility into margins and predictability. There are not significant start-up costs like we typically see in contracts of that size.
Our next question comes from Leo Carrington with Citi.
A follow-up on the AI data center progress: regarding the 40% increase in scope on the hyperscaler contracts, can you give more color on what services you've been able to add and how this came about? Is there scope for further increases? Also, for the colocator side, what are similarities and differences versus the hyperscaler contract, and can you add anything about the revenue opportunity for the colocator contract versus the hyperscaler one?
Typically, the difference in scale is driven by the number of people expected to be employed on site, which you can roughly translate into beds. These are residential workforce communities in remote areas, so the number of beds is an indicator of scale and scope. Our initial site was originally projected at about 3,500 employees. The increase in size and scale is directly related to the number of beds. The second location is estimated at 4,000 beds. The colocator site was originally looking at roughly 4,500 beds. The scope of services we offer across communities is consistent: hospitality, food, retail, housekeeping, facilities management, and unarmed security, which we will subcontract and not perform ourselves; security is not included in our revenue estimates. It's a full suite of amenities and services provided to those residing in these communities. Fitness centers, recreation, and other community amenities are included. The best indicator of contract size is the number of people or beds affiliated with the site. We currently have under contract for those first three locations approximately 12,000 to 13,000 beds, and they can scale up or down based on the size of the facility.
Our next question comes from Andrew Steinerman with JPMorgan.
Touching on the medium-term algorithm: you previously discussed a medium-term 5% to 8% organic growth algorithm. You're growing faster now and into next year. How has the portfolio evolved to a point where the medium-term algorithm should be increased?
The algorithm has been 5% to 8%, which fuels the 30 to 40 basis points of margin accretion. We're operating well above that this year and into '27, and we're evaluating and updating that algorithm. The main change is net new impact. In the quarter, realized net new is around 5% to 6%, pricing around 3.5%, volume 1% to 2%, minus the calendar shift for the quarter. We're in early planning for fiscal '27, but the expectation is we'll be operating above the algorithm established at Investor Day.
Could you update on the mix between self-op conversions versus competitive winaways in new bookings?
It's consistent with our past disclosures. We're in the range of 40% to 45% self-op conversions. Nexus is brand-new and is first-time outsourcing, so it's hard to characterize it as one or the other. In the core business, we're seeing that 40% to 45% self-op conversion range.
Our next question comes from Toni Kaplan with Morgan Stanley.
On Nexus, you have a complete service offering. Could you talk about the differentiation you provide? I imagine other large competitors are pursuing this business. What have customers liked and what makes your offering differentiated?
There are a couple of smaller companies competing in this space, but our differentiation came from a significantly different hospitality approach. For the hyperscaler relationship, we transitioned from a typical chow-line model to a much more retail-oriented, fine dining approach with multiple outlets and service options. It's not just a cafeteria line; it's multiple opportunities — full-service restaurants, buffet style, and other retail components. The client wanted to recruit and retain high-quality employees in remote environments, and they wanted an enhanced solution. We designed, delivered, and executed that approach, including other amenity offerings consistent with what we do in National Parks and remote mines. The other companies focusing on this segment have typically been construction-oriented and focused on the build rather than hospitality. We're there to provide hospitality, not build, and that has been the key differentiator.
Shifting to sports: terrific quarter. You called out the World Cup. How much of the growth was attributable to the World Cup, and any recent wins expanding the client portfolio in sports?
It was a strong quarter for the sports group. Underlying performance in MLB is good. We rolled out Florida State University Athletics and Texas State Athletics as part of new business. We had more playoff games in the NHL and NBA this year with the Spurs going to the championship. We had about 15 World Cup games in the quarter as well. Combined, these elements led to the excess double-digit growth we saw in sports this quarter. The World Cup had a moderate impact, but the combined business drove the exceptional performance.
Our next question comes from Jasper Bibb with Truist Securities.
On Nexus, how many sites are signed up now? I thought I heard two hyperscaler sites and two colocator, but earlier I thought you said eight sites total signed. Please clarify how many total sites you have signed up for Nexus. If it's eight, what's the timeline for sites signed but not active yet?
We have two sites currently mobilizing with the top global hyperscaler, and a third under discussion. There are five additional sites with the AI colocator in various stages of development, one of which will begin to ramp up in early '27. The total number of beds for those additional five sites, roughly estimated at about 2,000 per site, results in somewhere between 12,000 and 20,000 total beds under development now, with the first three sites under active engagement.
Thanks. Second question: can you bridge the increased organic growth guidance against reaffirming AOI and EPS ranges? Is there new business start-up costs on some of these wins or selling commissions because new business is up so much?
The increase in the guide is driven by broad-based favorable trends in the business and the Nexus impact in the fourth quarter on the top line. On AOI and EPS, we're mobilizing record levels of new business that hit the fourth quarter in particular. Higher education accounts will ramp up in August and September. In Destinations, we rolled out Stone Mountain, one of the largest accounts we've rolled out in many years. In healthcare, we continue to ramp Robert Wood Johnson. As we've always said, there are mobilization costs in those quarters and margins will ramp into fiscal '27.
Our next question comes from Jaafar Mestari with BNP Paribas.
You mentioned in the release that the initial Aramark Nexus site has begun providing revenue. Some sources suggest that's July. To be extra clear: in Q3, in the 11% organic growth, is there any contribution from Nexus?
Yes, it did ramp up late in fiscal Q3. The first site with the hyperscaler ramped up in late Q3, so there was a very moderate amount in July. Primarily, it's going to be in the fourth quarter.
Relatedly, you've mentioned two clients, three firm sites, another five sites under discussion, and $400 million to $500 million revenue that could ramp up over the next two years. Are those figures on the same definition? Are those $400 million to $500 million included in the $1.6 billion signings figure? How should we look at signings ex Nexus? Core business ex Nexus last year signed $1.6 billion; how does this year compare?
We're not getting into all the detail of the $1.6 billion components, but a portion of that includes the $450 million figure; a relatively small portion is built into the $1.6 billion. The $400 million to $500 million I referenced relates to the three sites mobilizing and represents the annualized value that will ramp over fiscal '27. There are additional sites and opportunities with the colocator that are not part of that $400 million to $500 million figure. The underlying new business is driven by the core business, excluding Nexus.
Why are the $400 million to $500 million based on the three most defined sites not included in the $1.6 billion signings?
Some of it comes down to timing when contracts are finalized versus when they are developed and rolled out. We adhere to accounting and internal policies on when we record new business, so that timing difference explains why some items are not yet included in the reported signings figure.
Our next question comes from Faiza Alwy with Deutsche Bank.
You talked about sales resources for Nexus. How are you approaching the go-to-market and how has the competitive environment evolved? It sounds like many of your larger competitors are not participating in the same way. Is that related to your go-to-market approach?
We recognized the attractiveness of the market early and framed an organization to serve it quickly. We installed a CEO for the business who is an experienced Aramark executive with hospitality expertise. We committed sales resources against the initial set of contracts and added additional sales resources focused on other hyperscalers and participants in the industry, including construction and engineering firms. I expect other large companies will enter the business; they have divisions that do similar things internationally. We were first to move, established the business quickly, and want to be first and largest, though it will be a competitive marketplace. The total market is large enough that multiple organizations can succeed.
About contribution from Nexus this year: in the fourth quarter, do you expect to fully ramp at least the initial two sites, or is it a slower buildup? How much revenue contribution do you expect from Nexus in the fourth quarter?
Roughly, in the fourth quarter, about 1% or so of revenue will come from Nexus. None of the sites are fully ramped yet; they will ramp to peak during fiscal '27.
The ramp schedule is not fully in our control — it depends on how these companies bring employment to the site. We'll provide more clarity as we get through the fourth quarter and into fiscal '27 planning.
Our next question comes from Justin Hauke with Baird.
Given the geographical concentration you called out for Nexus and development pipeline in Texas, the Texas governor recently put a moratorium or audit on some new developments. What are your thoughts on that and any exposure on your development pipeline?
There is no exposure on the development pipeline we have under active development. The regulatory environment will evolve across multiple states. I believe Texas is committed to the business, and projects already under construction will comply with whatever regulatory requirements are established. Regulatory action could defer or delay implementation or rollout of projects, but in the long term, demand for compute capacity will need to be met. We'll participate and believe regulatory risks will be managed. These facilities will be built over time.
Our next question comes from Josh Chan with UBS.
Great quarter. On Nexus, you said there are hundreds of sites technically possible. Why did you end up with these locations? Are they the largest? Do they make the most sense geographically? How did you end up with these eight?
I can't reveal competitive insights on why specific sites were selected. We began the relationship with the top global hyperscaler because they reached out to us to focus on sites under active development and planning. We pursued them and were awarded these sites. The colocator is developing sites and we are under agreement for five additional sites. Those relationships were established through a competitive process. We're taking advantage of this marketplace efficiently and keeping competitive advantages confidential.
Understood. Regarding the 98% retention, what's driving it and how does the retention pipeline look going into next year?
Execution and performance drive retention. It speaks to the strength of our customer relationships and the quality of performance every day. We've focused on serving customers and improving over the last five years. We hold people accountable and tie compensation to outcomes: 40% of our incentive compensation is related to net new, which measures retention and growth. When you focus incentives on something, it gets done. We're proud of the retention rate and we monitor it every month; service and execution drive it.
Our next question comes from Shlomo Rosenbaum with Stifel.
A lot of focus is on Nexus for good reason, but the rest of the business is performing very well. Can you parse out the 51% growth year-to-date in bookings? If you strip out Nexus bookings, what growth are we looking at in the core business? Is the strong education selling season continuing? Also, a follow-up on free cash flow.
The record levels of new business are primarily driven by the core business; there is only a small piece of Nexus in that. It's been broad-based across the portfolio. In B&I, record new business in corporate and vending/refreshments. Collegiate had a record selling season with new account rollouts. Healthcare has picked up levels of net new business — second year in a row with large launches. Destinations landed Stone Mountain, one of the largest wins in recent memory. International delivered nearly five years of double-digit growth with strength across Europe and other large countries. Remote services saw strength in Canada and mining in Chile. So it's broad-based across geographies and sectors.
On free cash flow: you used to provide guidance. Can you give direction on what to expect? Revenue and margins are outperforming. How should we think about free cash flow magnitude and use over the next several years? With the target of below 3x leverage, how will free cash flow be allocated — toward Nexus, dividends, repurchases, M&A?
The foundation of our capital strategy is to be below 3x leverage, and we have a clear line of sight to achieve that by year-end. On free cash flow, we target conversion of about 40% of AOI. As we grow, there may be moderate use of working capital due to record new business. Capital expenditures have been around 3% to 3.5% this year because of record new business. Model that out with ample capital to invest in growth. We'll remain targeted and disciplined on M&A and have capital available to potentially accelerate share repurchases in the coming year while balancing all uses. But getting under 3x leverage is the priority.
There are no further questions at this time. I'd like to turn the call back over to Mr. Zillmer for closing remarks.
Again, thank you, everybody, for the support of the company and for joining us this morning. I'd like to say thank you again to the dedicated Aramark family around the world. Thank you for all your performance for everything you've done for the organization and your commitment to serving your customers and each other. Again, thank you very much, and good day.
Thank you for participating. This concludes today's conference. You may now disconnect.