ABM INDUSTRIES INC /DE/ Q1 FY2025 earnings call

• ERP Implementation: Education segment transitioned to new cloud-based system last year. Applied learnings to B&I and M&D in Q1, set up hyper-care team for invoice accuracy. Expect cash flow normalization. - Rebranding: Launched new brand platform 'Driving Possibility Together' in Q1, with digital campaign, revamped website, and ABM Perspectives hub. - Credit Facility: Expanded and extended credit facility to $2.2 billion, reflecting growth and lender confidence. - ABM Connect: Real-time data intelligence platform providing actionable insights. - Segment Updates: B&I sees positive office leasing activity, expects H2 2025 growth. M&D has new business wins. Aviation benefits from strong flight volumes. Education stable, retaining marquee clients. Technical Solutions microgrid business strong with $490 million backlog.

First quarter revenue was $2.1 billion, up 2.2%. Organic revenue growth was 1.6%, led by Technical Solutions (22% growth to $202.3 million) and Aviation (8% growth to $270.1 million). B&I posted $1 billion in revenue, slightly below last year. M&D generated $394.3 million, down from $400.9 million last year. Education revenue grew 2% to $225.3 million. Technical Solutions saw 22% revenue growth to $202.3 million. Organic growth in Technical Solutions was driven by microgrid projects, with $490 million backlog. Aviation's operating profit was $12.2 million, up 26%, with margin 4.5%. M&D operating profit was $39.4 million, margin 10%. Education operating profit increased 10% to $14 million, margin 6.2%. Technical Solutions operating profit more than doubled to $16.6 million, margin 8.2%.

• Raised lower end of full year adjusted EPS guidance to $3.65 to $3.80. - Adjusted EBITDA margin outlook unchanged at 6.3% to 6.5%. - Interest expense forecast increased by $4 million to $80 million to $84 million. - Anticipate free cash flow to hit targets despite near-term choppiness from ERP transition.

• Labor supply uncertainties due to immigration policy shifts, but company confident in talent acquisition strategies. - Temporary impact on cash flow from ERP implementation, though expected to normalize.

Q: Comparison of Q4 2024 commercial office leasing activity to prior quarters and seasonality A: Scott mentions no real seasonality, but leasing activity represents a continuing trend with optimism and return to work, net absorption rates are good.

Q: Federal exposure in B&I and Technical Solutions A: Scott states minimal risk, mission-critical business highly protected.

Q: Labor costs and union labor visibility A: Half of revenue from union labor with rates set for 3-4 years. Non-union rates passed through to clients. Talent acquisition team upgraded with cloud-based systems.

Q: ERP impact on free cash flow A: Earl explains delay in invoicing and cash collections due to thorough review, expects pickup in Q2 and resumption of cash flows for the year.

Q: Win rate and new business in M&D A: Scott talks about investment in business development, leveraging AI, selective client picking, and high new bookings.

Q: ATS revenue growth and backlog A: Scott mentions microgrid business strong, bundled energy solution softness but incremental pickup, need for interest rate decrease.

Q: M&D revenue hit from large client rebalancing and new business A: Scott says large client impact lapped, M&D pipeline strong, back half expected to be incrementally positive.

Q: ATS contingent consideration and share repurchase A: Earl says ATS performance strong, contingent liability evaluated quarterly. Share purchases for anti-dilutive share-based compensation.

Q: Aviation demand trends and Technical Solutions backlog A: Scott says Aviation resilient to demand shifts, Technical Solutions backlog strong with RavenVolt performance, optimistic about other offerings.

Q: New contracts in B&I and Technical Solutions A: Scott confirms two separate contracts, office building in NY not fully operational but starting construction cleanup, backup power work handled in general contracts.