Q2 2021 ABM Industries Inc Earnings Call
Greetings and welcome to the ABM industries second quarter 2021 earnings call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Now I'd like to turn the conference over to your host Mr. David Gold Investor Relations for ABM industries. Thank you you may begin.
Thank you for joining us this morning with US today are Scott Salmon, our president and Chief Executive Officer, and Earle Ellis, Our executive Vice President and Chief Financial Officer.
We issued our press release.
I'm sure they afternoon announcing our second quarter fiscal 2021 financial results.
A copy of this release and the accompanying slide presentation can be found on our corporate website.
Before we begin I'd like to remind you that our colon presentation today contain predictions estimates and other forward looking statements.
Our use of the words estimate.
We expect and similar expressions are intended to identify these statements statements represent our current judgment of what the future holds while.
While we believe them to be reasonable. These statements are subject to risks and uncertainties that could cause our actual results to differ materially.
These factors are described in a slide that accompanies our presentation as well as our filings with the SEC.
Yes during the course of this call certain non-GAAP financial information will be presented.
A reconciliation of those numbers to GAAP financial measures is available at the end of the presentation and on the company's website under the Investor tab.
I would now like to turn the call over to Scott.
Thanks, David Good morning, and thank you all for joining.
Today to discuss our second quarter results as detailed in yesterday's press release ABM reported strong second quarter financial results building on the progress we achieved in our first quarter.
Current quarter adjusted income from continuing operations per diluted share increased to 82 cents up nearly.
Joining us 37% from the year ago quarter.
We generated significant operating leverage with adjusted EBITDA, improving 17% year over year to $106.6 million and adjusted EBITDA margin, increasing 100 basis points to $7.1 per cent.
Nearly on slightly higher revenues.
We were pleased to note that for the first time in 5 quarters growth in 4 of our key segments P&I T N N education, and technical solutions more than offset the softness in aviation, which while improved on a sequential basis.
From you to reflect the impact of the pandemic.
Our second quarter performance reflected a consistently high level of operational execution by our team and the gradually improving business conditions in sync with the reopening of the economy the strong showing in our current visibility.
Have enabled us to increase our full year guidance for adjusted earnings per share, while we continue to invest to support future growth.
Consistent with what we have discussed over the past several quarters, our customers continue to prioritize protecting their people spaces driving strong demand for our high.
Contention virus disinfection work orders enhanced clean a proprietary and trusted protocols for cleaning and disinfecting spaces was an important contributor to our second quarter results as well.
We also continued to benefit from efficient labor management as our flexible labor model enabled us.
Higher benefit and capitalize on staffing efficiencies arising from the adoption of remote and hybrid work environments, particularly within our P&I segment, where office occupancy in large metropolitan areas remain relatively low.
S employees transitioned back to the office, we anticipate.
Twice the easing in our labor efficiency, but we expect revenue growth in the second half of the year and increased work orders to mitigate that effect.
With our scale capabilities and market diversity and breadth of services ABM remains well positioned for continued revenue and earnings growth as the reopening.
From anthem continues.
There are several key trends that support our outlook for continued strong performance in the coming quarters.
First our clients on both the office and manufacturing markets indicate they plan to continue to incorporate disinfection into their cleaning protocols as they prepare for the return.
Turning them on staff and workers to their offices and industrial facilities in fact, given the heightened concerns around pandemic risk and greater awareness of public health issues in general we expect these specialized services to remain in demand and to become part of our client contracts.
ABM has been in.
Essential partner and helping our customers navigate through the challenges of the past year and on a 90% plus retention rate, which ticked up in the second quarter speaks to the confidence our customers have in our services and capabilities.
Second we expect continued sequential improvement and on.
Our aviation segment as pent up demand for travel translates into higher demand for aviation services.
As Earl will discuss in his comments, we are transitioning our aviation business mix to favor higher margin contracts with airports and adjacent facilities with less of a focus on airline services.
This strategic shift has created attractive growth opportunities for ABM outside of the airport such as parking services and provides for a more consistent and more profitable business mix and our aviation segment.
Additionally, we expect to see increased demand for disinfection and cleaning services in line with.
And travel activity.
Early signs of a return to leisure travel had been encouraging and increased business travel is projected to follow later in the year and into next year.
Third school districts have accelerated the return to impress them learning.
Our conversations with school district.
The pixels and educational institutions indicate that with the full time return to school expected. This fall cleaning and disinfecting will be a priority throughout the school year. We expect these services to become part of the broader scope of services for new contracts and Rebids, providing ABM.
Preferred venue and growth opportunities.
Finally, the energy efficiency and retrofit solutions that we offer in our technical services segment, our highest margin business provide significant operating cost savings for our customers and enable them to reduce their environmental impact now.
With Red greater access to client sites, we expect to increasingly worked through our technical services backlog, which was at a record level at the end of the second quarter. Additionally, this segment is well positioned to benefit from the new administration's priorities around decarbonization and energy.
Efficiency.
As we look towards the second half of the fiscal year. We are confident that we can leverage our significant competitive advantages to achieve continued progress.
You may recall that at the very outset of the pandemic, we established 19 operational task forces or pods as we call them.
We have to marshal our tremendous internal resources on the issues at hand to focus on a virus disinfection offerings, our field operations as well as finance legal liquidity cash flow and human resources.
This task force model proved to be a fast and effective way of identifying.
I think potential business issues, and utilizing cross functional expertise to develop and implement solutions.
Given the success of these initiatives, we will continue to use this model to address emerging situations. In fact, our human resources Task Force is now focused on recruiting and retention.
<unk> will be instrumental in helping us manage utilization as additional staffing is required to accommodate increased occupancy levels.
Additionally, our strong balance sheet and robust cash flow provide us with substantial resources to fund the investments to support future growth.
We invested in information technology initiatives during the first half of fiscal 'twenty 'twenty, 1 and we anticipate investing further during the second half of the year.
These investments in technology data analytics and strategic initiatives are designed to strengthen our client relationships and further empower arm.
<unk> please.
While we will speak about these initiatives later in the year I can share that we are currently piloting client facing solutions using sensors to generate real time occupancy data that inform our janitorial programs and allow us to share service delivery details with our.
Our clients via digital displays.
Additionally, we are expanding our use of technology to work force management with a digital task management solution that records work performed and facilitates dynamic route changes to accommodate shifting client demand.
Lastly.
Lee the ABM brand is recognized worldwide and our recent advertising campaign has served to reinforce the scale scope and capabilities of our organization.
These attributes enabled us to step in immediately to provide our branded services to clients needing a safe environment.
For their employees and consumers.
The ABM brand is synonymous with this tremendous commitment to customer service, which is supported by our ability to deliver as we enter a post pandemic environment. We believe the ABM brand will provide us with considerable competitive advantages across our business segments.
Turning now to the specifics of our outlook given our strong performance in the first half and our expectations for continued year over year growth in the second half.
We are maintaining our guidance for full year fiscal 'twenty 'twenty, 1 GAAP income from continuing operations of $2.85 to $3.10.
10 cents per diluted share inclusive of a second quarter litigation reserve of 32 cents at the.
Time, we on increasing our guidance for full year 2021, adjusted income from continuing operations to $3 from 30 to $3.50 per diluted share up from 3.
Dollars to $3.25 previously.
This includes additional investments in client facing technology and workforce management.
We're also increasing our outlook for adjusted EBITDA margin to a range of 7 to 7.3%.
From 6.6 to 7 per cent.
Previously.
We also ended the first half with robust new sales of $727 million, including $100 million associated with our enhanced clean offerings. Another first half record.
This supports our confidence in the company's organic.
Second half performance. Additionally, we continue to explore acquisition opportunities, where as a strategic buyer, we would be able to drive meaningful revenue and operating synergies.
Before I turn the call over to Earl I'd like to thank all of our ABM team members for their continued dedication.
Again, it would work over the past year, we've made tremendous operational progress and have proven our value as an essential partner to our clients during these dynamic and challenging times.
Never been more inspired by our purpose our team and our organization I also want to thank our customers for their.
On homes on us as we emerge from this difficult period I am so pleased with our performance and I'm more confident than ever in our future potential.
I'll now turn the call over to Earl.
Thanks, Scott and good morning, everyone.
Second quarter revenue was $1.5 billion.
0.1% from last year I've.
As Scott mentioned revenue in 4 of our segments grew on a year over year basis offsetting the continued pandemic related softness.
Variant in the aviation segment.
Key revenue growth driver in the quarter included higher disinfection related work orders and continued.
On demand for our enhanced cleaning services.
On a GAAP based net income from continuing operations was $31.1 million or 46 cents per diluted share.
By comparison in last year's second quarter, we reported GAAP income from continuing operations of negative $136.8.
$8 million from negative $2.05 per diluted share.
As Scott mentioned GAAP income from continuing operations in this year's second quarter includes a noncash $30 million reserve for an ongoing litigation equivalent to 32 cents per diluted share.
This non cash reserve relates.
The litigation dating back 15 year, primarily relating to a legacy timekeeping system that was phased out in full by 2013, you will find additional information in our form 10-Q, which will be filed later today.
The recorded reserve is based on a host of factors considerations and judgment and the ultimate resolution.
Of this matter could be significantly different.
As this litigation remains ongoing we are unable to disclose further information at this time.
As a reminder, last year's GAAP loss included a $2.55 per share impairment charge. Excluding these charges our adjusted income from.
Lucia operations from the second quarter of fiscal 2021 was $55.5 million or <unk> 82 per diluted share compared to $44 million or <unk> 60 per diluted share in the second quarter of last year.
The increase in adjusted income from continuing operations was.
Continuing on to our strong operational performance, including growth in our higher margin services as well as efficient labor management and the recapture of bad debt.
In addition, we benefited from favorable business mix, particularly in our technical solutions segment, where we executed on higher margin projects.
Excluding items impacting comparability corporate expense for the second quarter increased by $26.6 million year over year.
Approximately $10 million of the variation was due to increased stock based compensation with the remaining $16 million representing investments and other related expenses.
Thus information technology and other strategic investments spend in the first half of fiscal 2021 was $20 million in line with our expectations.
Now I'm turning to our segment results.
Isn't this an industry revenue grew 1.4% year over year.
$796.2 million driven largely by strength in demand for higher margin disinfection related work orders and enhanced cleaning services.
As a result operating profit in this segment increased 44, 1% to $85.3 million.
Our.
Our technology and manufacturing segment continued to see upside from demand for COVID-19 related services revenue share increased 5.4% year over year $246.3 million and operating profit margin improved to 10, 9% up from 8.4% last year.
We benefit.
Recapture of roughly $2 million of bad debt in this year's second quarter.
But even adjusting for this on.
But margin you'll showed improvement.
Growth in revenue and margin was fueled by higher level of work orders and new customer contract wins for our services.
Education revenue grew 7.
From that year over year to $214.2 million, representing the strongest growth rate among our segments in the second quarter.
The acceleration in revenue growth, primarily reflected the positive impact from the reopening of schools and other educational facilities in the second quarter and the shift towards more in personal.
Percentage.
That's vacation operating profit totaled $13.6 million, representing a margin of 6.3%.
Slightly down year over year on an operating basis as a result of labor challenges in our southern U S operations.
Our debt expense was roughly 1 million.
Much lower than last year, and this was a contributing factor to the operating profit improvement we experienced in this zone.
Although the specific labor costs, I mentioned will not recur in the third quarter, we anticipate that the return of students to school on a full time basis will lead to some reduction in labor efficiency.
Within this segment in the second half.
Aviation revenues declined 19, 7% in the second quarter $148.3 million.
Although reduced global travel continued to weigh on this segment.
Revenue improved 3.6% on a sequential basis, marking the third.
Third consecutive quarter that aviation segment revenue has improved sequentially.
With industry data points, indicating a progressive recovery in global travel we are optimistic that revenue in our aviation segment will continue to improve over the second half of fiscal 2021.
Aviation operating.
<unk> was $5.8 million, representing a margin of 3.9%, while our airline customers continue to request higher margin enhanced cleaning services, such as electrostatic spraying margin remain below normalized levels given reduced volumes.
And Scott mentioned, we are focused on securing more profitable.
Profitable business with airports and related facilities and have continued to deemphasize our airline services work there.
This strategic shift in our aviation segment business mix had a positive revenue and margin impact on our second quarter results and should benefit future periods as well.
Hi.
<unk> revenue increased 2.6% year over year to $125.5 million operating margin was 8.2% in the second quarter up significantly from 5.3% in the first quarter of fiscal 2021 due to a favorable mix of higher margin projects as.
Client site access improves.
So we remain positive on the growth trajectory of the technical solutions segment.
Shifting now to our cash and liquidity.
We ended the second quarter with $435.7 million in cash and cash equivalents.
Mm $394.2 million at the end of fiscal 2020.
With total debt of $797.9 million as of April 30 of 2021, our total debt to pro forma adjusted EBITDA, including standby letters of credit was 1.7 times for the second quarter of fiscal 2021.
Second quarter operating cash flow from.
From continuing operations was $125.9 million down from $162.3 million in the same period last year.
The decline in cash flow from continuing operations during the second quarter was primarily due to the timing of cash taxes.
For the 6 months period ending April.
30th 2021, operating cash flow from continuing operations totaled $171.2 million.
Free cash flow from continuing operations was $117 million in the second quarter of fiscal 2021 and $156 million for this year's first half.
As.
As a reminder, cash flow is benefiting from payroll tax deferral related to the cares Act.
Beginning next year, the deferral will be paid at $66 million in each of the next 2 years.
We were pleased to pay our 220 <unk> consecutive quarterly dividend of 19 cents per common share.
During the second quarter.
Turning on additional $12.7 million to our shareholders.
Our board also declared our 221st consecutive quarterly dividend, which will be payable on August the shareholders of record on July 1st.
Reported by the strength of our balance sheet, we have the financial resources to support.
Capital allocation priorities of adding additional growth by investing organically, while pursuing potential acquisitions.
Now I'll provide some additional color on our guidance and outlook.
As mentioned our increased guidance for full year fiscal 2021 adjusted income from continuing operations.
<unk> is now a range of $3.30 to.
The $3.50 per diluted share compared to $3 to $3.25 previously.
Our upward revised adjusted earnings forecast.
The strength of our first half as well as our positive view for the second half.
Awesome.
Our third quarter has 1 fewer day than last year equivalent to about $6 million in reduced labor expense.
On a GAAP basis, we continue to expect EPS from continuing operations of $2.85 to $3.10 inclusive of the 32 cents litigation.
Reserve in the second quarter.
We continue to expect a 30% tax rate for fiscal 2021, excluding discrete items, such as the work opportunity tax credit and the tax impact of stock based compensation Awards.
As we noted in our first quarter conference call in March our expectation.
Tension was to achieve cash flow above our historical range of 175 million to 200 million for fiscal 2021.
Now having generated $171 million on operating cash flow in the first half alone.
We are confident that we will achieve free cash flow for fiscal 2021, a 215 million.
The $240 million.
We are pleased with our positioning as business across the country emerge from the pandemic and we look forward to helping our clients provide safe environment for their employees and customers.
And I am personally looking forward to meeting with each of you in person hopefully as soon as later this.
This year and.
And to connecting with you virtually until then.
Operator, we are now ready for questions.
Thank you at this time on be conducting a question and answer session. If you'd like to ask a question. Please press star 1 on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press star 2 if you'd like to remove your question from the Kim from <unk>.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question.
Good morning, Scott Good morning Earle.
Good morning.
Good morning. Thank you guys for taking my questions. So a couple of questions on labor first labor cost and then labor availability on the labor cost side.
Last quarter, you said that you anticipated retaining most of your labor arbitrage through year end that is a big.
Big part of your margin expansion coming from labor savings, but here. We are a couple of months later and inflation is on the rise and on the forefront of everyone's mind do you think the piece of your margin expansion that came from labor savings over the last 12 months is it your expectation that eventually gets inflated away on the coming period.
<unk>.
Yeah. That's a good question. So the answer is yes, and we've consistently said that but I think it's important to level set this and.
Just as a reminder, 50% of or.
Net revenues come from unionized labor, which is above market rage, and having benefit so we net.
Never really see pressure there so it's really on the other 50%. So we have mitigation right there.
And for US as we think about labor and what we're doing we put together.
So this just like we did during.
During COVID-19 and when we talked about how we created these task forces. So we have kind of a multi.
<unk> disciplined task force just focused on recruiting and labor efficiencies right now and we're hyper targeting certain areas because not every area has built the same right.
There are places like Orlando, and Dallas, and Houston, which have a little bit more pressure than other areas and again, we're only really mostly focused on the non.
Union areas.
I think it's <unk>.
Something that's top of mind for us but.
I always point people back to 2018 on 2019, when there were labor pressures as well.
And how we navigated there and it is what we do right. So eventually eventually we'll see some of the efficient.
<unk> on our trail off which is what we said because people returned to work on will be re staffing the buildings, but we on.
<unk> to maintain some of those savings because of efficiencies of re staffing. So we feel good about that and then the last thing I'll say about the labor pressures.
We do ultimately.
Lee get this back from on our customers, it's not exactly elastic, but we pass through and we shown in 18 and 19 that is labor costs rise we're really good at.
Recapturing those from customers because they get it because they are facing the same thing. So it's not anything that's kind of just.
Just.
Segmented to our industry. So you know again, it's top of mind, but we feel like we got this.
Okay, that's very reassuring thing Scott any of the investments that you've made recently is there anything.
There that would help you pass on this cost in a dip.
Wei <unk>.
A new capability that you have that you hadn't had before or is that not really related to this piece of the business.
It's not necessarily the least this piece of business, but I will tell you the first tranche.
Our technology.
<unk> was a couple of years ago, when we upgraded our HR system.
And went to the cloud and got a much better capability. So it helps us have insight and information that we never had a couple of years ago.
In this kind of labor game. The key is having information knowing where the pressure points are knowing how to articulate and dynamically staffs. So I'd say.
The newer investments are not necessarily exactly related to labor because Fortunately, we got ahead of that switch over to sleep.
Understood if I could just squeeze 1 more in I wanted to ask about labor availability I mean, you guys had 114000 employees.
Towards the year end and I know this is down.
From 2019, but still more employees than pretty much any.
Every other company on my covers less so.
Some share it's not about labor costs, it's about labor availability most companies I talk a few lists lift labor availability.
The prevailing issue right now even more so than inflation so.
Is.
Is labor availability, a major issue for you right now and if so.
Has this affected the service levels in any material way.
Yes so.
Funny I would say probably for on 112 year history.
History Labor availability is always top of mind right because of because of what we do right.
But what I would say is I'd say, it's still a little early in the game right there as well.
There was a federal stimulus out there of $300, a week, which we all know about over and above unemployment and you do the math on that and you think about a $15000 per year bump for people who are unemployment on them.
Unemployment so.
So that's something that keeps people at home and we're starting to see some of the states rolling off starting this month and in September the Federal program Rolls off So I think it's a little early to see about what the labor availability will be in the fall when people return to.
That's where we're really going to need it but we don't have this massive need right now because.
Generally speaking Tim right now, it's still very muted occupancy in office buildings, right and travel is still only about 60% of where it was so.
I think we'll have more to say on other companies are going to have more.
A work day after the federal stimulus wears off and how many people re entering the workforce. So for now we're navigating it well, but again, we'll look knowledge it's Stephanie.
Really at muted levels right now of need right. So I think September is going to be the time, where everybody is going on really.
Really understand what the availability pressures on our but I think anything before that is just speculation on our mind.
Okay that helps thank you for that makes sense, yes.
Very helpful understood. Thanks for taking my questions.
You got some.
Thank you.
Our next question comes from the line of Sean Eastman with Keybanc capital markets. Please proceed with your question.
Hi, guys. Thanks for taking my questions on a nice job again this quarter.
Thank you.
I guess, just going on going back to the.
Margin discussion that the different moving parts there.
I mean, we have an updated second half outlook, but it seems like the.
On the dynamic in the business.
It doesn't really change too too much until the fall September October sales kind of read at the end of the fiscal year.
I'm just wondering how much we can extrapolate.
From the second half.
Yes.
<unk> margin guidance.
As we think about what's sustainable going into next year.
If I could just go round and round in circles around the different moving parts between labor efficiencies and how these it investments trend.
Etfs.
Yeah.
Coming back and being a growth driver again.
Is this implied second half run rate sustainable.
The big moving parts, we really need to consider on our models going into next year relative to that run rate.
Sure. So lets you know and obviously, we're not ready to guide.
Died yet for <unk> so you.
You don't have limited to say about that but I could tell you look we feel super confident about.
About the second half of this fiscal year for us. That's why we were able to raise guidance and a lot of that honestly Shawn has to do with having better line of sight, we've been really consistent about.
We want to be responsible and until we have line of sight, we're not going to get over our skis right. So I think we have at this point in time, we feel like we have really good line of sight to the rest of this year and the dynamics look really good.
R R between enhanced clean and our work orders in the.
Second half they maintained at the levels of the first half and we feel like it's going to be strong for for the rest of this year, we believe theres going to be a return to work is it going to be 100% office occupancy absolutely not but.
Probably seeing somewhere around 25% average across the country and.
Secondly, more more in the range of 40% in the southern States and 15% on the coast. So we think that's going to tick up and return to work is going to be more revenues for us it's going to be more disinfection services, we'll give a little bit of that back from the labor efficiencies because we will have to reassess the building.
But that's.
Really a positive trend for us on the last thing and you mentioned that this technical solutions. We have we have a backlog of over $250 million in business on our strongest ever and more importantly, our churn rate is up.
<unk>.
We typically.
Our churn rate for 4.
The second quarter was somewhere in the range of 12% and but sequentially through the quarter got stronger and stronger and so we're excited about that to actually turn the work. So I think youre going to see you're going to see revenues go up in the second half you're going to see disinfection strong youll see again on the mitigation on the labor side.
We're also going to see a T S shorten up as well so.
I think we feel really good about that.
We'll see where it goes into 'twenty 2 as we get closer to that and again November 1st starts R 22, and I think thats still going to be at the time, where people are returning to work and so I think we will have.
A good start to 2002 as well, but again, it's early to start guidance Scott.
Makes sense.
Yes, yes, it does.
And.
Obviously the balance sheet.
Primed for.
For some capital deployment here it seems like you've kind of stepped.
But for your M&A commentary, a little bit and then communications here this quarter I mean could you just speak to the.
Velocity and the acquisition pipeline you know I'm hearing from a lot of companies that sort of salary decision, making is really accelerating here.
Yeah. So yeah, there is definitely more activity.
And remember for US we were pretty consistent last year that until we get through this pandemic and until we feel like there is stabilized liquidity and what have you. We weren't then start thinking about it. So so we've only been in the game for.
Very short period of time, but we have on our teams out there there is.
The activity wed like to think there's going to be opportunity for us and the nice thing for us.
I am not going to tell you anything you haven't heard about private equity and having access to capital, but the nice thing for US is that we as a strategic buyer have synergies both operating and revenue.
That helps make us competitive if there is an attractive asset out there. So it's definitely a priority for us M&A because.
Growth is so important so we're excited about what we're starting to see.
Okay excellent I'll turn it over there thanks, so much Scott.
Thanks.
No.
Yeah.
Thank you. Our next question comes from the line of Andy Wittman with Robert W. Baird. Please proceed with your question.
Great. Good morning, Thanks for taking my question Scott in your prepared remarks, you mentioned that.
Your your P&I customers and from your manufacturing customers.
Sean if I can keep cleaning you think that some of the enhanced cleaning services might become part of the contract and so I just wanted to understand that mechanism a little bit more do you expect that.
Those would be negotiated contracts or as they look to increase the size do you think generally speaking that your customers as they look to increase the.
Cleaning on what they do that they go out to rebid with that and what do you think as these things become part of the base contract and less.
<unk> work or work order work.
What if any implications are there to the margin what are your thoughts on that 1.
That's a great question.
On what Andy I think we've been really consistent.
For the for the past few quarters, saying that the natural gravitation of this work will be to be embedded in scope because I mean look I was a former facility manager that's what I would do right and so I think.
As clients start thinking about re re tendering contracts, which will probably happen over the next year or 2.
I do see them incorporating in the smart thing to do.
And I think.
We've talked about 30% margins on this work, we will see that trail down a little bit I don't know, where it will end up landing with Atlanta, 20% will Atlanta, 25%, but the reality is for US there is.
Is it is a higher value service and you can build in our higher margin for our higher value service training Theres equipment Theres. All these protocols. So I think we'll be able to retain a good amount of the margin, but absolutely. The expectation is that it will gravitate into the base contracts.
So the bigger clients for the smaller tenants.
It's still going to be kind of on a work order basis, which would make sense for them as well.
That makes sense, but as we sit here today in June are you seeing those kinds of discussions happening or this is just still I mean, you've been saying this for a while like you just said there but are you seeing anything today that.
Towards.
Towards this trend here in June.
Not yet.
Because people aren't really focused on re bidding contracts right now right.
It is.
If you think of the life of the facility manager right now what's top of mind for them is preparing for return to work from all of our workers right. So.
We're looking at re occupancy programs, so looking at space planning for their offices.
The health and safety stuff Rebidding, a janitorial contract is a pretty big deal on it takes a lot of focus and effort. So my sense is that that kind of thing is going to happen probably 'twenty 2 'twenty 3 versus the back half of this year.
Year, because we just haven't heard about any plans yet on scale to get in the market and rebid and I think the other part of it the inside I have Andy and maybe this is helpful is when you don't know your sisterly manager and you don't know what your ultimate occupancy is going to be or floor layout youre getting ahead of yourself by bidding on the contract.
Because you can't really drill down on a good scope yet because you just don't know how it's all going to land so kind of if.
I were in their shoes, I would think it's premature right now to start putting together a formal scoping for what the new ways of work look like because people haven't really returned yet so that makes sense.
Makes lot of sense.
Just on on technical solutions here.
You guys put in electric vehicle charging stations.
Retrofit schools with.
Kinds of different systems.
Both of these things are talked about us having actually some of them have passed the 1.9 trillion.
Nothing had money from directly from schools I'm wondering.
I wouldn't expect that that is in the backlog yet but are you bidding.
Projects that you can kind.
Kind of tied to these monies that have been allocated already.
You mentioned the record backlog I'm, just kind of curious as to if that kind of 4 before that.
Let's hear or after the stimulus and any comments that you have on that particular.
Yes, I think the good news is where we are.
Haven't seen yet the direct effect of that because a lot of these programs haven't been formalized but I can tell you that.
Just kind of bundling of solutions in our energy.
We call it.
Stimulus, which is bundled energy solutions, which is this project retrofit work, we're seeing a lot of activity on that because there are still other government programs out there and many of the school districts can raise capital where they're getting the pressures on their operating margins still so.
We're just seeing an increase on the pipeline.
<unk> of clients, who are talking about ways to lower operating expenses and that plays right into the strength of what we do with our again, our bundled energy solutions and then you take on top of that the.
<unk>, new focus with de Carbonization and E mobility and on.
Our easy.
Z charging is probably it's still a relatively small segment for us, but it's probably our fastest growing and and it's really turning into <unk>.
Something that we are putting a lot of focus on so we think everything thats going on Societally and with the administration is going to be a big tailwind for us in 'twenty, 2 and 'twenty.
Alright.
Okay. That's helpful. And then just last question quickly here for per Earle I wanted to talk about the unallocated corporate expense segment results. I mean, you guys. You mentioned in the prepared remarks that youre kind of $20 million of investments. This year over last year. That's on track you guys have been saying, it's going to be 40 for the year and things like.
That's kind of where you are on those investments, but just wanted to make sure that for all of our models here that we're getting this right.
If you look at last year's corporate on a on Alex on allocated expense segment, it's going to be plus $40 million on these investments, but I also think that there is because of the years, where it is you mentioned in the press release, even the stock compensation.
<unk> is going to be up in addition to that so I was just wondering if you could help us a little bit as to how much.
The stock comp is up year over year as well just so that we can kind of get a sense of what that line is and then obviously the implications will be able to back into the implications for the for the operating segment margins as well just be kind of helpful to understand.
Thinking about that on unallocated segment line.
Sure Andy would we'd love to do that so just to start with you mentioned last quarter, we're continuing to invest in both our talent to support our future growth opportunities as well as the end of the planning and design phase of our Tech solutions.
And how your rollout of it.
Our rollout of our tech transformation and as we mentioned that investment year over year is approximately $40 million increase and when we look at the year to date, we've actually spent $20 million of that although if you recall Q1 was actually a little bit of a late start and that we actually spent probably.
<unk> $3 million to $5 million of that caught up in the second quarter as we looked at the back half of the year that $10 million Cliff will continue to spend over Q3 and Q4 now having said that however, when you look at it at it from a year over year perspective, it might look a little lumpy in that if you look at Q3, you have to recall last.
But from where we actually had the benefit of the furlough.
Do you see as a result of that pick up.
And then when you looked at Q4, although we will still be spending that come in at $10 million that spending actually started last year on Q4, and therefore Q4 year over year will look kind of flattish, but we are still on track with the $40 million.
Last year for this year.
In addition to that we are seeing an increase in our share based compensation and that's due to the tune of approximately $15 million year over year and that's.
A product of a number of things including.
Special Grant that came up last year as well as just how we're actually.
Spending on the grant that will actually.
Come to divesting this year.
Again, youre going to see some lumpiness in that in that year over year increase you'll see the vast majority of that impacting in this past quarter Q2 year over year at last year, we took a significant reduction in our reserves at year.
Trac dissipating the impacts of the pandemic, we then.
Start to ramp up that investment last year that accrual last year. So if you look at the back half of this year, we anticipate more of a smoothing year over year with regards to share based compensation.
Alright.
Very helpful. Thank you very much have a.
And test.
Thank you.
Thank you. Our next question comes from the line of David Silver with CL King <unk> Associates. Please proceed with your question.
Hi, good morning.
So maybe if I could just ask Earl to follow up a tiny bit on.
On the stock based comp.
Discussion that you just finished.
Always a number of moving parts in these programs but.
For our.
Understanding purposes going forward should we be.
Tracking lets say the closing.
The point to point.
Change in your share price in other words January 31 to April 30 led to the bulk of that expense this quarter or is it more of a.
Accrual with time or an average share price in other words.
Might there be a couple of rules of thumb you could share.
That might give us a little bit of a heads up.
Going forward to kind of adjust our expectations for that expense item. Thank you.
Sure well when you look at our share based compensation for the most part there are a number of metrics, but the large percentage is really metric is really weighted.
On our financial performance and that would be both revenue as well as our EBITDA. So 1 of the things that you can clearly track is how we're actually.
Progressing on those 2 metrics and it's clear to say, especially this year with regards to our EBITDA and our earning that again have been driven by the margin expansion that really is.
Benefactor, if you will to the increased accrual that we're actually seeing in the stock compensation plan.
Okay.
Okay. Thank you for that and then Scott I heard a question about the project reserve that.
Your companies.
It took a couple of quarters ago. So I think it was $18 million pretax but.
My understanding was that was kind of tied to the inability of your customer to kind of open or begin operations.
With the I was just wondering if.
Can you give us an update there on whether you think the current pace of let's say.
The reopening of workplaces, and social venues and things I mean should we be thinking that debt.
That reserve might be reversed in coming quarters, I mean, what's your maybe just an update on on the issue. Please.
Yeah, So look I'm going to turn on the optimists right so but.
I will tell you David like where we are in active discussions and it's something that's it's really difficult to comment on because.
On.
We're still it's still ongoing so.
Just like any other kind of reserve, we take we don't give up and we go after it.
And so I think so.
Suffice to say active conversations on more to come on that.
Okay, and then maybe just 1 more kind of bigger picture question.
And you know this would have to do with branding I guess or.
Your marketing strategies and your marketing programs to date.
You've mentioned in the past you have ramped up.
Marketing efforts on a number of platforms and I've seen your national commercial on CNBC quite a bit.
And.
Things I mean first I was just wondering if you could point to any tangible results in particular.
Product lines or Subsectors that where you think the greater awareness of the greater visibility.
Visibility.
Has made enough.
<unk> made a difference.
And then.
To say, maybe just a longer term perspective in other words your company has been in business for over a century or already have a national footprint.
And yet you kind of have redoubled your mark.
Marketing efforts here.
Maybe if you could just point to.
Secondly from a.
1 or 2 year perspective, I mean, where do you think that debt.
Greater awareness the branding efforts are going to have the biggest effect in other words might it.
Encourage people, who had been using maybe a regional player or a mom and pop to step up to a higher level of service.
<unk> made associate with your your name now on.
Or.
Maybe regionally areas, where you hadn't been as debt youre looking to penetrate maybe thats the necessary precondition for success. There. So just overall.
<unk> success to date, and then where do you think where should we look.
For the <unk>.
Greatest impact over the next year or 2 thank you sure. Yes, so look I think.
Especially with what we're doing with the commercial brand is so important and what you're trying to do is create differentiation in the market.
Hit on it right there is like kind of ABM and then this regionally.
<unk> competitors.
We are attempting to do and I think.
The pandemic has done it has really say like there is kind of us and our resources on our scale and as everybody else in the way that that manifested itself.
On our supply chain.
We would never the ones that were without.
Effective or PPE for our people electrostatic sprayers because of again, our sourcing capability and not every client that had a regional.
Regional player can say that they fared as well and then we have an advisory council that we put together a outside experts to.
Cynthia.
The size with the CDC and the World Health organization was saying so our clients can get a better lens on that and all these things here on the small regional players can do and then.
You put on top of that commercials on CNBC. It's like it's just creating a choice differential that we think is going to be super impactful hopefully that's going to.
It doesn't have.
I have an impact on our retention over the next couple of years, we've been over 90% of 1.1 percentage point tick up in retention is dramatic in our business. So we're hoping that we've seen.
Last time on I checked in my information a few weeks old, but I think it was it was something around.
Percent increase and hits on our web site and our sales teams seeing tracking coming through digitally so I think.
It's a confluence of things David but again, it's just it's elevating the brand between how we performed and the exposure now that we're doing on on.
On TV and through all the social channels. It's just it's going to or we're trying to do at ABM is create a separation between our platform and our small regional competitors.
Okay, great. Thank you very much.
Thank you.
Tim Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star 1 on your telephone keypad at this time.
Our next question comes from the line of Marc Riddick with Sidoti and company. Please proceed with your question.
Good morning.
Morning.
So I wanted to sort of fill in a few of the blanks.
That we've had from some of the other question on this Friday.
Answered I wanted to start first with going back to the acquisition commentary in the press release from that.
You talked about a little bit more and more recently just wanted to touch a little bit on whether or not there is any particular areas that you would view as priorities are or things that.
Kind of top of top of the list that you'd like to see.
Accomplish whether it would be a regional fill in or <unk>.
Service line.
How should we think about your prioritization of potential acquisitions.
Sure. So look I think for us.
We were very.
Very intent on sticking to our core and the core of what we do is janitorial stationary engineering right and that with the pandemic.
What's happened through or virus protection on our credibility. There we think that's a great accelerator for us. So we will look for scale there and.
And you know how much we loved the Ats work right. It's our it's our fastest growing and most profitable segment. So we have a high interest in growing that platform too so.
Mark I think before we start looking for Adjacencies outside of the core of what we do we're really going to stick within the core.
Scale is always better right integrating a small company is as much work as integrating a big company. So.
So I think we're going to synthesize those and then there are certain regions, even with our with our Ats. What there are certain regions that we'd like to fill in where we are maybe not as strong as others. So there'll be a little.
End of <unk>.
Geographic bent when it comes to Etfs. So we have a really good matrix of what we're looking for.
What we said for the past few years is what I would say now we are not going to be reactive we're going to be strategic on plant full on how we go after acquisitions.
Little bit.
Great and then I wanted to switch back to talking about some of the segment activity seen during the quarter because 1 of the things that was interesting to me was the strongest.
Segment growth was wasn't was an education it seems as though of all the areas.
Sure.
The work that seem to have been the biggest beneficiary on the strength of the rollout of vaccines and what have you I was wondering if you could talk a little bit more about some of the conversations that you're having with within the education space and maybe some of the commentary that or maybe what youre seeing from the benefits of funding that kind of gives you it seems as though.
It gives you greater confidence for the upcoming school year, but certainly the vaccine seems to have accelerated activity at the very end the fiscal year, but it also seems to maybe have accelerated the timing of some of those conversations. So I wonder if you could talk a little bit more about that.
Yes.
It's a good question from.
From the educators, we have been talking.
You know within our client base and stuff, we hear on the industry. It seems to be this very binary shifts towards in person learning and the whole remote when it comes to the fall right because that's really.
The next really piece of the puzzle right now that school is generally.
<unk> right now.
We're talking about in person, which is great from a revenue standpoint for us.
Again, we will give some of it back on the labor efficiency, but all the educators we talk to.
Healthy clean safe buildings is top of mind and it is for them and the parents right parents are very vocal about this so.
We're excited about the potential in education because.
We suspect.
If you look at on a different segments right.
Our technology and manufacturing, which is really focused on as much on the manufacturing side.
They never stopped on our revenue has always remained strong and then.
You had <unk>, which is the office occupancy reduction right I think.
Aviation is 1 that's going to lag probably more than any other segment, but education I think it's going to have a strong come back into the fall, whereas when you look at P&I.
I don't think anyone thinks the offers are going to be 100%.
So occupied in the fall, whereas it could be close to that for education. So I think youre going to see a pretty strong rebound.
Right right and then the last thing from me totally different area, but I was wondering if you can give updated.
Thoughts around given the strength of our free cash flow generation debt.
A reduction I wish it was faster than we were expecting certainly a nice to see there wanted to talk a little bit about our views of our future share repurchase and how we should think about.
And sort of given given the strength of the business versus where your stock price is now kind of.
On your thoughts are evolving there. Thanks.
Yeah.
Mark Thanks for the question on.
I would say that we're really pleased with the amount of cash that we're currently sitting on as well as our low leverage which really gives us the opportunity now it really to deploy that capital for the purposes of supporting our long term growth strategy and I thought you were going to be looking to invest in both organic as well as inorganic.
Inorganic growth now, having said that we're going to.
Remain our flexibility with regards to capital allocation as you know, we currently have authorization upwards of about $145 million.
From the board to actually pursue share buybacks, so we'll keep that.
<unk> ability as time proceeds but.
Point in time, you know the focus really is around allocating capital for growth purposes for long term growth.
Thank you very much.
Thank you Mark.
Thank you ladies and gentlemen, this concludes our question and answer session I'll turn the flow back.
At this time I was for any final comments.
Yes, I just wanted to take a moment to thank everyone for supporting us through this period. So proud of what our team members have done and I appreciate the interest from our Investor base and analyst based on what we're doing and.
You can tell.
Back to Mr strong level of enthusiasm about the future for ABM between.
The brand elevation between cohort margin elevation and about survival.
Reflections on virus protection going forward, we think we're just in a super good spots to continue to invest and accelerate the platform.
And the most important thing is just.
We're not out of this yet.
I would just urge everybody to.
Not let their god down.
Stay safe through this and we have good things coming so thank you all for the time today really appreciate it.
Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.