Q4 2022 ABM Industries Inc Earnings Call

Speaker 2: be found on our website, abm.com.

Speaker 3: After Scott and Earl's prepared remarks, we will host the Q&A session.

Speaker 4: But before we begin today, I would like to remind you that our call and presentation contain predictions, estimates, and other forward-looking statements. Our use of the words estimate, expect, and similar expressions are intended to identify these statements.

Speaker 5: and they represent our current judgment of what the future holds.

Speaker 6: While we believe them to be reasonable, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially.

Speaker 7: These factors are described in the slide that accompanies our presentation, as well as our filings with the SEC.

Speaker 8: During the course of this call, certain non-GAAP financial information will be presented. A reconciliation of historical non-GAAP numbers to GAAP financial measures is available at the end of the presentation and on the company's website under the investor tab.

Speaker 9: And with that, I would like to now turn the call over to Scott. Thanks, Paul. Good afternoon, and thank you all for joining us today to discuss our fourth quarter results and 2023 guidance.

Speaker 10: ABM posted solid results in the fourth quarter, capping off a strong year. Organic revenue growth of 5.8% was broad-based, driven by robust growth in our e-mobility, aviation, manufacturing and distribution, and education businesses.

Speaker 11: complemented by consistent organic growth in B&I. The ABM team continued to execute well, mitigating much of the impact from higher wage costs and labor shortages, while advancing our Elevate initiatives and moving toward our 2025 goals.

Speaker 12: ABM generated fourth quarter revenues of over $2 billion, with an adjusted EBITDA margin of 6.8%. Our adjusted EBITDA margin remained well above pre-pandemic levels, reflecting improved operational efficiency that we believe is sustainable and can be enhanced over time.

Speaker 13: through our Elevate initiative. Our solid financial and operational performance in fiscal 2022 demonstrated ABM's underlying brand strength and enhanced competitive positioning in a challenging market environment.

Speaker 14: Despite the expected decline in high margin disinfection related work orders, significant wage inflation, rising interest rates, and a historically tough labor market, the ABM team delivered strong full year EBITDA growth of 9.5%.

Speaker 15: with an adjusted EBITDA margin of 6.6%.

Speaker 16: Additionally, with our expanded breadth of service offerings, we generated new sales totaling more than $1.3 billion, another record year.

Speaker 17: I'll now discuss the demand environment for each of our industry groups.

Speaker 18: Beginning with B&I, office occupancy rates in the fourth quarter remained at relatively low levels, but continue to modestly increase, a trend we expect to continue into 2023.

Speaker 19: Similar to 2022, we anticipate our operating margin to remain steady in 2023 as we maintain our base of existing customers while leveraging our scale and unrivaled breadth of services to expand our growth opportunities. Recently, we won a sizable contract expansion with Google.

Speaker 20: to serve their newly built Bayview campus.

Speaker 21: And we see additional opportunities to expand our partnerships with other significant customers.

Speaker 22: Moving to aviation.

Speaker 23: Travel, including parking and transportation, has nearly returned to pre-pandemic levels.

Speaker 24: So we expect our growth rate in aviation to moderate in 2023 from the elevated level we experienced in fiscal 2022.

Speaker 25: We expect continued growth in our ABM Vantage parking solution as our airport clients continue to migrate to integrated, touchless parking solutions that generate higher revenue and improve the traveler experience.

Speaker 26: On the cost side, labor availability remains a challenge in the aviation market as time to hire is the biggest impediment due to the TSA's lengthy background check process.

Speaker 27: As we've discussed previously, in this labor market, speed to hire is important and a protracted background check process causes headwinds. Demand in manufacturing and distribution continue to be solid, in part reflecting our successful efforts.

Speaker 28: to expand our business with existing customers in the e-commerce and automotive markets.

Speaker 29: ABM is also winning new business in faster growing and under-penetrated markets like life sciences.

Speaker 30: In fact, we just won a sizable new contract with a large pharmaceutical manufacturer in the fourth quarter. And given the significant growth opportunity in this sector, we view life sciences as a strategic priority for 2023.

Speaker 31: In education, the addition of important new clients in the fourth quarter helped drive organic growth of 7%.

Speaker 32: We're also seeing a good deal of new contract proposal activity, providing ample opportunity to win new business in 2023 from a variety of potential clients.

both from those who currently outsource, as well as those who are contemplating outsourcing.

However, labor cost inflation in non-unionized markets

especially in the southern-eastern regions of the U.S., continues to be challenging for this segment.

That being said, we've made steady progress in filling open positions.

So we're optimistic moving forward.

In technical solutions, we continue to experience robust demand for our e-mobility charging solutions where revenue more than doubled over the prior year period.

For the fiscal full year, e-mobility revenue grew to nearly $130 million from a base of just $36 million in 2021.

We also saw strong growth in our mission critical end markets where we provide comprehensive services for data centers, 911 call centers, and national defense related facilities.

We expect technical solutions to show strong growth in 2023, aided by the U.S. infrastructure bill and recent passage of the Inflation Reduction Act.

In addition, our results should benefit from the contribution from Ravenvolt, which recently signed a sizable contract with a national logistics solution provider to design and install a backup battery storage system at numerous locations over the next few years.

So, Technical Solutions is well positioned to benefit from long-term secular trends and remains an area of strategic focus as we seek to identify future acquisitions that broaden our capabilities. For more information, visit www.fema.gov

Over the past year, we made significant progress with respect to our Elevate initiative.

Most recently, we developed a team member retention predictive model that forecasts where and why we may see attrition rise.

With this predictive information, we can proactively implement effective team member retention strategies, including bolstering HR recruiting support and ultimately reduce labor acquisition costs.

We also developed and started piloting a workforce management tool that provides enhanced visibility into productivity levels across our portfolio of accounts.

When fully shaped after our pilot period this year, we should start seeing scaled improvements in overall labor spend and meaningful insight into low performing buildings and how to solve the challenges we may have.

Lastly, among all the other initiatives that are in flight, we continue to move forward with our cloud-based ERP system, which we expect will begin deployment mid-year 2023 as part of our Elevate Tech roadmap that runs through 2025.

Before I turn the call over to Earl to discuss the Q4 financials and guidance, I want to make a few summary comments.

First, and most importantly, I'm extremely proud of our talented and dedicated team who delivered extraordinary financial and operational results this past year, despite the toughest labor market on record.

By putting our customers first, our team has done a tremendous job in strengthening our client relationships and opening up new growth opportunities to provide additional value-added services.