Q2 2024 ABM Industries Incorporated Earnings Call
Operator: 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. I would now like to turn the conference over to your host, Mr. Paul Goldberg, Senior Vice President, Investor Relations, for ABM Industries. Thank you, sir. You may begin.
Austin and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. Paul Kohlberg Senior Vice President Investor Relations for ABM industries. Thank you Sir you may begin.
Paul E. Goldberg: Good morning, everyone, and welcome to ABM's second quarter 2024 earnings call. My name is Paul Goldberg, and I'm the Senior Vice President of Investor Relations at ABM. With me today are Scott Salmirs, our President and Chief Executive Officer, and Earl Ellis, our Executive Vice President and Chief Financial Officer. Please note that earlier this morning, we issued our press release announcing our second quarter 2020 financial results. A copy of that release and an accompanying slide presentation can be found on our website, www.abm.com.
Paul E. Goldberg: Good morning, everyone and welcome to the ABM second quarter 2024 earnings call. My name is Paul Goldberg and I'm, The senior Vice President of Investor Relations at eight P. M.
Paul E. Goldberg: With me today are Scott sound mirrors, our president and Chief Executive Officer, and our executive Vice President and Chief Financial Officer.
Paul E. Goldberg: Please note that earlier this morning, we issued a press release announcing our second quarter 2024 financial results.
Paul E. Goldberg: A copy of that release and an accompanying slide presentation can be found on our website a b M Dot com.
Paul E. Goldberg: After Scott and Earth prepared remarks, we will host a Q&A session, but before we begin I would like to remind you that our call and presentation. Today contains predictions estimates and other forward looking statements.
Paul E. Goldberg: After Scott and Earl's prepared remarks, we will host a Q&A session. But before we begin, I would like to remind you that our call and presentation today contain predictions, estimates, and other forward-looking statements. Our use of the words estimate, expect, and similar expressions is intended to identify these statements, and they represent our current judgment of what the future holds. 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.
Our use of the words estimate expect and similar expressions are intended to identify these statements and they represent our current judgment of what the future holds while we believe them to be reasonable. These statements are inherently subject to risks and uncertainties that could cause our actual results.
Paul E. Goldberg: To differ materially. These factors are described in a slide that accompanies our presentation as well as our filings with the SEC.
Paul E. Goldberg: These factors are described in a slide that accompanies our presentation, as well as in our filings with the SEC. 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.
Paul E. Goldberg: 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 Change: And with that I would like to now turn the call over to Scott.
Scott B. Salmirs: Thanks, Paul. Good morning, and thank you all for joining us today to discuss our second quarter results. We are pleased with our quarterly results, which were driven by our team's execution and highlighted by strong cash flow, an adjusted EBITDA margin of 6.5%, as well as by significant single-digit organic revenue growth in our aviation, technical solutions, manufacturing and distribution, and education segments, all of which resulted in adjusted EPS of $0.87. We're also encouraged with BNI as the business continues to prove resilient in a still-settling commercial real estate environment, benefiting from our diverse client and service mix, our leading market position, and our penetration in the higher-performing Class A segment of the market.
Paul: Paul Good morning, and thank you all for joining us today to discuss our second quarter results. We were pleased with our quarterly results, which were driven by our team's execution and highlighted by strong cash flow adjusted EBITDA margin of six 5% as well as by big single digit organic revenue growth in our aviation check.
Paul: Clinical solutions manufacturing and distribution and education segments, all of which resulted in an adjusted EPS of <unk> 87 cents.
We were also encouraged with P&I as the business continues to prove resilient and is still settling commercial real estate environment.
Paul: Fitting from our diverse client and service mix, our leading market position and our penetration in higher performing class a segment of the market.
Scott B. Salmirs: In fact, the results generated in BNI are a strong validation of our strategy and of the effectiveness of our business model, all of which provide a clear path to generate shareholder value. Our service breadth, our teammates, and our focus on our customers, as well as our elevated investments in technology, have enabled us to perform extremely well in Shopee Mark. Going forward, we expect to further leverage our elevated investments as we scale the technology across the organization. Earl will take you through the financial details of Q2 in a few minutes.
Paul: In fact, the results were generated in P&I are a strong validation of our strategy and of the effectiveness of our business model all of which provide a clear path to generate shareholder value.
Paul: Or service breadth of our teammates and our focus on our customers as well as our elevated investments in technology have enabled us to perform extremely well in choppy markets.
Paul: Going forward, we expect to further leverage our elevated investments as we scale the technology across the organization.
Speaker Change: Earl will take you through the financial details of Q2 in a few minutes. We have had so many touch points with new wins versus the past few months, we thought it might be a good moment to re ground or business model and value creation pathway, while we have a focused audience.
Scott B. Salmirs: We have had so many touch points with new investors in the past few months that we thought it might be a good moment to reground our business model and value creation pathway while we have a focused audience. In the broadest sense, we think of ABM as the consistent cash-generating flywheel, leveraging our capital-light model, scale, and leading market positions to self-fund growth and margin expansion initiatives while at the same time, consistently returning capital to shareholders, all of which drive attractive long-term shareholder returns.
Speaker Change: In the broadest sense, we think of the E. P. M is the consistent cash generating flywheel, leveraging our capital light model scale, and leading market positions to self fund growth and margin expansion initiatives. While at the same time consistently returning capital to shareholders all of <unk>.
Speaker Change: That should drive attractive long term shareholder returns.
Scott B. Salmirs: Going deeper on an operational level, we generate these returns by delivering a core suite of essential facility services, primarily janitorial and engineering, to a diverse group of customers in a broad set of end markets. These markets tend to be mature and, on a blended basis, have low volatility through a business cycle, as we continue to demonstrate. And that helps us to provide a level of predictability for our results. So, how do we do this?
Speaker Change: Going deeper on an operational level, we generate these returns by delivering our core suite of the central facility services, primarily janitorial and engineering to a diverse group of customers and a broad set of end markets.
Speaker Change: These markets tend to be mature.
Speaker Change: On a blended basis have low volatility through a business cycle as we continue to demonstrate.
Speaker Change: And that helps us to provide a level of predictability to our results.
Speaker Change: So how do we do this to put it simply we optimize our position in these core markets by utilizing our scale, leading brand and reputation which has been cultivated over a century.
Scott B. Salmirs: To put it simply, we optimize our position in these core markets by utilizing our scale, leading brand, and reputation, which has been cultivated for over a century. This allows us to attract and support top-tier clients and team members. Our clients appreciate our ability to deliver a wide range of integrated services on a local level and our capabilities to provide consistent performance at scale, which is hard for our competitors to match.
Speaker Change: This allows us to attract and support top tier clients and team members.
Speaker Change: Our clients appreciate our ability to deliver a wide range of integrated services on a local level and our capabilities to provide consistent performance at scale, which is hard for our competitors to match.
Scott B. Salmirs: At the same time, we're continuously investing in our people, processes, and solutions to become a more valuable partner to our clients. Our capitalized business model provides flexibility and positions us well in our core markets. We can quickly scale our labor force to meet changes in demand, which leads to resilient operating results in the face of dynamic macro conditions. Recent examples of this are the current real estate market challenges and, before that, the pandemic.
At the same time, we're continuously investing in our people processes and solutions become a more valuable partner to our clients.
Speaker Change: Our capital light business model provides flexibility and positions us well in our core markets. We can quickly scale, our labor force to be changes in the math, which leads to resilient operating results in the face of dynamic macro conditions.
Speaker Change: Recent examples of this are the current real estate market challenges before that the pandemic.
Scott B. Salmirs: Resilience is a hallmark and differentiating factor for ABM. In total, we believe our core facility services business should achieve 2-4% organic revenue growth through the cycle. We have also historically generated a strong, normalized free cash flow yield, which we believe is best-in-class amongst our peer groups. Now, let me walk you through how we're building upon this strong core to enhance our growth rate and margin performance. First, we strategically aligned ourselves with key secular trends, such as electrification, the U.S. movement to on-shoring manufacturing, infrastructure build-out, and the outsized demand for data sets.
Speaker Change: Resilience is a hallmark and differentiating factor for ABL.
Speaker Change: In total we believe our core facility services business should achieve 2% to 4% organic revenue growth through a cycle. We have also historically generated a strong normalized free cash flow yield, which we believe is best in class amongst our peer group.
Speaker Change: Now let me walk you through how we are building upon the strong court to enhance our growth rate and margin performance.
Scott B. Salmirs: Our aviation, technical solutions, and manufacturing distribution segments are all positioned to benefit from these trends and have already won significant new business because of this alignment. A few examples of these wins are the large parking project we completed at Los Angeles International Airport last year, a recent $180 million microgrid win with a big box retailer, as well as our growth with eight of the ten top semiconductor manufacturers in the U.S. We expect further outsized growth resulting from our expertise in electrification and related infrastructure over the next several years as we invest behind these trends via M&A and internal initiatives.
Speaker Change: First we strategically aligned ourselves with key secular trends such as electrification.
Speaker Change: The U S movement to onshoring manufacturing.
Speaker Change: Infrastructure build out and the outsized demand for data centers.
Speaker Change: Our aviation technical solutions and manufacturing distribution segments are all positioned to benefit from these trends and have already won significant new business because of this alignment.
Speaker Change: A few examples of these wins are the large parking project, we completed at Los Angeles International Airport last year.
Speaker Change: <unk> hundred $80 million of micro grid win with a big box retailer as well as our growth with eight of the 10 top semiconductor manufacturers in the U S.
Speaker Change: We expect further outsize growth, resulting from our expertise in electrification and related infrastructure over the next several years as we invest behind these trends via M&A and internal initiatives.
Scott B. Salmirs: Next, we continue to see significant opportunities within our portfolio to cross-sell other services, such as our ABM Performance Solutions, or as we call it, APS. APS is our multi-service performance model that includes facility maintenance, cleaning, energy, sustainability, safety, resiliency, and engineering solutions. In other words, APS is one-stop shopping for our clients.
Speaker Change: Next we continue to see significant opportunities within our portfolio.
Speaker Change: Ross sell other services, such as our ABM performance solutions or as we call. It a T S.
Speaker Change: E. P. S is our multi service performance model that includes facility maintenance cleaning energy.
Speaker Change: Staying ability.
Speaker Change: Safety resiliency and engineering solutions.
Speaker Change: Other words, one stop shopping for our clients.
Scott B. Salmirs: Operated under a single contract, APS improves our clients' operations and enhances the resiliency and reliability of their facilities. In turn, this creates better outcomes for our clients and stickier business for us. Finally, our Elevate Self-Help initiative will support margin enhancement over the next few years. As we have discussed, we are digitally transforming our back office operations and our go-to-market strategy, as well as how we manage labor and interact with our clients.
Speaker Change: Operated under a single contract a T S improves our clients' operations and enhances the resiliency and reliability of their facilities and turn this creates better outcomes for our clients and stickier business for us.
Speaker Change: Finally, our elevate self help initiatives will support margin enhancement over the next few years as we have discussed we are digitally transforming our back office operations and our go to market strategy as well as how we manage labor and interact with our clients.
Scott B. Salmirs: These initiatives will generate direct savings from operating efficiencies, including procurement benefits and improved labor utilization, while providing our clients with enhanced data and actionable insight. Taken together, these secular growth opportunities, which carry attractive margins, in conjunction with all the work we are doing with Elevate, will drive higher enterprise profits. The resulting cash flow will be used to enhance shareholder value by investing in additional growth via internal initiatives and strategic M&A while at the same time growing our dividends and opportunistically repurchasing shares, consequently creating a compounding effect.
Speaker Change: These initiatives will generate direct savings from operating efficiencies, including procurement benefits and improved labor utilization, while providing our clients with enhanced data and actionable insights.
Speaker Change: Together these secular growth opportunities, which carry attractive margins in conjunction with all the work we are doing with all of it will drive higher enterprise profits, the resulting cash flow will be used to enhance shareholder value by investing in additional growth there.
Speaker Change: Internal initiatives and strategic M&A, while at the same time growing our dividend and Opportunistically repurchasing shares consequently, creating a compounding effect.
Scott B. Salmirs: As we enter the second half of the year, we're encouraged by our positioning, the resilience of our markets, and our success in winning new business. We're particularly pleased to have booked over $1 billion in new sales during the first half of the year, a record. This includes projects that will be completed over the next few years, which gives us the ability to stay close to our clients for extended periods. What's most encouraging is that we are winning this business across the portfolio, including a large B&I contract with a major technology company.
Speaker Change: As we enter the second half of the year, we're encouraged by our positioning the resilience of our markets and our success in winning new business.
Speaker Change: We're particularly pleased to have booked over $1 billion of new sales during the first half of the year a record this.
Speaker Change: This includes projects that will be completed over the next few years, which gives us the ability to stay close to our clients over extended periods.
Speaker Change: What's most encouraging is that we're winning this business across the portfolio, including a large b and I contract with a major technology company <unk>.
Scott B. Salmirs: Aviation also won major contracts at Boston-Logan Airport and Phoenix's Sky Harbor Airport, and Education won a nice-sized APS contract with Utica University. All of these new wins complement the large microgrid project we mentioned last quarter and set us up for sustained success. Given our strong start to this year and our confidence for a solid second half, we are raising our full-year guidance for adjusted EPS, and now it's expected to be in the range of $3.40 to $3.50 versus our prior range of $3.30 to $3.45. This increase reflects our strong market position and our continued conviction in the resilience of our business. With that, I will turn it over to Earl for the financials. Thank you.
Aviation also one major contract at Boston, Logan Airport, and Phoenix Sky Harbor Airport and education, one of nice size to a P. S contract with Utica University all of these new wins complement the large Microgrid project, we mentioned last quarter and set us up for sustained success.
Speaker Change: Given our strong start to this year and our confidence for a solid second half we are raising our full year guidance for adjusted EPS and now is expected to be in the range of $3.40 to $3.50 versus a prior range of $3.30 to $3.45.
This increase reflects our strong market positioning and our continued conviction in the resilience of our business.
Speaker Change: With that let me turn it over to Earl for the financials.
Earl Ray Ellis: Thank you, Scott, and good morning, everyone. Overall, our Q2 results were slightly better than our expectations heading into the quarter, and we want to thank our team for their strong performance in a choppy macro environment. For those of you following along with our earnings presentation, please turn to slide five. Second quarter revenue of $2 billion increased 1.7%, all of which was organic.
Earl: Thank you Scott and good morning, everyone. Overall, our Q2 results were slightly better than our expectations heading into the quarter and we want to thank our team for their strong performance in a choppy macro environment.
Earl Ray Ellis: Revenue growth was broad-based, as M&D, aviation, education, and technical solutions all grew mid-single digits. Once again, B&I, our largest segment, declined less than a percent, benefiting from a diverse client and service base. We expect D&I to remain resilient despite the persistent market. Moving on to slide six, before we go through the numbers, I'd like to remind you that in the second quarter of 2023, we recognized 12.6 million dollars in revenue for a large parking project in our aviation segment.
Speaker Change: For those of you following along with our earnings.
Speaker Change: Please turn to slide five.
Speaker Change: Second quarter revenue of $2 billion increased one 7% all of which was organic.
Speaker Change: Revenue growth was broad based and M D Aviation education and technical solutions all grew mid single digits.
Speaker Change: Once again DNI, our largest segment declined less than 1% benefiting from a diverse clients and service bank.
Speaker Change: We expect DNI will remain resilient despite persistent market headwinds.
Earl Ray Ellis: Since the costs associated with this project were incurred and recorded in prior periods, all the revenue essentially flowed through to earnings and margins in Q2 2023, so that the absence of that project in the current period impacts are comparable.
Speaker Change: Moving onto slide six before we go through the numbers I'd like to remind you that in the second quarter of 2023, we recognized $12 $6 million in revenue for our large parking project in our aviation segment.
Speaker Change: Yes, the costs associated with this project were incurred and recorded in prior period, all the revenue essentially flow through to earnings and margin in Q2 2023.
Speaker Change: The absence of that project in the current period impacts are comparable.
Earl Ray Ellis: Net income in the second quarter was $43.8 million, or $0.69 per diluted share, down 16% and 12%, respectively, versus last year. These decreases were largely driven by the absence of the aviation project I just mentioned. We also recorded higher corporate investments, which were planned. These items were partially offset by lower development and integration costs and improved operating results in our B&I, M&D, and ATS segments. Earnings per share further benefited from a lower share price.
Speaker Change: Net income in the second quarter was $43 $8 million or 69 cents per diluted share down, 16% and 12% respectively versus last year. These.
Speaker Change: These decreases were largely driven by the absence of the aviation project I just mentioned.
Speaker Change: We also recorded higher corporate investments, which were planned.
Speaker Change: These items were partially offset by lower elevate and integration costs and improved operating results in our B N I M D and Ats segment.
Speaker Change: Earnings per share further benefited from a lower share count.
Earl Ray Ellis: Adjusted net income of $55.5 million decreased 8%, while adjusted earnings for a diluted share of 87 cents declined 3% from the prior year period. The decrease in our adjusted net income primarily reflected the absence of the aviation project and higher corporate investment, partially offset by improved operating results in our B&I, M&D, and ATS segments. Adjusted EPS benefited from a lower share count driven by our share repurchase activities last year. Adjusted EBITDA declined 9% to $125.3 million, and the adjusted EBITDA margin was 6.5%.
Speaker Change: Adjusted net income of $55 $5 million decreased 8%, while adjusted earnings per diluted share of <unk> 87.
Speaker Change: Declined 3% from the prior year period.
Speaker Change: The decrease in our adjusted net income primarily reflected the absence of the aviation project and higher corporate investment.
Speaker Change: Partially offset by improved operating results and our D N I M D and H S segment.
Adjusted EPS benefited from a lower share count driven by our share repurchase activities last year.
Speaker Change: Adjusted EBITDA declined 9% to $125 $3 million and adjusted EBITDA margin of six 5%.
Earl Ray Ellis: Now turning to our segment results, beginning on slide seven. B&I revenue was just under $1 billion, a slight year-over-year decline. As mentioned, we continue to benefit from our end-market diversification, including our exposure to the sports and entertainment and healthcare market, and from our waiting for higher performing Class A property. This positioning helped us to mitigate most of the impact of a soft commercial real estate market.
Speaker Change: Now turning to our segment results beginning on slide seven.
Speaker Change: Eni revenue was just under $1 billion.
Speaker Change: A slight year over year decline.
Speaker Change: As mentioned, we continued to benefit from our end market diversification, including our exposure to the sports and entertainment and health care market.
Speaker Change: And from our weighting towards higher performing class a properties.
Speaker Change: This positioning helped us to mitigate most of the impact of a soft commercial real estate market.
Earl Ray Ellis: Operating profit in BNI increased nearly 2% to $77.6 million, and operating margin improved 20 basis points to 7.8% as positive business mix, price increases, and cost actions more than offset sluggish demand dynamics in the commercial real estate market. Aviation revenue grew 4.8% to $238.2 million, once again driven by robust travel markets and new business wins on both the airport and airline sides of the business. Adjusting for the $12.6 million parking project that was recognized in the prior year period, revenue grew 11%.
Speaker Change: Operating profit in Eni increased nearly 2% to $77 6 million and operating margin improved 20 basis points to seven 8% as positive business mix price increases and cost actions more than offset sluggish demand dynamics in the commercial real estate market.
Speaker Change: Aviation revenue grew four 8% to $238 $2 million once again, driven by robust travel market and new business wins on both the airport and airline side of the business.
Speaker Change: Adjusting for the $12 6 million parking project that was recognized in the prior year period revenue grew 11%.
Earl Ray Ellis: Aviation's operating profit and margins were $13.1 million and 5.5%, respectively. Excluding the parking projects in the prior period, operating earnings grew 19%, and margin increased 40 basis points. This strong performance largely reflected improved labor utilization and positive net income.
Speaker Change: Aviation operating profit and margin were $13 1 million and five 5% respectively.
Speaker Change: Excluding the parking project in the prior period operating earnings grew 19% and margin increased 40 basis points.
This strong performance largely reflected improved labor utilization and positive mix.
Earl Ray Ellis: Turning to slide 8, manufacturing and distribution revenue grew 4.1% to $388.6 million, reflecting solid demand. Operating profit increased $43.6 million, and operating margin improved 30 basis points to 11.2%. Profit and margin performance was largely due to a favorable customer match. Of note, as we previously discussed, a large client is rebalancing its work. We expect to see the impact of this in the third quarter. Our team is actively working to replace the transitioning revenue and... Education revenue increased 4.1% to $225.6 million, benefiting from the addition of new clients that came online last year. We are also pleased to welcome Utica University as the latest ABM Performance Solutions client and look forward to bringing them fully on board in the third quarter.
Speaker Change: Turning to slide eight manufacturing and distribution revenue grew four 1% $388 $6 million, reflecting solid demand.
Speaker Change: Operating profit increased $43 6 million and operating margin improved 30 basis points to 11, 2%.
Speaker Change: Profit and margin performance was largely due to a favorable customer mix.
Speaker Change: Of note as we previously discussed a large client is rebalancing its work.
Speaker Change: We expect to see the impact of this in the third quarter.
Speaker Change: Our team is actively working to replace the transitioning revenue and earnings.
Speaker Change: Education revenue increased four 1% to $225 $6 million benefiting from the addition of new clients that came online last year.
Speaker Change: We are also pleased to welcome Utica University as the latest AVM performance solutions client and look forward to bringing them fully onboard and third quarter.
Earl Ray Ellis: Education's operating profit was $11.5 million, with a 5.1% margin, representing declines of 2% and 30 basis points, respectively. This was largely attributable to an unfavorable service mix, specifically less work orders. Technical Solutions revenue grew 4.6% to $176.2 million on the strength of microgrid project startups and continued growth in our mission critical and power business. Bundled energy solutions and EV project activity remain soft.
Speaker Change: Education's operating profit was $11 $5 million with a five 1% margin representing declines of 2% and 30 basis points respectively.
Speaker Change: This was largely attributable to an unfavorable service mix, specifically less work orders.
Speaker Change: Technical solutions revenue grew four 6% to $176 $2 million on the strength of micro grid project startups and continued growth in our mission critical and power business.
Speaker Change: Bundled energy solutions and E V project activity remains soft however, quoting activity is beginning to pick up.
Earl Ray Ellis: However, holding activity is beginning to pick up. As expected, Technical Solutions' operating profit significantly improved on a year-over-year basis, as well as sequentially, driven by a more favorable project mix and lower acquisition-related amortization. Operating profit increased 67% to $17 million over the prior year period, while margin improved 360 basis points to 9.6%. We are pleased with ATS's second quarter margin results and expect similar performance in the back half of the year, driven by a favorable service.
Speaker Change: As expected technical solutions operating profit significantly improved on a year over year basis as.
Speaker Change: As well as sequentially.
Speaker Change: By a more favorable project mix and lower acquisition related amortization.
Speaker Change: Operating profit increased 67% to $17 million over the prior year period, while margin improved 360 basis points to nine 6%.
Speaker Change: We are pleased with Ags's second quarter margin resolved and expect similar performance in the back half of the year driven by a favorable service mix.
Earl Ray Ellis: Moving on to slide nine, we ended the second quarter with total indebtedness of $1.4 billion, including $57.9 million of standby letters of credit, resulting in a total debt to pro forma adjusted EBITDA ratio of 2.3 times. At the end of Q2, we had available liquidity of $561.8 million, including cash and cash equivalents of $60.7 million. Pre-cash flow in the second quarter was $101 million, which exceeded our expectations, aided by our team's relentless focus on working capital management. Interest expense was $20.6 million in the second quarter, about a half a million dollars lower than the prior year.
Speaker Change: Moving on to slide nine we ended the second quarter with total indebtedness of one 4 billion, including $57 $9 million of standby letters of credit, resulting in a total debt to pro forma adjusted EBITDA ratio to three times.
Speaker Change: At the end of Q2, we had available liquidity of $561 $8 million, including cash and cash equivalents of $67 million.
Speaker Change: Free cash flow in the second quarter was $101 million, which exceeded our expectations aided by our team's relentless focus on working capital management.
Speaker Change: Interest expense was $26 million in the second quarter, how about a half a million dollars lower than the prior year.
Earl Ray Ellis: And our Q2 effective tax rate was 29.9%. On the capital allocation front, we repurchased roughly 555,000 shares at an average price of $42.84 for a total cost of $23.8 million. The total remaining authorization under our share repurchase program was $186 million at the end of the quarter.
Speaker Change: And our Q2 effective tax rate was 29, 9% on.
Speaker Change: On the capital allocation front, we repurchased roughly 555000 shares at an average price of $42.84 for a total cost of $23 $8 million.
Speaker Change: The total remaining authorization under our share repurchase program was $186 million at the end of the quarter.
Earl Ray Ellis: Now let's move on to our revised full year fiscal 2024 outlook as shown on slide 10. As Scott mentioned, we are raising our full year guidance for adjusted EPS based on our strong second quarter results and are confident in the back half of the year. As such, we now expect full-year 2024 adjusted EPS to be in the range of $3.40 to $3.50, up from $3.30 to $3.45 previously. All other metrics of our outlook remain unchanged.
Now, let's move on to our revised full year fiscal 2024 outlook as shown on slide 10.
Speaker Change: As Scott mentioned, we are raising our full year guidance for adjusted EPS based on our strong second quarter results and our confidence in the back half of the year.
As such we now expect full year 2020 for adjusted EPS to be in the range of $3 40 to $3 50.
Speaker Change: Up from $3 30 to $3 45.
Speaker Change: Obviously.
Speaker Change: All other metrics of our outlook remain unchanged.
Earl Ray Ellis: Adjusted EBITDA margin is expected to be between 6.2% and 6.5%. Interest expense is expected to be in the range of $82 to $86 million, and the normalized tax rate before discrete items is expected to be between 29 to 30 percent. Full Year Normalized Free Cash Flow is expected to be in the range of $240 million to $270 million, most likely towards the upper end of 2020. This forecast excludes the estimated $45 million Elevate in integration costs, with the majority being Elevate. One last note, from a quarterly cadence perspective, we expect adjusted EPS to be fairly balanced between the third and fourth quarters. With that, let me turn it back to Scott for closing comments.
Speaker Change: Adjusted EBIT margin is expected to be between six 2% in fixed 0.5%.
Speaker Change: Interest expense is expected to be in the range of $82 million to $86 million and the normalized tax rate before discrete items is expected to be between 29% to 30%.
Speaker Change: Lastly, full year normalized free cash flow is expected to be in the range of $240 million to $270 million most likely towards the upper end of the range.
Speaker Change: This forecast excludes the estimated $45 million elevate and integration costs with the majority being elevated costs.
One last note from a quarterly cadence perspective, we expect adjusted EPS to be fairly balanced between the third and fourth quarters.
Speaker Change: With that let me turn it back to Scott for closing comments.
Scott B. Salmirs: Thanks, Earl. We are very pleased with our first half performance and even more excited about our future. Our success reflects ABM's resilient business model, the benefits from our Elevate investments, and, perhaps most importantly, the incredible dedication and strong execution by the ABM team. We are excited for the road ahead for ABM as we continue to build and shape our business, become the technology-driven leader of the facility services industry, and look forward to continuing the journey. We're now available to answer your questions.
Scott: We are very pleased with our first half performance and even more excited about our future. Our success reflects avm's resilient business model the benefits from our elevated investments and perhaps most importantly, the incredible dedication and strong execution by the ABM team we're excited.
Scott: <unk> for the road ahead for a B M. As we continue to build and shape our business becomes a technology driven leader of the facility services industry and we look forward to continuing the journey we're on.
Speaker Change: Now available to answer your questions.
Scott: Yeah.
Speaker Change: Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
Operator: Thank you. At this time, we'll 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 queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. We ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question.
Speaker Change: You May press star two if you'd like to remove your question from Mccann for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Speaker Change: We ask that you each keep to one question and one follow up thank you.
Speaker Change: Our first question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question.
Speaker Change: Okay.
Speaker Change: Yeah.
Timothy Michael Mulrooney: Yeah, thanks for taking my questions. Good morning.
Timothy Michael Mulrooney: Yeah. Thanks for taking my questions. Good morning, I'm curious about the <unk> segment, how should how are you thinking about organic growth in the back half of the year I mean, I know performance has been solid here, but I think this is one that supplier rebalancing issue began to have a more acute impact if I'm not mistaken.
Scott B. Salmirs: I'm curious about the M&D segment. How are you thinking about organic growth in the back half of the year? I mean, I know performance has been solid here, but I think this is when that supplier rebalancing issue begins to have a more acute impact, if I'm not mistaken.
Scott B. Salmirs: Yeah, that's right. And good morning, Tim.
Speaker Change: Yes, that's right and good morning, Ken.
Speaker Change: You're right on that's when we start lapping the.
Scott B. Salmirs: Yeah, you're right on. That's when we start doing the rebalancing that we talked about. So you'll see it down, you know, we don't give revenue guidance, but you'll see it down in the back half. But I think what we'd want you to focus on is we do believe in the future that M&D is going to be a double-digit top and bottom line industry group, right? We're just going through this period now that will take us through, essentially, the next two quarters and a little bit into next year. But we couldn't be more excited about the industry group, but you're spot on that we'll start lapping that in Q3 and Q4.
Speaker Change: The rebalancing that we talked about so you'll see it down you know, we don't give revenue guidance, but youll see it down in the back half, but I think what we'd want you to focus on is we do believe in the future is going to be a double digit top and bottom line.
Speaker Change: Industry group right. So we're just going through this period now that will take us through.
Speaker Change: Essentially the next two quarters and a little bit into next year, but we're we couldn't be more excited about the industry group, but yes, you're spot on that will start lapping that in Q3 and Q4.
Scott B. Salmirs: Scott, let's dig into that a little bit deeper then. The data centers, can you remind me, like what percent of your business is that data centers today? And also, like, what kind of work are you doing here beyond your core janitorial offering? And how would you frame that opportunity around the massive expected build out over the next several years?
Speaker Change: Scott, let's dig into that a little bit deeper than.
Speaker Change: The data centers I mean can you remind me.
Speaker Change: What percent of your business.
Speaker Change: Is that data centers today.
Speaker Change: And also like what kind of work are you doing here beyond your core janitorial offering and how would you frame that opportunity around the massive expected build out.
Speaker Change: Over the next several years.
Scott B. Salmirs: Sure, and data centers for us really bridge M&D and our ATS industry groups, right? And it ranges from a number of things, Tim. It's anything from underfloor cleaning, because you know in data centers there are raised floors, right?
Speaker Change: Sure and data centers for us really rich <unk>, and our HTS industry groups right and.
Timothy Michael Mulrooney: And it ranges, yeah, and it ranges from a number of things Tim it's anything from the floor cleaning casino in data centers is raised floors right. So if anything from under four cleaning, which is more of the <unk> thing to do it real power testing right taken care of generator sets switch gear.
Scott B. Salmirs: So it's anything from underfloor cleaning, which is more of the M&D thing, to doing real power testing, taking care of generator sets, switch gear, anything with power resilience, even the mechanical side, that resides mostly in our ATS group. And in context to our 8 plus billion in revenue, it's still quite small, but it's significant enough that we really feel the acceleration in margin because it's a higher margin business. It's where we're going to be leaning with our efforts internally from an organic standpoint and also inorganically.
Speaker Change: Anything with power resiliency, the mechanical side that resides mostly in our Acs group and <unk>.
Speaker Change: In context to our a.
Speaker Change: <unk> plus billion in revenue, it's still quite small but it's.
Speaker Change: It's significant enough that we feel we really feel the acceleration in margin because it's higher margin business, it's where we're gonna be leaning into with our efforts internally from an organic standpoint, and also inorganically. So.
Scott B. Salmirs: So small right now, but really the center of our focus, because you see the trends. This is where everything is heading, and we're just so well positioned, based on our client base, to cross sell into that. I mean, we couldn't be more excited about data centers as a whole.
Speaker Change: Small right now but.
Speaker Change: Really the center of our focus because.
Speaker Change: You see the trends this is where everything is heading and we're just so well positioned based on our client base to cross sell into that I mean, we couldnt be more excited about data centers as a whole.
Timothy Michael Mulrooney: Got it. Thanks for the color.
Speaker Change: Got it thanks for the color.
Speaker Change: Got it.
Jasper James Bibb: Thank you. Our next question comes from the line of Jasper Bibb with True Securities. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Jasper Bibb with true Securities. Please proceed with your question.
Jasper James Bibb: Hey, good morning. I wanted to ask you something about BNI.
Jasper James Bibb: Hey, good morning wanted to ask about the NII.
Speaker Change: Got it the low single digit declines for the year, but I guess, we're pretty close to flat in the first half.
Jasper James Bibb: As a low single digit decline still the right way to think about that segment for the year and I know you exited some contracts in the last quarter or two is there anything else that we should keep in mind, that's going to impact the back half of the year.
Scott B. Salmirs: You know, Jasper, I think it's the right way to think about it, the low single-digit declines, right? We're still in the middle of this thing, and, you know, I could answer you best as an ABM and a service provider, and I could tell you, like, where we sit today versus, let's call it, nine months ago when we were putting together and framing our guidance, where we sit today is a lot more positive, right?
Scott B. Salmirs: You got into low single-digit declines for the year, but I guess we're pretty close to flat in the first half. So is a low single-digit decline still the right way to think about that segment for the year? And I know you exited some contracts in the last quarter or two. Is there anything else that we should keep in mind that's going to impact back after your year? No, no.
Speaker Change: No no you know what you asked for I think it's the right way to think about it the low single digit declines right. We're still in the middle of this thing and you know.
Speaker Change: I could answer you best.
Speaker Change: A b M and a service provider and I can tell you like where we sit today versus let's call. It nine months ago, when we were putting together a framing our guidance.
Speaker Change: Where we sit today, there's a lot more positive right.
Scott B. Salmirs: Our resiliency is coming through, because we always talk about the fact that we have this flexible labor model, so while we are seeing tenants compress on their space, we flex our labor, right? And I will tell you, again, as we sit here today, what we were envisioning in terms of where we thought tenants were going to be from a compression standpoint versus where it's playing out, it's not been as dramatic. I think there's a very, very palpable movement back to the office, which is encouraging, and you know, and lastly, and don't forget, we play in Class A space, and, you know, even in addition to what I'm saying, everything you read is the resiliency of Class A space, and so we're very, very fortunate that we've been riding through it yet, but I still think, you know, for the next couple of quarters and into next year, it's not unrealistic to look at, you know, low single-digit declines, and then, you know, from for the back half of this year, and then starting to ramp up, possibly to neutral next year, and then getting back to where we historically have been to GDP, and possibly even GDP plus.
Speaker Change: Resiliency is coming through because we always talk about the fact that we have this flexible labor model. So.
Speaker Change: While we are seeing tenants compress on on their space.
Speaker Change: We flex our labor right and and I will tell you again as we sit here today.
Speaker Change: What we were envisioning in terms of where we thought tenants, we're going to be from a compression standpoint versus where it's playing out it's.
Speaker Change: It's not been as dramatic I think there is a very very palpable movement back to the office, which is encouraging and you know and lastly, it and don't forget we play in class a space and yeah.
Speaker Change: Even in addition to what I'm, saying everything you read is the resiliency of class a space and so we're very very fortunate that we've been riding through it yet, but I still think for the next couple of quarters and into next year.
Speaker Change: On a realistic to look at you know low single digit declines and then you know.
Speaker Change: From four four in the back half of this year and then starting to ramp up possibly to neutral next year, and then getting back to where we historically have been to GDP and possibly even GDP plus.
Scott B. Salmirs: Thanks, that makes sense. And then you mentioned the record billion in new business for the first half. Is there any way to maybe contextualize that for us versus what might be a normal range, maybe growth versus the first half of last year, or I guess what new business typically looks like as part of your revenue base?
Speaker Change: Thanks that makes sense and then you mentioned the.
Speaker Change: A record 1 billion of new business for the first half is there any way to.
Speaker Change: Maybe contextualize that for us versus what might be.
Speaker Change: Our normal range may be growth versus the first half of last year or I guess what.
Speaker Change: Business typically looks like as part of your revenue base.
Scott B. Salmirs: Yeah, this was another record for us, and more than incrementally better than the first half. We've got some large projects at the start of this year that's been really helpful. And as I mentioned in my prepared remarks, the multi-year projects, which are terrific for us because we stay close to our clients. So we hit a record last year at $1.6 billion for the entire year, and we think all indications are that we're going to break that record this year.
Speaker Change: Yes.
Speaker Change: This was another record for us and.
Speaker Change: Yeah.
It more than incrementally better than the first half we've got some large projects.
Speaker Change: The start of this year, that's been really helpful and as I mentioned in my prepared remarks, a multiyear projects, which is terrific for us because if we stay close to our clients. So.
Speaker Change: We hit a record last year at $1 six for the entire year.
Speaker Change: And we think we're going to.
Speaker Change: All indications are is that we're going to lap that record.
Speaker Change: This year so.
Scott B. Salmirs: So we're off to a great start, and I think the bigger sentiment more than anything else is that clients continue to want to expand with us. New clients, when we sit in the presentation room, are voting for ABM. I mean, it's pretty significant when you do the math that you have this $8 billion company in revenue and bringing in $1 billion in new business in the first six months of the year. We're really enthusiastic about how we're putting our platform forward and the relationships we're building with clients that cause them to stay sticky and expand with us.
Speaker Change: Just if we're off to a great start and I think I think the bigger sentiment more than anything else is that clients continue to want to expand with us new clients. When we sit in the presentation room are voting for a b M.
Speaker Change: I mean, it's pretty significant when you do the math.
Speaker Change: This $8 billion company in revenue and bringing in a $1 billion of new business in the first six months of the year.
Speaker Change: We're really enthusiastic about how we're putting our platform forward and the relationships, we're building with clients that caused them to.
Speaker Change: To stay sticky and expand with us.
Jasper James Bibb: Very helpful. Thanks for taking the questions, guys.
Speaker Change: Very helpful. Thanks for taking my questions guys.
Faiza Alwy: Thank you. Our next question comes from the line of Faiza Alwy with Deutsche Bank. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Faiza <unk> with Deutsche Bank. Please proceed with your question.
Faiza Alwy: Yes, hi, good morning. So I wanted to follow up on B&I. You know, it sounds like what you're saying is that the commercial real estate part of the business is maybe a little bit better than you had feared. And then you're seeing sort of this offset from the sports entertainment part of the business. So just want to dig into that a little bit more, like how much of B&I now is sports entertainment and give us sort of the relative performance of those two segments within B&I.
Faiza Alwy: Yes, hi, good morning, So I wanted to follow up on B and I you know it sounds like what you're saying is that commercial real estate part of the business is maybe a little bit better than you had feared and then youre seeing sort of this offset from like the sports entertainment part of the business.
Faiza Alwy: So just wanted to dig into that a little bit more like how much of B N. I know as sports entertainment and give us sort of the relative performance of sort of those two segments, but then P&I.
Scott B. Salmirs: B&I, look, in B&I, when you think about sports and entertainment, it's growing, but in terms of its percentage, Pfizer of B&I, it's small. We're talking about a $100, $150 million business, and it's just, it's been vibrant, and it's been vibrant for a while now, because people are certainly back to events.
Oh P&I.
Speaker Change: In DNI, when you think about sports and entertainment, it's growing but.
Speaker Change: In terms of its percentage Pfizer of C&I, It's small we're talking 100 $150 million business and.
And it's just.
Speaker Change: It's been vibrant and its been vibrant for for a while now because people are certainly back to events, but don't forget in N V and I. We have engineering segment stationary engineering, which are are the engineers and the building and that doesn't the variability of that staffing level doesn't change with occupancy if you need 12 engineers.
Scott B. Salmirs: But don't forget, in B&I, we have engineering segments, stationary engineering, which are the engineers in the building, and that doesn't, the variability of that staffing level doesn't change with occupancy. If you need 12 engineers in the, you know, proverbial basement of the building to operate the equipment, whether you're 95% occupied or 75% occupied, that doesn't change. So there's inherent stability in B&I just for that. And again, the compression, the compression that we're seeing from tenants, you have to remember that plays out over time. It's not like there are mass lease expirations all happening at the same time. Those happen over a two or three-year period.
Speaker Change: As in the.
Speaker Change: Proverbial basement of the building to operate the equipment, whether you're 95% occupied or 75% occupied that that doesn't change. So there isn't inherent stability and b and I just for that and again the compression.
Speaker Change: Pressure that we're seeing from tenants you have to remember that plays out over time, it's not like there is mass lease exploration is all happening at the same time those happiness over a two or three year periods. So we're just seeing it play out slowly and again and you are probably seeing this with with other clients and other <unk>.
Scott B. Salmirs: So we're just seeing it play out slowly and again, and you're probably seeing this with other clients and other companies you cover. There is this demand to get people back to the office, and I'll just give you one anecdotal example. We just had our board meeting, and we had a very senior executive join the team, and the board was asking the senior executive, you know, what were some of the reasons you wanted to come to ABM?
Speaker Change: As you cover.
Speaker Change: There is this demand to get people back to the office.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Our next door.
Speaker Change: Total example, you know we just had our board meeting and we had a very senior executive joined the team and the board was asking the senior executive.
Speaker Change: Some of the reasons you wanted to come to a P M and after she talked about the culture and the collaboration she said I have to tell you you know I was working remote in my last job I wanted to get back to the office and be with people and we're just seeing that sentiment. So it gives us it gives us some.
Scott B. Salmirs: And after she talked about the culture and the collaboration, she said, I have to tell you, you know, I was working remotely in my last job. I wanted to get back to the office and be with people, and we're just seeing that sentiment. So it gives us enthusiasm for the future, but again, we're still going through this period, and it's still going to take, in my opinion, somewhere between another six to twelve months before we really get it leveled.
Speaker Change: It gives us enthusiasm for the future, but again, we're still going through this period and it's still going to take.
Speaker Change: In my opinion somewhere between another six to 12 months before we really get level set.
Faiza Alwy: Okay, that's really helpful. And then just taking a step back, right, like it sounds like, you know, you're doing really well with the new business. But I'm curious, like, what was something specific that was better than expected in the quarter that led you to raise the guide? Like, was it more on the technical solutions side? Or is it just, you know, a little bit of everything across the board that has helped you gain confidence and, you know, be more optimistic for this year and beyond?
Speaker Change: Okay. That's really helpful. And then just taking a step back right that it's it sounds like you're doing really well with new business, but I'm curious like what was there something specific that was better than expected in the quarter that led you to raise the guide like is it more on the technical solutions side or is it just you know.
Speaker Change: A bit of everything across the board that help to you know how how do you gain.
Speaker Change: Confidence and B.
Speaker Change: Be more optimistic for this year and beyond.
Scott B. Salmirs: Yeah, I think, you know, for us, when we when we look at the year, right, we take everything to account, we don't look at things quarter by quarter, we look at, we look at all the different metrics, everything from new sales to how we're performing to a strong lens on the industry group. And as we frame out the year, we just we just have an increased level of confidence on how we're performing. And we felt this was just the right the right move at this time. Great.
Speaker Change: Yeah.
Speaker Change: I think for us.
Speaker Change: When we look at the year right, we take everything into account, we don't we don't look at things quarter by quarter. We look at we look at all the different metrics everything from new sales to how we are performing to our strong lens on the industry group and as we frame out the year. We just we just have an increased level of confidence on how we're performing in.
Speaker Change: We felt this was just the right the right move at this time.
Faiza Alwy: Great, thank you so much. Thanks, Faiza.
Speaker Change: Great. Thank you so much.
Speaker Change: Thanks Faiza.
David Cyrus Silver: Thank you. Our next question comes from the line of David Silver with CL King & Associates. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of David Silver with C. L. King <unk> Associates. Please proceed with your question.
David Cyrus Silver: Yeah, hi, good morning. Thank you.
David Cyrus Silver: Yeah, Hi, good morning, Thank you.
Scott: Scott I was hoping to maybe just have you drill down a little bit into that $1 billion of new business.
Scott B. Salmirs: Scott, I was hoping to maybe just drill down a little bit into that billion dollars of new business. And, you know, when I hear a billion in the first half, I mean, it's a pretty dramatic pickup over, let's say, a few years ago when I believed, you know, $100 million per quarter of new business was kind of the bogeyman. I mean, that was considered pretty good.
Scott: And you know when I hear 1 billion in the first half I mean, it's a pretty dramatic pickup over let's say a few years ago, when I believe $100 million per quarter.
Scott: Of new business was kind of the bogey I mean that was considered pretty pretty good.
David Cyrus Silver: Now, I understand it's not apples to apples, but if you were to take out, I don't know, the microgrid business, which didn't exist, which wasn't owned by you a few years ago, and I don't know, maybe the charging business, but apples to apples compared to, I don't know, pre-pandemic, how does the billion dollars shake out, you know, compared to, let In other words, you know, just the core activities, you know, across your non-ATS segments, maybe. Thank you.
Scott: Now I understand it's not apples to apples, but if you were to take out I don't know you know the micro grid business, which didn't exist, which wasn't owned by you a few years ago and I don't know may be the charging business, but.
Scott: Apple to apples compared to I don't know pre pandemic.
Scott: How does the what would.
Scott: $1 billion shake out at compared to let's say several years ago in other words, just that the core activities.
Speaker Change: Across your non Ats segments, maybe thank you.
Scott B. Salmirs: Yeah, that's a good question. Like, let me give you some context that we're pretty proud of. In 2016, which wasn't that long ago, our full-year new business was 750 million.
Speaker Change: Yeah. That's a good question, let me give you some context, so we're pretty proud of.
Speaker Change: 2016, which wasn't that long ago, our full year, new business was $750 million right. So now we're you know we're on track to do a billion more than that.
Scott B. Salmirs: So now we're, you know, we're on track to do a billion more than that, on average, in a particular year. And, you know, look, we talked about the $180 million big microgrid project that we got in the first half of the year. Even if you take that out as an anomaly, and by the way, we don't think that's an anomaly, we think we're going to have these big, chunky microgrid projects. But even if you wanted to kind of carve that out, we still grew as compared to where we were last year at this time in terms of new sales. So, really optimistic. And, and David, it doesn't happen by chance, right?
Speaker Change: Average in a particular year and we talked about $180 million Big micro grid project that we got in the first half of the year, even if you take that out as an anomaly and by the way. We don't think that's an anomaly. We think we're going to have these big chunky micro grid projects, but even if you wanted a kind of carve that out.
Speaker Change: We still grew as compared to where we were last year at this time in terms of new cells. So really.
David Cyrus Silver: Optimistic and David is that it doesn't happen by chance right now not only is it.
Scott B. Salmirs: Not only is it, you know, based on our ability to execute in the field and win the confidence and gain a reputation from clients, but it's also by putting a really structured framework on our new sales, leveraging CRM systems, leveraging training for salespeople, and bringing on more salespeople. It's not random; we invested in hyper targeting, which is really a way to triangulate different real estate databases to figure out what different regions of the country we should be going after new business, how we should be targeting that business, and who are the people we should be going after.
Based on our ability to execute in the field and win the confidence in gaining reputation from clients, but it's also by putting a really structured framework on our new sales leveraging CRM systems, leveraging training for salespeople, bringing on more salespeople.
David Cyrus Silver: Paul.
Speaker Change: If this is like.
Speaker Change: It's not random we invested in hyper targeting which is really a way to triangulate different real estate databases to figure out what different regions of the country, we should be going after new business, how how we should be targeting that business, who are the people we should be going after so part of the elevated.
Scott B. Salmirs: So part of the Elevate investments, you know, it's not just our ERP. Sometimes we get caught up in talking about Elevate as our ERP system, but we are investing dollars in organic growth, and it's absolutely paying off. And it comes from having a very structured approach to it.
Speaker Change: Investments.
Speaker Change: Not just our ERP, sometimes we get caught and in talking about elevated as our ERP systems, but we are investing dollars and organic growth and it is absolutely paying off.
Speaker Change: But it comes from having a very structured approach to it.
Joshua K. Chan: Thank you. Our next question comes from the line of Josh Chan with UBS. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Josh Chan with UBS. Please proceed with your question.
Joshua K. Chan: Hi, good morning. Good morning, Scott and Earl. Thanks for taking my question. Maybe focusing on the new business gains as well, I guess given the momentum that you have in gaining new business, and it sounds like that's sustainable, is there a chance that ABM could kind of exceed the historical 2 to 4 percent organic growth that you gave earlier over time? How are you thinking about sort of that contribution to overall growth going forward?
Speaker Change: Hi, Good morning, Good morning, it's got a neuro thanks for taking my question.
Speaker Change: Maybe.
Speaker Change: Focusing on the new business gains as well.
Speaker Change: I guess given the momentum that you have in getting new business and it sounds like that's sustainable is there a chance that a b M could kind of exceed the historical 2% to 4% organic growth that you gave earlier over time, how are you thinking about sort of that contribution.
Speaker Change: The overall growth going forward.
Scott B. Salmirs: Yeah, I think so. It's for the long term, right? We talked about the fact that we, you know, typically, as a GDP kind of grower, we talked about GDP plus, right? And we said, you know, low to mid single-digit growth, right, which would be historically high for us. And it's because of the investments we're making and the platform. So absolutely, we think this will lead to a higher growth rate for ABM over the long term.
Speaker Change: Yes, I think so it's over the long term right, we talked about the fact that we.
Speaker Change: Typically as a GDP kind of grower, we talked about with elevate GDP plus right and we said low to mid single digit growth, right, which which would be historically high for us and it's because of the investments we're making in the platform. So absolutely. We think this will.
Speaker Change: Well nor to a higher growth rate for ABM over the long term. It's just it's not going to be a quarter by quarter thing right and that's that's why we don't give revenue guidance, especially now with the project related business, having more and more of our share.
Scott B. Salmirs: It's just, you know, it's not going to be a quarter by quarter thing, right? And that's, that's why we don't give revenue guidance, especially now with the project-related business having more and more of our share. We just don't want to be in that quarter by quarter game.
Speaker Change: We just don't want to be in that corridor by corridor game.
Earl Ray Ellis: Okay, that's perfect. And then for my follow-up question for Earl, I think you mentioned right at the end that Q3 and Q4 EPS should be fairly balanced. I know that it fluctuates historically, but I think usually Q4 is a little stronger than Q3 based on normal seasonality. So could you just talk about how you expect seasonality to play out this year and why it may not be different than usual? Yeah, no, a great question. You typically
Speaker Change: Okay that's perfect.
Speaker Change: Perfect.
Speaker Change: And then for my follow up for Earl I think you mentioned right at the end of all that that Q3, and Q4 EPS should be fairly balanced I know that it moves around historically, but I think usually Q4 is a little stronger than Q3 based on normal seasonality. So could you just talk about how you expect seasonality to play out.
Speaker Change: This year end and why it may have been different than the normal.
Earl Ray Ellis: Yeah, no, great question. Typically, you know, we would actually have a little bit more revenue and profit in the back half, especially driven by ATS. That really is a back-half business. But remember, you know, within M&D, we're going to have that reset associated with the rebalancing of one of our major clients, which really kind of offsets some of that favorable seasonality that we would typically see in the second half.
Speaker Change: Yes, no great question, Yes, typically we would actually have a little bit more.
Speaker Change: Revenue and profit in the back half, especially driven by Ats that really is a back half business, but remember.
Speaker Change: Within <unk>, we're going to have that reset.
Speaker Change: Associated with the rebalancing of one of our major clients, which really kind of like offset some of that favorable favorable seasonality that we would typically see in the second half.
Speaker Change: Perfect. Thank you.
Marc Frye Riddick: Thank you. Our next question comes from the line of Marc Riddick with Sidonian Company. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Mark Mahaney with Sidoti and company. Please proceed with your question.
Speaker Change: Hey, good morning.
Speaker Change: Good morning.
Marc Frye Riddick: I wanted to sort of touch on a couple of, it was mentioned in the press release on a couple of times in your prepared remarks around the performance of Class A. And I was wondering maybe you could sort of put a little context around maybe the difference in performance of what you're seeing of Class A properties as opposed to the rest of the portfolio and then maybe you could sort of, you know, I know we don't do necessarily a revenue portioning but maybe you could sort of talk about what the potential is to increase Class A as the percentage of revenue or how we should be thinking about sort of where you're striving to get to.
Mark Mahaney: I wanted to sort of touch on.
Mark Mahaney: It was mentioned in the press release on a couple of times in your prepared remarks around the performance of class a and I was wondering if maybe you could sort of put a little context around maybe the difference in performance of what you're seeing of class a properties as opposed to the rest of the portfolio and then maybe you could sort of you know I.
Speaker Change: We don't necessarily have revenue.
Speaker Change: A portion of it but maybe you can sort of talk about what the potential is to increase class a as a percentage of revenue or or how we should be thinking about sort of where you're striving to get to.
Scott B. Salmirs: Sure, I mean look, I think our strategy's been baked and baked for a long time to focus on Class A. And it's not because we're so smart and we knew hybrid work was coming and that's where people were going to gravitate to. It was because we like Class A clients, because Class A clients are not the clients that when you send them an RFP response that they asked for and it's 300 pages, they don't go to page 280 to look at the price, you know, rip that page out and just go for the lowest bid.
Speaker Change: Sure I mean look I think our strategy has been we've been baked in banking for a long time to focus on class a and it's not because we're so smart and we knew.
Speaker Change: Hybrid work was coming and that's where people are going to gravitate to it was because we like class a clients because class eight clients are not the clients that when you send them an RFP response that they ask for and its 300 pages. They don't go to page two ways to look at the price.
Speaker Change: Rip that page App and just go for low bid there, they're the kinds of clients that actually value the offering that ABM has so.
Scott B. Salmirs: They're the kinds of clients that actually value the offering that ABM has. So it's a significant portion of our percentage, and we'll always still be diversified. We have some BNC clients, but very, very little compared to the whole.
Speaker Change: It's a.
Speaker Change: Significant portion of our percentage and will always still be diversified we have some b and C very very little compare it to the whole.
Speaker Change: So I don't think there's going to be this major shifts to increase that percentage, even more because it's such a high percentage now, but it's absolutely.
Scott B. Salmirs: So I don't think there's going to be this major shift to increase that percentage even more because it's such a high percentage now. But it's absolutely, for a company like ABM that's investing in technology, investing in sales, investing in their people, you just want to be in that Class A space. And again, fortunately, it turns out that's where tenants want to be as well. And you know, just as a last reminder for that thesis, if tenants are taking up less space and they can afford to pay the same amount of rent, you can move up to Class A. And that's why Class A has been so resilient because Class B tenants can move up to Class A now.
Speaker Change: A company like a b M. That's investing in technology investing in sales investing in there people you just want to be in that class a space and again Fortunately it turns out that's where tenants want to be as well and you know just as a last reminder for that thesis.
Speaker Change: If tenants are taking less space and they can afford to take to pay the same amount of rent you can move up to class a and that's why class a has been so resilient.
Speaker Change: Class B tenants can move up to class eight now.
Scott B. Salmirs: That's very helpful. And then I was wondering if you could touch a little bit on, I think in some past calls, you've talked about differentiation in the regional mix of what you're seeing. Are you seeing much in the way of different activity as far as tenant activity across the country? Or is it sort of uniform at this point? It's pretty uniform at this point, you know, some move, some don't.
Speaker Change: That's very helpful. And then I was wondering if maybe you could touch a little bit on I think in some past calls you've talked about a differentiation in regional mix of what you're seeing are you seeing much in the way of different activities as far as.
Speaker Change: The tenant activity across the country or is it sort of uniform at this point.
Speaker Change: It's pretty uniform at this point you know some of them some of the markets that we're having a tougher time like San Francisco. If you will are starting to see increased activity because of AI.
Scott B. Salmirs: It's pretty uniform at this point, some of the markets that were having a tougher time, like San Francisco, if you will, are starting to see increased activity because of AI. But there are always other events that kind of mitigate some of the things that are happening in a particular city.
Speaker Change: As always you know.
Speaker Change: Other events that kind of mitigates some of the things that are happening in a particular city that whole Sun Delta area is growing with manufacturing now also with AI and data centers. So.
Scott B. Salmirs: You know, that whole Sunbelt area is growing with manufacturing now, also with AI and data centers. So we're starting to see increased activity across the board, and, you know, some of the things we differentiated when we talked regionally in the past were about getting back to the office. And we were seeing a stronger push in the south than we were on the coast. I have to tell you, even on the coast now, we're seeing people get back to the office. So that's even becoming more uniform as well.
Speaker Change: We're starting to see increased activity across the board and.
Speaker Change: Some of the things we differentiate it.
Speaker Change: When we talked regionally in the past was about back to back to office.
Speaker Change: We're seeing a strong push in the south than we were on the coast I have to tell you even on the coasts now we're seeing people get back to the office. So that's that's even becoming more uniform as well.
Speaker Change: Great. Thank you very much.
David Cyrus Silver: Thank you. Our final question is a follow-up from the line of David Silver with CL King & Associates. Please proceed with your question.
Speaker Change: Thank you. Our final question is a follow up from the line of David Silver with C. L. King <unk> Associates. Please proceed with your question.
David Cyrus Silver: Yeah, hi, thank you. I would like to ask maybe a cash flow-oriented question or two. So, firstly, you did indicate that you repurchased, whatever, 555,000 shares. First, I'd just like to know if you'd characterize that as an offsetting dilution type of repurchases, or would you say it's a pure opportunistic kind of cash flow deployment or free cash flow deployment? And then secondly, on your free cash flow for the year, I mean, for the first half, you're running well ahead of a year ago, and historically, your company's been kind of back half weighted on your free cash flow generation.
David Cyrus Silver: Yeah, Hi, thank you.
David Cyrus Silver: I would like to ask maybe a cash flow oriented question or two so firstly you did indicate that you repurchased whatever 555000 shares.
David Cyrus Silver: Yeah.
David Cyrus Silver: Firstly I'd just like to know if you'd characterize that as offsetting dilution type of repurchases or would you say it's pure.
David Silver: Opportunistic.
Speaker Change: End of.
Speaker Change: Cash flow deployment or free cash flow deployment, and then secondly on your free cash flow for the year I mean for the first half you're running well ahead of a year ago.
Speaker Change: And historically your company has been kind of back half weighted.
Speaker Change: On your free cash flow generation. So just wondering if we should expect.
David Cyrus Silver: So just wondering if we should expect, since your EPS guidance is getting pretty close to last year's, if we should expect similar free cash flow in the back half of the year? Or is there an element or two that may be, you know, to a certain extent, front loaded, you know, when that free cash flow is generated?
Speaker Change: Since your EPS guidance is getting pretty close to last years. Just wondering if we should expect similar free cash flow in the back half of the year or is there an element or two that maybe to a certain extent.
Speaker Change: Frontloaded.
Speaker Change: When that free cash flow.
Speaker Change: Is generated thank you.
Earl Ray Ellis: Yeah, no, thanks for the question, David. So to answer the first part of your question with regard to the share buybacks that we did in this past quarter, you're right; we did about 555,000 shares. And that really is associated with offsetting the dilutive share-based compensation. And, you know, based on our, you know, as you mentioned, strong free cash flow, as well as, you know, relatively low leverage, it really affords us the opportunity to, you know, potentially do, you know, opportunistic share buybacks in the future.
Earl Ray Ellis: Thank you. Yeah, no, thanks for the compliment.
David Cyrus Silver: Yeah no. Thanks for the question David So to answer the first part of your question with regards to the share buybacks that we did in this past quarter Youre right. We did about 555000 shares and that really is associated with offsetting the dilutive share based compensation.
David Cyrus Silver: And based on our as you mentioned strong free cash flow as well as relative low.
David Cyrus Silver: Leverage it really affords us the opportunity to potentially do opportunistic share buybacks in the future.
David Cyrus Silver: You're right. We are we're really pleased with the cash flow that this company continues to drive and if you recall at the beginning of the year, we gave guidance.
Earl Ray Ellis: You're right, you know. We're really pleased with the cash flow that this company continues to drive. And if you recall, at the beginning of the year, we gave guidance of, you know, normalized free cash flow, excluding kind of like the one-time cash outlays of 240 to $270 million. And based on what we've actually seen in this past quarter, we are well on track to deliver that for the full year.
David Cyrus Silver: Normalized free cash flow, excluding kind of like the one time cash outlays of $240 million to $270 million based on what we've actually seen in this past quarter, we are well on track to deliver that for the full year.
Speaker Change: And if any we actually think we may be training more twice towards the high end of that range. When you look at the back half of the year and our EPS call like I just mentioned, although we have a really good.
Earl Ray Ellis: And if any, we actually think we may be trending more towards the high end of that range. You know, when you look at the back half of the year and our EPS call, like I just mentioned, you know, although, you know, we have a really good backlog on ATS, which is normal to actually have a strong second half quarter, that will be offset by some declines that we mentioned within MND. And that does actually have an impact on cash flow. But suffice it to say, on a full year basis, we feel really good about the strength of our cash flow.
Speaker Change: Back backlog on Etfs, which is normal to actually have a strong second half quarter that will be offset.
Speaker Change: With some declines that we mentioned within <unk> and that does actually have an impact on the cash flow, but suffice it to say on a full year basis, we feel really good about the strength of our cash flow.
Scott B. Salmirs: Thank you. This concludes our question and answer session. I'll turn the floor back to Mr. Salmirs for any final comments.
Speaker Change: Thank you. This concludes our question and answer session I'll turn the floor back to Mr. Thomas for any final comments.
Scott B. Salmirs: Okay, thanks. I just want to thank everybody for participating today. And I just want you to make sure you understand it's not lost on us that we could not post these kinds of results if it wasn't for our teammates who are just out there just working hard and doing what they're doing for our customers and for each other. So I'm really appreciative of the team. So with that, have a good summer, and we'll be back to you next quarter with our Q3 results. Thank you, everybody.
Mr. Thomas: Okay. Thanks, I just wanted to thank everybody for participating today and I just want to make sure you understand it's not lost on us that we could not post these kinds of results. If it wasn't for our teammates who are just out there just working hard and.
Mr. Thomas: Doing what they're doing for our customers and for each other so I'm really appreciate her team so with that have a good summer and we'll be back to you next quarter with our Q3 results. Thank you everybody.
Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change #100: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.