Q3 2024 ABM Industries Inc Earnings Call

Speaker Change: Greetings and welcome to the ABM Industries 3rd Quarter, 2024 earnings call.

Unknown Executive: 24 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

Speaker Change: At this time, I'll participate 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.

Unknown Executive: 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.

Paul Goldberg: I would now like to turn the conference over to your host, Mr. Paul Goldberg, Senior Vice President, Investor Relations. Thank you. You may begin.

Speaker Change: As your reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Paul Goldberg, Senior Vice President, and Best Relations. Thank you, you may begin.

Paul Goldberg: Good morning, everyone, and welcome to ABM's third quarter of 2024 earnings call. My name is Paul Goldberg, and I'm the Senior Vice President of Invest 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.

Paul Goldberg: Good morning everyone and welcome to ABM's third quarter of 2024 earnings call. My name is Paul Goldberg and I'm the Senior Vice President of Invest Relations at ABM.

Speaker Change: are President and Chief Executive Officer. And Earl Ellis are Executive Vice President and Chief Financial Officer.

Paul Goldberg: Please note that earlier this morning, we issued our press release announcing our third quarter of 2024 financial results. Copy that release, and an accompanying slide presentation can be found on our website, ABM.com.

Speaker Change: Please note that earlier this morning, we issued our press release announcing our third quarter 2024 financial results.

Speaker Change: Copy that release and in the company's flight presentation can be found on our website abm.com.

Paul Goldberg: After Scott and Earl's prepared remarks, we will host the Q&A session. But before we get started, I would like to remind you that our call and presentation today contains predictions, estimates, and other forward-looking statements. 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 recent uncertainties that could cause our actual results to differ materially.

Speaker Change: after Scott and Earl's prepared remarks and will host the Q&A session. Before we get started, I would like to remind you that our call and presentation today contain predictions, estimates, and other forward-looking statements.

Speaker Change: 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.

Speaker Change: While we believe them to be reasonable, these statements are inherently subject to risk and insurgency as that could cause our actual results to differ materially.

Paul Goldberg: These factors are described in a slide that accompanies our presentation, as well as our filings with the SEC.

Speaker Change: The factors are described in the slide that accompanies our presentation, as well as our [inaudible]

Paul 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: During the course of this call, certain non-gap financial information will be presented.

Speaker Change: The Reconciliation of historical non-gap numbers to gap financial measures is available at the end of the presentation and on the company's website under the Investor tab.

Scott Salmirs: And with that, I would like to now turn the call over to Scott. Thanks, Paul. Good morning, and thank you all for joining us today to discuss our third quarter results. ABM posted another strong quarter, driven by double-digit growth in technical solutions and aviation, and supported by the continued resilience of our business and industry segments. Once again, our teams did a great job focusing on our clients and executing instilled choppy commercial real estate markets, enabling us to generate solid or organic revenue growth on an enterprise level and post-resilient margins. We delivered adjusted EPS of 94 cents, which has slightly ahead of our expectations.

Speaker Change: and with that I would like to now turn a call over to Scott.

Scott: Good morning and thank you all for joining us today to discuss our third quarter results.

Scott: AVM posted another strong quarter, driven by double-digit growth in technical solutions and aviation and supported by the continued resilience of our business and industry segments.

Speaker Change: Once again, our teams at a great job focusing on our clients and executing instilled choppy commercial real estate markets, enabling us to generate solid, organic revenue growth on the enterprise level and post-resilient margins.

Speaker Change: We delivered adjusted EPS of 94 cents which is slightly ahead of our expectations.

Scott Salmirs: ABM's business model, which last quarter I described as a consistent cash-generating flywheel, was in full force in Q3, as we leveraged our capital-like model, scale, and leading market positions to strengthen our enterprise through our internal elevator initiatives, especially our technology roadmap. During the quarter, we continued to make progress delivering our core janitorial and engineering services through advanced use of data and analytics, such as our workforce productivity optimization tool, or WPO, as we call it. Well, simply said, WPO, which is being piloted at multiple sites, is an analytics tool set that allows operators to easily identify opportunities for productivity improvements.

Speaker Change: ABM's business model, which last quarter I described as a consistent cash-generating flywheel, was in full force and Q3 as we leveraged our capital-light model, scale, and leading market positions.

Speaker Change: Distrenting our enterprise, so we'll our internal elevated initiatives, especially our technology road map.

Speaker Change: During the quarter, we continue to make progress delivering our core janitorial and engineering services through advanced use of data and analytics such as our workforce productivity optimization tool or WPO as we call it.

Speaker Change: Simply said, WPO, which is being piloted at multiple sites, is an analytics tool set that allows operators to easily identify opportunities for productivity improvements.

Scott Salmirs: It benchmarks productivity based on facility profiles to ensure we're operating as efficiently as we should based on the facility archetype. We've already begun to see benefits of this technology in terms of improved efficiency and client outcomes, and look forward to more broadly implementing these new tools over the next couple of years. We've also acquired quality uptime services, which expands our position in the fast growing data center vertical by adding new capabilities in uninterrupted power supply systems and battery maintenance. We were able to complement these growth and self-help initiatives with additional capital returns to our shareholders via our long-standing dividend.

Speaker Change: It benchmarks productivity based on facility profiles to ensure we're operating as efficiently as we should based on the facility archetype.

Speaker Change: We've already begun to see benefits of this technology in terms of improved efficiency and client outcomes and look forward to more broadly implementing these new tools over the next couple of years.

Speaker Change: We've also acquired quality of time services, which expands our position in the fast growing data center vertical by adding new capabilities in uninterrupted power supply systems and battery maintenance.

Speaker Change: We were able to complement these growth and self-help initiatives with additional capital returns to our shareholders via our law and standing dividend.

Scott Salmirs: Continual investments to build and strengthen our core, strategic investments in complimentary services and markets that offer secondally high growth rates, and steady returns of capital to our shareholders via our long-standing dividend are the key initiatives in our go-forward plan. Our diversification, scalability, and the essential nature of the services we provide all underpin the consistency and resiliency of our results. Within a sense, tools are strong cash flow.

Speaker Change: continual investments to build and strengthen our core, to teach our investments in complementary services and markets that offer secondly, high growth rates and steady returns of capital to our shareholders via our long-standing dividend are the key initiatives in our Go Forward Plan.

Speaker Change: or diversification, scalability, and the essential nature of the services we provide all underpin the consistency and resiliency of our results. We send a fence, fuels are strong cash flow.

Scott Salmirs: Now let me quickly run through what we're seeing in our markets before we turn it over to Earl for the financials. Our V&I segment has remained quite resilient, benefiting from our diverse client and service mix, our leading market position, and our penetration in the higher performing class-based segment of the market. We've also done a nice job diversifying geographically, and we continue to renew business throughout the US, such as the janitorial business of the MetLife Building, a large marquee property here in New York. Although we're not ready to say commercial real estate market is re-bounding, things seem to be firming up, and pressure to return to offices is definitely on the rise.

Speaker Change: Now, let me quickly run through what we're seeing in our markets before it turned on with to Earl for the financials.

Speaker Change: or the NI segment has remained quite resilient, benefiting from our diverse client and service mix or leading market position and our penetration in the higher performing class A segment of the market.

Speaker Change: We've also done a nice job diversifying geographically, and we continue to renew business throughout the US, such as the janitorial business of the Met Life Building, a large, marquee property here in New York.

Speaker Change: Although we're not ready to say commercial real estate market is re-bounding, things seem to be firming up and pressure to return to offices is definitely on the rise.

Scott Salmirs: This was highlighted by a recent survey conducted by CBRE, whereby 38% of the 225 corporate real estate executives polled that they plan to expand their office space in the next three years. This is up from 20% in last year's poll. Also, 37% of those surveys anticipate downsizing versus 53% in the prior year. We will also closely monitor this dynamic situation and talking with our clients about their plans. We believe we need another quarter or two to get a clearer picture of the timing and spoke with the potential recovery, but we're optimistic. Our manufacturing and distribution markets continue to be healthy, driven by a generally strong industrial economy, particularly growth in the US semiconductor and data center markets, and the general trends towards ensuring manufacturing in the US.

Speaker Change: This was highlighted by a recent survey conducted by CBRE, whereby 38% of the 225 corporate real estate executives were expelled, so that they plan to expand their office space in the next three years.

Speaker Change: This is up from 20% in last year's poll

Speaker Change: Also, 37% of those surveys anticipate downsizing versus 53% in the prior year.

Speaker Change: We will also closely monitoring this dynamic situation and talking with our clients about their plans. We believe we need to have the quarter into together clearer picture of the timing and spoke with a potential recovery, but we're optimistic.

Speaker Change: Our manufacturing and distribution markets continue to be healthy, driven by a generally strong industrial economy, secular growth in the US semiconductor and data center markets, and the general trends towards awe-inspiring manufacturing in the US.

Scott Salmirs: We continue to renew business in these markets and have invested in important resources to further leverage these trends. These robust markets and our growth initiatives addressing them have helped to partially mitigate the previously discussed rebalancing of work from a large client. I'm also proud of the team, as we have proactively let some other business go where we were not receiving appropriate value for the services we were providing. I have confidence that our M&D segment will quickly return to mid-single-digit organic growth once the rebalancing annualizes, if that's not before. Aviation is having an amazing year, and the markets remain very healthy.

Speaker Change: which continue to renew business in these markets and have invested in important resources to further leverage these trends.

Speaker Change: These robust markets and our growth initiatives addressing them have helped to partially mitigate the previously discussed rebalancing of work from a large client.

Speaker Change: I'm also proud of the team as we have proactively let some other business go where we were not receiving appropriate value for the service we were providing. I have confidence that our M&D segment will quickly return to mid-single-digit organic growth once the rebalancing annualizes. It's not before.

Speaker Change: Aviation is having an amazing year and the markets are making very healthy. We've emerged as a clear leader in the Aviation Facilities Management Space, driven by the industry's best team and by our technology leadership, including our award-winning ABM Clean Product Life.

Scott Salmirs: We have emerged as a clear leader in the aviation facilities management space, driven by the industry's best team and by our technology leadership, including our award-winning ABM Clean Product Line. I'm thrilled our aviation segment has grown to be a billion-dollar business, but I'm even more encouraged by the marginal improvements we've made over the last few years. It's a clear indication of the value we provide and our strategy around client segmentation. Although we aren't expecting to continue to deliver double-digit growth quarter after quarter as the sector normalizes, I have no doubt aviation will remain strong going forward.

Speaker Change: I'm thrilled our aviation segment has grown to be a billion dollar business, but I'm even more encouraged by the marginal movement we've made over the last few years. It's a clear indication of the value we provide and our strides you around client segmentation.

Speaker Change: Although we aren't expecting to continue to deliver double-digit growth quarter after quarter as a sector normalizes, I've moved out aviation warming strong going forward.

Scott Salmirs: Education remains solid, although it's not our fastest growing segment. It is typically very stable and provides a foundation of earnings and cash flow that can be utilized across the ABM. We also believe there's an opportunity to grow in education, especially with larger school districts, colleges, and universities, which can greatly benefit from our ABM performance solutions offering known as APS. As a reminder, APS is our single-source operating model which delivers integrated end-to-end facility services, generating cost and operating efficiencies through one contract, one invoice, and one source of accountability. Like we've done with Providing School District, Utica University, and others, we remain focused on bringing new APS clients aboard.

Speaker Change: Education remains solid, although it's not our fastest growing segment, it is typically very stable and provides a foundation of earnings and cash flow that can be utilized across ABM.

Speaker Change: We also believe there's an opportunity to grow in education, especially with large school districts, colleges and universities.

Speaker Change: which can greatly benefit from our ABM performance solutions offering known as APS.

Speaker Change: as a reminder.

Speaker Change: APS is our single source operating model, which delivers integrated end-to-end facility services, generating cost and operating efficiencies through one contract, one invoice, and more source of accountability.

Speaker Change: Like we've done with Providence School District, Utica University, and of this, we remain focused on bringing new APS clients aboard.

Scott Salmirs: Lastly, regarding technical solutions, our microgrid business is thriving, driven by a large contract one last year. And while our Ravenvolt team progresses on that contract, we continue pursuing numerous other opportunities with several other prospects seeking traditional microgrids, as well as for battery energy storage systems. We expect the need for energy resiliency and redundancy will only grow over time. Similarly, we know the proliferation of AI will drive significant growth in data center and mission critical infrastructure, and we have a growing position in this market. While our bundled energy solution business is still soft, we believe the anticipated reduction in interest rates laid this year and beyond that will improve projected ROI's and hopefully restart the market.

Speaker Change: Lastly, we're going technical solutions on microgrid businesses thriving, given by a large contract one last year.

Speaker Change: and while a Ravenvalt team progresses on that contract, we continue pursuing numerous other opportunities with several other prospects seeking traditional microgrids, as well as for battery energy storage systems.

Speaker Change: We expect the need for energy resiliency and redundancy will only grow over time.

Speaker Change: Similarly, we know the proliferation of AI will drive significant growth in data center and mission critical infrastructure and we have a growing position in this market.

Speaker Change: While our blends of energy solution business is still soft, we believe the anticipated reduction and interest rates lay this year and beyond that will improve projected ROI and hopefully restart the market.

Scott Salmirs: In all, we feel good about our markets, so there are still challenges to overcome, both macro and specific to our industry. We had a great third quarter and have confidence we will finish the year well. As such, we are raising our full-year guidance for adjusted EPS, and now it's expected to be in the range of $3.48 to $3.55 versus our prior range of $3.40 to $3.50.

Speaker Change: In all, we feel good about our markets, so there are still challenges to overcome both macro and specific to our industry. We had a great third quarter and have confidence, we will finish the year well.

Speaker Change: F such we are raising our full-year guidance for adjusted EPS and now expected to be in the range of 3,048 cents to 3,55 cents versus our prior range of 3,040 cents to 3,050 cents.

Earl Ellis: With that, let me turn it over to Earl to walk you through the details, and I'll be back shortly with some final comments. Good morning, everyone. As Scott mentioned, we are quite pleased with our third quarter results, which are a representation of the trends we've experienced over the last three quarters. Namely, steady organic growth on an enterprise level, strong execution, and solid cash generation.

Speaker Change: With that, let me turn it over to Earl to walk you through the details and I'll be back shortly with some final comments.

Earl Ellis: Good morning, everyone. As Scott mentioned, we are quite pleased about third quarter results, which are a representation of the trends we've experienced over the last three quarters. Namely, study organic growth on an enterprise level, strong execution, and solid cast generation.

Earl Ellis: I'd like to take the moment to recognize our team for the great work they've done this year.

Speaker Change: I'd like to take the moment to recognize our team for the great work they've done this year.

Earl Ellis: For those of you following along with our earnings presentation, please turn to slide five. Third quarter revenue of $2.1 billion increased 3.3%, comprised of 2.8% organic growth and the balance driven by our recent acquisition. Organic revenue growth was led by technical solutions and aviation, which both grew double digits, while education posted mid single digit growth. Our B&I segment remained resilient, declining by only 1%. Benefitting from our diverse client and service base. Lastly, as expected, manufacturing and distributions revenue declined 1% as the rebalancing impact we have previously discussed began to materialize. Moving on to slide six, third quarter net income of $4.7 million, or $0.7 for diluted share, was down year to year.

Speaker Change: For those of you following along with our earnings presentation, please turn to slide five.

Speaker Change: Third quarter revenue of $2.1 billion, increase 3.3%. Comprised of 2.8% organic growth and the balance driven by our recent acquisition.

Speaker Change: Organic revenue growth was led by technical solutions and aviation, which both grew double digits, while education posted mid-single digit growth.

Speaker Change: Our B&I segment remains resilient, declining by only 1%, benefiting from our diverse client and service space.

Speaker Change: Lastly, as expected, manufacturing and distributions revenue declined 1%. As the rebalancing impact, we have previously discussed, began to materialize.

Speaker Change: Moving on to slide six, third quarter net income of $4.7 million, or seven cents for diluted share, was down your year.

Earl Ellis: This decrease was primarily attributable to a $73.2 million year-over-year impact from prior year and current year adjustments to contingent consideration related to the Ravenville acquisition, as well as the absence this year of a $22.4 million employee retention credit that was recognized in last year's third quarter. We also recorded unfavorable prior year insurance adjustments and higher corporate investment as planned. These items were partially offset by improved segment operating results and lower elevate costs. Earning for share further benefited from a lower share count. Of note, the contingent consideration adjustment relates to Ravenville's significantly improved 2024 performance, as Scott mentioned, and the increased likelihood of a payout under their acquisition earn-up plan.

Speaker Change: This decrease was primarily attributable to a $73.2 million year-over-year impact from prior year and current year adjustments to contingent consideration related to the Ravenbull acquisition.

Speaker Change: As well as the absence this year of a $22.4 million employee retention credit that was recognized in last year's third quarter.

Speaker Change: We also recorded unfavorable prior year insurance adjustments and higher corporate investments as planned.

Speaker Change: These items were partially offset by improved segment operating results and lower elevated costs.

Speaker Change: O'erning for share further benefited from a lower share count.

Speaker Change: Of note, the contingent consideration adjustment relates to Ravenville's significantly improved 2024 performance, as Scott mentioned, and the increase likelihood of a pale under their acquisition earn-up plan.

Earl Ellis: Adjusted net income of $59.5 million and adjusted earnings for a diluted share of 94 cents increased 13% and 19%, respectively, over the prior year period. These increases were largely driven by improved segment operating results, especially in aviation and technical solutions, partially offset by higher year-over-year corporate costs. Adjusted EPS also benefited from a lower share count driven by share repurchases last year. Adjusted EBITDA increased 2% to $128.1 million, and adjusted EBITDA margin of 6.4% was consistent with last year.

Speaker Change: adjusted net income of $59.5 million, and adjusted earnings for a diluted share of 94 cents increased 13% and 19% respectively over the prior year period.

Speaker Change: These increases were largely driven by improved segment operating results, especially in aviation and technical solutions.

Speaker Change: Personally, offset by higher year of a year corporate cost.

Speaker Change: Adjusted EPS also benefited from a lower share count, driven by share repurchases last year.

Speaker Change: Adjusted EBITDA increased 2% to 128.1 million dollars, and adjusted EBITDA margin of 6.4% what's consistent with last year.

Earl Ellis: Now turning to our segment results, beginning on slide 7. B&I revenue of $1 billion declined 1%. We continue to benefit from our end market diversification, including our geographic footprint, our exposure to the sport and entertainment and healthcare markets, and from our mix of higher performing Class A properties. This purposeful positioning has aided us in avoiding a more significant impact resulting from the soft commercial real estate. Market. Operating profit in B&I declined 1% to $77.8 million, while operating margin remained flat at 7.7%. Margin benefited from our continued focus on price realization and cost management. Aviation revenue grew 13% to $268.4 million, driven by healthy travel markets and new business wins from both the airport and airline sides of the business.

Speaker Change: Now turning to our segment results beginning on slide seven.

Speaker Change: B&I revenue of $1 billion to climb 1%.

Speaker Change: We continue to benefit from our end market diversification, including our geographic footprint, our exposure to the sport and entertainment and healthcare markets.

Speaker Change: and from our mix of higher performing class A properties.

Speaker Change: This purposeful positioning has aided us in avoiding a more significant impact, resulting from the soft commercial real estate market.

Speaker Change: Operating profit in B&I declined 1% to 77.8 million dollars, while operating margin remains flat at 7.7%.

Speaker Change: Margin benefited from our continued focus on price realization and cost management.

Speaker Change: Aviation revenue grew 13% to 268.4 million dollars, driven by healthy travel markets and new business wins from both the airport and airline sides of the business.

Earl Ellis: As Scott mentioned, aviation is well on track to be a billion dollars segment for ABM this year, in large measure due to our advantage ABM clean service line. Aviation's operating profit was $17.8 million, up 52%, and margin was 6.6%, an increase of 170 basis points. Operating leverage on higher volume and favorable service mix were significant contributors to the increase in margin. Turning to slide 8, manufacturing and distribution's revenue declined 1% to $377.1 million. Primarily due to the expected rebalancing of work by a large e-commerce customer, which we discussed on prior calls, partially offset by growth with other clients.

Speaker Change: As Scott mentioned, aviation is well-entracted to be a billion-dollar segment for ABM this year. In large measure, due to our advanced ABM clean surface line.

Speaker Change: Aviation's operating profit was $17.8 million, up 52% and margin was 6.6% and increased of 170 basis points.

Speaker Change: Operating leverage on higher volume and favorable service mix were significant contributors to the increase in margin.

Speaker Change: Turning to slide 8, manufacturing and distribution revenue declined 1% to $377.1 million. Primarily due to the expected rebalancing of work by a large e-commerce customer, which got us on prior calls, partially offset by growth with other clients.

Earl Ellis: We continue to work hard to offset the rebalancing through the addition of new business, and we believe we have a clear path to positive growth in the second half of 2025. However, the impact of this rebalancing will continue for the next few quarters. Operating profit increased 8% to $40.9 million, and operating margin increased 90 basis points to 10.9%. Profit and margin improvement was largely due to a favorable customer mix, including some client rationalization for underperforming contracts. Education revenue increased 4% to $228.3 million, benefiting from the increased activity on a number of cost-plus accounts. We also continue to win new business in the quarter, with the addition of Auburn University, which will be onboarded early next fiscal year.

Speaker Change: We continue to work hard to offset the rebalancing through the addition of new business. And we believe we have a clear path to positive growth in the second half of 2025. However, the impact of this rebalancing will continue for the next few quarters.

Speaker Change: Operating profit increased 8% to $40.9 million, and operating margin increased 90 basis points to 10.9%.

Speaker Change: Profit immersion improvement was largely due to a favorable customer mix, including some client rationalization for underperforming contracts.

Speaker Change: Education revenue increased 4% to 228.3 million dollars, benefiting from the increased activity on a number of cost-plus accounts.

Speaker Change: We also continue to win new business in the quarter, with the addition of Auburn University, which will be onboard at early next fiscal year.

Earl Ellis: Education operating profit was seasonally strong at $18 million, up 13%, and margin was 7.9%, an increase of 60 basis points. This was largely attributable to improved labor efficiency. Technical solutions revenue grew 25% in total to $209.7 million, including 20% organic growth and 5% from the acquisition of quality uptime services. Organic growth was driven by strong microgrid project activity. Fundal energy solutions and ED project activity remained soft. However, we expect a strong finish to the year in technical solutions, driven by constructive macro trends in the energy resilience theme and data centers, and further progress on the microgrid projects we have already booked.

Speaker Change: Education Operating Profit was seasonally strong at $18 million, up 13% and margin was 7.9% and increase a 60 basis point.

Speaker Change: This was largely attributable to improved labor efficiency.

Speaker Change: Technical Solutions revenue grew 25% in total to $29.7 million, including 20% organic growth and 5% from the acquisition of quality uptime services.

Speaker Change: Organic growth was driven by strong microgrid project activity.

Speaker Change: One will energy solutions and ED project activity remain soft. However, we expect a strong finish to the year in technical solutions driven by constructive macro trends in energy resiliency and data centers.

Speaker Change: and further progress on the microgrid projects we have already booked.

Earl Ellis: Technical solutions operating profit grew 56% to $17.9 million, and margin expanded 170 basis points to 8.5%. These improvements were a result of significantly higher volume and lower acquisition-related amortization.

Speaker Change: technical solutions operating profit grew 56% to $17.9 million and margin expanded 170 basis points to 8.5%.

Speaker Change: These improvements were a result of significantly higher volume and lower acquisition-related amortization.

Earl Ellis: Moving on to slide 9, we ended the third 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 even to ratio of 2.5 times. At the end of Q3, we had available liquidity of $513.9 million, including cash and cash equivalents of $86.3 million. Free cash flow in the third quarter was $64 million, with third quarter comparables being impacted by the timing of the counts payable, and the non-repeat of a $22 million employee retention credit received last year. Throughout the nine months of 2024, we have generated $152 million in free cash flow this year, or $187 million after normalizing for in-year elevate and integration costs.

Speaker Change: Moving on to slide 9, we ended the third quarter with total indebtedness of $1.4 billion, including $57.9 million of standby letters of credit, resulting in a total debt to perform a just-in-event ratio of 2.5 times.

Speaker Change: At the end of Q3, we had available liquidity of $513.9 million, including cash and cash equivalents of $86.3 million.

Speaker Change: Free cash flow in the third quarter was $64 million, with third quarter comparables being impacted by the timing of accounts payable and the non-repeat of a $22 million employee retention credit received last year.

Speaker Change: Throughout the nine months of 2024, we have generated $152 million in free cash flow this year.

Speaker Change: or 187 million after normalizing for in-year elevates an integration cost.

Earl Ellis: This is up $16 million, or 9% over the last year's normalized free cash flow of $170 million, which is adjusted for the receipt of the employee retention credit, repayment of the pay-in-integration costs. Cash flow generation continues to be a hallmark of ABM, and is a product of our asset life and flexible business model, complemented by our consistent focus on working capital management. Interest expense was $21.2 million, slightly higher than prior year. Regarding third quarter capital allocation, we made one acquisition for $118 million. We also paid dividends of $14.1 million. We did not repurchase any stock in the quarter, and the remaining authorization under our share repurchase program is $186 million.

Speaker Change: This is up $16 million, or 9% over the last year's normalized free cash flow of $177 million, which is adjusted for the receipt of the employee retention credit repayment of the CARES Act.

Speaker Change: and in here, elevate an integration cost.

Speaker Change: Casual Generation continues to be a hallmark of ABM and is a product of our asset light and flexible business model complemented by our consistent focus on working capital management.

Speaker Change: Interest Expans was $21.2 million.

Speaker Change: slightly higher than prior year.

Speaker Change: Regarding third quarter capital allocation, we made one acquisition for $118 million. We also paid dividends of $14.1 million.

Speaker Change: We did not repurchase any stock in the quarter and the remaining operation under our Sherry Purchase Program is $186 million.

Earl 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 third quarter results and our confidence in a solid finish to the year. As such, we now expect full-year 2024 adjusted EPS to be in the range of $3.48 to $3.55, up from $3.40 to $3.50 previously, representing a seven-cent increase of the midpoint. Adjusted EBIT emergent, it's expected to be around 6.3% for the full year. Our interest expense forecast is unchanged at $82 to $86 million, and the normalized tax rate before discrete items is expected to be between 29 to 30%.

Speaker Change: 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 third quarter results, and our confidence in a solid finish to the year.

Speaker Change: As such, we now expect full year 2024 adjusted ETS to be in the range of $3.48 to $3.55 up from $3.40 to $3.50 previously. We're presenting a 7 cent increase of the midpoint.

Speaker Change: Adjusted even a margin expected to be around 6.3% for the full year.

Speaker Change: Our interest to expense forecast is unchanged at $82 to $86 million.

Speaker Change: and the normalized tax rate before its group items is expected to be between 29 to 30%.

Earl Ellis: Lastly, full-year normalized pre-cash flow is likely to be near the top end of our $240 million to $270 million range. If not, a little higher. This forecast excludes the estimated $45 million of elevate and integration costs.

Speaker Change: Lastly, full-year normalized pre-cash flow is likely to be near the top end of our $240 million to $270 million range.

Speaker Change: If not, a little higher. This forecast excludes the estimated $45 billion of elevate and integration costs.

Scott Salmirs: With that, let me turn it back to Scott for closing comments.

Scott Salmirs: Thanks, Earl.

Speaker Change: With that, let me turn it back to Scott for closing comments.

Scott Salmirs: While we're very pleased with our performance in fiscal 2024, we know ABM can be even more supported by a resilient, flexible, and cash-generative business model, our investment in technology, new capabilities, and, most importantly, our people. We are positioned for sustained success. We're expanding our core through cross-selling, advanced analytics, and innovative go-to-market strategies, with additional opportunity on the horizon.

Scott: Thanks, Earl. While we're very pleased with our performance in fiscal 2024, we know ABM can be even more.

Scott: Supported by a resilient, flexible, and cash-generated business model are investment in technology, new capabilities, and most importantly are people. We are positioned for sustained success.

Scott: We're expanding our course through cross-selling, advanced analytics, and innovative go-to-market strategies with additional opportunity on the horizon.

Scott Salmirs: These initiatives are being complemented with investments in new capabilities like micro-grids and mission-critical services, which we believe will drive higher growth rates, expand margin over time, and further set us apart from the competition. Thanks again for joining our call today, and with that, let's take some questions. Thank you.

Scott: These initiatives are being complemented with investments in new capabilities like microgrids and mission critical services, which we believe will drive higher growth rates, expand margin over time, and further set us apart from the competition.

Speaker Change: Thanks again for joining our call today and with that, let's take some questions.

Unknown Executive: 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 lion 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 for you to pick up your handset before pressing the star keys.

Speaker Change: Thank you. At this time we'll be conducting a question and an 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.

Speaker Change: 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 for you to pick up your handset before pressing the star keys.

Unknown Executive: In order to allow first many questions as possible, we ask that you reach keep to one question and one follow-up. Thank you.

Speaker Change: In order to allow for as many questions as possible, we ask that you need to keep to one question and one follow up. Thank you. Our first question comes from the line of Tim Mourini with William Blair. Please appreciate your question.

Timothy Mulrooney: Our first question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question. Scott, Earl, Good morning. Good morning. So, on the guide just real quick, it looks like your previous expectation, I think, was more for EPS to be kind of balanced between the third quarter and the fourth quarter. But now, based on your guy, it looks like you expect the third quarter to be maybe 10 cents or so higher than the fourth quarter in EPS. Is this just a simple case of more revenue being pulled into the third quarter than you were initially expecting?

Speaker Change: Earl, good morning. Good morning.

Speaker Change: So I'm a guide, just real quick, it looks like your previous expectation I think was more for EPS to be kind of balanced between a third quarter and the fourth quarter.

Tim Mourini: But now, based on your guy, it looks like, you know, you expect a third quarter to be maybe 10 cents or so higher than the fourth quarter in EPS. Is this just a simple case of more revenue being pulled into the third quarter than you were initially expecting?

Earl Ellis: Or are there other factors that weren't consideration here?

Speaker Change: or other factors that weren't consideration here.

Earl Ellis: No, thanks for the questions, Tim.

Scott Salmirs: When we look at the queue 3 quarter, we're really pleased with the performance across the portfolio. But in particular, our technical solutions business and especially Ravenville really performed. Why you're not necessarily seeing that flow through to the queue 4 to the same extent is really what you're going to see in M&D. And as we talked about, we're actually experiencing that rebalancing of one of our major customers in M&D. That started in queue 3, but we'll fully ramp up in queue 4, and we'll actually see that impact over the next several quarters.

Speaker Change: Yeah, thanks for the question Tim. When we look at the Q3 corridor, we're really pleased with the performance across the portfolio by in particular, our technical solutions business, and especially Raven Bolt, really performed, you know, why you're not necessarily seeing that flow through to the Q4 to the same extent.

Speaker Change: is really what you're going to see in M&D and as we talked about, we're actually experiencing that rebalancing of one of our major customers in M&D, that started in Q3 but will fully ramp up in Q4 and we'll actually see that impact over the next several quarters.

Unknown Executive: 24 Earnings Call. At this time, all participants are in a listen only mode. A question and an answer session will follow the formal presentation.

Earl Ellis: Okay, that's very helpful. Thank you, Earl.

Earl Ellis: My second question is on segment margins. Because, you know, we're seeing some really nice improvement here across a lot of these segments. I mean aviation was with 6.6. I think in the quarter, I think our model was about 5 and a half, and M&D came in at 10.9. I think we were at 10.0. So, you know, I know the EPSB here was driven by ATS to a large degree, but I also want to know the profitability across a lot of these segment margins here. So, my question is, are these improvements that I'm seeing here? Are these sustainable, do you think, as we move into 2025?

Unknown Executive: 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.

Speaker Change: because we're seeing some really nice improvement here across.

Paul Goldberg: I would now like to turn the conference over to your host, Mr. Paul Goldberg, Senior Vice President, Investor Relations. Thank you. You may begin.

Speaker Change: Well, a lot of the segments, I mean aviation was with 6.6, I think in the quarter, I think our model was about 5.5.

Paul Goldberg: Good morning, everyone, and welcome to ABM's third quarter, Mr. 2000 24 Earnings Call. My name is Paul Goldberg, and I'm the Senior Vice President of Invest 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 third quarter, 2022 financial results. Copy that release, and an accompanying slide presentation can be found on our website, ABM.com. After Scott and Earl's prepared remarks, we will host the Q&A session.

Speaker Change: and M&D, you know, came in at 10.9, I think we were at 10.0.

Speaker Change: So, you know, I know the EPSB here, you know, was driven by ATS to a large degree, but also want to know the profitability across a lot of the segment margins here. So, my question is, are these...

Speaker Change: Improvements that I'm seeing here, are these sustainable do you think as we move into 2025 or would there something about the third quarter that helped lift profitability here, like maybe a working day is dynamic or something like that, that isn't necessarily expected to carry forward.

Scott Salmirs: Or would there be something about the third quarter that helped lift profitability here, like maybe a working days dynamic or something like that that isn't necessarily expected to carry forward? Now, I mean, I don't think there was anything unusual. I think we're just performing at a high level of resilience. And, you know, what we've been talking about quarter after quarter is really coming true. We're excited about the results, as you are. And it's really nice to, as you point out, when you can see it across the board like this. So, there's no watchouts ahead for us, you know, or I'll just talk about, you know, M&D going to kind of trend down a little bit the year over year.

Paul Goldberg: But before we get started, I would like to remind you that our call and presentation today contains predictions, estimates, and other forward-looking statements. 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 recent uncertainties that could cause our actual results to differ materially.

Speaker Change: Now, I mean, I don't think there was anything unusual, I think we're...

Speaker Change: We're just performing at a high level, our resilience and what we've been talking about quarter after quarter is really

Speaker Change: coming true. We're excited about the results as you are and it's really nice to him as you point out when you can see it across the board like this. So there's...

Speaker Change: There's no watchouts ahead for us, you know, or I'll just talked about, you know, M&D going to kind of trend down a little bit the year over year, but, you know, you pull that out of M&D and you're going to be back to mid to high single digit growth. So we're feeling good across the board.

Scott Salmirs: But, you know, you pull that out of M&D, and you're going to be back to mid to high single-digit growth. So, we're feeling good across the board.

Paul Goldberg: These factors are described in a slide that accompanies our presentation, as well as our filings with the SEC. During the course of this call, certain non-gap financial information will be presented. A reconciliation of historical non-gap numbers to gap financial measures is available at the end of the presentation, and on the company's website, under the investor tab.

Timothy Mulrooney: Okay, thank you, Scott. I'll update my expectations on profitability here in the model and get that from a nice quarter. Thank you. Thanks, Tim. Thank you.

Speaker Change: Okay, thank you, Scott. I'll update my expectations on profitability here in the model of the drafts on the next quarter. Thank you. Thanks, Tim.

Faiza Alwy: Our next question comes from the line, Faiza Alwy, with Rachel Banks. Please proceed with your question. Yes, hi. Good morning. Thank you. So I wanted to follow up on the margin question. I made the same observation as I was looking at numbers this morning. And maybe I know you mentioned sort of labor efficiencies a few times. Maybe talk of this more about like what's driving that? Are you seeing sort of wager rates come down or, you know, talk about some of the other dynamics that are helping margin across the board, you know, at this point.

Speaker Change: Thank you. Our next question comes from the line of Faza Oway with Rachel Bank. Please proceed with your question.

Scott Salmirs: And with that, I would like to now turn the call over to Scott. Thanks, Paul. Good morning, and thank you all for joining us today to discuss our third quarter results. ABM posted another strong quarter, driven by double-digit growth in technical solutions and aviation, and supported by the continued resilience of our business and industry segments. Once again, our teams did a great job focusing on our clients and executing in still-choppy commercial real estate markets, enabling us to generate solid or organic revenue growth on an enterprise level and post-resilient margins.

Faza Oway: Yes, hi, good morning. Thank you. So I wanted to follow up on the margin question. I made the same observation as I was looking at numbers this morning and maybe I know you mentioned sort of labor efficiencies a few times. Maybe talk a bit more about like what's driving that are you seeing?

Speaker Change: that have wageries come down or talk about some of the other dynamics that are helping margin across the board at this point.

Scott Salmirs: Sure, that's great. So yeah, there's a couple of dynamics here. First on the labor front, we're feeling really good because wages haven't been rising to the same extent as they were in the last couple of years, right? And you know, that's been widely publicized. You could read about that. So that's playing through for us. And also, availability of labor is getting much better for us as well in terms of getting people on board quicker. And so that's been another great tell. And then lastly, our workforce productivity optimization tools have been really great. And what that really does is it lets one of our project managers, and I'll give you like kind of anecdotal, a project manager is managing a 500,000 square foot building and he's looking at his labor and the productivity of the labor.

Speaker Change: Sure, that's great. So yeah, there's a couple of dynamics here. First on the Labor Front, we're feeling really good because wages haven't been rising to the same extent as they were in the last couple of years, right?

Scott Salmirs: We delivered adjusted EPS of 94 cents, which has slightly ahead of our expectations. ABM's business model, which last quarter I described as a consistent cash-generating flywheel, was in full force in Q3, as we leveraged our capital-like model, scale, and leading market positions, to strengthen our enterprise through our internal elevator initiatives, especially our technology roadmap. During the quarter, we continued to make progress delivering our core janitorial and engineering services through advanced use of data and analytics, such as our workforce productivity optimization tool, or WPO, as we call it.

Speaker Change: You know, that's been widely publicized, you could read about that. So that's playing through for us.

Speaker Change: and also availability of labor is getting much better for us as well in terms of getting people on board quicker.

Speaker Change: and so that's been another great tell when then lastly our workforce productivity optimization tools been really great and what that really does is it lets one of our project managers who's and I'll give you like kind of anecdotal project managers managing a 500,000 square foot building and he's looking at his labor and

Scott Salmirs: So, simply said WPO, which is being piloted at multiple sites, is an analytics tool set that allows operators to easily identify opportunities for productivity improvements. It benchmarks productivity based on facility profiles to ensure we're operating as efficiently as we should, based on the facility archetype. We've already begun to see benefits of this technology in terms of improved efficiency and client outcomes and look forward to more broadly implementing these new tools over the next couple of years.

Scott Salmirs: And now that project manager can compare it to another 500,000 square foot building, either in their market or in a different market. And it helps give them kind of a true north about how efficient they are. And it could be as simple as making a course correction or actually just getting on the phone with the other project manager, and I ask them what they're doing. So it's just starting up now.

Speaker Change: and the productivity of the labor, and now that project manager can compare it to another 500,000 square foot building, either in their market or in a different market, and it helps give them kind of a true north about how efficient they are, and it could be as simple as making a course correction, or actually just getting on the phone with the other project manager and I ask them what they're doing. So, it's just starting up now, I'd say, I think the good news from my standpoint is we're at early early stages in the rollout, so there's a lot more white space to go. So, I think it's those dynamics, FISA.

Scott Salmirs: I'd say I think the good news from my standpoint is we're at early, early stages in the rollout. So there's a lot more white space to go. So I think it's those dynamics, FISA.

Scott Salmirs: We've also acquired quality of time services, which expands our position in the fast growing data center vertical by adding new capabilities in uninterrupted power supply systems and battery maintenance. We were able to complement these growth and self-help initiatives with additional capital returns to our shareholders via our long-standing dividend.

Scott Salmirs: Great, that's very helpful. And then on the ATS business, I think you're, if I'm not wrong, I think you're alluding to maybe revenue being a bit lumpy. From here, first to talk a bit more about how you're thinking about that business. I know previously you've mentioned sort of what the backlog might be. Was there something in the quarter that kind of came in earlier, and it's just a bit more color on how we should expect the top line trends from here? Sure. I think we're all kind of getting used to ATS being so much project driven now with our microgrid business, and there's so much that we can predict, but also the things that we can predict, right?

Speaker Change: [inaudible]

Speaker Change: Grace, that's very helpful. And then on the ATS business, I think you're, if I'm not wrong, I think you're alluding to, you know, maybe revenue being a bit lumpy.

Speaker Change: From here, we talk a bit more about how you're thinking about that business. I know previously you've mentioned what the backlog might be. Was there something in the quarter that was, you know, that kind of came in earlier and, you know, just a bit more color on how we should expect?

Scott Salmirs: Continual investments to build and strengthen our core, strategic investments in complementary services and markets that offer secondally high growth rates and steady returns of capital to our shareholders via our long-standing dividend are the key initiatives in our go-forward plan, our diversification, scalability, and the essential nature of the services we provide all underpin the consistency and resiliency of our results with innocence fuels our strong cash flow.

Speaker Change: the top line trends from here.

Speaker Change: Sure, I think we're all kind of getting used to ATS being so much project driven now with our micro-good business and there's...

Scott Salmirs: Because think of it as construction projects and a lot of it outdoors. So, depending on the weather, we may get a delay, depending on a community issuing a permit at a given meeting that we're projecting them to issue the permit on, and that meeting gets delayed by a month. So there are things that are out of our control, but when we talk about our backlog being strong, that's book business, and it's really just a question of timing. So for us, we get, we get really comforted by a backlog that's strong, and Ravenvolt's backlog has never been stronger.

Speaker Change: So much that we can predict, but also things that we can predict, right?

Scott Salmirs: Now let me quickly run through what we're seeing in our markets before we turn it over to Earl for the financials. Our B&I segment has remained quite resilient, 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. We've also done a nice job diversifying geographically and we continue to renew business throughout the U.S, such as the janitorial business of the MetLife building, a large marquee property here in New York.

Speaker Change: Think of it as construction projects and a lot of it outdoors.

Speaker Change: So, depending on the weather.

Speaker Change: We may get a delay, depending on a community issuing a permit at a given meeting that we're projecting them.

Speaker Change: to issue the permit on, and that meeting gets delayed by a month. So there are things that are out of control, but...

Speaker Change: When we talk about our backlog being strong, that's book business, and it's really just a question of timing. So for us, we get really comforted by a backlog that's strong and raven volts.

Scott Salmirs: Because it's money in the bank, it's just a question of when we're cashing the check, you know, to use the analogy. So it's something we're getting used to, but we have good line of sight, you know, kind of month to month. But sometimes it just drops into a different quarter. But we feel really good about Q4 now, at least the line of sight that we have.

Speaker Change: Backwall, it's never been stronger, and because it's money in the bank, it's just a question of when we're catching the check, you know, to use the analogy. So it's something we're getting used to, but we have good align the site, you know, kind of month to month, but sometimes it just drops into a different quarter. But we feel really good about Q4 now, at least the align the site that we have.

Scott Salmirs: Although we're not ready to say commercial real estate market is rebounding, things seem to be firming up and pressure to return to offices is definitely on the rise. This was highlighted by a recent survey conducted by CBRE whereby 38% of the 225 corporate real estate executives pulled that they planned to expand their office space in the next three years. This is up from 20% in last year's poll. Also, 37% of those surveys anticipate downsizing versus 53% in the prior year.

Faiza Alwy: Thank you so much. Thank you.

Speaker Change: Excellent, thank you so much.

Jasper Bibb: Our next question comes from the line of Jasper Bibb. With three quarters in, seem to be running at the high end of that range.

Speaker Change: Thank you. Our next question comes from the line of Jasper Bip, which was the truth. Please proceed with your question.

Jasper Bip: Thank you very much. I want to ask about the B&I segment. I just can't eat you. On segment run your expectations from the fourth quarter. I think the prior view you had was a low single digit declines for the year, three quarters, and it's going to be running at the high end of that range.

Scott Salmirs: We will also closely monitor this dynamic situation and talking with our clients about their plans. We believe we need another quarter or two to get a clearer picture of the timing and spoke with the potential recovery but we're optimistic. Our manufacturing and distribution markets continue to be healthy driven by a generally strong industrial economy, secular growth in the U.S, semiconductor and data center markets, and the general trends towards ensuring manufacturing in the U.S. We've continued to win new business in these markets and have invested in important resources to further leverage these trends.

Scott Salmirs: So, any change there on where you think that business is going to end up in fiscal 24? Yeah, look, I think we're, I love the way we're performing in B&I, right? It just shows the resilience, you know, being down 1% year over year in this segment, when every headline is talking about commercial real estate. We're really proud of it, and it looks like the trends are starting to turn up, as I talked about in my opening remarks. So we're not ready to call it as being over and that we're going to start rebounding to positive growth yet.

Speaker Change: and any change there on where you think that doesn't seem to land up at just 24.

Speaker Change: Look, I think I love the way we're performing in B&I, right? It just shows the resilience, you know, being down 1% you know, year over year in this segment when every headline.

Speaker Change: is talking about commercial real estate, we're really proud of and it looks like the trends are starting.

Scott Salmirs: These robust markets and our growth initiatives addressing them have helped to partially mitigate the previously discussed rebalancing of work from a large client. I'm also proud of the team as we have proactively let some other business go where we were not receiving appropriate value for the services we were providing. I have confidence that our M&D segment will quickly return to mid-single digit organic growth once the rebalancing annualizes if not before. Aviation is having an amazing year and the markets remain very healthy.

Speaker Change: to turn up it as I talked about in my opening remarks, so we're not ready to call it.

Scott Salmirs: I think it will have a better line of sight to that probably in the middle of next year to be safe. I think you're as, as more and more tenants have their leases start coming due and decide how much space they're, they're taking or how much they're ramping down. But we feel really good about the segment and you know, we're as proud of this as anything we've done in the last few years because if someone would have told us, you know, in two or three years from now, there's going to be a massive reset in commercial real estate, but your revenues are only going to be down 1%, it would be hard to believe, right?

Speaker Change: as being over, and that we're going to start rebounding to positive growth yet. I think we'll have a better line of sight to that probably in the middle of next year to be safe.

Speaker Change: I think you know as more and more tenants have their leases start coming due and decide how much space.

Speaker Change: They're taking or how much they're ramping down, but we feel really good about the segment and you know, we're as proud of this as anything we've done.

Scott Salmirs: We've emerged as a clear leader in the aviation facilities management space driven by the industry's best team and by our technology leadership, including our award-winning ABM Clean Product Line. I'm thrilled our aviation segment has grown to be a billion-dollar business but I'm even more encouraged by the marginal improvements we've made over the last few years. It's a clear indication of the value we provide and our strategy around client segmentation. Although we aren't expecting to continue to deliver double digit growth quarter after quarter as the sector normalizes, I have no doubt aviation will remain strong going forward.

Speaker Change: in the last few years, because if someone would have told us, you know, in two or three years from now, there is going to be a massive reset day in commercial real estate, but your revenues are only going to be down 1%.

Scott Salmirs: So again, I think this is all normalized right now, and we're just going to ride through the next few months, and hopefully we stay exactly in this zone, but we're optimistic.

Speaker Change: It would be hard to believe, right? So again, I think this is all normalized right now and we've just been right through the next few months and hopefully we stay exactly in this zone, but we're optimistic.

Unknown Executive: Thanks for my time.

Scott Salmirs: I mean, you mentioned some of the moving pieces in the ads response to an earlier question, just kind of hoping to get an update on and maybe isolate 180 million dollar contract there. I guess, how is that ramp up so far? And when do you expect that contract will hit the full. Yeah, I guess 90 million a year run, right, sure. So it's a contract that will run through 26 through the, at least the beginning of 26. And it's on a cadence. I think we said it's over 100%. 180 sites. So just think about kind of an even ramp from now until maybe Q one of 26 and not to move a little bit, but it's baked into our numbers and how we're thinking about certainly the finish of this year.

Speaker Change: Thanks for my time and you mentioned some of the moving pieces in the T.S. and we're sponsored earlier question, just kind of hoping to get it updated on and maybe isolate a hundred eighty million dollar contract there. I guess how is that rampant so far and when you expect that contract will hit the full, I guess 90 million a year run right.

Scott Salmirs: Education remains solid, although it's not our fastest growing segment, it is typically very stable and provides the foundation of earnings and cash flow that can be utilized across the ABM. We also believe there's an opportunity to grow in education, especially with larger school districts, colleges and universities, which can greatly benefit from our ABM performance solutions offering known as APS. As a reminder, APS is our single-source operating model which delivers integrated end-to-end facility services, generating cost and operating efficiencies through one contract, one invoice, and one source of accountability.

Scott Salmirs: Like we've done with Providence School District, Utica University and others, we remain focused on bringing new APS clients aboard. Lastly, regarding technical solutions, our microgrid business is thriving driven by a large contract one last year, and while our Ravenvolt team progresses on that contract, we continue pursuing numerous other opportunities with several other prospects seeking traditional microgrids, as well as for battery energy storage systems. We expect the need for energy resiliency and redundancy will only grow over time.

Speaker Change: Sure, so it's a contract that'll run through 26 through the least of the beginning of 26 and it's on a cadence, I think we set it over 180 sites.

Speaker Change: So just think about kind of an even ramp from now until maybe Q1 of 26 and that can move a little bit But it's baked into our numbers and how we're thinking about certainly the finish of this year and as we start, or actually conclude our budgeting process.

Scott Salmirs: And as we start our, you know, we're actually concluding our budgeting process for next year. Thanks.

Speaker Change: for next year.

Speaker Change: I'd like to have a...

Paul Goldberg: Thank you. Our next question comes from one of the Josh Chan with UBS. Please proceed with your question. Hi, good morning, Scott and Eric. Congrats and a good quarter. Thank you. Hi, yes. So you mentioned data center several times in your prepare remarks. Is there a way that you can triangulate for us? What's your data center exposure? I know it might go in a couple of different segments, but that's some way to triangulate that would be helpful. Paul, thank you. Sure, it really runs across two of our segments. It runs across ATS and M&D, and M&D is more handling, clients that have big data centers within their facilities, whereas ATS is more project-driven where we're supporting mission-critical sites either through our electrical work or mechanical work, or actually through microgrids.

Speaker Change: Thanks.

Speaker Change: Thank you, our next question comes from the one of Josh Chan, with UBS, please proceed with your question.

Josh Chan: Hi, good morning, Scott and Earl, congrats on the good quarter. Thank you.

Josh Chan: Hi, yes, so you mentioned data center several times in your prepare remarks. Is there a way that you can triangulate for us? What's your data center exposure? I know it might go in a couple of different segments, but some way that triangulate that would be helpful.

Speaker Change: Sure, it really runs across two of our segments. It runs across ATS and M&D.

Scott Salmirs: Similarly, we know the proliferation of AI will drive significant growth in data center and mission-critical infrastructure, and we have a growing position in this market. While our bundled energy solution business is still soft, we believe the anticipated reduction in interest rates laid this year and beyond that will improve projected ROI's and hopefully restart the market. In all, we feel good about our markets, so there are still challenges to overcome both macro and specific to our industry. We had a great third quarter and have confidence we will finish the year well.

Speaker Change: and M&D is more handling clients that have big data centers within their facilities where ATS is more project driven, where we're supporting mission critical sites either through our electrical work or mechanical work or actually through microgrids.

Scott Salmirs: It runs through both, but to put it in context, the mission-critical business right now is nascent for us. We're called it sub-250 million dollars in revenue on our 8 plus billion, but we're so excited. You saw us leaning in with the acquisition of Quality of Time Services that does UPS power, which is uninterrupted power, which every data center needs in terms of backup power, and the team there designs and installs UPS. It's exactly where you want to be in the new AI data center generation, so really excited about how that's going to grow as well, but it is good to kind of put the revenue number and context to the enterprise.

Speaker Change: So it runs through both, but I mean to put it in context, right, the mission critical.

Speaker Change: Business right now is nascent for us. We're you know, call it sub $250 million in revenue on our a plus billion. But I mean we're so excited. You saw us leaning in with the acquisition of quality of time services that does.

Scott Salmirs: As such, we are raising our full-year guidance for adjusted EPS, and now it's expected to be in the range of $3.48 to $3.55 versus our prior range of $3.40 to $3.50, with us.

Speaker Change: UPS power, which is uninterrupted power, which every data center needs.

Speaker Change: in terms of backup power and...

Speaker Change: The team there designs and installs UPS. It's exactly where you want to be in the new AI data center generation. It's really excited about how that's going to grow as well, but it is good to put the revenue number and context to the enterprise.

Earl Ellis: Let me turn it over to Earl to walk you through the details and I'll be back shortly with some final comments. Good morning, everyone. As Scott mentioned, we are quite pleased with our third quarter results, which are a representation of the trends we've experienced over the last three quarter. Namely, steady organic growth on an enterprise level, strong execution and solid cash generation.

Scott Salmirs: Great, thank you for that color.

Scott Salmirs: And then maybe specifically on M&D, I guess I was on the impression that margins might be pressure by the rebalancing, but it turned out to have a very strong margin quarter, so I guess what's the source of that strength, and as the rebalancing potentially ramps in the coming quarters, could margins sustain at current levels or will that be some pressure? There'll be a little bit of compression. Next quarter is the quarter that will have the full effect of the rebalancing. But interestingly, we're not looking at it as vat dramatic internally, because first of all, that client is still one of our biggest clients, and we're already starting to grow with them again, believe it or not, after the rebalancing, because we like to believe we're best in class, so that's a good tell for us.

Speaker Change: Thank you for that color, and then maybe specifically on M&D.

Speaker Change: I guess I was on the impression that margins might be pressured by the rebalancing but you turned out to have a very strong margin quarter, so I guess what's the source of that strength and the rebalancing potentially ramps in the coming quarters.

Earl Ellis: I'd like to take the moment to recognize our team for the great work they've done this year. For those of you following along with our earnings presentation, please turn to slide five. Third quarter revenue of $2.1 billion increased 3.3% comprised of 2.8% organic growth and the balance driven by our recent acquisition. Organic revenue growth was led by technical solutions and aviation, which both grew double digits, while education posted mid single digit growth.

Speaker Change: Could margins sustain at current levels or will there be some pressure.

Speaker Change: There will be a little bit of compression. You know, next quarter is the quarter that will have the full effect of the rebound.

Speaker Change: But we're, you know, interestingly, we're not looking at it as dramatic internally because...

Earl Ellis: Our B&I segment remained resilient, declining by only $1 million per cent, benefiting from our diverse client and service base. Lastly, as expected, manufacturing and distributions revenue declined 1%, as the rebalancing impact we have previously discussed began to materialize. Moving on to slide six, third quarter net income of $4.7 million or $0.7 for diluted share was down year to year. This decrease was primarily attributable to a $73.2 million year-over-year impact from prior year and current year adjustments to contingent consideration related to the Ravenville acquisition, as well as the absence this year of a $22.4 million employee retention credit that was recognized in last year's third quarter.

Speaker Change: The first of all, that client is still one of our biggest clients, and we're already starting to grow with them. Again, believe it or not, after the rebalancing, because we like to believe we're best in class, so that's a good tell and for us. And then the rest of the business is doing so well.

Scott Salmirs: And then the rest of the business is doing so well. You guys know about the trends with manufacturing and onshoring, and we're squarely in the middle of that. We are really deep into the semiconductor market. I mean, literally we're in Korea meeting with companies that are moving over here. So the M&D segment is going to be so powerful for us over the next few years, and this rebalancing is, for us, we're thinking this is such a small bump in the road. And again, we love the fact that we're picking up some sites, so it's good stuff.

Speaker Change: You guys know about the trends with manufacturing and on-shoring, and we're squarely in the middle of that, we are really deep into the semi-conductor market. I mean, literally, we're in Korea meeting with companies that are moving over here. So, the M&D segment is going to be so powerful for us.

Speaker Change: over the next few years and this rebalancing is such it for us we're thinking this is such a small bump in the road and again we love the fact that we're picking up some sights so it's good stuff.

Earl Ellis: We also recorded unfavorable prior year insurance adjustments and higher corporate investment as planned. These items were partially offset by improved segment operating results and lower elevate costs. Earnings for share further benefited from a lower share count. Of note, the contingent consideration adjustment relates to Ravenville significantly improved 2024 performance, as Scott mentioned, and the increased likelihood of a payout under their acquisition earnup plan. Adjusted net income of $59.5 million and adjusted earnings for diluted share of 94 cents increased 13% and 19% respectively over the prior year period.

Scott Salmirs: Great. Thank you for your time, and congrats on the good quarter. Thank you.

Speaker Change: Great, thank you for your time and congrats on the quarter. Thank you.

David Silver: Our next question comes from the line of David Silver with CL King and Associates. Please proceed with your question. Yeah, hi. Thank you. First question would be about the contingent consideration adjustment for Ravenville. So I was wondering if you could put the $37 million adjustment this quarter into context. In other words, is that kind of a market to market to get you caught up to where Ravenville's year-to-day performances is that an estimate for the full, I believe it's a calendar year calculation? Or is this something that extends beyond this year, in other words? Is it a judgment about not just the next few months or the current?

Speaker Change: Thank you. Our next question comes from the line of David Silver with CL King and Associates. Please proceed with your question.

David Silver: Yeah, hi, thank you.

David Silver: First question would be about the contingent consideration adjustment for Ravenville. So I was wondering if you could put the $37 million adjustment this quarter into context.

Speaker Change: In other words, is that kind of a mark to mark it to get you caught up to where...

Earl Ellis: These increases were largely driven by improved segment operating results, especially in aviation and technical solutions, partially offset by higher year-over-year corporate costs. Adjusted EPS also benefited from a lower share count driven by share repurchases last year. Adjusted EBITDA increased 2% to $128.1 million and adjusted EBITDA margin of 6.4% was consistent with last year.

Speaker Change: Ravenvoltz, year-to-day performances is that an estimate.

Speaker Change: for the full, I believe it's a calendar year, calculation, or is this something that extends beyond this year, in other words, you know, is it a judgment about, you know, not just the next few months or the current.

Earl Ellis: Year for the incentive, calculations and whatnot, but something beyond that. So just what is captured in the $37 million adjustment this quarter? Thank you.

Speaker Change: Year for the incentive calculations and whatnot, but something beyond that. Just what is captured in the $37 million adjustment this quarter? Thank you.

Earl Ellis: Now turning to our segment results beginning on slide 7. B&I revenue of $1 billion declined 1%. We continue to benefit from our end market diversification, including our geographic footprint, our exposure to the sport and entertainment and healthcare markets, and from our mix of higher performing class A properties. This purposeful positioning has aided us in avoiding a more significant impact, resulting from the soft commercial real estate. Market. Operating profit in B&I declined 1% to $77.8 million while operating margin remained flat at 7.7%.

David Silver: Yeah, no, thanks for the question, David. So we look at this every quarter to assess kind of where, you know, Ravenvolt forecast is over the three-year period. And so, if you think about it, this was an erno to our three year periods. We actually have two years. It's on a calendar year basis. So we have 24 and 25. And so when we look at their projections over that period, we exactly, to your point, we actually do a mark to market. And so this is looking at the full extent over that next two-year period as opposed to just this year.

Speaker Change: Now, thanks for the question, David

Speaker Change: So, we look at this every quarter to assess kind of where, you know, Ravenvolt's forecast is over the three-year period. And so, if you think about it, this was a, I earn over our three-year period, so we actually have two years on a calendar-year basis. So, we have 24 and 25. And so, when we look at their projections over that period, we exactly to your point. We actually do a mark to mark it. And so, this is looking at the full extent over that next two-year period as opposed to just this year. So, you know, good news is that, you know, versus, you know, where they're training last year, where they actually had a slow start.

Earl Ellis: So, you know, good news is that, you know, versus, you know, where they're trending last year, where they actually had a slow start. You know, the business is definitely picked up with, you know, incremental business and new clients. So we feel very good where Ravenvolt is positioned. And really happy to actually have this erno.

Earl Ellis: Margin benefited from our continued focus on price realization and cost management. Aviation revenue grew 13% to $268.4 million, driven by healthy travel markets and new business wins from both the airport and airline sides of the business. As Scott mentioned, aviation is well on track to be a billion dollars segment for ABM this year in large measured due to our advanced ABM clean service line. Aviation's operating profit was $17.8 million, up 52% and margin was 6.6%, an increase of 170 basis points. Operating leverage on higher volume and favorable service mix were significant contributors to the increase in margin.

Speaker Change: You know, the business is definitely picked up with incremental business in new clients. So we feel very good where Raven Gold is positioned and really happy to actually have this run up.

David Silver: Okay, great. Thank you for that.

David Silver: This next question, I guess, would be a little bit new business and then old business kind of question. But first, there's just wondering if you could update us on your year-to-date new business success. I think you said for the first six months of this fiscal year, you were at a billion dollars. Just wondering, you know, where do you think you might end up the year at, or where were you at the end of the third quarter. And then more to the point, you know, Scott, I heard you say something, I believe for the first time this year, this time, you know, versus the few years that I've been covering you.

Speaker Change: Okay, great. Thank you for that. This next question, I guess, would be a little bit...

Speaker Change: New Business and then Old Business kind of question, but first there's just wondering if you could update us on your year-to-date new business.

Speaker Change: Success, I think you said for the first six months of this fiscal year you were at a billion dollars. Just wondering, you know, where do you think you might end up the year at or where were you at at the end of the third quarter. And then more to the point, you know, Scott, I heard you say something.

Earl Ellis: Turning to slide 8, manufacturing and distribution revenue declined 1% to $377.1 million. Primarily due to the expected rebalancing of work by a large e-commerce customer, which we discussed on prior calls, partially offset by growth with other clients. We continue to work hard to offset the rebalancing through the addition of new business and we believe we have a clear path to positive growth in the second half of 2025. However, the impact of this rebalancing will continue for the next few quarters. Operating profit increased 8% to $40.9 million and operating margin increased 90 basis points to 10.9%. Profit and margin improvement was largely due to a favorable customer mix including some client rationalization for underperforming contracts.

Speaker Change: I believe for the first time this year, this time, you know, versus, you know...

Scott Salmirs: But you talked about, you know, what would the word be, firing some customers or walking away from some business. So when I first started listening to your conference calls, you know, you used to tell, you're very high retention rates pretty regularly. And, you know, your comments this period about, you know, opting to walk away from some business due to returns and whatnot. I mean, I think that's a change in your philosophy, at some extent. So I was just wondering if you could kind of, you know, talk about, you know, maybe the evolution or the shift in how you're thinking about, you know, retaining new business versus identifying and targeting, sorry, targeting new business versus opting to not serve us, you know, some of your current portfolio.

Speaker Change: the few years that I've been covering you, but you talked about, you know, what would the word be?

Speaker Change: Firing some customers are walking away from some business. So, when I first started listening to your conference calls, you know, used to tell.

Speaker Change: You're very high retention rates pretty regularly and you're your comments this period about opting to walk away from some business to the returns and whatnot. I mean I think that's...

Speaker Change: a change in your philosophy at some extent. So I was just wondering if you could kind of talk about

Earl Ellis: Education revenue increased 4% to $228.3 million, benefiting from the increased activity on a number of cost plus accounts. We also continue to win new business in the quarter with the addition of Auburn University, which will be onboarded early next fiscal year. Education operating profit was seasonally strong at $18 million, up 13%, and margin was 7.9%, an increase of 60 basis points. This was largely attributable to improved labor efficiency.

Speaker Change: You know, maybe the evolution or the shift in how you're thinking about, you know, retaining new business versus identifying and targeting, sorry.

Speaker Change: Targeting new business versus opting to not serve us some of your current portfolio. Sure, sure. So, you know, we're not going to update at this moment our ourselves, but we did hit a record as you know, the last quarter, we do the midpoint in the year end, but we are tracking to have another record year. I'll just leave it at that. We're doing really well on the new business.

Scott Salmirs: Sure, sure. So, you know, we're not going to update at this moment or ourselves, but we did hit a record. As you noted last quarter, we do the midpoint in the ERN, but we are tracking to have another record year. I'll just leave it a fact. We're doing really well on the new business, new business front. And the firing customers, you know, it's not really quite that dramatic as firing a customer, but what will happen is we'll, we have thresholds of profitability that we have to meet. And we've been really resolved about that. And, you know, sometimes that happens on a larger scale than on a micro scale because it does happen all the time.

Earl Ellis: Technical solutions revenue grew 25% in total to $209.7 million, including 20% organic growth, and 5% from the acquisition of quality uptime services. Organic growth was driven by a strong microgrid project activity. Fundal energy solutions and ED project activity remained soft. However, we expect a strong finish to the year in technical solutions driven by constructive macro trends in energy resilience team and data centers, and further progress on the microgrid projects we have already booked. Technical solutions operating profit grew 56% to $17.9 million and margin expanded 170 basis points to 8.5%. These improvements were a result of significantly higher volume and lower acquisition related amortization.

Speaker Change: New Business Front. And the fire and customers, you know, it's not really quite that dramatic as firing a customer, but what will happen is we have thresholds of profitability that we have to meet and we've been really resolved about that.

Speaker Change: Sometimes that happens on a larger scale than on a micro scale, because it does happen all the time. We take a lot of pride David in what we're doing here, and it's not weird.

Scott Salmirs: We take a lot, right, David, in what we're doing here. And if we're, if we're not getting the value that we thought, you know, we just, we will walk away. And I think that says a lot about what we're doing and the value that we're adding. So, every now and then, we'd just like to point that out to make sure you guys all know that we do not see ourselves as a commodity business.

David Silver: Thank you, Melissa. If we're not getting the value that we thought, um...

David Silver: We just, we will walk away and I think that says a lot about what we're doing and the value that we're adding. So every now and then we just like to point that out to make sure you guys will all know that we do not see ourselves as a commodity business.

Earl Ellis: Moving on to slide 9, we ended the third 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 EBIT ratio of 2.5 times. At the end of Q3, we had available liquidity of $513.9 million, including cash and cash equivalence of $86.3 million. Free cash flow in the third quarter was $64 million, with third quarter comparables being impacted by the timing of the counts payable, and the non-repeat of a $22 million employee retention credit received last year.

Unknown Executive: Thank you.

Tate Sullivan: Our next question comes from the line of Tate Sullivan with Maxing Group. Please pursue for your question. All right. Thank you.

Speaker Change #100: Thank you. Our next question comes from the line of Tate Sullivan with Max and Group. Please proceed with your question.

Scott Salmirs: Scott, it's great to hear the progress and optimism about your microgrid business. Can you roughly quantify is it mostly projects with existing clients or is it largely cross selling efforts? It's mostly new clients, which is super exciting, but it's a strong mix. It's great because we bought this business, and with that came a portfolio of clients, and we got established. Now we're starting to cross-sell; we're starting to have conversations, and interestingly, it's popping up in more and more bids for other things where we're seeing EV and microgrid combined together. So there's a lot of good stuff happening around the microgrid business, but to your point, it's a mix. And when we look at the future and the ability to sell into our $8 billion customer base, it gets us really, really excited.

Tate Sullivan: Hi, thank you. Scott's great to hear the progress and optimism about your microgrid business. Can you roughly quantify is it mostly projects with existing clients or not? Is it a grudge? Is it a grudge?

Speaker Change #102: It's mostly new clients, which is super exciting, but it's a strong mix, you know, it's great because, you know, we bought this business and with that came a portfolio of clients.

Earl Ellis: Throughout the nine months of 2024, we have generated $152 million in free cash flow this year, or $187 million after normalizing for in-year elevate and integration costs. This is up $16 million, or 9% over the last year's normalized free cash flow of $170 million, which is adjusted for the receipt of the employee retention credit, repayment of the CARES Act, and in-year elevate and integration costs. Cash flow generation continues to be a hallmark of ABM, and is a product of our asset life and flexible business model, complemented by our consistent focus on working capital management.

Speaker Change #103: and we got established and now we're starting to cross out, we're starting to have conversations and interestingly it's popping up in more and more bids for other things where we're seeing easy and micro grids combined together. So there's a lot of good stuff happening around the micro grid business but you know to your point it's it's it's a mix and when we look at the future and the ability to sell into our 8 billion dollar customer base it gets us really really excited.

Scott Salmirs: But again, it's a new business for us, and we're really putting points on the board now, and we have a really strong backlog.

Speaker Change #103: But again, it's a new business for us and we're really putting points on the board now and we have a really strong backlog.

Scott Salmirs: So understand opportunity, but can it lead to some electrical subcontracting work for you for the rest of the building, or have it in some cases? Well, we do that already. We have an electrical division in our ATS group. That's a separate segment for us, and we're doing some contracted work all the time. Now that we added quality uptime services, it's just another tool in the toolbox to say, you know, not only can we test your infrastructure and do mission-critical work there, but we could actually design and install UPS systems. We could do retrofits. We could do under floor cleaning in a data center.

Earl Ellis: Interest expense was $21.2 million, slightly higher than prior year. Regarding third quarter capital allocation, we made one acquisition for $118 million. We also paid dividends of $14.1 million. We did not repurchase any stock in the quarter, and the remaining authorization under our share repurchase program is $186 million.

Speaker Change #104: to understand the opportunity that it can lead to some electrical subcontracting work for you for the rest of the building or has it in some cases.

Speaker Change #105: Well, we do that already. We have an electrical division.

Speaker Change #105: in our ATS group.

Speaker Change #105: and that's a separate segment for us and we're doing some contracted work all the time and now that we added quality up time services, it's just another tool and the toolbox to say, you know, not only can we test your infrastructure and do mission critical work there, but we could actually design and install with UPS systems, we could do retrofits, we could do underfloor cleaning in the data center, we're really becoming a turnkey data center.

Earl 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 third quarter results, and our confidence in a solid finish to the year. As such, we now expect full-year 2024 adjusted EPS to be in the range of $3.48 to $3.55, up from $3.40 to $3.50 previously, representing a $7.00 increase of the midpoint.

Scott Salmirs: We're really becoming a turnkey data center operator, which has been phenomenal. Thank you. Sure. Thank you.

Speaker Change #106: Operator, which has been phenomenal.

Speaker Change #107: Thank you.

Unknown Executive: Our final question comes from the line. I'll find out with the HBAME. Please proceed with your question.

Speaker Change #107: Sure.

Speaker Change #108: Thank you. Our final question comes from the mine of Fythe Alley with Deutsche Bank. Please proceed with your question.

Earl Ellis: Adjusted EBIT emergent, it's expected to be around 6.3% for the full year. Our interest to expense forecast is unchanged at $82 to $86 million, and the normalized tax rate before discrete items is expected to be between 29 to 30%. Lastly, full-year normalized pre-cash flow is likely to be near the top end of our $240 million to $270 million range. If not, a little higher.

Scott Salmirs: Hi, thank you. I just had a follow-up. I wanted to talk about capital allocation, and I know you acquired a company in back in June. So curious around, you know, how you're thinking about, you know, M&A versus, you know, cash return to shareholders. What did you like about that business, and should we expect more M&A from here? Yeah, I mean, I can start off by just, you know, M&A continues to be part of our gross strategy. And, you know, that was signified with the latest acquisition that you just mentioned of Quality Uptime. You know, so we will continue to, you know, be balanced with our capital allocation between, you know, accretive M&A opportunities, as well as share buyback.

Speaker Change #109: I thank you. I just had a follow up. I wanted to talk about capital allocation and I know you acquired a company in back in June. So curious about how you're thinking about M&A versus cash return to shareholders.

Speaker Change #110: What did you like about that business and should we expect more emanate from here?

Earl Ellis: This forecast excludes the estimated $45 million of elevate and integration costs.

Speaker Change #111: Yeah, I mean, I can start off by saying, you know, M&A continues to be part of our gross strategy, and you know, that was signified with the latest acquisition that you just mentioned of quality up time.

Scott Salmirs: With that, let me turn it back to Scott for closing comments. Thanks, Earl.

Scott Salmirs: While we're very pleased with our performance in fiscal 2024, we know ABM can be even more supported by a resilient, flexible, and cash-generated business model, our investment in technology, new capabilities, and, most importantly, our people, we are positioned for sustained success. We're expanding our core through cross-selling, advanced analytics, and innovative go-to-market strategies with additional opportunity on the horizon. These initiatives are being complemented with investments in new capabilities like micro-grids and mission-critical services, which we believe will drive higher growth rates, expand margin over time, and further set us apart from the competition.

Speaker Change #111: We will continue to be balanced with our application between a creative M&A opportunities as well as share-by-back. Obviously, we did a significant amount of share-by-back last year, where we probably reduced our share count by 5%, as we actually saw some price dislocations, so we took advantage of that, but based on where we are right now, we are really happy not only with our current levers, but also our.

Earl Ellis: Obviously, you know, we did a, you know, significant amount of share buyback last year, where we probably reduced our share count by 5%. You know, as we actually saw some, you know, price dislocation, so we took advantage of that.

Earl Ellis: But, you know, based on where we are right now, we are really happy, not only with our current levers, but also our. All right.

Unknown Executive: Great. Thank you. Thanks, Faiza. Thank you.

Speaker Change #111: Capital Education.

Speaker Change #111: All right, great, thank you. Thanks, Faisal.

Unknown Executive: Ladies and gentlemen, that concludes our question-and-answer session.

Scott Salmirs: I'll turn the floor back to Mr. Salmirs for any final comments. I just wanted to thank everybody for listening and participating in the call today. We're excited about our results and optimistic about the future, and hope everybody had a really good summer and is excited about the fall. We'll be back to you with Q4 soon. Thanks, everybody. Thank you.

Speaker Change #112: Thank you, ladies and gentlemen, that concludes our question and answer session. I'll turn the full back to Mr. Salmirs for any final comments.

Scott Salmirs: Thanks again for joining our call today and with that let's take some questions. Thank you.

Mr. Salmirs: I just wanted to thank everybody for listening and participating in the call today. We're excited about our results and optimistic about the future and hope everybody had a really good summer and excited about the fall and we'll be back to you with Q4 soon. Thanks everybody.

Unknown Executive: 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 lion 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 for you to pick up your handset before pressing the star keys.

Unknown Executive: In order to allow first many questions as possible we ask that you reach keep to one question and one follow up. Thank you.

Unknown Executive: This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change #114: Thank you, this concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Timothy Mulrooney: Our first question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question. Scott, Earl good morning. Good morning. So on the guide just real quick it looks like your previous expectation I think was more for EPS to be kind of balanced. Between the third quarter and the fourth quarter. But now based on your guy it looks like you know you expect the third quarter to be maybe 10 cents or so higher than the fourth quarter in EPS.

Scott Salmirs: Is this just a simple case of more revenue being pulled into the third quarter than you were initially expecting or are there other factors that weren't consideration here. Thanks for the question Tim. When we look at the queue 3 quarter we're really pleased with the performance across the portfolio. But in particular our technical solutions business and especially Ravenville really performed. You know why you're not necessarily seeing that flow through to the Q4 to the same extent is really what you're going to see in M&D and as we talked about you know we're actually experiencing that rebalancing of one of our major customers in M&D that started in Q3 but will fully ramp up in Q4 and we'll actually see that impact over the next several quarters. Okay.

Timothy Mulrooney: That's very helpful. Thank you all.

Timothy Mulrooney: My second question is on segment margins. Because you know we're seeing some really nice improvement here across a lot of the segment. I mean aviation was with 6.6 I think in the quarter I think our model was about five and a half. And M&D you know came in at 10.9 I think we were at 10.0 so you know I know the EPSB here you know was was driven by ATS to a large degree but I also want to know the profitability across a lot of these segment margins here.

Scott Salmirs: So my question is are these improvements that I'm seeing here are these sustainable do you think as we move into 2025 or would there something about the third quarter that helped lift profitability here like maybe a working days dynamic or something like that that isn't necessarily expected to carry forward. Now I mean I don't think there was anything unusual I think we're just performing at a high level or our resilience and you know what we've been talking about quarter after quarter is really coming true.

Scott Salmirs: You know we're we're excited about the results as you are and it's really nice to as you point out when when you could see it across the board like this. So there's no watch out ahead for us you know or I'll just talked about you know M&D going to kind of trend down a little bit the year over year but you know you pull that out of M&D and you're going to be back to mid to high single digit growth so we're feeling good across the board.

Timothy Mulrooney: Okay, thank you, Scott, I'll update my expectations on profitability here in the model and get that from a nice quarter. Thank you. Thanks, Tim. Thank you.

Faiza Alwy: Our next question comes from the line, Faiza Alwy, with Rachel Banks. Please proceed with your question. Yes, hi. Good morning. Thank you. So I wanted to follow up on the margin question. I made the same observation as I was looking at numbers this morning, and maybe I know you mentioned sort of labor efficiencies a few times. Maybe talk a bit more about like what's driving that? Are you seeing sort of wageries come down or you know talk about some of the other dynamics that are helping margin across the board, you know, at this point.

Faiza Alwy: Sure, that's great. So yeah, there's a couple of dynamics here. First on the same extent as they were in the last couple of years, right? And you know, that's been widely publicized. You could read about that. So that's playing through for us. And also availability of labor is getting much better for us as well in terms of getting people on board quicker. And so that's been another great tell. And then lastly, our workforce productivity optimization tools have been really great.

Faiza Alwy: And what that really does is it lets one of our project managers, and I'll give you like kind of anecdotal, a project manager is managing a 500,000 square foot building and he's looking at his labor and the productivity of the labor. And now that project manager can compare it to another 500,000 square foot building, either in their market or in a different market. And it helps give them kind of a true north about how efficient they are.

Faiza Alwy: And it could be as simple as making a course correction or actually just getting on the phone with the other project manager and I ask them what they're doing. So it's just starting up now. I'd say I think the good news from from my standpoint is we're at early early stages in the rollout. So there's a lot more white space to go. So I think it's those dynamics, Pfizer. Great, that's very helpful.

Faiza Alwy: And then on the ATS business, I think you're if I'm not wrong, I think you're alluding to, you know, maybe revenue being a bit lumpy. From here to talk a bit more about, you know, how you're thinking about that business. I know previously you've mentioned sort of what the backlog might be. Was there something in the quarter that was, you know, that kind of came in earlier and, you know, just a bit more color on how we should expect the top line trends from here?

Faiza Alwy: Sure. I think we're all kind of getting used to ATS being so much project driven now with our microgrid business. And there's so much that we can predict, but also the things that we can predict, right? Because it, think of it as construction projects and a lot of it outdoors. So depending on the weather, we may get a delay, depending on a community issuing a permit at a given meeting that we're projecting them to issue the permit on and that meeting gets delayed by a month.

Faiza Alwy: So there are things that are out of our control. But, you know, when we talk about our backlog being strong, that's book business, and it's really just a question of timing. So for us, we get, we get really comforted by a backlog that's strong and Ravenvolt's backlogs never been stronger. And because it's money in the bank, it's just a question of when we're cashing the check, you know, to use the analogy.

Faiza Alwy: So it's something we're getting used to, but we have good line of sight, you know, kind of month to month, but sometimes it just drops into a different quarter. But we feel really good about Q4 now, at least the line of sight that we have. Thank you so much. Thank you.

Faiza Alwy: Our next question comes from the line of Jasper Bibb with three quarters in, seem to be running at the high end of that range.

Scott Salmirs: So any change there on where you think that business is going to end up in fiscal 24. Yeah. Look, I think we're, I love the way we're performing in BNI, right? It just shows the resilience, you know, being down 1% year over year in this segment, when every headline is talking about commercial real estate, we're really proud of and it looks like the trends are starting to turn up at as I talked about in my opening remarks.

Scott Salmirs: So we're not ready to call it as being over and that we're going to start rebounding to positive growth yet. I think it will have a better line of sight to that probably in the middle of next year to be safe. I think, you know, as, as more and more tenants have their leases start coming due and decide how much space they're taking or how much they're ramping down, but we feel really good about the segment.

Scott Salmirs: And, you know, we're as proud of this as anything we've done in the last few years because if someone would have told us, you know, in two or three years from now, there's going to be a massive reset and commercial real estate, but your revenues are only going to be down 1% it would be hard to believe, right? So again, I think this is all normalized right now and we're just going to ride through the next few months and hopefully we stay exactly in this zone.

Scott Salmirs: But we're optimistic. Thanks for my hands.

Scott Salmirs: And then you mentioned some of the moving pieces in ATS response to earlier question, just kind of hoping to get an update on them, maybe isolate 180 million dollar contract there. I guess, how is that ramp up so far? And when you expect by contract, we'll hit the full. Yeah, I guess 90 million a year run right sure. So it's a contract that will run through 26 through the at least the beginning of 26.

Scott Salmirs: And it's on a cadence. I think we said it's over 180 sites. So just think about kind of an even ramp from now until maybe Q1 of 26 and that can move a little bit, but it's baked into our numbers and how we're thinking about certainly the finish of this year. And as we start our, you know, we're actually conclude our budgeting process for next year. Thanks.

Josh Chan: Thank you.

Josh Chan: Our next question comes from one of Josh Chan with UBS. Please proceed with your question. Hi, good morning. Scott and Eric Congrats and a good quarter. Thank you. Hi. Yes. So you mentioned data center several times in your prepare remarks. Is there a way that you can triangulate for us? What's your data center exposure? I know it might go in a couple of different segments, but that's some way to triangulate that would be helpful. Paul, thank you.

Scott Salmirs: Sure, it really runs across two of our segments. It runs across ATS and M&D. M&D is more handling, clients that have big data centers within their facilities, whereas ATS is more project-driven where we're supporting mission-critical sites either through our electrical work or mechanical work, or actually through microgrids. So it runs through both. But I mean, to put it in context, right, commission-critical business right now is nascent for us. We're, you know, call it sub-$250 million in revenue on our A-plus billion, but I mean, we're so excited.

Scott Salmirs: You saw us leaning in with the acquisition of quality of time services that does, you know, UPS power, which is uninterrupted power, which every data center needs in terms of backup power, and the team there designs and installs UPS. It's exactly where you want to be and the new AI data center generation. So really excited about how that's going to grow as well, but it is good to kind of put the revenue number and context to the enterprise. Great. Thank you for that, color.

Scott Salmirs: And then maybe specifically on M&D, I guess I was on the impression that margins might be pressure by the rebalancing, but it turned out to have a very strong margin quarter. So I guess what's the source of that strength? And as the rebalancing potentially ramps in the coming quarters, could margins sustain at current levels or will there be some pressure?

Scott Salmirs: There'll be a little bit of compression. You know, next quarter is the quarter that will have the full effect of the rebalancing, but we're, you know, interestingly, we're not looking at it as vatramatic internally because the first of all, that client is still one of our biggest clients and we're already starting to grow with them. Again, believe it or not, after the rebalancing because we like to believe we're best in class.

Scott Salmirs: So that's a good tailwind for us. And then the rest of the business is doing so well. You guys know about the trends with manufacturing and onshoreing and we're squarely in the middle of that. We are really deep into the semiconductor market. I mean, literally we're in Korea meeting with companies that are moving over here. So the M&D segment is going to be so powerful for us over the next few years. And this rebalancing is such for us, we're thinking this is such a small bump in the road. And again, we love the fact that we're picking up some sites. So it's good stuff.

Josh Chan: Great. Thank you for your time and congrats on the good quarter.

David Silver: Thank you.

Earl Ellis: Our next question comes from the line of David Silver with CL King and Associates. Please proceed with your question. Yeah. Hi. Thank you. First question would be about the contingent consideration adjustment for Ravenville. So I was wondering if you could put the $37 million adjustment this quarter into context. In other words, is that kind of a mark to market to get you caught up to where Ravenville's year-to-day performances is that an estimate for the full, I believe it's a calendar year calculation?

Earl Ellis: Or is this something that extends beyond this year? In other words, you know, is it a judgment about, you know, not just the next few months or the current? for the incentive, calculations and whatnot, but something beyond that. So just what is captured in the $37 million adjustment this quarter? Thank you.

Earl Ellis: Yeah, no, thanks for the question, David. So we look at this every quarter to assess kind of where, you know, Ravenvolt forecast is over the three year period. And so if you think about it, this was an erno to our three year periods. We actually have two years. It's on a calendar year basis. So we have 24 and 25. And so when we look at their projections over that period, we exactly to your point, we actually do a mark to market.

Earl Ellis: And so this is looking at the full extent over that next two year period as opposed to just this year. So, you know, good news is that, you know, versus, you know, where they're trending last year, where they actually had a slow start, you know, the business is definitely picked up with, you know, incremental business and new clients. So we feel very good where Ravenvolt is positioned. And really happy to actually have this erno. Okay, great. Thank you for that.

David Silver: This next question, I guess would be a little bit new business and then old business kind of question. But first, there's just wondering if you could update us on your year to date, new business success. I think you said for the first six months of this fiscal year, you were at a billion dollars. Just wondering, you know, where do you think you might end up the year at or where were you at the end of the third quarter.

David Silver: And then more to the point, you know, Scott, I heard you say something. I believe for the first time this year, this time, you know, versus the few years that I've been covering you. But you talked about, you know, what would the word be firing some customers or walking away from some business. So when I first started listening to your conference calls, you know, you used to tell you're very high retention rates pretty regularly. And, you know, your comments this period about, you know, opting to walk away from some business due to returns and whatnot. I mean, I think that's a change in your philosophy to some extent.

Scott Salmirs: So I was just wondering if you could kind of talk about, you know, maybe the evolution or the shift in how you're thinking about, you know, retaining new business versus identifying and targeting, sorry, targeting new business versus opting to not serve us, you know, some of your current portfolios. Sure, sure. So, you know, we're not going to update at this moment are ourselves. But we did hit a record. As you noted last quarter, we do the midpoint in year but we are tracking to have another record year.

Scott Salmirs: I'll just leave it at that. We're doing really well on the new business, the new business front. And the firing customers, you know, it's not really quite that dramatic as firing a customer, but what will happen is we have thresholds of profitability that we have to meet and we've been really resolved about that. And, you know, sometimes that happens on a larger scale than on a micro scale because it does happen all the time.

Scott Salmirs: We take a lot of drive, David, in what we're doing here. And if we're not getting the value that we thought, you know, we just, we will, we will walk away. And I think that says a lot about what we're doing and the value that we're adding.

David Silver: So every now and then, we'd just like to point that out to make sure you guys all know that we do not see ourselves as a commodity business. Thank you.

Tate Sullivan: Our next question comes from the line of Tate Sullivan with Maxing Group. Please pursue for your question. All right, thank you.

Scott Salmirs: Scott, it's great to hear the progress and optimism about your microgrid business. Can you roughly quantify is it mostly projects with existing clients or is it largely cross selling efforts? It's mostly new clients, which is super exciting, but it's a strong mix. It's great because we bought this business and with that came a portfolio of clients and we got established and now we're starting to cross sell, we're starting to have conversations and interestingly it's popping up and more and more bids for other things where we're seeing EV and microgrids combined together.

Scott Salmirs: So there's a lot of good stuff happening around the microgrid business, but to your point, it's a mix and when we look at the future and the ability to sell into our $8 billion customer base, it gets us really, really excited. But again, it's a new business for us and we're really putting points on the board now and we have a really strong backlog.

Scott Salmirs: So understand opportunity, but can it lead to some electrical subcontracting work for you for the rest of the building or have it in some cases? Well, we do that already. We have an electrical division in our ATS group. That's a separate segment for us and we're doing some contracted work all the time and now that we added quality uptime services, it's just another tool in the toolbox to say, you know, not only can we test your infrastructure and do mission critical work there, but we could actually design and install UPS systems, we could do retrofits, we could do under floor cleaning in a data center. We're really becoming a turnkey data center operator, which has been phenomenal. Thank you. Sure.

Unknown Executive: Thank you. Our final question comes from mine. I'll fly the highway with the HB.

Faiza Alwy: Please proceed with your question. Hi, thank you. I just had a follow-up. I wanted to talk about capital allocation and I know you acquired a company in back in June. So curious around, you know, how you're thinking about, you know, M&A versus, you know, cash return to shareholders, what did you like about that business, and should we expect more M&A from here? Yeah, I mean, I can start off by just, you know, M&A continues to be part of our gross strategy and, you know, that was signified with the latest acquisition that you just mentioned of quality up time.

Faiza Alwy: You know, so we will continue to, you know, be balanced with our capital allocation between, you know, a creative M&A opportunities as well as share buyback. Obviously, you know, we did a, you know, significant amount of share buyback last year where we probably reduced our share count by 5%. You know, as we, as we actually saw some, you know, price dislocation, so we took advantage of that, but, you know, based on where we are right now, we are really happy, not only with our current levers, but also our, All right.

Faiza Alwy: Great. Thank you. Thanks, Faiza. Thank you.

Unknown Executive: Ladies and gentlemen, that concludes our question and answer session.

Scott Salmirs: I'll turn the floor back to Mr. Salmirs for any final comments. I just wanted to thank everybody for listening and participating in the call today. We're excited about our results and optimistic about the future and hope everybody had a really good summer and it's excited about the fall and we'll be back to you with Q4 soon. Thanks everybody. Thank you.

Unknown Executive: This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.