Q2 2025 ABM Industries Inc Earnings Call

Greetings.

Greetings and welcome to the ABM Industries second quarter 2025 earnings Conference call.

Operator: Welcome to the ABM Industries second quarter 2025 earnings conference call. This time all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during today's conference, please press star zero from your telephone keypad. Please note, this conference is being recorded.

At this time, all participants are in listen only mode.

Question and answer session will follow the formal presentation.

If anyone should require operator assistance during todays conference. Please press star zero from your telephone keypad.

Please note this conference is being recorded.

Paul Goldberg: At this time, I'll turn the conference over to Paul Goldberg, Senior Vice President, Investor Relations. Paul, you may begin. Good morning, everyone, and welcome to ABM's second quarter 2025 earnings call. My name is Paul Goldberg, and I'm the Senior Vice President of Investor Relations at ABM.

Speaker Change: At this time I'll turn the conference over to Paul Burke Senior Vice President Investor Relations.

Speaker Change: You may begin.

Paul Goldberg: Good morning, everyone and welcome to ABN second quarter 2025 earnings call. My name is Paul Goldberg and I'm, The senior Vice President of Investor Relations at eight P. M.

Paul Goldberg: With me today are Scott Salmirs, our President and Chief Executive Officer, and Earl Ellis, our Executive Vice President and Chief Financial Officer.

Speaker Change: With me today are Scott Sal mirrors, our president and Chief Executive Officer, and Earle Ellis, Our executive Vice President and Chief Financial Officer.

Paul Goldberg: Please note that earlier this morning, we issued our press release announcing our second quarter 2025 financial results and outlook. A copy of 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 a press release announcing our second quarter 2025 financial results and outlook.

Speaker Change: A copy of that release and an accompanying slide presentation can be found on our website a b M Dot com.

Paul Goldberg: After Scott and Earl's prepared remarks, we will host a Q&A session. But before we begin, I would like to remind you that our call and presentation today contain predictions, estimates, and other forward-looking statements. Our use of the words estimate, expect, and similar expressions are intended to identify these statements, and they represent our current judgment of what the future holds. While we believe them to be reasonable, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially. These factors are described in the slide that accompanies our presentation as well as our filings with the SEC.

Scott Heroes: After Scott Heroes prepared remarks, we will host a Q&A session.

Scott Heroes: But before we begin I would like to remind you that our call and presentation today contain predictions estimates and other forward looking statements.

Scott Heroes: 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.

Scott Heroes: While we believe them to be reasonable. These statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially.

Scott Heroes: These factors are described in the slide that accompanies our presentation as well as our filings with the SEC.

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

Scott Heroes: During the course of this call certain non-GAAP financial information will be presented.

Paul Goldberg: 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.

Scott Heroes: A reconciliation of historical non-GAAP numbers to GAAP financial measures is available at the end of the presentation.

Scott Heroes: On the Companys website under the Investor tab.

Scott Salmirs: And with that, I would like now to turn the call over to Scott. Good morning, everyone, and thank you for joining us to review our second quarter results. We achieved several important milestones this quarter. Notably, we returned to organic growth in both B&I and M&D, significantly improved our cash flow compared to the first quarter, and generated 1.1 billion dollars in new bookings during the first half, marking a new record for ABM. Overall, we posted 3.8% organic revenue growth, highlighted by continued recovery in our current commercial office markets, new contract wins, and a diminished impact from prior year client exits in M&D.

Scott: And with that I would like now to turn the call over to Scott.

Scott: Good morning, everyone and thank you for joining us to review our second quarter results.

Scott: We achieved several important milestones this quarter, notably we returned to organic growth in both P&I and M D.

Scott: We recently improved our cash flow compared to the first quarter and generated $1.1 billion in new bookings during the first half marking a new record for ADM.

Scott: Overall, we posted three 8% organic revenue growth highlighted by continued recovery in our core commercial office markets, new contract wins and a diminished impact from prior year client exits in the M N D.

Scott Salmirs: We also saw solid performances in our aviation and education segments. While growth in ATS remains strong, it could have been even higher had we not experienced some temporary project delays and service mix headwinds that impacted profitability. As we've discussed before, this business can be a little lumpy quarter to quarter based on construction timing, but the market is extremely healthy overall, and we expect ATS to deliver a very strong year. In total, ABM delivered $2.1 billion in revenue and adjusted EPS of 86 cents. Looking ahead, despite ongoing macroeconomic uncertainty, we remain confident in our core markets, particularly high-quality office properties, manufacturing and distribution facilities, commercial aviation, as well as energy resiliency and micro-goods.

Scott: We also saw solid performances in our aviation and education segments.

Scott: While growth in Acs remains strong it could've been even higher had we not experienced some temporary project delays and service mix headwinds that impacted profitability.

Scott: We have discussed before this business can be a little lumpy quarter to quarter based on construction timing, but the market is extremely healthy overall, and we expect a T S to deliver a very strong year.

Scott Heroes: Total ABM delivered $2.1 billion in revenue and adjusted EPS of <unk> 86 six.

Scott Heroes: Looking ahead.

Scott Heroes: Despite ongoing macroeconomic uncertainty we remain confident in our core markets, particularly high quality office properties manufacturing and distribution facilities commercial aviation as well as energy resiliency and micro grids.

Scott Salmirs: We expect delayed projects from Q2 to resume in the third quarter and are reaffirming our full year adjusted EPS guidance. As I noted earlier, we're pleased to see B&I return to organic growth in the second quarter. Market indicators for prime commercial office space have been improving steadily. CBRE reports that prime vacancy rate declined 50 basis points year-over-year in Q1 to 14.8 percent, well below the broader office market vacancy rate of 19 percent. Demand continues to favor high-quality, amenity-rich buildings in well-connected locations. We've been intentional in focusing our strategy on this premium segment. Geographically, the lowest prime vacancy rates are in the Northeast and Midwest, two of our largest markets.

Scott Heroes: We expect delayed projects from Q2 to resume in the third quarter and are reaffirming our full year adjusted EPS Scottish.

Scott Heroes: As I noted earlier, we were pleased to see B and I returned to organic growth in the second quarter.

Scott Heroes: Indicators for Prime commercial office space had been improving steadily.

Scott Heroes: CBRE reports that prime vacancy rate declined 50 basis points year over year in Q1 to 14, 8% well below the broader office market vacancy rate of 19%.

Scott Heroes: Demand continues to favor high quality amenity rich buildings and well connected locations.

Scott Heroes: We've been intentional and focusing our strategy on this premium segment.

Scott Heroes: Geographically the lowest prime vacancy rates are in the northeast and Midwest two of our largest markets.

Scott Salmirs: Given these trends, we expect to see market improvement translate into growth and account expansion, and that's exactly what's happening. In addition to the rebound in U.S. Prime Office, our U.K. operations and sports and entertainment and parking businesses continue to perform well. Turning to M&D, I'm pleased to report that the segment returned to organic growth a quarter earlier than anticipated. Our teams have done an excellent job expanding with existing e-commerce clients and winning new business with semiconductor and tech manufacturers. In total, M&D posted nearly $400 million in revenue in Q2, or 20% of total company revenue.

Scott Heroes: Given these trends, we expect to see market improvements translate into growth in account expansion and that's exactly what's happening. In addition to the rebound in U S. Prime office, our U K operations, and sports and entertainment and parking businesses continue to perform well.

Scott Heroes: Turning to M D.

Scott Heroes: To report that the segment returned to organic growth a quarter earlier than anticipated.

Scott Heroes: Our teams have done an excellent job expanding with existing e-commerce clients exiting new business with semiconductor and check manufacturers.

Scott Heroes: Total M D posted nearly $400 million in revenue in Q2 were 20% of total company revenue.

Scott Salmirs: More broadly in this segment, we're evolving our service offering from traditional cleaning and maintenance to include ancillary support services like material handling and test and balancing services. These offerings help clients focus on their core operations and deepen our strategic relationships with them. We believe the long-term fundamentals of the M&D market remain strong as companies continue to invest in U.S.-based manufacturing, and we're investing accordingly in technical sales and industry-specific capabilities. As mentioned earlier, we booked $1.1 billion in new sales in the first half, up 11% year-over-year and a new record. A key highlight was securing approximately $190 million in new business from a major big-box retailer for the next phase of their microgrid build-out.

Scott Heroes: More broadly in the segment were evolving our service offering from traditional cleaning and maintenance to include ancillary support services like material handling and test them balancing services.

Scott Heroes: These offerings help clients focus on their core operations and deepen our strategic relationships with them.

Scott Heroes: We believe the long term fundamentals of the LNG market remains strong as companies continue to invest in U S based manufacturing and were investing accordingly, and technical sales and industry specific capabilities.

Scott Heroes: As mentioned earlier, we booked $1 $1 billion of new sales in the first half.

Scott Heroes: 11% year over year, and a new record.

Scott Heroes: Key highlights with securing approximately $119 million of new business from a major big box retailer for the next phase of their micro good build out.

Scott Salmirs: This reflects their confidence in our electrical engineering expertise, technology, and client-first approach. Beyond that, ATS secured a large battery energy storage system project supporting renewable thermal hybrid energy centers, helping communities achieve ambitious sustainability goals. In aviation, we won a $25 million contract at Miami International Airport and also had a large cabin cleaning win at the Dallas-Fort Worth Airport, two of the nation's busiest by passenger volume. Our team continues to do a great job on building on the successes at O'Hare, LaGuardia, and JFK to showcase our differentiated tech-enabled solutions that drive favorable client outcomes, and it's truly resonating in the market.

Scott Heroes: This reflects their confidence in our electrical engineering expertise technology and client first approach.

Scott Heroes: Beyond that a T S secured a large battery energy storage system project supporting renewable thermal hybrid energy centers, helping communities achieve ambitious sustainability goals.

Scott Heroes: In aviation, we want a $25 million contract Miami International Airport and also had a large cabin cleaning when at the Dallas Fort Worth Airport two of the nation's busiest by passenger volume.

Scott Heroes: Our team continues to do a great job on building on the successes at O'hare Laguardia and JFK to showcase our differentiated tech enabled solutions that drive favorable client outcomes and it's truly resonating in the market.

Scott Salmirs: We also secured other high-profile wins, including new contracts with two major investment banks in New York City, several top technology firms, including a global autonomous driving company, and a memory and storage leader, as well as with well-known semiconductor and aerospace manufacturers. These wins reflect our strong reputation among sophisticated clients with complex needs and rigorous standards. Increasingly, they're turning to ABM to leverage our scale, integrated capabilities, and tech investments, and we're raising our game accordingly in talent and execution. We've made important progress on our ERP implementation this quarter, reducing operational friction, and setting the stage for continued improvements in the second half, particularly in cash flow.

Scott Heroes: We also secured other high profile wins, including new contracts with two major investment banks in New York City.

Scott Heroes: Real top technology firms, including a global autonomous driving company, and a memory and storage leader as well as with well known semiconductor and aerospace manufacturers.

Scott Heroes: These wins reflect our strong reputation amongst sophisticated clients with complex needs and rigorous standards.

Scott Heroes: Increasingly they are turning to a b M to leverage our scale integrated capabilities and tech investments and we're raising our game accordingly, and talent and execution.

Scott Heroes: We've made important progress on our ERP implementation this quarter, reducing operational friction and setting the stage for continued improvements in the second half, particularly in cash flow.

Scott Salmirs: Our teams are fully aligned and focused on driving this initiative to completion with strong coordination and a shared commitment to delivering lasting operational benefits.

Scott Heroes: Our teams are fully aligned and focused on driving this initiative to completion with strong coordination and a shared commitment to delivering lasting operational benefits.

Scott Salmirs: Let me now give you a brief update across our segment. In B&I, according to JLL, U.S. office leasing activity in Q1 2025 grew 15.3% year-over-year to 50.4 million square feet, 89% of pre-pandemic levels. Prime office space continues to outperform, with over 2 million square feet of positive net absorption and a 14.8% vacancy rate, compared to the market average of 19%. This plays directly to our strength in Class A urban properties.

Scott Heroes: Let me now give you a brief update across our segments.

Scott Heroes: And B ni According to Jell O U S office leasing activity in Q1, 'twenty twenty-five grew 15, 3% year over year to $50 4 million square feet, 89% of pre pandemic levels.

Scott Heroes: Prime office space continues to outperform with over 2 million square feet of positive net absorption and a 14.8% vacancy rate compared to the market average of 19%. This plays directly to our strengths and class a urban properties.

Scott Salmirs: With regard to M&E, we're benefiting from strong industrial activity. The Semiconductor Industry Association reports over $200 billion in U.S. semiconductor investments since 2020, driven by AI, automotive, and cloud sectors. E-commerce also continues to grow, with Q1 online sales up 6.1% year-over-year, reaching $300.2 billion and 16.2% of total retail. This macro data, coupled with our new business pipeline and expansion efforts, positions us well for the future.

Scott Heroes: With regard to I mean, they were.

Scott Heroes: Benefiting from strong industrial activity the semiconductor industry Association reports over $200 billion in the U S semiconductor investment since 'twenty, 'twenty, driven by AI automotive and cloud sectors.

Scott Heroes: Congress also continues to grow with Q1 online sales up six 1% year over year, reaching 300.2 billion and 16, 2% of total retail.

Scott Heroes: This macro data.

Scott Heroes: Coupled with our new business pipeline and expansion efforts positions us well for the future.

Scott Salmirs: Turning to aviation, domestic air travel remains strong. TSA data shows daily screenings frequently exceeding 2.5 million in May. Our technology-led offerings, especially ABM Connect, and wins like the $25 million Miami International Airport contract, give us confidence in outpacing sector growth.

Scott Heroes: Turning to aviation domestic air travel remains shrunk TSA data shows daily screening frequently exceeding $2 5 million in May our technology led offerings, especially a b M connect and we're just like the 25 million dollar of Miami International Airport contract gives us confidence in outpacing.

Scott Heroes: Sector growth.

Scott Salmirs: Our education segment remains a stable contributor of earnings and cash flow. According to Wardium, 27% of higher ed institutions are modestly expanding some portion of their facilities. We continue to focus on large school districts and universities, meaning maintaining high retention and cost efficiency while pursuing new opportunities.

Scott Heroes: Our education segment remains a stable contributor of earnings and cash flow. According to boredom, 27% of higher Ed institutions or modestly expanding some portion of their facilities.

Scott Heroes: We continue to focus on large school districts in universities, meaning maintaining high retention and cost efficiency, while pursuing new opportunities.

Scott Salmirs: Finally, in technical solutions, our microgrid business is strong and total segment backlog now sits at $700 million. We're also positioned to benefit from accelerating demand in data centers. JLL Project's global data center capacity will grow 15% annually with construction expected to hit record levels in 2025 and significantly more in the future. These positive market dynamics strongly reinforce the strategic course we've set over the past several years. Our focused investments in talent, technology, and go-to-market execution, combined with targeted M&A, have positioned ABM to capture outsized opportunities across our portfolio. Whether it's capitalizing on the resurgence of prime office space, supporting the expansion of high-growth sectors like semiconductors and e-commerce, or leading the energy transition through our technical solutions platform, we believe our capabilities and our strategies to enhance them are fully in line with where demand is going.

Scott Heroes: Finally in technical solutions, our microwave business is strong and total segment backlog now sits at $700 million.

Scott Heroes: We're also positioned to benefit from accelerating demand in Datacenters Jaylo projects Global data center capacity will grow 15% annually with construction expected to hit record levels of 2025 and significantly more in the future.

Scott Heroes: These positive market dynamics strongly reinforced the strategic course, we set over the past several years, our focused investments in talent technology and go to market execution.

Scott Heroes: Volume was targeted M&A have positioned a b M to capture outsized opportunities across our portfolio.

Scott Heroes: Capitalizing on the resurgence of Prime office space supporting the expansion of high growth sectors like semiconductors in e-commerce or leading the energy transition through our technical solutions platform, we believe our capabilities and our strategies to enhance them are fully in line with where demand is going.

Scott Salmirs: As a result, we remain highly confident in our ability to sustain healthy top-line growth and expand margins over time.

Scott Heroes: As a result, we remain highly confident in our ability to sustain healthy topline growth and expand margins over time.

Earl Ellis: With that, I'll turn it over to Earl to walk through the financials. Good morning, everyone. Before we review the Q2 financial results, I would like to highlight a recent update to our financial disclosure.

Speaker Change: With that I'll turn it over to al to walk through the financials.

Speaker Change: Good morning, everyone before we review the Q2 financial results I would like to highlight a recent update to our financial disclosures.

Earl Ellis: After communications with the staff of the Securities and Exchange Commission, we have revised the definition of our non-GAAP financial measures, including adjusted net income, adjusted earnings per share, adjusted EBITDA, and adjusted EBITDA margin, to no longer exclude the positive or negative impacts of prior year self-insurance adjustments. These adjustments reflect net changes to our self-insurance reserve for general liability, workers' compensation, automobile, and health insurance programs, specifically related to claims for prior-year incidents. This definitional change has been applied to our Q2 2025 results and retroactively to all prior periods presented to ensure comparability. Importantly, there was no impact to our current quarter's results.

Speaker Change: After communications with the staff of the Securities and Exchange Commission, we have revised the definition of our non-GAAP financial measures, including adjusted net income adjusted earnings per share adjusted EBITA and adjusted EBIT margin to no longer exclude the positive or negative impact of prior year self insurance.

Speaker Change: <unk>.

Speaker Change: These adjustments reflect net changes to our self insurance reserve for general liability Workers' compensation automobile and health insurance program.

Speaker Change: Specifically related to claims for prior year incidents.

Speaker Change: This definitional change has been applied to our Q2 2025 results and retroactively to all prior period prior periods presented to ensure compatibility.

Speaker Change: Accordingly, there was no impact to our current quarter's results. However, the updated Q2 'twenty 'twenty four figures now include an unfavorable $4.3 million or five cents per diluted share from prior period self insurance adjustment.

Earl Ellis: However, the updated Q2 2024 figures now include an unfavorable $4.3 million, or five cents per diluted share, from prior period self-insurance adjustments.

Earl Ellis: Now let's review the second quarter results starting on slide six. Revenue grew 4.6% year over year to $2.1 billion, driven by 3.8% organic growth and contributions from our 2024 acquisition of Quality Uptime Services. Revenue growth was again led by Technical Solutions and Aviation, which delivered 19% and 9% growth, respectively. As Scott mentioned, we also saw both B&I and M&D return to organic growth, up 3% and 2% respectively. Education posted steady performance with 1% growth. Turning to slide 7, net income for the quarter was $42.2 million, or $0.67 per diluted share, compared to $43.8 million, or $0.69 per diluted share in the prior year.

Speaker Change: Now lets review the second quarter results starting on slide six.

Speaker Change: Revenue grew four 6% year over year to $2 $1 billion, driven by three 8% organic growth and contributions from our 'twenty 'twenty four acquisition of quality uptime services.

Speaker Change: Revenue growth was again led by technical solutions, and aviation, which delivered 19% and 9% growth respectively.

Speaker Change: As Scott mentioned, we also saw both P&I and M. D returned to organic growth up 3% and 2% respectively.

Speaker Change: Education posted steady performance with 1% growth.

Speaker Change: Turning to slide seven.

Speaker Change: Net income for the quarter was $42.2 million or 67 cents per diluted share compared to $43 8 million or 69 cents per diluted share in the prior year.

Earl Ellis: Adjusted net income was $54.1 million, or $0.86 per diluted share, up slightly from $52.3 million, or $0.82 per diluted share, last year. The increase was primarily driven by higher segment earnings and lower corporate costs, particularly from the absence of unfavorable prior-year self-insurance adjustments. These gains were partially offset by higher interest expense. Adjusted EBITDA was $125.9 million, compared to $121 million last year, and adjusted EBITDA margin was flat at 6.2%.

Speaker Change: Adjusted net income was $54 $1 million or <unk> 86 cents per diluted share.

Speaker Change: Lately from $52 3 million or <unk> 82 cents per diluted share last year.

Speaker Change: The increase was primarily driven by higher segment earnings and lower corporate costs, particularly from the absence of unfavorable prior year self insurance adjustments.

Speaker Change: These gains were partially offset by higher interest expense.

Speaker Change: Adjusted EBITDA was $125 $9 million compared to $121 million last year and adjusted EBIT margin was flat at six 2%.

Earl Ellis: Now, let's turn to segment performance, beginning with slide. B&I revenue reached $1 billion, up 3% from last year. This performance was driven by expansion with existing clients, improved conditions in the U.S. prime commercial office market, strong retention, and continued strength in our U.K. sports and entertainment and parking businesses. Operating profit rose 7% to $83 million and margin improved 40 basis points to 8.2% on the back of higher volume and strong cost control. Aviation revenue grew 9% to $260.1 million, supported by positive travel trends and new wins with both airport and airline clients. This includes core cleaning services at Miami International Airport, which will ramp up in the third quarter.

Speaker Change: Now, let's turn to segment performance beginning with slide eight.

Speaker Change: DNI revenue reached $1 billion up 3% from last year. This performance was driven by expansion with existing client improved condition in the U S commercial office market.

Speaker Change: Strong retention and continued strength in our UK sports and entertainment and parking businesses.

Speaker Change: Operating profit rose, 7% to $83 million and margin improved 40 basis points to eight 2% on the back of higher volume and strong cost controls.

Speaker Change: Aviation revenue grew 9% to $261 million supported by positive travel trends and new wins with both airport and airline client list.

Speaker Change: This includes core cleaning services at Miami International Airport, which will ramp up in the third quarter.

Earl Ellis: Operating profit for aviation was $16.5 million, up 26%, with margins up 80 basis points to 6.3%. These results reflect volume growth and a favorable contract mix.

Speaker Change: Operating profit for aviation was $16 $5 million up 26% with margins up 80 basis points to six 3%.

Speaker Change: These results reflect volume growth and a favorable contract mix.

Earl Ellis: Turn into slide 9. M&D generated $398.1 million in revenue, a 2% increase year-over-year. The return to organic growth was driven by new contract wins, expansion with existing clients, and a reduced impact from a client exit.

Speaker Change: Turning to slide nine.

Speaker Change: D generated $398 $1 million in revenue, a 2% increase year over year.

Speaker Change: A return to organic growth was driven by new contract wins and expansion with existing clients and a reduced impact from a client exit.

Earl Ellis: Operating profit was $39.9 million with a margin of 10% compared to $43.6 million and 11.2% in the prior year. The year-over-year margin decline reflects investments in technical sales talent and capabilities to drive growth in key sectors like semiconductors and data centers, along with strategic pricing on new select contracts.

Speaker Change: Operating profit was $39 $9 million with a margin of 10% compared to $43 $6 million 11 point and 11, 2% in the prior year.

Speaker Change: The year over year margin decline reflects investments in technical sales talent and capabilities to drive growth in key sectors like semiconductors and data centers, along with strategic pricing on new select contracts.

Earl Ellis: Education revenue rose 1% to $227.8 million, supported by favorable pricing and stable retention rates. Operating profit increased 19% to $13.8 million, with margin expanding 90 basis points to 6%, primarily due to improved labor efficiency and tight cost control.

Speaker Change: Education revenue rose, 1% to $227.8 million.

Speaker Change: Courted by favorable pricing and stable retention rates.

Speaker Change: Operating profit increased 19% to $13 $8 million with margin expanding 90 basis points to 6%, primarily due to improved labor efficiency and tight cost control.

Speaker Change: Okay.

Earl Ellis: Technical Solutions delivered 19% revenue growth to $210.2 million, with 10% coming from organic growth and 9% coming from the acquisition of quality uptime services. Continued growth was driven by strong demand for microgrids and mission-critical and power services. Revenue growth and profits would have been even higher had we not experienced some delays in mechanical and electrical project execution during the quarter.

Speaker Change: Technical solutions delivered 19% revenue growth to $210 $2 million with 10% coming from organic growth and 9% coming from the acquisition of quality uptime services.

Speaker Change: Continued growth was driven by strong demand for micro grids and mission critical and power services.

Speaker Change: New growth and profits would have been even higher had we not experienced some delays mechanical and electrical projects exclude execution during the quarter.

Earl Ellis: Operating profit was $13.4 million with a 6.4% margin, down from $17 million and 9.6% last year. The decline reflects project timing and service mix shifts. particularly within microgrids, where more revenue last year came from higher margin design and engineering. Margin was also impacted by higher amortization costs. We expect margin to improve in the second half as delayed projects move forward and mix normalizing.

Speaker Change: Operating profit was $13 $4 million with a 6.4% margin down from $17 million and nine 6% last year the.

Speaker Change: The decline reflects project timing and service mix shifts.

Speaker Change: Clearly within micro grid, where more revenue last year came from higher margin design and engineering work margin was also impacted by higher amortization costs, we expect margin to improve in the second half as delayed projects move forward and mix normalizes.

Earl Ellis: Now turning to slide 10. We ended the second quarter with total indebtedness of $1.6 billion, including $29.7 million in standby letters of credit. Our total debt to perform an adjusted EBITDA ratio was 2.9 times. Available liquidity stood at $657.8 million, including $58.7 million in cash and cash equivalents. Pre-cash flow for the quarter was $15 million, an improvement of $138 million over quarter one. This reflects progress in reducing operational friction from our ERP conversion. While working capital remains elevated year over year, we're encouraged by the momentum and expect billing and collections to normalize in the second half.

Speaker Change: Now turning to slide 10, we ended the second quarter with total indebtedness of one $6 billion, including $29 $7 million in standby letters of credit.

Speaker Change: Our total debt to pro forma adjusted EBITDA ratio was two nine times.

Speaker Change: Available liquidity stood at $657.8 million, including $58 $7 million in cash and cash equivalents.

Speaker Change: Free cash flow for the quarter was $50 million, an improvement of $138 million over quarter one.

Speaker Change: This reflects progress in reducing operational friction from our ERP conversion.

Speaker Change: While working capital remains elevated year over year, we're encouraged by the momentum and expect billing and collections to normalize in the second half.

Earl Ellis: Assuming continued progress, we believe we're positioned to meet our full-year normalized free cash flow target with sequential improvement expected in both Q3 and Q4. As a reminder, normalized free cash flow for the full year is expected to be in the range of $250 to $290 million.

Speaker Change: Assuming continued progress we believe we are positioned to meet our full year and normalized free cash flow target with sequential improvement expected in both Q3 and Q4.

Speaker Change: As a reminder, normalized free cash flow for the full year is expected to be in the range of $250 million to $290 million.

Earl Ellis: This forecast excludes $30 to $40 million of elevate and integration costs and any portion of the Ravenbolt earn out payment that will be recorded as operating cash outflow. Interest expense in the quarter was $23.9 million, up $3.3 million from last year, due to higher average debt balance. We expect quarterly interest expense to moderate over the second half of the year.

Speaker Change: This forecast excludes $30 million to $40 million of elevate and integration costs and any portion of the rainbow earn out payment that would be recorded as operating cash outflow.

Speaker Change: Interest expense in the quarter was $23 $9 million up $3.3 million from last year due to higher average debt balances.

Speaker Change: We expect quarterly interest expense to moderate over the second half of the year.

Earl Ellis: Turning to our outlook on slide 11, as Scott mentioned, we are reaffirming our full year guidance for adjusted EPS to be in the range of $3.65 to $3.80, and an adjusted EBITDA margin between 6.3 and 6.5 percent. Going forward, we will highlight any material impacts resulting from the inclusion of prior year self-insurance adjustments in our non-GAAP results. Finally, we are maintaining our interest expense forecast of $80 to $84 million and continue to expect a normalized tax rate before discrete items of 29% to 30%.

Speaker Change: Turning to our outlook on slide 11, as Scott mentioned, we are reaffirming our full year guidance for adjusted EPS to be in the range of $3 65 to $3 80, and an adjusted EBITDA margin between six three and six 5%.

Speaker Change: Going forward, we will highlight any material impacts, resulting from the inclusion of prior yourself insurance adjustments in our non-GAAP results.

Speaker Change: Finally, we are maintaining our interest expense forecast of $80 million to $84 million and continue to expect a normalized tax rate before discrete items of 29% to 30%.

Scott Salmirs: With that, I'll hand it back to Scott for closing remarks. Thanks, Earl. Before we wrap up, I want to extend my thanks to the entire ABM team for their continued focus and execution in what remains a dynamic and evolving market environment. I especially want to recognize the dedication and resilience of our team supporting the ERP implementation. As anyone who's been part of a transformation of this scale knows, these efforts are complex and never a straight line. That said, we're confident this investment will enhance our service delivery, improve operational efficiency, and further elevate the client experience, ultimately strengthening ABM's competitive position.

Scott Heroes: With that I'll hand, it back to Scott for closing remarks.

Scott Heroes: Thanks Earl.

Scott Heroes: Before we wrap up.

Scott Heroes: Extend my thanks to the entire a b M team for their continued focus and execution in what remains a dynamic and evolving market environment.

Scott Heroes: I, especially want to recognize the dedication and resilience of our team supporting the ERP implementation.

Scott Heroes: As anyone who's been part of a transformation of this scale knows these efforts are complex and never a straight line.

Scott Heroes: That said, we're confident this investment will enhance our service delivery improve operational efficiency.

Scott Heroes: Further elevate the client experience ultimately strengthening a BMS competitive position.

Scott Salmirs: And to our client-facing team members, your hard work directly contributed to delivering record new bookings in the first half of the year, driving organic growth across all our segments, and advancing our strategic priorities. Thanks to all your efforts, we are confident in our ability to deliver long-term value for our clients, our teammates, and our shareholders.

Scott Heroes: And to our client facing team members.

Scott Heroes: Your hard work directly contributed to delivering a record new bookings in the first half of the year driving organic growth across all our segments and advancing our strategic priorities.

Scott Heroes: To all of your efforts, we are confident in our ability to deliver long term value for our clients, our teammates and our shareholders with that let's take some questions.

Operator: With that, let's take some questions. Thank you. We'll now be conducting the question and answer session. If you'd like to ask a question at this time, you may press star 1 from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to withdraw your question from the queue. Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. So we made this question to as many participants as possible.

Scott Heroes: Yes.

Scott Heroes: Thank you.

Scott Heroes: Conducting the question and answer session.

Speaker Change: I'd like to ask a question at this time you May press Star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.

Scott Heroes: You May press star two if you'd like to withdraw your question from the queue.

Scott Heroes: All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: So the major questions from as many participants as possible. We ask you. Please limit yourself to one question with a follow up.

Operator: We ask you please limit yourself to one question with a follow-up. One moment, please, we poll for the first question. Thank you.

Speaker Change: One of them. Please we poll for the first question.

Speaker Change: Thank you. The first question is from the line of Tim Mulrooney with William Blair. Please proceed with your question.

Timothy Mulrooney: The first question is from the line of Tim Mulrooney with William Blair.

Timothy Mulrooney: Scott, Earl, good morning. Good morning. Hey, congrats on a nice quarter guys, clearly some some real momentum building in the businesses here. This is this is great to see.

Speaker Change: Hi, good morning.

Speaker Change: Morning.

Speaker Change: Hey, congrats on a nice quarter guys, just clearly some some real momentum building in the businesses. Here. This is this is great to see.

Earl Ellis: Earl, I wanted to start out on a on the cash flow. Can you remind me what the earn out on Ravenbold is expected to be? Yeah, so the total earn out for this quarter was for this year is $75 million for last year. And then for this year, we're expecting right now to be about $30 So 30 million plus, you know, 30 to 40 million, probably, probably about 280 million all in total. Inclusive of the original purchase, which was $170 million. Understood. Got it. And with your cash flow guidance this year being $250 to $290.

Earl I wanted to start out on the on the cash flow.

Speaker Change: Can you remind me what the earn out on raid involved is expected to be.

Speaker Change: Yeah. So the total earn out for this quarter was or for this year at $75 million for last year.

Speaker Change: And then for this year, we're expecting right now to be about $30 million.

Speaker Change: So 30 million plus you know $30 million to $40 million in order to add you, probably probably about $280 million all in total.

Speaker Change: Inclusive of the original purchase was which was $170 million.

Speaker Change: Understood got it and with your cash flow guidance for this year being $2 50 to 290.

Earl Ellis: right?

Speaker Change: Right, if I pull off you elevate and the Raven Hall earn out that's going to get me close to what like 180.

Earl Ellis: If I pull off your Elevate and the Ravenvolt earn out, that's going to get me close to what, like $180 million, $190 million? So two things. The majority of the Ravenvolt payout is more about a financial cash flow or an investment cash flow as opposed to operational. We're still working out that. But if you actually back out kind of like what we would call like one-time things, which really would include our Elevate investments as well as integration expenses or cash flow, you'd be looking at a normalized cash flow projection for the year of between $250 million to $250 million.

Speaker Change: 190 million, so two things the majority of the reasonable payout.

Speaker Change: Is more of a financial cash flow or an investment cash flow as opposed to operational we're still working out that but if you actually back out kind of like what we would call like one time.

Speaker Change: Things, which really would include our elevated investments as well as integrate integration expenses are.

Speaker Change: Cash flow you'd be looking at a normalized cash flow projection for the year of between 250 million to $290 million.

Earl Ellis: Okay, so that excludes all of that. I gotcha. Okay, that's helpful.

Speaker Change: Okay, so that excludes all of that.

Speaker Change: I Gotcha, Okay. That's helpful and you guys you know.

Earl Ellis: And you guys, you know, in the first half of the year have done I think about negative 108 million in free cash flow. So to get to positive 250 implies a really strong second half of the year. Can you just help bridge that gap for me? Yeah, no, absolutely. If you look at kind of where we're trending right now from a Q2 perspective, you're absolutely right. We are down. And that really is attributable to our go live with regards to our Oracle deployment for M&D and B&I, where we actually have some challenges in really just getting some of these bills out.

Speaker Change: In the first half of the year have done.

Speaker Change: Think about negative $108 million in free cash flow.

Speaker Change: So to get to positive [laughter] 250.

Speaker Change: You know implies a really strong second half of the year can you just help bridge that gap for me.

Speaker Change: Absolutely if you look at kind of.

Speaker Change: Where we're trending right now from a Q2 perspective, you're absolutely right. We are down and that really is attributable to our go lives with regards to our Oracle deployment for <unk>, where we actually had some challenges and really just getting some of these bills out and most of that really is due to the fact that we are being very.

Earl Ellis: And most of that really is due to the fact that we are being very prescriptive in doing a deep analysis and review of all bills before they go out. And as a result of that, you saw that impact our Q1 results. Good news is we've actually made some really good progress on getting these bills out. And this is really evidenced by the quarter over quarter improvement in cash flow, which was about 138 million. We continue to make progress. And based on where we were stacking up, we believe that we're going to have incremental improvements in cash flow for both Q3 and Q4.

Speaker Change: Prescriptive and doing a deep analysis and review of all bills before they go out and as a result of that you saw that impact. Our Q1 results. Good news is we've actually made some really good progress on getting this buildup and this was really evidenced by the quarter over quarter improvement in cash flow, which was about $138 million we can.

Speaker Change: Continuing to make progress and based on where we are stacking up.

Speaker Change: We believe that we're going to have incremental improvements in cash flow for both Q3, and Q4 and as a result of that we will actually catch up to our full year projection and cash flow by the end of the year, which again on a normalized basis would be the $2 $50 million to $290 million.

Earl Ellis: And as a result of that, we will actually catch up to our full year projection in cash flow by the end of the year, which, again, on a normalized basis would be the $250 to $250. Okay, that's helpful.

Speaker Change: Okay, that's helpful and hey, Matt you'd rather get it get the billing right to begin with I'd have to go back later and.

Scott Salmirs: And hey, man, you'd rather get it get the billing right to begin with and have to go back later and And then maybe just switching gears here, Scott, for my second question, and I really appreciate you sharing those data points on the prime office vacancy rates.

Speaker Change: They have to deal with the customer that way so I understand.

Scott Heroes: And then maybe just switching gears here Scott for my My second question and I really appreciate you sharing those data points on the Prime office vacancy rates curious, how you're thinking about organic growth.

Scott Salmirs: Curious how you're thinking about organic growth. in the B&I business in the second half of the fiscal year? I mean, do you help to build upon that strong growth that we've seen here in the second quarter? Or is that more of an easier comp situation and maybe organic growth steps back a little bit in the second half here? Thank you. Yeah, yeah, I don't see it coming back. Look, we were excited to to bridge this chasm here and get get to positive. You know, could it could it be a little choppy? Possibly. But, you know, we like to believe now we're in positive organic growth territory for BMI for for from here on out.

Speaker Change: And the P&I business in the second half of the.

Speaker Change: The fiscal year, I mean, do you hope to to build upon that strong growth that we've seen here in the second quarter or you know what.

Speaker Change: Is that more of an easier comp situation that maybe organic growth steps back a little bit in the second half here. Thank you.

Speaker Change: Yes, Yeah, I don't see it coming back look we were excited to to bridge. This chasm here and get get to positive.

Speaker Change: Could it be a little choppy, possibly about.

Speaker Change: We like to believe now we're in positive organic growth territory for P&I for for from here on out so.

Scott Salmirs: So it was exciting to get to get over that.

Speaker Change: It was exciting to get to get over that hump.

Speaker Change: Okay.

Scott Salmirs: Okay, thanks guys. Thank you. Thanks, Tim.

Speaker Change: Okay. Thanks, guys.

Speaker Change: Thank you thanks, Tim.

Andy Wittmann: Our next questions are from the line of Andy Wittmann with Baird. Great, thanks for taking my questions, guys. I wanted to ask on the M&D segment, I guess, there's a couple of things in your prepared remarks. So I thought I would kind of dig in a little bit. For Scott was the comment on how you're offering more solutions to those customers than you have before. Like you mentioned, helping out with material handling and the test and balancing. So I'm just trying to maybe get a little bit more color on that. How many customers are using that?

Speaker Change: Our next questions are from the line of Andy Wittmann with Baird. Please proceed with your questions.

Andy Wittmann: Okay, great. Thanks for taking my questions guys I wanted to ask on the <unk> segment, I guess Theres a couple of things in your prepared remarks that kind of piqued my interest. So I thought I would kind of digging a little bit for.

Speaker Change: Scott was the comment on how you're offering more solutions to those customers than you have before you mentioned, helping out with material handling and the test and balance.

Speaker Change: Just trying to maybe get a little bit more color on that how many customers are using that or is that just for one particular customer how evolved as the strategy and ultimately I think the question I was wondering about is how much opportunity still resides there I mean can this be a meaningful portion of your M D.

Scott Salmirs: Or is that just for one particular customer? How evolved is this strategy? And ultimately, I think the question everybody's wondering about is how much opportunity still resides there? I mean, can this be a meaningful portion of your M&D segment results? I guess it's just, I guess it's probably more applicable just to those big warehouse customers probably more than others. But maybe you could just talk about that somewhat.

Speaker Change: Our segment results I guess, it's just I guess, it's probably more applicable just to those like warehouse customers, probably more than others, but maybe you could just talk about that somewhat please.

Scott Salmirs: Sure. Look, we think this is going to be an emerging trend for us internally to do more and more outside of the core janitorial. So this happens in way more than just one client, Andy. And the way to think about it, let me give you like a picture of this thing that's always been helpful to me too. Like if you picture a semiconductor facility as an example, right? And think about like in the middle of that semiconductor facility, it was almost like it was a bullseye, and the middle of it would be the fabrication center where they're actually making the semiconductors.

Speaker Change: Sure well, we think this is going to be an emerging trend for us internally to do more and more outside of the core janitorial. So this happens and way more than just one client Andy.

Speaker Change: The way to think about it let me give you like a picture of this thing that's always been helpful to me to like if you picture a semiconductor facility as an example, right in and think about like in the middle of that semi conductor facility. It was almost like it was a bullseye in the middle of it would be the fabric.

Speaker Change: Patients onto where they're actually making the semiconductors. So traditionally our work has been outside of that Bull's eye, where we've been doing the janitorial engineering, but haven't gotten into that into the fab that work that we're starting to do is to get into the fabrication facility and just more of a mechanical work do more.

Scott Salmirs: So traditionally, our work has been outside of that bullseye, where we've been doing the janitorial, the engineering, but haven't gotten into the fab. The work that we're starting to do is to get into the fabrication facility and do more of the mechanical work, do more of the cleaning inside. And that's kind of the pathways that we're talking about when we talk about materials handling and testing and balancing. It's like breaching that core of that bullseye. So we love that because it's more strategic, it's more sticky with the client. So you're going to see us talking more and more about leaning into those areas from a service line perspective, where we feel like we'll get more stickiness.

Speaker Change: The cleaning inside and Thats kind of the pathways that we're talking about when we're talking about materials handling and testing and balancing its like breaching that that core of that bull's eye. So we.

Speaker Change: We love that because it's more strategic it's more sticky with the clients. So youre going to see us talking more and more about leaning into those to those areas from a service line perspective, where we feel like we'll get more stickiness and and those are also higher margin.

Scott Salmirs: And those are also higher margin. And so we think there's just a lot more opportunity, you know, the semiconductor space, and the automotive space, even like any of these pharmaceutical that the key sub industry groups that we're working in within manufacturing and distribution, all have really good pathways. And that's where we're spending our focus. Okay, that's helpful.

Speaker Change: So we think there's just a lot more opportunity you know in the semiconductor space.

Speaker Change: And the automotive space, even like in any of these pharmaceutical the key sub industry groups that we're working within manufacturing and distribution all have really good pathways and that's where we're spending our focus.

Speaker Change: I see okay. That's helpful.

Scott Salmirs: Also related to that I just want to kind of dig into some comments you made on on that segment. I mean obviously the M&T segment has been a very high margin, your highest annuity segment margin, frankly, for some time. But I think there's a comment there that you had on strategic pricing for new accounts. I was just wondering if that market is getting more competitive or if this is just a continuation of some of the comments that you've been making over the last few months, just recognizing that some of the customers in that segment have been, you know, they've been competitive already.

Speaker Change: Also related to that I, just wanted to kind of dig in to some comments you made on in that segment I mean, obviously the <unk>.

Speaker Change: Segment has been a very high margin your highest annuity segment margin frankly for some time, but I think there's a comment there that you had on strategic pricing for new accounts I was just wondering if that market is getting more competitive.

Speaker Change: Or if this is just a continuation of some of the comments that you've been making over the last few months just recognizing that some of the customers in that segment have been they've been competitive already I just wonder if there's is there an incremental change either way here for the for the broader markets or where does that come in half two.

Scott Salmirs: I just wonder if there's, is there an incremental change either way here for the, for the broader markets or what does that comment have to, what is that, what are you saying with that comment, I guess? You know, we have a couple of things that were particularly acute in this quarter. One is we're starting to invest in more sales assets, so we're investing in M&D. And you know, you've been hearing us talk about this segment for a couple of years now or more. So we're putting some muscle behind it with sales assets. And then we did talk about the rebalancing last year of that client, a bigger client.

Speaker Change: What does that what are you, saying with that comment I guess.

Speaker Change: We had a couple of things that.

Speaker Change: We were particularly acute.

Speaker Change: Acute in this quarter. One is we are we're starting to invest in more sales assets. So we're investing in R&D because you know you've been hearing US talk about this segment for a couple of years now or more so where.

Speaker Change: We're putting some muscle behind it with with sales assets and then we did talk about the rebalancing last year of that client.

Speaker Change: A bigger client and it's part and parcel to that rebalancing, we haven't tightened some of our pricing. So we think of it is.

Scott Salmirs: And as part and parcel for that rebalancing, we had to tighten some of our pricing. So we think of it as strategic pricing because we do see a pathway back. So those were the couple of impediments. But I don't think that there's this massive overall trend towards margins going down in that business because of competitiveness. It was just those couple of things that are affecting us. And again, especially as it comes to the salespeople, that's going to be an investment that will pay dividends over the next few years.

Speaker Change: Strategic pricing, because we do see a pathway back so those with a couple of impediments, but I don't think that there is this.

Speaker Change: This massive overall trend towards margins going down in that business because of the competitiveness. It was just those couple of things that are affecting us in again, especially as it comes to the salespeople that's going to be an investment that will pay dividends over that over the next few years.

Andy Wittmann: David Wittmann, Justin Hauke, Joshua Chan, Tate Sullivan, Paul Goldberg, David Silver, Okay, I'm going to sneak in another one. I know I was asked for one and one follow-up, but if you don't mind, I wanted to ask about the $1.1 billion of awards that are obviously nicely up year over year. I was just hoping you could help us understand how much of those, I mean, you quantified the $190 for the big box, and so it feels like there's a decent portion that's in the project business. But maybe, Earl, could you help us understand how that total number breaks up between annuity business and project business, and how each one of those compare year over year?

Speaker Change: So even with a little margin pressure not a bad result for the quarter on the margin profile certainly compared to the other stuff. There. So I guess that that makes a lot of sense. Okay.

Andy Wittmann: Ah, Okay, I'm going to sneak in another one I know it was asked for one and one follow up but if you don't mind I wanted to ask about the $1 $1 billion of of awards are that they're obviously nicely up year over year.

Speaker Change: I was just hoping you could help us understand how much of those news I mean, you quantified the 190.

Andy Wittmann: So the big box and so it feels like there's a decent portion of that you end up in the project business, but maybe.

Speaker Change: Maybe Earl could you could you help us understand how that that total number breaks up between annuity business and project business and how each one of those compare year over year, just the decomposition of that I think would be helpful for us all to understand.

Earl Ellis: The decomposition of that, I think, would be helpful for us all to understand. Yeah, I mean, I could take that one, Andy, I think there was there was nothing real monumental within that, that was, there was a big shift, you pointed out the hundred 90 million, which is, which is a big chunk of that. But when you normalize to the hundred 90 million, and look at that other call, call it 900 million, I would say it was pretty evenly paced across the board between the percentages of our normal business. So it was good, it was good across the line, which we're always encouraged by.

Earl Ellis: Yeah, I can take that one Andy I think it's.

Speaker Change: There was nothing real monumental within that that was that was a big shift you pointed out the 190 million, which is which is a big chunk of that but when you normalize for the $190 million and look at that other call. It $900 million I would say it was pretty evenly paced across the board between the <unk>.

Speaker Change: <unk> of our normal business. So it was it was good across the line, which we're always encouraged by.

Speaker Change: Okay Alright.

Andy Wittmann: Okay. All right. Thank you. Thanks, Andy.

Speaker Change: Alright, thank you.

Speaker Change: Thanks, Andy.

Faiza Alwy: Our next question is from the line of Faiza Alwy with Deutsche Bank. Please receive. Hi, thank you. I wanted to ask about ETS and just where we are in terms of, you know, the project delays. You mentioned that there was a margin impact from the delays as well. So, give us a sense of, you know, when do you think what's driving the project delays at this point? When do you think things normalize? And how should we think about the normalized margin in this business going forward? Yeah, I'll start off with that. So if you look at the delays, you know, part of them are just, you know, approvals, you know, getting the customer approval for certain jobs.

Speaker Change: Our next question is from the line of Faiza <unk> with Deutsche Bank. Please proceed with your question.

Faiza: Hi, Thank you.

Speaker Change: Wanted to ask about Etfs, and just where we are in terms of the project delays you mentioned that there was a margin impact from birth to Nathan's wall. So give us it sounds as though you know Wendy.

Speaker Change: What's driving the project delays at this point when do you think things normalize and how should we think about the normalized margin in that.

Speaker Change: That's going forward.

Speaker Change: Yeah, I'll start off with that so if you look at the delays.

Speaker Change: Part of them are just approvals getting the customer approval for certain jobs.

Scott Salmirs: But again, natural, if you look at ATS, it naturally is a back half of the year, a lot of activities really, you know, start in the back half. So we expect, you know, this timing shift that we actually saw in Q1 or Q2 to actually revert in the back half. When we look at the margins, again, we expect that margin to be very similar to what they have been in the past. which would be kind of like your, you know, nine, nine percent, nine to ten. Got it. Thank you.

Speaker Change: But again natural if you look at H S nationally is a back half.

Speaker Change: The year a lot of activities really.

Speaker Change: Starting the back half so we expect.

Speaker Change: This timing shift that we actually saw in Q1 or Q2 to actually revert in the back half when we look at the margins again, we expect that margins would be very similar to what they had been in the past.

Speaker Change: Which would be kind of like your 99% 90, 10% margins.

Speaker Change: Got it thank you.

Scott Salmirs: And then I just wanted to ask about the education segment. Maybe give us some color on what you're seeing from the underlying market there. Transcripts provided by Transcription Outsourcing, LLC.

Speaker Change: Wanted to ask about the education is quite long.

Speaker Change: Maybe give us some color on what you're seeing from the underlying market there.

Speaker Change: Songs about higher education, just broadening from a from a macro perspective, and I think you might have there might be more renewals that happen in the back half for new business. So give us a sense for what you're seeing from a new business perspective, and then you know how you are thinking about the underlying market there.

Speaker Change: Sure.

Scott Salmirs: Sure. So, you know. It's pretty normalized in the education. We have some good growth. We have a really good pipeline going. And interesting you bring up renewals. We've been having a very strong year this year in terms of renewals. And I guess what we're encouraged by Faiza is that there's a fair number of our clients that are investing into their facilities. You go to some of these campuses and you see cranes everywhere and buildings. So we're seeing some good tailwinds in the industry.

Speaker Change: So.

Speaker Change: It's pretty normalized in the education or we have some good growth we have a really good pipeline going and interesting you bring up renewals, we've been having a very strong year. This year in terms of renewals.

Speaker Change: And I guess, what we're encouraged by Pfizer is that there.

Speaker Change: There's a fair number of our clients that are investing into their facilities.

Speaker Change: You go and see some of these you go into some of these campuses and you see cranes everywhere in building. So we're.

Speaker Change: We're seeing some good tailwind in the industry, but as you know.

Scott Salmirs: But as you know, education is not a double-digit grower for us. It's a GDP grower. It's really steady, great cash flow.

Speaker Change: <unk> is not a double digit grower for us.

Speaker Change: GDP grower, it's real steady great cash flow and we just have we have a tremendous team that are.

Scott Salmirs: And we have a tremendous team that are working really hard as we shift towards bigger contracts and contracts under what we call our APS offering, which is the integrated offering where rather than just doing a single service, we try to bundle services. And in 24 and even at the start of 25, we're getting a lot of traction in that bundled offering because it provides so much more value when you can go to the facility manager and say, look, we can kind of handle all your needs. And the majority will self-perform, but we could also subcontract stuff on your behalf as well.

Speaker Change: Are working really hard as we shift towards bigger bigger contracts and contracts under what we call our Aps offering which is the integrated offering where rather than just doing a single service would try to bundle services and in 'twenty four and even at the start of 'twenty five we're getting a lot of traction in that.

Speaker Change: And that bundled offering because it provides so much more value. When you can go to the facility manager and say look we can kind of handle Oregon needs and the majority will self perform but we could also subcontract stuff on your behalf as well. So so that's that's been going okay.

Scott Salmirs: So that's been going OK.

Scott Salmirs: All right, great, thank you.

Speaker Change: Alright, thank you.

Speaker Change: Okay.

Jasper Bibb: Our next questions are from the line of Jasper Bibb with True Obscurities. Please receive your question. Hey, good morning, guys. Maybe following up on an earlier question to the Organic Revenue Group for the quarter was 4%, and I think you topped a working day in there, too. So, do you think mid-single-digit organic growth is possible in the second half, or how should we think about the trend there? Thanks.

Speaker Change: Our next questions are from the line of Jasper Bibb with Truth Securities. Please proceed with your questions.

Jasper Bibb: Hey, good morning, guys, maybe following up on an earlier question to organic revenue growth for the quarter was 4% and I'll take you popped a working day in there too. So you think mid single digit organic growth is possible in the second half or how should we think about the trend there.

Scott Salmirs: You know, we don't we'd obviously don't we don't guide towards revenue growth, but I think we should all be like, focused on, you know, at least we are internally is that every one of our industry groups now is back to organic growth. And, you know, there was, we could have easily been sitting here thinking that M&D and B&I were still not in that territory. And so, so we're, we're enthusiastic about that.

Speaker Change: You know we don't we don't obviously, we don't guide towards revenue growth, but.

Speaker Change: I think we should all be like I'm focused on it at least we are internally is that everyone of our industry groups now is back to organic growth and you know there was we could have easily been sitting here thinking that at <unk>, we're still in that territory.

Speaker Change: And so so we're we're enthusiastic about that but in terms of.

Scott Salmirs: But, you know, in terms of, you know, projecting revenue growth, it's just hard to tell right now it's just the trends in each of the industry groups are solid. Fair enough.

Speaker Change: Projecting revenue growth, it's just hard to tell right now it's just the trends in each of the industry groups are solid.

Speaker Change: Yeah.

Speaker Change: Fair enough and then hoping you can may.

Scott Salmirs: And then I'm hoping you can maybe give us a bit more detail on the battery energy storage contract, Len. Can you maybe frame for us how big that business is within ATS today, or what you're seeing in the pipeline for that service offering? Yeah. So, I mentioned in the prepared remarks, we have $700 million backlog, which is our highest we've ever had. It's a historic high in terms of backlog. And we're still on a good pace. We were a little nervous at the start of the tariff discussion as to what that will mean. And I think we had mentioned in prior calls that not a tremendous amount of the gear that we buy is produced overseas, but there is a portion of it, and it could affect the economics of a project.

Speaker Change: Could you give us a bit more detail.

Speaker Change: Battery energy storage contract win.

Speaker Change: Maybe frame for us how big that businesses within Ats today, or what youre seeing in the pipeline for that service offering.

Speaker Change: Yeah. So I mentioned in the prepared remarks, we have $700 million backlog, which is.

Speaker Change: Our highest we've ever had and it's a historic high in terms of backlog and.

Speaker Change: We still we're still on a good pace and we were a little nervous.

Speaker Change: At the start of the tariff discussion as to what that will mean and I think we had mentioned in prior calls that not a tremendous amount of the gear that we buy is produced overseas, but there is a portion of it and it could affect the economics of a project, but so far.

Scott Salmirs: But so far, we've still been seeing green lights from our clients to move forward on these projects.

Speaker Change: We still been seeing green lights from our clients to move forward on these projects. There is the only caution. We have is there is a provision in the new budget bill to repeal some of the tax credits on energy projects. We still don't believe that it will affect the feasibility of these projects because it's such high margin.

Scott Salmirs: There is, the only question we have is there's a provision in the new budget bill to repeal some of the tax credits on energy projects. We still don't believe that it will affect the feasibility of these projects because it's such high margin. But that being said, it's still something out there that we're monitoring and watching closely. But the micro grid business is just doing really well. Understood. Thanks for taking the questions, Ben.

Speaker Change: That being said, it's still something out there that we're monitoring.

Speaker Change: And watching closely but the.

Speaker Change: The micro bird grid businesses, just Stuart really well for us.

Speaker Change: Understood. Thanks for taking questions guys.

Speaker Change: Thanks.

Josh Chan: The next questions come from the line of Josh Chan with UBS. Hi, good morning, Scott, Earl and Paul. I guess on your ATS margins this quarter of the roughly 300 basis points headwind you saw, was the bigger impact from the project delays or was mixed the bigger headwind? And I guess related to that, you know, when you say the project delays are going to be recouped in the third quarter, did that kind of already happen in May? Yeah, so let me go back to the margin question. So, you know, part of it was the project delays, and part of it is just the mix in business.

Speaker Change: Our next questions come from the line of Josh Chan with UBS. Please proceed with your question.

Josh Chan: Hi, good morning, Scot or Paul.

Josh Chan: Yes on your Ats margins this quarter of the roughly 300 basis points headwind you saw.

Speaker Change: What was the bigger impact from the project delays or was mix the bigger headwind and I guess related to that when.

Josh Chan: When you say the project delays are going to be recouped in the third quarter or did that kind of already happening in may.

Speaker Change: Yeah. So let me go back to the margin question. So.

Speaker Change: Part of it was the project delays and part of it is just the mix of business. So the way you may want to think about these big micro grid or energy projects is that there is.

Scott Salmirs: So the way you may want to think about these big microgrid or energy projects is that there's, and I'm really going high level here, because there's certainly more than two phases, but I would ask you to look at it in two phases. One is the design and the engineering of the job, right? These are highly sophisticated engineered projects. So there's the design and the engineering, and then there's the actual execution in the field. So the design and the engineering portion is the higher profit side of it, right? There's less bodies, there's people in an office doing the drawings, and as you're building, you're recouping a higher margin.

Speaker Change: I'm really going high level here, because there's there's certainly more than two phases, but I would ask you to look at it in two phases. One is the design and the engineering of the job right. These are highly sophisticated engineered projects. So this the design and the engineering and then there's the actual execution in the field. So the design in the engine.

Speaker Change: Nearing portion is the higher profit side of it right, there's less bodies as people in an office doing the drawings and as Youre building your recouping a higher margin once you get into the field and there is actually bodies out there working the margin piece is a little lower so if we look at year over year last year, we had.

Scott Salmirs: Once you get into the field and there's actually bodies out there working, the margin piece is a little lower. So if we'll look at year over year, last year, we had a fair amount of engineering and design work, and we had a higher margin, whereas this quarter, just it just so happens that there was more work at this quarter happening in the field, which is the execution piece of it. So we had a little pressure there. So nothing systemic, nothing even that interesting, frankly. It was just timing within a project, right? So that's why you saw a little bit of a pressure.

Speaker Change: A fair amount of engineering and design work and we had a higher margin, whereas this quarter just it just so happens that there was more work at this quarter happening in the field, which is the execution piece of it. So we have a little pressure there so nothing systemic nothing nothing even that interesting frankly.

Speaker Change: Timing within a project right. So that's why you saw a little bit of a pressure and then.

Scott Salmirs: And then we have seen some uptick in May, and we think it's going to continue throughout the year in terms of these projects. And I think we stated we think ATS is going to have a very strong year this year.

Speaker Change: We have seen some uptick in may and we think we're going to continue throughout the year in terms of these projects and you know I think we've stated we think Etfs is going to have a very strong year. This year.

Scott Heroes: Yeah, Thanks for that color there Scott.

Scott Salmirs: Thanks for that, Kyla, there, Scott. Maybe switching to B&I, could you talk about how you are positioned to win these prime office markets? I assume those markets are where everybody wants to go after. So could you talk about your ability to win there and whether ABM can gain share in that market going forward? Yeah, I mean, you know, it's like, you know, not only we position to win, we really have been winning. And I think so much of it has to do with our execution ability, our relationships, and our resume. And that means a lot.

Scott Heroes: Maybe switching to DNI could you talk about how you are positioned to win these prime office markets I assume those markets are where everybody wants to go. After so could you talk about your ability to win there and whether you know a b M can can gain share in that market going forward.

Scott Heroes: Yeah, I mean, it's like.

Scott Heroes: Not only are we positioned to where we really haven't been winning and I think so much of it has to do with our execution ability our relationships and our resume and that means a lot.

Scott Salmirs: You know, if you're, if you're, let's use New York City as an example, if you're pitching a headquarters building for a financial services company in New York City, and you're going to look at ABM, you're going to say, well, wait a second, they already do nine of the other 10. So there's, there's comfort from, from a client standpoint that we understand how to work in that segment. There's great comfort from a client because they say, oh, you know what, if I want to find out what's happening in some of the other financial services companies in terms of how they're building their trading floors, how they're thinking about conference rooms, I know I can go to ABM, because I have such a big book of business.

Scott Heroes: If you're if you're.

Scott Heroes: She is in New York City as an example, if you're pitching our headquarters building for a financial services company in New York City, and you're going to look at ABM, you're going to say well wait a second they already do nine is the other 10. So there there is.

Scott Heroes: There is comfort from from a client standpoint that we understand how to work in that segment.

Scott Heroes: There's great comfort from a client because they say Oh, you know what if I wanted to find out what's happening in some of the other financial services companies in terms of how they're building their trading floors, how theyre thinking about conference rooms, I know it can go to a b M. Because they have such a big book of business. So I think between our scale.

Scott Salmirs: So I think between our scale, the client base, and our ability to execute, and, you know, lastly, the investments we're making in technology, it's really separating us from the competition. So that, I think that's why we've gotten a greater share of the market than our competitors.

Scott Heroes: <unk> base and our ability to execute and you know lastly, the investments we're making in technology, it's really separating us from the competition. So that I think that's why we've gotten a greater share of the market than our competitors.

Speaker Change: That's great. Thank you for the color and thanks for the time.

Marc Riddick: Thank you for the color and thanks for the time.

Scott Heroes: Sure.

Scott Heroes: Okay.

Scott Salmirs: Our next question is from the line of Marc Riddick. Hey, good morning everyone. Morning.

Speaker Change: Our next question is from the line of Margaret Sidoti and company. Please proceed with your question.

Speaker Change: Hey, good morning, everyone.

Speaker Change: Good morning, Mark So a lot of my questions have already been covered but I did want to circle back around to the cash.

Scott Salmirs: So a lot of my questions have already been covered, but I did want to circle back around to the cash usage prioritization. Maybe give a bit of an update, maybe what you're thinking there, as well as if you could maybe give some thoughts or views as to potential acquisition pipeline, maybe what you're seeing valuation-wise, as far as levels of attractiveness currently. Yeah, so, you know, for us, we always prioritize, right, internal investments and growing our ability to be organic. But the pipeline on M&A is looking real good. We seem to be seeing a little turnaround in companies coming to market, private equity companies looking to monetize some of their portfolio companies.

Speaker Change: Cash cash.

Speaker Change: Cash usage prioritization, maybe give a bit of an update maybe what you're thinking.

Speaker Change: There as well as.

Speaker Change: If you could maybe give some thoughts or views as to our.

Speaker Change: Potential acquisition pipeline, maybe what you're seeing valuation wise and since as.

Speaker Change: As far as our levels of attractiveness currently thanks.

Speaker Change: Yeah. So.

Speaker Change: For us, we always prioritize internal investments in growing our ability to to be organic but the pipeline on M&A is looking real good.

Speaker Change: We seem to be seeing a little turnaround and companies coming to market private equity companies looking to monetize some of their portfolio companies. So.

Scott Salmirs: So probably seeing as big of a pipeline for M&A as we've seen in the last couple of years. And there's some interesting things out there that are really going to help us to differentiate in some of the industry groups, really consistent with some of the remarks that we've been talking about, even with the Q&A and how you go deeper in places like M&D and start doing things that create more strategic value for our clients and make us stickier. So you'll see us have a focus on M&A for sure.

Speaker Change: Probably seeing as big of a pipeline for M&A as we've seen in the last couple of years.

Speaker Change: And there's some interesting things out there that are really going to help us to differentiate in some of the industry groups.

Speaker Change: Really consistent with some of the remarks that we've been talking about even with the Q&A and how you go deeper in places like M D and start doing things that create more strategic value for our clients and make us stickier so you'll.

Speaker Change: You'll see us have a focus on M&A for sure.

Scott Salmirs: And then shifting over with Bea and I, I was wondering if you could talk a little bit about if you're seeing much in the way of regional differentiation of activity levels. Thanks. I mean, yeah, I mean, sure, Mark, we have like, you know, and it's it's What's interesting, it could even be within one market, like you look at L.A. and there's Century City, which is booming, and then there's downtown L.A., which is really, really lagging. So we see some differences regionally. A lot of it has to do with back to office. I could tell you we're encouraged with what's going on in San Francisco.

Scott Salmirs: And then shifting over what would be and I was wondering if you can talk a little bit about what you're seeing much in the way of a regional differentiation of activity levels. Thanks.

Speaker Change: I mean, yeah, I mean sure Mark we have like.

Speaker Change: What's interesting is it could even be within one market like you know what youll look at L. A and the century city, which is booming and then theres downtown L. A which is really really lagging. So we see it we see some differences regionally a lot of it has to.

Speaker Change: Do with back to office I could tell you we're encouraged with what's going on in San Francisco.

Scott Salmirs: With the investments in AI, San Francisco is starting to come back, which it was a city that maybe 18 months ago, a lot of folks have written off. So the Midwest is strong and New York City is absolutely booming. Good luck walking on the streets at lunchtime and not bumping into people. So we're encouraged by that market as well. And then we see that down in the Carolinas, there's being more investment now with AI and data centers. So that's starting to boom. So there's real, real pockets of growth out there. Great, thank you. Thank you.

Speaker Change: What's with the investments in AI, San Francisco, starting to come back, which it was a city that you know maybe 18 months ago, a lot a lot of folks had written off right. So the Midwest is strong in New York City is I mean, absolutely booming good luck walking on the streets lunchtime.

Speaker Change: And not bumping into people so.

Speaker Change: We're encouraged by that market as well and then we see that down in the Carolinas, there as being more investment now with AI and data centers, so that starting to boom.

Scott Salmirs: There's real real pockets of growth out there.

Speaker Change: Great. Thank you.

Speaker Change: Okay.

Speaker Change: Thank you we've reached the end of the question and answer session I'll turn the call over to Scott Salmon for closing remarks.

Scott Salmirs: We've reached the end of the question and answer session, and I'll turn the call over to Scott Salmirs for closing remarks. Okay. Well, first I just want to thank our team again for everything they're doing to allow us to post results like we just did in Q2. We're really happy with what we've been able to do, especially considering the macro environment and some of the uncertainty out there. And I just want to thank everybody on this call for listening, being interested, and look forward to seeing you again in Q3. Thanks everybody. Thank you.

Scott Salmon: Okay, well, firstly I just want to thank our team again for everything they're doing to allow us to post results like we just did in Q2, where we're really happy with what we've been able to do especially considering the macro environment and some of the uncertainty out there and I just want to thank everybody on this call for listening being <unk>.

Scott Salmirs: <unk> and look forward to seeing you again in Q3, thanks everybody.

Scott Salmirs: Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation have a wonderful day.

Operator: This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Have a wonderful day.