Q2 2026 ABM Industries Inc Earnings Call

June 5, 2026

Speaker #2: If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Paul Goldberg, Senior Vice President of Investor Relations.

Speaker #2: Please go ahead. Good morning, everyone, and welcome to ABM's Q2 2026 earnings call. My name is Paul Goldberg, and I'm the Senior Vice President of Investor Relations at ABM.

Paul Goldberg: Good morning, everyone, welcome to ABM's Q2 2026 Earnings Call. My name is Paul Goldberg, I'm the Senior Vice President of Investor Relations at ABM. With me today are Scott Salmirs, our President and Chief Executive Officer, David Orr, our Executive Vice President and Chief Financial Officer. Please note that earlier this morning, we issued our press release announcing our Q2 2026 financial results and outlook. A copy of that release and an accompanying slide presentation can be found on our website, abm.com. After Scott and David's prepared remarks, we will host a Q&A session. Before we begin, I would like to remind you that our call and presentation today contain predictions, estimates, and other forward-looking statements. Our words of these estimate, expect, and similar expressions are intended to identify these statements, they represent our current judgment of what the future holds.

Speaker #2: With me today are Scott Salmirs, our President and Chief Executive Officer, and David Orr, our Executive Vice President and Chief Financial Officer. Please note that earlier this morning, we issued our press release announcing our second quarter 2026 financial results and outlook.

Speaker #2: A copy of that release and an accompanying slide presentation can be found on our website, abm.com. After Scott and David's prepared remarks, we will host the Q&A session.

Speaker #2: 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 words—such as estimate, expect, and similar expressions—are intended to identify these statements, and they represent our current judgment of what the future holds.

Speaker #2: 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.

Paul Goldberg: 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 a slide that accompanies our presentation, as well as our filings with the SEC. During the course of this call, certain non-GAAP financial information will be presented. A reconciliation of historical non-GAAP numbers to GAAP financial measures is available at the end of the presentation and on the company's website under the Investor tab. With that, I would like to now turn the call over to Scott.

Speaker #2: These factors are described in a slide that accompanies our presentation, as well as in our filings with the SEC. During the course of this call, certain non-GAAP financial information will be presented.

Speaker #2: 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 #2: And with that, I would now like to turn the call over to Scott.

Speaker #3: Good morning, everyone, and thank you for joining us to discuss ABM's Q2 fiscal 2026 results. We had a strong quarter—organic revenue growth came in at 6.1%—and I'm especially pleased to report that our first-half new sales bookings reached $1.2 billion, a new record for ABM.

Scott Salmirs: Good morning, everyone, and thank you for joining us to discuss ABM's Q2 fiscal 2026 results. We had a strong quarter. Organic revenue growth came in at 6.1%, and I'm especially pleased to report that our H1 new sales bookings reached $1.2 billion, a new record for ABM. Organic growth was especially strong in Technical Solutions and Aviation, while in M&D, we saw healthy underlying organic demands complemented by the WGNSTAR acquisition, which is performing well and adding meaningfully to the segment's results right out of the gate. Education continued to post steady growth, and B&I was flat organically.

Speaker #3: Organic growth was especially strong in Technical Solutions and Aviation, while on M&D we saw healthy underlying organic demand complemented by the WGN Star acquisition, which is performing well and adding meaningfully to the segment's results right out of the gate.

Speaker #3: Education continued to post steady growth, and B&I was flat organically. B&I was impacted by the exit of a large UK client during the second quarter and by our decisions to exit several other clients, especially on the West Coast, where commercial real estate markets have yet to fully recover.

Scott Salmirs: B&I was impacted by the exit of a large UK client during Q2 and by our decisions to exit several other clients, especially on the West Coast, where commercial real estate markets have yet to fully recover, creating pressure in the market. Stepping back from the top line for a moment, we also executed well operationally. Margins improved sequentially, and free cash flow was up significantly in H1 compared to last year, which I'm very pleased with. As we look ahead to H2, the setup is compelling. We expect volume to ramp meaningfully in both ATS and M&D, and service mix within ATS in particular should improve as the project pipeline matures and our backlog execution ramps sequentially. Layered on top of that, our cost discipline and price escalation actions are gaining traction.

Speaker #3: Creating pressure in the market. Stepping back from the top line for a moment, we also executed well operationally. Margins improved sequentially, and free cash flow was up significantly in the first half compared to last year, which I'm very pleased with.

Speaker #3: As we look ahead to the second half, the setup is compelling. We expect volume to ramp meaningfully in both ATS and M&D, and service mix within ATS in particular should improve as the project pipeline matures and our backlog execution ramps sequentially.

Speaker #3: Layered on top of that, our cost discipline and price escalation actions are gaining traction. Taken together, we expect these drivers to produce a significant step-up in both earnings and margin as we move through the back half of the year.

Scott Salmirs: Taken together, we expect these drivers to produce a significant step up in both earnings and margin as we move through H2. While the near-term macroeconomic environment remains dynamic, ABM operates in markets that offer a compelling combination of secular growth opportunities in areas like energy infrastructure, semiconductors, and airport monetization, alongside the steady, predictable revenue streams that have always been ABM's foundation. When taken together with the strong operating culture we have in place, ABM is well-positioned to capture the long-term growth opportunities ahead. Let me share more. Within Business and Industry, the prime office recovery continues to gain traction, although, as mentioned, the market is still experiencing some softness on the West Coast. US office leasing is approaching 2019 levels. Net absorption turned significantly positive in Q1, the strongest since 2020, and prime vacancy rates continue to tighten.

Speaker #3: While the near-term macroeconomic environment remains dynamic, ABM operates in markets that offer a compelling combination of secular growth opportunities in areas like energy infrastructure, semiconductors, and airport modernization, alongside the steady, predictable revenue streams that have always been ABM’s foundation.

Speaker #3: When taken together with the strong operating culture we have in place, ABM is well positioned to capture the long-term growth opportunities ahead. So let me share more.

Speaker #3: Within business and industry, the prime office recovery continues to gain traction, although as mentioned, the market is still experiencing some softness on the West Coast.

Speaker #3: U.S. office leasing is approaching 2019 levels, net absorption turned significantly positive in the first quarter—the strongest since 2020—and prime vacancy rates continue to tighten.

Speaker #3: New supply remains extremely limited, with the construction pipeline nearly 90% below its 2020 peak. The flight-to-quality dynamic continues to favor exactly the types of prime assets where ABM is concentrated, and we expect to see positive spillover into the next tier of high-quality buildings.

Scott Salmirs: New supply remains extremely limited, with the construction pipeline nearly 90% below its 2020 peak. The flight to quality dynamic continues to favor exactly the types of prime assets where ABM is concentrated, and we expect to see positive spillover into the next tier of high-quality buildings. This dynamic is translating into real wins. Last year, we were selected to service the new headquarters of the nation's largest bank here in New York City, and we recently followed that with a significant new facilities contract with another of the nation's leading commercial banks. These wins reflect both the strength of the office recovery and the confidence that world-class clients are placing in ABM. Turning to M&D, the semiconductor build-out may turn out to be one of the most compelling growth stories in American manufacturing in 21st century.

Speaker #3: This dynamic is translating into real wins: Last year, we were selected to service the new headquarters of the nation's largest bank here in New York City, and we recently followed that with a significant new facilities contract with another of the nation's leading commercial banks. These wins reflect both the strength of the office recovery and the confidence that world-class clients are placing in ABM.

Speaker #3: Turning to M&D, the semiconductor buildout may turn out to be one of the most compelling growth stories in American manufacturing in the 21st century. Over $645 billion in private investment has been announced across 140-plus projects since 2020, with major commitments from companies such as TSMC, Micron, Intel, Samsung, and Texas Instruments.

Scott Salmirs: Over $645 billion in private investment has been announced across 140-plus projects since 2020, with major commitments from companies such as TSMC, Micron, Intel, Samsung, and Texas Instruments. The WGNSTAR acquisition has significantly strengthened our presence in semiconductor fabrication environments, and the benefits are already becoming evident. During the Q2, we secured tens of millions of dollars in new business and delivered high double-digit organic revenue growth across our semiconductor market. Beyond semiconductors, e-commerce growth and US manufacturing reshoring continue to support healthy demand across the segment, which will continue to benefit us. In aviation, the fundamentals remain strong. TSA throughput is running close to 3 million passengers per day, and leisure demand remains robust.

Speaker #3: The WGN Star acquisition has significantly strengthened our presence in semiconductor fabrication environments, and the benefits are already becoming evident. During the second quarter, we secured tens of millions of dollars in new business and delivered high double-digit organic revenue growth across our semiconductor market.

Speaker #3: And beyond semiconductors, e-commerce growth and US manufacturing reshoring continue to support healthy demand across the segment, which will continue to benefit us. In aviation, the fundamentals remain strong. TSA throughput is running close to 3 million passengers per day, and leisure demand remains robust.

Speaker #3: Airport infrastructure investment is at elevated levels, as aging terminals drive a sustained modernization pipeline. Our recent wins at Orlando International, Miami International, and LaGuardia Terminal B reflect the strength of that pipeline. While rising fuel costs will likely create some near-term challenges for our airline clients, we remain optimistic.

Scott Salmirs: Airport infrastructure investment is at elevated levels as aging terminals drive a sustained modernization pipeline, and our recent wins at Orlando International, Miami International, and LaGuardia Terminal B reflect the strength of that pipeline. While rising fuel costs will likely create some near-term challenges for our airline clients, the long-term trajectory of this business is positive, and our pipeline of new opportunities continues to evolve. In education, the numbers tell a compelling story. K-12 schools in this country average 49 years in age. There is an $85 billion annual funding gap for repair and modernization. Higher education construction spending in that area continues at near record levels. These dynamics should create durable long-term demand for ABM services.

Speaker #3: The long-term trajectory of this business is positive, and our pipeline of new opportunities continues to evolve. In Education, the numbers tell a compelling story.

Speaker #3: K–12 schools in this country average 49 years in age. There is an $85 billion annual funding gap for repair and modernization. And higher education construction spending in that area continues at near record levels.

Speaker #3: These dynamics should create durable, long-term demand for ABM services. Assuring retention rates and ABM Performance Solutions offerings position us to capture increasing share of this opportunity.

Scott Salmirs: Our strong retention rates and ABM Performance Solutions offering position us to capture an increasing share of this opportunity, our recently awarded $25 million Detroit Public Schools contract is a tangible demonstration of that. In Technical Solutions, the tailwinds are as strong as we have seen. Nationwide battery storage installations were up 52% in 2025. AI is accelerating data center construction at double-digit pace globally, and microgrids are becoming essential infrastructure for the modern electric grid. This is precisely where ATS is most differentiated, sitting at the intersection of energy resiliency, electrification, and AI infrastructure. Another recent microgrid win with a major big box retailer, along with a variety of other energy storage and infrastructure projects booked this quarter, are proof points of what we believe will be a multi-year growth cycle for this segment.

Speaker #3: And our recently awarded $25 million Detroit Public Schools contract is a tangible demonstration of that. And in Technical Solutions, the tailwinds are as strong as we have seen.

Speaker #3: Nationwide battery storage installations were up 52% in 2025. AI is accelerating data center construction at a double-digit pace globally, and microgrids are becoming essential infrastructure for the modern electric grid.

Speaker #3: This is precisely where ATS is most differentiated, sitting at the intersection of energy resiliency, electrification, and AI infrastructure. Another recent microgrid win with a major big-box retailer, along with a variety of other energy storage and infrastructure projects booked this quarter, are proof points of what we believe will be a multi-year growth cycle for this segment.

Speaker #3: Now, looking specifically at the remainder of the year, we expect strong results in Technical Solutions, driven by higher volume and improved mix. M&D is also expected to deliver robust results as new business continues to come online and WGN Star ramps up.

Scott Salmirs: Now, looking specifically at the remainder of the year, we expect strong results in Technical Solutions driven by higher volume and improved mix. M&D is also expected to deliver robust results as new business continues to come online and WGNSTAR ramps up. Education will continue to be solid. B&I revenue will likely moderate in the H2 of the year due to client exits, including the large UK client I previously discussed. In Aviation, while air travel demand remains robust, we are watching the potential impact of rising fuel costs on our airline clients. Overall, though, our end markets remain largely constructive, and we continue to closely monitor the evolving macroeconomic environment. We remain focused on reducing leverage to below three times, maintaining a disciplined approach to capital allocation, and executing against our full-year outlook as we operate with focus and financial discipline.

Speaker #3: Education will continue to be solid. BNI revenue will likely moderate in the back half of the year due to client exits, including the large UK client I previously discussed.

Speaker #3: And in aviation, while air travel demand remains robust, we are watching the potential impact of rising fuel costs on our airline clients. Overall, though, our end markets remain largely constructive, and we continue to closely monitor the evolving macroeconomic environment.

Speaker #3: We remain focused on reducing leverage to below three times, maintaining a disciplined approach to capital allocation, and executing against our full-year outlook as we operate with focus and financial discipline.

Speaker #3: With that, I'll turn it over to David.

Scott Salmirs: With that, I'll turn it over to David.

Speaker #2: Thanks, Scott, and good morning, everyone. Let's start on slide six. Revenue grew 8.4% year over year to a second-quarter record of $2.3 billion, driven by 6.1% organic growth and a 2.3% contribution from acquisitions, primarily WGN Star.

David Orr: Thanks, Scott, and good morning, everyone. Let's start on slide six. Revenue grew 8.4% year-over-year to a Q2 record of $2.3 billion, driven by 6.1% organic growth and a 2.3% contribution from acquisitions, primarily WGNSTAR. Consolidated organic growth was the strongest we've delivered since Q3 2022, with Technical Solutions and Aviation leading the way. By segment, Technical Solutions grew revenue 27%, Aviation was up 20%, and Manufacturing and Distribution grew 17%. Education grew 2%, while B&I was essentially flat. Overall, we remain pleased with the growth trajectory of the business, reflecting the resiliency and diversity of our end markets, as well as our investments in sales talent and industry expertise, which helped deliver record H1 new sales bookings of $1.2 billion. Turning to slide seven.

Speaker #2: Consolidated organic growth was the strongest we've delivered since Q3 of 2022, with Technical Solutions and Aviation leading the way. By segment, Technical Solutions grew revenue 27%, Aviation was up 20%, and Manufacturing and Distribution grew 17%.

Speaker #2: Education grew 2%, while BNI was essentially flat. Overall, we remain pleased with the growth trajectory of the business, reflecting the resiliency and diversity of our end markets, as well as our investments in sales talent and industry expertise, which helped deliver record first-half new sales bookings of $1.2 billion.

Speaker #2: Turning to slide seven, net income for the quarter was $43.1 million, or $0.73 per diluted share, compared to $42.2 million, or $0.67 per diluted share in the prior year period.

David Orr: Net income for the quarter was $43.1 million, or $0.73 per diluted share, compared to $42.2 million or $0.67 per diluted share in the prior year period. Adjusted net income was $52.9 million or $0.90 per diluted share, versus $54.1 million or $0.86 per diluted share last year. These year-over-year changes primarily reflect higher interest and amortization expense, offset by lower tax expense and corporate costs. Per share measures were boosted by our recent share repurchase activities. Adjusted EBITDA increased $5.8 million over the prior year to $131.7 million. Segment operating margin increased 20 basis points sequentially to 7.3%. On a year-over-year basis, segment margin decreased 60 basis points, primarily reflecting the impact of contracts that came online last year in M&D and B&I, as well as higher amortization expense related to the WGNSTAR acquisition.

Speaker #2: Adjusted net income was $52.9 million, or $0.90 per diluted share, versus $54.1 million, or $0.86 per diluted share, last year. These year-over-year changes primarily reflect higher interest and amortization expense, offset by lower tax expense and corporate costs.

Speaker #2: Per-share metrics were boosted by our recent share repurchase activities. Adjusted EBITDA increased $5.8 million over the prior year to $131.7 million. Segment operating margin increased 20 basis points sequentially to 7.3%.

Speaker #2: On a year-over-year basis, segment margin decreased 60 basis points, primarily reflecting the impact of contracts that came online last year in M&D and BNI, as well as higher amortization expense related to the WGN Star acquisition.

Speaker #2: We expect healthy sequential margin improvement in the third and fourth quarters, driven by improved mix in ATS and our ongoing price escalation and cost actions.

David Orr: We expect healthy sequential margin improvement in Q3 and Q4, driven by improved mix in ATS and our ongoing price escalation and cost actions. Let's turn to segment performance, beginning with Slide eight. B&I revenue was essentially flat with last year at $1 billion. This performance was driven by overall strength in our UK markets, partially offset by the mid-quarter exit of a large UK-based client and the impact of certain other client exits, particularly on the West Coast. Looking forward, we expect growth to moderate in H2 of the year, primarily due to the full run rate impact of the previously mentioned client exits. Operating profit was $76.7 million and margin was 7.6%, compared to $83 million and 8.2% respectively last year. This margin change primarily reflects shifts in contract mix along with increased investments in sales resources to support long-term growth.

Speaker #2: Now, let's turn to segment performance, beginning with slide eight. BNI revenue was essentially flat with last year at $1 billion. This performance was driven by overall strength in our UK markets, partially offset by the mid-quarter exit of a large UK-based client and the impact of certain other client exits, particularly on the West Coast.

Speaker #2: Looking forward, we expect growth to moderate in the back half of the year, primarily due to the full run-rate impact of the previously mentioned client exits.

Speaker #2: Operating profit was $76.7 million and margin was 7.6%, compared to $83 million and 8.2%, respectively, last year. This margin change primarily reflects shifts in contract mix, along with increased investments in sales resources to support long-term growth.

Speaker #2: Margin improved 10 basis points sequentially as we continue to make progress on our cost and price escalation actions. Aviation revenue grew 20% to $310.8 million, supported by healthy travel demand and the ramp of new contract wins, particularly our new Heathrow contract.

David Orr: Margin improved 10 basis points sequentially as we continue to make progress on our cost and price escalation actions. Aviation revenue grew 20% to $310.8 million, supported by healthy travel demand and the ramp of new contract wins, particularly our new Heathrow contract. Looking to the back half of the year, organic growth will remain strong but moderate from Q2 as we anniversary several large contracts that were brought on in Q3 of last year. Operating profit was $16.3 million, with a margin of 5.3%, compared to $16.5 million and 6.3% last year. Profit and margin were pressured by incremental weather-related costs, certain contract scope changes, and TSA-driven operational disruptions during the quarter, as well as by ramp-up costs for the new Heathrow contract. Turning to slide nine.

Speaker #2: Looking to the back half of the year, organic growth will remain strong but will moderate from Q2, as we anniversary several large contracts that were brought on in Q3 of last year.

Speaker #2: Operating profit was $16.3 million, with a margin of 5.3%, compared to $16.5 million and 6.3% last year. Profit and margin were pressured by incremental weather-related costs, certain contract scope changes, and TSA-driven operational disruptions during the quarter, as well as by ramp-up costs for the new Heathrow contract.

Speaker #2: Turning to slide nine, M&D generated $463.8 million in revenue, a 17% increase year over year, including organic growth of 7% and 9% growth from the WGNSTAR acquisition.

David Orr: M&D generated $463.8 million in revenue, a 17% increase year over year, including organic growth of 7% and 9% growth from the WGNSTAR acquisition. The strong organic growth was driven by recent contract wins, particularly in the technology sector, along with continued client expansions across the segment. Operating profit was $40.6 million, with a margin of 8.8%, compared to $39.9 million and 10% last year. As anticipated, margin increased 20 basis points sequentially. On a year-over-year basis, the margin change reflects the mix of newer contracts secured last year that are helping to drive organic growth. Margin was also impacted by $4 million in incremental amortization expense connected with the WGNSTAR acquisition. Excluding incremental amortization, margin was 9.6%, which we believe better reflects the underlying long-term earnings power and margin profile of the segment. Education revenue rose 2% to $232.2 million, primarily driven by escalations.

Speaker #2: The strong organic growth was driven by recent contract wins, particularly in the technology sector, along with continued client expansions across the segment. Operating profit was $40.6 million, with a margin of 8.8%, compared to $39.9 million and 10% last year.

Speaker #2: As anticipated, margin increased 20 basis points sequentially. On a year-over-year basis, the margin change reflects the mix of newer contracts secured last year that are helping to drive organic growth.

Speaker #2: Margin was also impacted by $4 million in incremental amortization expense connected with the WGN Star acquisition. Excluding incremental amortization, margin was 9.6%, which we believe better reflects the underlying long-term earnings power and margin profile of the segment.

Speaker #2: Education revenue rose 2% to $232.2 million, primarily driven by escalations. The segment delivered strong operating performance, with operating profit increasing 19% to $16.4 million and margin expanding 100 basis points to 7%.

David Orr: The segment delivered strong operating performance, with operating profit increasing 19% to $16.4 million and margin expanding 100 basis points to 7%. This improvement was driven by enhanced labor efficiency and effective escalation management. Our education team continues to execute at a high level and win meaningful new business, such as a large ABM Performance Solutions contract from the Detroit Public Schools Community District, which will come fully online in the Q4. We also expanded our scope with the University of Miami, a long-standing and important client. Looking ahead, we expect margin to improve in the Q3, which is always a seasonally strong period for education. Technical Solutions Q2 revenue was $267.3 million, up 27% year-over-year, including 22% organic growth and 6% from acquisitions.

Speaker #2: This improvement was driven by enhanced labor efficiency and effective escalation management. Our Education team continues to execute at a high level and win meaningful new business, such as a large ABM Performance Solutions contract from the Detroit Public School System, which will come fully online in the fourth quarter.

Speaker #2: We also expanded our scope with the University of Miami, a long-standing and important client. Looking ahead, we expect margin to improve in the third quarter, which is always a seasonally strong period for education.

Speaker #2: Technical Solutions second quarter revenue was $267.3 million, up 27% year over year, including 22% organic growth and 6% from acquisitions. Organic growth reflected robust activity in our data center markets, as well as strong growth in battery energy storage system and HVAC project activity.

David Orr: Organic growth reflected robust activity in our data center markets, as well as strong growth in battery energy storage system and HVAC project activity. Additionally, we booked significant new microgrid business in the Q2 with a major big box retailer, which supports our expectations for a strong H2 in terms of revenue and mix. Operating profit was $16.8 million, with a margin of 6.3%, compared to $13.4 million and 6.4% last year. The increase in profit was driven by significant volume growth. Margin primarily reflected service mix that was less weighted to design and engineering and more weighted to equipment-intensive infrastructure project services, as well as ongoing investments in growth. We expect the service mix to improve in the H2 of the year, as has been our historical performance cadence within Technical Solutions. Now turning to slide 10.

Speaker #2: Additionally, we booked significant new microgrid business in the second quarter with a major big box retailer, which supports our expectations for a strong second half in terms of revenue and mix.

Speaker #2: Operating profit was $16.8 million, with a margin of 6.3%, compared to $13.4 million and 6.4% last year. The increase in profit was driven by significant volume growth.

Speaker #2: Margin primarily reflected service mix that was less weighted to design and engineering, and more weighted to equipment-intensive infrastructure project services, as well as ongoing investments and growth.

Speaker #2: We expect the service mix to improve in the back half of the year, as has been our historical performance cadence within Technical Solutions. Now, turning to slide 10.

Speaker #2: We ended the quarter with total indebtedness of $1.9 billion, including $23 million in standby letters of credit. Our total debt to pro forma adjusted EBITDA ratio was 3.2 times.

David Orr: We ended the quarter with total indebtedness of $1.9 billion, including $23 million in standby letters of credit. Our total debt to pro forma adjusted EBITDA ratio was 3.2x. Available liquidity stood at $614 million, including $95 million in cash and cash equivalents. As expected, the WGNSTAR acquisition pushed leverage above 3x in Q2, and we expect to work it back down under 3x by the end of our fiscal year. Q2 cash from operations was $66.2 million, and free cash flow was $22.4 million. For H1, cash flow from operations was $128.2 million, and free cash flow was $71.2 million, versus a use of cash of $73.9 million and -$107.8 million in the prior year period.

Speaker #2: Available liquidity stood at $614 million, including $95 million in cash and cash equivalents. As expected, the WGN Star acquisition pushed leverage above three times in the second quarter, and we expect to work it back down under three times by the end of our fiscal year.

Speaker #2: Second quarter cash from operations was $66.2 million, and free cash flow was $22.4 million. For the first six months, cash flow from operations was $128.2 million and free cash flow was $71.2 million, versus a use of cash of $73.9 million and negative free cash flow of $107.8 million in the prior year period.

Speaker #2: This year-over-year improvement of approximately $180 million during the first six months was driven by strong working capital management efforts and continued progress on our ERP stabilization.

David Orr: This year-over-year improvement of approximately $180 million during H1 was driven by strong working capital management efforts and continued progress on our ERP stabilization. Turning to capital allocation. As mentioned, we're focused on reducing our leverage below three times, our near-term priority is debt repayment, but we'll remain flexible as potential value creation opportunities present themselves. At quarter end, $89 million remained under our existing authorization. Interest expense in the quarter was $28.1 million, up $4.2 million from last year, reflecting larger average debt balances driven by our WGNSTAR acquisition. Turning to our fiscal 2026 outlook on slide 11. As Scott noted, while we remain encouraged by the relative health of our end markets, we're mindful of broader economic uncertainty. We're maintaining our previously communicated fiscal 2026 adjusted EPS outlook.

Speaker #2: Now, turning to capital allocation. As mentioned, we're focused on reducing our leverage below three times, and as such, our near-term priority is debt repayment.

Speaker #2: But we'll remain flexible as potential value creation opportunities present themselves. At quarter end, $89 million remained under our existing authorization. Interest expense in the quarter was $28.1 million, up $4.2 million from last year, reflecting larger average debt balances driven by our WGN Star acquisition.

Speaker #2: Turning to our fiscal 2026 outlook on slide 11. As Scott noted, while we remain encouraged by the relative health of our end markets, we're mindful of broader economic uncertainty.

Speaker #2: Accordingly, we're maintaining our previously communicated fiscal 2026 adjusted EPS outlook. As a reminder, our full-year organic revenue growth outlook is 3 to 4 percent, and we now expect to be toward the higher end of that range.

David Orr: As a reminder, our full-year organic revenue growth outlook is 3% to 4%, and we now expect to be toward the higher end of that range. Aviation, M&D, and Technical Solutions are expected to grow above that range, while B&I and education are projected to be below that range. The WGNSTAR acquisition is expected to deliver approximately 1 additional point of revenue growth, bringing total growth to the high end of our 4% to 5% range. Segment operating margin is expected to be toward the low end of our range of 7.8% to 8% for fiscal 2026, with margin expansion weighted toward the back half of the year, primarily driven by improved mix and volume in ATS. Interest expense is now forecast to be approximately $110 million, driven by higher than forecasted interest rates. We plan to offset this headwind with additional cost actions.

Speaker #2: Aviation, M&D, and Technical Solutions are expected to grow above that range, while BNI and Education are projected to be below that range. The WGN Star acquisition is expected to deliver approximately one additional point of revenue growth, bringing total growth to the high end of our 4% to 5% range.

Speaker #2: Segment operating margins are expected to be toward the low end of our range of 7.8% to 8% for fiscal 2026, with margin expansion weighted toward the back half of the year, primarily driven by improved mix and volume in ATS.

Speaker #2: Interest expense is now forecast to be approximately $110 million, driven by higher than forecasted interest rates. We plan to offset this headwind with additional cost actions.

Speaker #2: Our normalized tax rate before any discrete items, including the possible extension of the Work Opportunity Tax Credit program, is still expected to be 29 to 30 percent.

David Orr: Our normalized tax rate before any discrete items, including the possible extension of the Work Opportunity Tax Credit program, is still expected to be 29% to 30%. We feel good about our progress generating cash and are confident in our expectations. As a reminder, we expect free cash flow of approximately $250 million in 2026 before the impact of transformation and integration costs, the final Ravenvolt earn-out, and any incremental restructuring. Putting it all together, we continue to expect full-year adjusted EPS to be in the range of $3.85 to $4.15. In addition, we've been actively implementing operational and process improvements to our insurance program over the last six months. We believe these changes will ultimately enable us to better predict the in-year impact of prior year self-insurance adjustments.

Speaker #2: We feel good about our progress generating cash and are confident in our expectations. And as a reminder, we expect free cash flow of approximately $250 million in 2026 before the impact of transformation and integration costs, the final RavenVault earnout, and any incremental restructuring.

Speaker #2: Putting it all together, we continue to expect full-year adjusted EPS to be in the range of $3.85 to $4.15. In addition, we've been actively implementing operational and process improvements to our insurance program over the last six months.

Speaker #2: We believe these changes will ultimately enable us to better predict the in-year impact of prior-year self-insurance adjustments. As such, our full-year fiscal 2026 outlook no longer excludes the expected impacts of such adjustments, which we believe provides greater predictability and transparency in our outlook going forward.

David Orr: As such, our full-year fiscal 2026 outlook no longer excludes the expected impacts of such adjustments, which we believe provides greater predictability and transparency in our outlook going forward. With that, I'll hand it back over to Scott for closing remarks.

Speaker #2: And with that, I'll hand it back over to Scott for closing remarks.

Speaker #1: Thanks, David. In closing, before ABM stands, we are growing, we are generating cash, and our end markets are largely constructive. We have more work to do, particularly in driving consistent margin improvement, but the trajectory is positive, and the back half of the year gives us real opportunity to demonstrate that.

Scott Salmirs: Thanks, David. In closing, I'm pleased with where ABM stands. We are growing, we are generating cash, our end markets are largely constructive. We have more work to do, particularly in driving consistent margin improvement, but the trajectory is positive, the back half of the year gives us real opportunity to demonstrate that. We remain disciplined stewards of capital. Near term, that means staying focused on deleveraging. Longer term, it means continuing to shape our portfolio and invest in areas where ABM can become a more integrated and an important supplier to our clients and generate the most shareholder value. Lastly, I want to take a moment to thank our team. More than 100,000 people show up every day and deliver for our clients, their commitment is what makes ABM's long-term story possible. With that, we'll open up the line for questions.

Speaker #1: We remain disciplined stewards of capital. Near term, that means staying focused on deleveraging. Longer term, it means continuing to shape our portfolio and invest in areas where ABM can become a more integrated and important supplier to our clients, and generate the most shareholder value.

Speaker #1: Lastly, I want to take a moment to thank our team. More than 100,000 people show up every day and deliver for our clients, and their commitment is what makes ABM's long-term story possible.

Speaker #1: With that, we'll open up the line for questions.

Speaker #2: Thank you. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Operator: Thank you. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question.

Speaker #2: You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset.

Speaker #2: Before pressing the star key, to allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you.

Speaker #2: Our first question comes from the line of Tim Mulroney with William Blair. Please present your question.

Tim Mulrooney: Scott, David, good morning.

Speaker #3: Got it, David. Good morning.

Speaker #4: Good morning.

Scott Salmirs: Good morning.

Speaker #5: Good morning.

Speaker #3: So, I wanted to ask about your power solutions business here, which seems to be running pretty hot right now, with more microgrid activity, I guess, expected in the back half here.

Tim Mulrooney: I wanted to ask about your Power & Solutions business here, which seems to be running pretty hot right now, with more microgrid activity, I guess, expected in the H2 here. On the Q2 specifically, were there any really large projects in there, like the battery storage system or anything else that had a significant contribution to that 22% organic growth number we saw in the quarter?

Speaker #3: But on the second quarter specifically, were there any really large projects in there? Like the battery storage system or anything else that had a significant contribution to that 22% organic growth number we saw in the quarter?

Speaker #4: Yeah. Hey, Tim, it's David. Thanks for the question. We did have a really good quarter on the battery energy storage side. There were a couple of large projects, as you mentioned.

David Orr: Yeah. Hey, Tim, it's David. Thanks for the question. We did have a really good quarter on the battery energy storage side. There was a couple of large projects, as you mentioned. Those projects carry a little bit different profile, right? They're heavy on equipment, heavy on infrastructure, and the margins are a little less just because you've got so much equipment going into the jobs. We see that momentum continuing on not only those jobs in the H2, but really ramping up our more traditional microgrid work for switchgear and generators in the H2 as well.

Speaker #4: And those projects carry a little bit different profile, right? They're heavy on equipment, heavy on infrastructure, and the margins are a little less just because you've got so much equipment going into the jobs.

Speaker #4: But we see that momentum continuing on, not only with those jobs in the second half, but also really ramping up our more traditional microgrid work for switchgear and generators in the second half as well.

Speaker #3: Yeah. And Tim, just to give you a little more build-out on that—and I'll go super high-level on this—but when you look at our ATS project work, you can almost think of it in two phases.

Scott Salmirs: Yeah. Tim, just to give you a little more build-out on that, I'll go super high level on this. When you look at our ATS project work, you can almost think of it in two phases. It's like the design and the engineering, and then it's the turning the wrenches part. The turning the wrenches part is lower margin than designing and engineering. When you look at the mix for this quarter, when you look at margin, we were heavily weighted towards the turning of the wrenches part, and we think in H2, or we know in H2, we're going to have a lot more of the designing and engineering, and you'll see the margins ramp in H2, if that helps a little bit.

Speaker #3: It's like the design and the engineering, and then it's the turning the wrenches part, and the turning the wrenches part is lower margin than designing and engineering.

Speaker #3: So when you look at the mix for this quarter, when you look at margin, we were heavily weighted towards the turning of the wrenches part, and we think in the back half, or we know in the back half, we're going to have a lot more of the designing and engineering, and you'll see the margins ramp in the back half if that helps a little bit.

Speaker #5: Yeah, that's really helpful. That was actually my other question that I was going to ask about the margin trajectory and the mix, but I appreciate the color there, Scott.

Tim Mulrooney: Yeah, that's really helpful. That was actually my other question, was I was going to ask about the margin trajectory and the mix. I appreciate the color there, Scott. Thank you. David, maybe I'll follow up with something else in Technical Solutions. I noticed in your slides you highlighted a higher HVAC project activity in the quarter. HVAC technicians, we all know right now, are in such a high demand nationwide for data center construction projects. I'm curious if you're seeing more work kind of prop up in the building environment on the retrofit side, because perhaps some other companies that you'd normally compete with on these jobs are now just solely focused on new data center construction. Are you seeing more opportunities open up?

Speaker #5: Thank you. And David, maybe I'll follow up with something else in Technical Solutions. I noticed in your slides you highlighted higher HVAC project activity in the quarter.

Speaker #5: Now, HVAC technicians, we all know, are in such high demand nationwide right now. For data center construction projects, I'm curious if you're seeing more work crop up in the built environment on the retrofit side, because perhaps some other companies that you'd normally compete with on these jobs are now solely focused on new data center construction.

Speaker #5: Are you seeing more opportunities open up?

Speaker #1: I would say we're strong across the board. I don't think we're seeing one particular segment versus the other. Obviously, data centers are really strong, but I think we're seeing it kind of broad-based right now, Tim.

Scott Salmirs: I would say we're strong across the board. I don't think we're seeing one particular segment versus the other. Obviously, data centers are really strong, but I think we're seeing it kind of broad-based right now, Tim.

Speaker #3: Okay. Thank you.

Tim Mulrooney: Okay. Thank you.

Speaker #2: Thank you. Our next question comes from the line of Jasper Biff with True Securities. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Jasper Bibb with Truist Securities. Please proceed with your question.

Speaker #6: Hey, good morning, guys. I know you raised the organic growth quite a bit today. It still implies a little bit of deceleration in the back half of the year.

Jasper Bibb: Good morning, guys. I know you raised the organic growth guide a bit today. It still implies a little bit of deceleration in the H2 of the year. It sounds like at the segment level, things are mostly running ahead of that range with the exception of B&I due to some client exits, I guess. I'm wondering if the flat growth in the Q2 reflects the full impact of those client exits in B&I, or maybe the segment would decelerate a bit more in the next two quarters. Thank you.

Speaker #6: It sounds like, at the segment level, things are mostly running ahead of that range, with the exception of BNI doing some client exits, I guess.

Speaker #4: I'm wondering if the flat growth in the second quarter reflects the full impact of those client exits in BNI, or if maybe the segment will decelerate a bit more in the next two quarters.

Speaker #4: Thank you.

Speaker #7: Hey Jasper, you're calling from a bad line. Maybe you could just repeat that question; hopefully, it'll come across clearly. We hardly heard it.

Scott Salmirs: Hey, Jasper, you're calling from a bad line. Maybe you could just repeat that question. Hopefully, it'll come across clearer. We hardly heard it.

Speaker #5: I'm sorry. Hopefully, this is better.

Jasper Bibb: I'm sorry. Hopefully, this is better.

Speaker #7: It's so much better. So much better.

Scott Salmirs: Much better, yes.

Speaker #5: Yeah. Okay. Great. Okay. Yeah. So my question was on BNI. You mentioned some client exits in the quarter. I was wondering if the flat growth in the second quarter reflected the full impact of the client exits, or maybe the segment would decelerate a bit more in the next two quarters as you, I guess, see the full impact of the exits you talked about.

Jasper Bibb: My question was on B&I. You mentioned some client exits in the quarter. I was wondering if the flat growth in Q2 reflected the full impact of the client exits, or maybe the segment would decelerate a bit more in the next two quarters as you, I guess, see the full impact of the exits you talked about.

Speaker #4: Yeah, maybe I'll just break down BNI for you. I think the majority of the pressure that we're seeing was that TFL exit that we talked about, and that was pretty significant.

Scott Salmirs: Yeah, maybe I'll just break down B&I for you. I think the majority of the pressure that we're seeing was the TFL exit that we talked about. That was pretty significant. The other part of it that we talked about a little bit was the West Coast. Maybe I'll just give you a little bit more background on the way we see that market and what's going on. If you were to look at vacancy rates in cities like LA, San Francisco, Seattle, to give you context, they're probably two or three times worse than New York City.

Speaker #4: And then the other part of it that we talked about a little bit was the West Coast. And maybe I'll just give you a little bit more background on the way we see that market and what's going on.

Speaker #4: And if you were to look at vacancy rates in cities like L.A., San Francisco, and Seattle, to give you a context, they're probably two or three times worse than New York City.

Speaker #4: And if you were to think about those markets, think West Coast is kind of tech-heavy, whereas East Coast is banking, legal. And from a return-to-work standpoint also, as you guys know, the West Coast, when it comes to the tech sector, they're not returning to work the same way financial services and legal is.

Scott Salmirs: If you were to think about those markets, think West Coast is kind of tech-heavy, whereas East Coast is banking, legal, and from a return to work standpoint also, as you guys know, West Coast, when it comes to the tech sector, they're not returning to work the same way financial services and legal is. We're seeing pressure in those markets, and what ends up happening with that pressure is competitors will start, especially when it's prolonged the way it's been prolonged for the last couple of years, competitors start making pricing decisions and margin decisions that just don't meet our economic thresholds. I'll just tell you, I've seen this before in my long career at ABM, and this stuff, it tends to be episodic, and it's not sustainable. We see it waning over time. Right now, we're seeing some of that pressure.

Speaker #4: So we're seeing pressure in those markets. And what ends up happening with that pressure is, competitors will start—especially when it's prolonged, the way it's been prolonged for the last couple of years—competitors start making pricing decisions and margin decisions that just don't meet our economic thresholds.

Speaker #4: And I'll just tell you, I've seen this before in my long career at ABM, and this stuff tends to be episodic, and it's not sustainable.

Speaker #4: So we see it waning over time. But right now, we're seeing some of that pressure. And if I were to if I were to distinguish this quarter versus last year when we made some strategic decisions, for us, we have to see a path to profitability.

Scott Salmirs: If I were to distinguish this quarter versus last year when we made some strategic decisions, for us, we have to see a path to profitability. It has to be a highly strategic account. Those were the dynamics in Q3 of last year versus what we're seeing now. We made these decisions. We're actually happy about the decisions we made on the exits because what you will see in B&I in H2 is our operating margins flex up, and we feel that's really important.

Speaker #4: It has to be a highly strategic account. Those were the dynamics in Q3 of last year versus what we're seeing now. So, we made these decisions.

Speaker #4: We're actually happy about the decisions we made on the exits because what you will see in BNI in the second half is our operating margins flex up, and we feel that's really important.

David Orr: Jasper, one more bit of color on that looking forward for B&I. The TFL exits accounts for about 300 basis points of growth impact for B&I in the H2. When we talk about the proportion of the impacts, it's clearly the majority of that's going to be because of that contract exit.

Speaker #5: And Jasper, I'll just add one more bit of color on that—looking forward for BNI, the TFL exits account for about 300 basis points of growth impact for BNI in the back half.

Speaker #5: So, when we talk about the proportion of the impacts, it's clear that the majority of that's going to be because of that contract exit.

Speaker #3: Thanks. And then, could you maybe provide a bit more detail on where you're at with the ERP at this point? What kind of margin opportunity do you think you have there with ERP in place and running in, I think, three of your five segments at this point?

Jasper Bibb: Thanks. Could you maybe provide a bit more detail on where you're at with the ERP at this point? What kind of margin opportunity you think you have? There with, ERP in place and running in, I think, three of your five segments at this point.

Speaker #4: Yep, you're right—three of five. On the platform, we're in the planning phases for the last couple of segments, and based on all the things we learned from the first go-lives, we'll be taking that into consideration.

David Orr: Yep, you're right, three of five on the platform. Based on all the things we learned from the first go lives, we'll be taking that into consideration. I think the opportunities lie ultimately in scalability. What we anticipate from an AI perspective and how we load contracts in, how we process the invoicing, our efficiencies in collecting cash. We're mindful of that. First things first is just getting the planning done for the next groups, and we'll provide clarity to that in a future call.

Speaker #4: I think the opportunities lie ultimately in scalability. And what we anticipate from an AI perspective in terms of how we load contracts in, how we process the invoicing, and our efficiencies in collecting cash.

Speaker #4: So we're mindful of that. But first things first, we're just getting the planning done for the next groups, and we'll provide clarity on that in future calls.

Speaker #1: Yeah. And I would just say what I'm excited about in terms of getting done with the ERP is we're just going to have a clean data set.

Scott Salmirs: I would just say what I'm excited about in terms of getting done with the ERP is we're just going to have a clean data set. When you think about AI and all the leverage, it's so important to have clean data to leverage your tool set on, and we're heading in that direction. I think you're going to see some meaningful opportunities in 2027, 2028 as our data set matures, as our AI matures. We see there's just a lot of runway in what we're going to be able to do with scheduling and workforce management. There's a lot of exciting initiatives coming and we always feel like it can't come soon enough, but we're mindful of the pace and the balance. We're in a long-term situation here.

Speaker #1: And when you think about AI and all the leverage, it's so important to have clean data to leverage your toolset on. And we're heading in that direction.

Speaker #1: And I think you're going to see some meaningful opportunities in 2027, 2028, as our data set matures, as our AI matures. We see there's just a lot of runway in what we're going to be able to do with scheduling and workforce management.

Speaker #1: I mean, there's a lot of exciting initiatives coming, and we always feel like it can't come soon enough, but we're mindful of the pace and the balance. We're in a long-term situation here.

Speaker #3: Got it. Thank you for taking the questions, guys.

Jasper Bibb: Got it. Thank you for taking the questions, guys.

Speaker #4: Thank you.

Scott Salmirs: Thanks.

Speaker #8: Thank you. Our next question comes from the line of Andy Whitman with Baird. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Andy Wittmann with Baird. Please proceed with your question.

Speaker #4: Great. Good morning, and thank you for taking my questions, guys. I wanted to first ask about the, I guess, the standby generator microgrid work that you're doing at the retailers.

Andy Wittmann: Great. Good morning, and thank you for taking my questions, guys. I wanted to first ask about the, I guess, the standby generator microgrid work that you're doing at the retailers. You've had a large retailer that has been working with you guys to install these for several years now. I know you're on at least your second, maybe your third kind of tranche of stores that legacy retailer that you've been working with has given you. It sounded like, I guess I heard here that there's a new large retailer that signed you up.

Speaker #4: You've had a large retailer that has been working with you guys to install these for several years now. I think you're on—at least I know you're on—at least your second, maybe your third kind of tranche of stores that that legacy retailer that you've been working with has given you.

Speaker #4: It sounded like, I guess I heard here, that there's a new large retailer that signed you up. So I'm just trying to understand, now that we've got two of these, kind of where they are in terms of installing these types of things at their stores—both for the legacy and how much you have with this new customer—and how you're thinking, Scott, about the long term with this customer.

Andy Wittmann: I'm just trying to understand, now that we've got two of these, kind of where they are in terms of installing these types of things on their stores, both for the legacy and how much you have with this new customer and how you're thinking, Scott, about the long term with this customer. Obviously, you need to deliver quality work and all of that, but is this the beginning or is this new one, are you expecting that it's likely to have phases as well? Thank you.

Speaker #4: Obviously, you need to deliver quality work and all of that, but is this the beginning, or is this new one—are you expecting that it is likely to have phases as well?

Speaker #4: Thank you.

Speaker #1: Thanks. Look, I would just say, kind of high-level, Andy, we think there's just a lot more runway in the microgrid business. And for us, it's not necessarily customer by customer.

Scott Salmirs: Thanks. Look, I would just say kind of high level, Andy, we think there's just a lot more runway in the microgrid business, and for us, it's not necessarily customer by customer. The big trip is having customer concentration, which you don't want to have. We're very focused from a business development standpoint of spanning out and strategically going after a broader range of clients. It's not about one or two clients for us for the long term. Although right now we are heavily weighted to one and two. We're growing out of that, and we're optimistic about what the next year or two is going to bring in terms of, again, broadening that perspective. With these other clients, we see really good runway in their portfolio and their programs.

Speaker #1: And the big trick is having customer concentration, which you don't want to have. So we're very focused, from a business development standpoint, on expanding out and strategically going after a broader range of clients.

Speaker #1: So it's not about one or two clients for us for the long term, although right now we are heavily weighted to one and two.

Speaker #1: But we're growing out of that, and we're optimistic about what the next year or two is going to bring in terms of, again, broadening that perspective.

Speaker #1: So, with these other clients, we see really good runway in their portfolio and their programs.

Speaker #4: Okay, got it. I guess my follow-up question is for David. I wanted to talk about the prior year's self-insurance accounting that's in your adjusted results.

Andy Wittmann: Okay. Got it. I guess my follow-up question is for David. I wanted to just talk about the prior year self-insurance accounting here that's in your adjusted results. I'm sorry. I don't know if I quite followed this. As I understood it, going back here as we came into the year, you were no longer adjusting for this, and it's been an add back for years. It was not going to be this year. Did I hear you say that you made a change this quarter to putting it back in? I'm sorry, can you just clarify that? The nominal number that you're saying in terms of EPS for the range for the year is the same, but was there impact from the change that you made this quarter?

Speaker #4: I'm sorry. I don't know if I quite followed this. As I understood it, going back here as we came into the year, you were no longer adjusting for this, and it was going to be—it's been an add-back for years.

Speaker #4: It was not going to be this year. Did I hear you say that you made a change this quarter to putting it back in?

Speaker #4: I'm sorry. Can you just clarify that? And did the change that you made this quarter have any— I mean, the nominal number that you're saying, in terms of EPS for the range for the year, is the same, but was there an impact from the change that you made this quarter?

Speaker #4: I'm sorry. Could you please explain that more slowly this time so we can all understand?

Andy Wittmann: I'm sorry, could you just please explain that maybe more slowly this time so we can all understand?

Speaker #5: Yeah, sure, Andy. No problem. So, just to take a step back for context—last year, in Q2, we had communications with the SEC, and they were strongly advising us to record any prior-year self-insurance adjustments above the line, as part of our operating earnings.

David Orr: Yeah, sure, Andy. No problem. Just to take a step back for context, right? Last year, Q2, we had communications with the SEC, and they were strongly advising us to record any prior year self-insurance adjustments above the line as part of our operating earnings. We did that. Fast-forward to the guidance for this year, for fiscal 2026. What we said was we would continue recording those adjustments as part of operating earnings. However, we weren't factoring that into our guidance. Right? At the time, it was really a visibility issue. We had a $23 million adjustment, unfavorable adjustment last year. We were obviously not very pleased with that.

Speaker #5: So we did that. And fast forward to the guidance for this year, for fiscal '26, what we said was we would continue recording those adjustments as part of operating earnings.

Speaker #5: However, we weren't factoring that into our guidance, right? And at the time, it was really a visibility issue. We had a $23 million unfavorable adjustment last year.

Speaker #5: We were obviously not very pleased with that. And then so what I would say is, as a result of that, we've made some real investments in this program.

David Orr: What I would say is, as a result of that, we've made some real investments in this program, specifically investments to find ways to dampen the volatility and some real operational improvements that we think is going to result in meaningfully better predictability going forward. Specifically, we're focused on real insurance-related programs, return to work, timely claims closing, aggressive claim settlement, driver behavior programs. We think the combination of our focus on that, Andy Wittmann, is going to really allow us to be more confident about predicting this type of adjustment in the future. As such, we're now confident that the results of the study that we'll do this Q4 for the full year of 2026 can be captured and contemplated within the guidance of $385 to 415. At the end of the day, we felt like this is about transparency.

Speaker #5: And specifically, investments to find ways to dampen the volatility, and some real operational improvements that we think are going to result in meaningfully better predictability going forward.

Speaker #5: And specifically, we're focused on real insurance-related programs—return to work, timely claims closing, aggressive claims settlement, driver behavior programs. And we think the combination of our focus on that, Andy, is going to really allow us to be more confident about predicting this type of adjustment in the future.

Speaker #5: And as such, we're now confident that the results of the study that we'll do this Q4 for the full year of '26 can be captured and contemplated within the guidance of 385 to 415.

Speaker #5: So, at the end of the day, we felt like this is about transparency. We're going to include it in the guide going forward. We're going to own it operationally and treat it like any other operational program at this company.

David Orr: We're going to include it in the guide going forward. We're going to own it operationally and treat it like any other operational program at this company.

Speaker #1: Yeah, and what I would say, Andy, and why I think this is a pretty significant move is I like to think for investors, we just de-risked Q4 because prior to this, we didn’t have it in the guidance.

Scott Salmirs: Yeah. What I would say, Andy, and why I think this is a pretty significant move, is I like to think for investors, we just de-risked Q4 because prior to this, we didn't have it in the guidance. Again, what happened last year is we had this $0.20 plus hit to EPS in Q4, and it wasn't a great effect on the stock price, to be frank. For us to come out now and say, You do not have to worry about the Q4 effect, we are absorbing it into our guidance, we think is a big statement for investors.

Speaker #1: And again, what happened last year is we had this $0.20-plus hit to EPS in Q4, and it didn't have a great effect on the stock price.

Speaker #1: To be frank, for us to come out now and say, "You do not have to worry about the Q4 effect, we are absorbing it into our guidance," we think is a big statement for investors.

Speaker #4: Yeah, okay, that makes more sense. I guess, maybe another way— I just want to check my understanding, for I think everybody can benefit from this.

Andy Wittmann: Yeah. Okay. That makes more sense. I guess maybe another way, just want to check my understanding for, I think everybody can benefit from this. It sounds like you've sufficiently narrowed the way you're accounting for this and the programs and all these actions so that even if there are changes in how this comes through, you think they're narrow enough that it's more predictable now than it used to be. Now you can bake it in there, fully baked, which is a good outcome. Is that kind of another simple way of looking at it, David?

Speaker #4: It sounds like you've sufficiently narrowed the way you're accounting for this, and the programs, and all these actions, so that even if there are changes in how this comes through, you think they're narrow enough that it's more predictable now than it used to be.

Speaker #4: And so now you can bake it in there fully baked, which is a good outcome. Is that kind of another simple way of looking at it, David?

Speaker #5: You nailed it, Andy. It's all about predictability, and we really firmly believe that the actions we've taken and the focus on the program give us that narrowing ability.

David Orr: You nailed it, Andy. It's all about predictability, and we really firmly believe that the actions we've taken and the focus on the program gives us that narrowing ability.

Speaker #4: Okay, good. All right, I'm going to leave it there, guys. Have a good day.

Andy Wittmann: Okay, good. All right. I'm going to leave it there, guys. Have a good day.

Speaker #5: Thank you.

Scott Salmirs: Thank you.

Speaker #1: Thank you.

Speaker #6: Thank you. Our next question comes from the line of Pfizer Alway with Victor Bay. Please proceed with your question.

David Orr: Thank you.

Operator: Thank you. Our next question comes from the line of Faisal Alvi with Deutsche Bank. Please proceed with your question.

Speaker #7: Yes. Hi, thank you so much. I wanted to ask about WGN Star. Now that you’ve owned it for a few months, I just wanted to get an update.

Faisal Alvi: Yes. Hi, thank you so much. I wanted to ask about WGNSTAR. Now that you've owned it for a few months, just wanted to get an update. I know you sound pretty good about the opportunity there, but just give us some additional color in terms of are you seeing any changes around the competitive environment there, and are you growing with new business or are you seeing just your existing customers grow a lot faster? Just would love to hear more about that.

Faiza Alwy: Yes. Hi, thank you so much. I wanted to ask about WGNSTAR. Now that you've owned it for a few months, just wanted to get an update. I know you sound pretty good about the opportunity there, but just give us some additional color in terms of are you seeing any changes around the competitive environment there, and are you growing with new business or are you seeing just your existing customers grow a lot faster? Just would love to hear more about that.

Speaker #7: I know you sound pretty good about the opportunity there, but just give us some additional color in terms of: are you seeing any changes around the competitive environment there, and kind of how do you think about—are you growing with new business, or are you seeing just your existing customers grow a lot faster?

Speaker #7: I would just love to hear more about that.

Speaker #5: Sure, Pfizer. So, we're thrilled with this acquisition, and the integration has gone really, really well. They're already starting to contribute meaningfully to our semiconductor space.

Scott Salmirs: Sure, Faisal. We're thrilled with this acquisition, and the integration has gone really well. They're already starting to contribute meaningfully to our semiconductor space. I think we've mentioned in the past, but let me just reiterate. If you think about the semiconductor space and you think of like a bullseye, right, is the way I like to think about it. The center of the bullseye is the fabrication part, which is highly protected. Think about people in hazmat suits. The outside of that bullseye is the facility itself. We were big with semiconductor companies on the outside of that fab, whereas WGNSTAR was inside that fab, and the combination of the two is making us a kind of seamless provider. If you look year over year in semiconductor, we've doubled our growth there.

Speaker #5: And as I think we'd mentioned in the past, but let me just reiterate—if you think about the semiconductor space, and you think of a bullseye, right, that's the way I like to think about it.

Speaker #5: The center of the bullseye is the fabrication part, which is highly protected—think about people in hazmat suits. And the outside of that bullseye is the facility itself. We were big with semiconductor companies on the outside of that fab, whereas WGN Star was inside that fab.

Speaker #5: And the combination of the two is making us kind of a seamless provider. And if you look year over year, in semiconductor, we've doubled our growth there.

Speaker #5: Let me just give you some statistics about how we're doing in the semiconductor market. We have over 60 clients, and we're at over 300 sites right now.

Scott Salmirs: Let me just give you some statistics about how we're doing in the semiconductor market. We have over 60 clients. We're at over 300 sites right now. If you were to look at fab capacity between US and European fab makers, we're in 75% of those clients right now. When you look at the OEMs, there's kind of 10 big OEMs. We're doing work with seven of them right now. We feel like to be positioned in that space and have that opportunity with the client to grow with them and to grow inside the fab and outside the fab, it's just going to be tremendous for us. I can tell you, we see in semiconductor space, double-digit growth continuing for a while.

Speaker #5: If you were to look at kind of fab capacity between US and European fab makers, we're in 75% of those clients right now. And when you look at the OEMs, there's kind of like 10 big OEMs.

Speaker #5: We're doing work with seven of them right now. So, we feel like to be positioned in that space, to be positioned in that space and have that opportunity with the client to grow with them and to grow inside the fab and outside the fab, it's just going to be tremendous for us.

Speaker #5: So I could tell you, we see double-digit growth continuing in the semiconductor space for a while.

Speaker #7: Great, that's very helpful. And then I just wanted to follow up on BNI margins, because you talked about an improving trajectory, it sounds like, from NYX.

Rachel Smith: Great. That's very helpful. I just wanted to follow up on B&I margins, because you talked about an improving trajectory, it sounds like from mix. You're also investing in sales resources, it sounds like. Just give us a bit more perspective around where do we think sort of steady state B&I margins should be? Sort of how much opportunity is there just from mix alone and maybe once you ramp down the sales investments?

Faiza Alwy: Great. That's very helpful. I just wanted to follow up on B&I margins, because you talked about an improving trajectory, it sounds like from mix. You're also investing in sales resources, it sounds like. Just give us a bit more perspective around where do we think sort of steady state B&I margins should be? Sort of how much opportunity is there just from mix alone and maybe once you ramp down the sales investments?

Speaker #7: And then you're also investing in sales resources, it sounds like. So just give us a bit more perspective around where do we think sort of steady-state BNI margins should be, and how much opportunity is there just from NYX alone, and maybe once you ramp down the sales investments?

Speaker #5: Sure. So you saw some sequential movement in our margins. We were up 30 basis points between Q1 and Q2, so we're seeing movement. And I think with the decisions that we've made specifically on the West Coast, you'll see some ramp-down in revenue in BNI between that and the TFL.

Scott Salmirs: Sure. You saw some sequential movement in our margins. We were up 30 basis points between Q1 and Q2. We're seeing movement, and I think with the decisions that we've made specifically on the West Coast, you'll see some ramp down in revenue in B&I. Between that and the TFL, we're not expecting positive organic growth necessarily. However, you're going to see margin acceleration in H2. You'll see the proof points play out that the decisions we're making and how we're managing the business are going to have accretive margin. We're really optimistic about B&I.

Speaker #5: We're not expecting positive organic growth necessarily. However, you're going to see margin acceleration in the back half. You'll see the proof points play out that the decisions we're making and how we're managing the business are going to have accretive margin.

Speaker #5: So we're really optimistic about BNI.

Speaker #7: All right. Thank you.

Faisal Alvi: All right. Thank you.

Faiza Alwy: All right. Thank you.

Speaker #5: Thanks, Pfizer.

Scott Salmirs: Thanks, Faisal.

Speaker #6: Thank you. Our next question comes from the line of Josh Chen with UBS. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Joshua Chan with UBS. Please proceed with your question.

Speaker #8: Hi, good morning, Scott and David. Thanks for taking my questions. So, obviously, really strong organic growth in the first half—5 to 6 percent.

Joshua Chan: Hi. Good morning, Scott and David. Thanks for taking my questions. Obviously really strong organic growth in H1, 5% to 6%. Your guide, obviously, you're pushing it up to the high end of 3% to 4%. I guess does that decel imply the B&I slowdown in H2? It seems like there may be opportunity even with B&I to still get perhaps above the 4% growth rate for the year. Am I on the right track in thinking that way?

Josh Chan: Hi. Good morning, Scott and David. Thanks for taking my questions. Obviously really strong organic growth in H1, 5% to 6%. Your guide, obviously, you're pushing it up to the high end of 3% to 4%. I guess does that decel imply the B&I slowdown in H2? It seems like there may be opportunity even with B&I to still get perhaps above the 4% growth rate for the year. Am I on the right track in thinking that way?

Speaker #8: Your guide, obviously, you're pushing it up to the high end of 3 to 4. But I guess, does that decel imply the BNI slowdown in the second half?

Speaker #8: It seems like there may be an opportunity, even with BNI, to still get perhaps above the 4% growth rate for the year. Am I on the right track in thinking that way?

Speaker #5: Yeah. Hey, Josh, David, thanks for the question. So, as we said, clearly the decel in BNI in the back half is largely driven by the TFL exits we talked about.

David Orr: Hey, Josh, David, thanks for the question. As we said, clearly the de-sell in B&I in the H2 is largely driven by the TFL exits we talked about and some of the pressure on the West Coast that Scott talked about. I think, from a full fiscal year perspective, we're looking at more a flat to maybe slightly positive growth for B&I on a full year perspective. We see that deceleration, obviously takes a little bit of time to lap those kind of exits, especially with TFL for the year.

Speaker #5: And some of the pressure on the West Coast that Scott talked about. So, I think from a full fiscal year perspective, we're looking at more of a flat to maybe slightly positive growth for BNI on a full year perspective.

Speaker #5: We see that deceleration just obviously takes a little bit of time to lap those kind of exits, especially with TFL for the year.

Speaker #8: Okay. Okay. And then—yeah, thank you, David. And then you mentioned price escalations. So, I guess, in terms of the magnitude of those price escalations, do you feel like your pricing is sufficient to offset whatever you’re seeing in terms of wage inflation?

Joshua Chan: Okay. Thank you, David. You mentioned price escalations. I guess in terms of the magnitude of those price escalations, do you feel like your pricing is sufficient to offset whatever you're seeing in terms of wage inflation?

Josh Chan: Okay. Thank you, David. You mentioned price escalations. I guess in terms of the magnitude of those price escalations, do you feel like your pricing is sufficient to offset whatever you're seeing in terms of wage inflation?

Speaker #5: Yeah. One of the things I think we're excited about, and actually a benefit of some of the new systems we've installed, is we've got really good visibility on our cost basis, especially for a lot of the bigger groups that have a high volume of contracts.

David Orr: Yeah. One of the things I think we're excited about and actually a benefit of some of the new systems we have installed is we've got really good visibility on our cost basis, especially for a lot of the bigger groups that have the high volume of contracts, so B&I being the main one there. As part of our just core operating day-to-day, we've got a tremendous focus on escalations. We feel really good about the path to capturing any cost burdens that we've experienced. That's part of the momentum, as Scott mentioned, that's going to continue the back half of the year for B&I to really help ramp that sequential margin performance up.

Speaker #5: So BNI being the main one there. So we've—it's part of our just core operating day-to-day. We've got a tremendous focus on escalations. We feel really good about the path to capturing any cost burdens that we've experienced.

Speaker #5: And that's part of the momentum, as Scott mentioned, that's going to continue in the back half of the year for BNI to really help ramp that sequential margin performance up.

Speaker #8: Yeah. And what I would say that, again, I get enthusiastic about is kind of AI-based initiatives. And on escalations, this is one of the places where we had an AI-based initiative—where we went through, scanned the contracts, generated escalation letters, and did this with an AI initiative.

Scott Salmirs: Yeah, what I would say that again, I get enthusiastic about is kind of AI-based initiatives. On escalations, this is one of the places where we had an AI-based initiative where we went through, scanned the contracts, generated escalation letters, and done this with an AI initiative. I think that the AI initiatives are all starting to mature, that they take time. I'm glad you brought up escalations because this is one area where we're so proud of what we're doing on the AI front.

Speaker #8: So, I think that the AI initiatives are all—they're starting to mature; they take time. But this is one area—I'm glad you brought up escalations—because this is one area where we're so proud of what we're doing on the AI front.

Speaker #8: Yeah, that's good to hear. Thank you for the color, and good luck in the second half.

Joshua Chan: Yeah, that's good to hear. Thank you for the color and good luck in the H2.

Josh Chan: Yeah, that's good to hear. Thank you for the color and good luck in the H2.

Speaker #5: Thanks.

Scott Salmirs: Thanks.

Speaker #7: Thank you. Our next question comes from the line of David Silver with Freedom Capital Markets. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of David Silver with Freedom Capital Markets. Please proceed with your question.

Speaker #9: Yeah, hi, good morning. I'd like to maybe just ask for a little bit of color behind the $1.2 billion of new contract wins.

David Silver: Yeah. Hi, good morning. I'd like to maybe just ask for a little bit of color behind the $1.2 billion of new contract wins. A couple of things, but just certainly it's a big number, and I think you're on track, clearly for another record in terms of new business wins overall. I'd also say beyond that just seeing it highlighted in a quarterly earnings release, that struck me as a little unusual. I even wrap it around with the idea that you highlighted maybe some decisions to walk away from some business that wasn't generating sufficient profit or path to sufficient profitability. I guess I just would like to know, if we could just focus on the non-ATS portion of that.

Speaker #9: So, a couple of things. Certainly, it's a big number, and I think you're on track, clearly, for another record in terms of new business wins overall.

Speaker #9: But I'd also say, beyond that, just seeing it highlighted in a quarterly earnings release struck me as a little unusual. And then I even tie it in with the idea that you highlighted, maybe, some decisions to walk away from some business that wasn't generating sufficient profit or a path to sufficient profitability.

Speaker #9: And I guess I just would like to know—I mean, if we could just focus on the non-ATS portion of that—how much of the new business wins that you're getting, or what would you attribute, maybe, the incremental, the faster pace at which you're winning new business?

David Silver: How much of the new business wins that you're getting, or what would you attribute maybe the incremental, the faster pace at which you're winning new business? I guess I would just break it down as offense versus defense. Are you out there specifically targeting new business that you want to be in strategically, or is it more defense where, just due to regional or company specific characteristics, they're looking for concessions or terms of business?

Speaker #9: And I guess I would just break it down as offense versus defense. I mean, are you out there specifically targeting business, that is, new business that you want to be in strategically?

Speaker #9: Or is it more defensive, where just due to regional or company-specific characteristics, they're looking for concessions or terms of business that, as a company, you're just not willing to accept?

Scott Salmirs: Sure, David. Yeah.

David Silver: as a company, you're just not acceptable with. just some thoughts on the incremental pace of new business wins and from your perspective.

Speaker #9: So, just some thoughts on the incremental pace of new business wins, and from your perspective, what's behind that? Thank you. Yeah, and let me start with—you had mentioned that it was unusual that we mentioned it.

Scott Salmirs: You got it.

David Silver: what's behind that? Thank you.

Scott Salmirs: Yeah. Let me start with, you had mentioned that it was unusual that we mention it, but just so you know, we do have a history in Q2 of updating the H1. We've done it before. Probably, not that unusual. We're excited about where we are at $1.2 billion because I think what you have to do is you have to step back and you have to look at sentiment, right? The sentiment from our standpoint is like, clients continue to want to work for us. We're winning this business going through presentations, with broad groups of clients who are all saying yes to ABM. We like the fact that we're seeing this positive trend year after year of growing our sales. I would say it's less defensive and more strategic.

Speaker #9: But just so you know, we do have a history in Q2 of updating the first half. So we've done it before, so it's probably not that unusual.

Speaker #9: And we're excited about where we are at $1.2 billion, because I think what you have to do is you have to step back and you have to look at sentiment, right?

Speaker #9: And the sentiment from our standpoint is, clients continue to want to work with us. We're winning this business, going through presentations with broad groups of clients who are all saying yes to ABM.

Speaker #9: So, we like the fact that we're seeing this positive trend year after year of growing our sales. And I would say it's less defensive and more strategic.

Scott Salmirs: We've talked in the past about how we're hiring business development assets. We're targeting certain areas, certainly like the Sun Belt regions. We've targeted also by industry group, data centers, and semiconductor. For us, I'll just give you a proof point. Between semiconductors and data centers, if you combine those two little micro groups, that's 7% of ABM's revenue right now. That's pretty significant. It's a strategic initiative that we set out a couple of years ago to accomplish. That's also a segment that's going to grow double digit. I think for us, this has all been strategic. Clearly there's always defensive measures in sales pursuit. I'm not going to sit here and say the $1.2 billion was all purely strategic. There was a nice balance. The majority of it was strategic.

Speaker #9: We've talked in the past about how we're hiring business development assets, and we're targeting certain areas, certainly like the Sunbelt regions. We've targeted also by industry group—data centers and semiconductor.

Speaker #9: So, for us, I'll just give you a proof point between semiconductors and data centers. If you combine those two little micro groups, that's 7% of ABM's revenue right now.

Speaker #9: That's pretty significant, and it's a strategic initiative that we set out a couple of years ago to accomplish. And that's also a segment that's going to grow double digits.

Speaker #9: So I think for us, this has all been strategic, and clearly there are always defensive measures in sales pursuits. So I'm not going to sit here and say the $1.2 billion was all purely strategic.

Speaker #9: There was a nice balance, but the majority of it was strategic. Okay, great. Thank you for that. And then, this is a question that maybe you've touched on anecdotally or partially already.

David Silver: Okay, great. Thank you for that. This is a question that maybe you've touched on anecdotally or partially already. Scott, your company's been in business for a very long time, and you've been very careful to segment your business by end market. Even within that, you've segmented aviation in different ways, for example, and other segments. I'm just wondering, as a company, does it make sense to maybe think about things more geographically now? In other words, technology business in one part of the country might require a different strategy than maybe another part. I'm just thinking California versus Texas, or West Coast versus non-West Coast, just based on your comments. You use the term episodic, but my sense is over the past few years, some of these trends have not really changed much.

Speaker #9: But Scott, your company's been in business for a very long time, and you've been very careful to segment your business by end market. Even within that, you've segmented aviation in different ways, for example, and other segments.

Speaker #9: I'm just wondering, but as a company, does it make sense to maybe think about things more geographically now? In other words, technology business in one part of the country might require a different strategy than maybe another part.

Speaker #9: I'm just thinking California versus Texas, or West Coast versus non-West Coast, just based on your comments. But you used the term 'episodic,' but my sense is that over the past few years, some of these trends have not really changed much.

Speaker #9: So, just as a company, and with a very clear national view, I mean, what role does maybe a more discreet, more explicit geographic strategy make sense?

David Silver: Just as a company and with a very clear national view, what role does maybe a more explicit geographic strategy make sense?

Speaker #5: Sure. No, that's a good question. We do have a geographic strategy. I would say, look, we segment by industry group, by end market, and we still feel like it's absolutely the right way to do it.

Scott Salmirs: Sure, no, that's a good question. We do have a geographic strategy. I would say, look, we segment by industry group, by end market, and we still feel like it's absolutely the right way to do it. We pressure test all these assumptions every year strategically as a management team with our board of directors. We still firmly believe by aligning with the customer segment, that's the best way to go. Within those customer segments, though, we do have a geographic focus, and maybe earlier I mentioned about the Sun Belt. We look at the certain growth zones in the places that we operate, and we apportion business development assets based on those growth zones, operational assets.

Speaker #5: We pressure test all these assumptions every year, strategically. It's the management team with our board of directors. So, we still firmly believe that aligning with the customer segment is the best way to go.

Speaker #5: Within those customer segments, though, we do have a geographic focus. And maybe earlier I mentioned the Sunbelt. We look at certain growth zones in the places that we operate.

Speaker #5: And we apportion business development assets based on those growth zones—operational assets. So, I'd like for you to think about it as the industry groups are kind of... and the segments, that are the overlay.

Scott Salmirs: I'd like Steve to think about it as the industry groups are kind of and the segments that are the overlay, and within that overlay, you have an approach that absolutely incorporates a geographic attitude.

Speaker #5: And within that overlay, you have an approach that absolutely incorporates a geographic attitude.

Speaker #10: Thank you. Our next question comes from the line of Mark Riddick with Sidoti & Company. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Marc Riddick with Sidoti & Company. Please proceed with your question.

Speaker #11: Hey, good morning. Thanks for taking all the questions. We have covered quite a bit already this morning, but I did want to touch a little bit on the expectation of reducing leverage by the end of the year, back to three times or so.

Marc Riddick: Hey, good morning. Thanks for taking all the questions. We covered quite a bit already this morning. I did want to touch a little bit on with the expectation of reducing leverage by the end of the year back to 3x or so. Maybe talk a little bit about what you're seeing in the acquisition pipeline currently, and sort of comfort levels, valuation levels, if they've changed much over the last few months, and sort of how your appetite looks there.

Speaker #11: Maybe you could talk a little bit about what you're seeing in the acquisition pipeline currently, and sort of comfort levels, valuation levels—if they've changed much over the last few months.

Speaker #11: And sort of how your appetite looks there.

Speaker #5: Thanks, Mark. David, definitely an appropriate question. As we said in Q1, we did anticipate our leverage to tick up over 3x with the acquisition of WGN Star.

David Orr: Thanks, Marc. David, definitely appropriate question. As we said in Q1, we did anticipate our leverage to tick up over 3x with the acquisition of WGNSTAR. Clearly, our near-term priority remains de-levering, and we anticipate based on our cash flow strength in H2, to be able to get back down below 3x by the end of the year. Obviously that doesn't mean we're walking away from other value creation opportunities and capital return. We're just sequencing it appropriately, basically. I think from a leverage perspective, and then again, based on the strength of our sequential cash flows, we feel really solid. Scott, I'll let you comment on the M&A pipeline.

Speaker #5: Clearly, our near-term priority remains delivering. And we anticipate, based on our cash flow strength in the back half, being able to get back down below three times.

Speaker #5: By the end of the year. So, and obviously, that doesn't mean we're walking away from other value creation opportunities and capital return. We're just sequencing it appropriately, basically.

Speaker #5: So I think, from a leverage perspective, and then again, based on the strength of our sequential cash flows, we feel really solid. Scott, I'll let you comment on the M&A pipeline.

Scott Salmirs: The M&A pipeline, we continue to monitor it. We think there are going to be some interesting opportunities in the back half of this year and in the first half of next year. Frankly, that could coincide with our leverage going down below three. The fact that we very much care about getting integrations right. We're still integrating WGNSTAR. I think the confluence of this could be positive from an M&A standpoint. Again, more towards the back half and maybe Q4 or dripping into fiscal Q1 for us. We're monitoring it and again, being very strategic about where we play.

Speaker #11: Yeah, so the M&A pipeline—we continue to monitor it. We think there are going to be some interesting opportunities in the back half of this year.

Speaker #11: And in the first half of next year. And frankly, that could coincide with our leverage going down below three. And the fact that we very much care about getting integrations right.

Speaker #11: So, we're still integrating WGN Star. I think the confluence of this could be positive from an M&A standpoint—again, more towards the back half, and maybe Q4 or slipping into fiscal Q1 for us.

Speaker #11: But we're monitoring it, and again, being very strategic about where we play. That's helpful. And then just a quick follow-up—there wasn't much, I guess, as far as any effects that you've seen.

Marc Riddick: That's helpful. Just a quick follow-up. I guess there wasn't much mentioned as far as any effects that you've seen either from the war or sort of the geopolitical disruptions. I was wondering if there was any areas that you've seen any influence from that or how the pacing through the quarter and into 3Q might be impacted there or if you've seen anything that's come from that. Thanks.

Speaker #11: From the war or sort of the geopolitical disruptions, I was wondering if there were any areas where you've seen any influence from that, or how that sort of—the pacing through the quarter and into Q3—might be impacted there, or if you've seen anything that's come from that.

Speaker #11: Thanks.

Speaker #5: Yeah, yeah. So what I would say is, where we see a little hint of it right now is in the aviation sector, specifically on our international business.

Scott Salmirs: Yeah. What I would say is where we see a little hint of it right now is in the aviation sector, specifically on our international business. There's been pressure on the international sides in terms of volume. Hasn't been incredibly material yet, but as we said in the prepared comments, we're just watching it and staying on top of it. The one great thing about ABM is even in these cycles, we get through them pretty well because of our flexible labor model and the fact that the services we perform largely are not discretionary. In extreme times, we'll get some pressure, but we ride through it.

Speaker #5: Because of flights, there's been pressure on the international sides in terms of volume. It hasn't been incredibly material yet. But as we said in the prepared comments, we're just watching it.

Speaker #5: And staying on top of it. But the one great thing about ABM is, even in these cycles, we get through them pretty well because of our flexible labor model and the fact that the services we perform largely are not discretionary.

Speaker #5: So we'll definitely, in extreme times, get some pressure, but we ride through it.

Speaker #10: Thank you. Our final question this morning comes from the line of Tate Sullivan with Maxim Group. Please proceed with your question.

Operator: Thank you. Our final question this morning comes from the line of Tate Sullivan with Maxim Group. Please proceed with your question.

Speaker #12: Hi, thank you. And thanks for those earlier comments on organic growth. That's one thing we're looking for—accelerating earnings growth from last fiscal year, when it was 3.8%.

Tate Sullivan: Thank you, thanks for the earlier comments on organic growth. That's one thing we're looking for, accelerating earnings growth from last fiscal year when it was at 3.8%. I think you cleared that up with B&I. Just one quick, David, on the cash free cash flow guidance of $250 million. What does that exclude specifically, and can you disclose some of the figures on the excluded amounts?

Speaker #12: So, I think you cleared that up with BNI. And just one quick one, David, on the free cash flow guidance of $250 million. Can you go into what that excludes specifically?

Speaker #12: And can you just close some of the figures, excluding amounts?

Speaker #5: Certainly, Tate. So, the items that would exclude a total of roughly $65 million on an annual basis are some remaining transformation costs, about $20 million.

David Orr: Certainly, Tate. The items that would exclude a total of roughly $65 million on an annual basis. Some remaining transformation costs, about $20 million. The anticipated earn-out payment for the Ravenvolt acquisition, the final one, which is roughly $30 million. Some acquisition costs associated with the WGNSTAR acquisition, about $8 to $9 million, and just any other restructuring charges fill out the gap there. What I would say is, as I mentioned earlier, we still feel really good about where we are on cash flows. We're at about 40% of our pacing on a normalized basis, so about $100 million out of the $250 million guide. You've been following the stock for a while, you guys know that the majority of the cash flow for ABM is tilted towards the H2 of the year.

Speaker #5: The anticipated earn-out payment for the Raven Vault acquisition, the final one, which is roughly 30 million dollars. And then some acquisition costs associated with the WGN Star acquisition, about 9 million, 8 to 9 million dollars.

Speaker #5: And just any other restructuring charges, fill out the gap there. So, what I would say is, as I mentioned earlier, we still feel really good about where we are on cash flows.

Speaker #5: We're at about 40% of our pacing on a normalized basis, so about $100 million out of the $250 million guide. And you've been following the stock for a while.

Speaker #5: You guys know that the majority of the cash flow for ABM is tilted towards the second half of the year, so it just puts us in a good position on cash flow for the year.

David Orr: It just puts us in a good position on cash flow for the year.

Speaker #12: Okay. Thank you all.

Tate Sullivan: Okay. Thank you all.

Speaker #5: Thanks.

David Orr: Thanks.

Speaker #10: Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Sommers for any final comments.

Operator: Thank you. Ladies and gentlemen, that concludes our question and answer session. I will turn the floor back to Mr. Salmirs for any final comments.

Speaker #5: Sure. Thank you. Thanks, everybody, for participating. Hopefully, you can see how optimistic David and I are about where we're heading and what the back half is going to be.

Scott Salmirs: Sure. Thank you. Thanks everybody for participating. Hopefully you can see how optimistic David and I are about where we're heading and what the H2 is going to be. We'll look forward to seeing you in Q3, and have an amazing summer, everybody.

Speaker #5: So we’ll look forward to seeing you in Q3. And have an amazing summer, everybody.

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

Q2 2026 ABM Industries Inc Earnings Call

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