ABM Industries Incorporated

Greetings and welcome to the ABM Industries first quarter 2019 earnings conference call. At this time, our participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. Please note this conference is being recorded. I would now like to turn the conference over to your host today, Ms. Suzy Kim, Vice President, Vets Relations, and Treasurer. Please proceed, ma'am.

Thank you all for joining us this morning. With us today are Scott Salmiers, our President and Chief Executive Officer, and Anthony Scaglione, Executive Vice President and Chief Financial Officer. We issued our press release yesterday afternoon announcing our first quarter fiscal 2019 financial results. A copy of this release and an accompanying slide presentation can be found on our corporate website. Before we begin, I would like to remind you that our call and presentation today contain predictions, estimates, and other forward-looking statements. Our use of the words estimate, expect, and similar expressions are intended to identify these statements. These statements represent our current judgment of what the future holds. While we believe them to be reasonable, these statements are subject to risks and uncertainties that can cause our actual results to differ materially. These factors are described in a slide that accompanies our presentation as well as in our filings with the SEC. During the course of this call, certain non-GAAP financial information will be presented. A reconciliation of those numbers to GAAP financial measures is available at the end of the presentation and on the company's website under the Investor tab. I would now like to turn the call over to Scott.

Thanks, Susie. Good morning, and thanks for joining us for our first quarterly call of the new fiscal year. By now, I'm sure you've had a chance to review the corresponding press release we issued yesterday afternoon. I'm pleased that our first quarter performance signals a good start to the year as results met our expectations. This is particularly encouraging given the tough comparison we were facing due to our organic outperformance last year. The execution of our entire organization has been tremendous as we've been driving our business during this challenging labor environment and also preparing for for the rollouts of our many critical IT implementations that are occurring throughout the year. The amount of effort and focus needed is like nothing I've seen in my career. Our team continues to rise up. And outside of operations, there were a number of accounting changes that began this quarter as well, namely the adoption of ASC 606 and 853, as well as our new presentation of the intersegment revenue. Anthony will discuss the implications of these in greater detail shortly, but we've been very busy, to say the least. To summarize, revenue grew to $1.6 billion for the quarter, an increase of 1.2% or approximately 2% on a more normalized basis when adjusting for the aforementioned accounting changes. Our GAAP continuing earnings per share was 20 cents or 31 cents on an adjusted basis, and our adjusted EBITDA margin was 4.3% for the quarter, which also reflects some incremental positive impact from those accounting changes. A few highlights from the quarter included sustained momentum within business and industry and technology and manufacturing, as both of these segments expanded with strategic national accounts and drove bottom line results. We've been focusing on maximizing our scale and building on these large multi-site clients since organizing under our industry group structure. This is a great testament to how our service excellence and stellar relationships can lead to continuing opportunities as our clients grow. Our domestic technical solutions business was another bright spot during the quarter as we continued to build a strong pipeline of projects with the backlog above the $100 million mark, which is churning at a healthy rate. We're particularly excited about the early cross-selling activity in the education sector and in certain municipalities. You may have read our press releases announcing some great wins, including our energy performance contracting win at West Mifflin Area School District in Pennsylvania and our water meter replacement project for the Rainbow Municipal Water District in San Diego, California. We're also seeing gradual, steady progress at some of the business segments that have been challenged. Aviation has been pressured as a result of the tight labor markets and the elevated TSA hiring process, which can be more protracted. And as we've discussed, in this market, speed to hiring is a competitive advantage. To combat some of these pressures, our strategy of expanding into new service lines is and higher pay scales to attract team members continues to gain traction. I'm excited to announce that we're going to start a new airplane fueling operation this month. While our initial assignment is not large compared to some of our other concentrated contracts, it is an example of how our industry group structure has led to new opportunities to provide value for our clients beyond our legacy service contract mix and give ABM the opportunity to diversify our aviation offering. As we progress through 2019, we will remain focused on the key themes we outlined on our year-end call, growing our business through new sales while managing retention, continuing to navigate the difficult labor environment, optimizing our business through technology and data, and generating consistent free cash flow. Our commitment to growth is unwavering as we continue targeting new sales acceleration, managing retention strategically, and pushing hard for escalations where appropriate. It's thrilling for me to see how energized our teams are to drive sales across all our industry groups. I just returned from a quarterly business review with our industry group presidents, and one of our many discussions revolved around new cross-selling strategies that and how we can maximize upselling different services within each industry group. Our sales culture is undeniable, and I'm pleased to report that we met our first quarter target for new sales. As you know, our goal is to replicate the record-breaking new sales performance we achieved in fiscal 2018. We continue to manage the difficult labor environment, which remains in a similar state to the last few quarters. We've increased the number of recruiters in the field and are being as creative as ever in attempting to attract employees. But make no mistake, it's a challenge. On a positive note, we've seen some success with our targeted operational action plans and pursuit of pricing escalations. While it's about getting through a cycle, leveraging our relationships and having active dialogues with our clients continues to be the key to recovering price over time. Client engagement will be particularly important as we navigate the uncertainty surrounding the economy. It remains to be seen whether the next 12 months will prove to be as resilient as the previous 12 months or whether there will be a slowdown in economic activity or customer decision-making. From tracking labor trends to client decision-making on projects, we are keenly focused on any potential change so we can calibrate our business nimbly. We have certainly proven we can operate in any environment because we have the unique ability to customize our approach by client and the fact that our services remain core to the operations of a facility in good times or challenging ones. Leveraging our strength through technology and data continues to be one of the highest priorities with systems going live throughout the year. Since November, we have successfully launched our new HRIS system and implemented ePay, our new cloud-based time and attendance system for our distributed workforce. ePay now allows our field teams to manage and schedule labor at the site level with real-time dynamic data. Over the next several quarters, we will learn and improve based on gaining a deeper understanding of practical applications these tools can have on our operations. Our goal is to achieve productivity improvements, and in the next year, we expect to enhance functionalities via updates and module additions for maximum effectiveness. We are also actively working on the implementation of our new Oracle Fusion ERP system, which is slated to go live in the second half of this year and provide a strong financial data framework as we look to fiscal 2020 and beyond. Since the inception of our 2020 vision, we have been speaking about becoming a data-driven company. These enhancements are providing a stronger foundation for our operators, and over the next couple of years, we are looking forward to gaining a higher degree of insights that will lead to better plans, more informed decisions, and greater operational efficiencies. From a free cash flow standpoint, our outlook remains unchanged. The first quarter has historically been our lowest cash flow period, but on a trailing 12-month basis, free cash flow is approximately $200 million. In closing, I want to thank our entire organization for a solid start to the new fiscal year. These are exciting, but particularly busy times at ABM, and our team members continue to execute. We remain focused on increasing ABM's scalability, efficiency, and nimbleness so we can raise the bar for excellence even higher. And we would not have progressed to this point without the support and guidance of our board of directors. We have several members retiring this year, and I want to thank them for their contribution and service to ABM over the years. Phil Ferguson, Tony Fernandez, and Laura Lee Martin have not only been valuable partners and advisors to our company, but they have been role models to me personally. and I know I speak for Anthony as well. ABM has been building trusted relationships with our clients and team members for over the past 110 years, and today we are one of the largest facility services companies in the world. The improvements we are making this year, in conjunction with an already diversified and resilient business model, will optimize and strengthen our future legacy. With that, I'll now turn the call over to Anthony.

Thank you, and good morning. Good morning. I'd also like to commend our teams for executing during this first quarter while simultaneously working towards launching our many transformational IT projects. With any major system and process implementation, change management is a key component. And as we deploy our systems, we are also carefully assessing and identifying the necessary updates and modifications we must make to fully take advantage of the technology we are putting in the hands of our employees. With the projects that have gone live thus far, namely HCM and ePay, we are encouraged by what these systems have to offer in terms of productivity and consistency in data capture and analytics. But we realize these benefits will take time to fully mature across our employee base. As Scott mentioned, our next major project is our cloud-based ERP system rollout, which we anticipate will begin in the second half of this year and begin to streamline our back office functions create a more efficient control framework, and provide a scalable platform for our future. As you can imagine, there is much work involved, but we are very excited about the potential of a more integrated financial system and end-to-end process. Regarding our retiring board members, I would like to thank them as well. In particular, as the chairman of our audit committee, Tony Fernandez has provided a great deal of guidance since my appointment as CFO, and I have valued his perspective and advice over the years. Now, before I dive into our results, let me provide you with a few notes. Our first quarter results reflect GCA's complete embedding into our organic base. As Scott mentioned, our results now reflect our adoption of accounting standards topics 606 and 853. These changes are as follows. Impact of revenues associated with service concession arrangements was approximately $11 million, reflected predominantly in our aviation segments. Sales commission costs are now deferred and recognized over the expected customer relationship period, ranging from one to eight years. Previously, commission costs were expensed as incurred. While impacting all segments, this primarily impacted technical solutions due to how commission plans are structured in that segment. The total amount deferred that was previously expensed was approximately $1 million. The profit on uninstalled materials associated with our technical solutions Project-related contracts are now deferred until installation is substantially complete. Previously, these amounts were recognized upon delivery under the percentage of completion method. The impact was approximately $1 million. Initial fees from sales or franchise licenses are now deferred and recognized over the terms of the initial franchise agreements ranging from one to three years. Previously, initial fees from sales or franchise licenses were recognized when sold. Franchise fees are reflected in our technical solutions segment, but we did not have a material impact from the adoption of 606. In total, our revenue for the first quarter on a year-over-year basis was reduced by $11.3 million associated with service concession arrangements, or ASC 853. ASC 606 had a $1.3 million impact to revenue and a $0.03 impact to income from continuing operations per diluted share on a non-adjusted and adjusted basis. Now let me address our first quarter results as reported. Total revenues for the quarter were $1.6 billion, up 1.2% in total and approximately 2% organically, versus last year, which was driven by the business and industry, technology and manufacturing, and technical solution segments. On a gap basis, our income from continuing operations was $13 million, or $0.20 per diluted share, compared to $28 million, or $0.42 last year. Last year's results reflect a one-time net tax benefit of $21.7 million due to the tax cuts and job tax related to the remeasurement of deferred tax assets and liabilities, which was partially offset by a tax expense associated with the repatriation of foreign earnings. On an adjusted basis, income from continuing operations for the quarter increased to $20.8 million, or $0.31 per diluted share, compared to last year. ASC 606 positively impacted these results by $0.03 on both a GAAP and adjusted basis. During the quarter, we generated adjusted EBITDA of approximately $68.8 million at a margin rate of 4.3% compared to $65.1 million at a margin of 4.1% last year. These results were partially driven by the full run rate of synergies related to our GCA acquisition as well as the B&I segment contributions. Higher labor and related also impacted our year-over-year results, as we did not begin experiencing labor pressures until the beginning of the second quarter of fiscal 2018. Having said that, the net of these factors were planned for in our quarterly and full-year guidance. Turning to our segment results. As we mentioned last year, beginning in 2019, we will be breaking out total inter-segment revenue, which reflects services provided between our industry groups. Our B&I segment grew $775 million, or 2.4%. Since last year, B&I has demonstrated strength, underscoring the resilience of our business as it continues to drive performance. Expansion at strategic national accounts and tag growth in urban markets contributed to this quarter's performance. Incremental revenue from our UK operation also contributed to the quarter, but we do not expect that trend to continue as our largest contract with the Transporter for London comps fully during Q2. Operating margins for the quarter were 4.7% versus 3.8% last year, driven by higher margin revenue contributions and certain one-time items that benefited the quarter by approximately 30 basis points, including lower SUI and FUTA taxes in certain states. Aviation reported revenues of $252 million, reflecting an $11 million reduction related to ASC 853, due to the accounting for public sector parking leases. These amounts are now classified as contra revenue, where it was previously reported as rent expense. This segment also experienced the loss of certain airline contracts last year, predominantly beginning in Q3. Operating profit for the quarter was approximately $4 million. We continue to make strategic investments in our team and are encouraged by our new contract wins in catering logistics and, as Scott announced, airplane fueling operations. Looking ahead, we remain balanced in our outlook between new contract wins and anticipated losses in certain markets and service lines as contracts come up for renewal or as certain services are insourced. Technology and manufacturing revenues increased approximately 2% to $236 million with an operating profit of $18 million. T&M has been another strong performing segment since last year as this business continues to expand with our top high-tech clients while also driving good TAG revenue. Revenue and education was $205 million, a year-over-year decline of approximately $2 million, reflecting last year's tough renewal season as this segment was navigating a greater degree of pressure related to labor and pricing. In our continued efforts to navigate the labor market, we were more measured in our approach to renewals as we sought to maintain and improve our contract mix. Q1 of last year was a period of transition and integration. So on a comparable basis, the team's discipline and focus on stabilizing labor costs in many markets, as well as the impact of synergies, led to operating profit and margins above last year. Looking ahead, our education team is focused on capitalizing on opportunities for the critical April to May buying season in our K-12 markets and continues to build our pipeline in the end markets we serve. Cross-selling and targeting first-time outsourcing opportunities also remain a key long-term focus. Healthcare revenue was $67 million for the quarter, with operating profit of $1.2 million. We continue to see long-term opportunities in this segment, although it's currently not performing to expectations, and we continue to look at structural changes to address these challenges. Finally, technical solutions reported revenues of $108 million, up 4% versus last year. Our U.S.-based business continues to thrive as growth occurred at a high single-digit rate driven by a combination of increases in electrical vehicle charging station installations, bundled energy projects, and maintenance work. We are also seeing opportunities in our electrical power services as data center expansions are increasing and our 35 years of NIDA certification continues to be a competitive advantage. Offsetting some of these results was the expected contraction in our UK business, stemming from conditions we discussed heavily last quarter. For the overall segment, operating profit for the quarter was approximately $6 million at a margin rate of 5.5% versus 5.3% last year. Positively impacting the quarter was the impact of ASC 606. As I mentioned earlier, 606 had a heavier impact on this segment as sales commissions are no longer expensed as incurred and the profit associated with uninstalled materials is no longer recognized upon delivery. These two factors had approximately a positive $2.5 million impact to operating profit in the quarter. Over time, we expect these amounts to normalize, but quarter-end delivery of equipment and expected revenue could add some volatility. Lastly, we are encouraged by technical solution sales pipeline, the largest we've seen in many quarters, and project backlog. And outside of the potential timing impact related to 606, we expect the operations to be in line with our historical growth and profit ranges. Turning to cash and liquidity. Cash flow from operating activities in the first quarter of the fiscal year are usually lower than in subsequent quarters, primarily due to the timing of certain working capital requirements. Our DSOs and working capital are modestly behind our internal forecast, but our teams remain focused and we are confident in maintaining our strong trailing performance. We ended the quarter with total debt, including standby letters of credit, of $1.2 billion and a bank-adjusted leverage ratio of approximately 3.45 times, During the quarter, we paid our 211th consecutive quarterly cash dividend of $0.18 per common share for a total distribution of approximately $12 million to stockholders. Finally, while we are just in the first quarter and we're not updating our financial outlook for fiscal 2019, I wanted to remind everyone that we previously mentioned that the new accounting pronouncements could have a negative $0.05 to a positive $0.05 impact on our results for the total year, which we did not include in our guidance outlook range. We will continue to communicate the impact of the accounting change with each successive quarter as we progress through the year. Operator, we are now ready for questions.

Thank you. At this time, we will conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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. Once again, that's star one to ask a question at this time. One moment, please, while we poll for our first question. Our first question comes from Andrew Whitman with Robert W. Baird. Please proceed with your question.

Oh, great. Good morning, and thanks for taking my question. I guess I wanted to start a little bit, I guess, with education. Thank you, Anthony, for the detail talking about kind of the explanation for the growth rate. It sounded like last year's retention was kind of what's driving the growth rate to be negative. But I guess on a longer-term basis, I still think that this is probably the – and you've mentioned it in your script – that this is probably the best secular opportunity for first-time outsourcers. So given that GCA is now in the base and in an extra quarter as well, Scott, how should we evaluate your success in growing that business from here? What is the target or maybe what's a growth rate that you're happy with and not happy with? I think GCA's history has been a pretty growthy company over time, and undoubtedly when you bought it, you expected that to continue to be the case. So I want to understand what you would consider to be a successful growth rate coming out of education.

Yeah, thanks, Andy. Yeah, I don't think anything's changed. You know, we've continued to say we think this will be a GDP plus business, and we still feel strongly that it will. And you have to remember, you know, we're still early on, right? We're just putting our teams together. From a cross-selling standpoint, we're just starting to get traction now. And I think a lot will be told as we head into the buying season, as you guys know. you know, the buying season is really in that April, May, June, July period. And, you know, we feel good about our pipeline going into it. So we're super positive about education. And to your point, it is, you know, for us, we look at this as a $25 billion potential market. And a lot of it is still insourced. And we have projects going on internally to target outsourcing some of those insourced accounts. But that's a longer term initiative for us. So, again, we feel really positive about this segment.

Okay. That's helpful. I guess I wanted to dig next into let's talk about aviation and the healthcare segments. I guess I'd like to understand both of these segments kind of started the year slow in terms of the margin performances versus where you expect them to end the year based on your segment margin guidance. and even those margins are up pretty significantly on a year-over-year basis as well. So I guess my question here is what's going to change in aviation and in health care in particular to help you achieve the margin targets that you've laid out?

Yeah, so aviation, and we know this right from history, it's a cyclical business, and you have these large-scale contracts. For us right now, the biggest – I guess the biggest impediment in aviation is still the labor market. For things that I talked about in my script, it's just a longer hiring process. We are typically on the lower scale in terms of wages for the services we do, which is why we're looking at things like catering logistics and airplane fueling, which could end up having higher pay rates. So for us, it's as much a labor story. as anything else. And top line, you know, it's in and out. There are cycles where the airlines will take certain of our services and move them in-house, and we've seen that. And there are other times where they look to outsource. So when we look at aviation, we tend to look at it in kind of two- to three-year tranches because of the cycles of the airlines and how big they are. But we still feel really strong about that segment long-term. And then with health care, Just to bring that online, it's our smallest segment. Recently we had a leadership change, someone that's come from our technical solutions business. We think there's opportunity as we look at our mix of business to have more critical services there, which tends to be higher margin, and we're pushing along in that area on health care. We feel good about health care as well. And Anthony, I don't know if you wanted to add.

Yeah, the only thing I would add, Andy, is on aviation, as you recall, last year we had some startup costs that, from a margin perspective, impacted us in the second half, and we were clear around that impact. So as you look at the margin progression throughout the year, assuming from a comparability standpoint that doesn't lapse, we should have some expansion on the margin side just from the comparability issue.

Okay, that's helpful. And then just a point of clarification here, there was a lot of, I think, important numbers on the accounting that came out pretty fast. So we'll check the transcript on some of them, but maybe the most important one was, I think, around the 30 basis points, Anthony. This, I think you said, had to do with state unemployment insurance and something else that I wasn't familiar with. I guess my question is, can you explain that a little bit more Was that 30 basis points benefit to the consolidated results, or was that when you were talking about B&I? I'm sorry, it was fast, and I missed it, and I think it's important.

There were a lot of changes in the quarter, so I understand the confusion. This is not an accounting change. This was a state unemployment change that occurred at the beginning of the year that predominantly benefited B&I just because of their presence in certain jurisdictions that had those changes, and it's predominantly in the payroll tax area. So when you look at B&I's results, their results were favorably impacted by the FUTA, which is a federal unemployment tax, and SUI taxes, which, as you know, are more first half loaded than second half loaded. But they did have an impact on all segments, but B&I predominantly.

Okay, so that's 30 basis points to the company then?

30 basis points to the company, but to B&I. So 30 basis rates would be an I. It would be less on a consolidated basis.

Okay. Okay. And so did the unemployment insurance tax rates decrease and you were still able to bill at the same level? Is that what happened or what was technically – is that what – that's what happened?

That's exactly right.

Oh, okay. Cool. Let's see here. What else? Okay, so just last question for now. Maybe I'll jump back in. But on software and IT and clearly a lot of important initiatives that you're working all very hard on, and I think what you're doing there was clear, and the timing around those programs and what they're supposed to do for you was also clear. But I guess, Anthony – As you embark on this cloud-based ERP, or even as you still put in the initial stages here of the other timekeeping thing, are you carrying extra costs today for change management consultants, just extra IT staff or other things? Can you get our arms around the magnitude of those and when those might peel off? And then I think also important is your thoughts on when the efficiency benefits are can start to be realized and to what degree?

Yeah, there's some costs that are being capitalized as part of the implementation. So that'll go through our CapEx budget. And we outlined that at year end in terms of the increase in CapEx associated with the investments. There are some duplicative costs that we're capturing as part of the integration as we migrate over. And as we migrate away from the legacy systems, there's some duplicative costs that we're capturing as part of our transition. to your question around where the benefits, it's really going to be 2020 and beyond, Andy. These systems, when they go live, it takes time from the change management, exactly your point, for us to start to realize the benefits. Some of them will be immediate from the back of the house perspective in terms of efficiencies, but when you look at the front line, which is where the prize really is in terms of operating on a more efficient basis, that takes time, and I think that's gonna be a multi-year journey.

Yeah, and the way I think about this, Andy, is that when you do these systems implementations, especially these more broad ones, I look at this in three phases, right? The first phase is changing behavior of our people to get them to use it and play around with it, right? And you get through that phase, and then it's the second phase, which is like you start getting learnings from it. and you start understanding the data, what it can mean, and then really phase three of this is how do you apply those learnings and actually get a move on operational efficiency where it hits bottom line, and there's no, I don't think there's any set timeline for each of these phases, so I think with some of them, we're just in that initial phase of How do you change behavior? Like I look at the tag price that we put in over a year ago, and our first phase of this was like getting adoption, getting usage, and we're pretty much where we want to be. Now we're in this phase where what are we learning from it? And ultimately we'll get to a point where it will actually have some significant impact. So it's a timing thing.

Okay. I might jump back in later, but I'll yield the floor for now.

Thanks, Andy. Our next question comes from Tate Sullivan with Maxim Group. Please receive your question.

Hi, thank you. Good morning. And thank you for that detail in technical solutions on what helped that segment grow faster than your other segments. Just a couple of clarifications. When you said backlog is greater than $100 million in that segment, is that for all the business women, technical solutions, or just certain projects that you book as backlog?

That's all the businesses.

And directionally, is that up from prior year or historical higher?

We have the largest backlog at the end of Q1 that we've had in our history, where we barometer the $100 million. That's where we feel it's a healthy backlog, and it's really a function of backlog and churn. And we try to target a relative proportion in terms of how that ultimate backlog gets recognized, and we feel really pleased about that. that group's execution on the pipeline as well as their execution from churning that backlog.

Yeah, and I would just tell you, just to give you some color commentary on this, I was just at one of our largest gatherings where we had over 1,400 people in the technical solutions space between our in-house people and our franchise operations. And that group just has so much enthusiasm and so excited about everything that's going on. In the energy space right now, in the power space, we're really, really optimistic about the future of where this is all heading.

Okay, thank you for that detail. And then, Anthony, I think you mentioned, too, the growth in technical solutions is in line with historical growth rates. But what are, I mean, are you referring post-GCA, or how should I frame that comment?

Yeah, I think, you know, technical solutions really continue to be a tailor. perspective, continues to be a growth area. We see a positive pipeline. Our growth has been close to double-digit, and as we mentioned, over $100 million of backlog. UK continues to operate in a challenging macroeconomic environment, as expected. So even though it's down, it's what we expected, given some of the challenges. that we outlined late last year on the macroeconomic front. So when we look at the technical solutions business in totality, performing as expected, but in the regional perspective, the U.S. is clearly outperforming.

Is the U.K., can you quantify or prefer not to, is the U.K. a majority of that technical solutions work?

No, the U.K. is roughly $20 million, I think, in the quarter for the total amount of revenue that we generate.

Okay, thank you for that detail. And then last for me, you mentioned getting into fueling in your aviation business in addition to the catering services that you did before. Is your experience, do you experience meaningful upfront costs when you expand services in one of your business segments?

Sometimes we have some upfront what we call startup costs. For this particular, there's not material startup costs that we would outline or call out given the small nature of the contract in totality.

Okay, thank you very much for all that detail. I'll jump back in line.

Thanks. Once again, ladies and gentlemen, to ask a question, please press star 1 on your telephone keypad. Our next question comes from Mark Riddick with Sedoti. Please proceed with your question.

Hey, good morning. Hi, Mark. I wanted to touch on the education area for a moment and maybe if you could talk a little bit more about what you're looking at going into the key selling season and If there's a way for folks to think about the changes in the go-to-market strategy or maybe some of the things that you think will be helpful in driving the education sales that you see coming up in the seasonal time, that would be very helpful. Thanks.

Sure. You know, I don't know that there's anything different than what our strategy was last year, right? We have... We're expanding our sales force. We're being very strategic about how we're hitting it. When we went into the sales season last year, it was at a point where GCA was just coming together, just getting integrated. We would all say we probably weren't as aligned and ready for the season as we are now. I can tell you that our pipeline is up 20% year over year heading into this sales season, you know, the big churn season for us, versus where it was last year. So we're optimistic about that. So I think for the fact that we have some more time with GCA integrated under our belt, we're more prepared, we have more salespeople, we feel good about it. So it's less of a – but the different strategic approach it's just more about getting all of our tactical ducks in line.

Okay, great. And then circling back on aviation for a moment, you know, looking at the opportunities that you're pursuing in the catering and now with feeling, I was wondering if you sort of touch a little bit about the potential scalability that you see with those and also the and I don't know how connected this is, but how that may or may not tie into the technology upgrades that you've got going on this year, what type of opportunities you think might be available, not just maybe with those service offerings, but then other future service offerings within the aviation group?

Yeah, so I think it's early on for us on some of these new service lines. It's hard to kind of size the prize when you're so early in. I could tell you on the catering logistics side, we are seeing much more opportunity in terms of RFP than we would have imagined last year. So it remains to be seen what our win rate will be, clearly, but definitely a bigger pipeline of RFP. So that's pretty exciting. Feeling way too early to tell. We just got our first contract. And then from the technology side, it's less about technology. I think it's more about Some of the older initiatives like beacon technology and being able to be more efficient in terms of dynamically dispatching our people. And even that's still kind of early on, but we are focusing on that. And with our new e-pay system, time and attendance, our hope is that that's going to have some significant traction in the next 12 to 18 months in terms of scheduling. Because the scheduling dynamics in aviation is very different from than any of our other segments, because if you think about it, being in an airport, it's a very horizontal kind of campus, widespread, distributed, versus more of a tighter, vertical office building, if you will. So scheduling tends to be more important in the aviation sector and more dynamic because you have heavy peak summer season and holiday season. So we're hoping over time that we'll have traction for us.

Okay, and then last one for me, I was wondering if there are any, and it may be a little early for this, but when you're looking at some of the service line pressures that you're utilizing within aviation, is it possible that we might see similar types of things when there was some commentary around? potential structural changes within health care. So I was wondering if that's kind of, you know, if we could sort of see a similar blueprint within the health care segment going forward. Thanks.

Yeah, I think for health care, you know, it'll be a little different. Health care will be more about focus. So in health care, we do a wide range of services. You know, this is one where literally if you think about an acute situation, which, you know, in the hospital setting, we are valeting, cars, we're parking cars, we're doing wheelchair pushes, we're cleaning, and we are taking care of some of the small critical equipment now, whether it's an intravenous machine or what have you. And we even do some catering there. We have a nutrition program. So I think for us, it's not about getting into a new service line, it's about where we want to focus. And the critical equipment, taking care of the small electrical, mechanical equipment, we think has great opportunity for us because it has margin potential. And, again, with having a new leader that has experience in that area of focus could drive some real change. So less about a new service line and more doubling down on ones that we're already playing in.

Okay, that's very helpful. Thank you very much. Thanks.

Thank you. At this time, I would like to turn the call back over to management for closing comments.

Well, thanks, everyone, for joining. As you can tell, we're off to a really good start for the first quarter. For us, we look at this as how are our sales doing and our sales are on track and keeping with our historic record of last year. We're very focused on retention in this pricing environment, and we're going to continue to manage labor with acute focus, and we'll be implementing our system. So we have a really busy year ahead of us, in a dynamic environment but as enthusiastic as ever about where we're heading. And I just want to one last time commend the team for everything they're doing. And thanks for everyone listening in, and we'll see you in the future. Thank you.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a great day.