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.