ABM Industries Incorporated

Greetings. Welcome to ABM Industries' second quarter 2019 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Suzy Kim, Investor Relations and Treasurer. Ms. Kim, you may begin.

Thank you all for joining us this morning. With us today are Scott Salmers, 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 second 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 could cause our actual results to differ materially. These factors are described in the 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, and good morning to everyone on today's call. We issued our press release yesterday afternoon announcing our fiscal second quarter results. I'll review a summary of these results and provide an update of our strategic progress as well. Our ABM team continues to rise to the occasion as we perform quarter after quarter while simultaneously managing through our new system deployments as well as the difficult macroeconomic labor environment. I'm pleased with our strong results for the second quarter, which met and in some cases exceeded our expectations. We grew our business to a second quarter record of $1.6 billion in revenues. This was driven by 1.7% organic growth, which adjusts for the adoption of ASCs 606 and 853. This is particularly commendable given our exceptional organic performance last year, which set up a tough year-over-year benchmark for the team. GAAP continuing EPS was $0.45 a share or $0.47 a share on an adjusted basis, and our adjusted EBITDA margin was 5.3% for the quarter. These metrics were also positively impacted by ASC 606 and 853 modestly. From a segment perspective, underpinning our operational results were the business and industry and technical solution segments. B&I, our largest and most scalable segment, continues to highlight how we can protect and grow margin when managing our business strategically and discerningly in the current labor environment. We expanded business with our large national accounts. As our clients grow, we continue to grow with them. We were also more disciplined about pricing, particularly as we sought escalations to account for the labor pressures we have been experiencing. Technical solutions our most profitable segment from a margin perspective, had another home run quarter as they continued to win business at an unprecedented pace in municipalities and the education segment. During the quarter, we announced some great wins, including two energy projects with Bryan County, Georgia, and the El Paso Independent School District. We're now focused on churning through the robust pipeline in this segment. Given our year-to-date performance, we are raising the low end of our EPS guidance outlook to $1.70 to $1.80 per share on a GAAP basis and $1.95 to $2.05 per share on an adjusted basis. Now let me provide you with an update on our progress against our key priorities for the year, which include 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. New sales and retention continue to be an important area of focus. We achieved a record $590 million in new sales bookings for the first half of 2019, compared to $460 million at this time last year, which itself was a record. I'm thrilled about this momentum. We are well on our way to replicating the $900 million we achieved in 2018, an amazing accomplishment and validation of the sales investments we made last year, particularly in technical solutions. While we're on track to achieve our new sales targets, managing retention is a separate and distinct endeavor that has required a great deal of planned focus. If you recall, we were prepared for a challenging retention year as we've been dedicated to seeking pricing escalations given the labor environment. It's always been difficult to command price for the services we provide, but we are committed to pursuing the right decisions for our business. We developed an internal pricing council to increase the rigor around our internal processes and tie strategy to not only grow revenues, but margin quality as well. We have seen mixed results so far this year. Our overall retention rate is 1% to 2% of points lower than our historical average, which you'll remember we mostly anticipated. Many of our clients have been receptive to discussions around market pressures, but in some cases, we've had to be disciplined and more discerning about the contracts we choose to retain based on the labor shortage we began experiencing last year. Our B&I segment provides a good example of how growth could moderate, but you can maintain and even grow margin and operating profits. There are some segments that are more challenging than others, such as aviation, which we saw the biggest decline in retention. Some loss of work was due to pricing. We were also impacted by Delta's decision to insource some of their contracts. And remember, higher wages and shortages of labor affect this group more than others, due to the protracted time applicants have in getting through the TSA background vetting. Speed to hiring is imperative in this market. That being said, our aviation segment has a more robust pipeline than they've ever had. And as we continue to focus on business development and building a high-talent organization, we see a path back to our original growth and margin vision for aviation over the next 12 to 18 months. Now let me spend a few minutes on the current labor environment. It's been a year since we first started seeing and discussing pervasive labor challenges as a result of the decline in supply of qualified applicants. Since then, it has become a widespread and highly publicized topic of discussion across industries and regions. By this time, we would have hoped for more improvement in labor market conditions, but we are not seeing any meaningful change, which is disappointing. And frankly, we don't see any improvements in the near term, which is also disappointing. This is why we are so focused on quality of earnings and choosing our clients wisely. As we consider a variety of labor and macroeconomic conditions, it's also important for us to ensure our entire portfolio is best positioned to provide superior service. Since the beginning of the year, we've been making structural changes to our healthcare division, including a change in senior management. After careful evaluation with the new leadership team, we have collectively concluded that remapping and realigning the healthcare business within our other segments, primarily BNI, will provide the infrastructure necessary to support the efficient growth of this business. Of the roughly $250 million in business in this segment, two-thirds of the services are core to BNI. Of the specific acute business, we are maintaining a strong network of subject matter experts to provide expertise to support and grow with our clients. We're all excited about this move and how it will enable us to leverage our scale and strengths and capture the long-term potential of this end market. Anthony will discuss the financial and synergistic implications of this realignment later on the call. Improving our infrastructure is a theme for 2019, particularly on the IT and data front. As you know, we went live with our new HRIS and time and attendance systems in the last six months. In May, we went live with our ERP system in the UK and we're slated to go live in the US later this year. As each system gets implemented, we are learning more and more how we can apply these tools to maximize efficiencies and gain insights into our business. While still early, we are seeing how building the necessary data history over a period of time can provide benefits long term. I'm reminded of when we first began our transformational journey in late 2015 and what we've accomplished in less than four years. We have grown annualized revenues to $6.5 billion, more than 30%. We've expanded our margins 40 plus percent from 3.8% to above 5%, and we've delivered 20% adjusted EPS growth. And the work we've embarked on in 2019 is a continuation of this journey as we build an ABM that is positioned for an even stronger and more prosperous long term. I want to thank our entire organization for making all of this happen and for another quarter of excellent execution. I'd now like to turn the call over to Anthony.

Thanks, Scott, and good morning, everyone. Before I expand on Scott's overview of our second quarter performance, I would like to quickly review the impact of ASC 606 and 853 on our reported results. In summary, the detailed changes that most impacted us in the quarter were lower revenues associated with service concession arrangements of approximately $12 million, reflected predominantly in our aviation segment, lower sales commissions associated which are now deferred and recognized over the expected customer relationship period, primarily impacted technical solutions by approximately 3.5 million. And the deferral of profit on uninstalled materials associated with our technical solutions project was approximately negative 1.4 million. As you all know, these new accounting adoptions are not the only change we are managing this year. In addition to the launch of our cloud-based human capital management and time and attendance systems in Q1, We are now in the deployment phase of our ERP implementation. I, too, am excited that we launched the first phase of our ERP rollout in the U.K. last month. The pilot approach and phasing will benefit us as we continue with our deployment strategy. I know all of our team members are looking forward to having a unified system where we can finally combine our legacy GCA and our legacy ABM financial environment. With each quarter, these new systems will help us evolve our processes, such as our monthly closing. Change management is never easy, and I commend all of our teams for working through our complex project plans to implement our new systems while continuing to manage our day-to-day operations. As we go live, we'll also be amassing the data history necessary to truly impact our decision-making in the future, and that is an exciting prospect for all of us as this has been a challenging component of our legacy system. Now turning to our results. Revenues for the quarter were $1.6 billion, a total increase of approximately 1%, and 1.7% organically versus last year, driven by our technical solutions and aviation segments. On a GAAP basis, our income from continuing operations was $29.9 million, or $0.45 per diluted share, compared to $25.4 million, or $0.38 last year. On an adjusted basis, income from continuing operations for the quarter increased to $31.5 million, or $0.47 per diluted share, compared to $31.2 million, or $0.47 last year. ASD 606 positively impacted these results by approximately $0.03 on both a GAAP and adjusted basis. These results were driven by a combination of higher margin revenue contributions from our technical solution segment, as well as higher margin mix from our business and industry and technology and manufacturing groups. During the quarter, we generated adjusted EBITDA of approximately $84.7 million at a margin rate of 5.3%. Now turning to our segments. As a reminder, beginning this year, we began breaking out total inter-segment revenue, which reflects services provided between our industry groups. A historical comparison can be found in slide 24 of today's presentation, which we also provided last quarter. Our B&I segment delivered $753 million in revenue and operating profit of $48 million for a margin rate of 6.3%. We continue to see success on many fronts, including ongoing expansions at some of our large national accounts. B&I has also been a great example of how the disciplines we have instilled over the years are beginning to yield favorable margin results. Adhering to stricter pricing standards, managing labor more acutely, and pursuing escalations aggressively in the face of the current labor market has produced a better mix of business. Additionally, on a year-over-year basis, this segment also overcame approximately 2 million of beneficial one-time items that occurred during the second quarter of 2018. SUI rates also helped the quarter, but we anticipate the benefits to reduce in the second half as taxable wage limits are reached. Aviation revenues were $250 million. This reflected roughly $12 million year-over-year reduction related to ASD 853 as a result of the accounting for public sector parking leases. These amounts were previously reported as rent expenses but are now classified as contract revenues. As Scott also detailed, this segment continues to overcome the loss of certain contracts from last year. Operating profit for the quarter was approximately 5.9. Our team continues to leverage our density while pursuing a two-tiered approach of diversifying our service offerings, like catering, logistics, and fueling, and building upon our subject matter expertise in janitorial at additional airports, both with low-cost and regional carriers. As we look at the longer-term fundamentals of this industry, we believe infrastructure improvements at airports throughout the U.S., as well as strong travel trends, will continue to play into our strengths and lead to continued demand for our services over the long term. Technology and manufacturing reported revenues of $224 million, with operating profit of $19 million and operating margins of 8.5%. Like the B&I segment, T&M has been balancing growth this year with a focus on pricing when considering retention. We are expanding with more profitable clients. in the high-tech sector, and we have seen some initial interest for higher technical services pull through, which is a good trend. Revenue in education was $206 million, with operating profit of $10.4 million. These results continue to reflect last year's buying season, as we are optimizing our newly scalable education group as a result of the acquisition and integration of GCA. Looking forward, we are pleased to be in the midst of the new buying season, so we can finally anniversary last year's lingering effect on our 2019 results, and position education well for fiscal 2020. Education should also be a primary beneficiary of the system convergence, as the education portfolio is currently operating on our legacy platform. Transacting and processing team members on two separate systems makes it more challenging to manage turnover, especially in education, given the higher proportion of non-union contracts. Turning to technical solutions. Technical Solutions reported revenues of $128 million up almost 18% versus last year, with operating profit of $9.5 million at a margin rate of 7.5%. The sales pipeline and project backlog in this business only continues to grow, and we could not be more excited by what the team has delivered. Our strategy of pursuing mega projects, those defined as over $25 million, is beginning to bear fruit, and we closed two in the first six months of the year. While we are excited about the unprecedented demand we are seeing in the business, We want to remind everyone that this is project-based growth and does not necessarily signal a new long-term outlook at current levels. Historically, this business has grown in the high single-digit to low-teens range, and we continue to believe that that is a sustainable expectation for this segment. On the operating profit side, technical solutions business is the other segment that is most heavily impacted by this year's new accounting rules. As I stated earlier, the impact of ASD 606 on the current quarter was approximately $2.3 million, On a year-over-year basis, last year also saw $2 million in 179 tax credits, which did not repeat this quarter. Finally, moving to healthcare. Revenues were $66 million for the quarter with an operating profit of $2.6 million. The longer-term opportunities for this business have been rooted in growing our presence in the non-acute space as well as smaller hospital systems. As Scott introduced earlier, to fully leverage all that ABM has to offer and to align a sales strategy that could take advantage of our reach, we have decided to realign our healthcare operations into other segments. This realignment will occur in the third and fourth quarters of this year. We expect to incur approximately $1 million of additional costs and anticipate, once fully integrated, to generate between $3 to $4 million in run rate savings by the end of this fiscal year. Turning to cash and liquidity. Cash flow from operations was more than $90 million during the quarter. We have recaptured some of the DSO slippage we saw in Q1 coming out of an exceptional fiscal 2018 year-end collection. We continue to proactively manage our DSOs, and outside of any one-time event, including timing of working capital needs for large new job starts, we continue to expect to replicate last year's cash flow performance. We ended the quarter with total debt, including standby letters of credit of $1.1 billion and a bank-adjusted During the quarter, we paid our 212th consecutive quarterly cash dividend for a total distribution of approximately $12 million. Now for a review of our updated guidance outlook, which does not include any impact on the new accounting pronouncement, which could be zero to positive five cents for the year. Today, we are narrowing our GAAP and non-GAAP guidance to reflect our year-to-day performance. We now expect GAAP income from continuing operations to be in the range of $1.70 to $1.80, and 195 to 205 on an adjusted basis. This represents a 5% increase to the bottom end of each range. While our first half performance increases our confidence regarding fiscal 2019, we want to remain prudent given the revenue flow through as we continue to manage retention and our labor carefully. We must also overcome the year-to-date underperformance in aviation, as well as the healthcare segment, which is obviously a much smaller business. Additionally, corporate expenses have also come in below our initial expectations due to the reversal of some stock-based compensation related to our long-term incentive plan, as well as the timing related to the deployment of our IT project. We anticipate some of the IT benefits to reverse as we continue deployments in the second half of the year. We are also narrowing our interest expense expectations for the year. During the first half of this year, interest expense was $27 million, a year-over-year improvement of approximately $2 million. This was driven by contiguous low short-term rates. In addition, we continue to benefit from the strategy we executed during Q2 of fiscal 2018 when we terminated our existing swap and relayered new swaps. As a result of these benefits and in conjunction with continued working capital management, we are revising our full-year interest expense outlook to $51 to $53 million. Operator, we are now ready for questions.

Thank you. 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. And for participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Sean Eastman with KeyBank Capital Markets. Please proceed.

Hi, team. Thanks for taking my questions. For me, first, you know, it's great to see the strong new sales bookings in the first half. It'd be great to get a better idea of the margin profile embedded in those wins relative to historical norms and whether there's any concentration from an end market perspective, just to get a sense for where you guys are really having some success there.

Yeah, so... You know, for us, I don't know that there's specific analytics, but I will tell you we have been so much more discerning on the kinds of business we're taking on and looking at that margin profile. And I think we've said it before, we look at margin in two ways. One, what's the margin expectation going in, and then what's the trajectory potential, right? So there's a difference between taking on a cost plus account versus the count where you have a kind of fixed price and the ability to accelerate through efficiency and some of the deployments that we're making on the technology side. So for us, we think that we're starting to see good traction on margin right at the outset and with our plans. And for us to focus, if there was one area I would highlight from a growth standpoint and a margin standpoint, it would be our ATS business. you know, everything around energy and sustainability right now. It's just been particularly hot for us. So that's been the area of focus that I would point out.

Okay. And then for TS, you know, clearly very active. But, you know, you guys seem to be sort of cautioning that this too-few trajectory is not really kind of a sustainable rate. But, you know, maybe just to get a better sense – it would be great to get a bit of a better sense on how you'd characterize visibility there. You know, maybe just how far the backlog gets you, maybe the visibility on how that backlog's going to be translating to revenues in the next couple quarters.

Sure, Sean. And I think just to put the – comment and context. So we see great – the pipeline is the strongest it's ever been. Our backlog is at a record. And our churn, which is the conversion of that backlog into revenue, continues to hover around the 20 percent, which is the historical – a little lighter than the historical – well, right around the historical average. So we see great prospects over the next six to 12 months. My comment was really – intended to provide some guidance around the longer term, 18% is a record phenomenal growth. We expect it to be in the mid-digit, high single-digit, low double-digit teams range. So don't take the comments out of context. We see great prospects over the next six to 12 months based on the backlog and our ability to turn that backlog.

Yeah, and the other comment I would say, too, is one of the things we're seeing, we're seeing larger-scale projects, too, which is really encouraging for So if you kind of look at – if you were to look two years ago at our average project versus today, you're just going to see that we're gravitating to bigger, more complex projects, which, you know, we're real excited about as a firm.

Okay, great. And then last one for me, clearly B&I and T&M margin performance was well above expectations for the quarter and then also well above the full-year segment margin targets. And, you know, it seems like that's the case even if you take out some of the one-time benefits in the quarter. But it seems like you guys are stopping short of raising the annual target for those segments. So I'm just wondering about some of the moving parts in there and why we shouldn't be thinking about that as the new norm for margin profile.

Well, we actually did raise on BNI our operating margin trajectory for the rest of the year. So we are seeing improvement. And for us, it really comes down to kind of the discipline in these groups about managing labor and just all the things that we've been talking about over the last few years about standard operating practices and just taking the best of what we have and applying it across the board. So it's... It's something that's been real helpful. And don't get me wrong, we are still super cautious about the labor environment right now. And you heard it in my prepared remarks. We had hoped that things would be better by now. It's been a year or more since we've seen these labor pressures. And you can read it in the papers, right? There's been no real progress on the immigration front. You know, supply continues to shrink, and it is disappointing, right? We're a labor business, and we'd hoped we'd see just a little bit of moderation to the positive now. And there really is no catalyst at this point to see a turn in that. So, you know, that's the disappointing thing for us. But, you know, the good news, and you're seeing in our results, is if you stay positive, on how you're managing the business and you put a lot of rigor around the day-to-day, you know, you could mediate it, which is what we've been doing. But, you know, make no mistake, we're a labor company and we are cautious about the labor market.

Helpful. Thanks for the time. Sure.

Our next question is from Andrew Whitman with Baird. Please proceed with your question. Sure.

Hey, great. Thanks for taking my question. Anthony, I guess in your commentary you talked about some of the delays and some of the IT spend, which is kind of helping this year's guidance. I guess that means there's a little bit more of an impact probably to next year. And I was just wondering as you guys roll out some of the, particularly that ERP later this year, what the incremental cost is going to be maybe on a gross and maybe also considering there probably will be some netting effects. Just any kind of visibility can help us as we look into 2020 on this, since it seems like there's going to be some kind of impact.

Sure. Yeah, and, you know, our IT spend was projected to go up, and we anticipated to continue to increase. These are investments that we had planned out as part of transforming both our front end time and attendance all the way to our ERP. And over time, you know, all of these are going to have an ROI associated with it as we get more efficient on the front end. as well as the back end. And some of that front end, to Scott's earlier point around the labor management, is really being enabled by the technology we've put in place and the discipline around that technology. So from a sequential standpoint, some of this obviously is going to be CapEx spend that becomes amortization. So from a sequential standpoint, year over year, you've seen roughly a $6 million increase in IT spend. Some of that, again, is going to be depreciation of the build, as well as moving to software as a service license agreement, which we outlined late last year, our approach. As it relates to 2020, the incremental, we see roughly another six or seven million of incremental IT expense, but that's on a gross basis. We have not yet outlined the netting that's going to be part of the efficiency from the back office, so you have to take into context that's the gross.

Okay, that's helpful. And then I guess just my last question here is on the new wins that you announced. It's always good to see new wins being part of the equation here, and it sounds like the sales efforts are really working. You know, those have historically been very tilted, and I guess you guys kind of alluded to the fact that those are tilted towards technical solutions. But, Scott, as you look at the annuity type business that's in those new wins and compare it to the growth rates here in the quarter, I mean, what do you see in terms of like a net new or kind of, I don't know how you want to think. I guess it has implications on organic growth. But what's the view on organic growth, seeing as this quarter was a little bit more subdued and the winds look good, but I don't know how much the annuity. Can you just talk about that dynamic here as the rest of the year, what you're seeing for the rest of the year playing out?

Sure. And I'm not sure you're going to see much of a difference than where we are right now, Andy. And I do want to go back to the theme we've been talking about, which is, Organic growth as a metric kind of I think will lead to a false kind of evaluation of where we're going. I would just really encourage everyone to look at the two pieces of organic growth, which is new sales and retention. And clearly the numbers speak for themselves on new sales. Like, you know, I could tell you, you know, being very transparent, if you told me three years ago, that we were going to sell $590 million in new business in a six-month period, you know, I know how I would answer that, right? So, you know, what we're doing here and kind of the investments we're making is really paying off and absolutely more tilted to technical solutions, which, you know, by and large is a good thing, right? It's our highest margin business, so we're excited about it. Um, but I think it's really about retention and, um, you know, we're trending a little lower than historical again, which, which we've talked about in the past as well. And I'm not sure that's going to change over the next six or 12 months because we really want to keep the discipline of not taking and renewing business that's, you know, subpar from where we're trying to take this firm. Right. So, um, I wouldn't suspect there's going to be much of a change, but I'm biased, but I'd like to think that that is healthy versus unhealthy. So we're going to keep to that. We're going to keep to the rigor around our pricing council and how we're going. I think for us, it's that piece of keeping the new sales machine going and getting the bookings going and just continuing to stay disciplined on the retention front. And I will point out, Andy, and this is an important thing, we aren't looking at this as like kind of spreading the concept like peanut butter, right? There are strategic accounts that we have, big, large enterprise strategic accounts where we will moderate on margin if we have to retain that. It's more about the less strategic accounts. where we're making those tougher decisions. And it doesn't feel good for anybody. Nobody likes losing business. But, you know, we're changing the profile of how we look at things, and we want to feel good about what we're doing. And it doesn't feel great when you're doing work for free.

And, Andy, the only thing I would add to that is, you know, if you look at B&I, you know, their discipline around culling the lower margin business and where they're growing in the margin business that they're bringing on, on average, is better margin business than what we've historically it's the discipline and the maturity that we've come a long way over the last couple of years that's really starting to bear some fruit.

Our next question is from Mark Riddick with Sidonian Company. Please proceed.

Hi, good morning. Good morning. First of all, I appreciate the pricing discipline commentary, so thank you for that. One of the things that I did want to touch on, switching gears a bit, is to go into the debt reduction. You mentioned coming down about 3.3 times. I'm wondering if you had sort of a near-term target there and what that might do as far as your current acquisition appetite.

Sure. You know, 2019, you know, we laid out a strategy that, you know, internal investments on IT, M&A, we're going to take a B. and continue to be focused on our working capital management to drive down our leverage. And our plan is to drive that leverage down to somewhere under three times by 2020, early 2020. And that will give us an opportunity to really look at opportunities in the marketplace, either organic opportunities or inorganic opportunities. And we continue to be focused on managing the DSOs to get back to the full-year targets we initially put out at the end of last year.

Okay, great. And is there sort of a general view or maybe update that you can give as to, you know, what the acquisition pipeline might look like, or at least a general view as to, you know, maybe what you're seeing out there as far as attractiveness and valuations, things like that? Thank you.

Yeah, so we stay pretty active in looking at opportunities, and we feel like we're in the narrative of everything that's in the market and And also, being more strategic, there are people out there that have feelers out for us knowing how we're thinking about it. But going back to Anthony's point right now, this year, 2019, is about paying down debt and getting to the point where we will have that proverbial dry powder in 2020. So we think the pipeline is good. We think that there's going to be some terrific opportunities for us in 2020 when we get to the place where we're ready to do acquisitions again. So it is quite encouraging. There are opportunities in the market.

And the only thing, Mark, I would add to that is your question on the valuations. Valuations, I think, are still fairly high, and I think that's really a function around the resiliency of our underlying business. You know, when you look at our business and you compare what opportunities for us, for the markets that we are in, it's really a resilient business. So as you start to look at, you know, the potential for slowdown in the economy, it's businesses like ours that generate, you know, the free cash flow conversion that remains sticky, that are driving a lot of attention and a lot of interest, both on private equity as well as other investors. that has created a little bit of a dynamic around pricing from a valuation standpoint, but we're going to remain disciplined when the time is right for us to look at opportunities.

Okay, great. Thanks for taking my question. Sure.

We have time for one more question, and that will be Tate Sullivan from Maxim Group. Please proceed.

Hey, thanks. A couple quick questions. review. Is this the first year-over-year comparable metric you've released for new bookings since the November 17 GCA acquisition?

No, we started with our bookings last year, Q2 of last year, and then we're updating it on an annual basis at the end of the year. So you can expect mid-year updates both at the Q2 and year-end as far as where we stand as well as the outlook for the upcoming year. And obviously, we'll continue with that trend.

Okay, but this mid-year update, the year-over-year growth, was the highest in your history? Was that what you mentioned earlier?

Yeah, you know, that's right. And last year, it was the highest in our history. And, you know, and I will tell you candidly, we're like, wow, this is going to be a tough comp when we do this again in 2019. So, you know, to be $130 million more than our record of last year, it's just astronomical. So really pleased about that.

Thank you. And real quickly on the healthcare comments, will all of healthcare go into B&I, or did you say earlier, Anthony, that that'll be mixed into different segments, and how will that work potentially?

It'll be predominantly into B&I, but we're also looking at the portfolio, specifically on the clinical engineering side, as well as the hospital systems that are attached to universities, and there could be a split into both ATS and B&I. education. We just haven't finalized the numbers, but I anticipate the majority of predominantly will be in B&I, uh, but education and our technical solutions business will also, uh, receive a portion.

Okay. And, and just to follow up on that, I think you mentioned maybe a $1 million cost associated with that reorganization effort. And was that in your previous guidance, uh, captured between the gap EPS and the operating EPS guidance? It was. Yes. And it was 1 million. Okay. And then, and then real quick, just last, uh, Aviation margins, I think you touched on a little bit earlier. First half of the fiscal year, they're around 2% versus the 3% guidance. What can help that business in the second half, please?

So from a revenue standpoint, I think for us, we're seeing the biggest pipeline we've had in years in terms of aviation. So that's really encouraging. And what's interesting is it's not only the U.S., but it's the U.K. as well. So we're seeing great growth. We've actually been seeing double-digit growth on the aviation side in the UK, which is great. As I mentioned in my prepared remarks, Delta made the decision to insource some of our contracts. And this could be a cyclical business, and we've talked about this for years now. They're big, chunky contracts, and we see them moderate. So I think we're going to have some headwinds on the growth side going into the rest of this year, just as a result of the annualization of some of the Delta losses, but the team's been working so hard over the last 12 months about diversifying our portfolio, so it's not just dealing with the big three, right, United, Delta, and American. You know, we're doing business now with JetBlue, Alaska Airlines, Scandinavian Airlines. So we're going across the board, and we're also differentiating our offerings, getting into catering and fueling. So the team's doing a good job about making sure that no one client is overweighted. But historically, Delta's been one of the larger pieces of our portfolio now. And don't get me wrong, it's still under 10% of what we do, but I think we're going to be very discerning about diversifying.

Okay. And then thank you for all the detail earlier on technical solutions, too, and that's it for me. Thank you.

Thank you. This concludes our question and answer session. I would like to turn it back over to management for closing remarks.

Well, thanks, everybody. And, again, I just want to reiterate how encouraged we are about where we are from an execution standpoint in this really tough labor market. You know, you think about what we're doing here, and, again, you think about four years into this and the growth we've had in our margin profile. And the growth that we've had in our margin profile in context to the fact that we are in – the worst labor market in modern history. I'm just so proud of the team. And IT is going to be the big piece for us over the next couple of years, right? We're going to get these systems implemented this year. And you're going to see in ABM that when you look at a year ago versus what's going to happen in the next year, where we're going to have a new HR system, a new time and attendance system, a new ERP system, a new purchase order system, a new T&E system. We are modernizing our IT platform. We're making investments, and they'll give us some headwinds, as Anthony talked about, but we are playing for the long term here. And to think about towards the end of 2020, the year 2020, having a new operating model focused on industry groups, having a back office system, that's modernized with a shared service center and national procurement, and then finishing off the last leg of 2020 vision with a modernized IT platform that's going to give us data analytics to have insights into our business and to leverage the standard operating practices we're doing. We just think it's spectacular. And I didn't want to end this call without saying how encouraged I am about where we are and how excited I am about all the changes that are happening in the future because they're foundational to our success long-term and, as you can tell, pretty excited. So thanks for spending the time on the call, and we look forward to the next quarterly update. Have a great summer, everybody.

Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.