ABM Industries Incorporated

Greetings, and welcome to the ABM Industries, Inc. Quarter 1, 2020 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, Treasurer and Head of Investor Relations, Suzy Kemp.

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 first quarter and fiscal 2020 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 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.

Good morning, and thanks, Susie. And thank you all for joining us today to discuss our results for the first quarter of the fiscal new year. As stated in our press release yesterday afternoon, we are off to an encouraging start for the new year. Total revenue, which is now all driven organically, was up slightly at $1.6 billion. Our GAAP continuing EPS was 41 cents per share or 39 cents per share on an adjusted basis. Adjusted EBITDA margin held at 4.3%. All this enabled us to achieve leverage below three times for the second consecutive quarter. As always, our results were anchored by our operations. While our performance on the top line was impacted by the lower pull-through of revenue as a result of our selective approach to retention last year, we are experiencing the corresponding positive impact on our operating segment profit given our mix now includes the loss of certain lower margin of contracts. Our business and industry segment had another good quarter as our scale continues to strengthen our positioning with national accounts. Also driving B&I's performance was an increase in activity with our sports and entertainment division as we helped our clients put on some exciting events. We're so proud that we had up to 300 ABM team members at Levi's Stadium throughout the San Francisco 49ers' incredible season and postseason run. Our technical solutions group saw strong growth on the heels of our robust pipeline from last year, and we continue to see demand for energy and sustainability-related projects. Both operationally and financially, our results would not have been possible without our team members who keep delivering across the board. As we've discussed, our goals for this fiscal year involve business investments that will enable our team to accelerate growth and productivity and we're striving to become a more data-driven company to enhance our ability to help our clients gain insights into how to make their facilities more efficient. Optimizing revenue management has been a key theme for us since we began prioritizing growth with our 2020 vision strategy. We've built a powerful sales force with a professionalized program that has led us to now target $1 billion in new sales annually. And while we do not disclose our new sales bookings until the second quarter, I'm pleased that we've kept the momentum going into 2020 by meeting our first quarter internal expectations. Another cornerstone of our sales approach is cross-selling. Internally, we've put a spotlight on cross-selling across all industry groups. We've developed new training and tools to prepare our teams for finding ways to meet the needs of clients through our ability to self-perform and subcontract a wide range of solutions. It's an expanding part of our revenue base, but not anywhere near its potential, which is very exciting. We've been actively recruiting salespeople, and while we are net growing our team, the hiring environment remains highly competitive. As you know, since 2018, we've been adding human resource recruiters throughout our entire platform, which has been critical to our success. Each department and segment now has permanent, dedicated recruiters to fill vacancies more productively. Our growth is also dedicated to client retention. We ended last year with retention lower than our historical norm as we navigated rising wages and the necessity for contract escalations. We pursued a discerning rebid and pricing strategy to ensure we are making responsible decisions for the long term. As a result, retention landed at 90% for fiscal 2019, down from the 92 to 93% range, which is indicative of a normalized environment. During this fiscal year, we are standing up a new strategic account management team to focus on client retention, and we believe this will have a foundational effect over the long term. And while we saw a sequential improvement in retention during the first quarter, I want to reiterate the labor markets and associated wage escalations and acceleration have not eased and we will continue to pursue responsible price escalations where appropriate. One of the keys to minimizing the impact of this labor market is to be as efficient as possible on how we schedule and deploy our team members in the field. The next phase of our transformation will include channeling even greater resources to improving labor management through process and technology. ePay, the upgraded cloud-based time and attendance system we implemented last year, is deepening our ability to manage our distributed workforce. Data is now being incorporated into our weekly operating reviews, and we are driving productivity improvements. It's been one of our primary factors in our ability to achieve margin stability in this And, of course, we're committed to reinforcing our team members as our competitive advantage. Our mission is to make a difference every person every day, and we take this very seriously, and it starts with our people. You've heard us talk about investing in talent with our salespeople and recruiters to improve speed to hire and resources towards training and onboarding. We're also investing in the team member experience to improve employee retention and attract higher quality talent. We are igniting a number of programs around team member engagement and are energized about how we will continue to evolve on the talent front. Also, part of our evolution is the modernization of our IT infrastructure, which began in earnest in the last 18 months. As part of our IT roadmap, we initiated a phased approach to our Fusion ERP implementation in 2019. After launching in the UK earlier last year, We went live in Canada this past December. It's been three months, and I'm pleased that we are now closing our books with our new financial system for both the UK and Canada. Given the complexities of the systems that speak to our Fusion ERP, like our HR system and ePay, our priority is to make certain we are fully tested and trained to be ready for a U.S. rollout. The deployment in the U.S. is complicated, and we've increased our investment in organizational change management project teams, and consultancy to safeguard continuity and conduct readiness assessments. Our target for the US remains calendar 2020, but we will adjust our timeline to early 2021 if it's sensible for a successful implementation. The key is to ensure that our clients aren't affected once we make the switch. Looking ahead, we are reiterating our guidance for the year given our solid first quarter performance. That being said, it's important that we address the global crisis surrounding coronavirus COVID-19. At ABM, we have no direct exposure in countries like China or other level two geographies, and our business has not seen any real impact yet from COVID-19. But it would be imprudent if we didn't consider all aspects of our business and the potential for any future effects. Our first priority is the safety of our 140,000 employees who serve at thousands of job sites across the US and UK, including airports and healthcare facilities. We are monitoring where cases have been reported and following the safety protocols of the World Health Organization and the Center for Disease Control. Based on the current market reaction, the business scenarios seem endless. On one hand, Travel slowdowns, supply chain disruptions, and office closures could have ramifications on business conditions, market demand, and client decisions. On the other hand, we could see an increase in demand as clients enforce more preventative sanitizing measures. So for us, it's still early, and we haven't seen any meaningful impact to our business at this point. We're staying close to our clients, and we will ensure that we are working as solution partners as events unfold. Times like these underscore how our underlying business fundamentals are sound and resilient. Remember, we're predominantly domestic with a highly diversified portfolio that has proven to be more stable than other sectors. We remain well-positioned to pursue growth and profitability throughout our service mix and scale, and with our current leverage profile, we have an attractive capital structure that allows us to be opportunistic with share repurchases and M&A as well. ABM stands as proud today as we ever have, and we are confident that we've built a business model, a strategy, and a team to win. I want to thank our entire organization for a strong start to the new fiscal year, and we look forward to continuing our execution for the remainder of fiscal 2020. With that, let me turn the call over to Anthony.