ABM Industries Incorporated

Good afternoon, and welcome to the AMB's first quarter fiscal 2022 earnings call. At this time, all participants are in a listen-only mode. Please note that there will be a brief question and answer session following the ABM management team's formal remarks. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Paul Goldberg

at abm mr goldberg you may begin good afternoon everyone and welcome to our first quarter 2022 earnings call my name is paul goldberg and i'm the senior vice president of invest relations at abm with me today are scott salmers our president and chief executive officer and earl ellis our executive vice president and chief financial officer please note that earlier this afternoon We issued our press release announcing our first quarter fiscal 2022 financial results. A copy of this release and an accompanying slide presentation can be found on our website, abn.com. After Scott and Earl's prepared remarks, we will host a Q&A session. But before we begin, I would like to remind you that our call and presentation today contain predictions, estimates, and other forward-looking statements. Our use of the words estimate, expect, and similar expressions are intended to identify these statements. 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 our filings with the SEC. During the course of this call, certain non-GAAP financial information will be presented. A reconciliation of historical non-GAAP numbers to GAAP financial measures is available at the end of the presentation and on our company's website under the Investor tab. And with that, I would like to now turn the call over to Scott.

Thanks, Paul. Good afternoon, and thank you all for joining us today to discuss our first quarter results. ABM is off to a great start in 2022, as demonstrated by our results. I'm particularly pleased with our organic revenue growth of over 9%, which was broad-based and reflected not only a pandemic recovery, but also robust demand for services that enable healthy buildings, sustainability, and energy efficiency. Our service offerings closely align with these trends, and we were successful winning new business with world-class clients And this momentum is positioning ABM for strong growth in 2022. First quarter revenue grew nearly 30% to $1.9 billion and adjusted EPS was 94 cents, both above our expectation. Margin was solid at 6.6% in the quarter and reflected the expected change in mix from a high volume of enhanced clean and disinfection related work orders to a more traditional mix of janitorial and other services. Due to our stronger than anticipated first quarter performance, we are raising guidance for adjusted EPS to $3.50 to $3.70, which is a 5% increase at the midpoint of the range. I'm pleased with the resilience our business has shown throughout the pandemic and excited about our future as we shift toward a more normal operating environment. While we still face labor challenges as things continue to ramp up, we are confident in how we are structurally positioned relative to labor cost inflation, and I'll explain why in a few minutes. First, let me comment on the demand environment. Beginning with B&I, office occupancy rates remain at low levels but are gradually increasing, and this trend is expected to continue throughout 2022. The east and west coasts are about 15% to 25% occupied, with the Midwest higher at about 30% to 40%. The Omicron variant delayed return to office plans, but we expect activity will pick up in April, assuming no further setbacks. Demand is greatly improved for special events, such as concerts and sporting events, as venues are operating at fuller capacity. Looking forward... As occupancy rates rise, we will benefit from increased volume, but we'll also see an easing in the labor efficiency we've experienced for the past several quarters. Moving on to aviation, travel rebounded significantly from the prior year, with U.S. passenger volumes now much closer to pre-pandemic levels, mostly driven by consumer travel. We believe travel demand will continue to trend higher, especially in the second half of the year, as both business and consumer travel is expected to pick up. We are pleased with the margin improvement for aviation, which has been aided by our focus on optimizing our service mix. This is the first quarter we're reporting results for our new industry group, Manufacturing and Distribution. M&D is off to a great start, and the strategic logic of aligning these key verticals is already paying dividends as we are expanding with existing clients like Amazon and winning new business. Occupancy rates in M&D have remained high, largely driven by consumer demand for goods and services through both the e-commerce and retail channels. The growth in demand we are seeing is coming from the expansion of distribution facility square footage to meet the continued strong growth in e-commerce. Demand is also coming from larger clients who want to partner with a service provider with the resources and scale to support their growing footprint. ABM is clearly uniquely positioned to meet this need. In education, K-12 and colleges and universities are operating with 100% in-person learning. We expect demand for our services to be relatively stable. The roll-off of three education accounts in the back half of fiscal year 21 resulted in Q1 revenue declining 1% year-over-year. However, on a sequential quarterly basis, revenue, operating profit, and margin all improved. In fact, operating profit improved $4.6 million and margin increased over 200 basis points as we managed labor costs related to the ramp-up of in-person learning. It's important to note that education operating margin is now over 100 basis points above pre-COVID levels, even after the return to in-person learning. Technical solutions is seeing robust demand in the e-mobility market. E-mobility has grown from a small service line to the largest portion of ATS's backlog. We have programs with several auto OEMs to install EV charging stations in their dealer networks, and we are winning new business with municipalities and corporate fleets. We expect demand to rise as the funds dedicated to EV charging within the US infrastructure bill begin to be allocated. The transition to electric vehicles is just getting started, and we aim to capitalize on our leading position to broaden our growth opportunity to include initial design and service and maintenance, complementing our EV installation services. Sustainability and energy efficiency will also drive long-term demand for our HVAC and bundled energy solutions, where we guarantee our clients energy savings. This has been our core offering in ATS for many years. Overall, In addition to a constructive demand environment, we are distancing ABM from the competition as we integrate the ABLE acquisition and move forward with our Elevate initiative. The ABLE integration progressed well in the first quarter and our teams will continue this work for the balance of the year. Our initial focus has been on combining team members, clients, and operations into a unified service delivery platform. As we undertake this process, Client satisfaction remains paramount, and our customers have responded favorably. Our next step will be to onboard ABLE to our common shared service and IT infrastructure. Our team remains confident that we will achieve the synergy targets we laid out when we announced the acquisition. We also make good progress, of course, core elements of our Elevate program. Last month, we launched a cloud-based tool which streamlines the candidate application process and provides hiring managers with more visibility into the hiring process. This investment is especially timely now and should improve the yield of our recruiting efforts. In addition, we are driving increased employee retention through more data-driven methods. We recently launched a tool that provides greater insight into labor trends at our job sites. This data helps our teams to create an action plan to improve retention. We will continue to share the progress we're making on Elevate in the coming quarters. Before I turn it over to Earl to discuss the financials, I'll briefly discuss the labor environment. I know it's top of mind with our investors, as it is with our team. Let me start by stating the obvious. No company is immune to labor cost escalation or the tight labor market. That being said, the majority of ABM's wage inflation risk is mitigated by the makeup of our direct labor workforce. As a percentage of our contract revenue, roughly two-thirds of our direct labor is represented by collective bargaining agreements where wage increases are fixed or they're part of a cost plus arrangement or part of some other arrangement where wage rates are known. Within that two-thirds, the majority is unionized labor and the annual increases are generally in the range of three to four percent and have now been locked in for the next two to three years and are transparent to our clients. Transparency makes capturing increases less difficult as clients know that our increases are a direct result of stated contractual wage increases. So that leaves about one third of our labor costs that are not contractually protected. In these instances, we seek adjustments to cover cost escalations when appropriate. Our success in adjusting wage rates is a reflection of the value our clients place in ABM and our ability to provide essential service even during the most challenging of times like we just saw during COVID. We have good success rates in recovering these costs we would point to 2018 and 2019's labor prices as good validation. And in those instances where we can't come to an agreement with our client, we have the courage to let our services be rebid and repriced. On the topic of labor availability, like everyone else, we feel the effects of the labor shortage, and we are proactively responding through several initiatives, including greater use of data and analytics, enhancing our pre-employment onboarding process and the initiation of a candidate care services team these actions are helping to drive important short-term and long-term benefits to our recruiting and candidate retention programs the data supports the progress we are making july of 2021 marked the point where we had the highest number of job openings since then we've been trending down and since then The number of job applications is up 14%, and the number of applications per open job is up 25%. We believe that the number of people coming back to the workforce will only increase as inflation continues to take a toll and forces people back into the market. We remain confident in our ability to manage through today's challenging labor environment, just as we've done in the past. With that, let me now turn it over to Earl for the financials.