ABM Industries Incorporated

In the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Paul Goldberg, Senior Vice President, Investor Relations for ABM Industries. Thank you. You may begin.

Good morning, everyone, and welcome to our third quarter 2022 earnings call. My name is Paul Goldberg, and I'm the Senior Vice President of Investor Relations at ABM. With me today are Scott Salmiers, our President and Chief Executive Officer, and Earl Ellis, our Executive Vice President and Chief Financial Officer. Please note that earlier this morning, we issued our press release announcing our third quarter 2022 financial results. A copy of that release and an accompanying slide presentation can be found on our website, abm.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 presentations today contain predictions, estimates, and other forward-looking statements. Our use of the word estimate, expect, and similar expressions are intended to identify these statements, and they represent our current judgment of what the future holds. While we believe them to be reasonable, these statements are inherently subject to risks and uncertainties and could cause our 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 the company's website under the investor tab. And with that, I would like to now turn the call over to Scott. Go ahead, Scott.

Thanks, Paul. Good morning, and thank you for joining us today to discuss our third quarter. ABM generated solid results in the third quarter, continuing our consistent performance throughout 2022. Organic revenue growth of 7.4% was broad-based, driven by healthy demand for janitorial and engineering services in business and industry, aviation, and manufacturing and distribution, as well as in technical solutions. And much like the second quarter, the ABM team executed well and mitigated a significant portion of the increase in labor costs while advancing our Elevate initiatives. Overall, we generated revenue of $2 billion and an adjusted EBITDA margin of 6.6%, which is well above pre-pandemic levels. I was pleased with our performance when considering the many headwinds we faced this year, including the expected decline of enhanced clean work orders, significant cost inflation, rising interest rates, and a very, very tough labor market. And in the face of all of that, the team continued to provide outstanding service to our clients while also focusing on profitability. Based on our solid and consistent performance throughout the year, we are adjusting our previous guidance for full year adjusted earnings per share to the upper end of our range and also narrowing the range for adjusted EBITDA margin. We feel confident about our market positioning and our ability to end the year with strong fourth quarter results given continued favorable demand for our janitorial services and strong demand for our e-mobility and bundled energy solutions. Let's now discuss the demand and operating environment for each of our industry groups. Beginning with B&I, office occupancy rates remain at relatively low levels, but continue to slowly increase. This trend will likely continue into 2023. Modest office occupancy improvement and growth in special events, sporting events, and parking is driving growth from existing customers. We've also done a nice job winning new commercial office space business in the New York City market, and we're excited to have been chosen to take on the services at State Farm Stadium in Phoenix. In addition, we recently added a great client in Spirit Aero Systems in Northern Ireland, won by the Momentum team, who joined ABM earlier this year. With the most comprehensive service offering in the industry, we expect retention rates to remain high and to continue to win more than our fair share of new business. At the same time, we anticipate that higher margin disinfection work will decline again next year in a post-pandemic environment. Moving to aviation, the summer travel season has been robust, driving growth in airside and landslide operations, which include parking and transportation. We're also seeing strong demand in the UK, driven by their border reopenings. Business travel is also improving, although at a more measured pace. We recently announced an important win at O'Hare, significantly expanding the scope of our service at the airport that will generate an incremental $25 million a year in annual revenue over the next five years. However, labor availability continues to be a challenge in the aviation market, resulting in higher overtime costs. We expect these pressures will continue in the coming quarters. Demand in manufacturing and distribution continues to be solid, as this segment remains largely unaffected by reduced occupancy levels. As a result, our organic revenue growth reflected the health and relative stability of these end markets. While we don't expect certain of our e-commerce and logistic customers to grow at the same rate as they did during the pandemic, our industry-leading geographic footprint uniquely positions us to win new business, both with manufacturers and life science clients. In education, K-12 and colleges and universities continue to operate with in-person learning, so we are back to a pre-pandemic demand environment, and we are seeing a much lower level of disinfection-related work orders, as we've been signaling in the past. We've onboarded some large new clients recently, including George Washington University and the School District of Philadelphia, both of which will help drive organic growth in the fourth quarter. We're also seeing a good deal of new contract proposal activity, so we have ample opportunity to renew businesses as we head into 2023. Labor cost inflation in non-unionized markets, especially in the southern regions of the U.S., and low labor availability continue to be headwinds that we are managing. These labor dynamics generally put more pressure on education and aviation than our other segments. In technical solutions, we continue to experience robust demand for our e-mobility charging solutions, where revenue tripled over the prior year period. We expect technical solutions to have strong growth again in 2023, aided by the U.S. infrastructure bill and the recent passage of the Inflation Reduction Act, which allocates an incremental $7 billion for electric vehicles, EV infrastructure, and other energy efficiency investment activities. We also expect a number of bundled energy solution projects to commence in the fourth quarter. On top of that, Ravenvolt, our new microgrid business, which I'll discuss shortly, is poised for strong growth. In all, Technical Solutions is very well positioned to benefit from long-term secular trends. Moving to Elevate, we continue to make progress in the third quarter. In particular, we implemented a new cloud-based work order system, which when fully rolled out is intended to meaningfully streamline and improve the current process we have. We continued testing and refining our workforce management tool and made further progress on developing our core cloud-based ERP system. We also launched ABM Vantage, our new data-enabled smart parking platform at a major trade show last month. Early client feedback has been very positive as operators look for ways to generate more revenue with lower operating costs. Lastly, after the quarter ended, we further advanced on our Elevate strategy by acquiring Ravenvolt, a leading provider of integrated microgrid solutions, including generators and switchgear that deliver energy resiliency and reliability. This acquisition is a strong fit with technical solutions as customers are increasingly turning to microgrids to bolster their onsite energy capacity for EV charging, reducing emissions, and meeting sustainability goals. We're really excited to have the Ravenvolt team on board. Before I turn it over to Earl to discuss the third quarter financials, let me make a few summary comments. First, on the demand side, the general environment is constructive. We are returning to pre-pandemic levels in terms of travel, in-school learning, and industrial activity. Office occupancy is also trending upward, but slowly. We have tremendous growth opportunities in technical solutions driven by energy efficiency, sustainability, cost reduction, and risk mitigation, and further boosted by government stimulus. The Ravenbolt acquisition provides us with another high growth opportunity to win new business. In fact, overall, we expect to finish 2022 with another new sales record. On the cost side, we're continuing to manage several challenges in the current economic environment. The labor pressures we are currently experiencing are largely unprecedented, with unemployment at historically low levels, immigration greatly reduced from prior years, and with high demand from the rapidly recovering travel, restaurant, retail, and service industries, labor shortages are driving labor inflation. We are seeing wage pressure in both blue collar and white collar positions and a real battle for talent. We expect these challenges will persist into 2023. In this environment, we'll remain vigilant on pushing through price escalations, managing costs, and developing systems, programs, and processes to operate more efficiently, and to effectively attract, retain, and manage talent. At the same time, we'll continue to invest in ABM to ensure we build off the strong competitive position we've established. So with that, let me now turn it over to Earl for the financials.