ABM Industries Incorporated

Greetings and welcome to the ABM Industries, Inc. Fourth Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Paul Goldberg, Senior Vice President, Investor Relations. Thank you, Paul. You may begin.

Good afternoon, everyone, and welcome to ABM's fourth 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 afternoon, we issued our press release announcing our fourth quarter 2022 financial results. A copy of the 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 today, I would like to remind you that our call and presentation contain predictions, estimates, and other forward-looking statements. Our use of the words 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 that could cause our actual results to differ materially. These factors are described in the 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.

Thanks, Paul. Good afternoon, and thank you all for joining us today to discuss our fourth quarter results and 2023 guidance. ABM posted solid results in the fourth quarter, capping off a strong year. Organic revenue growth of 5.8% was broad-based, driven by robust growth in our e-mobility, aviation, manufacturing and distribution, and education businesses, complemented by consistent organic growth in B&I. The ABM team continued to execute well, mitigating much of the impact from higher wage costs and labor shortages, while advancing our elevated initiatives and moving toward our 2025 goals. ABM generated fourth quarter revenues of over $2 billion, with an adjusted EBITDA margin of 6.8%. Our adjusted EBITDA margin remained well above pre-pandemic levels, reflecting improved operational efficiency that we believe is sustainable and can be enhanced over time through our Elevate initiative. Our solid financial and operational performance in fiscal 2022 demonstrated ABM's underlying brand strength and enhanced competitive positioning in a challenging market environment. Despite the expected decline in high-margin disinfection-related work orders, significant wage inflation, rising interest rates, and a historically tough labor market, the ABM team delivered strong full-year EBITDA growth of 9.5%, with an adjusted EBITDA margin of 6.6%. Additionally, with our expanded breadth of service offerings, we generated new sales totaling more than $1.3 billion, another record year. I'll now discuss the demand environment for each of our industry groups. Beginning with B&I, office occupancy rates in the fourth quarter remained at relatively low levels but continue to modestly increase, a trend we expect to continue into 2023. Similar to 2022, we anticipate our operating margin to remain steady in 2023 as we maintain our base of existing customers while leveraging our scale and unrivaled breadth of services to expand our growth opportunities. Recently, we won a sizable contract expansion with Google, to serve their newly built Bayview campus. And we see additional opportunities to expand our partnerships with other significant customers. Moving to aviation, travel, including parking and transportation, has nearly returned to pre-pandemic levels. So we expect our growth rate in aviation to moderate in 2023 from the elevated level we experienced in fiscal 2022. We expect continued growth in our ABM Vantage parking solution as our airport clients continue to migrate to integrated, touchless parking solutions that generate higher revenue and improve the traveler experience. On the cost side, labor availability remains a challenge in the aviation market as time to hire is the biggest impediment due to the TSA's lengthy background check process. As we've discussed previously, in this labor market, speed to hire is important, and a protracted background check process causes headwinds. Demand in manufacturing and distribution continue to be solid, in part reflecting our successful efforts to expand our business with existing customers in the e-commerce and automotive markets. ABM is also winning new business in faster-growing and under-penetrated markets like life sciences. In fact, we just won a sizable new contract with a large pharmaceutical manufacturer in the fourth quarter. And given the significant growth opportunity in this sector, we view life sciences as a strategic priority for 2023. In education, the addition of important new clients in the fourth quarter helped drive organic growth of 7%. We're also seeing a good deal of new contract proposal activity, providing ample opportunity to win new business in 2023 from a variety of potential clients, both from those who currently outsource, as well as those who are contemplating outsourcing. However, labor cost inflation in non-unionized markets especially in the southern eastern regions of the U.S., continues to be challenging for this segment. That being said, we've made steady progress in filling open positions, so we're optimistic moving forward. In technical solutions, we continue to experience robust demand for our e-mobility charging solutions, where revenue more than doubled over the prior year period. For the fiscal full year, E-mobility revenue grew to nearly $130 million from a base of just 36 million in 2021. We also saw strong growth in our mission critical and markets where we provide comprehensive services for data centers, 911 call centers, and national defense related facilities. We expect technical solutions to show strong growth in 2023. aided by the U.S. infrastructure bill and recent passage of the Inflation Reduction Act. In addition, our results should benefit from the contribution from Ravenvolt, which recently signed a sizable contract with a national logistics solution provider to design and install a backup battery storage system at numerous locations over the next few years. So Technical Solutions is well-positioned to benefit from long-term secular trends and remains an area of strategic focus as we seek to identify future acquisitions that broaden our capabilities. Over the past year, we made significant progress with respect to our Elevate initiative. Most recently, we developed a team member retention predictive model that forecasts where and why we may see attrition rise With this predictive information, we can proactively implement effective team member retention strategies, including bolstering HR recruiting support and ultimately reduce labor acquisition costs. We also developed and started piloting a workforce management tool that provides enhanced visibility into productivity levels across our portfolio of accounts. When fully shaped after our pilot period this year, we should start seeing scaled improvements in overall labor spend and meaningful insight into low-performing buildings and how to solve the challenges we may have. Lastly, among all the other initiatives that are in flight, we continue to move forward with our cloud-based ERP system, which we expect will begin deployment mid-year 2023 as part of our Elevate Tech roadmap that runs through 2025. Before I turn the call over to Earl to discuss the Q4 financials and guidance, I want to make a few summary comments. First and most importantly, I'm extremely proud of our talented and dedicated team who delivered extraordinary financial and operational results this past year, despite the toughest labor market on record. By putting our customers first, our team has done a tremendous job in strengthening our client relationships, and opening up new growth opportunities to provide additional value-added services. At the same time, we made significant progress on our Elevate initiatives laying the groundwork that will help accelerate our organic growth and enhance our profitability over the long term. As we enter 2023, now is a good time to provide a status update on how we are progressing toward our 2025 goals of $9 billion in sales, adjusted EBITDA margin of 7.2%, and $400 million of free cash flow. We are already well on our way towards achieving $9 billion in revenue, driven by solid organic growth complemented by acquisitions, including ABLE, Momentum, and Ravenvolt, with more to come. We also remain confident in our adjusted EBITDA margin and free cash flow targets. The 6.6 percent margin we posted this year is consistent with our expectations and represents a solidified base from which we aim to add 60 basis points of incremental margin over the next three years. Given current challenges in the labor market, this projected margin step-up is not likely to be a linear progression, but the end target remains fully achievable as we expect labor costs and inflation to ease in the coming couple of years. This will coincide with our evolving service mix. Additionally, margin should benefit over the next few years from increased operational efficiency and cost savings associated with our Elevate investments I outlined earlier. Our vision for ABM remains clear. We strive to be the leading facility solutions provider in terms of size, scale, and client and team member satisfaction. ABM remains strongly positioned, supported by a substantial base of recurring maintenance-related revenue, including janitorial and engineering services, where we serve more than 20,000 clients. We will continue to invest in and grow our base businesses, both organically and through acquisitions where it makes sense. And we will enhance our performance through a greater use of advanced technology. The free cash that our core business generates will be reinvested in adjacent businesses with large addressable markets and high growth rates and margins, as we have done with acquisitions like Ravenvolt and organic investments in e-mobility. Through this strategy, we see ABM evolving into a higher growth, higher margin facility solution provider underpinned by resilient strength of our core business. We also intend to use our strong cash flow to return cash to shareholders through dividends and share repurchases. Now I'll turn the call over to Earl for the financials.