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.

Thank you, Scott, and good afternoon, everyone. For those of you following along with our earnings presentation, please turn to slide five. Fourth quarter revenue increased 18.6% to $2 billion, reflecting the contribution for acquisitions as well as broad-based organic revenue growth of 5.8%. Moving on to slide six, net income in the fourth quarter was $48.9 million, or 73 cents for a diluted share, up 43% and 46%, respectively, over the same period last year. The increase in GAAP net income primarily reflects higher segment earnings on significantly higher volume and lower acquisition and integration costs, partially offset by higher interest expense and higher elevated related investments. Adjusted net income for the fourth quarter increased 2% to $59.4 million, and adjusted earnings per share was 89 cents, an increase of 5% over the prior year period. The increases in adjusted net income and adjusted EPS were due primarily to higher segment earnings partially offset by higher interest expense. Adjusted EBITDA grew 18% over the prior year period to $130.7 million. Adjusted EBITDA margin for the quarter was 6.8%, flat with last year, largely reflecting tight cost controls and price escalation, which largely offset the anticipated decline in higher margin disinfection services, as well as higher operating costs, particularly for labor. I believe our margin performance was quite impressive given the labor environment we faced during the year, and our team did a phenomenal job successfully negotiating price through escalations. Now turning to our segment results beginning on slide seven. B&I revenue increased 27.5% to over $1 billion, primarily driven by the contributions from the acquisitions of Able and Momentum. Excluding acquisitions, Organic revenue growth was 2.6%, reflecting modestly improved office occupancy rates, as well as solid demand for parking services, concerts, and sporting events. Operating profit in B&I increased 32.9% to $92.4 million, benefiting from significantly higher revenue. Our operating margin of 9% was slightly higher than that of the prior year period and largely reflected leverage on volume, and strong execution with regard to price escalations and cost controls. Aviation revenue increased 9.1% to $214.4 million, marking the sixth consecutive quarter of robust year-over-year revenue growth. This improvement was largely due to increased leisure and business airline traffic and related increase in parking activity in a post-COVID environment. Looking ahead, we believe year-over-year growth rates in aviation will moderate as travel has essentially transitioned back to pre-COVID levels. Aviation operating profit was $1.3 million versus $13.2 million in the prior year period, and margin was 0.6%. Operating earnings and margin were negatively impacted by work order approval timing related to a large parking construction project where ABM had completed significant work and awaits final customer approval. We expect to receive approvals in the first half of the calendar 2023. Turning to slide 8, manufacturing and distribution revenue grew 8.7% to $371.2 million, reflecting solid market demand and expanded business with existing e-commerce and manufacturing clients. Operating profit increased 11.3% to $41.2 million, and operating margin improved 30 basis points to 11.1%. These results were driven by favorable customer mix and operating leverage on higher volume, partially offset by lower levels of disinfection-related work orders. Education revenue increased 6.9% to $217.1 million. benefiting from new clients onboarded in the fourth quarter. With bidding activity in education fairly strong, we expect education to continue to post positive year-over-year growth in 2023. Education operating profit was $8.3 million, up 3% over the prior year period on higher volume. Margin decreased 20 basis points to 3.8% due to lower enhanced clean revenue as well as higher wage costs, including overtime expenses. Technical Solutions grew revenue 21.5% to $179.6 million, largely driven by continued strong growth in our e-mobility service offering, strong growth in mission-critical markets, and from the recent Ravenvolt acquisition. Operating profit was $20.9 million compared to $18.8 million last year. Operating margin decreased to 11.7%, primarily reflecting service mix that was most heavily weighted to our e-mobility service line versus the prior year. Moving on to slide nine, we ended the fourth quarter with total debt of $1.4 billion, including $158 million in standby letters of credit, resulting in a total debt to pro forma adjusted EBITDA ratio of 2.6 times, At the end of Q4, we had available liquidity of $686 million, including cash and cash equivalents of $73 million. Free cash flow in the fourth quarter was $104 million. For the full year, free cash flow was negative $30 million, reflecting $143 million legal settlement and another combined $146 million impact from our CARES Act repayment, integration costs, and elevate expenses. Full 2022 free cash flow was over $250 million, excluding these items. Interest expense was $16 million in the fourth quarter, up nearly $10 million over the prior year period, and about $5 million sequentially from Q3, reflecting significantly higher interest rates, as well as a year-over-year increase to total debt by $380 million. Turning to capital allocation, we repurchased roughly 580,000 shares in the fourth quarter at an average price of $39.69 per share for a total cost of $23 million. For the fiscal 2022 year, we repurchased approximately 2.3 million shares for $97.5 million. We also recently received board approval for $150 million expansion of ABM's share repurchase authorization. The total authorization now stands at $197 million. Now let's move on to guidance for fiscal 2023, as shown on slide 10. For 2023, we expect GAAP EPS to be in the range of $2.43 to $2.63, with adjusted EPS to be in the range of $3.40 to $3.60. Interest expense is expected to be between 71 and $74 million in 2023, compared to $41 million in 2022. Our tax rate is expected to be between 29 and 30%. We expect to grow adjusted EBITDA at a mid single digit rate with an adjusted EBITDA margin between 6.4 and 6.8%. We expect full year 2023 cashflow to be in the range of $270 million to $300 million before the second and final installment of our CARES Act repayment of $66 million and combined integration and elevate costs of about $75 to $80 million. Turning to slide 11, we expect to post solid mid-single digit growth in operating earnings at the midpoint of our guidance, reflecting revenue growth supported by price escalation and other cost control measures to help mitigate higher labor costs and labor shortages. At the same time, we anticipate interest expense will be a 32 to 35 cent headwind to earnings per share in 2023, representing the primary cause of the year-over-year decline in our forecasted adjusted EPS. Overall, our anticipated growth in operating earnings in a tough macro environment speaks to the underlying strength of our business model and our team. Additionally, we expect the quarterly cadence of our adjusted EPS to return to a more typical pattern now that most of the impacts of COVID have subsided. Prior to the pandemic, for example, our Q1 earnings have represented on average approximately 21% to 22% of our full year's adjusted EPS. with about 45% of adjusted earnings per share generated in the first half of the year. We expect a similar performance in fiscal 2023. With that, let me turn it back to Scott for closing comments.

Thanks, Earl. I'm very excited about the future of ABM. Nobody in our industry matches the scope of our services, the scale of our operations, or the strength of our balance sheet. I'm confident we will deliver a solid 2023 and continue to make progress towards our 2025 goals. With that, let's take some questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The 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. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.

Thank you. Our first question is from Tim Mulrooney with William Blair.

Please proceed with your question.

Hey, this is Sam Costner. I'm filling in for Tim. Thanks for taking our question here, guys. You know, maybe to start... We've seen recently some companies pull back hiring or even announced targeted layoffs. And recent Joel says it seems to show some cooling in the labor market. It sounds like it's still a very difficult labor market for you guys. But have you guys seen any signs of increased labor availability or even able to find talent easier than maybe, say, a few months ago?

Yeah, sure. That's a good question. You know, look, I think, you know, if you think of 2022, right, and, you know, for us, we're in 2023 now with our fiscal year, but When you think of 2022, I mean, that was as bad as we've ever seen. So we're expecting a little bit of moderation this year. We're starting to see the participation rate, which is people that will come into the market. We're starting to see applications go up a little bit. So we're still cautious, Tim, for sure. And we still think it's going to be a very challenging year. We're hoping that it's going to be incrementally better than last year.

That's helpful. Appreciate the color. You know, for maybe pivoting to ERP, actually, you mentioned you expect to begin the rollout in 2023. I was wondering if you could provide us a bit more detail on that project. Will the rollout be targeting any segment or client type first? And I know you broadly talked about the margin benefits from the Elevate program, but can you share how you think about the ERP project as it relates to any margin benefits?

Sure. I mean, look, we're going to be very prescriptive and careful in how we roll it out. We're going to start with our education group mid-year next year. And it's probably a two-year process of rollout, industry group by industry group. And I mean, we're just super excited about it because we're just going to have modern, best-in-class systems for our financial data. And I think what people forget is is that the ERP is kind of the center of the hub, the financial system, but every system that we have talks to the ERP, right? So the data analytics we're going to have with our timekeeping system, our work order system, like everything. Think of the ERP as the heartbeat of every system that we have in the firm and workforce management tools that we're going to be rolling out through Elevate. Everything ties into it. So we just couldn't be more excited about it. But expect it to start cascading through mid-year next year with education. And we'll keep you guys close to it as we roll it out because, again, there's so much anticipation in the firm for it.

Excellent. That's good to hear. And maybe I could just squeeze one more real quick, just a housekeeping question. You know, your guidance, how much are you assuming in management reimbursement revenue? I know your EBITDA margin of guidance excludes this, so just want to level set for everybody.

Oh, management reimbursement, is that more for on the parking side, which is something we talked about? It's about 30 basis points you can think about.

Okay, thanks. Appreciate the call, guys.

Thanks, Tim.

Thank you. Our next question is from Andy Whitman with Baird. Please proceed with your question.

Yeah, great. Good evening, guys. Thanks for taking my question and having some time here tonight. Excuse me, I thought I would ask a question here just on some of the implications from your guidance on the revenue line. You went through this a little bit by the segment, but I guess, excuse me, with the EBITDA, excuse me, expected to be up mid-single digits. You obviously have some inorganic contribution from Ravenvolts and the other deal. guess in margins basically at the midpoint guided EBITDA margins guided flat year over year I guess that that means that the organic revenue guidance is probably what like in the three or four percent range I guess I just wanted to see have you comment on that and then it sounds like like you're expecting good growth in technical solution sounds like there's good momentum in education M&D has been strong for years and had a good quarter here. So it feels like the slower-growing segments are aviation and B&I. So maybe, Earl, do I have that right, or is there some way I should be thinking about that differently?

Yeah, no, thanks, Andy. To answer your first question with regards to revenue, so I think one way of thinking about it is that we're planning on growing our revenue organically above GDP. And again, if you think about it, we're continuing to see good demand for our services across each of our IGs. And again, if you look at that, plus the contributions associated with acquisitions, and to your point, flat margin, that kind of gets you to that mid-single digit EBITDA growth year over year. With regards to the IGs, one thing to note, you're absolutely right. ATS, we will see probably above average growth as we continue to see the benefits associated with e-mobility and sustainability projects. However, aviation, because we're still, you know, if you think about the first couple quarters of FY22 where we weren't still back to kind of like pre-pandemic levels, as we now have been, you know, emerging to pre-pandemic levels and we lapped those periods, you will see kind of like outpaced growth in aviation as well.

Okay. Speaking of aviation, I guess... Could you help us understand the magnitude of the work order or the change order that you're waiting for on the approval for that one? And why is there a dispute over the work? Is that why it's taking longer to pay? Maybe just some background on that. It looks like, just judging on the margins here versus kind of historical levels, it looks like it's fairly material.

Yeah, no, I mean, relatively speaking, not for the enterprise, but for aviation it was, only because If you think about half that we've had for aviation, you know, at 5% operating profit, right? So now this gets a flat. So, you know, you could do the math as well as I can. It's about a $10 million issue. And it's, you know, this context, Andy, is we're in this very large project with a client that involves construction operations. We're putting in our ABM Vantage. So what happens, these projects are super dynamic, right? And You know, there's changes that happen along the way. And as these changes are requested by clients, we'll do that even ahead of the formality of some approval processes that clients go through. So in this case, towards quarter end, we were in the process where the work got ahead of the formality of the approval process. We're highly confident that in the first half of the year, we're going to get that payment. It's for us, it's a timing issue.

Got it. Okay, last question, Scott. You didn't mention it on the script, but it was in the press release here that you're targeting the 30% to 35% payout of adjusted EPS as the dividend over time. Now, maybe I missed it or maybe I just haven't focused on it enough, but you paid out about 21% this year. So I guess what's a realistic time period, not looking for specific guidance, but to get to that level? Obviously, the dividend bump that you had here was a little bit bigger. It seems like you're starting to strive for that. But is this like something we can expect to happen by like 24 to get to that payout ratio, or how should we be thinking about that?

Yeah, I'll take that question, Andy. So if you look at the increase that we've just announced, it really is what I would call a jumpstart to our longer-term strategy of getting back to that 30% to 35%, which, again, is where we were pre-pandemic. I would say from a time perspective, again, we're not rushing into this, so I'd say it's not going to be linear, but probably about a three- to five-year period. Got it. Thank you for your time.

Thanks, Andy.

Thank you. Our next question is from Faisal Alwi with Deutsche Bank. Please proceed with your question.

Yes, hi. Thank you. So first, I guess, Scott, I was wondering if you could, you know, reflect back on maybe the acquisition of ABLE and how you would characterize, you know, some of the cross-selling efforts or where are you in that cycle? Like, has the acquisition so far been, you know, in line with your expectations, ahead of your expectations? Just some perspective on that would be helpful.

Sure. Well, I could start by saying we are just super excited that we consummated that transaction. And, you know, what this does for us, FISA, in like the kind of that engineering space, right, and sustainability and all the headwinds in that area, or I should say tailwinds in that area, just phenomenal. So we're super pleased with the acquisitions. It's on our expectation, everything we thought we would get from ABLE. So really, really excited. The cross-selling effort's just beginning now. I think that's something, and I think we've said from the start, that's something that takes time because you put business development teams together, they've got to get educated on the platform. So that's a longer journey, but I would just say today we're as optimistic as ever, probably a little bit more optimistic now that we've got a chance to look under the covers, and we're just really happy with the acquisition.

Great. And then on the e-mobility part of the business, could you help size it for us in terms of what it was in the year? I know it's been growing very strongly. Maybe if there's a number that you can put in terms of how you're thinking about that for 2023. And are you thinking of Ravenvolt as... I mean, I don't think it's part of e-mobility specifically, but would you put it in a similar box maybe? Like what's the growth trajectory that we should be thinking about for those two businesses?

Sure, sure. So like e-mobility, you know, I can only tell you, like you saw the numbers, you know, it went from, you know, 30 million plus to 130 million plus, you know, year over year. And it's like we have such high hopes for it. It's really hard. to talk about the addressable market because it's so big. The numbers are crazy, right? And you know this just intuitively, the demand for electric vehicles, the lack of charging stations out into the public. It's a huge addressable market. We love the fact that we are number one, number one installer, and that we're building a business around that because there's so many components of e-mobility that we're still not in yet. So we're super excited about e-mobility, but it's really hard for me to tell you what the ultimate size will be other than we're putting a lot of effort into it and we're going to be growing. We're going to be growing obviously faster probably than any other place in any other segment. And then Ravenvault, again, super excited about that. I mean, if there was any Anything with Ravenvolt, they're experiencing what everyone's experiencing in terms of supply chain issues. That hasn't let up. But the backlog is growing. I made mention in my prepared remarks about this massive contract that we just won. So for us, it's about just rolling it out. And actually, like we said, we don't recognize revenue until we turn the wrench or install the microgrid. And I think we're all just hoping that in 23, or at least the back half of 23, we'll start seeing some relaxing on the supply chain.

Great. And then just follow up on the labor point. I think you said, although I could be wrong, that over time you expect labor costs to ease, which I think is a fair point. But I also know that you do have a pretty heavily unionized workforce. And those contracts, I believe, are up for renewal in 24, 25. Give us a sense of how far in advance do those negotiations start? Are you anticipating that you might see sort of a big increase, sort of almost like a catch-up? payment with that, you know, that might happen? How do you think about that?

Yeah, so typically these negotiations start anywhere from six months to four months before. So we have some time on that. And, you know, there could be a catch-up. You know, for us, it's less worrisome because with collective bargaining agreements, they're public documents. A lot of times, Pfizer, the management companies And the owners help negotiate this. So it's very transparent. And when we're going for customer increases, it's the easier part of the market because they know about what the wage progression is going to be. They help negotiate it a lot of times. So it's an easier conversation when you say to them, listen, the wage and benefit portion is going up 4.5%. You know, we're a lower margin business. We have to recapture that. So that doesn't cause us a lot of heartache.

Got it. Perfect. Thank you so much.

Thank you.

Thank you. Our next question is from Sean Eastman with KeyBank Capital Markets. Please proceed with your question.

Hi, everyone. Thanks for taking my questions. I just wanted to start with a granular one, just given the The initial guidance came in below the forecast I had, and I want to make sure we frame exactly why, because the margins coming in line with expectations was good to see. So maybe one of the other kind of missing pieces is the DNA, especially in light of Ravenvolt being folded in there. Earl, would you be able to help us out with that?

Yeah, I would say, you know, just based on what I've seen from, you know, some of the consensus, I think the biggest outlier is really interest. And I think, you know, based on what we put out in the script where we're suggesting that our interest is going to be anywhere between $72 to $74 million, which is a significant increase year over year, that's probably the biggest delta that you actually have to your current consensus.

Yeah, and what I would say, Sean, is like if you strip out interest expense And you look at where we're guiding and the range we're guiding, and we are growing this firm. And the reason I wanted to jump in is we're just so proud of that, right? You know, we all know the macroeconomic environment. We know the wage pressures. We know what, you know, people are thinking about, you know, potential recession, all that good stuff. And we're continuing to grow this firm operationally. which says that we're agile, we know how to manage our labor, we're aggressive in getting price escalations from our clients. So like super, super proud of where we're coming in, you know, X the interest expense portion.

Yep, I think that's a good jump in, Scott. But Earl, I still want that DNA.

The DNA. So if we think about DNA, I'm not guiding to the exact number, but what I can tell you is that the DNA is really associated with the acquisitions of Ravenbolt. Absolutely. If you look at what we're guiding from an acquisition perspective, we have the Ravenbolt as the latest acquisition. And again, what we shared last quarter is that we're anticipating that to be $0.03 to $0.04. of accretive EPS net of the interest expense.

Okay. All right. That helps. Great. And over the past several quarters, we've been waiting for contract rebids to occur in a meaningful fashion. You know, my understanding was a lot of those decisions were kind of being pushed out through the pandemic. And I wondered if those decisions have started to kick off and how you'd characterize how ABM's faring in terms of retention and maybe market share gains.

Sure. I mean, look, I think you saw we had a 93% retention rate this year, which was phenomenal from our perspective, right? Yeah. You know, so it hasn't been yet, because I'll always be conservative, you know that, Sean, but it hasn't been yet this onslaught of all these clients saying, we have to go out to bid, we have to reprice. We've been pretty aggressive of working with clients on renewals, right, ahead of bids. But this cascade of clients bidding out work hasn't been on the radar right now. It doesn't mean it won't change. It doesn't mean we won't come back from it. I'm always going to be conservative, right? It doesn't mean we won't come back from the holidays, but I have to tell you, this is not something that's keeping us awake at night right now. Whereas maybe a year or so ago, we thought, wow, when the pandemic ends, are all these clients going to go out to bid? And that's not the sentiment that we're getting from our clients right now.

Okay, that's probably good. Okay, and then... You know, how would you characterize the economic sensitivity to sort of the non-janitorial margin accretive growth story over the next couple of years?

Yeah, so look, I think for us, the tailwinds are incredible with some of the federal programs that they've put in place and availability towards everything around ESG, right? And, you know, with our technical solutions group and what they offer in our manufacturing and distribution groups. which is dealing with all the e-commerce life science companies. We think there's tremendous tailwinds. I think the short-term impediment is the supply chain. And this isn't new news. I mean, this has been going on for a couple of years now, right? I think just the reason it's coming more to the fore is that we had thought by now that things would open up more. But some of the Asian markets where we get a lot of the supply from have had their COVID issues. So Hopefully, towards the back half of this year, it'll open up. But I think, you know, for us, if you look at our industry groups and our segments, we think we just have a lot of tailwinds in the next couple of years.

Okay. Very helpful. Thanks for taking my questions. I appreciate it.

Thanks, Sean. Thank you. Our last question is from Mark Riddick with Sedoti. Please proceed with your question.

Good evening, everyone. Good evening. So I wanted to start with, you touched on it in your prepared remarks around the pace of return, or the activity around returning to office, and I was wondering if you could touch a little bit on that, because I guess since we last spoke, when you reported your three Q numbers, that change has been kind of gradual, I guess if you talk about from, call it September, the beginning of September to now, call it Labor Day to now, that's been kind of gradual. I was wondering if you could talk a little bit about maybe what you're seeing and what your planning is going into next year as to what you're looking for as to how that plays into your planning and your expense matching and the like? Sure.

I mean, look, the return to office has been slow, like we've said, but slow but increasing, right? And I think we've seen it a little bit in the numbers. And I could just tell you anecdotally, you know, as I travel in my circles and talk to some peer CEOs, there's definitely a push to get people back to the office. I don't think we're going to see five day a week anytime soon. And we may not even see four day a week anytime soon, but like two to three is solidly in the crosshairs for 2023. And that should play to our benefit because we want people back to work, right? It's good for us. generates work orders, it generates demand. So we're optimistic that there'll be incremental return to work in 2023, but not outsized. I think it's going to be moderate, but up moderate.

Gotcha. And then the second question I have is around, well, topic, I guess, is really around acquisition and the overall pipeline, the valuations that you're seeing, because certainly when you When you set the initial goals, the initial elevate goals, I mean, with the answers you've already done, you're certainly most of the way there as to the goals that you set at that time. So I was wondering if you could talk a little bit about your own appetite for additional deal flow as well as maybe what the pipeline looks like and valuations in the way.

Yeah, so, you know, look, we're still going to do acquisitions. You know, I think they'll be probably more in the range of tuck-ins right now. You know, it's a different interest rate environment at this moment. And, you know, we're hyper-focused on the technical solutions area, and they tend to be smaller in size anyway. You know, the acquisitions in that space don't have a B at the end or an M at the end, right? So we'll still be active in the markets. There is a pipeline, but So I would say what we're seeing is there are people that are – it's more pausing than stopping, I think, and that probably aligns well with what we're seeing in the capital markets as well. But we're not going to be shy about pulling the trigger on something that's strategic and makes sense. But as Earl has said, we're careful about our leverage ratio, and you're not going to see it. you know, popping above three times. That's not what we want to do here. So rest assured, we're not going to get over our skis on acquisitions, but we will continue to grow this company through acquisition. Excellent. Thank you very much. Thank you. Well, thanks everybody. I know that was the last question. I appreciate you getting on tonight and, um, just we're excited about 2023. Hopefully you can, it came through in, in our sentiment and, uh, I just wish everyone has a happy and healthy holiday, and we look forward to getting back and talking to you about our Q1 results. So have a good night, everybody.

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