ABM Industries Incorporated

Greetings and welcome to the ABM Industries, Inc. First Quarter 2024 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 with Investor Relations. Thank you, Mr. Goldberg. You may begin.

Good morning, everyone, and welcome to ABM's first quarter 2024 earnings call. My name is Paul Goldberg, and I'm the Senior Vice President of Investor 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 morning, we issued our press release announcing our first quarter 2024 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 the Q&A session. But before we begin, I would like to remind you that our call and presentation today contains certain 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 now like to turn the call over to Scott.

Thanks, Paul. Good morning. And thank you all for joining us today to discuss our first quarter results. we're off to an excellent start in 2024. First quarter revenue increased 3.9% to $2.1 billion, all of which was organic growth. Our aviation team is doing a great job of leveraging ABM's leading position in a robust travel market, winning significant new business with both airports and major airlines, which I'll speak more about later. Manufacturing and distribution and education also both generated solid revenue growth in the quarter, with M&D capitalizing on positive demand trends and an effective sales strategy. Despite some project delays and winter weather interruptions, technical solutions grew revenue double digits, driven by the closeout of several battery energy storage system projects in Q1. We were pleased to sign a large contract with a leading national retailer, at more than 150 sites over a multi-year period. This is a large and exciting program for us, showcasing the breadth of capabilities that ABM can now offer. It's also a testament to our RavenBolt team, as this contract represents a significant expansion of our relationship with this particular client, both in the scope of services and the number of sites. Our B&I business remains resilient benefiting from end market diversification and from strong cost management. B&I's revenue was essentially flat year over year, reflecting softer demand within the commercial real estate market. We also continue to effectively push pricing across our business, resulting in adjusted EBITDA and margin that were consistent with our expectations. As a result of the recognition of certain discrete tax benefits and our solid Q1 operating results, we are raising our full-year outlook for adjusted EPS, which Earl will discuss in more detail. I'll now discuss the demand environment within each of our industry groups. Let's start with B&I. Office density and vacancy rates remain largely unchanged from three months ago, with density at 50% plus and vacancy at approximately 20%. While we're not expecting material changes in office utilization trends over the next few quarters, We believe there will be a gradual increase in the time employees spend at the office over the next couple of years. In this operating environment, we remain confident in B&I's resilience. We continue to focus on better performing Class A office space while providing a broad mix of services, including engineering and parking. Our strategy continues to largely mitigate ongoing pressure within commercial real estate market and enhance our long-term growth opportunities. For example, we saw double-digit revenue growth in our sports and entertainment business, driven by strong consumer demand for live sports and concerts. I'm so proud that the ABM team was responsible for facility services at the Super Bowl at Allegiant Field in Las Vegas last month and did an amazing job. Additionally, We recently won a multi-year contract for facility services at Chase Field in Arizona, the major league home of the Diamondbacks, and we're pursuing opportunities at several other sports and concert venues. Looking forward, we believe we will outperform the underlying commercial real estate markets given our flexible labor model, cost management efforts, and the diversity of our service lines and clients. Moving to aviation, The leisure business travel markets, including international travel, have remained strong, and we've continued to renew business, including a large janitorial contract at Tulsa Airport and an airline cabin cleaning contract in Boston, with more on the way. One reason for our success is our branded ABM Clean service offering, which has gained significant traction in the market. ABM Clean is a technology-driven, demand-based cleaning service that integrates data from beacons, guest and user feedback, as well as from real-time flight schedules, which allows our on-the-ground teams to deliver enhanced outcomes for our clients and a better travel experience for the public. Because it's demand-based as opposed to schedule-based, ABM Clean adapts to the dynamic conditions in the airports. We believe ABM is the only company in the industry that can self-perform operations and provide design for purpose technology, which can be fully integrated into our client systems. We currently have ABM clean up and running at 10 locations with several other airports and airlines interested in our innovative solution. To demonstrate our capabilities in the aviation market and the advantages of our solutions, we will host a small analyst tour at LaGuardia Airport Terminal B in late April. Terminal B was named the world's best new airport terminal at the 2023 World Airport Awards. Please let Paul Goldberg know if you're interested in attending. Moving on to manufacturing and distribution, Demand has remained solid, reflecting a favorable industrial economy, as well as our focus on expanding our service offerings and presence in fast-growing markets like biopharma, semiconductor, and industrial manufacturing. As I've mentioned on prior calls, we knew a large and valued M&D client would rebalance a large portion of their work needs in 2024 as part of their normal procurement process and changes in their overall strategy. This process is largely done, and our initial estimates of the rebalancing were reasonable, and our full-year forecast accurately incorporates the anticipated impact. We continue to be focused on gaining new clients, expanding our relationship with existing clients through new locations and services, and pursuing opportunities in other end models. We expect this segment to generate mid- to high-single-digit annual revenue growth over the midterm, However, 2024 will reflect the impact of the rebalance rate. Moving to education, markets remain solid and we're effectively managing labor costs. While we face tough comparables in the back half of 2024 as some big wins in 2023, we continue to work diligently to renew business and lead with our APS self-performed platform. Moving to technical solutions, Segment backlog is now approximately $590 million with the addition of $180 million of new microgrid business from the contract I mentioned earlier. This well-known retailer selected ABM to enhance their energy resilience at more than 150 of their locations over the next few years. We will accomplish this through the installation of individually customized microgrids at each site. This project also provides us the opportunity to cross-sell additional services like maintenance and EV infrastructure over the coming years as the systems at each location become operational. In total, EV and microgrid services now represent nearly two-thirds of ATS's backlog. Additionally, backlog for our bundled energy solutions offering improved on a sequential basis. This improvement may indicate a positive shift in market sentiment, although we expect the overall market to remain challenging in 2024 due to the interest rate environment. Our acquisition of Ravermore has significantly expanded our growth opportunity in ATS, and we believe can build our positive momentum going forward. While the exact timing of project closeouts can vary quarter by quarter based on externalities, such as weather and permitting, we are confident in our leading-edge technology and that our outstanding team will continue to renew business and deliver improved results. As we grow and scale over the next few years, we expect the quarter-to-quarter variability to dissipate. Turning now to our Elevate initiative. Following the successful financial close on our new cloud-based ERP system for the education segment last year, We plan to implement this system for B&I and M&D later this year. Much of our Elevate efforts are centered around this implementation, which includes enhanced capabilities for our operations and back office teams, including connection to several key systems, such as procurement and payroll. We've continued to roll out ABM Connect, our team member mobile app that delivers on-demand training, safety moments, time clock integrations, and task management thesis. Early feedback on this tool from our frontline team members and managers is super positive. When distributed at scale, we believe it will drive higher levels of engagement for our team members and better outcomes for our clients, ultimately resulting in even higher customer retention rates. In summary, we're pleased with the start of the year and our positioning as we begin the second quarter. Our markets have generally been constructed despite an unsettled macro environment and the pressures on commercial real estate, and our teams have done a great job winning new business and satisfying our clients. While there's still much to be accomplished this year, we're focused on achieving our goals supported by our cash-generating business, balance sheet optionality, and the best team in the industry. With that, I'll turn it over to Earl for the financials.