ABM Industries Incorporated

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

Good morning, everyone, and welcome to ABM's second 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 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 second 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 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 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.

Thanks, Paul. Good morning, and thank you all for joining us today to discuss our second quarter results. We were pleased with our quarterly results, which were driven by our team's execution and highlighted by strong cash flow, adjusted EBITDA margin of 6.5%, as well as by bid single-digit organic revenue growth in our aviation, technical solutions, manufacturing and distribution, and education segments, all of which resulted in an adjusted EPS of 87 cents. We were also encouraged with BNI as the business continues to prove resilient in a still settling commercial real estate environment, benefiting from our diverse client and service mix, our leading market position, and our penetration in higher performing class A segment of the market. In fact, the results were generated in BNI are a strong validation of our strategy and of the effectiveness of our business model, all of which provide a clear path to generate shareholder value. Our service breadth, our teammates, and our focus on our customers, as well as our elevated investments in technology, have enabled us to perform extremely well in choppy markets. Going forward, we expect to further leverage our elevated investments as we scale the technology across the organization. Earl will take you through the financial details of Q2 in a few minutes. We have had so many touch points with new investors the past few months that we thought it might be a good moment to reground our business model and value creation pathway while we have a focused audience. In the broadest sense, we think of ABM as the consistent cash-generating flywheel, leveraging our capital light model, scale, and leading market positions to self-fund growth and margin expansion initiatives while at the same time consistently returning capital to shareholders, all of which drive attractive long-term shareholder returns. Going deeper on an operational level, we generate these returns by delivering a core suite of essential facility services, primarily janitorial and engineering, to a diverse group of customers in a broad set of end markets. These markets tend to be mature, and on a blended basis have low volatility through a business cycle, as we continue to demonstrate. And that helps us to provide a level of predictability to our results. So how do we do this? To put it simply, we optimize our position in these core markets by utilizing our scale, leading brand, and reputation, which has been cultivated for over a century. This allows us to attract and support top-tier clients and team members, Our clients appreciate our ability to deliver a wide range of integrated services on a local level and our capabilities to provide consistent performance at scale, which is hard for our competitors to match. At the same time, we're continuously investing in our people, processes, and solution sets to become a more valuable partner to our clients. Our Capitalite business model provides flexibility and positions us well in our core market. We can quickly scale our labor force to meet changes in demand, which leads to resilient operating results in the face of dynamic macro conditions. Recent examples of this are the current real estate market challenges and before that, the pandemic. Resilience is a hallmark and differentiating factor for AVL. In total, we believe our core facility services business should achieve 2% to 4% organic revenue growth through a cycle. We have also historically generated a strong normalized free cash flow yield, which we believe is best in class amongst our peer group. Now let me walk you through how we're building upon the strong core to enhance our growth rate and margin performance. First, we strategically aligned ourselves with key secular trends, such as electrification, the U.S. movement to onshoring manufacturing, infrastructure build-out, and the outsized demand for data centers. Our aviation, technical solutions, and manufacturing distribution segments are all positioned to benefit from these trends and have already won significant new business because of this alignment. A few examples of these wins are the large parking project we completed at Los Angeles International Airport last year a recent $180 million microgrid win with a big box retailer, as well as our growth with eight of the 10 top semiconductor manufacturers in the U.S. We expect further outsized growth resulting from our expertise in electrification and related infrastructure over the next several years as we invest behind these trends via M&A and internal initiatives. Next, we continue to see significant opportunities within our portfolio to cross-sell other services, such as our ABM performance solutions, or as we call it, APS. APS is our multi-service performance model that includes facility maintenance, cleaning, energy, sustainability, safety, resiliency, and engineering solutions. In other words, one-stop shopping for our clients. Operated under a single contract, APS improves our clients' operations and enhances the resiliency and reliability of their facilities. In turn, this creates better outcomes for our clients and stickier business for us. Finally, our Elevate Self-Help initiative will support margin enhancement over the next few years. As we have discussed, we are digitally transforming our back office operations and our go-to-market strategy as well as how we manage labor and interact with our clients. These initiatives will generate direct savings from operating efficiencies, including procurement benefits and improved labor utilization, while providing our clients with enhanced data and actionable insights. Taken together, these secular growth opportunities, which carry a attractive margin in conjunction with all the work we are doing with Olivate, will drive higher enterprise profits. The resulting cash flow will be used to enhance shareholder value by investing in additional growth via internal initiatives and strategic M&A, while at the same time growing our dividend and opportunistically repurchasing shares, consequently creating a compounding effect. As we enter the second half of the year, we're encouraged by our positioning, the resilience of our markets, and our success in winning new business. We're particularly pleased to have booked over $1 billion in new sales during the first half of the year, a record. This includes projects that will be completed over the next few years, which gives us the ability to stay close to our clients over extended periods. What's most encouraging is that we are winning this business across the portfolio, including a large B&I contract with a major technology company. Aviation also won major contracts at Boston Logan Airport and Phoenix's Sky Harbor Airport. And education won a nice-sized APS contract with Utica University. All of these new wins complement the large microgrid project we mentioned last quarter and set us up for sustained success. Given our strong start to this year and our confidence for a solid second half, we are raising our full-year guidance for adjusted EPS And now it's expected to be in the range of $3.40 to $3.50 versus our prior range of $3.30 to $3.45. This increase reflects our strong market positioning and our continued conviction in the resilience of our business. With that, let me turn it over to Earl for the financials.

Thank you, Scott, and good morning, everyone. Overall, our Q2 results were slightly better than our expectations heading into the quarter, and we want to thank our team for their strong performance in a choppy macro environment. For those of you following along with our earnings presentation, please turn to slide five. Second quarter revenue of $2 billion increased 1.7%, all of which was organic. Revenue growth was broad-based as M&D, aviation, education, and technical solutions all grew mid-single digits. Once again, B&I, our largest segment, declined less than a percent, benefiting from a diverse client and service base. We expect B&I will remain resilient despite persistent market headwinds. Moving on to slide six, before we go through the numbers, I'd like to remind you that in the second quarter of 2023, we recognized $12.6 million in revenue for a large parking project in our aviation segment. Since the costs associated with this project were incurred and recorded in prior periods, all the revenue essentially flowed through to earnings and margin in Q2 2023. The absence of that project in the current period impacts are comparable. Net income in the second quarter was $43.8 million, or 69 cents per diluted share, down 16% and 12% respectively versus last year. These decreases were largely driven by the absence of the aviation project I just mentioned. We also recorded higher corporate investments, which were planned. These items were partially offset by lower elevate and integration costs and improved operating results in our B&I, M&D, and ATS segments. Earnings per share further benefited from a lower share count. Adjusted net income of $55.5 million decreased 8%, while adjusted earnings for a diluted share of 87 cents declined 3% from the prior year period. The decrease in our adjusted net income primarily reflected the absence of the aviation project and higher corporate investments, partially offset by improved operating results in our B&I, M&D, and ATS segments. Adjusted EPS benefited from a lower share count, driven by our share repurchase activities last year. Adjusted EBITDA declined 9% to $125.3 million, and adjusted EBITDA margin was 6.5%. Now turning to our segment results, beginning on slide seven. B&I revenue was just under $1 billion, a slight year-over-year decline. As mentioned, we continued to benefit from our end-market diversification including our exposure to the sports and entertainment and healthcare markets, and from our weighting towards higher-performing Class A properties. This positioning helped us to mitigate most of the impact of a soft commercial real estate market. Operating profit in B&I increased nearly 2% to $77.6 million, and operating margin improved 20 basis points to 7.8% as positive business mix price increases, and cost actions more than offset sluggish demand dynamics in the commercial real estate market. Aviation revenue grew 4.8% to $238.2 million, once again driven by robust travel markets and new business wins on both the airport and airline sides of the business. Adjusting for the $12.6 million parking project that was recognized in the prior year period, revenue grew 11%. Aviation's operating profit and margin were $13.1 million and 5.5% respectively. Excluding the parking project from the prior period, operating earnings grew 19% and margin increased 40 basis points. This strong performance largely reflected improved labor utilization and positive mix. Turning to slide 8, manufacturing and distribution revenue grew 4.1%, $388.6 million, reflecting solid demand. Operating profit increased $43.6 million, and operating margin improved 30 basis points to 11.2%. Profit and margin performance was largely due to a favorable customer mix. Of note, as we previously discussed, a large client is rebalancing its work. We expect to see the impact of this in the third quarter. Our team is actively working to replace the transitioning revenue and earnings. Education revenue increased 4.1% to $225.6 million, benefiting from the addition of new clients that came online last year. We are also pleased to welcome Utica University as the latest ABM Performance Solutions client and look forward to bringing them fully on board in the third quarter. Education's operating profit was $11.5 million, with a 5.1% margin, representing declines of 2% and 30 basis points, respectively. This was largely attributable to an unfavorable service mix, specifically less work orders. Technical solutions revenue grew 4.6% to $176.2 million on the strength of microgrid project startups and continued growth in our mission-critical and power business. Bundled energy solutions and EV project activity remain soft. However, holding activity is beginning to pick up. As expected, technical solutions operating profit significantly improved on a year-over-year basis, as well as sequentially, driven by a more favorable project mix and lower acquisition-related amortization. Operating profit increased 67% to $17 million over the prior year period. while margin improved 360 basis points to 9.6%. We are pleased with ATS's second quarter margin results and expect similar performance in the back half of the year, driven by a favorable service mix. Moving on to slide nine, we ended the second quarter with total indebtedness of $1.4 billion, including $57.9 million of standby letters of credit, resulting in a total debt to pro forma adjusted EBITDA ratio At the end of Q2, we had available liquidity of $561.8 million, including cash and cash equivalents of $60.7 million. Free cash flow in the second quarter was $101 million, which exceeded our expectations, aided by our team's relentless focus on working capital management. Interest expense was $20.6 million in the second quarter, about a half a million dollars lower than the prior year. And our Q2 effective tax rate was 29.9%. On the capital allocation front, we repurchased roughly 555,000 shares at an average price of $42.84 for a total cost of $23.8 million. The total remaining authorization under our share repurchase program was $186 million at the end of the quarter. Now let's move on to our revised full year fiscal 2024 outlook as shown on slide 10. As Scott mentioned, we are raising our full year guidance for adjusted EPS based on our strong second quarter results and our confidence in the back half of the year. As such, we now expect full year 2024 adjusted EPS to be in the range of $3.40 to $3.50, up from $3.30 to $3.45 previously. All other metrics of our outlook remain unchanged. Adjusted EBITDA margin is expected to be between 6.2% and 6.5%. Interest expense is expected to be in the range of $82 to $86 million. And the normalized tax rate before discrete items is expected to be between 29 to 30%. Lastly, full-year normalized free cash flow is expected to be in the range of $240 million to $270 million. most likely towards the upper end of the range. This forecast excludes the estimated $45 million elevate in integration costs, with the majority being elevate costs. One last note. From a quarterly cadence perspective, we expect adjusted EPS to be fairly balanced between the third and fourth quarters. With that, let me turn it back to Scott for closing comments.

Thanks, Earl. We are very pleased with our first-half performance, and even more excited about our future. Our success reflects ABM's resilient business model, the benefits from our Elevate investments, and perhaps most importantly, the incredible dedication and strong execution by the ABM team. We are excited for the road ahead for ABM as we continue to build and shape our business, become the technology-driven leader of the facility services industry, and look forward to continuing the journey We're now available to answer your questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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. We ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Tim Mulroney with William Blair. Please proceed with your question.

Yeah, thanks for taking my questions. Good morning. I'm curious about the M&D segment. How you thinking about organic growth in the back half of the year? I mean, I know performance has been solid here, but I think this is when that supplier rebalancing issue begins to have a more acute impact, if I'm not mistaken.

Yeah, that's right. And good morning, Tim. Yeah, you're right on. That's when we start lapping the rebalancing that we talked about. So you'll see it down. You know, we don't give revenue guidance, but you'll see it down in the back half. But I think, you know, what we'd want you to focus on is we do believe in the future M&D is going to be a double-digit top and bottom line industry group, right? We're just going through this period now that will take us through essentially the next two quarters and a little bit into next year. But we couldn't be more excited about the industry group. But you're spot on that we'll start lapping that in Q3 and Q4.

Scott, let's dig into that a little bit deeper then. The data centers. I mean, can you remind me, like, what percent of your business is Is that data centers today? And also, like, what kind of work are you doing here beyond your core janitorial offering? And, you know, how would you frame that opportunity around the massive expected build-out over the next several years?

Sure. And data centers for us really bridge M&D and our ATS industry groups, right? And it ranges from a number of things, Tim. It's anything from underfloor cleaning, because, you know, in data centers there's raised floors, right? So it's anything from underfloor cleaning, which is more of the M&D thing, to doing real power testing, right, taking care of generator sets, switch gear, anything with power resilience, even mechanical side, that resides mostly in our ATS group. And, you know, in context to our, you know, $8-plus billion in revenue, it's still quite small, but it's – It's significant enough that we really feel the acceleration in margin because it's higher margin business. It's where we're going to be leaning into with our efforts internally from an organic standpoint and also inorganically. So small right now, but really the center of our focus because you see the trends. This is where everything is heading, and we're just so well positioned based on our client base. to cross-sell into that. I mean, we couldn't be more excited about data centers as a whole.

Got it. Thanks for the color. Got it.

Thank you. Our next question comes from the line of Jasper Bibb with True Securities. Please proceed with your question.

Hey, good morning. Wanted to ask about BNI. You got it to low single-digit declines for the year, but I guess we're pretty close to flat in the first half. So is a low single-digit decline still the right way to think about that segment for the year? And I know you exited some contracts in the last quarter or two. Is there anything else that we should keep in mind that's going to impact back after your year?

No, you know, Jasper, I think it's the right way to think about it, the low single-digit declines, right? We're still in the middle of this thing, and, you know, I could answer you best as ABM and a service provider, and I could tell you, like, Where we sit today versus, let's call it, nine months ago when we were putting together and framing our guidance, where we sit today is a lot more positive, right? Our resiliency is coming through, because we always talk about the fact that we have this flexible labor model. So while we are seeing tenants compress on their space, we flex our labor, right? And I will tell you, again, as we sit here today, What we were envisioning in terms of where we thought tenants were going to be from a compression standpoint versus where it's playing out, it's not been as dramatic. I think there's a very, very palpable movement back to the office, which is encouraging. And lastly, and don't forget, we play in Class A space. Even in addition to what I'm saying, everything you read is the resiliency of Class A space. And so we're very, very fortunate that we've been riding through it yet. But I still think, you know, for the next couple of quarters and into next year, it's not unrealistic to look at, you know, low single-digit declines and then, you know, for the back half of this year and then starting to ramp up possibly to neutral next year and then, getting back to where we historically have been to GDP and possibly even GDP plus.

Thanks. That makes sense. And then you mentioned the record billion in new business for the first half. Is there any way to maybe contextualize that for us versus what might be a normal range, maybe growth versus the first half of last year, or I guess what new business typically looks like as part of your revenue base?

Yeah, this was another record for us, and more than incrementally better than the first half. We've gotten some large projects at the start of this year that's been really helpful. And as I mentioned in my prepared remarks, they're multi-year projects, which is terrific for us because we stay close to our clients. So we hit a record last year at $1.6 billion for the entire year. And we think we're going to, you know, all indications are that we're going to lap that record this year. So just we're off to a great start. And I think the bigger sentiment more than anything else is that clients continue to want to expand with us. New clients, when we sit in the presentation room, are voting for ABM. I mean, it's pretty significant when you do the math that, you know, you have this $8 billion company in revenue and bringing in a billion dollars in new business in the first six months of the year. We're really enthusiastic about how we're putting our platform forward and the relationships we're building with clients that cause them to stay sticky and expand with us.

Very helpful. Thanks for taking the questions, guys.

Thank you. Our next question comes from the line of Faiza Ali with Deutsche Bank. Please proceed with your question.

Yes. Hi. Good morning. So I wanted to follow up on BNI. You know, it sounds like what you're saying is that commercial real estate part of the business is maybe a little bit better than you had feared. And then you're seeing sort of this offset from like the sports entertainment part of the business. So just want to dig into that a little bit more, like how much of BNI now is sports entertainment and give us sort of the relative performance of sort of those two segments within BNI.

Oh, BNI look in BNI, when you think about sports and entertainment, it's growing, but you know, in terms of its percentage Pfizer of BNI, it's small, we're talking a hundred, $150 million business. And, um, And it's just, it's been vibrant. And it's been vibrant for a while now, because people are certainly back to events. But don't forget, in B&I, we have engineering segment, stationary engineering, which are the engineers in the building. And that doesn't, the variability of that staffing level doesn't change with occupancy. If you need 12 engineers in the, you know, proverbial basement of the building to operate the equipment, whether you're 95% occupied or 75% occupied. That doesn't change. So there's inherent stability in B&I just for that. And again, the compression, the compression that we're seeing from tenants, you have to remember that plays out over time. It's not like there's mass lease expirations all happening at the same time. Those happen over a two or three year period. So We're just seeing it play out slowly. And again, and you're probably seeing this with other clients and other companies you cover. There is this demand to get people back to the office. And I'll just give you one anecdotal example. You know, we just had our board meeting and we had a very senior executive join the team. And the board was asking the senior executive, you know, what were some of the reasons you wanted to come to ABM? And after she talked about the culture and the collaboration, she said, I have to tell you, I was working remote in my last job. I wanted to get back to the office and be with people. And we're just seeing that sentiment. So it gives us enthusiasm for the future. But again, we're still going through this period. And it's still going to take, in my opinion, somewhere between another six to... 12 months before we really get level set.

Okay, that's really helpful. And then just taking a step back, it sounds like you're doing really well with new business, but I'm curious, was there something specific that was better than expected in the quarter that led you to raise the guide? Is it more on the technical solution side, or is it just a little bit of everything that across the board that helped you, you know, helped you gain confidence and, you know, be more optimistic for this year and beyond?

Yeah. I think, you know, for us, when we look at the year, right, we take everything into account. We don't look at things quarter by quarter. We look at all the different metrics, everything from new sales to how we're performing to a strong lens on the industry group. And As we frame out the year, we just have an increased level of confidence on how we're performing, and we felt this was just the right move at this time.

Great. Thank you so much.

Thanks, Liza.

Thank you. Our next question comes from the line of David Silver with CL King and Associates. Please proceed with your question.

Yeah, hi. Good morning. Thank you. Scott I was hoping to maybe just have you drill down a little bit into that billion dollars of new business and you know when I hear a billion in the first half I mean it's a pretty dramatic pickup over let's say a few years ago when I believe you know a hundred million per quarter of new business was kind of the bogey I mean that was considered pretty pretty good Now, I understand it's not apples to apples, but if you were to take out, I don't know, the microgrid business, which wasn't owned by you a few years ago, and I don't know, maybe the charging business, but apples to apples compared to, I don't know, pre-pandemic, what would that billion dollars shake out compared to, let's say, several years ago? In other words, just the core... activities across your non-ATS segments, maybe? Thank you.

Yeah, that's a good question. Let me give you some context that we're pretty proud of. In 2016, which wasn't that long ago, our full year new business was $750 million, right? So now we're on track to do a billion more than that on average in a particular year. And, you know, look, we talked about a $180 million big microgrid project that we got in the first half of the year. Even if you take that out as an anomaly, and by the way, we don't think that's an anomaly. We think we're going to have these big, chunky microgrid projects. But even if you wanted to kind of carve that out, we still grew as compared to where we were last year at this time in terms of new cells. So really optimistic. And And David, it doesn't happen by chance, right? Not only is it based on our ability to execute in the field and win the confidence and gaining reputation from clients, but it's also by putting a really structured framework on our new sales, leveraging CRM systems, leveraging training for salespeople, bringing on more salespeople. This is like it's not random. We invested in hyper-targeting, which is really a way to triangulate different real estate databases to figure out what different regions of the country we should be going after new business, how we should be targeting that business, who are the people we should be going after. So part of the elevated investments, it's not just our ERP. Sometimes we get caught and talking about Elevate as our ERP systems, but we are investing dollars in organic growth, and it's absolutely paying off. But it comes from having a very structured approach to it.

Thank you. Our next question comes from the line of Josh Chan with UBS. Please proceed with your question.

Hi, good morning. Good morning, Scott and Earl. Thanks for taking my question. Maybe focusing on the new business gains as well, I guess given the momentum that you have in gaining new business, and it sounds like that's sustainable, is there a chance that ABM could kind of exceed the historical 2% to 4% organic growth that you gave earlier over time? How are you thinking about sort of that contribution to the overall growth forward?

Yeah, I think so. It's over the long term, right? We talked about the fact that we – You know, typically as a GDP kind of grower, we talked about with Elevate GDP+, right, and we said, you know, low to mid-single-digit growth, right, which would be historically high for us. And it's because of the investments we're making and the platform. So absolutely we think this will lure to a higher growth rate for ABM over the long term. It's just, you know, it's not going to be a quarter by quarter thing, right? And that's why we don't give revenue guidance, especially now with the project related business having more and more of our share. We just don't want to be in that quarter by quarter game.

Okay, that's perfect. And then for my follow up for Earl, I think you mentioned right at the end, Earl, that Q3 and Q4 EPS should be fairly balanced. I know that it moves around historically, but I think usually Q4 is a little stronger than Q3 based on normal seasonality. So could you just talk about how you expect seasonality to play out this year and why it may not be different than normal?

Yeah, no, great question. Typically, you know, we would actually have a little bit more, you know, revenue and profit in the back half, especially driven by ATS. That really is a back half business. But remember, you know, within M&D, we're going to have that reset period. associated with the rebalancing of one of our major clients, which really kind of like offset some of that favorable seasonality that we would typically see in the second half.

Okay. Thank you.

Thank you. Our next question comes from the line of Mark Riddick with Sidonian Company. Please proceed with your question.

Hey, good morning. Good morning. Good morning. I wanted to sort of touch on a couple of – it was mentioned in the press release a couple of times in your prepared remarks around the performance of Class A. And I was wondering maybe you could sort of put a little context around maybe the difference in performance of what you're seeing of Class A properties as opposed to the rest of the portfolio. And then maybe you could sort of – I know we don't do necessarily a revenue portioning, but maybe you could sort of talk about what the – the potential is to increase Class A as the percentage of revenue or how we should be thinking about sort of where you're striving to get to?

Sure. I mean, look, our strategy has been baked and baking for a long time to focus on Class A. And it's not because we're so smart and we knew hybrid work was coming and that's where people are going to gravitate to. It was because we like Class A jobs. clients because Class A clients are not the clients that when you send them an RFP response that they ask for and it's 300 pages, they don't go to page 280 to look at the price, you know, rip that page out and just go for low bid. They're the kinds of clients that actually value the offering that ABM has. So it's a significant portion of our percentage and We'll always still be diversified. We have some BNC, very, very little compared to the whole. So I don't think there's going to be this major shift to increase that percentage even more because it's such a high percentage now. But it's absolutely – for a company like ABM that's investing in technology, investing in sales, investing in their people, you just want to be in that Class A space now. And, again, fortunately, it turns out that's where tenants want to be as well. And, you know, just as a last reminder for that thesis, if tenants are taking less space and they can afford to pay the same amount of rent, you can move up to Class A. And that's why Class A has been so resilient because Class B tenants can move up to Class A now.

That's very helpful. And then I was wondering if maybe you could touch a little bit on, I think in some past calls you've talked about differentiation and regional mix of what you're seeing. Are you seeing much in the way of different activity as far as of tenant activity across the country or is it sort of uniform at this point?

It's pretty uniform at this point. Some of the markets that were having a tougher time, like San Francisco, if you will, are starting to see increased activity because of AI. There's always other events that kind of mitigate some of the things that are happening in a particular city. That whole Sunbelt area is growing with manufacturing now, also with AI and data centers. So We're starting to see increased activity across the board. And, you know, some of the things we differentiated when we talked regionally in the past was about back to office. And we were seeing a stronger push in the south than we were on the coast. I have to tell you, even on the coast now, we're seeing people get back to the office. So that's even becoming more uniform as well.

Great. Thank you very much.

Thank you. Our final question is a follow-up from the line of David Silver with CL King & Associates. Please proceed with your question.

Yeah, hi. Thank you. I would like to ask maybe a cash flow-oriented question or two. So, firstly, you did indicate that you repurchased, whatever, 555,000 shares. You know, and firstly, I'd just like to know if you'd characterize that as – you know, offsetting dilution type of repurchases? Or would you say it's pure, you know, opportunistic kind of, you know, cash flow deployment or free cash flow deployment? And then secondly, on your free cash flow for the year, I mean, for the first half, you're running well ahead of a year ago. And historically, your company's been kind of back half weighted on your free cash flow generation. So just wondering if we should expect, since your EPS guidance is getting pretty close to the last year's, just wondering if we should expect similar free cash flow in the back half of the year, or is there an element or two that may be, you know, to a certain extent, you know, front loaded, you know, when that free cash flow is generated? Thank you.

Yeah, no, thanks for the question, David. So to answer the first part of your question with regards to the share buybacks that we did in this past quarter, you're right. We did about 555,000 shares, and that really is associated with offsetting the dilutive share-based compensation. And based on our, as you mentioned, strong free cash flow, as well as relative low interest um leverage it really affords us the opportunity to you know potentially do you know opportunistic share buybacks in in the future um you're right you know we're we're really pleased with the cash flow that this company continues to drive and if you recall at the beginning of the year you know we gave guidance of you know normalized free cash flow excluding kind of like the one-time cash outlays of $240 to $270 million. You know, based on what we've actually seen in this past quarter, we are well on track to deliver that for the full year. And if any, we actually think we may be trending more towards the high end of that range. You know, when you look at the back half of the year and our EPS call, like I just mentioned, you know, although, you know, we have a, you know, really good, you know, backlog on ATS, which is normal to actually have a strong second half quarter, that will be offset with some declines that we mentioned within M&D, and that does actually have an impact on the cash flow. But suffice it to say, on a full year basis, we feel really good about the strength of our cash flow.

Thank you. This concludes our question and answer session. I'll turn the floor back to Mr. Selmers for any final comments.

Okay, thanks. I just want to thank everybody for participating today. I just want you to make sure you understand it's not lost on us that we could not post these kinds of results if it wasn't for our teammates who are just out there just working hard and doing what they're doing for our customers and for each other. So I'm really appreciative of the team. So with that, have a good summer, and we'll be back to you next quarter with our Q3 results. Thank you, everybody.

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