ABM Industries Incorporated

Greetings, and welcome to the ABM Industries Incorporated fourth quarter 2024 earnings call. At this time, all participants will be in listen-only mode. A question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. As a reminder, this conference is being recorded. At this time, it is now my pleasure to introduce Paul Goldberg, Senior Vice President, Investor Relations. Mr. Goldberg, you may now begin.

Good morning, everyone, and welcome to ABM's fourth 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 fourth quarter and full year 2024 financial results, as well as our 2025 outlook. A copy of that release and an accompanying slide presentation can be found on our website, abn.com. After Scott and Earl's prepared remarks, we will host a Q&A session. But before we begin, I would like to remind you that our call and presentation today contain 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 a slide that accompanies our slide 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 over the call to Scott.

Thanks, Paul. Good morning, and thank you all for joining us today to discuss our fourth quarter results and fiscal 2025 outlook. the year on a high note, driven by double-digit revenue growth in technical solutions and aviation in the fourth quarter. And our performance also reflects the continued resilience of our business and industry segment. We posted 3% organic revenue growth and delivered adjusted EPS of 90 cents, both of which were moderately above our expectations. These results capped a great year for ABM, highlighted by strong execution on our elevated initiatives, balanced capital deployment, and more importantly, positive results in a volatile macro environment. I'm thrilled with ABM's positioning as we begin fiscal 2025. We have emerged a stronger company after navigating through some macro turbulence over the last couple of years. And although it's still early, it appears as though our key commercial real estate markets are near an inflection point and returning to growth. Market improvement coupled with the strategic investments we've been making across our business gives me confidence in our future growth trajectory and our enhanced ability to serve as clients in dynamic markets. Before we discuss 2025, let me quickly run through a few of our important accomplishments in fiscal 2024. First, we achieved remarkable results in our technical solutions and aviation segments in 2024. The big story in technical solutions, which grew 16% organically, was the rapid expansion of our microgrid service line, complemented by growth in our data center-related business. Our Ravenvolt team did a fantastic job executing on a very complex microgrid project schedule, which shows no signs of abating. This strong growth helped drive an increase in full-year segment earnings. Our aviation business grew 12% in 2024 as we benefited from healthy travel markets and also from our truly differentiated service offering, ABM Clean. Our strategy of offering a more comprehensive service solution coupled with differentiated artificial intelligence-based technology is supporting growth in excess of the broader aviation market. was also pleased with BNI's results, which significantly outperformed the expectations we headed into 2024 with. Organically, revenue was down less than 1% for the year, benefiting from our diverse client and service mix, our leading market position, and our penetration in the higher-performing Class A segment of the market. Additionally, our geographic diversification, including the UK and the continual focus on growth, also contributed to driving our results. We also made significant progress on our internal initiatives in 2024. One key accomplishment was the introduction of our workforce productivity optimization tool. This tool, which allows our team to identify opportunities for productivity improvements based on the facility archetype, has been an enabler to reducing our labor usage. As a percent of revenue was down nearly 1% in the fourth quarter, and while there are many factors that contributed to that, the workforce optimization productivity rollout played an important role. This tool, when more broadly implemented, offers significant opportunities to manage labor more efficiently across our service base. We also further commercialized ABM Clean and ABM Performance Solutions during the year. As a reminder, ABM Clean is our AI-based, purpose-built application for the aviation industry. ABM Performance Solutions is our technology-driven, multi-service offering that integrates data from multiple sources to allow our teams to deliver enhanced outcomes for our clients and their customers under a single service contract. Both are gaining momentum across our portfolio, and clients utilizing these offerings now represent a meaningful portion of 2024 revenue. Lastly, in addition to what I've already mentioned, we've made some important early investments in artificial intelligence. We see many use cases across ABM, including expanding revenue opportunities through data mining, quicker response times, and enhancements on RFPs at our deal desk, and delivering an improved employee experience through HR platforms. Though it's early days, we are convinced these investments will provide critical differentiation as we move forward. From a capital allocation perspective, we were quite balanced in 2024. We repurchased $56 million of stock at an average price of under $48 per share, and we continued our longstanding record of raising our annual dividend. In fact, After the quarter ended, our board of directors approved an 18% increase on our dividend, which underscores confidence in our long-term earnings trajectory and also brings us closer to our 30% of adjusted net income payout target. We simultaneously invested for the long term by acquiring quality uptime services, which expands our position in the faster-growing data center vertical by adding new capabilities in uninterrupted power supply systems and battery maintenance. Now let's look forward to 2025 and walk through our end markets so we can highlight why we are encouraged about the coming year and the longer term. With respect to BNI, a recent JLL research report suggests that the tide is beginning to turn for the U.S. commercial real estate market as availability rates declined for the first time in several years, reflecting an acceleration of leasing activity and a slowdown of new supply. The report went on to detail that leasing activity continued to grow in the third calendar quarter, while office downsizing has normalized as tenants have become more comfortable with their footprint. The other positive dynamic is that employers continue to drive greater office attendance. According to the same JLL report, Office attendance policy amongst the Fortune 100 drove the average weekly office requirement up to 3.3 days. This has been broadly reported. These policy shifts towards in-office work are likely to continue. For those reasons, we are confident that our B&I segment will return to growth soon, potentially in the back half of 2025. We expect our manufacturing and distribution markets to be healthy in 2025, driven by a strong U.S. industrial economy and by secular growth in the U.S. semiconductor and data center markets. The World Semiconductor Trade Statistics Organization expects 15 percent semiconductor growth in the Americas in 2025, and the data center services market is expected to grow 10 percent annually for the next several years, according to a Research and Markets Report publication. We have continued to win new business in these end markets and have invested important resources to further leverage these trends. I am confident that our M&D segment will return to mid-single-digit organic growth once forecasted new wins come online and the impact of the rebalancing of a large and complex client we have previously discussed moderates. targeting by the end of the year. As I mentioned, aviation had an amazing year, leveraging healthy travel markets and their differentiated service offerings. They also benefited from numerous capital projects across the country, as both public and private entities worked to refresh and revitalize aging US airport infrastructure. LAX, LaGuardia, JFK, and O'Hare are just a few examples and where these kinds of projects are happening. Our clients at these refreshed facilities place a higher emphasis on maintenance and the traveler experience as they seek to drive traffic and revenue, which completely aligns with ABM's strength and focus. This secular investment cycle should provide a multitude of opportunities for us over the next several years. Looking to next year, a recent air passenger forecast report indicates North American Air passenger traffic is forecasted to grow approximately 5.6 percent in 2025, after expected growth of 9.2 percent in 2024. So, markets remain constructive, but not quite as exuberant as this past year. Our pipeline is healthy, but sales cycles tend to be longer in aviation than in other parts of our portfolio. So, the back half of the year may be stronger for us from a growth perspective. Education is expected to be stable and continues to provide a foundation of earnings and cash flow that can be utilized across ABM. Over the past couple of years, we have been focusing on the more substantial revenue opportunities afforded by our APS offering. Sales cycles tend to be longer for these types of prospects that benefit from APS, namely larger school districts, colleges, and universities. and we've been steadily building a nice client resume. The other benefit of APS is it creates customer stickiness and is additive to margin, reflecting the enhanced value we deliver when we bundle services. This approach helped us outgrow the market in 2024 as we posted 3% organic growth for this business for the full year and delivered a margin of 6.1%. Lastly, regarding technical solutions, We expect our microgrid business will continue to remain healthy in 2025, driven by strong market conditions and a backlog exceeding $500 million. In fact, we booked well over $100 million in new orders in the fourth quarter, including additional work for a leading big box retailer and new battery energy storage systems for an emerging private renewal power system developer. According to the firm ResearchNestor, The U.S. microgrid market, which was approximately a $10 billion market in 2024, is expected to grow to $50 billion over the next decade, providing significant runway for us. This growth will be fueled by increasing energy consumption due to the proliferation of AI, the fragility of the electrical grid, and from organizations looking for ways to more efficiently manage electrical demand and storage. Additionally, we expect the rapid acceptance and expansion of AI will drive significant growth in data center and mission-critical infrastructure, and we have a growing position in this market. It's still too early to say what impact, if any, the new administration's policies with regard to interest rates and energy policy will have on our bundled energy solutions and EV service lines. We're hopeful that general demand trends will tick up over the next year or two. All in all, we see ample room for growth and technical solutions to ensure a strong 2025. To sum it up, we feel good about our markets and expect to grow revenue, adjusted EPS, and adjusted margin in 2025. As such, we expect adjusted EPS to be in the range of $3.60 to $3.80 per and for our adjusted EBITDA margin to be in the range of 6.3% to 6.5%. With that, let me turn it over to Earl to walk you through the details, and I'll be back shortly with some final comments.