ABM Industries Inc Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Tim Mulrooney - William Blair & Company, L.L.C - Analyst : I'm curious about that M&D segment. How are 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.

Question: Tim Mulrooney - William Blair & Company, L.L.C - Analyst : 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 that data centers today? And also like what kind of work do you do in your -- beyond your core janitorial offering? And how would you frame that opportunity around the massive, expected build-out over the next several years?

Question: Jasper Bibb - Truist Securities, Inc. - Analyst : Wanted to ask about B&I. 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 the back half of the year?

Question: Jasper Bibb - Truist Securities, Inc. - Analyst : That makes sense. And then you mentioned the record $1 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?

Question: Faiza Alwy - Deutsche Bank AG - Analyst : So I wanted to follow up on B&I. 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 I just want to dig into that a little bit more, like how much of B&I now is sports entertainment and give us sort of the relative performance of sort of those two segments within B&I.

Question: Faiza Alwy - Deutsche Bank AG - Analyst : Okay. That's really helpful. And then just taking a step back, right? It sounds like you're doing really well with new business. But I'm curious, like was there something specific that was better than expected in the quarter that led you to raise the guide? Like is it more on the Technical Solutions side? Or is it just a little bit of everything across the board that helped you gain confidence and be more optimistic for this year and beyond?

Question: David Silver - CL King & Associates - Analyst : Yes. Scott, I was hoping to maybe just have you drill down a little bit into that $1 billion of new business. And when I hear $1 billion in the first half, I mean, it's a pretty dramatic pickup over, let's say, a few years ago when, I believe, $100 million per quarter of new business was kind of the bogey. I mean that was considered 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 $1 billion shake out compared to, let's say, several years ago? In other words, just the core activities across your non-ATS segments maybe.

Question: Joshua Chan - UBS Group AG - Analyst : 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 going forward?

Question: Joshua Chan - UBS Group AG - Analyst : Okay. That's perfect color. 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 be different than normal?

Question: Marc Riddick - Sidoti & Company, LLC - Analyst : I wanted to sort of touch on a couple of -- it was mentioned in the press release and 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 can sort of I know we don't do necessarily a revenue portioning, but maybe you can sort of talk about what the potential is to increase Class A as a percentage of revenue? Or how we should be thinking about sort of where you're striving to get to?

Question: Marc Riddick - Sidoti & Company, LLC - Analyst : That's very helpful. And then I was wondering maybe you could touch a little bit on -- I think in some past calls, you've talked about differentiation in 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?

Question: David Silver - CL King & Associates - Analyst : 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. And firstly, I'd just like to know if you'd characterize that as offsetting dilution type of repurchases? Or would you say it's pure opportunistic kind of cash flow deployment or free cash flow deployment? And then secondly, on your free cash flow for the year, for the first half, you're running well ahead of a year ago. And historically, your company has 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 years, 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 maybe, to a certain extent, front-loaded when that free cash flow is generated?