ABM Industries Inc Q3 2024 Earnings Call Transcript

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

Question: Tim Mulrooney - William Blair & Company, LLC - Analyst : Scott, Earl, good morning.

Question: Tim Mulrooney - William Blair & Company, LLC - Analyst : So on the guide, just real quick, it looks like your previous expectation, I think, was more for EPS to be kind of balanced between the third quarter and the fourth quarter. But now based on your guide, it looks like you expect the third quarter to be maybe $0.10 or so higher than the fourth quarter in EPS. Is this just a simple case of more revenue being pulled into the third quarter than you were initially expecting or are there other factors that warrant consideration here?

Question: Tim Mulrooney - William Blair & Company, LLC - Analyst : Okay. That's very helpful. Thank you, Earl. And my second question is on segment margins because we're seeing some really nice improvement here across a lot of these segments, I mean, Aviation was 6.6%, I think, in the quarter. I think our model was about 5.5% and M&D came in at 10.9%. I think we were at 10.0%. So I know the EPS beat here was driven by ATS to a large degree. But also want to note the profitability across a lot of these segment margins here. So my question is, are these improvements that I'm seeing here, are these sustainable do you think as we move into 2025 or was there something about the third quarter that helped lift profitability here like maybe a working days dynamic or something like that, that isn't necessarily expected to carry forward.

Question: Tim Mulrooney - William Blair & Company, LLC - Analyst : Okay. Thank you, Scott. I'll update my expectations on profitability here in the model and congrats on the nice quarter. Thank you.

Question: Faiza Alwy - Deutsche Bank Securities Inc. - Analyst : Yes. Hi. Good morning. Thank you. So I wanted to follow up on the margin question. I made the same observation as I was looking at numbers this morning. And maybe I know you mentioned sort of labor efficiencies a few times. Maybe talk a bit more about like what's driving that? Are you seeing sort of wage rates come down or talk about some of the other dynamics that are helping margins across the board at this point?

Question: Faiza Alwy - Deutsche Bank Securities Inc. - Analyst : Great. That's very helpful. And then on the ATS business, I think, you're -- if I'm not wrong, I think you're alluding to maybe revenues being a bit lumpy from here. So talk a bit more about how you're thinking about that business? I know previously you've mentioned sort of what the backlog might be. Was there something in the quarter that was -- that kind of came in earlier? And just a bit more color on how we should expect the top line trends from here.

Question: Faiza Alwy - Deutsche Bank Securities Inc. - Analyst : Excellent. Thank you so much.

Question: Jasper Bibb - Truist Securities - Analyst : Hey, good morning, guys. I wanted to ask about the B&I segment. Just any detail on segment revenue expectations for the fourth quarter. I think the prior view you had was low single-digit decline for the year, three quarters in seem to be running at the high end of that range. So any change there on where you think that business is going to end up in fiscal '24? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 06, 2024 / 12:30PM, ABM.N - Q3 2024 ABM Industries Inc Earnings Call

Question: Jasper Bibb - Truist Securities - Analyst : Thanks. That makes sense. And then you mentioned some of the moving pieces in the ATS in response to an earlier question. Just kind of hoping to get an update on maybe isolate a $180 million contract there. I guess how has that ramped up so far? And when do you expect that contract will hit the full, I guess, $90 million a year run rate?

Question: Jasper Bibb - Truist Securities - Analyst : Thank you, Scott.

Question: Josh Chan - UBS Securities LLC - Analyst : Hi. Good morning, Scott and Earl. Congrats on a good quarter. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 06, 2024 / 12:30PM, ABM.N - Q3 2024 ABM Industries Inc Earnings Call

Question: Josh Chan - UBS Securities LLC - Analyst : Hi. Yes. So you mentioned data center several times in your prepared remarks. Is there a way that you can triangulate for us? What's your data center exposure? I know it might go in a couple of different segments, but some way to triangulate that would be helpful. Thank you.

Question: Josh Chan - UBS Securities LLC - Analyst : Great. Thank you for that color. And then maybe specifically on M&D. I guess I was under the impression that margins might be pressured by the rebalancing, but you turned out to have a very strong margin quarter. So I guess what's the source of that strength? And as the rebalancing potentially ramps in the coming quarters, could margins sustain at current levels or will there be some pressure?

Question: Josh Chan - UBS Securities LLC - Analyst : Great. Thank you for your time and congrats on a good quarter.

Question: David Silver - CL King & Associates - Analyst : Yes, hi. Thank you. First question would be about the contingent consideration adjustment for RavenVolt. So I was wondering if you could put the $37 million adjustment this quarter into context. In other words, is that kind of a mark-to-market to get you caught up to where RavenVolt's

Question: David Silver - CL King & Associates - Analyst : Okay. Great. Thank you for that. This next question, I guess, would be a little bit new business and then old business kind of question. But firstly I was just wondering if you could update us on your year-to-date new business success. I think you said for the first six months of this fiscal year, you were at $1 billion. Just wondering where do you think you might end up the year at or where were you at the end of the third quarter? And then more to the point, Scott, I heard you say something, I believe, for the first time this year, this time versus the few years that I've been covering you. But you talked about what would the word be firing some customers are walking away from some business. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 06, 2024 / 12:30PM, ABM.N - Q3 2024 ABM Industries Inc Earnings Call So when I first started listening to your conference calls, you used to tout your very high retention rates pretty regularly. And your comments this period about opting to walk away from some business due to returns and whatnot. I mean I think that's a change in your philosophy as to some extent. So I was just wondering if you could kind of talk about maybe the evolution or the shift in how you're thinking about retaining new business versus identifying and targeting, sorry, targeting new business versus opting to not service some of your current portfolio?

Question: Tate Sullivan - Maxim Group, LLC - Analyst : Hi. Thank you. Scott, it's great to hear the progress and optimism about your microgrid business. Can you roughly quantify is it mostly projects with existing clients or not or is it largely cross-selling efforts, please?

Question: Tate Sullivan - Maxim Group, LLC - Analyst : So understand the opportunity, but can it lead to some electrical subcontracting work for you for the rest of the building or has it in some cases? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 06, 2024 / 12:30PM, ABM.N - Q3 2024 ABM Industries Inc Earnings Call

Question: Tate Sullivan - Maxim Group, LLC - Analyst : Thank you.

Question: Faiza Alwy - Deutsche Bank Securities Inc. - Analyst : Hi. Thank you. I just had a follow-up. I wanted to talk about capital allocation. And I know you acquired a company back in June. So curious around how you're thinking about M&A versus cash return to shareholders? What did you like about that business? And should we expect more M&A from here?

Question: Faiza Alwy - Deutsche Bank Securities Inc. - Analyst : All right. Great. Thank you.