ABM Industries Inc Q4 2024 Earnings Call Transcript

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

Question: Tim Mulrooney - William Blair & Company - Analyst : Hi Earl. Good morning.

Question: Tim Mulrooney - William Blair & Company - Analyst : The M&D segment, performed quite a bit better than we were expecting. I guess, because the customer rebalancing wasn't as large as initially expected. Can you help frame this for us? What was the headwind you were originally expecting from the rebalancing and what your base case scenario is at this point?

Question: Tim Mulrooney - William Blair & Company - Analyst : Understood. That's good to hear. So not through it yet, but things are looking up. That's good color. Thanks Scott. And then just one more for me on the -- excuse me, the technical solutions business. Could you just expand a little bit more on that $4 million remediation charge on the energy performance contract? I mean, does this happen from time to time or is it a rare occurrence? Is there a reasonable expectation for more of these types of charges in the future? Just the nature of the business or is this more commercial (multiple speakers)

Question: Tim Mulrooney - William Blair & Company - Analyst : Understood. Thank you so much.

Question: Andy Whitman - Robert W. Baird & Co. - Analyst : Oh, great, thanks -- excuse me. So I wanted to just ask another couple things just to help clarify the quarter a little bit. I think, Earl in the B&I segment, I think you said there was $4 million to $5 million of discrete costs in addition to some of the other things you talked about in the quarter. But I was kind of curious about the discrete cost. Are you meaning to say that those are one-time costs or somehow otherwise discrete, maybe some color on what that was and maybe help give some context around that. Thanks.

Question: Andy Whitman - Robert W. Baird & Co. - Analyst : Okay. And but those were added back in the adjusted results. Is that correct?

Question: Andy Whitman - Robert W. Baird & Co. - Analyst : Okay. Yeah, because sometimes you add back legal settlements. And so --

Question: Andy Whitman - Robert W. Baird & Co. - Analyst : Okay. All right. And then I guess there was a comment here that the free cash flow in 2025 is going to be impacted by a $30 million to $40 million of -- I don't know what you call it, I guess maybe, transformation costs. So I was hoping maybe you could expand on that a little bit. Because I think previously the ELEVATE program was looking for maybe a $25 million impact to fiscal '25. So it looks like it's a little bit bigger. So I was wondering if this is just like, this is the cost, the new cost estimate for the same or if you're doing more and if you're doing more what you're doing? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 18, 2024 / 1:30PM, ABM.N - Q4 2024 ABM Industries Inc Earnings Call

Question: Andy Whitman - Robert W. Baird & Co. - Analyst : Okay. That's helpful. And then maybe Scott, just for you in the 20 basis points of margin expansion that you're anticipating for 2025, are there other investments that are going in that holding that one back? Or do you feel like with the top line growth that you're getting and the leverage that you get out of your platform, of your SG&A costs primarily, is that the right way to be thinking about in your expansion or do you feel as you finish up the remainder of ELEVATE that maybe annual margin expansion can expand beyond the 20 basis points that's implied for 2025?

Question: Andy Whitman - Robert W. Baird & Co. - Analyst : Okay, great. Those are all my questions for today. Have a happy holidays, guys.

Question: Jasper Bibb - Truist Securities, Inc. - Analyst : Hey, good morning guys, actually, Jasper Bibb on. And then prepared remarks you mentioned expecting total revenue to grow in fiscal '25. Just kind of hoping you could put a finer point on what that might look like from a growth rate perspective and cadence through the year with some of the factors you decided that sound like overall, it's going to be a stronger back half than the first half, but just a little bit more detail there would be great.

Question: Jasper Bibb - Truist Securities, Inc. - Analyst : Got it. And then I was hoping you could update us on what the ERP road map looks like for fiscal '25. When will the remaining segments be moving on to the new platform, and any expectations for associated cost savings there in year as part of your ELEVATE targets?

Question: Jasper Bibb - Truist Securities, Inc. - Analyst : Got you. Last one for me, just hoping you could outline what you're seeing on the labor cost, inflation, and recovery rate at this point, relative to I guess what's considered historical norms?

Question: Jasper Bibb - Truist Securities, Inc. - Analyst : Okay, great. Thank you for taking the question. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 18, 2024 / 1:30PM, ABM.N - Q4 2024 ABM Industries Inc Earnings Call

Question: Josh Chan - UBS - Analyst : Hi, good morning, Scott and Earl. Maybe picking off that on that labor inflation theme. Does productivity continue to be positive in 2025? And how much does that contribute to your 20 basis points of margin improvement? Is that one of the more meaningful driver you expect?

Question: Josh Chan - UBS - Analyst : Great. Thank you. And on ATS, the margins have -- they've been very, very different quarter to quarter this whole year. And so I know that you're ramping up of a big product, you got an acquisition in there. So could you just talk to maybe what the normalized or expected margin trajectory within ATS is going to 2025? Thank you.

Question: Josh Chan - UBS - Analyst : Great. Thank you. Thank you both for the color, and good luck on the next year.

Question: Avi Sharma - Deutsche Bank - Analyst : Good morning. This is Avi Sharma on behalf of Faizan Ali. Congrats on the quarter and thank you so much for taking our questions. I wanted to start on aviation. So aviation has seen obviously an outsized growth over the last several quarters. Could you talk about what is your market share, the market opportunity, and any thoughts around what is the sustainable growth rate for that business? Thanks.

Question: Avi Sharma - Deutsche Bank - Analyst : Thanks. And then just on capital allocation, any updated thoughts around capital allocation priorities for 2025? And how should we think about split between organic investments, buybacks, and M&A?

Question: Avi Sharma - Deutsche Bank - Analyst : Good, thank you.

Question: David Silver - CL King - Analyst : Yeah, hi, thank you. I guess I would just like to go back to the guidance -- adjusted EPS guidance range for fiscal '25. And in particular, I'm thinking about the low end of the range in particular. But you did record 2%, I guess, adjusted EPS growth this year in what was to me a very much less or cloudier or much more uncertain environment. You've talked about some of the positive trends in virtually every one of your product lines. But other than maybe a bigger step down from your large distribution customer, I mean, what goes into your thinking about the potential for that low end of the range, maybe a 1% or 2% growth? I mean, what would have to happen to limit your earnings improvement to that low end of the range? Thanks.

Question: David Silver - CL King - Analyst : Okay. And then thank you for that. Then the next question is more kind of your philosophy or your growth philosophy with regards to labor. Heading into the pandemic, Scott, I believe your employee count was about 140,000 or more. I don't know what it is right this moment, but it was recently down around 125,000. And I guess I'm just thinking, you have a number, you talked about white space and a lot of opportunities for growth, et cetera. Is this the case where you're going to be maybe targeting or upgrading your business mix primarily like seeking growth opportunities, and maybe moving some employees around, you talked a quarter ago about walking away or not renewing some contracts where the returns weren't acceptable. Is this the case where maybe you're going focus your existing workforce more or less on and upgrading your portfolio of business? Or is this more the white space you see is more capturing share broadly in the areas in which you operate? So, where might your employee count go, excluding, I guess excluding M&A, but where do you see your employee count going? And what would be the philosophy for growing your employee roles meaningfully?

Question: Mark Riddick - Sidoti Company - Analyst : Hey, good morning.

Question: Mark Riddick - Sidoti Company - Analyst : So I was wondering if you could talk a little bit about on the -- in your prepared remarks, you talked about AI benefits. Maybe you could expand on that a little bit, maybe where you're seeing those initially whether it's in particular segment wise, and then sort of how you see those benefits being more broad based, maybe through other segments, or how you see that helping them drive toward the margin goals?

Question: Mark Riddick - Sidoti Company - Analyst : Okay. Great. And then the last thing for me, I want to circle back on this part. I think you touched briefly on thoughts on cash usage. I wanted to just sort of follow up and maybe get your thoughts on what you're seeing currently as far as the potential for acquisition pipeline, if you're seeing much in the way of changes in the number of opportunities that are out there, willingness of sellers to act, whether you've seen much of in the as far as attractive targets now maybe six months ago or so?