ABM Industries Inc. (ABM) Q3 2026 Earnings Call Transcript

Operator: Greetings. Welcome to ABM Industries Third Quarter 26 Earnings Call. At this time, all participants will be in a listen-only mode. A question and answer session will follow the formal presentation. Please note that this conference is being recorded. At this time, I will turn the conference over to Paul E. Goldberg, Senior Vice President, Investor Relations. Thank you. You may now begin.

Paul E. Goldberg: Good morning, everyone, and welcome to ABM's third Quarter 26 Earnings Call. My name is Paul E. Goldberg, and I am the Senior Vice President of Investor Relations at ABM. With me today are Scott Salmirs, our president and chief executive officer and David Orr, our executive vice president and chief financial officer. Please note that earlier this morning, we issued our press release announcing our third quarter 26 financial results and outlook. A copy of that release and an accompanying slide presentation can be found on our website abm.com. After Scott and David'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 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 web under the Investor tab. With that, I would like to now turn the call over to Scott.

Scott Salmirs: Good morning, everyone, and thank you for joining us. We had a strong third quarter. Particularly when you consider some of the puts and takes across the business. We delivered record quarterly revenue, 27% adjusted EPS growth and exceptional year to date cash flow despite project timing and Technical Solutions and the anticipated impact of client exits in B&I. I think the quarter demonstrates both the resilience of our portfolio and our ability to execute operationally even when individual parts of the business do not move in a straight line. On the revenue side, most of the business performed largely as we expected. Aviation and Manufacturing and Distribution continued to deliver strong growth. Education performed as expected, while B&I reflected the client exits we have discussed over the last several quarters. Technical Solutions was the 1 area where revenue came in below our expectations, driven by certain project deferrals from an important client. Based on our discussions with that client, we believe this is principally a timing issue rather than a change in the underlying demand environment. And we expect a meaningful portion of that activity to move into the fourth quarter. What we are particularly pleased with this quarter is our execution on profitability and cash flow. The cost actions we have been driving throughout the year combined with disciplined working capital management, resulted in 27% adjusted EPS growth 40 basis points of sequential segment margin improvement, and an increase of over $150 million in year to date free cash flow. Cash generation has historically been an important strength of ABM Following the disruption associated with our ERP implementation, we have been very focused on restoring that performance And the progress is increasingly visible in our results Given our performance through the first 9 months we are raising our full year free cash flow outlook. I want to spend a few minutes on the part of the ABM story that I think is becoming increasingly important. Our position in semiconductor, microgrids, and data centers. Because some of these businesses are project oriented and can be lumpy quarter to quarter, I think the year to date numbers provide the best perspective. Through the first 9 months, these businesses generated nearly $775 million of revenue growing 26% organically and approximately 40% when including WGNSTAR. Together, they now represent more than 11% of ABM's revenue and carry a double digit blended operating margin. So these businesses have become meaningful within ABM, and we believe they have significant runway ahead In semiconductor, we made a strategic decision several years ago to invest ahead of what we believe would be a significant expansion of advanced manufacturing capacity. We invested in industry expertise, developed relationships with many of the leading manufacturers, and established a strong position supporting semiconductor facilities. WGNSTAR significantly expands that opportunity. 1 way to think about it is to picture the FAB as the bull's eye in a semiconductor facility. Historically, ABM has operated around the bull's eye. Providing a broad range of services with WGNSTAR, we now have the highly specialized technical capabilities to operate inside the bull's eye as well. That significantly expands our addressable opportunity and allows us to provide a much broader range of services to semiconductor clients. The results so far have been really encouraging. Semiconductor revenue grew 65% organically during the first 9 months and more than doubled when including almost 2 quarters of WGNSTAR. And we are still early in realizing the opportunities across the combined client portfolio. In microgrids, including battery energy storage systems, we have approximately quadrupled the size of the business since entering the market in 2022. Through the first 9 months, revenue grew 17% organically. The underlying demand drivers remain compelling as clients increasingly invest in power, resiliency, and redundancy We are also focused on broadening the client base and increasing the recurring component of the business over time. To highlight our progress on diversification, in the coming days, we expect to finalize a contract to build a microgrid for primary backup power for the Army Corps of Engineers as part of a joint venture with a strategic partner The total value to ABM is approximately $20 million and we expect the project will be executed in calendar 27 and finally, data centers. Year to date, revenue grew 8% organically, But we believe the opportunity ahead is considerably larger than what is reflected in current growth rate. Our pipeline and backlog continue to build, including work with many colocation customers And we expect a meaningful portion of that activity to convert into revenue in fiscal 2027 and into 2028. Taken together, these businesses represent an important evolution in ABM's portfolio. We have a large resilient core business that generates significant cash flow, while at the same time, building meaningful positions in markets benefiting from powerful long term investment trends. We believe that combination can contribute meaningfully to ABM's growth and margin profile over time. Let me step back and briefly talk about what we are seeing across our markets as we move into the fourth quarter. Within Business and Industry, the trends we discussed last quarter remain largely intact. The Northeast continues to be our strongest commercial real estate market while the West Coast particularly Northern California, remains challenging. We continue to be disciplined in how we pursue and retain business, Our objective is not simply to maximize revenue. We want client relationships where we see a credible path to attractive returns over time. Looking ahead, we expect B&I to return to organic growth around the middle of fiscal 2027 as we lap the large UK client exit we have previously discussed. In manufacturing and distribution, the environment remains very constructive Technology continues to lead the way, particularly semiconductor, And we are also seeing healthy activity in e commerce, pharma, and broader industrial manufacturing. Based on what we see today, we believe M&D is positioned to sustain strong organic growth into fiscal 2027 and beyond. In 60% of aviation revenue and provide greater consistency, broader cross selling opportunities and more stable economics. Education continues to be a consistent cash generative business The team is executing extremely well, and we expect low single digit organic growth as we move into fiscal 2027. And finally, in technical solutions, the underlying market fundamentals across energy resiliency data centers, and HVAC remain strong. As I mentioned earlier, Q3 was affected by certain project deferrals at an important client. These delays were not driven by interest rates supply chain constraints, or permitting challenges. The client made a decision to prioritize other capital projects during the quarter. We are now executing on many of those deferred projects which should translate into significant sequential improvement in ATS revenue, operating profit, and margin in Q4. More broadly, given the demand we continue to see across ATS, we expect another year of strong growth in fiscal 2027. So as we enter the fourth quarter, I will leave you with 3 things First, the majority of our end markets remain healthy. And where we do have pressure, we understand the issues and are actively managing them. Second, our operational execution continues to improve. Margins increased sequentially, cash flow has strengthened considerably, and the cost actions we have been taking are showing up in our results. And third, semiconductor, microgrids, and data centers are becoming increasingly meaningful contributors to ABM and we believe they have substantial runway ahead. We are raising the midpoint of our adjusted EPS outlook and raising our full year free cash flow outlook based on our strong third quarter results and our confidence in delivering the fourth quarter. there is still work to do, but we feel good about the position we are in and the foundation we are building as we head into fiscal 2027. And with that, I will turn it over to David.

David Orr: Thanks, Scott, and good morning, everyone. Let's start on slide 7. Revenue grew 4.2% year over year to an all time quarterly record of slightly above $2.3 billion driven by 2.1% organic growth and a 2.1% contribution from acquisitions, primarily WGNSTAR. Organic growth was especially strong in aviation and M&D. Which grew 12%, 8% respectively. Education was up slightly, while Technical Solutions posted organic growth of 2%, reflecting project timing, which I will discuss shortly. B&I declined 3% as expected. I will get into the segment details in a few minutes. Turning to slide 8. As Scott mentioned, we delivered a strong earnings quarter. Net income increased 19% to $49 million or $0.84 per diluted share. Compared to $41.8 million or $0.67 per diluted share in the prior year. Adjusted net income was $61.5 million or $1.04 per diluted share, versus $51.7 million or $0.82 per diluted share last year. Reflecting increases of 19%, 27%, respectively. These significant year over year increases primarily reflect higher segment operating profit, lower tax expense, and reduced ongoing corporate cost. Partially offset by higher interest expense. Per share measures were further benefited from share repurchase activities completed earlier in the year. Adjusted EBITDA increased $13.8 million or 11% over the prior year to $139.6 million driven by higher segment operating profit, and lower corporate costs. Segment operating margin increased 40 basis points sequentially to 7.7%. On a year over year basis, segment margin was essentially flat as operational efficiencies in B&I, M&D, and education were offset by anticipated pressures in aviation and higher amortization expense related to the WGNSTAR acquisition. Excluding acquisition related amortization, margin would have been 7.8%. Now let's turn to segment performance, beginning with slide 9. B&I revenue declined 2.6% in the third quarter, as expected driven by the Q2 exit of a large UK based client and the impact of certain other client exits, particularly on the West Coast. We expect revenue trends to be similar in Q4, but we anticipate continued incremental margin improvement as our operational actions take further hold. Operating profit increased to $75 million and margin expanded 30 basis points year over year to 7.4% compared to $73.8 million and 7.1% in the prior year period. These improvements primarily reflect cost actions and operational improvements. Along with the benefit of lapping certain lower margin contracts entered into in the third quarter of last year. Aviation grew 12% to $328.1 million supported by healthy travel demand, and the continued ramp of our Heathrow contract. Operating profit was $18.4 million, with a margin of 5.6% compared to $19.7 million and 6.8% last year. Profit and margin were pressured by airline clients are reacting to elevated fuel costs by seeking cost relief from their service providers. We factored this into our outlook and are actively managing the pressure through operational efficiencies. Turning to slide 10. M&D generated $481 million in revenue, an 18% increase year over year. Including organic growth of 8%, 10% growth from the WGNSTAR acquisition. The strong organic growth was driven by continued client expansions across the segment. Operating profit was $40.5 million with a margin of 8.4%, compared to $36.4 million and 8.9% last year. On a year over year basis, the margin change primarily reflects ongoing investments in sales and industry expertise talent to support our long term growth strategy. As well as nearly $4 million in incremental amortization expense connected with the WGNSTAR acquisition. Excluding incremental amortization, margin was 9.2%, which we view as a solid base from which to expand as we outgrow the amortization and continue to cross sell higher value solutions to our semiconductor, and technology clients. Education revenue rose slightly to $235.8 million and delivered excellent operating performance in the quarter. Which is the seasonally strongest for profit and margin. Operating profit increased 9% to $23 million and margin expanded 70 basis points to 9.7%. This improvement was driven by enhanced labor efficiency in the effective escalation management. Technical solutions third quarter revenue of $259.9 million up 4% year over year including 2% organic growth, and 2% from acquisitions. Organic growth reflected strong HVAC and battery energy storage system activity, partially offset by certain project delays in our microgrid business driven by an important client. These delays were compounded by a difficult comparison against a very strong third quarter last year. Operating profit was $21.5 million with margin at 8.3%, compared to $19.4 million and 7.8% last year. The increase in operating profit and margin was mainly driven by positive service mix partially offset by impacts in our microgrid business due to project delays. Looking to the fourth quarter, we expect significant sequential increases in revenue operating profit and margin on higher microgrid activity as projects that shifted out of the third quarter move forward. As we discussed earlier in the year, the back half of the fiscal year and specifically the fourth quarter has historically been the strongest operating quarter of the year for Technical Solutions. This year will be no different. Now turning to slide 11. We ended the quarter with total indebtedness of $1.8 billion including $22 million in standby letters of credit. Our total debt to pro form a adjusted EBITDA ratio was 2.9 times. We achieved our goal of leveraging below 3 times a quarter earlier than originally planned. Reflecting strong sequential progress driven by our robust cash flow. We expect to drive leverage even lower by year end. Available liquidity stood at $606 million including $110 million in cash, and cash equivalents. During the quarter, we closed on a $300 million accounts receivable facility. This diversifies our funding sources and reduces our marginal cost of borrowing relative to our existing revolving credit facility. And also represents a meaningful enhancement to our overall capital structure. As Scott mentioned, we had a very strong cash generation quarter, which has long been a hallmark of ABM. Third quarter cash from operations was $146.8 million and free cash flow was $128.4 million For the first 9 months, cash from operations was $275 million and free cash flow was $199.6 million versus cash from operations of $101 million and free cash flow $42.4 million in the prior year period. This represents an improvement of over $150 million in free cash flow during the first 9 months. Driven by strong working capital management and ERP stabilization. As a result of our progress on cash generation year to date, we are raising our full year free cash flow expectations, which I will discuss in a moment. Interest expense in the quarter was $29.5 million, up $4.2 million from last year. Reflecting larger average debt balances driven by our WGNSTAR acquisition. This was partially offset at the net income level and lower tax expense which was $4.1 million below last year. Reflecting certain discrete tax benefits recognized in the quarter. Turning to our fiscal 2026 outlook on slide 12. As Scott noted, we are encouraged by the relative health of our end markets, while remaining mindful of the broader economic uncertainty. As such, we are raising the midpoint of our fiscal 2026 adjusted EPS range, which is now expected to be $3.95 to $4.10. This raise reflects our strong third quarter performance and our confidence in delivering on our fourth quarter expectations. As a reminder, our full year organic revenue growth outlook is 3% to 4%. And we continue to expect to be toward the higher end of that range. Aviation, M&D, and Technical Solutions are expected to grow above that range, while B&I and education are projected to be below that range. The WGNSTAR acquisition is expected to deliver approximately 1 point of additional revenue growth bringing total growth to the high end of our 4% to 5% range. We are modestly updating our segment operating margin outlook to 7.7% to 7.8% for fiscal 2026. Reflecting year to date performance and slightly higher intangible amortization for WGNSTAR. Which, in aggregate, accounts for 10 basis points of operating profit margin impact for the full year. That said, fourth quarter margin is projected to be meaningfully above the high end of that range, reflecting the anticipated seasonal improvements in ATS mix, and the continued benefit of our operational actions across the portfolio. Forecast for interest expense remains at approximately $110 million and our normalized tax rates before any discrete items including the possible extension of the work opportunity tax credit program is still expected to be 29% to 30%. As I mentioned earlier, we are encouraged by our progress generating cash, and are raising our full year expectations. We now expect normalized free cash flow of approximately $285 million in fiscal 2026 before the impact of transformation and integration costs. Final RavenVault earnout, and any incremental restructuring. On a reported basis, free cash flow is expected to be approximately $210 million versus our prior forecast of $185 million, a $25 million improvement reflects the strong working capital performance we have delivered through the first 9 months of the year. Also want to take a moment to recognize the efforts of our operators, our finance and treasury teams who drove outstanding third quarter cash flow. These results are a product of discipline and focus on the fundamentals of working capital management. With that, Scott, I will turn it back to you for closing remarks.

Scott Salmirs: Thanks, David. Let me close with a couple of thoughts. We feel good about where ABM stands today. Our core business remains resilient. Cash flow has improved significantly, and we are making progress on margins and operating efficiency At the same time, the investments we have made in semiconductor, microgrids, and data centers have created meaningful growth platforms and markets where we believe demand will remain strong for years. As we move towards fiscal 27, our priorities are straightforward. Finish this year strong execute on the opportunities already in front of us, continue improving margins and cash flow, and allocate capital with discipline. And finally, I wanna thank our team More than 100 thousand people show up every day and deliver for our clients. Ultimately, the results we are discussing today come from their execution, expertise, and the trust they build with our clients. We look forward to sharing our fiscal 27 outlook when we report fourth quarter results. With that, we will open up the line for questions.

Operator: Thank you. We will now be conducting a question and answer session. In the interest of time, please limit yourself to 1 question and 1 follow-up. For participant choosing speaker equipment, it may be necessary to pick up your handset before pressing the star keys. You. And our first question is from the line of Timothy Mulrooney with William Blair. Please proceed with your questions.

Tim Mulrooney: Yes. Thank you, and good morning. Scott, I am gonna start off here with your high-tech business, your semiconductors, data centers, microgrids, they are 11% of your business today. But I am curious. What do you think that will represent? In terms of your sales mix a couple years from now? You know, I know these high-tech sectors are growing faster than the rest of your business, but I also know the microgrids can be lumpy. So I am really curious to get your, broad thoughts on that.

Scott Salmirs: Yeah. So look, we are still super optimistic about that area of work. And you know, it is going to continue it is gonna continue becoming a more and more meaningful part of our business just by the fact of the mix. Right? Because it is growing double digits where some of our other segments are more of GDP or GDP plus. So it will continue to be meaningful and we also continue to invest in it because it is not only executing on the work, which you have to do, obviously, in the highest of fashion, but we are hiring experts that understand this business. We are hiring sales associates. So, this is an area that we think has, a lot of trajectory for years and years to come.

Tim Mulrooney: And what okay. Thank you for that. And what did you say the how the profitability of these 3 businesses combined compares to your corporate average?

Scott Salmirs: Yeah. So this is we are talking about double digit versus our average, which is typically, you know, in the, you know, low single digits. Yeah. Yeah. To me, you know, In terms of To you know where our EBITDA margins are in comparison to this. It could, in a lot of cases, be double in these markets. Yeah.

Tim Mulrooney: Okay. Thank you. Appreciate that. David, I had 1 for you on the cash flow guide, and then I will hop-- I think last time you communicated about this, you said you were targeting $250 million of free cash flow less I guess, $65 million of nonrecurring cash expenses. So, really, it was, $185 million, and now you are saying $210 million, which is $25 million higher Is that right? Is all of that right? Is all of that apples to apples?

David Orr: Yeah, Timothy. You got it right. So $2.10 on an as reported basis is the number we are targeting. As you said, we are really pleased with the way we landed cash flow for the quarter and our raise of guidance there. Yeah.

Tim Mulrooney: No. It looks great. I just want to-- it kind of sounds like you are changing the way you are talking about it a little bit here. Before, it was, like, pre all of that stuff, and now it is just on a reported basis, $2.10. Why did you raise the free cash flow guidance? Was it due to higher operating cash flow than you were expecting before, or is it due to fewer of that $65 million bucket of nonrecurring charges than you previously thought?

David Orr: I think the way to reflect on it is we had a really strong working capital quarter. Specifically, I think from my perspective, the good news is we are starting to really leverage some of the capabilities of the new system and, in doing so, in the quarter, were able to accelerate some of the collections for the quarter. So it is just it is just another step to stability on our transformation. And ultimately, that was the driver for the cash flow performance.

Tim Mulrooney: Yeah. Good execution. Well, congrats on a nice quarter. Thanks, guys.

Operator: Thank you. The next question is from the line of Andy Wittmann with Robert W. Baird. Please proceed with your question.

Analyst: Oh, great. Thanks for taking my question. I guess I wanted to go back to the ramp in the fourth quarter and Scott, I appreciate you kind of walked through some of the moving pieces. But I guess I am curious on deferred projects. Just how much is already given that we are halfway through the quarter, how much has already started? Is there anything that needs to still start? I am just trying to understand the line of sight and the visibility on those deferrals.

Scott Salmirs: Sure. And again, before I even answer that, you we do not really look at this quarter by quarter, year to date, in terms of just ATS in general, we have, you know, 10% year to date growth, and the microgrids in those projects are in that segment. But, you know, this quarter was about $15 million in deferrals and largely, almost all of those projects are going to land in Q4, a little bit in Q1 of next year. But we are already turning wrenches on those projects. So we are still not waiting to see if the deferrals are gonna be put into action. So we are actively working on them now. And I think what you are gonna see in Q4 is double digit organic growth in the ATS. Okay, that is helpful. And then just on the aviation, the margin concessions that you talked about with the fuel pressure that airlines are seeing. And I and I appreciate that color that the 60% of what you do there now is with the airports and not the airlines. But can you quantify just what impact that had on the margin in the quarter? Well, without going into too much detail, I will tell you, like just first to level set, the segment is still really strong. Demand is strong. And I guess the best way to look at this is that we feel like that pressure is stabilizing. You know, sequentially, the margins, you know, acts a little actually, this quarter, modest improvement. So we feel like a lot of that impact is behind us. And when we will start seeing us accelerating over time now, once we get a little bit of relief on fuel costs.

Analyst: Okay. And then I guess my last 1, just an up-- I mean, because, you know, you are growing the you know, all the high-tech businesses so fast, the 26% organic growth year to date that you called out in the release. Obviously, the intangible amortization that is been weighing on the and distribution segment, but I guess maybe it is a question for David. But can you remind us what is the bridge, the intangible for this year? And then how much of that falls off next year given that is such a high margin segment?

David Orr: Yeah. We had about $12 million allocated to this year. For the intangibles for next year. We will have some modest fall off of that next year. I think what I am most excited about ultimately about WGNSTAR is you may recall we guided to roughly $120 to $130 million of annualized revenue for WGNSTAR. They are tracking well above that. Now, and we see that kind of growth rate. Continuing into next year. So the good news is an enhanced growth rate will help us continue to outgrow the amortization expense.

Scott Salmirs: Yeah. And I would I would also point out that we have already had 2 or 3 cross sells in such a short period of time, which is, you know, really part of the thesis of this. And, you heard in my prepared remarks of how inside that bull's eye of the fab and outside. And now, you know, when you think about that and you say that, well, ABM has about 50 semiconductor clients that we were dealing with. Prior to WGNSTAR. WGNSTAR has 30-plus clients. So to be able start cross selling this, we just we are just seeing the start of it, but it is it is really positive.

Analyst: Yeah. Cool. Thank you very much, guys.

Operator: Thank you. The next questions are from the line of Faiza Alwy with Deutsche Bank. Please proceed with your questions.

Faiza Alwy: Yes. Hi. Thank you. Scott, I wanna follow-up on the high growth end markets. I know you have mentioned that there is a blend of project and recurring revenue I am curious if you could expand on that. Like, how much of your revenues are recurring And is there a way to shift more of it to recurring? I guess I am curious under what circumstances is the project based versus recurring.

Scott Salmirs: Yeah. So, I mean so the goal is to make it more recurring. And kind of what that means on the most basic level is you do a project, and instead of walking away, you get a maintenance contract. Where you stay you know, a client for the long term and then hopefully only are you getting that revenue, but as other projects come up, you are you are right in the sweet spot for that. So that is a big focus of ours in the whole ATS area is how does how do we, over time, blend the mix to be more recurring revenue recurring revenue? Yeah.

David Orr: And, Faiza, this is David. I would say right now, roughly 15% to 20% of that revenue is on a project basis, which is still great for us because it means we are staying really connected with the client at good margins. And as Scott mentioned, over time, we would like to return that to the recurring business. You know, longer term contracts. But, you know, make no mistake, having a line of sight into this project work and this space is really important for us.

Faiza Alwy: Alright. Great. that is very helpful. And then just on the-- you have strong cash flow improvement this year. I am curious if you have I know it is early and you are not giving a 2027 guide or anything like that. But, David, as you look at kind of where we are, how should we think about, you know, cash flow in 2027? Are there any sort of big expense items or anything else that we should keep in mind?

David Orr: No big expense items out of the ordinary, I would say. Obviously, as I mentioned earlier, we are very, very pleased with our performance year to date on cash flow. When I step back and think about it, you know, we have funded a roughly $250 million acquisition and within the last 9 months, you know, used $100 million of our capital to buy back shares and you know, $51 million of dividends. All the meanwhile, driving below 2.9 driving below 3 times levered at the end of the day. So we are excited about that and I do not think there would be any surprises next year relative to cash flow, but we look forward to come back to talk to you about that in December.

Faiza Alwy: Alright. Sounds good. Thank you.

Operator: Thank you. The next question is from the line of David Silver with Freedom Capital Markets. Please proceed with your question.

David Silver: Yes. Hi, good morning. Thank you. I guess the first question I would like to go back to you know, slide 6 and your discussion of, your opportunities in technology. And in particular, I wanted to focus on the data center panel. So, in my view, that is an area where there is a tremendous amount of you know, growth or build out that is going to occur over the next you know, handful of years. You know, from your perspective, Scott, maybe 2 questions. 1 is, have you been bidding for business for data centers that are kind of under construction? Or what is the cadence on, you know, contract, your pursuit of contracts and when they get awarded. And then secondly, taking up your analogy of the bull's eye and the target and everything, Is quality uptime kind of in some sense, you know, your path to getting inside the bull's eye of you know, the more significant data center projects? And if that is the case, can you know, expand that geographically, organically, or is this the case where, you know, you are gonna be looking for maybe similar you know, service companies, in targeted geographies. Thank you.

Scott Salmirs: Sure. Sure. So, you know, as it relates to the data center question first, you know, we have been doing a lot of mining in that area, and we are we are bringing on sales assets for that too. So, you know and I think I even said in my prepared remarks that the 8% organic, you know, I do not believe it is reflective of what we see over the next 2 or 3 years. In fact, our pipeline right now is a multiple of where it was at this time last year. So we are really optimistic that will, over time, be very, very healthy double digit growth. In data centers. And then with quality uptime, you know, that is largely UPS power, which, you know, I think I have said this before on the call, but, you know, think of that as the transition between the power going out and the generator starting or the microgrid starting up. Right, you would need these UPS batteries to transition through. So the way to think about quality uptime, it is just a big piece of the puzzle. it is it is a really important part as we go selling to data centers, as we go selling to big retailers, anyone who is looking for power generation is also going to be looking for UPS power for the transition. So quality of time is very, very important to the piece of the puzzle.

David Orr: You know, from our perspective, it was a very good acquisition for us. And, David, I would add, from a pipeline perspective, really the colocators are our main target in the data center space. that is where we see the fastest and most robust part of our pipeline growing here in the near term.

David Silver: Okay. Great. Thank you very much. I would like to, if you do not mind, I would like to swing over to some of your comments about I guess, over the last couple of quarters, but about just developments in the California market in particular, or maybe, the West Coast. But really California. I mean,, it is kind of a foundational business for your company. And then not too long ago, you did do the big, you know, Able services acquisition. And, you know, certainly, there is a lot of headlines about you know, business trends in that area in that geography. So just, you know, from a big picture perspective, Scott, I mean, you know, what are the keys to kind of, you know, optimizing what you are doing in that geography here? I mean, are the pressures more on the able the integrated services side, or is it more just standard BNI? And, you know, where do you think the opportunities are you know, when the dust settles a little bit, from the current trends you are seeing? Thank you.

Scott Salmirs: Yeah. that is a good question. I am glad you brought that up because I wanna make sure it is clear that this is not what we view as a systemic problem. You know, it is it is really now migrated to Northern California We had pressures early in the year in Southern California. that is stabilized. that is behind us now. In Northern California, you know, it is just it is part of a trend right now. Even though there is strong growth in that market from AI, you know, it is it is not a people heavy business. And as we go through those spaces, you know, there is still a lot of work from home. And what is ended up happening, which is a unique thing, right now, and it started in Southern California. Now in NorCal, which is the competitors are just, pricing at places that we are just not willing to work at. And you know, this has been a theme, David, as you know, over the last decade, about ABM not wanting to work for free. Right? And so we think we think this is not systemic. We think you will see this reverse it. If the trend of what happened in Southern California holds in NorCal, by mid next year, we think a lot of this will be behind us. And you know, the proof in the pudding on this is you look at B&I and, you know, our margins are up 30 basis points. So sequentially from quarter over quarter. So we are heading in the right direction. We are making the right decisions in you know, we talk internally about no regret decisions and this falls into it. So again, not systemic.

Operator: Thank you. The next question is from the line of Brianna Camden with UBS. Please proceed with your question.

Brianna Camden: Hey. Good morning, Scott and David. This is Brianna, on for Joshua Chan. Thanks for taking my questions. I guess on the outlook, can you maybe talk through why EPS midpoint is higher if margins are lower and most of the other items stay the same?

David Orr: Yeah. Sure. So I think it just reflects where we are 9 months through the year. We have good line of sight on what we think the revenue is gonna be for the full year. And we have a very prescriptive approach to margins in our forecast. You know, I think you could expect margins north of 8% in the fourth quarter. That tracks to basically what we did last year at 8.2%. And as you know, for Q4 has just been historically very seasonally strong quarter for us. So it gives us that confidence.

Brianna Camden: Thank you. Can you touch a bit more on confidence around the margin ramping as Q4, and then maybe, you know,, I know there is no guide for 2020 for next fiscal year, but how should that accelerate in Q4 and going forward? Thank you.

David Orr: Yes. I think the biggest margin accelerator in Q4, which has been very, again, historically consistent is the ATS business. done anywhere between 10% and 11% operating profit margin. For the last 2 Q4s in 2024 and 2025. We do not see this year being any different. In fact, we are really encouraged by the health of the backlog and what we are seeing as an early start in the quarter. So that is the single biggest driver. Thank you.

Operator: The next question is from the line Marc Riddick with Sidoti and Company. Please proceed with your question.

Mark Riddick: Morning. Marc, I wanted to touch on, some thoughts on the pricing dynamic that you are seeing and some of the key service areas and visibility there because it seems as though there is some crystallization that is, beginning to form. But maybe talk a little bit about your comfort level as far as pricing and as well as the revenue mix benefit on that. And then I have a quick follow-up.

Scott Salmirs: Yeah. We are real positive on our pricing approach. You know, we have a for medium sized to large contracts, we have a pricing council that goes through and we have hurdle rates that you have to hit. So that is been super helpful in terms of discipline. Escalations, really important part of our mix on pricing. We have to go out there every year and get wage escalations, and you know that is always been a historic strong point for ABM even in times when there was significant labor pressure. So it is a muscle strength we have built. So do not think there is anything dynamic happening in the market that is going to hurt us from a pricing standpoint. If anything, I think we have just gotten stronger and year over year after year. So feel really good about that.

Mark Riddick: Great. And then shifting gears over to aviation, I am really appreciated the commentary as far as the airport airline and what is going on with the airlines. Maybe talk a little bit about that mix shift that you have accomplished over years and sort of maybe where you see that maybe settling out. What sort of a reasonable I mean, we are at 60/40, I guess, now with airports and airlines. Maybe you could talk a little bit about what might be a reasonable target or view and the kind of time frame that you might have in mind there.

Scott Salmirs: Yeah. It you know, it is kinda hard to predict, to be honest with you. I know, you know, our focus is on that. And, you know, if it landed 3 to 5 years from now, it is 70/30, I think we would all be happy with that. And I think that is not it is not necessarily even a reflection that we think the airlines are gonna be weaker. I think there is gonna be so much infrastructure going on in airports. I think there is gonna be an opportunity as airports upgrade around the country that they are gonna want more enhanced services, and they are gonna want the kind of service that we perform at LaGuardia, which we have talked about. Where we are kind of it is an integrated approach. So, you know, 70/30 is not necessarily scientific. it is just kind of a sentiment that we are thinking over time, but there is a lot that can happen in that industry. But we love the way we have been heading.

Mark Riddick: Great. Thank you very much. Thanks.

Operator: Next questions are from the line of Tate Sullivan with Maxim Group. Please proceed with your question.

Tate Sullivan: Hi. Thank you very much. A couple of follow ups. Scott, in the prepared remarks, you mentioned an award for the microgrid work for the Army Corps of Engineers. Is that a longtime customer of ABMs? Is it related to an acquisition? I think you had a previous announcement with them, but just checking, please.

Scott Salmirs: Yeah. No. This is part of a-- they are not a long term client for us. Which is even more exciting, actually. it is part of a joint venture. That we went in to pitch this with another company. So we are a component part of this. But, it is really thrilling because they the provider picked us to partner with because of the work that we do in microgrids And as you can imagine with the Army Corps of Engineers, we think there is a, big addressable market within the government on these types of projects. So hopefully, this is the beginning of a really healthy future over time.

Tate Sullivan: Great. Thank you. And a follow-up on aviation. You mentioned cost relief from the customers or seeking cost relief, but the revenue growth has been double digits the last 3 quarters Are you continuing to see good traffic in the airports you work in?

Scott Salmirs: Yeah. The I mean, the pipeline's strong. You know, whether or not it will be double digit, we will say more when we talk to you in Q4 as we shape up and look at the pipeline. But we feel really good about that segment. it is been a good performer. And you know, we are in this mode now with fuel costs and some of the pressure on airline profitability that, you know, hopefully, what is going to inure to our benefit is that we have been really good strategic partners. And we have made the concessions that we needed to make. To kind of stabilize and hopefully grow those longer term relationships. So it is it is things that you do in the airline industry when they go through these cycles and, you know, we have all seen them before. So yeah, it is nothing again that is troubling to us over the long term.

David Orr: Yeah. Tate, I would add too, obviously, a good chunk of the revenue growth in aviation is start up of the Heathrow contract. In UK, which has been very successful for us. So as Scott said, we are just really, really happy with the growth profile there. We will continue to manage the operational challenges.

Tate Sullivan: Thank you. And just on that, you mentioned Heathrow Can you comment on your international mix with the U.K. post the U.K. client exit? that you mentioned? A return to organic growth in B&I with Heathrow or can you quantify the international I would say it has not actually changed a whole lot.

David Orr: The loss of the TFL contract is a pretty good balance with the win of the Heathrow contract. So all in all, not a big mix change, but, you know, if you do look at The UK markets specific to itself, we are seeing some healthy growth rates over there. We are continuing to invest in that team. The team's doing a great job of driving growth and profitability, so a great market for us.

Tate Sullivan: Okay. Thank you.

Operator: Thank you. At this time, I will turn the floor back to Scott for final comments.

Scott Salmirs: Well, thanks, everybody, for joining in. Hope you have a happy fall. And everyone's back to work now. Summer's over and we will see you in Q4 with our results and our full-year guide for 2027. But thanks, everybody.

Operator: Thank you. This will conclude today's call.