Transcript: ABM Indus Q2 2026 Earnings Conference Call

ABM Indus (NYSE:ABM) reported second-quarter financial results on Friday. The transcript from the company's second-quarter earnings call has been provided below. This content is powered by Benzinga APIs. For comprehensive financial data and transcripts, visit https://www.benzinga.com/apis/. View the webcast at https://viavid.webcasts.com/starthere.jsp?ei=1759506&tp_key=d15e068a75 Summary ABM Industries reported strong Q2 2026 results with organic revenue growth of 6.1% and new sales bookings reaching a record $1.2 billion. Key growth areas include technical solutions and aviation, with significant contributions from the WGM Star acquisition in the semiconductor sector. Operational improvements led to increased margins and free cash flow, with expectations for further growth in the second half of the fiscal year. The company remains focused on reducing leverage below three times by year-end, despite maintaining strategic investments in growth areas. Management highlighted positive impacts from AI initiatives and disciplined cost management, enhancing future scalability and profitability. Full Transcript OPERATOR Greetings and welcome to the ABM Indus second quarter 2026 earnings call. this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Star 0 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Paul Goldberg, Senior Vice President of Investor Relations. Please go ahead. Paul Goldberg (Senior Vice President of Investor Relations) Good morning everyone and welcome to ABM SECond quarter 2026 earnings call. My name is Paul Goldberg and I'm the Senior Vice President of Investor Relations at ABM. With me today are Scott Salmiers, 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 SECond quarter 2026 financial results and outlook. A copy of that release and an accompanying slide presentation can be found on our website abn.com after Scott and David's prepared remarks, we will host the Q and 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 words of these 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 website under the Investor tab. And with that I would like to now turn the call over to Scott. Good morning everyone and thank you for joining us to discuss ABM's SECond quarter fiscal 2026 results. We had a strong quarter. Organic revenue growth came in at 6.1% and I'm especially pleased to report that our first half new sales bookings reached $1.2 billion, a new record for ABM. Organic growth was especially strong in technical solutions and aviation, while on M and D we saw healthy underlying organic demand complemented by the WGM Star acquisition which is performing well and adding meaningfully to the segment's results. Right out of the gate. Education continued to post steady growth and B&I was flat organically. B&I was impacted by the exit of a large UK client during the SECond quarter and by our decisions to exit several other clients, especially on the west coast where commercial real estate markets have yet to fully recover, creating pressure in the market. Stepping back from the top line for a moment, we also executed well operationally. Margins improved sequentially and free cash flow was up significantly in the first half compared to last year, which I'm very pleased with. As we look ahead to the SECond half, the setup is compelling. We expect volume to ramp meaningfully in both ATS and M and D, and service mix within ATS in particular should improve as the project pipeline matures and our backlog execution ramps sequentially layered. On top of that, our cost discipline and price escalation actions are gaining traction. Taken together, we expect these drivers to produce a significant step up in both earnings and margin as we move through the back half of the year. While the near term macroeconomic environment remains dynamic, ABM operates in markets that offer a compelling combination of SECular growth opportunities in areas like energy infrastructure, semiconductors and airport modernization alongside the steady predictable revenue streams that have always been ABM's foundation. When taken together with the strong operating culture we have in place, ABM is well positioned to capture the long term growth opportunities ahead. So let me share more. Within business and industry, the prime office recovery continues to gain traction. Although as mentioned, the market is still experiencing some softness on the West Coast, U.S. office leasing is approaching 2019 levels. Net absorption turned significantly positive in the first quarter, the strongest since 2020, and prime vacancy rates continue to tight. New supply remains extremely limited with the construction pipeline nearly 90% below its 2020 peak. The flight to quality dynamic continues to favor exactly the types of prime assets where ABM is concentrated and we expect to see positive spillover into the next tier of high quality buildings. This dynamic is translating into real winds. Last year we were selected to service the new headquarters of the nation's largest bank here in New York City, and we recently followed that with a significant new facilities contract with another of the nation's leading commercial banks. These wins reflect both the strength of the office recovery and the confidence that world class clients are placing in ABM. Turning to M and D the semiconductor buildout may turn out to be one of the most compelling growth stories in American manufacturing in 21st century. Over 645 billion in private investment has been announced across 140 plus projects since 2020, with major commitments from companies such as TSMC, Micron, Intel, Samsung and Texas Instruments. The WGM Star acquisition has significantly strengthened our presence in semiconductor fabrication environments and the benefits are already becoming evident during the SECond quarter we SECured tens of millions of dollars in new business and delivered high double digit organic revenue growth across our semiconductor market and beyond. Semiconductors, e commerce growth and U.S. Manufacturing reshoring continue to support healthy demand across the segment which will continue to benefit. In aviation, the fundamentals remain strong. TSA throughput is running close to 3 million passengers per day and leisure demand remains robust. Airport infrastructure investment is at elevated levels as aging terminals drive a sustained modernization pipeline and our recent wins at Orlando International, Miami International and LaGuardia Terminal B reflect the strength of that pipeline. While rising fuel costs will likely create some near term challenges for our airline clients, the long term trajectory of this business is positive and our pipeline of new opportunities continues to evolve. In education, the numbers tell a compelling story. K12 schools in this country average 49 years in age. There is an $85 billion annual funding gap for repair and modernization and higher education construction spending in that area continues at near record levels. These dynamics should create durable long term demand for ABM services. Our strong retention rates and ABM performance solutions offering position us to capture an increasing share of this opportunity and our recently awarded $25 million Detroit Public Schools contract is a tangible demonstration of and in technical solutions the tailwinds are as strong as we have seen nationwide, battery storage installations were up 52% in 2025, AI is accelerating data center construction at double digit pace globally and micro grids are becoming essential infrastructure for the modern electric grid. This is precisely where ATS is most differentiated, sitting at the interSECtion of energy resiliency, electrification and AI infrastructure. Another recent micro grid win with a major big box retailer along with a variety of other energy storage and infrastructure projects booked this quarter are proof points of what we believe will be a multi year growth cycle for this segment. Now, looking specifically at the remainder of the year, we expect strong results in technical solutions driven by higher volume and improved mix. M and D is also expected to deliver robust results as new business continues to come online and WGM Star ramps up. Education will continue to be solid. B&I revenue will likely moderate in the back half of the year due to client exits, including the large UK client I previously discussed. And in aviation, while air travel demand remains robust, we are watching the potential impact of rising fuel costs on our airline clients. Overall, though our end markets remain largely constructive and we continue to closely monitor the evolving macroeconomic environment. We remain focused on reducing leverage to below three times, maintaining a disciplined approach to capital allocation and executing against our full year outlook as we operate with focused and financial discipline. With that, I'll turn it over to David. David Orr (Executive Vice President and Chief Financial Officer) Thanks Scott and good morning everyone. Let's start on slide 6. Revenue grew 8.4% year over year to a SECond quarter record of 2.3 billion, driven by 6.1% organic growth and a 2.3% contribution from acquisitions, primarily WGM Star Consolidated. Organic Growth was the strongest we've delivered since Q3 of 2022 with technical solutions and Aviation leading the way by segment. Technical Solutions grew revenue 27%, aviation was up 20% and manufacturing and distribution grew 17%. Education grew 2% while B& I was essentially flat. Overall, we remain pleased with the growth trajectory of the business, reflecting the resiliency and diversity of our end markets as well as our investments in sales, talent and industry expertise which helped deliver record first half new sales bookings of 1.2 billion. Turning to Slide 7, net income for the quarter was 43.1 million or $0.73 per diluted share, compared to 42.2 million or $0.67 per diluted share in the prior year period. Adjusted net income was 52.9 million or $0.90 per diluted share versus 54.1 million or $0.86 per diluted share last year. These year over year changes primarily reflect higher interest and amortization expense offset by lower tax expense and corporate costs per share measured were boosted by our recent share repurchase activities. Adjusted EB&ITDA increased 5.8 million over the prior year to 1 31.7 million. Segment operating margin increased 20 basis points sequentially to 7.3% on a year over year basis. Segment margin decreased 60 basis points, primarily reflecting the impact of contracts that came online last year in M and D and B and I, as well as higher amortization expense related to the WGM Star acquisition. We expect healthy sequential margin improvement in the third and fourth quarters driven by improved mix in ATS and our ongoing price escalation and cost actions. Now let's turn to segment performance beginning with slide 8. B&I revenue was essentially flat with last year at 1 billion. This performance was driven by overall strength in our UK markets, partially offset by the mid quarter exit of a large UK based client and the impact of certain other client exits, particularly on the west coast. Looking forward, we expect growth to moderate in the back half of the year, primarily due to the full run rate impact of the previously mentioned client exits. Operating profit was $76.7 million and margin was 7.6% compared to $83 million and 8.2% respectively last year. This margin change primarily reflects shifts in contract mix along with increased investments in sales resources to support long term growth. Margin improved 10 basis points sequentially as we continue to make progress on our cost and price escalation actions. Aviation revenue grew 20% to $310.8 million supported by healthy travel demand and the ramp of new contract wins, particularly our new Heathrow contract. Looking to the back half of the year, organic growth will remain strong but moderate from Q2 as we anniversary several large contracts that were brought on in Q3 of last year. Operating profit was $16.3 million with a margin of 5.3% compared to $16.5 million and 6.3% last year. Profit and margin were pressured by incremental weather related cost, certain contract scope changes and TSA driven operational disruptions during the quarter as well as by ramp up costs for the new Heathrow contract. Turning to slide 9M&D generated $463.8 million in revenue, a 17% increase year over year including organic growth of 7% and 9% growth from the WGM Star acquisition. The strong organic growth was driven by recent contract wins, particularly in the technology SECtor along with continued client expansions across the segment. Operating profit was 40.6 million with a margin of 8.8% compared to 39.9 million and 10% last year. As anticipated, margin increased 20 basis points sequentially on a year over year basis. The margin change reflects the mix of newer contracts SECured last year that are helping to drive organic growth. Margin was also impacted by 4 million in incremental amortization expense connected with the WGM Star acquisition. Excluding incremental amortization, margin was 9.6% which we believe better reflects the underlying long term earnings, power and margin profile of the segment. Education revenue rose 2% to $232.2 million primarily driven by escalations. The segment delivered strong operating performance with operating profit increasing 19% to 16.4 million and margin expanding 100 basis points to 7%. This improvement was driven by enhanced labor efficiency and effective escalation management. Our education team continues to execute at a high level and win meaningful new business such as a large ABM Performance Solutions contract from the Detroit Public School System which will come fully online in the fourth quarter. We also expanded our scope with the University of Miami, a long standing and important client. Looking ahead, we expect margin to improve in the third quarter which is always a seasonally strong period for education technical solutions. Second quarter revenue was 267.3 million up 27% year over year including 22% organic growth and 6% from acquisitions. Organic growth reflected robust activity in our data center markets as well as strong growth in battery energy storage system and HVAC project activity. Additionally, we booked significant new microgrid business in the SECond quarter with a major big box retailer which supports our expectations for a strong SECond half. In terms of revenue and mix, operating profit was 16.8 million with a margin at 6.3% compared to 13.4 million and 6.4% last year. The increase in profit was driven by significant volume growth margin primarily reflected service mix that was less weighted to design and engineering and more weighted to equipment intensive infrastructure, project services as well as ongoing investments in growth. We expect the service mix to improve in the back half of the year as has been our historical performance cadence within technical solutions. Now turning to Slide 10, we ended the quarter with total indebtedness of 1.9 billion, including 23 million in standby letters of credit. Our total debt to pro forma adjusted Debitda ratio was 3.2 times. Available liquidity stood at 614 million, including 95 million in cash and cash equivalents. As expected, the WGM Star acquisition pushed leverage above three times in the SECond quarter and we expect to work it back down under three times by the end of our fiscal year. Second quarter cash from operations was 66.2 million and free cash flow was 22.4 million. For the first six months, cash flow from operations was 1.28.2 million and free cash flow Was $71.2 million versus a use of cash of $73.9 million and negative free cash flow of $107.8 million in the prior year period. This year over year improvement of approximately $180 million during the first six months was driven by strong working capital management efforts and continued progress on our ERP stabilization. Now turning to capital allocation, as mentioned, we're focused on reducing our leverage below three times and as such our near term priority is debt repayment but will remain flexible as potential value creation opportunities present themselves. At quarter end, $89 million remained under our existing authorization. Interest expense in the quarter was $28.1 million, up $4.2 million from last year, reflecting larger average debt balances driven by our WGM Star acquisition. Turning to our fiscal 2026 outlook on Slide 11, as Scott noted, while we remain encouraged by the relative health of our end markets, we're mindful of broader economic uncertainty. Accordingly, we're maintaining our previously communicated fiscal 2026 adjusted EPS outlook. As a reminder, our full year Organic revenue growth outlook is 3 to 4% and we now expect to be toward the higher end of that range. Aviation, M and D and Technical Solutions are expected to grow above that range, while B&I and Education are projected to be below that range. The WGM Star acquisition is expected to deliver approximately one additional point of revenue growth, bringing total growth to the high end of our 4% to 5% range. Segment operating margin is expected to be toward the low end of our range of 7.8 to 8% for fiscal 2026 with margin expansion weighted toward the back half of the year, primarily driven by improved mix and volume in ATS. Interest expense is now forecast to be approximately 110 million driven by higher than forecasted interest rates. We plan to offset this headwind with additional cost actions. Our normalized tax rate before any discrete items, including the possible extension of the Work Opportunity Tax Credit Program is still expected to be 29 to 30%. We feel good about our progress generating cash and are confident in our expectations. And as a reminder, we expect free cash flow of approximately $250 million in 2026 before the impact of transformation and integration costs, the final ravenvolt earnout and any incremental restructuring. Putting it all together, we continue to expect full year adjusted EPS to be in the range of $3.85 to $4.15. In addition, we've been actively implementing operational and process improvements to our insurance program over the last six months. We believe these changes will ultimately enable us to better predict the end year impact of prior year self insurance adjustments. As such, our full year fiscal 2026 outlook no longer excludes the expected impacts of such adjustments, which we believe provides greater predictability and transparency in our outlook going forward. And with that, I'll hand it back over to Scott for closing remarks. Scott Salmirs (President and Chief Executive Officer) Thanks David. In closing, I'm pleased with where ABM stands. We are growing, we are generating cash and our end markets are largely constructive. We have more work to do, particularly in driving consistent margin improvement. But the trajectory is positive and the back half of the year gives us real opportunity to demonstrate that we remain disciplined stewards of capital. Near term that means staying focused on deleveraging. Longer term it means continuing to shape our portfolio and invest in areas where ABM can become a more integrated and important supplier to our clients and generate the most shareholder value. Lastly, I want to take a moment to thank our team. More than 100,000 people show up every day and deliver for our clients and their commitment is what makes ABM's long term story possible. With that we'll open up the line for questions. OPERATOR Thank you. If you'd like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. To allow for as many questions as possible, we ask that you each keep one question and one follow up. Thank you. Our first question comes from the line of Tim Mulrooney with William Blair, please. Your question, Tim Mulrooney (Equity Analyst) Scott. David, good morning. Morning. So I wanted to ask about your power solutions business here, which seems to be running pretty hot right now with more micro grid activity, I guess expected in the back half here. But on the second quarter specifically, were there any really large projects in there like the battery storage system or anything else that had a significant contribution to that 22% organic growth number we saw in the quarter? David Orr (Executive Vice President and Chief Financial Officer) Yeah. Hey, Tim, it's David. Thanks for the question. We did have a really good quarter on the battery energy storage side. There was a couple of large projects as you mentioned. And you know, those projects carry a little bit different profile. Right. They're heavy on equipment, heavy on infrastructure, and the margins are a little less just because you've got so much equipment going into the jobs. But we see that momentum continuing on not only those jobs in the second half, but really ramping up our more traditional microgrid work for switchgear and generators in the second half as well. Scott Salmirs (President and Chief Executive Officer) Yeah, and Tim, just to just give you a little more build out on that and I'll go super high level on this, but when you look at our ATS project work, you can almost think of it in two phases. It's like the design and the engineering and then it's the turning the wrenches part. And the turning the wrenches part is lower margin than designing and engineering. So when you look at the mix for this quarter, when you look at margin, we were heavily weighted towards the turning of the wrenches part. And we think in the back half. Well, we know in the back half we're going to have a lot more of the designing and engineering and you'll see the margins ramp in the back half, if that helps a little bit. Yeah, that's really helpful. That was actually my other question I was going to ask about the margin trajectory in the mix, but I appreciate Tim Mulrooney (Equity Analyst) the color there, Scott. Thank you. And David, maybe I'll follow up with something else in technical solutions. I Noticed in your slides you highlighted higher H Vac project activity in the quarter. Now H Vac technicians we all know right now are in such a high demand nationwide for data center construction projects. I'm curious if you're seeing more work kind of crop up in the building environment on the retrofit side because perhaps some other companies that you'd normally compete with on these jobs are now just solely focused on new data center construction. Are you seeing more opportunities open up? David Orr (Executive Vice President and Chief Financial Officer) I would say we're strong across the board. I don't think we're seeing one particular segment versus the other. Obviously data centers are really strong, but I think we're seeing it kind of broad based right now. Tim. Tim Mulrooney (Equity Analyst) Okay, thank you. OPERATOR Thank you. Our next question comes from the line of Jasper Biff with Truist Securities. Please proceed with your question. Jasper Biff (Equity Analyst) Hey, good morning guys. I know you raised the organic growth quite a bit today. Still implies like a little bit of deceleration in the back half of the year. It sounds like at the segment level things are mostly running ahead of that range with the exception of BNI due to some client exits. I guess I'm wondering if the flat growth in the second quarter reflects the full impact of those client exits in bni or maybe the segment would decelerate a bit more in the next two quarters. Thank you. Scott Salmirs (President and Chief Executive Officer) Hey Jasper, you're calling from a bad line. Maybe you could just repeat that question. Hopefully it'll come across clearer. We hardly heard it, Sorry. Hopefully this is better. Yeah. Okay, great. Okay. Yeah, so my question was on bni. You mentioned some client exits in the quarter. I was wondering if the flat growth in the second quarter reflected the full impact of the client exits. Or maybe the segment would decelerate a bit more in the next two quarters as you, I guess, see the full impact of the exits you talked about. Yeah, maybe I'll just break down BNI for you. I think the majority of the pressure that we're seeing was that the TFL exit that we talked about and that was pretty significant. And then the other part of it that we talked about a little bit was the West Coast. And maybe I'll just give you a little bit more background on the way we see that market and what's going on. And if you were to look at vacancy rates in cities like LA, San Francisco, Seattle, to give you context, they're probably two or three times worse than New York City. If you were to think about those markets, think west coast is kind of tech heavy, whereas east coast is banking legal. And from a Return to work standpoint also, as you guys know, like west coast, when it comes to the tech sector, they're not returning to work the same way financial services and legal is. So we're seeing pressure in those markets. And what ends up happening with that pressure is competitors will start, especially when it's prolonged the way it's been prolonged for the LAst couple of years. Competitors start making pricing decisions and margin decisions that just don't meet our economic thresholds. And I'll just tell you, I've seen this before in my long career at ABM and this stuff. It tends to be episodic and it's not sustainable. So we see it waning over time. But right now we're seeing some of that pressure. And if I were to distinguish this quarter versus LAst year when we made some strategic decisions for us, we have to see a path to profitability. It has to be a highly strategic account. Those were the dynamics in Q3 of LAst year versus what we're seeing now. So we made these decisions. We're actually happy about the decisions we made on the exits because what you will see in BNI in the second half is our operating margins flex up and we feel that's really important. David Orr (Executive Vice President and Chief Financial Officer) And Jasper, I'll just one more bit of color on that looking forward for BI, the TFL exits accounts for about 300 basis points of growth impact for BI in the back half. So when we talk about the proportion of the impacts, it's clearly the majority of that's going to be because of that contract exit. Thanks. And then could you maybe provide a bit more detail on where you're at with the ERP at this point? What kind of margin opportunity you think you have there with ERP in place and running in I think three of your five segments at this point? Yep, you're right. Three of five on the platform. We're in the planning phases for the last couple segments and you know, based on all the things we learned from the first go lives, we'll be taking that into consideration. I think the, I think the opportunities lie ultimately in scalability. You know, what we anticipate paid from an AI perspective and you know, how we, how we load contracts in, how we process the invoicing, you know, our efficiencies in collecting cash. So, you know, we're mindful of that. But first things first is just getting the planning done for the next groups and we'll provide clarity to that in a future call. Scott Salmirs (President and Chief Executive Officer) Yeah, and kind of, I would just say what I'm excited about in Terms of getting done with the ERP is we're just going to have a clean data set. And when you think about AI and all the leverage, you know, you, it's so important to have clean data to leverage your tool set on. And we're heading in that direction. And I think you're going to see some meaningful opportunities in 2027, 2028. As our data set matures, as our AI matures, we see there's just a lot of Runway in what we're going to be able to do with scheduling and workforce management. I mean, there's a lot of exciting initiatives coming and you know, we always feel like it can't come soon enough. But we're, we're mindful of the pace and the balance. We're, we're in a long term situation here. Jasper Biff (Equity Analyst) Got it. Thank you for taking the questions, guys. Scott Salmirs (President and Chief Executive Officer) Thank you. OPERATOR Thank you. Our next question comes from line of Andy Whitman with Baird. Please proceed with your question. Andy Whitman (Equity Analyst) Great. Good morning and thank you for taking my questions. Guys, I wanted to first ask about the, I guess the standby generator microgrid work that you're doing at the retailers. You've had a large retailer that has been working with you guys to install these for several years now. I think you're on at least, I know you're on your, at least your second, maybe your third kind of tranche of stores that that, that legacy retailer that you've been working with has given you. It sounded like, I guess I heard here that there's a, there's a new large retailer that signed you up. And so I'm just trying to understand now that we've got two of these kind of where they are in terms of installing these types of things on their stores, both for the legacy and how much you have with this new customer and how you're thinking, Scott, about the long term with this customer. Obviously you need to deliver quality work and all of that. But is this the beginning or is this new one? Are you expecting that it's likely to have phases as well. Thank you. Scott Salmirs (President and Chief Executive Officer) Thanks. Look, I would just say kind of high level, Andy. Like we think there's just a lot more Runway in the microgrid business. And it's for us, it's not necessarily customer by customer. And the big trip is having customer concentration, which you don't want to have. So we're very focused from a business development standpoint of spanning out and strategically going after a broader range of clients. So it's not about like one or two clients for us, for the long term, although right now we are heavily weighted to 1 and 2. But we're growing out of that and we're optimistic about what the next year or two is going to bring in terms of again broadening that perspective. But with these other clients we see really good Runway in their portfolio and their programs. David Orr (Executive Vice President and Chief Financial Officer) Okay, got it. I guess my follow up question is then for David. So I wanted to just talk about the prior year self insurance accounting here. That's in your adjusted results. I'm sorry, I don't know if I quite followed this as I understood it like going back here, as we came into the year you were no longer adjusting for this and it was going to be, it's been an add back for years. It was not going to be this year. Did I hear you say that you made a change this quarter to putting it back in? I'm sorry, can you just clarify that? And did the change that you made this quarter have any, I mean the nominal number that you're saying in terms of EPS for the range for the year is the same, but was there an impact from the change that you made this quarter? I'm sorry, could you just please explain that maybe more slowly this time so I. We can all understand. Yeah, sure Andy, no problem. So just to take a step back for context, right. Last year Q2 we had communications with the SEC and you know, they were strongly advising us to record any prior year self insurance adjustments, you know, above the line as part of our operating earnings. So we did that and you know, fast forward to the guidance for this year for fiscal 26, what we said was we would continue recording those adjustments as part of operating earnings. However, we weren't factoring that into our guidance. Right. And at the time it was really a visibility issue. You know, we had a $23 million adjustment, unfavorable adjustment last year. We were obviously not very pleased with that. And then. So what I would say is as a result of that we've made some real investments in this program and specifically investments in to find ways to dampen the volatility and some real operational improvements that we think is going to result in meaningfully better predictability going forward. And specifically we're focused on real insurance related programs, return to work, you know, timely claims closing, aggressive claim settlement, driver behavior programs. And we think the combination of our focus on that Andy, is going to really allow us to, to be more confident about predicting this type of adjustment in the future. And as such we're now confident that the results of the study that we'll do this Q4 for the full year of 26 can be captured and contemplated within the guidance of 385 to 415. So at the end of the day, we felt like this is about transparency. We're going to include it in the guide going forward. We're going to own it operationally and treat it like any other operational program with this company. Scott Salmirs (President and Chief Executive Officer) Yeah. And what I would say, Andy, and why I think this is a pretty significant move, is I like to think for investors, we just de risked Q4 because prior to this we didn't have it in the guidance. And again, what happened last year is we had this 20 cent plus hit to EPS in Q4 and it wasn't a great effect on the stock price, to be frank. And, you know, for us to come out now and say, you do not have to worry about the Q4 effect, we are absorbing it into our guidance. We think is, you know, a big statement for investors. David Orr (Executive Vice President and Chief Financial Officer) Yeah, okay, that makes more sense, I guess, maybe another way. I just want to check my understanding for. I think everybody can benefit from this. It sounds like you've sufficiently narrowed the way you're accounting for this and the programs and all these actions so that, that even if there are changes in how this comes through, you think they're narrow enough that it's more predictable now than it used to be. And so now you can bake it in there fully baked, which is a good outcome. Is that kind of another simple way of looking at it? Scott Salmirs (President and Chief Executive Officer) David, you nailed it. David Orr (Executive Vice President and Chief Financial Officer) Andy. It's all about predictability. And we really firmly believe that the actions we've taken and the focus on the program gives us that narrowing ability. Andy Whitman (Equity Analyst) Okay, good. All right, I'm going to leave it there, guys. Have a good day. Scott Salmirs (President and Chief Executive Officer) Thank you. OPERATOR Thank you. Our next question comes from the line of Faiza Alwe with Zoe. Please proceed with your question. Yes, hi. Thank you so much. I wanted to ask about WGN Star, you know, now that you've owned it for a few months, just wanted to get an update. I know you sound pretty good about the opportunity there, but just give us some additional color in terms of are you seeing any changes around the competitive environment there and how do you think about are you growing with new business or are you seeing just your existing customers grow a lot faster? Just would love to hear more about that. Faiza Alwe (Equity Analyst) Sure. Faisal. We're thrilled with this acquisition and the integration has gone really, really well. They're already starting to contribute meaningfully to our semiconductor space. And as I think we mentioned in the past. But let me just reiterate. If you think about the semiconductor space and you think of like a bullseye. Right is the way I like to think about it. The center of the bullseye is the fabrication part, which is highly protected. Think about people in hazmat suits. And the outside of that bull's eye is the facility itself. We were big with semiconductor companies on the outside of that fab, whereas WGN Star was inside that fab. And the combination of the two is making us a kind of seamless provider. And over, you know, if you look year over year in semiconductor, we've doubled our growth there. Let me just give you some statistics about how we're doing in the semiconductor market. We have over 60 clients. We're at over 300 sites right now. If you were to look at like kind of fab capacity between us and European fab makers, we're in 75% of those clients right now. And when you look at the OEMs, there's kind of like 10 big OEMs. We're doing work with seven of them right now. So we feel like to be positioned in that space, to be positioned in that space and have that opportunity with the client to grow with them and to grow inside the fab and outside the fab is just going to be tremendous for us. So I can tell you, we see in semiconductor space double digit growth continuing for a while. Scott Salmirs (President and Chief Executive Officer) Great, that's very helpful. And then I just wanted to follow up on BNI margins because you talked about an improving trajectory, it sounds like from mix. And then you're also investing in sales resources, it sounds like. So just give us a bit more perspective around where do we think sort of steady state B and I margins should be sort of how much opportunity is there just from MIX alone And maybe once you ramp down the sales investment. David Orr (Executive Vice President and Chief Financial Officer) Sure. So you saw some sequential movement in our margins. We were up 30 basis points between Q1 and Q2. So we're seeing movement. And I think with the decisions that we've made specifically on the west coast, you'll see some ramp down in revenue in bni. Between that and the tfl, you know, we're not expecting positive organic growth necessarily. However, you're going to see margin acceleration in the back half. Like you'll see the proof points play out that the decisions we're making and how we're managing the business are going to have accretive margin. So we're really optimistic about bni. Faiza Alwe (Equity Analyst) All right, thank you. Scott Salmirs (President and Chief Executive Officer) Thanks, Faiza. OPERATOR Thank you. Our next question comes from Line of Josh Chen with ubs. Please proceed with your question. Josh Chen (Equity Analyst) Hi, good morning, Scott and David. Thanks for taking my questions. So obviously, really strong organic growth in the first half, 5 to 6%, your guide, obviously you're pushing it up to the high end of three to four, but I guess does that DECEL imply the bni, you know, slow down in the second half? It seems like, you know, there may be opportunity even with BNI to still get perhaps above the 4% growth rate for the year. Am I on the right track in thinking that way? David Orr (Executive Vice President and Chief Financial Officer) Yeah. Hey, Josh, David, thanks for the question. So, you know, as we said, clearly the DECEL and BNI in the back half is largely driven by the TFL exits we talked about and some of the pressure on the West Coast Scott talked about. So I think, you know, from a, from a full fiscal year perspective, we're looking at more a flat to maybe slightly positive growth for bni. On a full year perspective, we see that deceleration and just, you know, obviously takes a little bit of time to lap that, lap those kind of exits, especially with TFL for the year. Josh Chen (Equity Analyst) Okay, okay. And then on the. Yeah, thank you, David. And then you mentioned price escalations. So I guess in terms of the magnitude of those price escalations, do you feel like your pricing is sufficient to offset whatever you're seeing in terms of wage inflation? David Orr (Executive Vice President and Chief Financial Officer) Yeah, one of the things I think we're excited about and actually a benefit of some of the new systems we have installed, we've got really good visibility on our cost basis, especially for a lot of the bigger groups that have the high volume of contracts. So B and I being the main one there. So, you know, we've as part of our just core operating day to day, we've got a tremendous focus on escalations. We feel really good about the path to capturing any cost burdens that we've experienced. And that's part of the momentum, as Scott mentioned, that's going to continue the back half of the year for B and I to really help ramp that sequential margin performance up. Scott Salmirs (President and Chief Executive Officer) Yeah. And what I would say that again I get enthusiastic about is kind of AI based initiatives and on escalations. This is one of the places where we had an AI based initiative where we went through, scanned the contracts, generated escalation letters and done this with an AI initiative. So I think that the AI initiatives are all, they're starting to mature, they take time. But this is one area I'm glad you brought up, escalations because this is one area where we're, we're so proud of what we're doing on the AI front. Josh Chen (Equity Analyst) Yeah, that's good to hear. Thank you for the color and good luck in the second half. OPERATOR Thank you. Our next question comes from the line of David Silver with Freedom Capital Markets. Please proceed with your question. David Silver (Equity Analyst) Yeah, hi, good morning. I'd like to maybe just ask for a little bit of color behind the $1.2 billion of new contract wins. So, you know, a couple of things, but just, I mean, certainly it's a big number and I think you're on track, you know, clearly for another record in terms of new business wins overall. But I'd also say beyond that, I mean, just seeing it highlighted in a quarterly earnings release, that struck me as a little unusual. And then, you know, I even wrap it around with the idea that, you know, you highlighted maybe some decisions to walk away from some business that wasn't generating sufficient, you know, profit or path to sufficient profitability. And I guess I just would like to know, I mean, if we could just focus on the non ATS portion of that, you know, how much of the, the new business wins that you're getting or what would you attribute maybe the incremental, the faster pace at which you're winning new business? And I guess I would just break it down as, you know, offense versus defense. I mean, are you out there specifically targeting, you know, business, that new business that, you know, you, you want to be in strategically, or is it more defense where, you know, just due to regional or company specific characteristics, you know, they're, they're looking for concessions or terms of business that you're, you know, as a company, you're just not acceptable. So just some thoughts on the incremental pace of new business wins and from your perspective, what's behind that? Thank you. Scott Salmirs (President and Chief Executive Officer) Yeah. And let me start with. You had mentioned that it was unusual that we mentioned it, but just so you know, we do have a history in Q2 of updating the first half, so we've done it before, so probably not that unusual. And we're excited about where we are at 1.2 billion. Because I think what you have to do is you have to step back and you have to look at sentiment. Right. And the sentiment from our standpoint is like, clients continue to want to work for us. We're winning this business going through presentations with broad groups of clients who are all saying yes to abm. So we like the fact that we're seeing this positive trend year after year of growing ourselves. And I would say it's less defensive and more strategic. We've talked in the past about how we are hiring business development assets and we're targeting certain areas, certainly like the Sun Belt regions, we've targeted also by industry group and data centers and semiconductor. So it's, you know, for us, like I'll just give you a proof point between semiconductors and data centers. If you combine those two little micro groups, that's 7% of ABM's revenue right now. That's pretty significant. It's a strategic initiative that we set out a couple of years ago to accomplish and that's also a segment that's going to grow double digit. So I think for us this has all been strategic and clearly there's always defensive measures in sales pursuit. So I'm not going to sit here and say the 1.2 billion was all purely strategic. There was a nice balance, but the majority of it was strategic. David Silver (Equity Analyst) Okay, great. Thank you for that. And then, you know, this is a question that maybe you've touched on anecdotally or partially already, but you know, Scott, your company's been in business for a very long time and you've been very careful to segment your business by end market, you know, and even within that, you know, you've segmented aviation in different ways, for example, and other segments. I'm just wondering, but as a company, does it make sense to maybe think about things more geographically now? In other words, you know, technology business in one part of the country might not be, might require a different strategy than, you know, maybe another part. I'm just thinking California versus Texas or west coast versus non west coast, just based on your comments. But you know, you use the term episodic, but you know, my sense is over the past few years, some of these trends have not really changed much. So just as a company and you know, with a, a very clear national view, I mean, what role does maybe a more, you know, discreet, more explicit geographic strategy make sense? Scott Salmirs (President and Chief Executive Officer) Sure, that's a good question. We do have a geographic strategy. I would say, look, we segment by industry group by end market and we still feel like absolutely the right way to do it. We pressure test all these assumptions every year strategically. You know, it's a management team with our board of directors. So we still firmly believe by aligning with the customer segment, that's the best way to go. Within those customer segments, though, we do have a geographic focus. And maybe earlier I mentioned about the Sun Belt, like we look at the certain growth zones in the places that we operate and we apportion business development assets based on those growth zones, operational assets. So I'd like for you to think about it as the industry groups are kind of and the segments that are the overlay. And within that overlay you have an approach that absolutely incorporates a geographic attitude. OPERATOR Thank you. Our next question comes from the line of Mark Riddick with Sidoti and Company. Please proceed with your question. Mark Riddick (Equity Analyst) Hey, good morning. Thanks for taking all the questions. We covered quite a bit already this morning. I did want to touch a little bit on with the expectation of reducing leverage by the end of the year back to three times or so. Maybe talk a little bit about what you're seeing in the acquisition pipeline currently and sort of comfort levels, valuation levels if they change much over the last few months and sort of how your appetite looks there. David Orr (Executive Vice President and Chief Financial Officer) Thanks, Mark. David, definitely appropriate question. As we said in Q1, we did anticipate our leverage to tick up over three times with the acquisition of WGN Star. Clearly our near term priority remains delevering and we anticipate based on our cash flow strength in the back half to be able to get back down below three times by the end of the year. So and obviously that that doesn't mean we're walking away from other value creation opportunities and capital return. We're just sequencing it appropriately, basically. So I think from a, from a leverage perspective and then again based on the strength of our sequential cash flows, we feel, we feel really solid. Scott, I'll let you comment on the M and A pipeline. Scott Salmirs (President and Chief Executive Officer) Yeah, so the M and A pipeline, we continue to monitor it. We think there are going to be some, some interesting opportunities in the back half of this year and in the first half of next year. And frankly that could coincide with our leverage going down below 3 and the fact that we very much care about getting integrations. Right. So we're still integrating WGM Star. So I think the confluence of this could be positive from an M and A side standpoint. Again, more towards the back half and maybe Q4 or dripping into fiscal Q1 for us. But you know, we're monitoring it and again being very strategic about where we play, Mark Riddick (Equity Analyst) that's helpful. And then just a quick follow up. There was, I guess there wasn't much as far as any effects that you've seen either from the war or, or sort of the geopolitical disruptions. I was wondering if there was any areas that you've seen any influence from that or how that sort of how the pacing through the quarter and into 3Q might be impacted there or if You've seen anything that's come from that. Thanks. Scott Salmirs (President and Chief Executive Officer) Yeah, yeah. So what I would say is where we see a little hint of it right now is in the aviation sector, especially specifically on our international business because flights, there's been pressure on the international flights in terms of volume, hasn't been incredibly material yet. But as we said in the prepared comments, we're just watching it and staying on top of it. But the one great thing about ABM is even in these cycles where we get through them pretty well because of our flexible labor model and the fact that the services we perform largely are not discretionary. So we'll definitely, in extreme times we'll get some pressure, but we ride through it. OPERATOR Thank you. Our final question this morning comes from the line of Tate Sullivan with Maxim Group. Please proceed with your question. Tate Sullivan (Equity Analyst) Thank you. And thanks for the earlier comments on organic growth. And that's one thing we're looking for accelerating earnings growth from last fiscal year when it was 3.8%. So I think you clear that up with BNI. And just one quick, David, on, on the cash free cash flow guidance of 250 million. Can you go and what, what does that exclude specifically? And can you disclose some of the figures? David Orr (Executive Vice President and Chief Financial Officer) Yep. Excluded amounts, certainly, Tate. So the items that would exclude a total of roughly $65 million on an annual basis. So some remaining transformation costs, about 20 million. The anticipated earn out payment for the Ravenvolt acquisition, the final one, which is roughly $30 million, and then some acquisition costs associated with the WGM star acquisition, about 9 million, 8 to 9 million dollars. And just any other restructuring charges, you know, fill out the gap there. So what I would say is, you know, as I mentioned earlier, we still feel really good about where we're on cash flows. We're at about 40% of our pacing on a normalized basis. So about 100 million out of the $250 million guide. And you've been following the stock for a while. You guys know that our, the majority of the cash flow for ABM is tilted towards the second half of the. So it just puts us in a good position on cash flow for the year. Tate Sullivan (Equity Analyst) Okay, thank you all. OPERATOR Thank you. Ladies and gentlemen. That concludes our question and answer session. I'll turn the floor back to Mr. Sommers for any final comments. Scott Salmirs (President and Chief Executive Officer) Sure. Thank you. Thanks everybody for participating. Hopefully you can see how optimistic David and I are about where we're heading and what the back half is going to be. So we'll look forward to seeing you in Q3 and have an amazing summer, everybody. Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.