Joshua Chan

Joshua Chan asked for management's level of conviction that the business slowdown is specifically tariff-related rather than a broader pullback, and also inquired about the potential negative impact of AI on demand for Gartner's services.

Answer

CEO & Chairman Eugene Hall expressed high confidence, citing deal-level tracking where clients explicitly name tariff concerns and cost-cutting as reasons for purchase escalations. EVP & CFO Craig Safian added that performance in tariff-impacted industries is significantly worse than in non-impacted ones. This Q&A was interrupted by a technical issue.

Joshua Chan asked to reconcile comments about a more volatile selling environment with the relatively stable ex-federal contract value growth. He also questioned how margins were guided up despite a lower revenue outlook.

Answer

CEO Gene Hall explained that while the overall environment is stable, specific companies impacted by policy changes like tariffs are experiencing longer decision cycles. CFO Craig Safian added that the company is executing a 'slight belt tightening' on costs while protecting key investments like sales capacity, which allows for margin expansion.

Joshua Chan noted the improvement in GTS wallet retention and asked about the selling environment. He also questioned if a negative NCVI in Q1 could be ruled out this year, given the improving tech vendor situation.

Answer

Executive Eugene Hall attributed the improved performance to better execution, stating that the overall selling environment remains unchanged. CFO Craig Safian declined to guide on Q1 NCVI but emphasized that the company is executing better than in previous quarters and has planned prudently for what is a dynamic period. He did not rule out any specific outcome.

Joshua Chan asked for clarification on why the CV recovery path might be 'uneven' after bottoming in Q1. He also inquired about the sequential deceleration in Global Business Sales (GBS) CV growth and its expected trajectory.

Answer

CEO Gene Hall and CFO Craig Safian explained that the recovery path is uneven due to normal quarter-to-quarter variations in the timing and size of renewals and new business deals. Regarding GBS, Gene Hall clarified that the deceleration is primarily in legacy products from the CEB acquisition, which are renewing at lower rates, while newer GxL products continue to grow above the company's target range.

Josh Chan from UBS inquired about the sustainability of APi Group's strong organic growth, which is currently exceeding its mid-single-digit long-term rate, and whether this performance pulls future growth forward. He also asked for clarification on the translation of the significantly increased revenue guidance to a slightly higher adjusted EBITDA guidance.

Answer

EVP and CFO David Jackola affirmed the sustainability of their organic growth algorithm, noting that the current outsized growth is primarily driven by the project side of the business, which is expected to continue. Regarding guidance, Mr. Jackola explained that the higher revenue forecast is due to strong project activity, which typically carries a lower gross margin than inspection, service, and monitoring (ISM) work, thus impacting the EBITDA translation.

Josh Chan inquired about the sustainability of APi Group's strong organic growth, particularly whether the current pace pulls future growth forward, and asked for clarification on the translation of increased revenue guidance to a slightly higher EBITDA guidance.

Answer

David Jackola, EVP and CFO, referred to the investor day organic growth algorithm, stating it remains sustainable, with current outsized growth primarily from the project side. Regarding guidance, Mr. Jackola explained that the higher revenue guidance is driven by continued strength in the project environment, which typically has a lower gross margin than the inspection, service, and monitoring (ISM) stream. He noted that early project phases have lower margins that get marked up closer to completion, influencing the EBITDA translation.

Josh Chan of UBS Group AG inquired about what drove the improved outlook portion of the guidance raise and asked about risks to realizing backlog margin beyond internal execution.

Answer

EVP & CFO David Jackola attributed the improved outlook to the strength and high quality of the record backlog generated in the quarter. President and CEO Russ Becker identified material cost escalation and weather as the primary external risks to margin realization, noting the company actively works to mitigate cost risks in its proposals and that labor availability is a known factor to be managed.

Joshua Chan of UBS Group AG asked how APi is positioned for a potential recession, particularly on the project side of the business. He also inquired about the margin outlook for the Specialty Services segment as it returns to growth in Q2.

Answer

President and CEO Russell Becker highlighted the business's resilience, pointing to its variable cost structure (70%+), proven ability to flex and expand margins during the 2020 pandemic, and strong cash generation during slowdowns. He noted the inspection and service business is durable, and the project business has a backlog to work through. Regarding Specialty margins, Becker stated that while organic growth will return in Q2, year-over-year margin expansion is expected in the second half, with full-year margins still modestly down before becoming accretive again in 2026.

Joshua Chan from UBS asked for clarification on the Q1 guidance, specifically the impact of weather on the Specialty segment, and inquired about the key differentiators of high-performing branches.

Answer

Interim CFO David Jackola confirmed the Q1 outlook is similar to Q4, with the Specialty business expected to return to growth in subsequent quarters, while the Safety segment's growth formula remains consistent. President and CEO Russ Becker added that the key factors for high-margin branches are, first, a strong branch leader, followed by the adoption of an 'inspection first' mindset and disciplined customer selection.

Joshua Chan asked if the expected 2025 organic growth acceleration is primarily due to lapping 2024 project delays and what the growth composition between service and project might be. He also questioned if the next set of long-term targets will include an organic growth component.

Answer

EVP and CFO Kevin Krumm projected 2025 would be a 'normal year,' with low-to-mid single-digit organic growth for projects and mid-to-high single-digit growth for services. President and CEO Russ Becker confirmed that organic growth is a key component of their '2025 and beyond' planning and that they would consider how to formally publish such a target.

Josh Chan asked if anything specific differentiated the last six months, particularly the two consecutive $1 billion backlog step-ups, from previous periods. He also inquired about Comfort Systems USA's preference for serving existing versus new customers when expanding modular capacity.

Answer

CFO Bill George explained that each quarter is unique with lumpy bookings, but the current market offers strong opportunities, leading customers to commit early. He affirmed a strong preference for meeting the needs of long-standing, great partners when expanding modular capacity, prioritizing established relationships over new customers.

Josh Chan asked if there was anything different in the last six months compared to a longer period that led to two consecutive $1 billion step-ups in backlog, given the strong demand and existing labor sharing. He also inquired about the preference for modular capacity expansion, specifically whether it would prioritize serving existing customers or growing with new customer types.

Answer

CFO Bill George explained that every quarter is unique, with large bookings being lumpy across sectors. He attributed the recent backlog surge to a strong market, good opportunities, and customers committing early. Regarding modular capacity, Bill George stated a clear preference for meeting the needs of long-standing, great partners over new customers, while acknowledging that new opportunities are always explored.

Josh Chan of UBS Group AG inquired about workforce capacity and recruiting strategies in a tight labor market, and the company's philosophy on project selection across different verticals given the strong pull from technology.

Answer

EVP & COO Trent McKenna detailed an "all of the above" approach to talent, including an internal staffing company and inter-company collaboration, to be the "employer of choice." CEO Brian Lane explained that while tech is hot, the company maintains a balanced portfolio across diverse, active markets, selecting projects with the best conditions and risk-adjusted returns.

Josh Chan of UBS Group AG asked about the capacity and morale of the workforce amid high demand, the recruiting environment, and the company's strategy for project selection across different verticals, particularly with the growing focus on technology.

Answer

EVP & COO Trent McKenna highlighted that Comfort Systems strives to be the 'employer of choice,' utilizing an internal staffing company and inter-company collaboration to manage labor effectively. CEO Brian Lane explained that while technology is a key focus, the company maintains a balanced portfolio, selecting projects with the best working conditions and risk-reward profiles across various strong end markets.

Josh Chan of UBS inquired about the capacity and morale of the workforce amid high demand, the company's recruiting efforts, and the strategic approach to project selection across different verticals like technology.

Answer

EVP & COO Trent McKenna highlighted their strategy of being an 'employer of choice,' utilizing an internal staffing company and inter-company collaboration to manage labor effectively. CEO Brian Lane added that while technology is a key focus, they maintain a balanced portfolio, selecting projects with the best working conditions and risk-reward profiles. EVP & CFO William George emphasized their focus on being the best builders for the work available.

Josh Chan of UBS Group asked about the company's workforce capacity and recruiting environment amid high demand. He also inquired about the strategic approach to project selection across different verticals, given the increasing focus on technology.

Answer

EVP & COO Trent McKenna explained that being an 'employer of choice,' using an internal staffing company, and collaborating between operating companies helps manage labor needs effectively. CEO Brian Lane noted that while tech is a priority, the company maintains a diverse portfolio, selecting projects with the best working conditions and risk-adjusted returns. EVP & CFO William George added the company's focus is on being the best at building what the market demands.

Josh Chan of UBS asked about the company's workforce, including their capacity to continue working at a high pace and the current recruiting environment. He also inquired about the company's approach to project selection across different verticals, given the increasing focus on technology.

Answer

EVP & COO Trent McKenna highlighted that being an 'employer of choice,' utilizing an internal staffing company, and fostering collaboration between operating companies are key to managing labor constraints and securing top talent. CEO Brian Lane addressed project selection, stating that while tech is 'red hot,' the company maintains a diverse portfolio and selects projects with the best working conditions and risk-adjusted returns, regardless of the sector.

Joshua Chan of UBS inquired about the project bidding pipeline and the key drivers behind the strong backlog growth in the first quarter. He also asked about the typical seasonal trajectory for backlog throughout the year and how orders have been trending since the recent tariff announcements.

Answer

COO Trent McKenna attributed the record backlog to broad-based strength across the business, led by the advanced technology and industrial sectors, and noted strong forward visibility. CEO Brian Lane highlighted that the healthcare sector has also shown increased activity. CFO William George explained the historical pattern where backlog tends to build in Q4 and Q1 and is then worked down in Q2 and Q3 as revenue recognition accelerates. He stressed that the company has 'all the work we can possibly do' and a very strong pipeline.

Joshua Chan of UBS Group AG asked for context on the magnitude of the Q4 gross margin strength, seeking to understand if any unusual closeouts contributed. He also inquired about progress on hiring and training, and the current M&A pipeline.

Answer

CEO Brian Lane and CFO William George both emphasized that the record Q4 gross margin was the result of broad-based, superb execution across the business, not specific one-time project closeouts. Lane highlighted ongoing recruitment, extensive training programs, and access to temporary labor to meet demand. George described the M&A pipeline as 'very healthy' but stressed the company remains disciplined and will not rush deals to fill a quota.

Joshua Chan inquired about the company's ability to drive further field productivity gains, its priorities for deploying cash, and sought clarification on expected margin seasonality.

Answer

CFO William George credited technology, particularly better drawings that enable prefabrication and reduce rework, and high workforce utilization as key productivity drivers. On capital allocation, he stated that disciplined M&A remains the top priority, but strong cash flow has prompted an increase in share repurchases. George also confirmed the company's typical margin seasonality, with Q1 being the lowest quarter and Q2/Q3 being the peak due to higher volumes and a favorable service mix.

Josh Chan inquired about the drivers behind the implied improving SG&A leverage in Q4 guidance, asking if the company is reaching a point of positive SG&A leverage. He also sought a ballpark estimate for Q4 free cash flow and clarification on the unusual negative free cash flow in the first half of the year, and what a 'normal' cash flow trend should look like going forward.

Answer

EVP and CFO Jack McGinnis confirmed that SG&A will significantly contribute to holding EBITDA margin flat in Q4, reflecting the impact of past cost actions and bending the SG&A curve. He explained that negative H1 free cash flow was due to timing issues with a large MSP program, multi-year tax act payments, and front-loaded technology license costs. He expects Q4 to be a strong free cash flow quarter, consistent with historical trends, and anticipates more favorable free cash flow going forward due to stabilizing EBITDA.

Josh Chan asked about the drivers behind the improving SG&A leverage implied in the Q4 guidance and whether the company is nearing a point of positive SG&A leverage. He also requested a ballpark estimate for Q4 free cash flow and clarification on the unusual nature of negative free cash flow in the first half of the year.

Answer

EVP and CFO Jack McGinnis confirmed the Q4 guide anticipates SG&A will significantly contribute to holding EBITDA margin flat year-over-year, reflecting the impact of cost reduction actions. He explained that negative H1 free cash flow was due to timing issues from large MSP program prepayments, the final multi-year tax act payment, and front-loaded technology license costs. He expects Q4 to be a strong free cash flow quarter, consistent with historical patterns, further aided by stabilizing trailing 12-month EBITDA.

Josh Chan of UBS Group asked management to reconcile their more optimistic tone with the lack of macro clarity and inquired about the magnitude of the first-half negative free cash flow and its potential recovery.

Answer

Chairman & CEO Jonas Prising explained the improved tone is based on client feedback indicating stabilizing confidence as they get used to market 'noise'. EVP & CFO Jack McGinnis addressed free cash flow, noting that large Q2 outflows are a recent trend and that first-half negativity was impacted by MSP program timing. He expects a return to strong free cash flow in the second half, similar to the prior year.

Joshua Chan asked for insight into why permanent recruitment weakness was concentrated in France and a few other European countries, and requested more color on the Q1 cash flow outflow.

Answer

CEO Jonas Prising explained the perm weakness was tied to country-specific factors, like the budget uncertainty in France, and a broader employer pullback on lower-skilled roles rather than a single global issue. CFO Jack McGinnis attributed the Q1 free cash flow outflow of $167 million to typical seasonality, where the first half sees outflows, and the timing of payables within their large MSP business, stating it should normalize over the year.

Joshua Chan asked if steepening losses in certain countries affect their long-term viability in the portfolio and inquired about the sustainability of the current lower level of corporate expense.

Answer

Chief Executive Officer Jonas Prising reiterated that portfolio decisions are part of a continuous evaluation of market potential and risk, with franchising being a viable alternative to direct ownership. Chief Financial Officer John McGinnis stated that while transformation investments continue, other spending has been curtailed. He expects 2025 corporate expense levels to be broadly in line with 2024, excluding an abnormally low Q3 2024.

Joshua Chan asked how customer demand might be catalyzed as macro uncertainties resolve and questioned the reasons for the guided sequential margin decline from Q3 to Q4.

Answer

CEO Jonas Prising stated that while factors like rate cuts are positive catalysts, a material change in demand is not expected in Q4. CFO John McGinnis attributed the guided Q4 margin decline to the non-recurrence of favorable Q3 corporate costs and an anticipated softer December with extended holiday shutdowns.

Joshua Chan inquired whether Cintas observed any differential customer behavior in more stressed verticals within its business, despite the company's ability to grow in various environments.

Answer

Todd Schneider, President and CEO, reported no significant change in customer behavior across different verticals, reiterating that Cintas has chosen its verticals well (healthcare, hospitality, education, state/local government) and organizes around them to provide value, noting consistent performance. For a follow-up on the wider EPS guidance range, Mr. Schneider stated it should not be over-interpreted. He emphasized that the guide reflects attractive incrementals (25-35% range), implied margin expansion, and allows for necessary long-term investments while still improving margins, which is a core strength of the business.

Joshua Chan asked if Cintas observed different customer behaviors in more stressed verticals. He also inquired about the reason for the wider EPS guidance range compared to the previous year at the same juncture.

Answer

Todd Schneider, President and CEO, stated that Cintas is not seeing any significant change in behavior across its chosen verticals, which include healthcare, hospitality, education, and state/local governments, all performing consistently well. Regarding the EPS guidance, he clarified that there's no specific reason to read into the wider range, emphasizing attractive incrementals (25-35%), margin expansion, and the ability to make long-term investments.

Joshua Chan asked if Cintas is observing different customer behavior in more stressed verticals and sought clarification on the thought process behind the wider EPS guidance range compared to the previous year.

Answer

President and CEO Todd Schneider reported no significant change in customer behavior across verticals, noting that Cintas's chosen verticals (healthcare, hospitality, education, state/local government) are performing consistently. Regarding EPS guidance, he advised not to over-interpret the wider range, emphasizing strong business performance, attractive incremental margins (25-35%), implied margin expansion, and the ability to make long-term investments while improving margins.

Josh Chan of UBS Group AG inquired about the expected trajectory of key cost buckets like materials, labor, and fleet into fiscal 2026, including the potential impact from tariffs, and also asked about the M&A pipeline.

Answer

President & CEO Todd Schneider expressed confidence in navigating cost pressures, noting the guidance contemplates tariff impacts and that Cintas has advantages like a diversified supply chain and a culture of efficiency. EVP & COO James Rozakis detailed initiatives like SmartTruck and plant automation. On M&A, Mr. Schneider called it important but hard to predict, while EVP & CFO Scott Garula reaffirmed the company's balanced capital allocation strategy.

Josh Chan from UBS Group AG inquired about the expected trajectory of key cost buckets (materials, labor, fleet) into fiscal 2026, including potential tariff impacts, and also asked for an update on the M&A pipeline.

Answer

President & CEO Todd Schneider expressed confidence in navigating cost challenges, noting that the guide contemplates tariff impacts and that Cintas has advantages like a diversified supply chain and a focus on efficiency. EVP & COO James Rozakis detailed initiatives like garment sharing and SmartTruck. On M&A, Schneider described the pipeline as active but unpredictable. EVP & CFO Scott Garula reaffirmed the company's balanced capital allocation strategy remains unchanged.

Joshua Chan rephrased the guidance question, asking what factor failed to materialize that would have allowed Cintas to maintain the high end of its previous guidance. He also asked if there were any abnormalities in the Fire Protection segment's 10% growth, which was slightly below prior quarters.

Answer

CEO Todd Schneider pointed to the more challenging pricing environment, which has returned to historical levels, as the reason for tightening the guidance. He confirmed there were no abnormalities in the Fire segment, attributing the growth rate to lapping a very strong prior-year comparison and expressing confidence in its continued double-digit growth.

Joshua Chan from UBS inquired about trends in customer wearer levels, Cintas's strategy if employment were to moderate, and whether the strong Q1 performance exceeded internal expectations, prompting the full-year guidance increase.

Answer

President and CEO Todd Schneider noted no significant change in wearer levels and stressed that the business is not reliant on job growth, having a history of growth in various economic cycles. EVP and CFO Mike Hansen added that the guidance was raised because the strong first quarter provided more confidence to lift the low end of the annual forecast.

Josh Chan asked about the strong performance of Executive Search in North America, which was up despite a general downturn in other parts of the regional business. He also inquired about how Korn Ferry leverages a choppy economic environment to strengthen its market position and win new business.

Answer

CEO Gary Burnison attributed the Executive Search strength to a combination of factors: demographic shifts (peak 65), C-suite executives making post-COVID career decisions, work-life balance considerations, and boards re-evaluating leadership skills for future needs. Burnison expressed motivation in choppy environments, viewing them as opportunities for companies to transform and for Korn Ferry to drive mindset changes and integrated solutions. CFO Bob Rozek added that clients turn to Korn Ferry during chaotic times, such as the COVID-19 pandemic or current AI uncertainties, to help navigate complex organizational challenges.

Josh Chan asked about the strong performance of Executive Search in North America, particularly its outperformance compared to other business segments in a challenging macro environment. He also questioned how Korn Ferry leverages a weaker, chaotic environment to strengthen its position and win new business.

Answer

CEO Gary Burnison attributed Executive Search's strength to a combination of factors: demographic shifts ('Peak 65'), executives making work-life balance decisions, and boards re-evaluating C-suite leadership skills for future needs. He emphasized that chaotic environments are opportunities for good companies to become great, as they provide a reason for clients to change and embrace ambiguity. Gary Burnison stressed the importance of a 'Korn Ferry' mindset, viewing the firm as one business with five solutions. CFO Bob Rozek added that during chaotic times, like COVID or the current AI/GenAI uncertainty, organizations turn to Korn Ferry for help in navigating workforce changes and skill requirements.

Josh Chan of UBS asked if management views the Executive Search business as having 'really accelerated' and whether the Q1 guidance assumes continued double-digit growth for that segment.

Answer

CEO Gary Burnison avoided focusing on a single quarter but confirmed that Executive Search has gained significant traction over the past 7-8 quarters despite a challenging economy. CFO Robert Rozek clarified that while they don't guide by segment, the Q1 forecast does anticipate 'some level of continued growth' for Executive Search on a year-over-year basis.

Joshua Chan from UBS questioned whether reduced labor turnover was negatively impacting business and asked why positive "green shoots" were appearing in the RPO business first, rather than in the interim business as might be expected.

Answer

Executive Gary Burnison characterized the labor cycle as highly unusual but stated he sees no structural changes that would negatively affect the business long-term. Regarding RPO's strength, he explained that after a period of "labor hoarding," companies are now turning back to outsourcing for efficiency as hiring needs stabilize, driving new logo wins. He believes the interim market will eventually recover. Executive Robert Rozek added that recent RPO strength was also driven by strategic expansion into the healthcare vertical.

Josh Chan (UBS) asked about the magnitude of margin headwinds resulting from strategic pricing and escalation actions, questioning how a small portion of renegotiated business could have such a significant impact. He also inquired about the confidence level in the projected sequential margin improvement for Q4, particularly regarding the contribution from escalation timing.

Answer

Executive VP and CFO David Orr explained that while rebids are normal, the *volume and aggregation* of renegotiations in Q3, combined with decisions to protect long-term growth, caused the impact. He noted that escalation timing would begin to recover in Q4. He added that Q4's anticipated strong sequential margin improvement is a combination of factors, including a strong seasonal performance from Technical Solutions (ATS) and approximately 20% of the $35 million restructuring benefits expected in Q4.

Josh Chan of UBS sought to understand the ATS segment's margin headwinds, asking whether project delays or service mix was the bigger factor. He also inquired about the B&I segment's competitive positioning in prime office markets and its ability to gain market share in that desirable space.

Answer

President and CEO Scott Salmirs clarified that the ATS margin pressure was primarily due to project mix, with a higher proportion of lower-margin field execution work in the current quarter compared to higher-margin design and engineering work in the prior-year period. Regarding B&I, he asserted that ABM's ability to win in prime office is driven by its scale, deep client relationships, extensive resume in top-tier buildings, and technology investments, which collectively create a significant competitive advantage.

Joshua Chan inquired about ABM's strategy for managing potential accelerations in spot labor costs and asked about the operational plan to recover the free cash flow shortfall from the ERP implementation within the fiscal year.

Answer

President and CEO Scott Salmirs stated that with 50% of labor being unionized with fixed rates and a history of passing on non-union cost increases, the company is well-positioned. CFO Earl Ellis added that the cash flow delay was a deliberate quality control measure for the new ERP system's invoicing, and they are confident in catching up in subsequent quarters to meet full-year targets.

Joshua Chan questioned if productivity gains would continue in 2025 and their contribution to margin improvement, and also asked about the margin volatility and normalized trajectory for the Technical Solutions (ATS) segment.

Answer

President and CEO Scott Salmirs confirmed that productivity, driven by new workforce optimization tools, is a key tailwind for margin expansion. EVP and CFO Earl Ellis attributed the ATS margin volatility to the mix of business, particularly high-margin microgrid projects, and stated that normalized margins for the segment are expected to be in the high single-digit range.

Joshua Chan of UBS requested a quantification of ABM's exposure to the data center market. He also asked about the strong margin performance in the Manufacturing & Distribution (M&D) segment, questioning its sustainability given the ongoing customer rebalancing.

Answer

President and CEO Scott Salmirs clarified that data center and mission-critical services are a nascent, sub-$250 million business for ABM, but a key growth area spanning the ATS and M&D segments. EVP and CFO Earl Ellis noted that while M&D margins will see some compression in Q4 from the rebalancing, the underlying business is performing very well due to onshoring and semiconductor trends, and they are already winning new work with that same large client.

Josh Chan sought to reconcile the description of the market as 'stabilization' versus 'recovery' given paid employer growth, and asked about the potential for margin leverage once year-over-year revenue growth returns.

Answer

President Dave Travers clarified that while paid employer growth is positive, the overall labor market remains 'frozen' based on the low quits rate, hence the term 'stabilization.' CFO Tim Yarbrough explained that future margin leverage depends on the 2026 macro environment. He reiterated their strategy to invest into strength, with margins expected to follow revenue growth over time toward their long-term 30% goal.

Joshua Chan inquired about how ZipRecruiter plans to manage its investment trajectory in a volatile macroeconomic environment and asked for a reminder of the typical seasonality that supports the company's confidence in achieving year-over-year growth in Q4.

Answer

CFO Timothy Yarbrough explained that ZipRecruiter uses a data-driven, flexible operating structure to quickly adjust sales and marketing investments up or down. He noted that typical seasonality involves sequential growth from Q1 to Q3, and the Q4 growth forecast is based on the continuation of trends observed so far in the year.

Joshua Chan sought to distinguish between improved employer sentiment and concrete actions, asking if account reactivations signal preparation to hire or actual increases in hiring activity. He also asked for clarification on the revenue recovery timeline, questioning if growth before Q4 2025 was being ruled out.

Answer

CFO Tim Yarbrough clarified that reactivations are from high-intent employers posting jobs, and the Q1 guidance reflects these actual behaviors, not just sentiment. Regarding the recovery timeline, Yarbrough stated that while achieving year-over-year growth by Q4 2025 is a likely scenario if positive trends continue, the chance of achieving it before Q4 is lower.

Joshua Chan asked for the company's perspective on what might cause the 'great stay' to end and how that might unfold. He also questioned if the Q4 guidance incorporates a typical amount of seasonal slowdown.

Answer

Executive Ian Siegel explained that the 'great stay' is driven by factors like employees holding onto above-market salaries from the post-COVID boom and low-interest mortgages, but expressed long-term confidence in the US labor market's recovery. Executive David Travers added that ZipRecruiter's job seeker growth is particularly strong in this low-quit-rate environment. CFO Timothy Yarbrough confirmed the Q4 guidance accounts for both a typical seasonal decline, especially from SMBs, and the ongoing softness in the broader labor market.

Josh Chan inquired about Upwork's recent acquisitions, asking for details on their integration, operational function, and the resulting impact on GSV and revenue reporting. He also asked about the current macroeconomic environment's impact and the outlook embedded in the second-half guidance.

Answer

President and CEO Hayden Brown explained that the acquisitions of Bubtea and Ascend create a comprehensive, digitally native enterprise solution, expanding beyond independent contractors to serve the full range of contingent work. CFO Erica Gessert added that the deals would contribute minimally to 2H 2025 revenue but become more meaningful in late 2026. Regarding the macro, Brown stated the environment remains unpredictable, but the company is successfully offsetting pressures with its internal initiatives and is not assuming any near-term macro improvement.

Joshua Chan from UBS inquired about the specific factors driving the improvement in the Enterprise business. He also asked if the strong Q4 adjusted EBITDA margin included any one-time benefits and if there was potential upside to the 2025 margin guidance.

Answer

CEO Hayden Brown attributed the Enterprise improvement to focusing resources on top clients, strong performance from the Managed Services offering (up 12% YoY), and a YoY increase in GSV per active enterprise account. CFO Erica Gessert stated there were no one-time benefits in the Q4 margin and that the 2025 guidance is firm, though longer-term cost opportunities exist for 2026. She also noted the Objective AI acquisition has a slight offsetting impact on 2025 R&D.

Josh Chan of UBS Group AG requested more detail on the pickup in customer activity in June following a tariff-related pause and asked if this momentum could offset the tougher second-half comparisons.

Answer

President & CEO Jennifer Scanlon described a soft April and May followed by a pickup in June across segments as customers gained more clarity on tariffs and regulations. EVP & CFO Ryan Robinson added that it's difficult to determine if the June activity was a redistribution within the quarter or a new stepping-off point, leading them to affirm the existing full-year guidance amidst the uncertainty.

Joshua Chan from UBS requested context on the significant Q1 margin expansion, particularly in the Industrial segment, and asked about the source of caution given the reiterated guidance amid macro uncertainty.

Answer

CFO Ryan Robinson attributed the strong margin flow-through to disproportional operating leverage on revenue growth in a seasonally lower quarter. CEO Jennifer Scanlon noted that while the business is resilient, potential moderation in the consumer segment in Q2 is a factor they are monitoring.

Joshua Chan of UBS asked for a bigger-picture view on what is enabling the company to achieve 24% EBITDA margins, a level well above its pre-IPO performance. He also sought color on the drivers (volume vs. price vs. capacity) behind the 2025 mid-single-digit organic growth guidance.

Answer

CEO Jennifer Scanlon attributed the margin improvement to a long-term focus on continuous improvement, including technology implementation, process enhancements, and location consolidation. CFO Ryan Robinson stated that the drivers for 2025 revenue growth are expected to be a continuation of 2024's trends, with contributions from pricing, capacity expansion, and improved go-to-market processes.

Josh Chan of UBS Group asked why the third quarter's organic growth rate ended up below the 6% rate that was reported for April, inquiring if business slowed in May and June.

Answer

CEO John Zillmer explained the slight moderation from April's growth rate was due to lower-than-expected activity in the arena business. CFO Jim Tarangelo added that shorter-than-anticipated playoff runs for NBA and NHL teams also contributed to the final quarterly result.

Joshua Chan asked how a potential future high-inflation environment would compare to the post-COVID period and about the company's ability to manage it. He also asked for clarification on whether the 6% April revenue growth figure was a 'clean' number.

Answer

CEO John Zillmer expressed confidence in the company's ability to manage any inflation spike, citing the 'muscle memory' and systems developed, though he does not anticipate a significant increase. CFO Jim Tarangelo confirmed that the 6% April growth was a 'clean' month, with the only caveat being that the company has not yet lapped the impact of prior-year facilities exits.

Joshua Chan asked about the drivers behind the strong U.S. margin improvement and whether any one-time items contributed. He also inquired about current trends in labor availability and wage inflation.

Answer

CEO John Zillmer confirmed there were no one-time items, attributing the U.S. margin improvement to fundamental execution of their strategy, including supply chain economics, purchasing compliance, and new account maturity. He added that labor availability is very good and wage inflation is moderating to a manageable 4-5% range.

Joshua Chan asked for a breakdown of net new business performance between the U.S. and international segments. He also inquired about the level of pricing embedded in the fiscal 2025 guidance, particularly as prior-year increases in Education are lapped.

Answer

CEO John Zillmer stated that both domestic and international segments had record new account wins and that overall net new was strong despite facility-side retention losses. He also noted some large wins slipped into Q1 2025. CFO Jim Tarangelo added that as inflation normalizes, pricing for fiscal 2025 is expected to be in the 2% to 3% range.

Josh Chan of UBS Group AG asked for more detail on the expansion of geographic reach and programming in the backup care segment. He also inquired about the potential for the 'aging up' of children in full-service centers to serve as a margin tailwind.

Answer

Chief Executive Officer Stephen Kramer explained that backup capacity is expanded through both owned assets (like Stephen's Gate camps and Jovi nanny agencies) and a diligently managed network of third-party partners. Chief Financial Officer Elizabeth Boland acknowledged that older age groups have more favorable economics and that filling preschool capacity as younger children age up provides positive operating leverage, which is a key focus for improving center profitability.

Joshua Chan asked what Q1 usage trends in backup care provided conviction for the strong Q2 guidance and whether the slower full-service enrollment also included a decline in prospective center visits.

Answer

CFO Elizabeth Boland cited strong insight into client usage patterns and solid early bookings for summer camp programs as drivers for the confident Q2 backup care outlook. CEO Stephen Kramer clarified that actual center visits, a key metric, remain 'reasonably strong,' and the primary issue is a delay in start dates for committed families, not a drop in initial interest.

Joshua Chan asked about the significance of the return-to-office trend as a potential tailwind for occupancy. He also inquired about the specific initiatives driving the U.K. business toward its breakeven target in 2025.

Answer

CEO Stephen Kramer clarified that while return-to-office is not the primary driver of overall enrollment, it is a potential catalyst for a select group of underperforming centers in urban business districts like NYC and Seattle. For the U.K., he attributed the path to breakeven to continued enrollment growth, improved staffing efficiency reducing agency costs, and an expected demand increase from expanded government funding for childcare in the second half of 2025.

Joshua Chan asked if Bright Horizons tracks metrics on the utilization of allowed backup care days and inquired about how fall enrollment trends compared to initial expectations.

Answer

CFO Elizabeth Boland responded that while they track various metrics, the public focus is on broad-based use, as many contracts are pay-per-use and not limited by a set number of days. She noted that Q3 enrollment came in as expected, but the outlook remains cautious as enrolling the remaining, less-full centers is more challenging, informing the low-single-digit growth forecast.

Josh Chan asked if Fiverr's advanced AI capabilities are attracting new types of customers and questioned how dependent the company's margin targets are on GMV improvement.

Answer

Micha Kaufman, Founder & CEO, confirmed that complex AI projects are indeed attracting higher-value customers, aligning with their upmarket strategy and boosting spend per buyer. Ofer Katz, President & CFO, asserted that the path to their 2027 adjusted EBITDA target of 25% is not dependent on a specific GMV growth scenario, stating the company has the flexibility and confidence to achieve it under various conditions.

Joshua Chan inquired about the common path for customers who signed six-figure deals, asking how they first encountered Fiverr. He also asked if the AutoDS business had seen any impact from recent tariffs.

Answer

CFO Ofer Katz explained that these large clients often start as occasional marketplace users. The key change was implementing a funnel to identify high-potential customers and engage them with high-touch account management to unlock their full spending potential. CEO Micha Kaufman added that this playbook builds confidence before scaling. Both executives confirmed no impact on AutoDS from tariffs, with Kaufman noting it's a software subscription business tied to seats, not volume.

Joshua Chan asked about the expected time lag between an improvement in SMB sentiment and its impact on Fiverr's results, and whether there is any significant seasonality in the Services revenue segment.

Answer

CEO Micha Kaufman responded that the company has not yet seen a sustained trend of improvement in SMB sentiment to predict a lag. He also stated that Services revenue exhibits a relatively flat, straight-line behavior throughout the year with no significant seasonality to note.

Joshua Chan from UBS Group AG inquired about the specific factors that drove the decision to raise the full-year take rate guidance. He also asked if the recently acquired AutoDS business has a particularly strong seasonal dynamic in Q4 due to the holidays.

Answer

CEO Micha Kaufman explained that the take rate guidance was raised because the underlying products are "working a little bit better" than expected, with AutoDS having a slightly better quarter and other take rate drivers also performing well. Regarding AutoDS seasonality, he acknowledged that all businesses, including Fiverr, have seasonality, but did not provide specific guidance for AutoDS, noting it is a small but growing SaaS contributor to the overall business.

Josh Chan of UBS Group asked for common themes behind the unexpected project ends impacting the Q3 outlook and whether the rest of the business was performing in line with seasonal expectations. He also inquired about the margin impact from the growing mix of nearshore and offshore business.

Answer

CEO Joe Liberatore explained that project ends were driven by clients strategically reallocating tech spending to areas with higher competitive advantage, not a single common issue. COO David Kelly confirmed that absent these specific ends, the technology business had been trending positively and the demand environment feels stable. Kelly also noted that the offshore business, while small, has been slightly accretive to margins. CFO Jeffrey Hackman added that the overall technology bill rate remains stable around $90, as higher-value consulting work offsets lower-rate offshore placements.

Joshua Chan sought to clarify if the improvement in leading indicators through April was simply normal seasonality. He also asked whether the recent spike in healthcare costs is viewed as a random event or something Kforce will actively price into future client bids.

Answer

COO David Kelly explained that while some growth in March and April is typical, the subsequent flattening of that trend led to guidance that assumes stability, not the sustained growth of a strong market. CFO Jeff Hackman addressed healthcare costs, noting that while the last two quarters were higher than expected, they followed several quarters of stable or lower costs. He confirmed that Kforce does factor annual healthcare cost trends into its pricing models, though severe claims are difficult to predict.

Joshua Chan asked for a reconciliation between the commentary on a 'stable' demand environment and the observation that client visits and job orders are up. He also inquired whether the technology direct hire market appears to be bottoming out.

Answer

Executive Joseph Liberatore clarified that increased client visits and job orders are positive front-end indicators not seen in the last few years, but they have not yet translated into actual placements or project wins, hence the 'stable' description. He noted the direct hire market is also stable, without acceleration or deceleration, but pointed to an increase in conversions as a positive sign. COO David Kelly added that because the uptick in activity hasn't yet converted to new starts, the Q1 outlook assumes a continuation of recent trends.

Joshua Chan inquired about the criticality of the project backlog and whether its release depends more on time or an improved economy. He also asked if the Q4 guidance included a conservative assumption for holiday-related shutdowns.

Answer

COO David Kelly explained the backlog consists of "mission-critical" projects that require improved client foresight and confidence in the economy to be unlocked, not just the passage of time. CFO Jeff Hackman described the Q4 guidance as "balanced," not conservative, stating it is based on a scientific approach using historical data for holiday impacts and recent stable performance trends.

Josh Chan from UBS asked about the specific geographies affected by weather in the quarter and if conditions had normalized. He also questioned if the sales records set in June reinforced confidence in the subscription base for the rest of the year.

Answer

President & CEO Jerry Gahlhoff identified the Southeast U.S. as a key area impacted by a cold, wet May, which delayed peak season by about three to four weeks. He confirmed that by the first week of June, business 'shot out of a cannon.' Both Gahlhoff and CFO Kenneth Krause expressed confidence from the strong June performance across all service lines but cautioned that one month does not make a trend.

Joshua Chan asked about the strategy for acquiring new commercial accounts and displacing competitors. He also requested a reconciliation between the nearly 10% recurring commercial organic growth and the total 7.4% organic growth for the segment.

Answer

CEO Jerry Gahlhoff explained that the commercial strategy relies on well-defined territories, trained teams, strong sales management, and leveraging the company's brand and scale to expand its presence. CFO Ken Krause clarified that the difference in commercial growth rates was due to weaker onetime business in the quarter, such as commodity fumigation, with the single lost business day being a primary factor.

On behalf of Josh Chan from UBS, Karen Sangani inquired about cost inflation trends for 2025 compared to 2024, specifically for labor, materials, and equipment. She also asked about the company's priorities for its different customer acquisition channels in 2025 and their expected impact on volume.

Answer

CFO Ken Krause stated that inflation is 'very much under control,' with the exception of 'outsized inflation' in fleet costs due to higher lease renewals. CEO Jerry Gahlhoff addressed channel priorities, confirming that all three major channels—residential, commercial, and termite/ancillary—are performing well and will continue to be a focus for growth in 2025, noting strong consumer demand for high-value remediation services.

An analyst on behalf of Josh Chan asked about the timing of the Q3 hiring and whether the company tracks ROI on advertising spend, and how those metrics have changed recently.

Answer

President and CEO Jerry Gahlhoff explained that technician hiring often occurs in Q3 due to route splits, while sales hiring is more balanced year-round to ensure effective scaling. EVP and CFO Kenneth Krause noted Q3 investments were front-loaded in July and August. Gahlhoff confirmed they closely track return on ad spend (ROAS) to dynamically manage customer acquisition costs, while maintaining discipline to keep ad spend as a stable percentage of revenue.

Josh Chan of UBS inquired about the breadth of the decline in customer wearer levels and asked for the specific impact of lower direct sales on Core Laundry's growth in the quarter.

Answer

President & CEO Steven Sintros responded that the softness in wearer levels was "a little bit broader" rather than being concentrated in a specific sector. He also quantified the direct sales impact, stating that year-over-year sales were a few million dollars lower, which reduced the Core Laundry growth rate by just under half a percentage point. He noted that some of this is expected to be recovered in the fourth quarter.

Joshua Chan asked for the specific factors driving the increased confidence in the Core Laundry margin outlook and requested details on the timeline of customer retention trends, particularly when they hit a trough and began to improve.

Answer

President and CEO Steven Sintros attributed margin confidence to tangible improvements in core expenses, especially merchandise and plant operations, which benefit from better sourcing, supply chain investments, and significantly improved staffing stability. Regarding retention, he noted it had been elevated for about 18 months but is now showing real improvement, confirming the positive trend suggested by leading indicators in previous quarters.

Joshua Chan from UBS asked for the rationale behind the slight narrowing of the full-year revenue guidance. He also requested elaboration on the company's standalone growth and value creation opportunities, particularly in light of the rejected Cintas offer.

Answer

CEO Steven Sintros attributed the tightening of the revenue guidance range to the observed weakness in customer wearer levels during the quarter. Regarding value creation, Mr. Sintros reiterated that the company is on a multi-year journey and sees significant opportunity to unlock value through investments in technology, sourcing, supply chain, strategic pricing, and its First Aid and Safety segment.

Joshua Chan from UBS asked if the projected slower growth in fiscal 2025 is a direct result of the retention challenges faced in 2024. He also questioned the factors pressuring the Core Laundry business margins in the upcoming year's guidance.

Answer

President and CEO Steven Sintros confirmed that the 2025 growth outlook is heavily influenced by the 2024 pricing and retention environment due to the recurring nature of the business. Regarding margins, both Sintros and CFO Shane O’Connor explained that the operating margin decline is primarily due to non-cash items like higher depreciation and amortization from technology investments and acquisitions. O'Connor highlighted that the adjusted EBITDA margin, a metric they believe better reflects profitability, is expected to be stable year-over-year.

Joshua Chan asked if the enrollment slowness differed between families using subsidies and private-pay families. He also questioned the path for pricing to reach the full-year guidance of 3-5% after a 2.5% increase in Q1.

Answer

CEO Paul Thompson explained that the enrollment hesitation is more pronounced among private-pay families, as subsidized families tend to enroll once they receive their voucher. CFO Tony Amandi clarified that the 2.5% Q1 pricing will accelerate through the year as new students enroll and existing children 'age-up' into higher-priced programs, giving them confidence in the full-year target.

Joshua Chan asked how fall enrollment trended compared to management's prior expectations and inquired about the expected cadence of business growth throughout 2025.

Answer

CEO Paul Thompson confirmed that fall enrollment through the fourth quarter was strong and tracked in line with expectations communicated during the IPO. CFO Tony Amandi advised that the cadence of growth in 2025 should follow historical patterns, with typical sequential EBITDA improvement from Q1 to Q3, and no significant deviations from past trends are expected.

Joshua Chan asked about factors constraining near-term same-center occupancy growth, which was flat, against the goal of 1% annual growth. He also sought context on the modest 10 basis point year-over-year margin improvement.

Answer

CEO Paul Thompson explained that the flat Q3 occupancy reflects the lingering impact of a flat 2023 back-to-school season but expressed confidence in achieving the 1% annual target going forward. CFO Anthony Amandi advised against using a single quarter's margin as a guide, reaffirming confidence in long-term margin expansion drivers like enrollment growth and operating leverage.

Joshua Chan of UBS inquired about the impact of the broader macroeconomic environment on customer decisions, beyond specific government policies. He also asked about the company's strategy for full-time equivalent (FTE) employee growth amid potential market uncertainty.

Answer

Executive Richard Schlenker highlighted the resilience of the business model, noting that 60% of work is reactive and less susceptible to economic cycles, while proactive work is often driven by non-discretionary factors like risk and regulation. Executive Catherine Corrigan added that long-term industry transformations will continue to drive demand. Regarding hiring, she stated that Exponent is strategically adding talent in high-demand areas like automated vehicles and digital health, and projects a 4% net increase in headcount by year-end.

Joshua Chan sought to clarify the full scope of Exponent's regulatory work, asking for the total percentage of revenue tied to regulatory concerns, and questioned the potential to accelerate recruiting to overcome staffing constraints on growth.

Answer

Executive Richard Schlenker stated that total regulatory-related work is approximately 10% of the business, spanning proactive support (e.g., FDA approvals) and reactive responses (e.g., CPSC, NHTSA investigations). He noted U.S. exposure is between 5-7%. Executive Catherine Corrigan addressed recruiting, explaining that while the company can surge hiring to meet demand, the current pace is intentionally aligned with the demand profile to ensure sustainable growth. The goal is to overcome the initial headcount deficit and achieve the 1-2% quarterly growth needed for their long-term targets.

Joshua Chan of UBS asked about the expected trajectory for the reactive business in the coming quarters and into 2025. He also questioned if the lower-than-expected FTE count could begin to impact future growth potential, despite the current benefit to utilization.

Answer

Executive Richard Schlenker noted that while reactive business comparisons remain challenging for Q4, the hurdle is lower than in Q3, and he expects a return to year-over-year growth in the future due to increasing issue complexity. Regarding headcount, Catherine Corrigan stated that the company can handle near-term demand surges through higher utilization. Richard Schlenker added that while this is sustainable in the short term, long-term growth will ultimately require hiring more people to meet demand.

Joshua Chan asked what drove the record addition of 3,400 active buyers in Q4 and questioned the company's confidence that the gross margin headwind would be limited to just one quarter.

Answer

CEO Randolph Altschuler attributed the record buyer growth to 'product-led growth,' driven by technology enhancements that reduce friction, alongside smarter, more personalized marketing efforts. He reiterated confidence in a Q2 margin rebound, emphasizing that the Q1 dip was a conscious, strategic investment to meet customer demand for geographic diversification in an unsteady environment.

Josh Chan of Daniel Energy Partners asked about the timing and rationale for the Datagration acquisition and for more detail on its PetroVisor and EcoVisor platforms. He followed up by asking how these new platforms will integrate with Weatherford's existing Foresight and Signet solutions to enhance real-time analysis.

Answer

Executive Girish Saligram explained that the Datagration acquisition was timely because customers are struggling to integrate disparate data systems. He described Datagration as a 'universal plug adapter for the digital world' that allows Weatherford to offer powerful, real-time optimization platforms. The integration will enable the delivery of specific AI/ML models and solutions to customers through a flexible subscription model, helping them drive operational efficiency.