Timothy Mulrooney • William Blair & Company

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CFO Kurt McMaken attributed the first-half margin pressure to FX mix from the Mexican peso, a significant year-over-year decrease in Argentina interest income (quantified at $4-5 million per quarter), and higher restructuring costs. He noted margins will improve in the second half as the peso impact moderates and the company laps a large security loss from the prior year. CEO Mark Eubanks added that the AMS/DRS business is more resilient due to the vast untapped market opportunity and its subscription-based revenue model, which is less variable than the traditional, volume-based CIT business.

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CEO Mark Eubanks stated the incremental FX headwind for the second half of the year is approximately $100 million, split evenly between Q3 and Q4, driven mainly by the Mexican peso. CFO Kurt McMaken confirmed the guidance is based on September 30 exchange rates. Regarding AMS and DRS, Eubanks expressed increased optimism, suggesting the strong performance is sustainable into the first half of 2025 due to a strong backlog and customer reception, and confirmed that Q3 growth was not driven by one-time equipment sales.

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CEO Dan Batrack responded that he does not see near-term pressure on state and local projects, citing the stability of multiyear programs and strong budgets in key states like Florida and Texas. Regarding the EPA, he explained that approximately 90% of Tetra Tech's environmental work is driven by state and local regulations. He added that federal focus on emerging contaminants like PFAS could present opportunities, particularly with the Department of Defense as a key client for cleanup.

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CEO Dan Batrack explained that the guidance is conservative, assuming only about half of the originally forecasted USAID work for the remainder of the year. He noted that the midpoint of the guidance could be reached even if contracts are terminated, through recoverable demobilization costs. Batrack expressed confidence that a large portion of the work, which is critical to U.S. national security in regions like the South China Sea, will be reviewed and reinstated, potentially pushing results to the high end of the guidance range.

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CEO Dan Batrack explained that the renewables practice is a $200 million business, primarily driven by hydropower and growing offshore wind projects, which he believes are resilient due to strong economics and state-level mandates, not just federal policy. CFO Steven Burdick outlined capital allocation priorities as: 1) organic growth, 2) dividends, and 3) strategic acquisitions, noting that the stock buyback program will be more closely considered now that leverage is at 1.0x EBITDA.

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Vijay Manthripragada, President and CEO, explained that unwinding regulations is legally complex and time-consuming, and that clients are maintaining their environmental strategies due to long planning cycles and the significant influence of state-level regulations. He attributed the Measurement and Analysis segment's strength to sustained, broad-based demand and operating efficiencies rather than a single driver. He also noted that EPA workforce reductions could slow regulatory changes but have not altered client behavior, as they focus on long-term compliance. Allan Dicks, CFO, stated that after the final preferred stock redemption, the leverage ratio is expected to be under 3.0x, with a long-term target of operating below 3.25x while resuming M&A.

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CEO Vijay Manthripragada acknowledged opportunities for margin accretion, particularly in the Remediation and Reuse segment, but described the guidance as a conservative, 'middle of the fairway' outlook. CFO Allan Dicks explained the 2024 cash flow miss was due to timing issues, specifically the delayed collection of receivables from the City of Tustin and stronger-than-expected Q4 revenue growth, expressing confidence in a rebound for 2025.

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CFO Matthew Jacobsen reiterated that March/April activations were flat YoY for modular and up 3% for storage, showing improvement. President and COO Timothy Boswell explained the sequential AMR dip was not due to lower spot prices, but rather the seasonal roll-off of higher-rate climate-controlled storage units after a strong Q4. He expects modest sequential AMR gains to resume through 2025.

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CFO Matt Jacobsen and President & COO Timothy Boswell confirmed that the 2025 guidance assumes a more normal seasonal pattern for activations. Boswell added that while Q1 activations are down, this was forecasted, and net order rates are showing strong sequential increases. Regarding buybacks, CEO Bradley Soultz and CFO Matt Jacobsen stated there has been no change to their capital allocation policy, noting they were out of the market for a period last year for reasons discussed previously. Soultz emphasized that buybacks remain a powerful lever and the new dividend is an additional, not replacement, avenue for capital return.

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Executive John Wasson stated that the federal environment remains fluid, with impacts in Q2 and Q3 expected to be similar to Q1. CFO Barry Broadus updated the multi-year backlog impact from contract terminations to $375 million. Management noted they are pleased with AEG's performance but do not break out its revenue separately. John Wasson also confirmed the IT modernization business is expected to decline 5-10% for the year due to award delays, not significant contract cuts.

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EVP and CFO Glenn Jackola clarified that the outperformance on Q1 organic growth was mainly due to pulling forward material purchases ahead of potential tariff-related price increases. President and CEO Russell Becker added that the company has not seen any significant project delays or pullbacks due to tariff noise, and the backlog continues to build.

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President and CEO Russ Becker clarified that of the three major delays, one is complete, one is progressing, and the third is moving forward despite some winter-related slowdowns, with all factors built into the 2025 plan. He stated there are no new, similar large-scale delays anticipated. Regarding federal projects, he noted the exposure is not material to total revenue and that the company is more focused on managing potential tariff impacts on material costs like steel pipe.

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CEO Jerry Gahlhoff stated that while January and February were slower, demand improved in March with no signals that gave the company pause. CFO Ken Krause added that recurring organic growth in commercial was nearly 10% and that the company is seeing good returns on its investments. Jerry Gahlhoff further noted that the sales cycle for B2B is longer, so investments from late last year are now beginning to yield results.

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CEO Jerry Gahlhoff explained that external data often misaligns with their internal results and attributed the residential strength to a larger customer base and a significant Q4 surge in rodent-related service calls. Regarding expenses, both Gahlhoff and CFO Ken Krause clarified the increase was due to investments in sales staffing, particularly for commercial and cross-selling initiatives, not higher advertising costs. Krause emphasized that recurring residential revenue is growing, validating the investment strategy.

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EVP and CFO Kenneth Krause expressed confidence in the overall 7-8% organic growth target, highlighting over 6% recurring revenue growth in the residential sector and a ~$2 million revenue impact from Hurricane Helene. President and CEO Jerry Gahlhoff added that the residential consumer remains strong, though onetime sales are more inconsistent. Regarding margins, Krause reiterated the long-term 30%+ incremental margin goal, attributing the quarterly dip to planned investments in sales, marketing, and technology, which Gahlhoff characterized as a "timing issue."

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President and CEO Scott Salmirs explained that the leasing improvement reflects a continuous positive trend of return-to-work momentum rather than seasonality. He clarified that ABM has almost no risk from federal building footprint reductions, as their minimal federal work is in protected, mission-critical environments like data centers.

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President and CEO Scott Salmirs explained that the M&D customer rebalancing has proceeded better than anticipated but is not yet complete, with two more phases expected in fiscal 2025. He added that ABM has also won new sites with this client. Regarding the charge, Salmirs and EVP and CFO Earl Ellis clarified it was a rare, anomalous technical issue related to a specific portion of a large project initiated in 2018 and is not expected to recur.

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EVP and CFO Earl Ellis explained that the Q4 forecast reflects the full impact of a previously discussed customer rebalancing in the M&D segment, which was not fully present in Q3's outperformance. President and CEO Scott Salmirs affirmed the margin strength is sustainable and a result of high performance across the board, not one-time events, expressing confidence in the company's continued execution.

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Christophe Beck, Chairman and CEO, expressed high confidence in reaching the 20% OI margin target by 2027, projecting the company will surpass 18% in 2025. He attributed this to steady top-line momentum, solid value pricing, innovation, and productivity gains. Beck also highlighted that new, high-growth engines like Global High-Tech and Ecolab Digital are expected to contribute margins well above 20%, further fueling the expansion.

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CEO Christophe Beck expressed satisfaction with the 2% volume growth in Q3, attributing it to strong value pricing and new business wins. He highlighted that the growth was broad-based across most businesses and geographies, with Institutional & Specialty notably gaining share in a declining market. Beck also pointed out that growth outside of a flat Europe was particularly strong.

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CEO Dale Asplund and CFO Brett Urban reaffirmed their expectation for the core land business to return to growth in the second half of fiscal 2025, driven by momentum in employee and customer retention. Asplund described the company as being in the 'early innings' of improving customer retention, aiming to surpass the historical 85% rate. Urban added that stabilizing retention is a prerequisite for ramping up sales force investments later in the year.

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President and CEO Dale Asplund stated the goal is to exit fiscal 2025 with mid-single-digit land growth, driven by improved customer retention and trust leading to more ancillary spending. CFO Brett Urban detailed the improving trend, with the core land business shrink moving from 4% in Q1 to 1% in Q4, and projected a return to growth in the second half of fiscal 2025. Dale Asplund emphasized that the 200 basis point retention improvement was the first since the company went public, underpinning their confidence.

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CFO Shane O'Connor explained that Q1 is typically the most profitable quarter and some Q1 benefits may have been related to timing, with the full-year profitability trend expected to mirror the prior year. CEO Steven Sintros reiterated long-term goals of mid-single-digit growth and high-teens EBITDA margins. He also clarified that the executive transition costs were related to the onboarding of a new COO and the departure of a senior operating VP.

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CEO Todd Schneider and CFO Mike Hansen clarified the guidance adjustment was minor fine-tuning, with the implied second-half outlook remaining consistent. Schneider confirmed there were no one-off factors for the high margins, attributing them to strong revenue leverage and ongoing efficiency programs in supply chain, engineering, and Six Sigma initiatives.

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