ABM Industries - Earnings Call - Q1 2015
March 4, 2015
Transcript
Speaker 0
Good day, ladies and gentlemen, and welcome to the ABM Industries First Quarter Fiscal Year twenty fifteen Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Henrik Flipsager, President and CEO.
You may begin.
Speaker 1
Thank you. Good morning. Joining me on the call today are Jim Lusk, Executive VP and Chief Financial Officer Scott Salmiers, Executive VP and incoming CEO and Sarah McConnell, our Executive Vice President and General Counsel. Today, I'll provide a brief overview of the twenty fifteen first quarter that ended January 31. Jim Lust will discuss the details of our financial results and I will do an operational summary before concluding our prepared remarks with an updated outlook for fiscal twenty fifteen.
There is a slide presentation that accompanies today's call. You may access this presentation now by going to our website at www.abm.com. And under the tab Investors, you will see the Events tab. Today's presentation will be the first to discuss. Sarah?
Speaker 2
Thank you, Henrik. Please turn to slide two of the presentation. Before we begin, I need to tell you that our presentation today contains predictions, estimates and other forward looking statements. Our use of the words estimate, expect and similar expressions are intended to identify these statements. These statements represent our current judgment of what the future holds.
While we believe them to be reasonable, these statements are subject to risks and uncertainties that could cause our actual results to differ materially. These factors are described in the slide that accompanies this presentation. During the course of this presentation, certain non GAAP financial information will be presented. A reconciliation of those numbers to GAAP financial measures is available at the end of the presentation and on the company's website under the Investors tab.
Speaker 1
Thank you, Sarah. Now please turn to slide four for an overview of our first quarter. I'm very satisfied with our performance this quarter as results were in line with our expectations. Revenues were a record for the first quarter and up just over 5% from the same period last year. Highlights for our air service up over 13%, BESG with nearly 17% growth, data to oil topping 4% and parking breaking through the 3% level.
For the quarter, operating profit excluding the Corporate segment was up approximately 12% compared to fiscal twenty fourteen and adjusted net income increased over 52% to 21,500,000 as we benefited from higher margins and tax credits. We'll provide more color on the drivers later in our prepared remarks. And in January, ABM won a unanimous reversal of a $94,000,000 adjustment in the Waiting Hour class action suit. Now I'd like to turn the call over to Jim Lusk for a financial review of our first quarter. Jim?
Speaker 3
Thank you, Henrik, and good morning, everyone. Moving to slide five. On the top line, we achieved revenues of $1,290,000,000 for the first quarter, up 5.1 compared to the prior year, including organic growth of $38,900,000 or 3.2%. In December, our Janitorial segment exited a large contract as we believe the price concession required to maintain the job would have caused it to be unprofitable. Excluding this contract, organic growth would have been 4.4% on a year over year basis.
As a percentage of revenues, gross margins increased by 30 basis points to 9.9% for the twenty fifteen first quarter compared to the prior year. The increase in gross margin was primarily attributable to lower payroll and related expenses as a result of one less working day, lower insurance expense due to enhancements to our risk management safety programs and realignment savings. This increase was partially offset by higher start up costs for certain newly acquired contracts and non recurring costs associated with certain clients. SG and A expense for the first quarter increased $15,400,000 or 17.6% to $102,800,000 The increase was primarily in corporate expenses, which grew by $10,200,000 This includes approximately $3,100,000 of expenses to support sales professional fees for employee tax credits. Corporate expenses also include $6,600,000 of items impacting comparability.
For the fiscal year, we expect a 7% to 9% increase in corporate SG excluding items impacting comparability compared to fiscal twenty fourteen. Amortization of intangible assets for the first quarter decreased by $500,000 Our effective tax rate for the three months ended January 3135 and January 3134 were 1.742.3% respectively. The decrease was primarily from $4,800,000 in 2014 WOTC and other employment based tax credits. For the year, our estimate of our annual effective tax rate will be in the range of 34 to 38%, which assumes Congress will not reenact the WOTC prior to October 3135 for calendar twenty fifteen. Adjusted net income of $21,500,000 or $0.38 per diluted share was up 52.5% compared to $14,100,000 or $0.25 per diluted share in fiscal twenty fourteen.
The increase is the result of the retroactive reenactment of the 2014 Work Opportunity Tax Credit, a decrease in labor expense due to one less working day, lower in year insurance expense as a result of safety initiatives and new business. Partially offsetting these items were higher compensation costs associated with sales and IT staff to support growth initiatives. Turning to slide six and seven. Days sales outstanding at quarter end were fifty six days flat on a year over year basis and up three days sequentially. Cash used in operating activities for the quarter ended January 3135 was $32,400,000 This was an improvement in cash used of $6,500,000 compared to the same period in fiscal twenty fourteen, primarily related to the timing of collecting receivables.
Turning to insurance. Total insurance claim liabilities of 31 sorry, total insurance claim liabilities at January 3135 were $343,900,000 down $13,700,000 compared to January 3134. For self insurance claims paid during the quarter, the total cash paid was $22,900,000 down $200,000 year over year. During the quarter, we amended our credit facility for a one time increase to the leverage ratio from 3.25 to 3.5 times in the event of a material acquisition. We continue to have $30,000,000 outstanding under our previous share repurchase authorization.
And yesterday, we announced our one hundred and ninety sixth consecutive dividend at $0.16 per share continuing the long established pattern as evidenced by the chart at the bottom half of slide seven. I'd like to turn the call back to Henrik.
Speaker 1
Thank you, Jim. Please go to slide nine and ten. I will now provide some operational highlights for the first quarter. Starting with our On-site business. Gainesville top line growth for the quarter was 4.5% compared to 2014 with revenue of $666,000,000 Organic growth of 2.1% combined with approximately $60,000,000 of revenue from our acquisition of GBM.
As Jim mentioned earlier, JNETROL exited a large contract for pricing reasons. Excluding the contract, organic growth of JN Soil would have been up 4.4% compared with the 2014. SAC revenue was very strong in the quarter and compared to fiscal twenty fourteen grew 8.5%. For the first quarter, the General Tso's segment earned $34,900,000 in operating profit, an increase of $4,600,000 or 15.2% compared with prior year. Operating margins increased 40 basis points to 5.2%, primarily from a $3,900,000 benefit associated with one less working day in the quarter.
Moving to Facility Services. Revenue on a year over year basis increased by $4,500,000 or 3% to $156,200,000 as TAC revenue was exceptionally strong in December. The operational profit increased nearly 16% to 5,900,000 compared to prior year, a solid effort by our on-site facility service team. For parking, revenue was $155,700,000 up $5,400,000 or 3.6% compared to 2014, as we're benefiting from new jobs and improving economy. Parking operating profit increased by $1,300,000 or 25% to $6,500,000 compared to fiscal twenty fourteen, nice start by the guys in partnering.
Turning to security. As we previously communicated, the first half of fiscal year will be challenging on a comparative basis. Revenue of $94,900,000 and operating profit was $1,900,000 down $4,800,000 and $400,000 respectively compared to 2014. We continue expect an improvement in the second half and we're working on a successful closing some larger cross selling opportunities. Looking at our BSG segment with revenues of $119,400,000 our team had another strong quarter of growth by achieving a 17% increase compared to 2014.
However, operating profit of 1,200,000 was down $1,500,000 resulting from a $1,200,000 expense associated with settlement of two client disputes and $700,000 increase in selling and business development costs. We are very confident that the BSG team will deliver double digit growth in revenue and operating profit compared to fiscal twenty fourteen with the onetime costs behind them and a pipeline that remains very strong. Before discussing our outlook for the remainder of fiscal twenty fifteen, I want to say a few words about Astral. This segment as well as other than operations had an outstanding quarter with revenue increasing 13.6% to $97,200,000 up $11,600,000 compared to the 2014. We continue to benefit from significant growth in our U.
K. Business and from recent contract wins for The U. S. Commercial carriers. Operating profit of $2,600,000 was up $700,000 or 36.8% for the quarter compared to fiscal twenty fourteen.
With our expanding U. K. Operations and recent sales win, we continue to believe our aviation vertical is set up for a very, very successful fiscal twenty fifteen. I will now turn the call over back to Jim for a review of our financial guidance for fiscal twenty fifteen. Jim?
Speaker 3
Thanks, Henrik. Please turn now to slide 13. With the passage of the 2014 WOTC, the company is raising guidance as follows: $1.75 to $1.85 for adjusted net income per diluted share and $1.55 to $1.65 for net income per diluted share. This guidance excludes potential benefits associated with the 2015 Work Opportunity Tax Credit. If Congress were to extend the WOTC for calendar 2015 before October 31, our fiscal year end, the company would have a further benefit of $08 per diluted share.
The second quarter will have one more workday compared to the prior year. This will increase labor expense by approximately $4,000,000 on a pretax basis. Please review the other items listed on slide 13, which contribute to the EPS guidance we have provided. As is customary, our guidance is exclusive of any future acquisitions. Operator, at this time, Henrik, Scott and I are
Speaker 4
ready to open the call to questions.
Speaker 0
Thank Our first question comes from line of Michael Gallo of C. L. King. Your line is now open.
Speaker 5
Hi, good morning.
Speaker 1
Good Good morning.
Speaker 5
Couple of questions. I wanted just a good quarter. Congratulations. I just want to drill into Building and Energy Solutions a little bit. I mean you had obviously strong revenue growth.
I know you had the two items you called out. But even excluding that, it doesn't look like you would have had much growth in the operating profit line. So was there something else about that revenue growth? Is there some start up costs? Walk me through kind of why you think that will get back to growing more in line with revenue as you get into the back half?
Thanks.
Speaker 1
Mike, I'm not overly concerned about that because we deal with the first quarter which is a quarter where we have relatively few project type jobs. There was some start up associated with our government business that's included in the numbers. And the good news about start up of course is the revenue and income will come later. So I'm not concerned about it. The growth I think is very impressive.
And knowing Tracy and his team, I know the profit will follow that growth. So no reason for concern on that one. I'll be more concerned if revenue was not up.
Speaker 5
Okay. Fair enough. Second question I have is just on security. I know it's been a couple of tougher quarters there. Obviously, was one of the areas that should benefit from some of the cross sell.
I was wondering if can give us an update on security, which I guess has been challenging for a few quarters now and what your sort of thoughts are there going forward? Thanks.
Speaker 1
Security will be challenged I think for the most of the year. I think we're going to see some rebounding in the second half. It is very much associated with loss of one or two major jobs early late last year I guess it was the middle of last year. They are clearly benefiting from the cross selling. So we see a lot of bidding activity and hopefully also closing activity.
I don't even want to think about it if we didn't have that. So, we're clearly benefiting from that. Security had a couple of three very good years. And now are limping a little bit. But I don't think we're not bleeding.
We're just limping.
Speaker 5
Okay. Fair enough. Thanks.
Speaker 0
Thank you. Our next question comes from the line of George Tong of Piper Jaffray. Your line is now open.
Speaker 6
Good morning. Let me first say, Scott welcome to your upcoming new role and Henrik you certainly will be missed. I guess my first question, you made investments in the quarter in sales and IT personnel working on growth initiatives. Can you discuss areas these incremental hires will be focused on? How they evolve your growth outlook for the company?
And when you expect them to ramp to productivity?
Speaker 1
Well, I think it's let me give you a little more sophisticated answer, little more detailed answer on that one. First of all, the IT folks that a lot of them were hired were simply shortages we have realized the last year. That's if you compare to the first quarter of last year, this is primarily shortage of people. And to reflect on where we stand on this, this is pretty much on our plan. So we expected this.
As a matter of fact, I'm happy to see we're fully staffed finally, so we don't have any holes in our IT department. IT department is very much associated with our overall business to make sure we have the technology as a leading part of our service provision. So that's part of the business development part. And the other thing Jim was talking about is sales and business people. We always load up in the first quarter.
We've loaded up in the first quarter. And as you can see in the past couple of years that's why we realized growth we haven't seen in the past. So it's somewhat associated with hiring salespeople.
Speaker 6
Great. Makes sense. We've seen several quarters now where your margins have benefited from reduced insurance expense related to enhancements to your risk management and safety programs. Can you talk about how long you expect to continue to see margin upside potential from this?
Speaker 1
Well, if you have if you think about it starting in the third quarter primarily the third quarter of this year we had a huge benefit. And that benefit in the third quarter, we had some benefits for the 2014. So comparable I think you're going to see a benefit in the 2015. You're going to see a we're going to be a little behind on the insurance on fiscal third quarter twenty fifteen and that's associated with the pickup we had last year in third quarter twenty fifteen. So, overall, we're pleased with our progress.
We have as you might know hired a lot of safety people and have a very strong safety program. So hopefully the improvement is going to continue for years to come. But short term second quarter will benefit from it and third quarter we'll have a deficit from it.
Speaker 6
Great. And then last question. You've previously highlighted parking as a notable beneficiary of cross selling initiatives under one ABM. Can you discuss other potential sources of revenue upside from cross selling in metro areas?
Speaker 1
Yes. I think security for sure maybe not metro areas, but security for sure on the industrial side we see some references right now taking place. Parking is somewhat a great story in my opinion because know parking was pretty much the only company last couple of years we've not seen the growth. And finally I'm seeing growth both on top and bottom line. So and it's somewhat tough quarter because we did have a lot of snow in January.
And if you live on the East Coast, February is going be tough for us as well. We got a lot of snow and that does affect parking. But parking is clearly benefiting from the relationship in particular in the genital area and a lot of good activity in Parliament taking place right now.
Speaker 6
Thank you.
Speaker 0
Thank you. Our next question comes from line of Joe Box of KeyBanc Capital Markets. Your line is now open.
Speaker 7
Hey, good morning guys.
Speaker 1
Good morning. Good morning.
Speaker 7
Henrik, congrats on the retirement.
Speaker 1
Thank you.
Speaker 7
Wanted to ask about the margin expansion in the janitorial business. Over the last few quarters, we've actually seen some nice margin expansion. I'm just trying to discern how much of that is maybe the new contract upfront expenses normalizing versus maybe your high margin tag business that seems to be picking up? Just any color on that would be helpful.
Speaker 1
I think this quarter clearly benefits from one less day compared to last year. But it's going to clearly impact the margins overall. The tax sales for sure is at much higher margins than any other sales. Other than that, the key number we're focusing on and we'll keep focusing on also after my retirement they promised me is safety and the association of insurance expenses with the safety investment. So we're making the investment now and we do believe long term we will get some nice payback, which also is a very competitive tool as well.
So I would say looking at it from 10,000 feet, the margins with the exception of that one day in janitorial is very close to be flat.
Speaker 7
And then can you maybe just put some parameters around the success that you called out on the West Coast? And I know you guys are deploying your Solve One More out there and you've got some alignment initiatives that you're doing in that region. I'm just curious what the success has been and maybe how that might compare to some of your other regions as you deploy it elsewhere?
Speaker 1
Well, I think the West is clearly something that proves to me and I think proved to Scott that the value of a strong leadership team cannot be underestimated. We have a very strong leader. His name is Rene Jacobs. He's doing a great job. In Southern Cal, you've got Arma Claver.
He's doing a fantastic job. And I think we were we saw the town and we picked those two guys to lead the effort. And they have been instrumental in increasing communication between the different lines of business in them. If we can copy that success to other areas, we're going to see growth like this pretty much every place. But also the last thing I want to mention here is the depth of services we have in Southern Cal is much greater than any place else.
You have to remember you might not know this, but originally most of these services we talk about partnering security and others were starting in Southern Cal. So that is still the area where we have the deepest penetration.
Speaker 7
Understood. Thanks for that. And then Jim Lusk, when we look at the corporate expense being up 7% to 9% for the full year, just curious is that off of a GAAP number or a non GAAP number?
Speaker 3
If you that basically is a non GAAP number. And if you look at our SG and A run rate in corporate for this quarter and you do the seven to 9%, you're pretty much at the run rate. So that's pretty much what it does. So as Henrik described it, we had a lot of vacancies last year, especially in IT. Those vacancies were filled the latter half of the year last year.
We've added a few salespeople. So you're pretty much at your run rate right now.
Speaker 5
Great. Thanks guys.
Speaker 8
Thanks.
Speaker 0
Thank you. Our next question comes from line Andy Wittmann of Baird. Your line is now open.
Speaker 8
Hi. Good morning, Good morning. I wanted to understand a little bit about the lost contract in the janitorial business. Just doing simple math here, it looks like roughly 2% growth for the quarter implies 15,000,000 for the quarter. Is that a $60,000,000 contract for the year?
And then maybe more importantly, was this a contract that was in the middle of its duration that you decided to get out of as just a review of the contract? Or did this one come due and go out for recompete?
Speaker 1
This was the contract that I have been talking about indirectly for a very long period of time with a very long implementation schedule where the startup cost exceeded our expectations. And as a matter of fact, it was not profitable into and very little profitable into the 2014. Then we ended up in some price disputes with the particular client and we decided to leave the relationship that was not very profitable for us by the I would say November 2014. It was an account at the level of around $4,000,000 a month. Okay.
So
Speaker 8
you left in November. So really the janitorial you were starting it up last year, but you kind of signed off in November where you started walking away from. So in other words, you've got another couple of quarters here where it's going to be a tough revenue comp as a result of this. Is that a fair way of looking at it Henrik?
Speaker 1
Well, think from a result bottom line point of view, it's not going to be very tough because we didn't make that much And money if I think if you see our growth, it's pretty impressive because we more than absorbed that in our janitorial segment and still were up net organic growth by two more than 2%, which is and you remember back Andrew is still a good number for us to be up 2% in a market that's pretty flat if I look at my competitors. So without it I'm up 4.5%, with it I'm up 2%. The sales activity in janitorial is still very impressive. So I don't see any I don't foresee any issues in that respect.
Speaker 8
Yes. Okay. That's helpful. And maybe just one for Scott here is related to that. As you look at the company margins here today Scott and the opportunity, I know you've been doing your listening to or going to your different offices and understanding the businesses.
But is there an opportunity to look at more of contracts like that one? Maybe that was obviously a large contract, but are there more opportunities you think in the portfolio of ABM to look at contracts with more scrutiny potentially walk away and maybe it's an expensive top line improve the overall bottom line results? Is this something that you think is on your priority list? Or I'm just kind of curious your thoughts around that.
Speaker 4
I think this is something we do well as a firm and I think we've been doing well for quite a while. The operational discipline that we have in the field, I think is unparalleled. And if you remember, it wasn't too long ago that I was running the Northeast. So I had a very, very micro window into this and that was always the theory. We don't work for free and that translates to pride in our people and it also says a lot to our customers.
So I think as we go forward this is going to be the same operational discipline that we've always had.
Speaker 8
Okay. And then Scott I think given that this is your first conference call, it's probably fair to ask you what are some of the things that you're looking at today potentially to put your stamp on if you give priorities one, two, three? What are some of the things that are formulating in your mind as things that you want to go after to drive the future of ABM?
Speaker 4
Well, for us and it's something that we've spoken about before, it's the customer focus. We're going to continue on that. It's the vision that we've had as a firm. And I think we need to drive that deeper and deeper and turn it into a true operating strategy. So that's something that you're going to see a lot of and you're to hear a lot about from us and more collaboration as a team.
We started it with Solve going more on the sales side and we've been doing it for a while now with our on-site restructure that we started a couple of years ago. And now we're going to look to our AirServe division, our BESG division, our On-site division and bring those three areas closer and closer together to have the true one ABM. And that's where a lot of the focus is going to be.
Speaker 8
Okay. Good. I think I'll leave it there for now. Thank you very much.
Speaker 1
Thank you.
Speaker 0
Thank you. Our next question comes from line of David Gold of Sidoti. Your line is now open.
Speaker 9
Hey, good morning. Good morning, David. Henrik, it's been a pleasure working with you for about fifteen years.
Speaker 1
Thanks David. Pleasure working with you as well.
Speaker 9
And Scott obviously welcome to the new role or upcoming. A couple of just quick fill ins. One, when we just going back for a second to the large contract. When you think about that one, just want to
Speaker 5
go
Speaker 9
over for a second, I guess, the takeaway of the lesson learned. Was it a function of mispricing? Or was it a function of in the implementation things changed and it just became more, let's say, expensive to you than expected it to be?
Speaker 1
I'm sure it's a mistake Scott will never make, but I made it. It was it's I think sometimes when you start you look at this wonderful big job, great opportunity. I think we got somewhat carried away with the opportunity and didn't scrutinize the job deep enough before we said yes to the contract. And looking back, the screening process have to be stronger and better in that process, because one thing is what you see is the direct expenses associated with it, but there's also a lot of indirect expenses and frustrations associated with a job like that as well where you just don't see the cost. But we have to allocate management resources to a job like that that exceeds what you will do to a normal job.
So lesson learned is, if it looks too good to be true, it is too good to be true. So Scott will absolutely not make that mistake. Thank you, Henrik.
Speaker 9
Got you. Okay. Fair enough. And then when we think about the pickup in tag work in the Northeast, which obviously is impressive In a side margin is presumably you're pretty focused on doing what you can to spur that on.
What does it take for other areas say the West to catch fire on that?
Speaker 1
Well, you have to understand the difference in contracts between the different areas of the country. So especially the West there are very few extras associated with it because the contract you have with the client is pretty much an all inclusive contract. So you can have some extra work, some extra cash, profits including etcetera. But in New York, you're dealing with a minimum spec and you have direct contracts with each tenant that drives a lot of these tax sales. So you really can't draw a parallel between areas and make conclusions based upon areas.
To give you an example in New York snow is unfortunately included in the pricing. But if you go to Washington D. C, it's an extra. So every area is different. So I really can't give you the model other than saying to you that we know the difference in the marketplace and we're focusing on it.
Speaker 9
And based on the pipelines that you're seeing how aggressive or how strong how much stronger do you think the growth there gets?
Speaker 1
I'm encouraged by it. We have a lot of very, very attractive offers in front of us not offers, but bids in front of us and negotiations in front of us. So I really believe that the growth is now it's been now for six to eight quarters I think it's sustainable. And it's my hope again that Scott will take over something that will even grow more, because I think we've been through some of the growing pains. We've been through the reorg and things take time.
And that's why I feel it's the right time for me to get out of here and leave it for a very talented man who is extremely marketing and sales focused. And I'm sure he'll do a fantastic job for
Speaker 9
Got you. Perfect. One last if I can just sneak in there. Looking at the growth in air serve on the other line, obviously very impressed by it. And we just wanted some thoughts there on it sounds like there's strong momentum.
Is growth like this sustainable?
Speaker 1
I believe when we bought the company that we could see 10% -plus growth in that company. And I did that based upon the leadership, the talent we see plus the market opportunities are endless. Again, with that leadership and the direction that Tom has taken this company some Murano, it is very, very, very impressive. And my hope is that on an average basis that you will see double digit growth in the long run. That doesn't mean it could be next year it will be seven percent and the year after 15%.
Can't tell it's going be 10% every year. But on average, I really believe that this is going to be a double digit growth and it's going to be a long term success story for Scott and the team.
Speaker 9
And that's more a function of market share gains or new contracts?
Speaker 1
It's margin. It's margin. There might be some new airports opening up. But in general, it's margin shipping.
Speaker 9
Perfect. Perfect. Thank you all.
Speaker 1
Thank you.
Speaker 0
Thank you. Our next question comes from Jeff Kessler of Imperial Capital. Your line is now open.
Speaker 10
Thank you. Congratulations, Henrik. It's been twenty years.
Speaker 1
I know Jeff. And congrats
Speaker 10
when you were with a competitive firm. In 'seventeen, taking a look at the you made some specific references to where one ABM was beginning to take hold with regard to parking. But if I could get an idea from you for the rest of the fiscal year and into next fiscal year, you see how this playing out in terms of which areas of the company are going to be at most benefit? And where is it going to where are we going to see it a little bit more lagging in terms of being able to integrate these pieces together under one roof so to speak?
Speaker 1
Jeff, I would love
Speaker 4
to say that now Scott is the leader. He's going
Speaker 1
to grow 22% everywhere, but that's probably not the case. I think he's going to be the small divisions will always benefit more because the CityGen as well-being the big company has more relationships, has more contracts. So the referrals will clearly benefit all the other divisions. And as I said earlier, I need to see it on parking that was might be a very, very, very good quarter for parking. Security, I think is truly a short term pickup.
Facility Services had a good quarter, but probably not sustainable in the second quarter, but we'll have a good growth year. In janitorial, I really believe the facility the major jobs in general is they are picking up and you'll see growth in general. And if you look at the growth without that big job that we talked a lot about today, if we can get growth between 35% in general, it's on a big base and it's taking nice market share out there. So I feel very good that you're going to see long sustained growth throughout the company, but I'm not going to put a number on each area.
Speaker 10
Okay. With regard to both janitorial facility services, what is the current tenancy rates going? Are they continuing to improve? Is this the type of thing where improvement in the percentage of buildings that are occupied fully or partially or at least partially fully are going to drive this for an extended period of time? There's a tail to this obviously.
Speaker 1
Think the occupancy rates in buildings have very little to do with our growth. I've said that before and I really believe it. I think the vacancy rates or the occupancy rates, if the occupancy rates are high that means the economy is good. And I think you're going to see some reflection of a good economy. But the rates in itself outside the reflection of the status of the economy really doesn't have a major impact on myself.
All right. What
Speaker 10
has to go on in Building and Energy Solutions to pick up the margin there. While the organic growth looked really good, operating profit obviously you had a couple of disputes. Were those the major reasons why the margins were as they were? Or are there things are there other things that are holding it back that could perhaps dissipate over the course of the next fiscal year?
Speaker 1
No. I think you're dealing with two things. You're dealing with the first quarter that is historically the first two quarters historically in BSG are the weaker quarters and that has got to do with our energy retrofits, which normally takes place in the third and fourth quarter. As you can imagine, we do a lot of schools and that is often done in the summer break. So you cannot make any conclusion based upon this quarter in my opinion.
And we did have a couple of onetime hits, which is not something we expect for the rest of the year. And the cost increase we had on the sales and business development people in that particular segment is of course something I expect is going to show mean that we're going to have the double digit growth in BSG for the year. And I also am very certain they're going have double digit growth on the EBITDA level. I'm very proud of what they're doing, what they've accomplished, because they have pretty much a very strong machine going right now and they're hitting all cylinders. Outside the hiccups in this quarter, which truly are one time nature and unfortunately happens in all our divisions timing.
We're not perfect.
Speaker 10
Okay. And finally with regard to Healthcare Support Services, this has been kind of a smaller part of that division. It started out I think a little bit slowly. What are you doing at that point? What are doing at this point to really build that up?
Because there's obviously a tremendous amount of potential there.
Speaker 1
Well, we have invested in a very good team. We've seen pretty dramatic growth there on the top line. We are picking up new business as we speak. They've had as I said one of the two of those pickups with the hiccups we talked about earlier did happen in the health care business. And we did lose one of the jobs or we signed from a job.
But I think again you're going to see high double digit, high teen growth in health care both this year and these coming years. We are very small player in the marketplace. Clearly, it's an area where I would very much look at small acquisitions, but it's not my call anymore. But I'm going to inspire them to look at small acquisitions, because it is a healthy market segment. It is higher profitable than the rest of our business.
And again, I got great leadership there.
Speaker 10
Okay. And finally, Scott, I know that you've kind of answered this question before, but I'd to hear perhaps from a different point of view. And that is one of the things that a lot of companies that are involved in services whether they're in security integration services or for that matter facility services are doing is trying to become as focused as possible on margin and building and business process integration so to speak that part of it as opposed to just revenue. And in fact walking away from and trying to be as disciplined as possible with revenue. What do you I know you've again you've partially answered this question already, but can you give out what your view is as to what your tolerance is for margin versus revenue?
And how are you going to look at the two and make sure that this trend that seems to be slower revenue growth with higher margins may affect you folks?
Speaker 4
Well, first of all, think they're equally as important, right? Revenue helps drive EBITDA and margin. And you're right I have spoken about it before that this is going to be one of our organizing themes as we go forward, is to drive margin. And I think that's going to come from the vertical or customer focus. When we've seen that in the Aviation business, We have seen it in the healthcare business that when you focus on a customer rather than just a service, you drive higher bottom line.
And we're very hopeful that that's going to continue. And the first thing that comes to mind to me as well is what we're doing around insurance and risk mitigation. We're seeing the results of it changing our culture in the field and that's going to help our bottom line as well. But we are very much going to be focused moving forward on enhancing our margin.
Speaker 10
Okay. Very good. Thank you. Thank you very much and welcome Scott.
Speaker 4
Thank you.
Speaker 0
Thank you. Our next question comes from line of Dan DeLove of Jefferies. Your line is now open.
Speaker 11
Hey, thanks for taking my question. A question on organic growth in janitorial. So what should we expect in terms of organic growth for the balance of the year? Is it going to be in that 2% range going forward or higher?
Speaker 1
Ben, you know I'm not going to give guidance on revenue. But I think you can conclude based upon what I've said earlier. I don't expect it to be higher than 5% and I don't expect it to be lower than two
Speaker 11
Okay. Understood. And on the incremental cost, I mean what percent or portion of those incremental IT costs were planned versus I would say like more of a surprise to you guys?
Speaker 1
Every dime was planned.
Speaker 11
Every dime was planned. Okay.
Speaker 1
We are ahead on our internal plans both top and bottom line we are ahead of where we expect to be for the quarter. So I'm very pleased with the quarter. And we had a very in my opinion very strong start to the year.
Speaker 11
Okay. Understood. And then last question on M and A Henry. I mean you mentioned in the past that valuations were one of the things that injured you from making acquisitions were valuations. Can you maybe comment on how the M and A landscape looks like this day?
Has come down? Or is it still very difficult to make M and A?
Speaker 1
I think it's not easy for us to make M and A because we also somewhat picky have to be an area that fits our strategic view, which means we very much like to look at verticals. And as you've seen in the past here, Tracy has been making some fill acquisitions in his area. But if you go to the medium sized to sizable companies, you will see private equity being very aggressive out there. And I would say the multiples are still one or two, three times more multiple higher than what I've seen in the past, but we could look at a six, seven multiple in the past, we probably look at eight, nine multiple now.
Speaker 5
Okay.
Speaker 11
Great. Thank you very much and good luck on your retirement.
Speaker 1
Thank you, sir.
Speaker 11
Thank you.
Speaker 0
Thank you. And I'm showing no further questions at this time. I'd to hand the call back over to Mr. Flipsager for any closing remarks.
Speaker 1
Thank you. I want to first of all thank everybody for listening to our first quarter. I want to say thank you to employees, analysts for listening today and other shareholders for the support I've received over the years. And I'm very proud to welcome Scott here. I think it is going to be a heck of a move for the company.
And I'm as proud as I can be. I think really I'm leaving on top. At least that was my top. That's probably Scott's bottom. So that's your upside.
Scott?
Speaker 4
Thank you, Hendrik. My message is, I just want to make sure everyone understands how excited I am to lead this organization. When you look at the components that it takes to run a company successfully, it's your Board, it's your support team and your operators. And I have a Board that is rich and experienced, that is supportive that's going be guiding me. I couldn't be more thankful.
My support team here at five fifty one that I interact with day to day has been so helpful and I'm excited to work with them in the future. They're so talented. And finally, you talk about operators and operational excellence and you look to Jim McClure, Tracy Price and Tom Marano and you're talking about the A team. And I think they've been showing it in the field. So it's just a lot to rally around.
But this is as much about Henrik as anything else. And what do you say about a person that's been here for seventeen years, fourteen years of which running this organization that has literally transformed the company from when I started twelve years ago, which was a janitorial centric firm to an integrated facility service company that's global. It's just hard to believe what this man has accomplished in fourteen years. And he's leaving us a tremendous, tremendous platform. So Henrik, the way we will honor you is to move forward with the vision that you've developed with this company of customer focus, leading with character and ethics, which you have always done and continuing to drive performance and value to our shareholders.
And we know you'll be watching over us as a shareholder, but I'm confident that we're going to be able to meet and hopefully exceed your expectations. But thank you for your years of service Henry.
Speaker 1
Thank you, Scott. And by the way those were not prepared remarks. I'm sitting here crying. So thank you very much for listening. Bye.
Speaker 0
Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Have a great day everyone.