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ABM INDUSTRIES INC /DE/ (ABM)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 FY2024 delivered solid top-line growth and stronger non-GAAP profitability: revenue rose 3.3% to $2.094B, Adjusted EPS increased 19% to $0.94, and Adjusted EBITDA grew 2% to $128.1M; GAAP EPS fell to $0.07 on a non-cash contingent consideration adjustment tied to better-than-expected Ravenvolt performance .
  • Management raised FY2024 Adjusted EPS guidance to $3.48–$3.55 (from $3.40–$3.50), and now expects full-year Adjusted EBITDA margin around 6.3%; normalized FCF is guided near the top end of $240–$270M (if not a little higher) .
  • Strength was led by Technical Solutions (microgrids) and Aviation; Business & Industry remained resilient despite commercial office softness; M&D margins benefited from mix and rationalization even as an e-commerce client “rebalancing” weighs on revenue into Q4 .
  • Potential stock catalysts: continued microgrid execution and backlog conversion, data center/AI exposure enhanced by the Quality Uptime acquisition, and sustained Aviation margin gains; watch near‑term headwind from M&D rebalancing and BES softness until rates ease .

What Went Well and What Went Wrong

What Went Well

  • Microgrids and ATS momentum: ATS revenue +25% YoY (20% organic) with margin expansion to 8.5% on higher volume; management reiterated strong Ravenvolt backlog and timing-driven lumpiness rather than demand issues .
  • Aviation scale and profitability: Aviation revenue +12.8% YoY to $268.4M; operating margin reached 6.6% (+170 bps), driven by healthy travel markets, wins, and favorable mix (ABM Clean) .
  • Technology and productivity: Early benefits from Workforce Productivity Optimization (WPO) analytics and stabilization in wage inflation supported labor efficiency and margins; management plans broader rollout over the next couple of years .

What Went Wrong

  • GAAP earnings pressure: GAAP EPS fell 95% YoY to $0.07 due to a $36.0M fair value increase in contingent consideration (Ravenvolt earn‑out) and absence of a prior‑year ERC; prior‑year self‑insurance adjustments also weighed on results .
  • BES/EV softness and project timing: Bundled Energy Solutions and certain EV projects remained soft; ATS revenues can be lumpy due to permitting, weather and construction timing, with management pointing to timing rather than demand .
  • M&D revenue headwind: Segment revenue -1% YoY from anticipated large client “rebalancing,” which will fully impact Q4 and persist for several quarters, though mix optimization lifted M&D margin to 10.9% .

Financial Results

Consolidated results vs prior quarters

MetricQ1 FY2024Q2 FY2024Q3 FY2024
Revenue ($USD Billions)$2.070 $2.018 $2.094
YoY Revenue Growth (%)3.9% 1.7% 3.3%
GAAP Diluted EPS ($)$0.70 $0.69 $0.07
Adjusted EPS ($)$0.86 $0.87 $0.94
Adjusted EBITDA ($USD Millions)$116.7 $125.3 $128.1
Adjusted EBITDA Margin (%)5.9% 6.5% 6.4%
Operating Cash Flow ($USD Millions)$(0.1) $117.0 $79.5
Free Cash Flow ($USD Millions)$(13.7) $101.4 $64.1
Net Income ($USD Millions)$44.7 $43.8 $4.7
Net Income Margin (%)2.2% 2.2% 0.2%

Notes: GAAP EPS decline in Q3 driven by Ravenvolt contingent consideration adjustment and absence of prior-year ERC; non-GAAP strength reflects ATS/Aviation performance and lower share count .

Segment performance (Q3 FY2024)

SegmentRevenue ($M)YoY %Operating Profit ($M)YoY %Operating Margin (%)
Business & Industry$1,010.6 (1.1%) $77.8 (1.3%) 7.7%
Manufacturing & Distribution$377.1 (1.2%) $40.9 7.5% 10.9%
Education$228.3 4.2% $18.0 13.3% 7.9%
Aviation$268.4 12.8% $17.8 51.6% 6.6%
Technical Solutions$209.7 24.9% $17.9 56.1% 8.5%

Balance sheet & liquidity KPIs

KPIQ1 FY2024Q2 FY2024Q3 FY2024
Total Indebtedness ($M)$1,410.8 $1,351.4 $1,416.8
Available Liquidity ($M)$507.8 $561.8 $513.9
Cash & Cash Equivalents ($M)$58.0 $60.7 $86.3
Total Leverage Ratio (x)2.4x 2.3x 2.5x

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPSFY2024$3.40–$3.50 $3.48–$3.55 Raised
Adjusted EBITDA MarginFY20246.2%–6.5% ~6.3% Maintained midpoint/refined
Interest ExpenseFY2024$82M–$86M $82M–$86M Maintained
Normalized Tax RateFY202429%–30% 29%–30% Maintained
Normalized Free Cash FlowFY2024—Near top of $240M–$270M, if not slightly higher Raised bias
Quarterly DividendQ3 Declared$0.225/sh (233rd consecutive) $0.225/sh (234th consecutive) payable Nov 4, 2024 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Microgrids / Energy ResiliencyQ1: $180M multi‑year microgrid award; TS double‑digit growth . Q2: TS growth, project mix; margin below prior year on corporate investments .TS revenue +25% YoY (+20% organic) on strong microgrid activity; backlog strong; timing/permits/weather drive lumpiness .Improving execution; timing volatility persists
Data Centers / AIBuilding position in mission‑critical; Quality Uptime acquisition announced 6/24 to double mission‑critical revenue in first full year .Growing data center exposure; cross‑sell UPS services; mission‑critical revenue still sub‑$250M but poised to grow .Strengthening secular tailwind
Commercial Office (B&I)B&I resilient; revenue ~flat despite CRE softness .Down 1% YoY; Class A mix and diversification help; optimism as RTO pressure rises (CBRE survey cited) .Stabilizing to slowly improving
Labor & ProductivityELEVATE and tech investments ongoing .WPO analytics tool improving efficiency; wage pressure easing; better labor availability .Positive margin tailwind
M&D Client RebalancingHealthy markets; earlier commentary foreshadowed mix and onshoring benefits .Revenue -1% YoY from large e‑commerce rebalancing; full impact in Q4; margins +90 bps to 10.9% on mix and rationalization .Near-term headwind; medium‑term constructive
AviationGrowth supported by travel, wins; prior-year project affected YoY compares in Q2 .Revenue +12.8% YoY; margin 6.6% (+170 bps); on track for ~$1B year .Strong and improving

Management Commentary

  • “Our investments in the energy resiliency markets, particularly in microgrids… and those investments in technology… helped us deliver another quarter of solid organic growth… and resilient margins.” – Scott Salmirs, CEO .
  • “We delivered adjusted EPS of $0.94… our business model… was in full force in Q3 as we leveraged our capital-light model, scale and leading market positions… especially our technology road map.” – Scott Salmirs .
  • “Aviation is having an amazing year… I’m thrilled our Aviation segment has grown to be a $1 billion business… [with] margin improvements… indication of the value we provide.” – Scott Salmirs .
  • “We expect the need for energy resiliency and redundancy will only grow over time… the proliferation of AI will drive significant growth in data center and mission-critical infrastructure.” – Scott Salmirs .
  • CFO on FY24 outlook: “We are raising our full year guidance for adjusted EPS… now $3.48 to $3.55… Adjusted EBITDA margin… around 6.3%… normalized free cash flow… near the top end of $240M to $270M, if not a little higher.” – Earl Ellis .

Q&A Highlights

  • EPS cadence (Q3 > Q4): Outperformance in ATS (Ravenvolt) in Q3 vs full ramp of M&D client rebalancing in Q4; rebalancing to weigh “over the next several quarters” .
  • Segment margin sustainability: No unusual Q3 benefit; broad-based operational performance with continued focus on price and cost; M&D margins may compress modestly near term as rebalancing peaks in Q4 .
  • Labor dynamics and WPO: Wage inflation moderating and better labor availability; early WPO rollout driving efficiency via cross‑site productivity benchmarking .
  • ATS lumpiness / backlog: Project timing (permits/weather) can shift revenue across quarters; backlog “has never been stronger,” giving confidence in outlook .
  • Ravenvolt earn‑out adjustment: Quarterly mark‑to‑market of fair value over calendar 2024–2025 earn‑out period; improved 2024 performance increased likelihood of payout .
  • Capital allocation: Balanced between accretive M&A (Quality Uptime) and buybacks; leverage and liquidity remain comfortable .

Estimates Context

  • Wall Street consensus estimates from S&P Global (EPS, Revenue, EBITDA) were not available at the time of this analysis due to data access limits; therefore, explicit beat/miss versus consensus cannot be provided here. Management noted results came in “modestly above our expectations” and raised FY24 Adjusted EPS guidance .

Key Takeaways for Investors

  • Microgrid momentum is translating to sustained ATS growth and margin expansion; timing volatility exists, but backlog strength supports continued execution into Q4 and FY2025 .
  • Aviation’s scale and margin trajectory are attractive, with healthy travel demand and favorable service mix underpinning continued profitability improvement .
  • B&I resilience amid CRE softness, aided by Class A focus and diversification, suggests downside protection; early signs point to gradual stabilization as RTO pressure rises .
  • M&D headwinds from large client rebalancing are transitory; secular onshoring/semiconductor exposure and client rationalization support medium‑term margin and growth recovery .
  • Technology investments (WPO) and easing labor pressures are incrementally positive for margins and execution across segments .
  • Raised FY24 Adjusted EPS guidance, stable interest/tax outlook, and normalized FCF near top of the range provide improved cash generation visibility for capital returns and selective M&A .
  • Watch for catalysts from Quality Uptime cross‑sell into data centers/AI infrastructure and further wins in mission‑critical services; a rate environment supportive of BES could add incremental upside .