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ABM INDUSTRIES INC /DE/ (ABM)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 showed resilient top-line with revenue of $2.18B (+4.0% YoY; +3.2% organic), but GAAP EPS swung to a loss on a $59.7M RavenVolt earn-out fair value adjustment; adjusted EPS was $0.90 and adjusted EBITDA $128.0M with 6.1% margin .
  • Mix was favorable: Technical Solutions (+35% YoY; microgrids) and Aviation (+11% YoY) offset flat Education and <1% declines in B&I and M&D; B&I margins pressured by insurance reserve adjustments and ~$4–5M discrete costs .
  • FY2025 outlook introduced: adjusted EPS $3.60–$3.80 (midpoint +4% YoY), adjusted EBITDA margin 6.3–6.5%, interest expense $76–$80M, tax rate 29–30%; normalized FCF expected at $250–$290M .
  • Capital returns/positioning: repurchased $32M in Q4 ($55.8M FY24), leverage 2.6x, liquidity $488.2M; dividend raised 18% to $0.265/qtr (57th consecutive annual increase) – a potential support for shares near term .

What Went Well and What Went Wrong

  • What Went Well
    • Technical Solutions outperformed: +35% YoY revenue (25% organic), driven by microgrid projects; backlog >$500M and >$100M orders booked in Q4 .
    • Aviation strength continued: +11% YoY revenue; margin improved to 6.7% with operating leverage and wins across 27 of top 30 U.S. airports; management expects high single-digit growth in 2025 .
    • Productivity/technology traction: workforce optimization tool reduced labor as % of revenue by ~100 bps in Q4; early AI initiatives (ABM Clean, APS) cited as margin/efficiency tailwinds .
  • What Went Wrong
    • GAAP loss: $(0.19) DPS vs $0.96 last year, largely from $59.7M contingency revaluation related to RavenVolt earn-out; adjusted margin -110 bps YoY (6.1%) .
    • B&I margin pressure: ~120 bps YoY decline to ~7% on prior-year insurance reserve adjustments and ~$4–5M discrete costs booked above the line .
    • Working capital drag: Q4 FCF $15.5M vs $121.2M last year due to growth-driven WC needs late in quarter, notably at ATS .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Millions)$2,092.9 $2,094.2 $2,177.3
GAAP Diluted EPS ($)$0.96 $0.07 $(0.19)
Adjusted EPS ($)$1.01 $0.94 $0.90
Adjusted EBITDA ($M)$144.2 $128.1 $128.0
Adjusted EBITDA Margin (% of revenue ex. mgmt reimb.)7.2% 6.4% 6.1%
Net Cash from Operating Activities ($M)$139.1 $79.5 $30.3
Free Cash Flow ($M)$121.2 $64.1 $15.5

Segment performance (Q4):

  • Revenue ($M) and Operating Profit ($M) | Segment | Q4 2023 Revenue | Q4 2024 Revenue | YoY | Q4 2023 Op Profit | Q4 2024 Op Profit | YoY | |---------|------------------|------------------|-----|-------------------|-------------------|-----| | Business & Industry | $1,033.0 | $1,025.7 | (0.7%) | $84.6 | $72.0 | (14.9%) | | Manufacturing & Distribution | $391.2 | $387.7 | (0.9%) | $42.0 | $40.4 | (3.8%) | | Aviation | $248.2 | $276.5 | 11.4% | $16.4 | $18.6 | 13.6% | | Education | $229.8 | $230.0 | 0.1% | $10.2 | $13.1 | 28.0% | | Technical Solutions | $190.8 | $257.4 | 34.9% | $24.4 | $28.0 | 14.8% |

Select Q4 KPIs and balance sheet

KPIQ3 2024Q4 2024
Total Indebtedness ($M)$1,416.8 $1,412.6
Total Leverage (credit facility definition)2.5x 2.6x
Liquidity ($M)$513.9 $488.2
Cash & Equivalents ($M)$86.3 $64.6
Share Repurchases ($M)$0.0 (Q3) $32.0
Dividend/Share$0.225 (declared for Nov) $0.265 (new rate)

Non-GAAP/adjustments (Q4):

  • Items impacting comparability totaled $80.0M pre-tax, including $59.7M fair value increase to RavenVolt earn-out, $10.1M transformation costs, and insurance reserve adjustments; adjusted EPS $0.90 vs GAAP $(0.19) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPSFY2025N/A$3.60–$3.80 New
Adjusted EBITDA MarginFY2025N/A6.3%–6.5% New
Interest ExpenseFY2025N/A$76–$80M New
Normalized Tax RateFY2025N/A29%–30% New
Normalized Free Cash FlowFY2025N/A$250–$290M (excl. ~$30–$40M Elevate/integration; $16M earn-out in operating cash) New
DividendOngoing$0.225/qtr (prior) $0.265/qtr (+17.8%) Raised

Reference (prior-year guidance evolution):

  • FY2024 adjusted EPS raised from $3.40–$3.50 (Q2) to $3.48–$3.55 (Q3) .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
AI/Technology initiatives (ABM Clean, WPO, APS)Emphasized ELEVATE tech roadmap, WPO pilots; ABM Clean, APS cross-sell; target GDP+ growth via tech leverage WPO reduced labor % of revenue ~100 bps; AI use cases in RFPs/HR; ABM Clean rolled out at >10 airports; APS driving Education growth Strengthening; broader deployment
Commercial Real Estate (CRE) conditionsB&I resilient; low-single-digit decline expected; Class A mix helps; early positive signals Management sees CRE near inflection; B&I expected to return to growth in back half ’25, pending macro Improving sentiment
Technical Solutions: Microgrids/Data centersLarge $180M microgrid; backlog strong; mission-critical ramp; Q3 +25% ATS; volatility from project timing Microgrids remain very strong; ATS +35% in Q4; backlog >$500M; UPS/battery via Quality Uptime acquisition Strong demand; expanding capabilities
Labor costs/inflationModerating; margin aided by efficiency tools Labor inflation moderated ~100 bps vs 2023; CBAs settled provide predictability through ’27 Tailwind/more predictable
ERP/ELEVATE programCore of transformation; cost normalization ahead ERP deployed for B&I and M&D; remaining IGs through FY’26; Elevate cash costs winding down Execution phase; benefits building
Aviation end-marketRobust travel; double-digit growth in Q3; ABM Clean advantage +11% Q4; servicing 27 of 30 busiest U.S. airports; 2025 growth expected high single digits Normalizing growth, solid pipeline
Capital allocation/M&AQ2: buybacks to offset dilution; Quality Uptime deal; balanced approach Q4 buybacks $32M; leverage 2.6x; M&A pipeline improving; 18% dividend hike Balanced, optionality intact

Management Commentary

  • “ABM finished the year well… 3.2% organic revenue growth and adjusted EPS of $0.90… a little higher than expected.” – Scott Salmirs, CEO .
  • “Workforce productivity optimization tool… Labor as a percent of revenue was down nearly 1% in the fourth quarter… expect to reap more as we roll out the technology more broadly.” – Scott Salmirs .
  • “We expect revenue, margin and earnings growth in 2025, including adjusted EPS of $3.60 to $3.80 and adjusted EBITDA margin in the range of 6.3% to 6.5%.” – Scott Salmirs .
  • “B&I operating margin was 7%, a decrease of 120 bps, driven by a ~$7M YoY insurance reserve impact and ~$4–$5M of other discrete costs.” – Earl Ellis, CFO .
  • “Microgrid business had a phenomenal 2024 with revenue and earnings both up 2.5x… year-end backlog of over $500 million.” – Earl Ellis .

Q&A Highlights

  • M&D client rebalancing: Better-than-expected impact to date; two remaining phases in FY25; ABM gaining new sites with that client; sees M&D back to mid-single-digit organic growth by end of 2025 .
  • ATS remediation: ~$4.3M charge tied to a portion of a 2018 energy performance contract; characterized as rare .
  • Elevate/ERP and FCF: FY25 normalized FCF guided to $250–$290M; Elevate cost wind-down of ~$30–$40M; ERP rollout largely complete for B&I/M&D, remaining by early–mid FY26 .
  • Margins path: Management reaffirmed long-term aspiration of 7% adjusted EBITDA margin; FY25 +20 bps at midpoint with labor/productivity as key driver .
  • Aviation cadence/market share: High single-digit growth expected in 2025; longer sales cycles; ABM Clean deployed at >10 airports .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 EPS/Revenue was unavailable due to data access limits at time of analysis. Management indicated Q4 organic growth and adjusted EPS were “a little higher than expected,” but without consensus we cannot definitively categorize a beat/miss versus Street expectations .

Key Takeaways for Investors

  • Mix shift is the core narrative: outsized growth in ATS (microgrids/data centers) and Aviation offsetting CRE softness; expect this to remain the stock driver into FY25 .
  • FY25 setup shows measured improvement (EPS +~4% midpoint; margin +20 bps), with upside if B&I inflects earlier and ATS execution stays strong; watch backlog conversion and project timing .
  • Margin expansion lever is operational: labor cost moderation and WPO/AI tools; every 10–20 bps of productivity drop-through matters given scale .
  • Capital allocation is supportive: dividend up 18%, buybacks opportunistic, leverage 2.6x leaves M&A optionality—particularly in mission-critical/data center services .
  • Risks: CRE recovery timing, insurance reserve variability, project lumpiness in ATS, and macro/policy shifts under new administration (interest and energy policy) .
  • Tactical trading lens: Dividend hike + new FY25 guide provide support; any near-term volatility tied to ATS timing or headline CRE data could create entries if long-term mix thesis remains intact .

Notes on Non-GAAP: Adjusted results exclude items impacting comparability, including RavenVolt contingent consideration changes, transformation costs, and insurance adjustments. See reconciliations in the press release/8-K for detail .

Additional Disclosures in Quarter:

  • Dividend increase to $0.265/share (payable Feb 3, 2025; record Jan 2, 2025) .
  • Strategic partnership with Mainspring Energy to integrate Linear Generators for EV charging/on-site power within ATS solutions .