ABM

Greetings. Welcome to ABM Industries Incorporated First Quarter 2026 Earnings Conference Call. At this time, all participants will be in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Paul Goldberg, Senior Vice President, Investor Relations. Thank you. You may begin.

Good morning, everyone, and welcome to ABM's first quarter 2026 earnings call. My name is Paul Goldberg, and I'm the Senior Vice President of Investor Relations at ABM. With me today are Scott Salmirs, our President and Chief Executive Officer, and David Orr, our Executive Vice President and Chief Financial Officer. Please note that earlier this morning, we issued our press release announcing our first quarter 2026 financial results and outlook. A copy of that release and an accompanying slide presentation can be found on our website, abm.com. After Scott and David's prepared remarks, we will host a Q&A session. Before we begin, I would like to remind you that our call and presentation today contain predictions, estimates, and other forward-looking statements.

Our use of the words estimate, expect, and similar expressions are intended to identify these statements, and they represent our current judgment of what the future holds. While we believe them to be reasonable, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially. These factors are described in the slide that accompanies our presentation as well as our filings with the SEC. During the course of this call, certain non-GAAP financial information will be presented. A reconciliation of historical non-GAAP numbers to GAAP financial measures is available at the end of our presentation and on the company's website under the Investor tab. With that, I would like to now turn the call over to Scott.

Good morning, everyone, and thank you for joining us to discuss ABM's first quarter fiscal 2026 results. We're off to a solid start of the year. We delivered 5.5% organic revenue growth, generated nearly $50 million in free cash flow, and repurchased over $90 million of shares in the quarter. While margin performance in Technical Solutions was below our expectations, primarily due to project timing and mix, underlying demand and backlog trends are healthy and the fundamentals across the portfolio remain constructive. As such, our full-year outlook is unchanged. Let me step back and provide some broader context. Across our end markets, demand remains generally healthy. In prime office, recent data from CBRE indicates improving transaction volumes and stabilization in Class A vacancy trends in major gateway markets.

While certain regional markets remain slower to recover, the flight to quality dynamic continues to favor the types of assets where ABM is concentrated. Our B&I segment grew 4% in the quarter, the highest it's been since the third quarter of 2022, reflecting strong international growth, stable client retention, and underlying steady demand. In Aviation, TSA checkpoint volumes remain resilient and airport infrastructure investment continues at elevated levels. The FAA's terminal modernization programs and large-scale capital projects across major U.S. airports support a multi-year pipeline of outsourced service opportunities for us. Our Aviation segment grew double digits year-over-year, and our bid pipeline remains healthy. M&D continues to benefit from secular growth tied to major U.S. infrastructure and technology build-outs.

Public and private investment in semiconductor manufacturing is accelerating, with a recent PwC forecast indicating that more than $1.5 trillion in fabrication facility investment through 2030 as AI, cloud, and edge computing drive demand for advanced chips. This underscores the scale of the opportunity and the multi-year runway it creates for service providers like ABM. With the completion of our acquisition of WGNSTAR at the beginning of Q2, we have meaningfully strengthened our presence in semiconductor fabrication environments and enhanced our ability to support this strategic U.S. growth area. In technical solutions, the secular tailwinds remain intact. Wood Mackenzie projects the U.S. microgrid market will more than double by 2030, driven by electrification, grid resiliency needs, and decarbonization priorities.

At the same time, investments in data center construction and hyperscale capacity expansion remain robust as enterprises build out next-generation infrastructure to support AI and digital transformation. These trends align directly with ABM's strength in energy resiliency, engineering services, and mission-critical operations, and we expect ATS to deliver sustainable long-term growth as these markets continue to expand. In Education, demand remains steady and resilient given the essential nature of services provided to K through 12 districts and higher education institutions. We continue to see opportunities as schools evaluate outsourcing to improve efficiency and service quality. Our focus on higher education, particularly large universities and multi-campus systems, positions ABM well in a segment where scale, complexity, and compliance requirements favor sophisticated multi-service providers. Now turning back to the quarter.

The investments we've made over the last few years in sales resources, technical talent, and strategic contract positioning are clearly contributing to our growth trajectory. Not only do we grow organically in each segment, but our enterprise organic growth rate of 5.5% was the strongest we've delivered since the fourth quarter of 2022, when the business was truly emerging from the pandemic. From a margin perspective, our first quarter shortfall was predominantly concentrated in Technical Solutions. As we've discussed, ATS is inherently project-driven and can vary from quarter to quarter. Q1 was impacted by project timing and service mix, along with some weather-related delays. These factors created approximately $0.05 of EPS pressure relative to our internal expectations, with the majority attributable to delayed revenue recognition rather than reduced demand.

Importantly, B&I and M&D performed largely in line with what we outlined in our third quarter call last year, reflecting the economics of newer contracts that ramped last year and provided immediate growth opportunities as we work more upward over time. Our ability to improve our margin profile can be seen clearly in Education, where we once again delivered strong execution and meaningful expansion in margins. Switching gears briefly to AI, which continues to be a highly topical and source of so much volatility in the market. We believe AI will enhance ABM's capabilities rather than disintermediate our core services. The majority of our janitorial and engineering work takes place in dynamic, non-standard environments such as offices, airports, schools, stadiums, and industrial facilities, where layouts, traffic patterns, compliance requirements, and client expectations continuously evolve. These conditions require human judgment, dexterity, and real-time adaptability.

That said, we're actively researching and testing a wide range of AI-enabled robotics, including emerging humanoid platforms. While robotics can add value in structured applications such as open area floor care and certain repetitive tasks, today's technology is not positioned to operate at scale across the full breadth of our service environments. As innovation continues, we expect robotics to become an increasingly useful complement to our workforce. At the same time, we've been investing in AI-driven predictive maintenance, intelligent scheduling, optimized routing, and back-office automation. These initiatives are already driving incremental improvements in labor efficiency, win rates, and SG&A productivity, and we expect benefits to expand as adoption increases and deepens across the organization. In short, we believe AI strengthens our business, not disintermediates it. In closing, we're encouraged by constructive demand across our markets. At the same time, macro sentiment remains unsettled given evolving policy direction and geopolitical dynamics.

Despite that, we are maintaining our full-year outlook and will continue to operate with discipline and focus. With that, let me turn it over to David.

Good morning, everyone. Let's start on slide six. Revenue grew 6.1% year-over-year to $2.2 billion, driven by 5.5% organic growth and a modest contribution from our acquisition in Ireland completed last year. The WGNSTAR acquisition closed after quarter end and will be included in our Q2 results. As Scott mentioned, consolidated organic growth was the strongest we've delivered since Q4 2022 and broad-based across the portfolio. Aviation led the way with organic growth of 10%, while Technical Solutions and Manufacturing and Distribution both grew 7%. B&I and Education delivered 4% and 2% growth respectively. Overall, we're pleased with the growth trajectory of the business, and our end markets remain constructive as we move into the second quarter. Turning to slide seven.

Net income from the quarter was $38.8 million or $0.64 per diluted share, compared to $43.6 million or $0.69 per share in the prior year period. Adjusted net income was $50.4 million or $0.83 per diluted share versus $55.3 million or $0.87 per diluted share a year ago. These year-over-year changes primarily reflect lower segment income, most notably in Technical Solutions, and higher tax expense and interest expense, partially offset by lower corporate costs. Segment operating margin was 7.1% compared to 7.6% last year.

The year-over-year change primarily reflects unfavorable project timing, including some weather-related delays and service mix within Technical Solutions, as well as by the margin impact of contracts that came online last year in M&D and B&I that we discussed in the third quarter. These factors were partially offset by strong execution and margin expansion in Education. Adjusted EBITDA was $117.8 million, compared to $120.6 million in the prior year. Now, let's turn to segment performance, beginning with slide eight. B&I revenue was $1.1 billion for the quarter, up 4% year-over-year. Growth was driven by higher work orders, strong performance in the U.K., and the benefit of price escalations. Market conditions remain largely consistent with last quarter, and we expect modest, steady growth in 2026.

However, growth is expected to moderate in the back half of the year due to the anticipated exit of a large U.K. client as the contract's economics were no longer aligned with the long-term opportunity. Operating profit was $79.7 million and margin was 7.5% as compared to $79.4 million and 7.8% respectively last year. Margin change primarily reflects shifts in contract mix along with increased investments in sales resources to support long-term growth. Aviation revenue grew 10% to $297.7 million, supported by healthy global travel demand and the continued ramp of several new contract wins. Operating profit was $12.6 million, with a margin of 4.2%, compared to $12.2 million and 4.5% last year.

Profit and margin were modestly pressured by incremental weather-related costs during the quarter, which drove higher labor and supply expenses. As we noted last quarter, the large passenger services contract we secured at Heathrow Airport is expected to begin ramping in the second quarter, reinforcing our confidence in strong organic growth for Aviation in 2026. Turning to slide nine. M&D generated $422.3 million in revenue, a 7% increase year-over-year. This strong organic growth was driven by recent contract wins, particularly in the technology sector, along with continued client expansions across the segment. Based on the momentum we saw over the last few quarters, we believe these growth rates are sustainable as we move throughout 2026.

Operating profit was $36.3 million, with a margin of 8.6%, compared to $39.4 million and 10% last year. As discussed previously, the margin change primarily reflects the mix of newer contracts secured last year that provide meaningful long-term growth opportunities. Margin was also impacted by continued investments in technical sales talent and sector-specific capabilities. Education rose 2% to $228.7 million, supported by escalations and stable retention rates. The segment delivered strong operating performance, with operating profit increasing 54% to $21.6 million and margin expanding 320 basis points to 9.4%. This improvement was driven by enhanced labor efficiency, effective escalation management, and some temporary operating benefits related to severe winter weather in certain regions during the quarter.

Looking ahead, we remain encouraged by the Education pipeline and are actively pursuing several attractive opportunities, including a potential large award from a major school district in the Midwest. Technical Solutions, which, as we've discussed in the past, can vary quarter to quarter given its project-based nature, experienced a challenging quarter driven primarily by temporary project timing and service mix dynamics. First quarter revenue was $229.7 million, up 14% year-over-year, including 7% organic growth and 7% from acquisitions. Organic growth reflected strong activity in our mission-critical and data center markets, while microgrid growth was lower than anticipated, primarily due to the impact of temporary project delays totaling approximately $20 million in revenue. A significant portion of these delays were weather-related as severe conditions across much of the U.S. slowed construction activity.

In fact, one of our larger customers temporarily suspended construction operations during the quarter. We're also monitoring potential impacts from the February storm in the Eastern U.S., though it's too early to quantify any effect. Importantly, these delays reflect timing rather than demand. We expect the majority of these projects to resume as weather conditions normalize and move further into our seasonally strong second half. Operating profit was $8.4 million, with a margin at 3.7%, compared to $16.6 million and 8.2% last year. The margin decline primarily reflects adverse service mix within our microgrid business, as well as the impact of delayed project completions. In the prior year quarter, we completed a higher volume of engineering-heavy work, which carries structurally higher margins and did not repeat in Q1 of this year.

Additionally, while revenue recognition was delayed on certain projects, our labor and material cost structure remained largely intact during the period. Looking ahead, we remain confident in the underlying demand environment. As projects progress through the pipeline and timing normalizes, we expect service mix to improve. Historically, ATS performance strengthens meaningfully in the second half of the year, and we expect fiscal 2026 to follow a similar seasonal pattern. Now turning to slide 10. We ended the quarter with total indebtedness of $1.7 billion, including $23 million in standby letters of credit. Our total debt to pro forma adjusted EBITDA ratio was 2.9x. Available liquidity stood at $608 million, including $100 million in cash and cash equivalents. Of note, our leverage ratio will be above 3x in Q2, driven by the WGNSTAR acquisition.

We expect to work it back down to under 3x by the end of our fiscal year. First quarter cash from operations was $62 million, and free cash flow was $48.9 million, representing a significant improvement over the prior year. This performance was driven by strong working capital management efforts and continued progress in our ERP stabilization in the quarter, positioning us for a more normalized cash flow in 2026. Now turning to capital allocation. During the first quarter, we repurchased 2.1 million shares at an average price of $44.13 for a total cost of $91.1 million. At quarter end, $92 million remained under our existing authorization. As always, we balance deleveraging with incremental repurchase activity and opportunities within our M&A pipeline to drive long-term value creation.

Interest expense in the quarter was $24 million, up $1.1 million from last year, reflecting larger average debt balances driven by our first quarter share repurchases. Turning to our fiscal 2026 outlook on slide 11, as Scott noted, while we feel good about the relative health of our end markets, we remain mindful of broader economic uncertainty. Accordingly, we're maintaining our previously communicated fiscal 2026 outlook. As a reminder, we expect full year organic growth of 3%-4%. Aviation, M&D and Technical Solutions are expected to grow above that range, while B&I and Education are projected to deliver low single-digit growth. The WGNSTAR acquisition is expected to deliver approximately an additional 1% of revenue growth, bringing total growth to 4%-5% for the year.

Segment operating margin is expected to be between 7.8% and 8% for fiscal 2026, with margin expansion weighted towards the back half of the year as project timing normalizes in Technical Solutions and seasonal patterns reassert themselves. Interest expense is forecast to be $95 million-$105 million and our normalized tax rate before any discrete items, including the possible extension of the Work Opportunity Tax Credit program, is expected to be 29%-30%. Our cash flow expectations are also unchanged. We continue to expect free cash flow of approximately $250 million in 2026 before the impact of transformation and integration costs, the RavenVolt [buyout], and any incremental restructuring. Putting it all together, we continue to expect full year adjusted EPS to be in the range of $3.85-$4.15.

As a reminder, our outlook does not include any future positive or negative prior year self-insurance adjustments. Going forward, we'll continue to highlight any material impacts resulting from the inclusion of prior year self-insurance adjustments in our non-GAAP results. With that, I'll hand it back to Scott for closing remarks.

Thanks, David. In closing, we remain confident in ABM's trajectory. We are growing organically. We are generating cash. We are allocating capital decisively. We've strengthened our semiconductor capabilities through WGNSTAR, and the long-term trends across energy resiliency, airport modernization, and prime office stabilization remain supportive. At the same time, we're focused on improving consistency within Technical Solutions and executing with discipline across the enterprise. I want to thank our more than 100,000 team members around the world. Your dedication and professionalism continue to differentiate ABM and position us for long-term success. With that, let's open it up for questions.

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit to one question and one follow-up question. Our first question is from Tim Mulrooney with William Blair. Please proceed.

Yeah. Good morning, Scott and David. It looks like margins were impacted by several things here, including project timing and service mix. I just have a few questions on each of these, and I know you touched on them in the prepared remarks, but just wanna double-click on, first of all, the project timing. Was this primarily just a weather disruption issue, or were there other factors such as project rework being done? Because, you know, weather issues, those are more isolated, but projects taking longer to complete or, you know, if there's rework being done, that kind of stuff can bleed into future quarters. I just wanna double check on what drove that underperformance in the quarter.

Yeah. Thanks, Tim. You know, look, you were around, you saw the weather, right? You know, it was a tough quarter from a weather standpoint. You know, as it relates to ATS, you think about our Q4, which was really strong. The fundamentals continue to be good in ATS, and this is just really about a delay and really pushing to the right rather than canceling projects. This is all stuff that'll be worked back into our numbers a little bit in Q2 and the predominance in the back half of the year. You know, we feel really good about ATS, you know. Listen I have to say, Tim, like, you know, we're dealing in the realities of the economic uncertainty that we have between some of the macroeconomic issues and the geopolitical issues. It's Q1 now, we still remain confident, but, you know, we're cautiously optimistic, but there is some caution there, just like pretty much every company that's reported have been hearing the constant theme about some uncertainty. We're not immune to that. As we sit here today and we think about ATS, we feel really good about it.

Yeah. You're certainly not the only company, Scott, to be talking about weather-related issues in the fourth quarter or, you know, macro uncertainty. I think everyone definitely understands that. I wanted to make sure there wasn't anything else beyond weather. It sounds like there wasn't, so that's good. You know, I guess if I'm gonna ask one more question, you know, margins were a little lower than expected in the first quarter, but, you know, you maintained guides for the full year. Can you just help? 'Cause it makes it feel like it's a little more back half-weighted now. Can you just help me understand that expected trajectory or cadence as we move through the fiscal year here, just for, you know, so we can update our models accordingly? Thank you, Scott.

Yeah. Hey, Tim, this is David. I'll jump in and grab that one. Appreciate the question. I think the predominance of that shift, you can tag to ATS specifically. For perspective in our U.S. ATS business, over the last three years, about 2/3 of the operating profit has been delivered in the second half of the year, and there's been a 350 basis points margin improvement from first half to second half in that group. That's just purely a seasonal item with that business, and it's been very consistent. I would say we don't expect that to change to be any different this year.

I think the other element to that is, in the B&I and M&D world, you know, we spoke about some of the contracts that we renewed and brought on last year in the third quarter. You know, one of the things we talked about was the margin trajectory over time in those groups. That doesn't happen overnight, obviously. As we go throughout the year and specifically the back half of the year for those groups, you know, we anticipate some of the labor optimization projects kicking in for those contracts and other cross-sell opportunities. Gives us a little bit of a glide path on margin improvement for those groups as well in the back half of the year.

Understood. Thanks, David.

Our next question is from Jasper Bibb with Truist Securities. Please proceed.

Hey, good morning, guys. I was hoping you might give a little bit more detail around B&I customer behavior. I guess I'm wondering, are you seeing any change in the office occupancy indicators like special events volume? Have you also seen any more customers coming to you and looking for pricing concessions or anything like that after the experience of a couple of quarters ago?

Yeah. We haven't seen anything yet on scale with customers because of the economy. Look, you know, again, as I stated before, you know, it's Q1 and we're remaining conservative. For now, it's been stable. It's really been stable. Some of these things have a delayed effect, right? For now, we feel good about it. You know, as it relates to B&I, you know, we'll have a little bit of organic revenue pressure in the back half. We had a large contract in London with the Transport for London that's rolling off, that's gonna have an impact of about $70 million of revenue in the year.

The reason I wanna bring that up is, you know, I'm kind of proud of the discipline of the team because, like, we made some hard decisions in Q3 last year, where we took on contracts at lower margin. We did that because we knew that we can work those up over the contract period and we saw a path to really good profitability over time. With this contract, the way it was structured and the way it was laid out, we just didn't see a path to increasing margins. We probably could have held on to that contract and made next to nothing and didn't have a good trajectory, and we weren't willing to do that. It's one of those stories that, you know, you know, it's bittersweet.

We hate losing a contract of that size. Again, really proud of the team for making a good decision on a contract that couldn't be worked up from a profitability standpoint.

Thanks for that. Pretty healthy repurchase number this quarter. You know, I just wanted to ask how you're thinking about balancing maybe the capital deployment piece and de-leveraging over the rest of 2026 now that the WGNSTAR deal is closed.

Yeah, Jasper. David, thanks for the question. I'll grab that one. I mean, obviously, we believe in the long-term prospects of the business and that the shares will rise over time and that was part and parcel of our decision to continue buybacks in the first quarter. You know, for context, last year, we repurchased over $100 million in shares. You know, we took the opportunity this quarter to go ahead and cover dilution, plus roughly an incremental $60 million of share buyback on top of that. All that being said, I think as you mentioned, the WGNSTAR acquisition, as we spoke about, will temporarily take our leverage over 3x.

Given that our target range is below 3x, I think what you should expect in the near-term future is for us to use our free cash flow to delever back towards that range.

Yeah. Thanks for taking the questions, guys.

Our next question is from Marc Riddick with Sidoti & Company. Please proceed.

Hey, good morning, everyone.

Morning.

Wanted to touch a little bit on what you're seeing as far as of you know some of the market share gains that you've mentioned and some of the new business wins. Maybe talk a little bit about the competitive dynamic of what you're seeing in the segments. If you've seen much in the way of a shift in the competitive dynamic over the last few quarters, whether it's you know driven by macroeconomic situations or you know if you're seeing any greater opportunities than maybe you were more recently.

No, we haven't seen any change, which is, you know, I guess, a positive sign. I think everyone's all behaving appropriately in the competitive set, and which is always a good thing. I think it's been pretty stable, and we haven't seen any overreactions whatsoever, with competitors or frankly even clients right now. I think everyone's kind of in pause mode. Everyone's watching and waiting. Again, the reason why we remain cautious but still optimistic.

Okay, great. Recently you made the announcement of the new business win of in Philadelphia with the Citizens Bank Park. I just wanted to talk a little bit about what you're seeing on the leisure side of things, and how you're looking at that for this year. I know sometimes there can be a little bit of ebb and flow in leisure activity or concert activity. Maybe you could talk a little bit about what you sort of have embedded in your expectations for this year relative to, you know, what we've seen over the last couple of years on the leisure side.

Yeah, I mean, we're loving this segment. You know, it's had really high growth. It's still a smaller percentage of our business, but it's growing. You know, it's interesting, and I think we've seen this before. You know, no matter how bad the economy gets or how uncertain, people are still coming out to see Taylor Swift, right? We haven't seen the reduction in demand. As a matter of fact, we're even internally putting more focus on that group and actually giving it more of a national platform now in terms of how we're managing it.

We've been getting incrementally excited about the group and the trajectories, and I think it was, you know, one of our bragging rights is we took care of the services in the last five Super Bowls, and we have the next one as well. It's just a great segment for us.

Yeah. It's interesting you bring that up because you've made mention of the Super Bowl situation before and then kind of and the pressure on the Citizens Bank Park, if I remember correctly. They've got you know a high level event of their own, which was sort of highlighted. Sort of curious as to maybe that was one of the beneficiaries that you're seeing in new business wins in that area is being able to do high-level events like that.

Yeah. You know, you know what it is? It just. It builds upon itself, right? Because, you know, so much of what we do is continual resume building. So you get a landmark account, and that helps you sell other accounts. You know, outside of even sports and entertainment, we talk about the fact that we're taking care of the majority of services or well over the Fortune 1000. I mean, we. You know, when you look at our portfolio, you know, and we've continually talked about and have been proud about the Class A nature of the work we do in B&I, in M&D, even in Education. You know, we, you know, we like to brag, but we have a resume to die for.

Great. The last one for me. I think when WGNSTAR was announced, there was a revenue contribution estimate based on 2025, but you know, obviously the year hadn't finished yet. Is there an update on sort of where they finished 2025 revenue and how we should think about any seasonality, if anything, in that contribution?

Yeah. No, thanks. No changes to the expectations for how they finished 2025 was right in line with what we thought. In 2026, you know, we're expecting roughly somewhere between $120 million and $130 million of revenue. You know, over time, we certainly believe this is a business that can have a double-digit growth profile and at 15% EBITDA margins, like we mentioned on the previous call. It's a really attractive end market for us that we really think we can grow.

Yeah. I think RavenVolt started out at about the same revenue, and we did over $400 million in business last year. So, you know, we make these strategic acquisitions in end markets that we believe are accelerating.

The one thing I would say about ABM, we know how to lean into those end markets and build a business. We feel like WGNSTAR is gonna follow the same trajectory.

Okay. Excellent. Thank you very much.

Thanks.

Our next question is from David Silver with Freedom Capital Markets. Please proceed.

Yeah. Hi. Thank you. I wanted to maybe just ask you a couple of questions regarding maybe full year outlook. Last year was a record for your company for new business wins at, I think, $1.9 billion. You know, your organic growth was kind of above your full year guide in the first quarter. Should we anticipate a new business win total greater, you know, than last year's record. If you wouldn't mind, I mean, where do you think you have the greatest confidence in, you know, year-over-year growth. Overall, I mean, I guess included in that, I know there's some strategic contract bidding in the M&D sector, I believe.

Just, you know, just maybe some comments on the overall margin profile of your new contract wins that you expect or that's built into your guide for 2026? Thank you.

Yeah. Again, you know, David, it's early on for us, right? It's still Q1, you know, we remain confident and we look at our guide, and I'd say that, you know, we're, you know, internally, we're forecasting to be on the higher end of that range. It's early on yet. We do have a bunch of uncertainty, but we still feel really good about Aviation gonna be strong, M&D gonna be strong. As I mentioned earlier in the call, I think B&I will temper a bit because of that larger contract in the U.K. ATS gonna be strong. You know, it's a back half story, but all in all, we feel constructive across the board, and again, sitting here today as we model, we think we're gonna be towards the higher ends.

Okay. Thank you for that. You know, my next question is kind of a big picture question about labor costs and availability in the current, I guess, political, social environment. Compared to two or three years ago, I think you know, the pool of workers that might be available for some of your cleaning and I'll just call moderate skilled work you know, may be shrinking. I believe most of the effects for ABM would probably be indirect as opposed to direct. Has your overall business strategy changed at all, let's say, over the last two or three years as a result of you know, maybe that structural change in immigration versus emigration? Thanks.

Yeah. That's a good question. You know, we made a decision two or three years ago to listen to our talent acquisition area, made a lot of investments in technology in terms of how we onboard people, how we vet I-9s, how we do security background checks. We've talked about that over the years, and it's really been helpful. The talent in our talent acquisition area has just been really upgraded, and we feel great about that. I will tell you, just dealing a little bit more with the near term. Sitting here a year ago, I had a very different feeling about how this was all gonna play out versus where we are today. Frankly, David, I'm surprised because we've not seen a deterioration in applicant flow.

We have not seen a deterioration in the staffing levels on site. We're optimistic that we don't see a catalyst right now that's gonna change that, and it really hasn't affected any major wage pressure right now. [Knock wood], things are going well on the labor front. Again, I'll say what I said a few seconds ago, very surprised by that, especially from where we were sitting last year at this time and some of the narrative on immigration. We're pleased.

Okay, great. If I could just sneak in a quick one, an additional one in. I did notice in your prepared remarks and in your slide there was a comment about ERP stabilization. I know, you know, and I remember or recall, you know, kind of your approach to implementing or starting up that new ERP system. Just a couple of questions, but has that fully normalized? First one is, has it fully normalized? Then secondly, like, when you do bring on new business, is there kind of a smaller but analogous, I don't know, delay or, you know, extra care in ensuring that the billing is handled appropriately with new customers that might cause, you know, aftershock, smaller, you know, ripples of the same effect, let's say, during this year? Thank you.

Thanks, David. It's Dave, I'll take that one. I think the good news is we continue every quarter to make progress on the stabilization from the transformation. We have, you know, a very significant majority of the transactions from the entire enterprise on the new system. The B&I, M&D groups, and the Education groups are all on. I think I'd count it as we're in the seventh or eighth inning of this, and I think you see the results, particularly in the cash flow, right? Q1 cash flow was good. Had some catch up from last year from a stabilization perspective. We anticipate, you know, continuing that momentum.

As far as new contracts that we bring on board, you know, the way I would talk about the systems, it's almost like learning a little bit of a new language, right? We kind of take care and time to make sure that any new business for the three groups that are on is loaded in properly. The data is vetted, analyzed. We do proof of billing before we send the first billing out. It's a pretty rigorous process because it is. You know, you make a first impression as you get a first bill out the door, and you want that to be right and accurate, and that flows right down to our cash flow success. At the end of the day, we're pleased with the progress.

You know, like anything, you can always improve, you can always do better. We feel like we're in a good position now on the ERP.

Our next question is from Josh Chan with UBS. Please proceed.

Hi. Good morning. This is Karan Singhania for Josh. Thanks for taking our questions. I wanted to ask about the Education margins, because it seems like margins in Education has been, like, really strong lately. Just wondering how sustainable that is and whether, well, whether we should expect similar levels of margins going forward as well.

Yeah. Hey, good morning. It's David. You know, what I would say is we're obviously really pleased with where the Education margin profile is. I think this quarter specifically, we had a roughly 50 basis points benefit from weather, where we didn't have kids in school for a couple days at the end of the month. You know, some of that we'll give back next quarter just as makeup days come into play. What I would tell you is, you know, that team just done a really good job and, you know, from just managing all the direct costs element. You know, we see a bit of a good trend there on the Education margin side.

Yeah. You know, I'm so pleased with the leadership there. We had a reboot a couple of years ago with our senior leadership and our sales leadership, and we see some really good trajectory. We'll have a little bit of pressure in Q2 because you know, the weather delays cause schools to close, and we have a little bit of benefit on the labor, but they have to make up those days. We'll see a little bit of that in Q2 on the margin side as they make up the days when we have to put in some labor that was you know, previously unforecasted. This has been a real good story for us on the Education side.

Got it. Very helpful. Just maybe as a follow-up, I wanted to ask on, like, M&D and Aviation. It sounds like, you're expecting still, like, strong growth going forward, but I'm just wondering if there are, like, any concerns, as it relates to the geopolitical growth, maybe the oil price going up that could impact the M&D customers and funding pause for BHS if, like, that could be an issue for the Aviation segment, actually.

Yeah. Aviation still remains really strong. Like, we had a good quarter. We had a lot of project work in the Northeast that will start, you know, trailing off a little bit, but the pipeline is really strong. We're leaning into integrated services across our Aviation sector. You know, we're seeing no downside right now to travel. Even with oil prices, it seemed to be coming down recently. We don't see that as an impediment in that group as we sit here today.

Okay. All right. Thank you. That sounds good.

Thank you.

Our next question is from Rohan Vasudeva with Baird. Please proceed.

Hey, it's Rohan. On for Andy Wittmann. Thanks for taking my question. I think most of my questions have been answered, but I wanted to ask on, you know, M&D or Aviation margins. You guys called out in the quarter that there were some new contracts ramping that you won last year. How long do you expect these new contract ramp headwinds to persist?

With new contracts, you know, I think I touched on this a little bit earlier, but, like, the way to think about it is when you take on a contract and you maybe, I guess the way to say it, when you compromise a little bit on pricing because it's a good strategic contract, the only reason you do it is because you see a glide path back to really good profitability, and that just doesn't happen overnight. That's something that happens over time as you get to learn the property and you get to figure out how you can adjust labor. It's not kind of a buy and everything where you get a contract at maybe a discounted rate from where you'd like, and then three months later, it's back.

It's just something that happens over time. It's from our perspective, it's not something that, you know, in Q2 or Q3, we're gonna be able to call out. Now, we will lap these in the back half of the year, so it won't feel as bad. Just generally speaking, when you get a contract and you're trying to work the margin up, it's a glide path that happens over the life of the contract rather than something that you fix in 30 or 60 days.

Got it. Thank you. My last question would be, is there any update on the restructuring process? What is the capture rate of the original $35 million you had expected at the start of the year?

Yeah. You know, all the $35 million project was completed, initiated last year, completed last year. We see the benefits of that kind of rolling through the first couple of quarters and into Q3 of this year. You know, I would say, and Scott mentioned it, just given all the macro sensitivity, geopolitical risks, everything that's broad-based, the good news about ABM is we can control several things. We can control our labor on a direct basis and we have a completely flexible labor model. We also have, you know, strategy playbooks for SG&A cost mitigation and cost management, so that we're ready to deploy if we need to.

You know, it's just a diverse way to look at the business, and we have a real good sense of the leverage we have, if there's any disruption.

Yeah. Just to add to what David's saying is, we talked at the start of the call about the fact that there is some uncertainty out there. You know, I wanna make sure everybody on the call understands that we're just not admiring it. You know, we have plans, we have mitigation strategies, and we have responsibilities. That's something that's top of mind. Again, we're not looking at this from a passive standpoint.

There are no further questions at this time. I would like to turn the conference back over to Scott for closing remarks.

Thank you. Thanks everybody for taking the time to listen. I think you hear that we had some, you know, thematic pressure with weather-related delays, but we feel really good about where we sit right now. We're optimistic, and we're excited to come back and talk to you in Q2. Thanks, everybody, and we'll talk soon.

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.