Good day, ladies and gentlemen, and welcome to the ABM Industries’ Q2 Fiscal Year 2017 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 follow at that time. [Operator Instructions] As a reminder, today’s conference call is being recorded. I would now like to turn the conference over to Susie Choi, Head of Investor Relations. Please go ahead.

Thank you all for joining us this morning. With us today are Scott Salmirs, our President and Chief Executive Officer; and Anthony Scaglione, Executive Vice President and Chief Financial Officer. We issued our press release yesterday afternoon announcing our second quarter fiscal 2017 financial earnings result. A copy of this release and an accompanying slide presentation can be found on our corporate website. Before we begin, I would like to remind you that our call and 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 a slide that accompanies our presentation. During the course of this call, 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 Investor tab. I would now like to turn the call over to Scott.

Thanks, Susie. Good morning, everyone, and thank you for joining us today. By this point, I’m sure you’ve had a chance to review our press releases from yesterday. I’m really pleased with the quarter. Our operational performance was largely an expansion of the momentum we saw during the first quarter of this year. Total revenues for the second quarter were $1.3 billion, an increase of 4.2% versus last year driven by solid organic growth of 3.6% or 4.4% excluding the impact of foreign exchange. These results were propelled by strong topline performance from our Aviation and Technical Solutions segments in addition to the Government Service segment, which we exited last week. Our adjusted EBITDA margin for the quarter was 4.6% versus 3.7% last year. We had solid operational implementation, which was positively impacted by two less working days during the quarter. We also benefited from good management of expenses as well as our 2020 Vision procurement initiatives. These results led to GAAP EPS from continuing operations of $0.56 per share for the quarter and $0.49 per share on an adjusted basis. Given our operational performance during the first half of this year in addition to better than expected overhead savings and taxes, we are raising our full-year outlook to $1.63 to $1.73 per share on a GAAP basis and $1.85 to $1.95 per share on an adjusted basis. This compares to our previous guidance ranges of $1.40 to $1.50 per share and $1.80 to $1.90 per share respectively. Our new GAAP guidance also reflects the impact of our Government Services sale. I need to take a moment and commend our organization for so diligently executing during the first half of this year, especially given the amount of work that is required to carry out the current phase of our 2020…

Thanks Scott, and good morning, everyone. Before I delve into the results for the quarter, I’d like to give some additional details surrounding the divestiture of our Government business. As we saw on our earnings release, we close the sale of Government Services on May 31 for pretax cash proceeds of $35.5 million. The proceeds from this transaction will be used to pay down debt. The results we are discussing today include the impact of our Government operations for the second quarter as it did for the first quarter of this fiscal year. Please note the second quarter results for Government include the recovery of $17.4 million of previously impaired assets. As we move through the rest of the fiscal year, our topline results will reflect one more month of Government operation. In addition, our GAAP results may continue to reflect the impact associated with our retention of certain assets and liabilities. We expect this to occur for the next 12 months to 18 months. Now turning to our second quarter results from continuing operations, which are described in our earnings presentation. Total revenues for the quarter were $1.3 billion, up 4.2% versus last year driven by organic growth of 3.6% or 4.4% excluding FX. Acquisitions added approximately $9 million of incremental revenues during the quarter, which are reflected in our Aviation and Technical Solutions segment. Organic revenue growth was primarily driven by Aviation, Technical Solutions and are now sold Government Services segment. Our income from continuing operation was $31.6 million or $0.56 per diluted share versus $6.8 million or $0.12 per diluted share last year. On an adjusted basis, our income from continuing operations was $27.8 million or $0.49 per diluted share versus $17.7 million or $0.31 per diluted share. The year-over-year increase in the EPS was primarily due…

Thank you. [Operator Instructions] And our first question comes from Michael Gallo of C.L. King. Your line is now open.

Hi, good morning.

Good morning, Michael.

Yes, my question is just want to dig in a little bit on the standardization of labor practice opportunity. I know you're kind of early stage there and I know there's a lot of complexity to that, but can you give us some sort of order of magnitude of how big an opportunity that is, how sort of far apart some labor management practices are from others, and how much of a spread there is between kind of the best practice management and the – let’s call it below average guys in terms of labor as a percentage of sales?

Sure. I think what I would say is it is early days. But in some of the pilots, Mike we’ve seen as much as a 400 basis points spread in some jobs. And it really depends on the market. It depends on the property itself, but I think what we generally see is when you're well organized, when you have your labor schedules, when you kind of re-ground and re-plan a building, you get opportunities and you get optimization, but it does – it runs – just moves the gamut and it's really early in the game to kind of start thinking about what the enterprise effectively. I could just tell you that we are really encouraged, really encouraged and we are working on this team cleaning concept and it has just so many benefits when you have people working together even just on simply, a safety and risk standpoint, right, which is something we're really focused on when you have people working in groups it tends to be more safe, people have each other's back. And there's also the knock on effect from a client standpoint because the quickly you get off the floor, the quickly you can shut the lights and there's an energy impact to that. So it's really – the labor management is not just about how do you cut labor expense and look at the exact labor line, it has this knock on effect again for things like safety and risk.

That’s very helpful context. And then just a follow-up for Anthony, I know you had the headwind in emerging industries. When would you expect that to abate and to actually return growth in topline in emerging industries?

Yes, as we kind of called out last quarter, the emerging industry given the highly concentrated portfolio customers in that group it’s going to always exhibit the volatility. We have a large win. It’s going to outstrip the historical pattern. So from a year-over-year comparison, we lost a large contract entering the year, which we identified in Q1, we expect that impact to continue up throughout the rest of the year, but they do have some good wins and good pipelines and expansions with the existing customers that we feel like the remainder of the year, they still have some bit of a headwind given the large contracts, but we feel pretty good about the outlook.

Okay. Thank you.

Thank you. And our next question comes from Jeff Kessler of Imperial Capital. Your line is now open.

Thank you. Can you talk a little bit about – firstly and just a quick question with the sale of Government solutions, is there any Government business left that you have, that you’ve retained because it's higher margin and will that be merged into Technical Solutions or what have you?

Yes. So when we sold the Government business, we exited the – what I would call the Federal Department of Defense type business and that was predominately working on military bases, the linguist, translation services internationally. What we've retained within the federal space is our energy services contract business, which is in Technical Solution and also we do a lot of work with state and local Governments. And there was a part of the business that was never really Government and that was a joint venture with an Aviation client internationally, so we also carved that business as part of the reorganization and sale.

Okay. Secondly, as part of your reorganization of the segments is given the broader base of Technical Solutions in the specific areas that you are in Emerging Industry segment, are there some overlaps between those two that where you can find some – if you want to call it, synergy squared or whatever given that there maybe some overlap in which the two businesses are performing similar tasks in the same vertical market –in a given vertical market?

I wouldn’t say there is any synergies from the cost side. I think there is a tremendous opportunity…

I’m sorry, I mean on the revenue side, excuse me?

Yes. On the revenue side there's tremendous opportunities for our Technical Solutions business to continue to penetrate the education market. That's a business where they've been able to succeed and win and we expect over the long-term that given our focus on education and our growth in that segment and the tremendous whitespace that there is a tremendous opportunity for Technical Solutions to cross sell into that space.

Okay. With regard to the loss of the contract, which you did talk about last quarter, is there – do you see – in many cases and I think you alluded to this I mean you get what you pay for when it comes to facilities management, facilities services, total broad-based solution. Are there parts of that contract that you think may come back to you over time and if there are – because I know it's a sensitive issue. If there are what areas given that this is a broad-based contract, are there areas which you think are more let's just say likely than others?

Yes. I think overall we've seen it – I wouldn't say that it happens all the time, but there are many cases where we lose a contract and it will be because a client made a decision on price and then the next thing and that could be three months later, it could be a year later we get a call back because we are a lower margin business, right, just generally speaking. So if someone is going to come in and say they can do with 15% less than us well, you know our margin is not 15% in it right. So sometimes it feels really good short-term for our client to make a price decision and for kind of the higher quality clients. We will get that call back and it's happened a fair amount of time. For us it's about being disciplined, sticking to the core tenets of 2020 Vision and not take revenue for revenue sake. So if the re-bid comes out and it doesn't match our margin profile, we've been making some really good decisions and we are really proud of our team for remaining disciplined. That's the real core tenets of the new ABM.

Okay. One final question that is now that you've been in place for a couple of years and you've been able to see through the reorganization of your business, where the value proposition is and how it's different than the way the Company was structured in the old way? Are you able to discern which – let's call it which verticals have the propensity to say it just good enough, we’re kind of stuck right now for margin and just good enough is going to make it for us whereas others are going to say, look we have no way out, we have to have best practices from a full solution provider and the price is not the important determinant. Have you been able to [assess out] which segments are more susceptible to that type of argument than the others?

Look, I think the way I would breakdown the question what I would say is like we've been really good about segmenting the market. And I think even if you look at how we restructured our 2020 Vision and we have our emerging industries. So there are some that are going to be higher growth than others on the topline. But I think the real key element here is when you look at profitability, our initiatives are enterprise-wide standard operating practices, developing account plans where you’re planning for the future of what an account could be down the road. That's enterprise-wide labor management plans, that’s enterprise-wide safety and risk, enterprise-wide labor, not just the labor sake, but in terms of managing our people and giving them the development programs enterprise-wide, so for us there is segmenting in terms of the revenue side and where the growth is, but from a profitability standpoint it's permeating the entire organization for standard operating practices.

All right, great. Thank you very much.

You bet.

Thank you. And we have time for one more question. And our last question comes from the line of Marc Riddick of Sidoti. Your line is now open.

Hi, good morning.

Hey, Marc.

Good morning, Marc.

I wanted to go over the – maybe if you could give us sort of a update on some of the progress on pursuing tag revenue and some of the processes and tools that you're working with there and some of the progress that you made and driving that growth?

So overall our tag revenue was in line with our expectations. As an enterprise, we've saw some good growth in tags and Aviation and tags vary by industry in terms of the profitability. So overall from a tag penetration standpoint was positive, but the mix was not what we expected slightly. So slightly down in our B&I segment, which tends to have a higher margin profile for tag and slightly up or significantly up in our Aviation segment, which has good margins, but not as good as B&I. So the overall tag in line with expectations and one of things I would just highlight is we're still operating under the same tag process. So the technology that we're implementing with sales force that will be fully engage beginning a next fiscal year should allow us to interact with our customers more, have better penetration from a tag standpoint. So we're encouraged that. We're still executing in tags under the existing model.

Yes and when I would say and when I'm so excited about. Right now when we facilitate a tag, it's a very manual process, right? And what's going to happen if you could picture a project manager going up on the floor and giving an estimates to a client and in fiscal 2018 it's going to be on a [PDA], we even be able to price it right on the spot generate a work order right on the spot and get sign off right on the spot. And so something that maybe a two day process could ultimately be a two minute process. So you don't technically lose the sale and you also become very efficient with your customer and makes a seamless and that's the sales force tool that were about to deploy and there couldn't be more excited about what it's going to do for the firm over the long-term.

Okay, great. And one thing I want to touch on a little bit if you can sort of give a bit of an update on that. You had mentioned that within Aviation some of the topline growth there being a combination of new business wins and expanding on existing customers. I was wondering if you could give a little more color in detail around maybe the new business wins, new clients that you can maybe highlight sort of where that's coming from and what's driving that in the quarter?

Yes, so I would say for this particular fiscal year and it's a dynamic business rate, so it changes. But to this year, we look at the new business wins is predominantly in the UK. We had expansion not only with clients, but with services. We're now in cabin cleaning in the UK, which is massive for us, because prior to that we were pretty much isolated to airport work and less with the airlines. Now we are expanding to working with airlines. So we had a pretty significant win or more than one significant win with airlines in the UK. So we're really encouraged by that. The U.S., although we did have a fair amount of new contacts, we had the majority being expansions with existing clients where we have density in an airport and the clients are coming to us and saying, well since you do this thing and this thing, why don't we give you this other service. And also with existing contracts as airlines are growing in airports, they're expanding our contract. So it's a combination of both, but in this particular year that happens to be UK is new growth, new service. U.S. expansion with existing clients.

Okay. And one last question for me, I was wondering if you could sort of give a bit of an update as to potential personnel changes and some of the things that you're looking at as far as highlighting a focus of some areas that you would like to show up over the next 12 months to 18 months? Thank you.

Well, I think you probably saw our release on our new Chief Operating Officer and we're really excited about the future. Scott he is someone who is really steeped in business process, which is going to play and so strongly to our standard operating practices that's going to just give us great trajectory in the future and Scott, is a growth guy. He was running our Technical Solutions group. I think if you kind of look at the Technical Solutions group over the last few years, you've seen the growth side and so that's going to be terrific for us. And we are going to miss Jim. Jim has been such a core person for this firm over the last few years, but this is just – its part of the evolution of what's happening at ABM and Jim can be more excited about Scott. So I think that's going to be terrific. As you know we had a new HR person who's been here for the last year and a half making some really foundational changes to our HR platform. And so we have no operational holes, we have all of our key positions filled and everyone knows their strategic priority. So we just feel really great about the future now and we will keep evolving in a really positive way, I believe.

Okay, great. Thank you very much.

Thanks. End of Q&A

Thank you. And that concludes our question-and-answer session for today. I’d like to turn the call back over to Company management for any further remarks.

So I just wanted to say thank you to everyone for your support and we’re excited about where the firm is heading and hope everyone has a terrific summer. We’ll see you in the fall. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.