Ladies and gentlemen, welcome to the ABM's Fourth Quarter 2017 Conference Call. As a reminder, today's call is being recorded. I would now like to turn the conference call over to Ms. Susie A. Choi. 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 fourth quarter fiscal 2017 financial results. A copy of this release and an accompanying slide presentation can be found on our corporate Web-site. 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 Web-site under the Investors tab. Now before I turn the call over to Scott, I would like to apologize in advance for any background noise due to construction on the floor above us. Scott?

Thanks Susie. Good morning everyone and thank you for joining us today. By this point I'm sure you had a chance to review our fourth quarter and full year earnings release. Fiscal 2017 was a momentous year for ABM. I want to congratulate and thank all of our employees as we celebrate the conclusion of our first year as the new ABM. It was certainly a complex one, filled with a lot of hard work that yielded a substantial amount of progress over a relatively short period of time. We operated for the first time under our new vertical industry group organizational structure, while consummating the largest acquisition in the Company's history. We navigated change and managed our business successfully, maintaining solid organic growth of approximately 3%. 2017 was also a year where we had the courage to make hard choices by being more discerning with our business. Our decision to exit a large contract in our Aviation business is just one example of this discipline. There were challenges as well, with hurricanes Harvey, Irma, Maria, displacing thousands of our employees and clients over the past several months. I believe our execution through the prolonged turmoil shows the character of our organization. We continue to rebuild after these natural disasters and our thoughts remain with all those who have been affected, particularly during the holiday season. In the face of all this, we earned $1.34 per share, or $1.75 on an adjusted basis, and achieved an EBITDA margin of 4.3%. Our 2020 Vision ABM Way operating protocols continue to be on everyone's mind and our culture is beginning to shift towards operating in a standardized format. We capitalized on our Phase I momentum by accelerating our newly centralized procurement initiative. I'm pleased to report that we exceeded our in-year target…

Thank you, Scott, and good morning everyone. Before I summarize our financial results for the year, I want to thank all of you, our analysts and shareholders, for navigating the year with us. 2017 was a major turning point in our organization, both operationally and financially. We introduced a new reporting structure that aligned our internal view of our business with the external reporting view. Part of this process was undertaking the complex task of remapping and recasting the current year and prior year contracts and overhead business allocation. Throughout 2017, year-over-year comparisons on a segment basis were challenging and we worked hard to provide meaningful insights into our business to underscore our commitment to transparency. From inception to completion, we overcame a tremendous amount of change. So, once again, thank you all for working with us through 2017 and I also want to convey my deep gratitude to the entire finance and operations team for continuing to deliver throughout this journey. Now for the fourth quarter performance, which is described in today's earnings presentation, please note the fourth quarter was the first full quarter which excluded our divested Government business and it includes two months of GCA operation. Commensurate with the GCA acquisition, our GAAP results for the quarter reflect approximately $24 million of transaction and integration related expenses. Consolidated revenues for the quarter were up 13.3% versus last year, including organic growth of approximately 2%, which is adjusted for acquisitions and divestitures. Our organic growth for the quarter was primarily driven by our Aviation and Business & Industry segments. In addition, acquisitions provided approximately $179 million of incremental revenues through the quarter, which is predominantly reflected in the GCA segment. On a GAAP basis, we reported a loss from continuing operations of $2.5 million, or $0.04 per diluted…

[Operator Instructions] Our first question comes from the line of Michael Gallo with CL King. Please proceed with your question.

I just want to dig in a little bit on the 2020 Vision and how you are tracking versus that, forgetting for a second about GCA. If I just kind of take the guidance on GCA and I look back at the original 100 basis points, I think you were planning to improve the margins, going back to 2015. That would have implied kind of a 4.8% EBITDA margin for the core business. It looks to me, if I just take GCA out of your guidance, that that number is more in the 4.3% to 4.4% area. And again, correct me if I'm off on any of these numbers. I guess my question is, has anything changed in terms of your ability to get that margin improvement, are there other costs that have come along that you didn't anticipate, or is this simply a function of timing, and I know you have a lot going on with the integration of GCA and you still believe those are ultimately good and attainable targets, it might just take a little longer to get? Thanks.

So, Mike, the way I would look at it, so when we outlined the $40 million to $50 million of savings related to 2020, if you look at it and the components, we achieved a bit more on the org, call it $27 million, $27.5 million related to org, and we are at the higher end of our procurement savings, roughly $10 million delivered in fiscal 2017. And on the ABM Way, which is really encompassing the standard operating procedures, probably slower than what we had initially anticipated, so we recognized roughly $3 million in fiscal 2017 but we have a path forward. And I think one of the things that you should look at is the profitable growth over time. We are still very much committed to that process, but we are also investing in other areas of the business, which will have an impact in fiscal 2018.

Yes, and I think if you look forward in 2018 versus where we were in 2015, Michael, we were just firming up how we were going to approach technology, and kind of legacy ABM was all about really developing our own Technology Solutions, which was a capital expense. And as we have evolved and as we have matured in the marketplace, we feel like the best way to deploy technology is more software-as-a-service, right, enterprise-wide applications, and when you look at that, that's more ends up being an operating expense. So, for us, we see kind of like a 20 basis point impact just from that shift of saying, rather than be developing different software tools we need to be outsourcing them. So, that's something that over the next year or two you'll see embedded in the numbers.

That's helpful. Thank you.

Our next question comes from the line of Andrew Wittmann with Robert W Baird. Please proceed with your question.

I'm just going to start out with a couple of clarifications here. And first of all I guess to Anthony, so on GCA, you guys gave a revenue and EBITDA margin. Are the synergies included in that EBITDA margin or are they incremental to the EBITDA margin of 9% to 9.5% you've got in the deck?

They are incremental to the – that's pure GCA contribution, so it's incremental.

Got it, thanks. And then, just using the components of your guidance, EPS and all the stuff below EBITDA, you can kind of back into I know EBITDA, but using that margin you can back into revenue. So I guess I wanted to understand what you guys are thinking about in terms of organic revenue trends for the business in total and what segments are going to drive that? It seems to me by backing into it that it looks like organic growth is expected to accelerate in fiscal 2018 compared to at least the 2.3% that we saw this quarter, but I guess a little bit more detail on how you guys are thinking about organic revenue trends would be helpful.

Andy, we are going to dive into that a lot deeper at Investor Day and what we're going to try to do for you guys is break it down by segment. So we'll have an enterprise view at that time but also segment by segment to kind of give more clarity about how we see it. So, I think if you could bear with us till mid-January, we'll give you some more insight on that.

All right. And then the next one I wanted to dig into was about kind of the margin gains implicit in the business for fiscal 2018. I heard that there is further procurement savings. Certainly that back of the house comment that you made, Scott, seems like there is a little bit more there. Then ABM Way. In total, what do you think the impact of those items are going to be in I guess on the organic business in 2018, how much is there to be captured?

So the way I would kind of bucket it Andy is, ABM Way is embedded in our margin profile. So, one of the learnings of 2017 is, we had it centralized and as we went through our budget process and really took those learnings, we really embedded that process. So, the margin profiles by industry group segments, which we'll provide guidance to at Investor Day, and the reason why we're not providing guidance now, we are still remapping a lot of the costs integrating 40,000 employees and $1 billion of revenue. So, ABM Way will be embedded in that process. As it relates to the procurement savings, those additional savings that we anticipate – but some of the savings that we achieved in 2017 are one-time, so it's not incremental per se. It will be higher than the run rate, but it's not an incremental per se on the $10 million. So, effectively the $10 million goes down to run rate of $8 million, but then we have additional amounts going in. So from a year-over-year comparison, you may not see as much of an incremental but we still have good momentum in that space. And then on the back of the house, that's really I would say latter half 2018 but truly a 2019 opportunity there, and really the opportunity comes from taking the learnings through the GCA and the simplification of how they have approached certain elements of their business and trying to apply those learnings on to our business from back of the house. So, we see efficiencies but that's probably longer term in nature.

Okay, great. That's helpful. Maybe I'll come back with one last one in this round and maybe buzz back in later, but I guess I just wanted to look at GCA and I guess the accounting around that. The intangible amortization came in kind of heavier than we thought it was going to be. I guess I wanted to get your sense on the intangible amortization, the burn-off rate of that over time and as you look at it on a net basis, including the depreciation which you didn't quantify for GCA, how are you looking at the accretive dilutive effect of GCA here as part of your EPS guidance in fiscal 2018?

Yes, and I alluded to this in my prepared remarks, but effectively I think longer term we are looking at our business on a cash EPS basis excluding components like amortization. It's going to really drive the true health of the business over time. The intangibles are primarily related to customer relationships and customer contracts. So, the allocation there is going through our normalized process and valuing those customer intangibles. And we have a pretty what I would say burn in some process in terms of how we allocate or amortize those balances over time. We use the sum of the years' digits, which provides a higher amortization in the earlier years and then a burn-off in the later years at a much lower rate. So, in the next couple of years you can expect the 10% degradation in that amortization burn. Next year outside of the dilution I mentioned $0.40 in prepared remarks, that's on a fully dilutive basis. On an anti-dilutive basis, it's roughly $0.49. So, you can expect a 10% degradation going forward after 2018.

Okay. I guess I'm going to lie and give one more this round, I don't think I'll be wrapped up, and Scott, this one is for you. I wanted to get your sense of the new business pipeline, if you could frame it maybe in terms of the net new business and how you are entering fiscal 2018 with your net new business that's in the hopper versus how you entered the year in fiscal 2017, just to get a sense about how some of these selling processes and customer retention are working out as you are thinking about the businesses?

So, I mean I guess it is industry by industry, but I would say enterprise-wide we are really encouraged. We started this culture of driving organic sales in a big way, I want to say three, four months ago with Sean Mahoney coming on. And if you look at some of the pipelines, Aviation has a really strong pipeline, we believe Technical Solutions is going to get back to kind of the historic growth rates based on some of the pipelines we are seeing. So, just a lot of energy and momentum in the business. So we are quite excited. Again, we'll give more detail in January, but for now, again, I'm seeing momentum, I'm seeing enthusiasm, and we are still challenged, right. It's hard finding really good sales people. We are out in the market, we are looking to increase organically our sales team, and that's very much on our mind as one of the key initiatives for 2018. But even then, Andy, it takes time, like a salesperson comes on, and depending on what industry group they are in, it could take anywhere from three to six months, maybe a little bit longer for them to become efficient and really start selling. But short-term, medium-term and long-term, I'm pretty excited.

Our next question comes from the line of Joe Box with KeyBanc Capital Markets. Please proceed with your question.

So, just going back to Michael's initial question, rough math that I am coming up with on adjusted EBITDA margins for legacy ABM is about 4.2% for FY 2017. Is that fair?

That's correct.

Okay. So, Anthony, just kind of looking at all the costs that were maybe somewhat unusual but were included in the adjusted EBITDA number, like the Aviation contract, the hurricane disruption, and then the pension items, what do you think the right kind of margin number should be for legacy ABM?

So if you look at those what we would consider one-time items, Aviation had a roughly 10 to 15 basis point impact for the full year, and as I mentioned we have exited that troublesome contract at the end of the fiscal year. There's a little bit overhang in Q1 but that was immaterial in the grand scheme of things. When you look at the one-time events, again classifying the union audits, some of the year-end cleanups, that's again 5 to 6 basis points on a combined basis. And then really the other what I would say miss for the full year is, we had a higher expectation on our higher-margin Technical Solutions business and that's again a shift to the right. So, from a pipeline backlog, still very robust, but we had a higher target in fiscal year 2017 than what was delivered, and that had a slight impact on our margin profile. So, when you take a step back, I think you really have to isolate those events, including ABM Way being less than what we anticipated, being the key impetus or key catalyst for where we ended the margin profile. But your math in terms of the 4.2% excluding GCA is right on.

Okay. And so I guess just kind of adding back some of those items, we are talking more about 4.35 to 4.4, not accounting for the push-out of part of your business into next year. So, I guess with that said then, why would margins in ABM or legacy ABM be flattish next year? I get that there is some ABM Way issues, but I guess I'm just struggling to see why legacy ABM would be flattish.

I think the biggest one is what Scott mentioned earlier, is IT. We are putting investment in our IT platform, both for back of the house efficiencies, HR efficiencies, as well as customer facing, and when we looked at where we thought those deployments and what does that capital to be deployed was going to look like, we had more of a CapEx approach. Now we are going more towards an operating expense approach. So that's going to be the major delta from an EBITDA margin standpoint.

And that's about 20 basis points, give or take.

Okay, got it. So that definitely helps bridge some of the gap. Okay. And then what was free cash flow in 4Q and how should we think about that in FY 2018 I guess relative to what's earmarked for debt paydown?

So, the way I would look at our free cash flow, obviously this year with the transition to the shared service center was a little bit muted from what we would have expected. So we feel like we are going to be normalizing our cash flow over the next 6 to 12 months as the migrations complete and as we get to a more normalized billing cycle from a free cash flow perspective. On a CapEx standpoint, a little higher than what we would have historically been at, and that's both maintenance CapEx as well as investments that we're making specifically on IT projects. So, when you look at it from a capital expenditure standpoint, it's higher from overall free cash flow. It should be in line with 2017, slightly higher on a year-over-year basis.

So, what was it in 2017? I know we'll get the K here at some point, but what's the baseline number?

The baseline number for 2017, what we have for 2017 would be roughly $100 million-ish, and for full year basis it's roughly $160 million for next year on an operating cash flow.

$160 million in operating cash flow.

And the CapEx guidance is in the outlook deck.

Okay, yes, got it. Okay. And then what's earmarked for debt paydown?

I mean we don't have any earmark outside of the term loan amortization, which in fiscal 2018 I believe is roughly 5%. Other than that, we are going to be managing our debt appropriately as cash flow to other investments. So I would look at it as earmarking our cash flow for dividend, CapEx, and then debt paydown would be the remaining.

Okay, great. And lastly for me, can you just give us a progress update on the recent Transport for London win?

So that's going really well. We are probably three or four months into this right now and everything is going as planned, and they see line of sight for bolstering on extra services. So, good news on that front.

Is it a margin drag at the beginning or are we kind of in line, any update there?

So, it's definitely a lower margin business to begin with, right, because again you have some startup costs, and when you have large-scale contracts like that, you will always get something like that at a lower margin profile than maybe a small assignment, but we see ways to, as part of our account planning process when we took this on, we see ways to accelerate that margin. But yes, definitely straight out of the box it's lower, and it's baked into our estimates though, that's for sure.

Okay. Thank you.

Our next question comes from the line of Marc Riddick with Sidoti & Co. Please proceed with your question.

I wanted to follow up on the conversation that you had about the rollout of the tag revenue of mobile effort and wanted to get a little more detail around that as far as the timing, the region, the scope, and maybe what type of goals that you have with that as far as being able to, is it really more of an execution thing or more of a tool to drive greater engagement, maybe we could put a little more around that? Thank you.

It's really both and I'm excited for Investor Day because we are actually going to even give you a demo of it, but it's both. I think it's going to drive business and it's also going to be for execution. So it's going to shorten the cycle between when you first give a quote for a tag and you execute on it, it's a big process between, manual process between filling out the orders, getting the approvals, and now we are kind of doing it all in one mobile handheld. So it's just going to increase efficiency. We believe the customers are going to love it. So, I think it's going to help the stickiness with our clients and will differentiate us. We don't know anybody that has a tool like this. So, we just started rolling it out this quarter. We are going to be rolling it out all through the first half of 2018. So, it's something, we'll tell you, we've had a lot of initiatives here and there are always mixed reception, right. And this is one where there is kind of universal excitement about it because it's going to help our operators be more efficient and it's going to drive sales. So, can't wait to show you this on Investor Day.

Okay, great. And then I know it's fairly early, but I was wondering if you could give us a sense of as far as the integration, maybe some of the initial thoughts around the employees that are joining the firm on the GCA side of things, and then maybe some initial thoughts as to how that part of the integration is going from a human resources standpoint? Thanks.

So it's going really well so far. And think about the context, right, $1 billion in business and 40,000 people across multiple industries. So, it's a big, heavy lift but it's going well. We have retained all the talent that we wanted to retain through our process, which is good. Our synergies right now are tracking on the high end of the range that we outlined, so all well there. We have gotten our industry group presidents in place, particularly in Education and our Technology & Manufacturing group, which is the bulk of where the GCA revenues landed. So, we have got that in place. And we are in the final stages of remapping the accounts into the industry groups. So, really good news to report there on all fronts, and we know there will always be bumps in the road, as there are for a large-scale integration like this, but so far there haven't been any. So, we are kind of knocking wood here and we'll see what happens, but good news so far.

Thank you. There are no further questions at this time. I would like to turn the call back over to management for any closing remarks.

Sure, thank you. So, I do want to give a thank you to everyone for your support during the year, and I think it's really important as year-end to put the year in context, like move away from the quarter for a second and think about what we accomplished here. It's the first year we restructured the entire organization into industry groups, which was a monumental task, right. We started deploying standard operating practices across the platform. We migrated shared services from 14 different accounting centers into one site in Houston. We started a procurement group that overdrove. We launched technology tools. We started refining our strategy by selling our Government Services business, which really it didn't make sense for our platform. We bought GCA, which really solidified the industry group thesis and how we can accelerate, and now again be number one in Education, be number one in B&I, and be number one in Aviation, Technical Manufacturing. It's really what we have done this year, all in the backdrop of having three massive hurricanes, is pretty impressive, all while delivering growth, 3% growth, and growing our margin. So, we still have plenty of work to do here and I hope that's always the theme at ABM, but we are all working hard on your behalf and we just wanted you to know that. So, we are enthusiastic about where we ended this year. We are enthusiastic about 2018. We are looking forward to Investor Day. But between now and Investor Day, what I really hope most is that everyone has a really happy holiday season and get to enjoy themselves a little bit, because there's tons of work to do and tons of progress ahead of us here at ABM. So, thanks everybody.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.