ABM Industries — Fiscal Third Quarter 2026 Earnings Summary

Financial Performance

• Revenue increased 4.2% year-over-year to a record $2.3 billion for the quarter, driven by 2.1% organic growth and 2.1% acquisition-related growth.
• Net income rose 19% to $49.7 million ($0.84 per diluted share) compared to $41.8 million ($0.67 per diluted share) in the prior year.
• Adjusted net income grew 19% to $61.5 million ($1.04 per diluted share) versus $51.7 million ($0.82 per diluted share) in the prior year.
• Adjusted EBITDA improved 11% to $139.6 million from $125.8 million in the prior year.
• Operating cash flow for the quarter was $146.8 million; free cash flow totaled $128.4 million.
• For the nine months ended July 31, 2026, operating cash flow was $275.0 million and free cash flow was $199.6 million, significantly up from $101.0 million and $42.4 million, respectively, in the prior year period.
• Net income margin was 2.1% compared to 1.9% in the prior year.
• Segment operating margin improved 40 basis points sequentially to 7.7%, remaining essentially in line with the prior year.
• Total indebtedness stood at $1.8 billion at quarter-end, including $22.4 million in standby letters of credit, resulting in a total leverage ratio of 2.9x.
• Available liquidity was $605.8 million, including $110.5 million in cash and cash equivalents.
• Deferred revenue increased to $153.4 million from $74.7 million at the prior fiscal year end.

Guidance and Future Outlook

• The Company raised the midpoint of its full-year adjusted EPS outlook to a range of $3.95 to $4.10, up from the previous range of $3.85 to $4.15.
• Full-year organic revenue growth remains expected near the top end of the 3% to 4% range, with total revenue growth expected toward the top end of the 4% to 5% range.
• Full-year segment operating margin is now projected to be 7.7% to 7.8%, revised down from the previous range of 7.8% to 8.0%.
• Full-year interest expense remains forecast at approximately $110 million.
• The normalized tax rate is expected to remain between 29% and 30%, excluding discrete and non-taxable items.
• The Company raised its full-year outlook for net cash provided from operations to approximately $300 million and free cash flow to approximately $210 million, an increase of roughly $25 million from the prior outlook.
• Management expects Technical Solutions (ATS) revenue to ramp sequentially in the fourth quarter as deferred projects are executed.

Business Segments and Product Lines

• Manufacturing & Distribution (M&D) revenue grew 18%, driven by the WGNstar acquisition, recent client wins, and expansions in technology-related markets.
• Aviation revenue grew 12%, reflecting healthy air travel trends and the ramp of the recently won London Heathrow contract.
• Technical Solutions (ATS) revenue grew 4%, driven by strong HVAC activity and acquisition contributions, though performance was below expectations due to project deferrals by a large client.
• Business & Industry (B&I) revenue declined 2.6%, largely as expected, reflecting the exit of a large UK-based client and softness on the US west coast.
• Education revenue grew modestly.
• Corporate costs were reduced by $3 million versus the prior year due to cost discipline.

Market and Competitive Landscape

• M&D benefited from healthy technology markets.
• Aviation growth reflected continued healthy air travel trends.
• ATS revenue was impacted by project deferrals by a large client.
• B&I performance was impacted by the previously announced exit of a large UK-based client.

Risks and Challenges

• ATS revenue growth was negatively impacted by the deferral of certain projects by a large client.
• B&I revenue performance was challenged by the exit of a large UK-based client and continued softness on the US west coast.
• Increased acquisition-related amortization in M&D and pressures in Aviation impacted segment operating margins, though operational efficiencies offset these pressures.
• Higher interest expense related to the WGNstar acquisition partially offset net income growth.

Management Commentary and Tone

• CEO Scott Salmirs described the results as reflecting "strong operational and financial performance," including record revenue and robust EPS growth, despite macro uncertainty and adverse project timing.
• Management highlighted disciplined working capital management as a driver for exceptional year-to-date free cash flow and accelerated deleveraging.
• Management expressed confidence in the ability to achieve the raised full-year outlook and deliver a strong fourth quarter.
• The tone emphasized execution, cost discipline, and the strategic benefits of the WGNstar acquisition and recent capital structure improvements.

Other Key Points

• The Board declared a cash dividend of $0.29 per common share, payable on November 2, 2026, to shareholders of record on October 1, 2026.
• The Company secured a $300 million accounts receivable facility at favorable rates to diversify funding sources and strengthen its capital structure.
• Share repurchase activities earlier in the year contributed to a 25% increase in EPS.
• The Company entered into a $300 million trade receivables financing agreement during the quarter.
• Significant improvement in year-to-date free cash flow was driven by strong working capital management and stabilization in the enterprise resource planning (ERP) system implementation.
• Restructuring and related expenses were $7.8 million for the quarter and $14.6 million for the nine-month period.
• Acquisition and integration related costs were $0.5 million for the quarter and $8.7 million for the nine-month period.
• Transformation initiative costs were $6.3 million for the quarter and $20.5 million for the nine-month period.