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ABM Industries Inc (NYSE: ABM) Fourth Quarter 2021 Earnings Conference Call, December 15, 2021, 8:30 AM Eastern Time

Paul Goldberg - Senior Vice President of Investor Relations

With me today are our President and CEO Scott Salmirs; Earl Ellis, our Executive Vice President and Chief Financial Officer; and other members of our executive leadership team, you will meet in the Investor Day section of today’s plan them. We are all very happy that you joined us this morning.

Please note that earlier this morning, we issued a press release announcing our financial results for the fourth quarter and full year of fiscal 2021, as well as details of the enhancements we are taking. A copy of this version and accompanying slide presentation can be found on our website abm.com.

Regarding today's plan, we will first review our financial and operating results for the fourth quarter and the full year of fiscal 2021. After that, we will take a short break, and then we will start the Investor Day portion of the plan, where we will provide the latest information on our strategic positioning, discuss our newly announced Elevate plan and provide a multi-year outlook. After that, we will hold a Q&A session. Instructions on how to submit a question will be provided at the end of our prepared comments.

Before we begin, I want to remind you that our webcast and presentation today contains forecasts, estimates and other forward-looking statements. We use estimates, expectations, and similar expressions to identify these statements. These statements represent our current judgment on the future. Although we believe that they are reasonable, these statements are subject to risks and uncertainties that may cause our actual results to differ materially. These factors are described in the slides that accompany our presentation and in our filing with the SEC. During this conference call, certain non-GAAP financial information will be provided. Under the "Investors" tab on the company's website, you can get a reconciliation of historical non-GAAP numbers and GAAP financial measures at the end of the presentation.

With this, I now want to forward the webcast to Scott.

Scott Salmirs-President and Chief Executive Officer

Thanks, Paul. Good morning, and thank you all for joining us today to discuss our fourth quarter and 2021 fiscal year results. Based on our comments, we will host a virtual investor day where we will provide long-term strategic updates and financial prospects, including a full discussion of our Elevate investment plan. I hope everyone can join the part of our webcast, and we look forward to talking with you and answering your questions.

The fiscal year 2021 is an extraordinary year for ABM. Its outstanding performance is the continued strong financial performance and the acquisition of Able Services. This is a major transaction that significantly expands our geographic coverage and expands our ability. Throughout the year, our global team continued to execute at the highest level, successfully navigating a vibrant environment with agility, flexibility and dedication to serve our customers. Revenue in the fourth quarter increased by more than 14% to US$1.7 billion, and adjusted earnings per share increased by 23%, representing a good ending for our 2021 fiscal year. Revenue was US$6.2 billion, and adjusted earnings per share increased by 47% to US$3.58.

Our strong revenue growth in the fourth quarter was attributable to Able’s one-month contribution and organic growth in our B&I, aviation, and technology solutions verticals, which was enough to offset the slight decline in our education sector. I am satisfied with our progress in improving overall profitability. The adjusted EBITDA margin for the whole year reached a record 7.3%, and the adjusted EBITDA margin in the fourth quarter increased by 40 basis points from last year. Throughout the year, as customers prioritize our EnhancedClean protocol to maintain hygiene in high-traffic spaces, we continue to experience the need for disinfection and virus protection services. In addition, we continued to effectively manage our labor costs as the office occupancy rate trend gradually increased during the year.

As expected, the overall demand for our higher-margin work orders and EnhancedClean services slowed as the year progressed, but we maintained a high level in the fourth quarter compared to pre-pandemic levels. Looking ahead, we expect that continued concerns about COVID-19 differences will bring more opportunities for our disinfection services, and according to our guidance, support our adjusted EBITDA margin to exceed 6% in fiscal year 2022.

Turn to our market segment performance. The aviation industry continued to rebound, driving revenue growth in the fourth quarter. The industry group most affected by the pandemic achieved 43% year-on-year revenue growth in the fourth quarter, as air travel trends improved significantly from the previous year, and we took advantage of new business opportunities, including expanding our parking lot at the airport Operation. Our fourth quarter also benefited from a 21% increase in technology solutions revenue, which reflected the growth of our emerging electric vehicle business and improved access to customer sites. Compared with the third quarter, the backlog of technology solutions increased by 20% from the previous quarter and reached a record level in the fourth quarter. Driven by the transition to electric vehicles and the demand for related charging stations, our electric vehicle business has a huge long-term Growth potential. The main growth drivers of the business include federal stimulus funds designated for energy-saving projects and the recently passed Federal Infrastructure Act, which includes $7.5 billion for the deployment of electric vehicle charging stations across the country.

Our B&I department continued to perform well, and revenue grew at a double-digit rate in the fourth quarter, thanks to the addition of Able, the acquisition of new contracts, and the continued demand for work orders from customers. Although the office occupancy rate has been on the rise in the past year, the office occupancy rate is still low by historical standards, which will cause the department to continue smoothly from the perspective of labor efficiency in the first half of the 2022 fiscal year or even longer. .

Turn to education. Compared with the same period last year, revenue and profit margins in the fourth quarter declined. Earlier this year, we communicated the situation of students returning to school full-time. The labor efficiency of the education department has decreased because of the need to increase staffing to accommodate the reopening of educational institutions in the fall. Although the unusually rapid increase in staffing and labor market conditions have led to rising labor costs, which inhibited departmental profit margins this quarter, this is what we expected [illegible]. As the number of employees increases, we believe that the profitability of the education sector will return to a more normal level starting from the first quarter.

I now want to provide some colors for Elevate, and we will discuss our transformational investment plan in detail at the Virtual Investor Day event after this conference call. Five years ago, we announced our 2020 Vision, a long-term strategic plan aimed at driving profitable growth and shareholder value. Today, we are building on the success of this plan through Elevate. This is a multi-year comprehensive investment plan that will strengthen our strategic and competitive positioning, use the advantages of leading technology, including data and analysis, and enable us to capture growth. Quantify the growth and profit opportunities brought about by macroscopic changes in demographics, rapidly changing workplace dynamics, and higher demands to improve corporate sustainability. Elevate will include strategic investments in revenue growth plans, team member development, workforce management, and digital transformation. These investments will accelerate our organic growth, enhance profitability, and create more valuable experiences for customers and team members. Elevate’s total investment is estimated to be between US$150 million and US$175 million, and these measures are expected to be basically completed by the end of fiscal year 2025. In FY22, we expect to invest approximately US$80 million in Elevate, enabling us to significantly advance the implementation of our digital transformation.

With these basic elements in place, by the end of the 2022 fiscal year, we expect Elevate investment levels to decrease in subsequent years. We are excited about the opportunities that Elevate will provide, and we will share with you more details about the entire plan within a few minutes on the Investor Day section of the plan.

With the support of a healthy balance sheet, solid cash flow and favorable growth trends in each business, we are entering the 2022 fiscal year with a strong posture. We continue to support our customers by providing high-value services and solutions that enable them to meet unprecedented challenges in the past few years, and through the recent acquisition of Able, we have significantly expanded our capabilities, In order to fully meet the changing needs of customers in various fields. The scope of facility management and engineering solutions.

Now I want to briefly comment on our guidance. For fiscal year 2022, we expect GAAP diluted earnings per share to be US$2.05 to US$2.30, and adjusted earnings per share to be US$3.30 to US$3.55. In this guide, we assume that COVID-related disinfection services and work orders have been relaxed, which makes us expect an adjusted EBITDA margin for FY22 from 6.2% to 6.6%, including the synergies of the acquisition of Able Services. Although earnings per share and profit margins are expected to decline from fiscal 2021, they are much higher than pre-pandemic levels and higher than the target long-term indicators we set in 2019, when we stated that the ideal profit margin range is 5.5 % To 6%. We will provide more detailed information about our outlook and guidance for fiscal year 2022 in the Virtual Investor Day section of the program later.

I will now transfer the call to Earl to discuss our financial situation.

Earl Ellis-Executive Vice President and Chief Financial Officer

Thank you, Scott, and good morning everyone. Revenue in the fourth quarter increased by 14.2% to US$1.7 billion, mainly driven by the one-month contribution from the acquisition of Able Services, continued customer demand for disinfection services, and the general improvement in the economic environment. GAAP income from continuing operations for the fourth quarter was US$34.3 million or US$0.50 in diluted earnings per share, compared to US$53.1 million or US$0.78 in diluted earnings per share in the same period last year. The decrease in GAAP revenue reflects higher operating and corporate expenses, including $19.7 million in acquisition-related costs, initial investment in our Elevate program, and reduced gains from self-insurance adjustments related to previous years.

After adjustments, income from continuing operations in the fourth quarter increased by 25% to US$58.2 million or US$0.85 in diluted earnings per share, compared to US$46.7 million or US$0.69 in diluted earnings per share in the fourth quarter of last year. The increase in adjusted earnings per share reflects revenue growth and the record last year of the company’s technical solutions department’s benefits of no reserve for bills receivable related to a single project, partially offset by reduced labor efficiency and disinfection efforts.

Compared with the fourth quarter of fiscal year 2020, company expenses increased by $40.9 million due to acquisition-related expenses, reduced gains from self-insurance adjustments in the previous year, and costs related to recruitment plans. The company's expenses in the fourth quarter of fiscal 2021 are also affected by the initial investment of $10.3 million in the Elevate transformation plan mentioned by Scott, which we will discuss more fully later.

Now turning to our departmental performance in the fourth quarter. B&I revenue increased by 17.5% year-on-year to US$933 million, mainly driven by Able Services' one-month contribution, increased office occupancy rate and expansion of major customers. Excluding Able's contribution, B&I revenue increased by 4.7% from the previous period. B&I's operating profit fell 3% from the same period last year to US$82.1 million, reflecting a decrease in work orders with higher profit margins.

Aviation revenue increased 43% to US$201.7 million, achieving strong year-on-year revenue growth for the second consecutive quarter. This improvement is mainly due to the increase in airline passenger traffic and the expansion of our airport parking business. Aviation operating profit increased to 13.2 million U.S. dollars, compared to 3.5 million U.S. dollars in the fourth quarter of last year. This was due to a significant rebound in revenue and our efforts to emphasize higher-margin airport facility services.

Revenue from our technology and manufacturing divisions was basically the same year-on-year at $245.5 million, as the launch of new business was offset by reduced customer demand for COVID-related work orders and EnhancedClean. However, thanks to efficient labor management and contract expansion, T&M’s operating profit margin increased to 10% in the fourth quarter, an increase of 40 basis points from the fourth quarter of last year.

Education revenue fell by 3.7% to US$204.4 million, mainly reflecting the timing of contract re-bidding. Although the customer retention rate remained the same compared to the same period last year, the re-bidding of certain contracts was not completed in the fourth quarter, which affected the revenue of the department. Total operating profit was US$7.7 million, lower than the US$15.1 million in the fourth quarter of last year. The decline in segment operating profit was partly due to normal seasonal factors. However, as Scott discussed, due to the widespread reopening of educational institutions, the need to increase staff almost immediately, this year's decline has been magnified. Looking ahead, we expect that the profit margin of the education sector in fiscal year 2022 will be approximately 6%, an increase of more than 100 basis points compared to the level before COVID. This is due to the continuous improvement of labor efficiency and higher disinfection revenue.

The revenue of our technical solutions division increased by 21% to reach [Technical Issues] million, thanks to the continued strong growth of our emerging electric vehicle charging infrastructure business, improvements to customer sites, and customers’ comments on energy-saving solutions Increased demand. Segment operating income returned to profitability, with an operating profit margin of 12.8%.

As of the end of the fourth quarter, our cash and cash equivalents were US$62.8 million, and as of October 31, 2021, our total debt was US$394.2 million and total debt was US$1.06 billion. Our total debt for pro forma adjusted EBITDA (including standby letters of credit) is 1.9 times. At the end of the fourth quarter of fiscal 2021. As for our dividend, I am happy to report that the board of directors approved an increase of our quarterly dividend by 2.6% to $19.5, which will be paid in February.

Now, I will briefly discuss our prospects. As Scott mentioned, our guidance for adjusted income from continuing operations for the full year of fiscal year 2022 is between US$3.30 and US$3.55 in diluted earnings per share. Our adjusted profit forecast reflects the good growth prospects of our business unit in fiscal year 2022, the expected relaxation of disinfection work related to COVID-19 and the expected increase in office occupancy rates leading to reduced labor efficiency. Please note that our adjusted earnings guidance does not include the approximately US$72 million Elevate-related expenses planned for the 2022 fiscal year. These are general and administrative expenses for the delivery and implementation of technical and process solutions related to our digital transformation. We plan to exclude these expenses from adjusted earnings to provide a more accurate comparison of operating performance.

We expect the tax rate for fiscal year 2022 to be approximately 30%, excluding any discrete items. Compared with the 2021 fiscal year, the 2022 fiscal year will add one working day. As a reminder, the labor cost per working day is about 7 million U.S. dollars. In terms of the schedule of quarterly working days throughout the year, compared with the comparable period in the 2021 fiscal year, the first and fourth quarters will increase by one working day, and the second quarter will decrease by one working day.

Capital expenditures in fiscal year 2022 are expected to be approximately US$54 million, including US$8 million related to Elevate’s investment. We expect depreciation this year to be approximately US$50 million. We hope that you will continue to participate in our Virtual Investor Day presentation, which will begin shortly after a short break. After the speech, we will answer your questions. thank you.

Scott Salmirs-President and Chief Executive Officer

Welcome back. A good representative of who we are and what we do. I am very happy to start the Investor Day part of our plan, especially considering the incredible results we shared earlier. Joining me are members of our executive leadership team, and you will hear from them later today. This team brings an incredible combination of industry experience and diverse backgrounds. We will share our strategic plan, which will release important long-term value for our shareholders and strengthen our industry leadership by repositioning the end market and establishing our core services. Our new strategic plan will use the knowledge we have learned from our 2020 vision and COVID response to transform ABM into a dominant position and enable our organization to enter the next phase of its journey.

We will take advantage of market trends that will affect our business in the next five years. This will not only improve our focus, but also provide information for the investment we will make. We will optimize our service portfolio, market and geography to better position our business and flourish with the development and advancement of society , We will innovate in the fields of technology and data to modernize service delivery. This will increase the productivity of our front-line employees and establish digital connections with our customers and teams. It will drive profitable growth, accelerate the growth rate of organic revenue by nearly 50%, and sustainably adjust EBITDA margins almost when we started in 2015. Twice as much as our substantial cash flow.

In the next hour, we will delve into each of these elements. But before we enter our strategic plan and tell you how we will improve ABM, we will first briefly lay the foundation. Therefore, we are confident that we can implement our strategic plan because we have done so before. In 2015, we launched the 2020 Vision, which is a watershed for ABM, driving long-term profit growth and enhancing shareholder value. The investments we will make in the next few years are the direct result of lessons learned from the success of the 2020 Vision.

So let us first review the work we have done. First of all, our go-to-market strategy transformed us from a service-centric organization to a customer-centric organization, and created industry groups organized by end markets. This allows us to focus on industries where we have important competitive advantages, such as commerce and industry, and our unparalleled commercial real estate portfolio. It also gives us the opportunity to find market segments where we know we can build a leadership position, just as we do in education. We are now clearly the number one facility supplier in this market segment.

This approach is popular with customers and promotes organic growth. You will see that having a mature industry group structure makes it easier for us to cross-sell a variety of service solutions to customers, thereby signing more sticky and profitable contracts. We are also actively optimizing our investment portfolio by spinning off non-core assets such as security and government services and quickly reinvesting these proceeds in the emerging service line of higher growth and higher profit, namely our technology solutions business. Through the acquisition of GCA, we are able to enter smaller vertical markets, education and technology and manufacturing, and consolidate them into independent industry groups. Later, we will share how we will continue to develop our industry portfolio into high-growth, high-profit industries.

We now also have mature key corporate functions, such as centralized shared services for finance and human resources. We can increase productivity, and now we can use our scale advantages to continue our growth trajectory through collaborative mergers and acquisitions. A good example of scale advantage is how our sourcing team continues to improve the efficiency of large spending categories because we have established more meaningful relationships with suppliers. During the pandemic, we were able to purchase PPE and supplies, while others were not. The power of this power has never been more obvious. This provides important protection for our team members and customers.

Purchasing is one of the many key areas where we can gain synergy from mergers and acquisitions, and our sales culture has undergone tremendous changes in the 2020 vision. This has brought us a record five consecutive years of new sales growth and unparalleled achievements. At the site, we have established standard operating procedures and consistent service delivery methods, so our large national customers know their expectations of the market. To fund our acquisition strategy in the 2020 Vision, we increased the credit line from US$800 million to US$1.6 billion. We have also continued to increase dividends for more than 55 years. Last quarter, we paid dividends for the 222th consecutive time.

We will continue to drive growth and create value by focusing on thoughtful capital allocation to fund organic investments, conduct mergers and acquisitions, and distribute cash to shareholders. We have learned a lot through 2020 Vision and I am proud of the financial performance we provide. Our journey started with an adjusted EBITDA margin of 3.8%. By 2019, our adjusted EBITDA margin has expanded by 140 basis points to 5.2%. Revenue increased by 23% to US$6.5 billion, and adjusted earnings per share increased by 27% to US$2.05 per share. We achieved these results during one of the worst labor crises in recent memory from 2018 to 2019. We demonstrated the flexibility of investors' expectations of ABM year after year.

We are also continuing to develop in terms of executive leadership. By the end of 2019, we hired Chief Strategy and Transformation Officer Josh Feinberg for important recruitment. As a partner of BCG, Josh helped guide our 2020 vision. Now, he plays an important role in formulating our strategic vision and building a digital operating model.

I will hand it over to Josh and continue to lay the foundation for our strategic plan.

Josh Feinberg - Executive Vice President and Chief Strategy and Transformation Officer

Thanks, Scott. Thank you for the introduction. I feel very lucky to be here. It's really nice to draw ABM's path forward from the position of strength. We have a lot to take advantage of our market leadership in a large but still very fragmented industry, our unparalleled footprint and service portfolio, and the blue-chip customer base of our industry-leading team. But perhaps most importantly, our business continues to prove incredibly resilient time and time again.

As the COVID-19 pandemic spreads, we were tested in 2020 and 2021. We act quickly and decisively, quickly build and deploy new features, and mobilize our team to lead our customers through the unpredictable closures and reopenings we have all experienced in the past 20 months. Throughout the process, our profitability reached a record high.

So how did we do it? How can it further strengthen our path forward? We put the health and safety of team members and customers in the first place, which is always our top priority. Through the formation of an advisory committee with some leading experts in the field of industrial hygiene and infectious diseases across the country, and the establishment of a leading epidemic-oriented Health, safety and operating agreements, we quickly deployed to our customer base. We focus on our cash flow and liquidity. When many people in our industry got into trouble, our cash position improved significantly. We have developed our own proprietary expert support solutions EnhancedClean and EnhancedFacility to provide our customers and their employees with healthy and safe spaces and peace of mind, so that buildings can be reopened and kept open.

We have established and deployed a flexible workforce model to adapt to the changing environment. We shifted growth to end markets suitable for the pandemic, such as manufacturing and distribution, which helped offset the decline in revenue in more affected sectors such as aviation. These actions resulted in bottom-line profitability exceeding expectations, pushing our adjusted baseline EBITDA margin before COVID to 7.3% from 5% to 7.3% in 2021, and at the same time generating USD 600 million in COVID-related cumulative in 2020 and 2021 income.

Our ability to perform during the pandemic clearly demonstrates our agility and resilience. But the structural improvements we made during this period, especially the installation of flexible labor models and the conversion of high-margin disinfection to permanent range addition, will help us move forward. In the past 20 months, our world has undergone fundamental changes. Society's demand for healthy and safe space will continue into the future, especially as new variants continue to emerge. We believe this will translate into long-term profit margin expansion, regardless of whether new variants continue to exist. We have surpassed trusted partners. We are now a trusted differentiated brand.

Today, we have the ability to invest in our future and are fortunate to be able to launch our strategy from a strong position. We have an unparalleled competitive advantage, which stems from our market leadership in all the end markets and industries we serve, unparalleled coverage, and a large network of distributed personnel and branch offices to provide our customers in the United States and the United Kingdom Services, a unique service portfolio covering cleaning, engineering, parking, technical solutions and aviation services, we have won a trustworthy reputation in long-term customer relationships over the past 110 years, and as the possibility of expansion emerges, we will be strategic A strong balance sheet used locally and opportunistically.

Our performance during the pandemic gives us the opportunity to look to the future and formulate our long-term strategy, while others are struggling every day. We first refreshed our deep understanding of the market and trends, which will affect our industry now and in the next few years. Five trends surfaced. First, social changes have led to demands for healthy, safe and efficient spaces and new commitments to diversity, fairness and inclusiveness. Demographic changes, higher urbanization rates, and consumer preferences have accelerated the demand for expanded logistics ecosystems from customers such as Amazon, Wal-Mart, FedEx, and UPS, who want to expand coverage.

Secondly, future work will focus on drastic changes in employee expectations, which motivates employers to rethink workplace design, evaluate work patterns suitable for their teams, and create effective collaboration tools to promote continuous improvement in employee productivity and satisfaction. This trend highlights the need to invest in dynamic workforce capabilities and adopt flexible operations to adapt to rapidly changing workplace dynamics.

Third, sustainability is no longer a consideration for the future. Now there is a need to run businesses responsibly. Our recently released sustainability report reaffirms our commitment to leave a healthier planet for the next generation and beyond. More specifically, the demand for renewable energy, clean air, reduction of energy consumption, and elimination of harmful pathogens are just a few sustainable development trends directly related to our clean, facility engineering, and technical solutions business, all of which are ours The focus of strategic growth.

Fourth, mobility is shaping various industries, leading to massive investments in autonomous vehicles and electrification, which is driving the construction of new global infrastructure. This provides a huge opportunity for our fast-growing electric vehicle charging sector in the technology solutions business, smart parking solutions, B&I and aviation sectors.

Finally, digitization. It continues to accelerate through leading technology, data and analysis, and it becomes more and more common in daily use. Smart buildings continue to evolve with the development of artificial intelligence, cloud computing and IoT sensor technology. This leads us to invest in labor and customer-oriented technology when our customers demand innovation.

Our goal is to put people above everything and magnify what is most important to them, which has never been more important. The value and demand of what we do has never been higher. Our customers will benefit, our team members will benefit, society will benefit, and our investors will benefit. We have anticipated the great changes in the future. We are ready to embrace these changes and use them to open up the future. This is our time.

Now let me pass it back to Scott to reveal our strategic vision.

Scott Salmirs-President and Chief Executive Officer

Thanks, Josh. In order to continue to win in the future, we must consolidate our position to seize future opportunities and maintain the flexibility that shareholders rely on. Elevate is the next step in our journey. We will enhance the customer’s experience as a trusted advisor and innovate through multi-service solutions and consistent service delivery to drive continuous profitable growth. We will enhance the experience of team members by training and nurturing the next generation of leaders and building our inclusive culture, and will enhance our use of technology and data to enhance customers and teams with cutting-edge data and analysis, processes and tools The experience of the members will fundamentally change the way we run our business and bring considerable financial returns. This will differentiate us from competitors who do not have the financial resources to make these investments, and we will improve ABM.

Let's take a look at the Elevate release video that turns our vision into reality. We are really inspired by this vision.

Now I want to introduce our chief operating officer Rene Jacobsen. Rene is responsible for leading the operations of all our industry groups and creating a collaborative, accountable and customer-centric environment. He will now take you to understand the market structure, our service line and industry group combination, and understand how we will improve the customer experience.

Rene Jacobsen - Executive Vice President and Chief Operating Officer

Thanks, Scott. We compete in a large and diverse market with many different types of competitors. Although the total target market is very large, reaching 250 billion US dollars, it is highly fragmented. Usually, our biggest competition comes from small regional players and local companies. Although we are in a favorable position in every market from a competitive point of view, the growth rate of our core services is usually in line with GDP. You will see that we plan to invest in our platform in ways that our competitors cannot. In view of our established agreements, expert advisory committees and our basic services to meet customer needs, we also have the ability to ensure customer business continuity to deal with new variants. Improving the experience of customers and team members through the use of technology and data will make ABM stand out in the market and help us achieve above-market growth.

We provide a large number of service lines for well-defined and diverse end markets and regions. Although the diversity of our business is a strategic choice we want to retain, we will continue to develop our focus. We spend a lot of time and energy analyzing market trends, competitive intelligence, customer needs and economic conditions to evaluate our current investment portfolio and potential neighboring relationships. Let us take a look at our structure and provide you with a bird's eye view of our industry groups and service lines.

Let's start with our service line. Cleaning service has always been the core of ABM's service. Our position as a market leader in the regions in which we operate opens up huge possibilities for growth into new voids. We will take organic measures to increase our customer retention rate and maintain our market leadership. We will also invest heavily in tools to improve the efficiency of frontline employees. We are happy to share more information about these initiatives later today. We will also seek merger and acquisition opportunities to expand our footprint in regions with favorable economies of scale. Our foothold in key markets provides a solid foundation for synergy.

Advances in technology and concern for sustainability, especially in terms of energy efficiency and consumption, have pushed engineering services to the forefront. Since facilities are now equipped with edge network sensors and other smart devices to drive data, enabling our engineers to predict failures before they occur, preventive maintenance determined by time-based plans is being phased out. The demand for expert engineering services is high, and to be able to lead with advanced craftsmanship and technology, one of our key investment areas in the next few years is quickly becoming a place where we can stand out.

We will continue to look for opportunities to expand our scale in key markets through mergers and acquisitions, just like we did with Able Services. When we seek to optimize the operation and revenue of our customers' parking facilities, we have succeeded in parking centers around technology and advanced revenue management capabilities. We will continue to modernize the parking business and create a consistent operating model around technology and automation to create value for our customers. We have begun to provide the first generation of smart parking solutions to enhance the parking experience at Los Angeles International Airport [Unrecognizable] Automated artificial intelligence and machine learning are some of our ways to provide barrier-free access, smooth wayfinding, and automated payment solutions.

We can also provide unique bundling opportunities for the installation and modernization of electric vehicle charging stations. We are integrating this data into a single analysis platform to increase revenue, and in the next few years, we will invest in expanding these areas and become a unique solution provider for our customers. We are increasingly looking for customer opportunities that include multiple services. Our ability to perform engineering, cleaning and other maintenance services on our own is a big difference from potential customers. In addition to a strong network of strategic partners, these contracts also require a dedicated technology platform to manage the full set of services and improve procurement capabilities, so that we can negotiate service contracts when we need to subcontract.

There is continuity between the addition of additional services and the fully integrated IFS contract, and there are many gaps in this scope. Our goal is to move further towards IFS. As you will see later, when we delved into this strategic move, the acquisition of Able boosted our position in the field. These capabilities provide a higher profit margin and higher retention rate or stickiness, which is the key to our business development and profitability. This new strategic approach also strengthens our industry group structure.

Let us first review our technology solutions business. For many years, technical solutions have been our fastest growing and highest profitable business. Historically, we have achieved these results through our HVAC, mechanical, electrical, and lighting services, which are usually bundled and packaged to provide our customers with unique products to save costs and at the same time bring ABM considerable profit. We call it a bundled energy solution. We see greater demand for services in high-growth market segments related to electrification, sustainable energy conservation programs, and electricity and electricity, which is consistent with the long-term megatrend we discussed earlier.

Our team is ready to continue to grow driven by the momentum we see in the automotive electrification market. We are one of the largest installers of electric vehicle charging stations in the country; bundled energy solutions to ensure energy conservation and address critical aging foundations Facilities; electricity and power services to support the development of mission-critical facilities, such as providing data centers for technology, healthcare, and federal government customers. The $1 trillion bipartisan infrastructure bill just passed will open the door for us. In fact, it allocates US$7.5 billion for the construction of charging stations for electric vehicles.

We are planning to invest in talents and technology to attract salespeople, highly skilled engineers and project managers who can sell these complex solutions, as well as hardware and software to build unique solutions and integrate data sources. Compared with other industry groups, ATS's revenue and profit potential are still very high. The investment in public infrastructure, the development of electrification, and the focus on energy and sustainable development indicate that the market will grow significantly in the next few years.

Next, let us turn to our largest industry group B&I. B&I is based on our commercial real estate client portfolio, which includes third-party managed and owner-managed facilities. Cleaning, engineering and parking are the main service lines of B&I, which have brought considerable profit margins and cash flow to ABM. We are planning to invest in labor management, which will increase the productivity of our field operations and our use of technologies such as sensors, autonomous devices and data platforms. By providing real-time insights to better operate their facilities, thereby enhancing our value proposition to customers. Throughout the pandemic, B&I performed very well.

Although we have suffered some top-line effects due to the early closure of facilities and the recent low occupancy rate, our profit margin has been improved due to our ability to improve labor efficiency and provide customers with higher profit EnhancedClean services. B&I's revenue growth potential. Given the overall size of the company and the impact on the organization, this is the average for a company and is still a reliable source of organic growth year after year. B&I's profit potential continues to be higher than the industry group average and will further increase due to increased investment. The commercial office space market is expected to grow at a moderate rate. The types of high-end customers in the growth range are very consistent with our operating model and tend to be large national companies.

Next, let us introduce our education part. As schools across the country have basically resumed face-to-face learning, the level of education is close to the level before COVID. We expect higher education and K-12 schools to continue to invest in disinfection programs while also focusing on indoor air quality. We are advising clients on different ways to pay for these services, including government funding through the CARES Act and other programs. Our extensive services in this field make us a true industry leader, providing cleaning, facility engineering, landscaping and ground services in all markets. Our education customers are also the main focus of ATS Group’s cross-selling bundled energy solutions.

The income growth and profit potential of education is slightly lower than the company's average. However, as our team shifts its focus to signing higher-margin contracts with private higher education institutions with longer purchase cycles, this is also beneficial. The education market is mainly in-house, but we have the ability to create more first-generation outsourcing opportunities through comprehensive service products including cleaning, engineering and venues. The acquisition of Able Services provided support for this solution.

Now, let's change gears and turn to aviation. During the COVID-19 pandemic, the aviation industry is our most affected industry group. However, as the number of flights dropped by nearly 90% during the peak period, our exposure to the airport is not just the airline, which saves us from a more serious impact. The wide range of services we provide in this area and our commitment to provide healthy and safe space for passengers on board and at the airport have helped us maintain a significant portion of our revenue over the past few years.

As flight volumes return to normal, we continue to sign higher-profit service contracts with airports and related facilities, which tend to be more stable. We are an end-to-end service provider for the aviation industry because we handle everything from parking and transportation, to wheelchairs, cabin cleaning, and many under-wing services (such as baggage handling).

Although our aviation sector’s revenue is still below pre-pandemic levels, we expect to continue to grow, partly due to new airport parking, transportation and cleaning contracts. In the past few years, we have grown from 45% of airport customers and 55% of airline customers to 55% of airport customers and 45% of airline customers, because airports are less affected by passenger flow fluctuations.

As the aviation industry recovers after the initial COVID closure, the revenue growth potential of the aviation industry is expected to be high. Although the profit margin may be structurally lower than the company's average, we expect significant improvements in this area due to improved sales volume and customer mix. In view of the recently passed infrastructure bill, we believe that the market has great potential.

Finally, let us discuss some of the main trends in our technology and manufacturing business. In the past few years, our business in logistics, distribution and manufacturing has grown by double digits. As we mentioned earlier, several major trends are accelerating the growth of these markets. Consumer preferences have changed. They now expect to complete orders faster without increasing costs, which has led to a boom in US distribution and warehouse space, which is now entering the urban market. It is estimated that due to consumer demand, 1 billion square feet of net new US distribution warehouse space is needed to support the growth of e-commerce. This represents more than 100% growth in these types of facilities.

ABM has a place in this fast-growing market and has established customer relationships with companies such as Amazon, Wal-Mart, FedEx and UPS, which have experienced significant growth in the past few years. Coupled with strong end markets such as food and beverage, automotive, aerospace and other large industrial companies, we have a unique competitive advantage in this growing market.

Today, we are happy to announce the establishment of a new industry group-Manufacturing and Distribution. M&D will replace our T&M industry group and transfer our incredible technology customer portfolio to B&I to provide them with the best service. This will make us more customer-centric in how we provide services to manufacturing and distribution customers who have similar business needs and are also essential service providers in our economy. It will also use the scale of ABM to drive service excellence, increase the density and proximity of support to all our technical, manufacturing and distribution customers, and by putting our best operations around each customer and focusing on large professional customers To position M&D to achieve innovation and growth of the website, so that we have a better opportunity to extend a variety of service products to these accounts. B&I and branch network provide the best service for the accelerated growth of our technology customers and their expanded office space, with annual revenue of approximately US$300 million. This includes customers such as Facebook, Google, and Adobe​​e. M&D will maintain our large manufacturing customers and increase distribution customers with annual revenue of approximately US$400 million.

We have saved operating costs from this change, which is part of our improved EBITDA margin after the related operating rate adjustments. Earl will outline it in the FY22 guidance section later in the presentation. The revenue growth potential of M&D is expected to be much higher than average, as we leverage our underlying customer relationships with large organizations that are experiencing exponential growth. Due to the specialization required to provide services in these unique high-demand facilities, the profit potential is expected to be high. We think the market potential is very large [technical problem]

Raul Valentin - Executive Vice President and Chief Human Resources Officer

This variability makes it difficult to support how each team member can maximize productivity throughout the organization.

We will transform our cooperation methods by investing in a new workforce platform and adopting industry-leading smart processes and tools. The platform has modern timing, scheduling and forecasting modules, and provides a simple user interface. Our team can use desktops and tablets. Computer or mobile device for management and access. Ultimately, our goal is to establish digital connections with our employees in order to achieve timely and on-demand training and development, providing them with insights to complete their work more efficiently, thereby increasing customer satisfaction. Due to increased labor productivity, we expect these investments to generate significant benefits and will also provide us with better control to help us comply with the ever-changing regulatory environment in these areas.

We are a people-oriented company. If we give team members the ability to motivate, lead, manage and execute, they will become the driving factors for our long-term success. To achieve this goal, we will strengthen our culture and reaffirm our commitment to an inclusive workplace. Last year, we established a Cultural and Inclusive Committee, and now this cross-functional, multi-level committee is beginning to help in this regard. Under the guidance of the board of directors, we have selected external organizations as partners. Therefore, we have established multi-year partnerships with respected organizations such as the Hispanic Scholarship Fund, After-Class Alliance, and Thurgood Marshall College Fund.

All our attention is focused on building a fairer society for the next generation. This not only resonates with our leaders, but also directly resonates with our team members at all levels. Starting from the front-line manager, we will strengthen and attract the workforce by improving talent acquisition capabilities and strengthening coaching and development plans. We will improve our rewards by implementing a comprehensive reward system and recognition program to enhance ABM's value proposition for team members and increase retention and productivity. We will build stronger human resource capabilities by enhancing our human resource shared service center, which provides 24/7 human resource-related information support for team members, and we will continue to develop a wider range of human resource capabilities.

Although we are excited about the vision of improving the experience of team members, we realize that we are in a global labor shortage. Our team has been committed to reducing this risk by launching a number of targeted measures to keep our customer facilities staffed, including strategies to better attract and retain talent. This spring, we launched a rapid recruitment plan to expand the scope of most of our influential recruitment activities, such as deploying local procurement teams, holding grassroots recruitment activities, opening new independent entity recruitment centers in major markets, and promoting incentives Plans and social media branding in all our major channels. These activities drive a strong candidate base, and we will continue to invest in these projects in all our major markets.

The restructuring of our centralized on-site recruitment model has significantly increased output and accepted quotations. This has led to the ability to shorten the recruitment time and recruit more employees with the same number of recruits. As we expand the scale of these initiatives, we hope to continue to achieve staffing efficiency. While we improved the candidate process, we also began to build other solutions to retain our team members. We developed a predictive retention model to identify areas of the business that may experience the loss of higher-level team members. This data, combined with strong human resources and operational partnerships, led to a location-specific action plan. Early results showed that half of the turnover of all sites where this method was deployed had decreased. With a reliable strategy to maintain our facility staffing and our ongoing investments and enhance our workforce management capabilities, we feel fully prepared because we can consider the current tight labor market.

Now to introduce you to the third pillar of our strategic plan is our Chief Information Officer Melanie Kirkwood Ruiz. Melanie is a visionary technology leader with more than 20 years of experience in various industries, including gaming, commercial real estate, manufacturing, healthcare, and aviation. Melanie will explain how we use technology and data to improve ABM.

Melanie Kirkwood Ruiz - Chief Information Officer

Thank you, Raul. Enhancing the experience of customers and team members requires us to create a digital connection that connects the buildings we serve with the team and customers. This connection will be achieved through technology and real-time data to increase visibility, which is the facility operation and insight that drives meaningful action. This will lead to increased productivity and increased customer satisfaction and retention.

Cutting-edge technologies such as artificial intelligence, machine learning, and advanced data analysis are fundamentally changing the way we conduct business and create value for customers and team members. In order to effectively seize the opportunities before us and maintain our leading position, we must follow these trends and develop a digital platform that is in line with our market leadership. We will improve our use of technology and data by investing in our systems, tools, business processes and operating models to achieve the following results.

We will attract our customers and team members in new ways to further differentiate us in the industry. This includes appointing a new team member there as a one-stop service center, managing their schedules and shifts, acquiring new training and development content, and communicating with their managers and customers. By developing and deploying customer-oriented technology and data platforms, we can drive actionable insights that improve service delivery and our ultimate value to customers. A good example is the smart parking solution you heard of earlier in the presentation.

We will expand the use of data by building advanced data and analysis capabilities that will develop data products for high-value use cases, such as the hyper-positioning of [Indecipherable], team member retention, sales and recruitment, etc. that have already been mentioned. This will make data and analysis a strategic asset for ABM. We will modernize the digital ecosystem to support core activities and achieve high-value business results. Investments in this area will include upgrading enterprise software, such as our ERP and payroll system, as well as infrastructure and network security construction to support our new functions. Technical data and processes will enhance our ability to provide first-class customer and team member experiences. We will make a fundamental change with a cautious pace and rhythm.

Now, Earl Ellis, ABM's chief financial officer, will discuss our 2022 guidelines and forward-looking outlook.

Earl Ellis-Executive Vice President and Chief Financial Officer

Thank you, Melanie, and good morning everyone. I am very happy to have the opportunity to share with you our 2022 fiscal year guidance and the details of our strategic investments that will change ABM in the coming years. These investments will accelerate our organic growth, expand our profitability, and significantly enhance the experience of our customers and team members. In the next four years, we believe that these investments will drive substantial and sustainable improvements in our operations and financial performance, while increasing employee and customer retention.

Now, before I delve into the details of our FY22 guidance and long-term outlook, I think it is important to first let us understand what has happened in the past year and a half. Since the third quarter of fiscal 2020, we have experienced significant adverse effects from the huge impact of COVID-19. The substantial increase in demand for disinfection services, coupled with the continued strong operational execution of our team and the promotion of labor efficiency, contributed to the record of an adjusted EBITDA margin of more than 7% for the 2021 fiscal year. This is an increase of more than 200 basis points in fiscal 2019 compared to the adjusted EBITDA margin before COVID. This improvement largely reflects the COVID-related benefits of increased work orders, EnhancedClean, and labor efficiency.

Although we expect that these unfavorable factors will ease as we get rid of the pandemic, we believe that we can maintain a growth of approximately 50 basis points to 70 basis points in the long-term, as we expect to maintain some of the disinfection-related revenue and profitability And a higher baseline level of labor efficiency.

Therefore, turn to the guidance for fiscal year 2022. With the improvement of our positions obtained in the past 18 months, we guided the adjusted EBITDA margin to be in the range of 6.2% to 6.6%. This is a significant improvement over the pre-pandemic benchmark adjusted EBITDA margin of 5.2% that we reported in FY 2019, but it is lower than in FY 2021 because of the tailwind of the pandemic and our business beginning to normalize. In addition, our adjusted EBITDA margin guidance includes Elevate's initial earnings (which I will describe in detail later) and the contribution of initial synergies related to the acquisition of Able Services.

As we look forward to FY22 and beyond, we are excited about Elevate's top-line and bottom-line opportunities. Our Elevate strategy includes a series of discrete transformation investments, totaling between US$150 million and US$175 million. These investments range from workforce management to data analysis to the digitization of platforms that support employee recruitment, development, and retention. In short, we believe that Elevate will change the rules of the game. It will allow the implementation of leading processes, technologies and tools to drive higher levels of substantive financial performance, while at the same time enriching the experience of our team members and customers by providing more digital tools and actionable data to benefit them In the end, Elevate will enable ABM to grow faster, more profitable, and provide our customers with a higher value proposition.

According to the design, the Elevate plan is front-loaded because we plan to spend about 80 million U.S. dollars in fiscal year 2022, or about 45 million U.S. dollars in fiscal year 23, and about 15 million U.S. dollars per year in the next two years. Of the US$80 million planned for the 2022 fiscal year, approximately US$72 million will be a stand-alone expense and will be reported as an item that affects comparability, so it will not be included in the adjusted earnings per share guidance (US$3.30 to 3.55) Dollar). The balance of approximately USD 8 million will be included in capital expenditures. A relatively large investment in the first year is necessary to meaningfully advance our digital transformation. With these elements in place at the end of the 2022 fiscal year, we expect that we can begin to expand the benefits of the entire organization in subsequent years with lower investment levels.

Now, to help conceptualize the various components of the Elevate plan, let me divide the investment for the next four years into three categories: digital transformation, workplaces and people, and our listing plan. As we invest in customer-facing technology, data and analysis, and our corporate IT infrastructure, approximately half of our investment will focus on digital transformation plans. As we upgrade and improve our business processes while making better use of our data to create a competitive advantage, we will make our technology more powerful and seamless. These improvements will allow us to attract customers in new ways, use our data to more effectively drive decision-making and modernize the digital ecosystem.

Approximately 30% of the investment will be used for labor management and investment in employees. We will invest heavily in centralized workforce management tools and functions, including forecasting and scheduling solutions and standardized task management. These investments will enable us to deploy labor more efficiently and create greater value for our customers. We will invest in on-demand and immediate training tools and advanced career development capabilities, which will not only increase recruitment and retention rates, but also position ABM as the employer of choice.

The remaining 20% ​​will be used to drive our organic growth plan and our listing strategy, including investment in centralized platforms to support capabilities such as excess sales positioning, price optimization, and strategic customer management. Elevate will promote revenue growth and increase profitability by supporting a favorable business portfolio, improving customer retention, optimizing price increases, and improving cost efficiency primarily through labor optimization.

Our goal is for Elevate to accelerate our organic revenue growth rate to the mid-single-digit range, which is approximately 50% higher than our previous growth rate, and has the potential advantage of additional strategic acquisitions. As revenue growth accelerates, we also expect that starting from fiscal year 2023, our adjusted EBITDA margin will gradually increase by approximately 20 basis points accordingly.

All in all, we believe that Elevate will enhance our potential for profitable growth. By fiscal year 2025, related investments are expected to generate incremental adjusted EBITDA of US$110 million to US$130 million based on operating rates, with an estimated internal rate of return of 28%. From this perspective, at the end of Elevate in fiscal year 2025, we expect ABM to generate approximately US$9 billion in annual revenue, with a sustainable adjusted EBITDA margin of 7%, which is more than our baseline level of revenue of US$7 billion. After a significant improvement, the standardized adjusted EBITDA margin was less than 6%. Our goal also includes annualized free cash flow of approximately US$400 million by fiscal year 2025.

Although these financial indicators are convincing, the benefits and strategic value of Elevate go far beyond financial returns. We believe that Elevate will become a transformation plan that will strengthen our competitive position in the facility service industry and create a more valuable experience for all our team members.

So let me forward it back to Scott, who will end our presentation and lead us to the Q&A session.

Scott Salmirs-President and Chief Executive Officer

Thanks, Earl. We are extremely excited about our future. Our industry leadership will be rooted in innovation and technology, allowing us to create important long-term value for shareholders. By implementing our new strategic plan, we can ensure growth based on our commitment to transform from a dominant position, use our understanding of market trends, optimize the combination of services and end markets, and innovate in technology and data to achieve service delivery. Modernize and promote improved profitability growth.

Our goal is to become a company worth about US$9 billion by the end of 2025, with [technical issues] sustainable adjusted EBITDA margins. In order to achieve this goal and build capacity to expand our position in the market, we expect to invest in the business area that Piaget just talked about. These investments will promote the improvement of several key indicators.

From a growth perspective, our investment will drive an organic growth rate, which is nearly 50% higher than that of nearly 4% per year. When considering our M&A strategy, we aim for an overall compound annual growth rate of more than 10%. Focusing on customer experience through investment in customer-oriented technology and innovation, as well as new retention strategies, aims to increase our customer retention rate to between 92% and 94%. We believe that these efforts and our strategic account management plan may double cross-selling performance by the end of 2025.

The talent plan you just heard about will reduce the cost of each hiring and reduce the turnover rate of team members, thereby increasing operating profit margins. Our workforce management plan is one of the greatest rewards of our Elevate plan, thereby increasing labor productivity, which will be reflected in higher operating profits at the industry group level. The entire company will feel the impact of digital transformation. As you can see, technology and data are key components of our growth strategy, talent strategy, and how we perform workforce management. All the improvements we experience throughout Elevate will be supported in some way by our investment in digital transformation.

Finally, we will continue to rely on the agreements we made at the beginning of the pandemic. COVID exists in one form or another, and the emergence of new variants may become the new normal. At ABM, we are ready to support our customers in maintaining open, safe and efficient capabilities.

Before we start the Q&A session, we want to share some housekeeping matters. So stick to it and we will start working soon. thank you.

Paul Goldberg - Senior Vice President of Investor Relations

Welcome back. We will now start the Q&A section of Investor Day. I am Paul Goldberg again, and I will be the host. 【Instructions】

With this, our first question today comes from Tim Muloney of William Blair.

Tim Muloney-William Blair-Analyst

Good morning. Can you hear my voice?

Scott Salmirs-President and Chief Executive Officer

Tim Muloney-William Blair-Analyst

Okay thank you. Thank you so much for all the colors you provided today, very helpful. I want to know if you can learn more about your EnhancedClean service. There is not much discussion today. But, relative to your income in 2020 and 2021, what is included in your 2022 guidelines? I know it is declining, but at the same time more and more contracts I think we are integrating this. I would love to hear your opinion on this.

Scott Salmirs-President and Chief Executive Officer

Yes, of course. So look, it's still important to us, Tim, it will ease down. We stated that this may continue for more than a year as things return to normal, but we have already said that we will retain 50 to 70 basis points of COVID gains in the 2022 figure. So it still exists. It will not reach the crazy record levels we saw in 2020 and 21, but it is still included in our numbers.

Tim Muloney-William Blair-Analyst

Okay, this is very helpful. Thanks, Scott. I don't know who this should be aimed at. But this applies to anyone, but hope to hear more details about your plans to increase customer retention in the coming years. I think the interesting thing is that you are talking about returning to 92% to 94%, which really caught my attention. Would love to hear more about this.

Scott Salmirs-President and Chief Executive Officer

Of course. I want-I want to transfer it to Rene, but I will tell you this is a major element of our Elevate plan, and I think we will do it. Well, I will let Rene handle it, he better answer this question.

Rene Jacobsen - Executive Vice President and Chief Operating Officer

Well, I mean we-we certainly did a good job, if you look at the industry average, I would say overall. But we definitely want to improve significantly here, strategic account management is our way out, and we have been-we have been trying to solve this problem for about the past 12 months. From the perspective of looking at our customers, very, very detailed, very focused, not only from a personal IG-related point of view, but also looking at how we basically address these customers in a larger way than we do today Cross-selling, and last year we really built a great team to work together as a powerful unit, so for us, everything is about focus, right? It's all about treating focus as keywords, and everyone knows ABM. So this is the key to us. Obviously, we are making great efforts to improve the plan.

Scott Salmirs-President and Chief Executive Officer

Yes, for us, it is very important for us to adopt a team approach. We work around the strategic customer management of the workstation, and its improvement points will change the rules of our game, because all this will be about finding solutions and maintaining viscosity.

Rene Jacobsen - Executive Vice President and Chief Operating Officer

Hey Scott, if I can ask-is it possible to add one thing.

Scott Salmirs-President and Chief Executive Officer

Josh Feinberg - Executive Vice President and Chief Strategy and Transformation Officer

Part of the Elevate plan is focused on—especially focused on initiatives that promote customer retention to solve problems. Customer-oriented technology is a good example. As you saw in the video and some comments, it was very thoughtful and brought-some customers have been asking because Rene will do this, the operators will share for years, I think now we finally realized it will become a real game Rule changers provide a more sticky solution when we provide customers with the data they need.

Tim Muloney-William Blair-Analyst

This is a good point, Josh.

Paul Goldberg - Senior Vice President of Investor Relations

Thank you, Tim. Our next question today comes from Andy Wittmann of RW Baird.

Andrew Wittmann - Robert W. Baird & Co., Inc. - Analyst

Yes. great. Can you hear my voice?

Scott Salmirs-President and Chief Executive Officer

Come on, Andy. Good morning.

Andrew Wittmann - Robert W. Baird & Co., Inc. - Analyst

Okay, great. Just to be sure, we ran into some technical problems this morning. I just want to consider the profit margin you forecast here. I heard two different ways on the conference call. I heard that your goal is to have an annual profit margin of 7% at the end of the time planning period. We also heard that you intend to pick up, and I think you are talking about 50-or maintain the 50 basis points to 70 basis points of the improvement in profit margins you have seen during COVID. So, I think I just want to coordinate from 50 basis points to 70 basis points. What is the basis? I think that when I think back to before COVID, you led the adjusted EBITDA margin in the low 5s, which will give me something higher 5s or 6% to 7%. So maybe Earl or Scott might be right for you. But can you clarify the differences there, maybe some of the rhythms you see?

Scott Salmirs-President and Chief Executive Officer

Of course, I would not say that this must be a difference. What I want to say is that I think you outlined it. Before COVID, we were 5.2%. So you only increase from COVID by 50 basis points to 70 basis points, and then make less than 6% a new normal, and then you add in all your investment in Elevate and everything we are doing, and then increase by 100 Together with the basis point, this brings you to 7% during the promotion period. Does this make sense.

Andrew Wittmann - Robert W. Baird & Co., Inc. - Analyst

Well, that is, yes, it makes perfect sense. This is very clear. thank you. Then maybe it's just-so the compound annual growth rate of income here is 10% organic in the single digits, and you get roughly the same amount from M&A. I think you have already received half or slightly more than half of the $2 billion through Able, so you have to find $1 billion in revenue to achieve these goals. But I think you have outlined these profit margin targets, maybe I missed it, but what is the compound annual growth rate of earnings per share associated with this revenue plan?

Scott Salmirs-President and Chief Executive Officer

Earle, you want to try and accept all this.

Earl Ellis-Executive Vice President and Chief Financial Officer

Of course. Yes, so if you look at what we will drive in the next five years, if you look at the driving purpose of Elevate, EBITDA is about 110 million to 130 million US dollars. Therefore, the real earnings per share starting this year is 355, and in the next four to five years, we may take a cursory look and I would say that there has been an increase of about 40% during that period.

Andrew Wittmann - Robert W. Baird & Co., Inc. - Analyst

Understood, all right. If you want, for me, one more. I will clean up the last question. Scott, we have heard you talk about technology investments for years. Of course, I think we have heard of different payroll timing systems and all these things. They all seem to have a new iteration of the Elevate plan, so I don't know if there is a specific way to answer this or even ask it. But can you talk about the work you have done so far, because some of these initiatives have already been invested, so I am trying to understand how different the next wave of investment is? If it makes sense.

Scott Salmirs-President and Chief Executive Officer

Yes, no, thank you, Andy. What I want to do is, why not let Josh start, I believe he will have Melanie, and there are some answers. But Josh, do you want to accept it?

Josh Feinberg - Executive Vice President and Chief Strategy and Transformation Officer

Yes, I am very happy, Scott. So, if you think about some of the investments in the past, these investments were a bit earlier than us-a few of us, mainly focused on starting and running ERP and some core financial systems-then COVID hits and we really paused a lot . Therefore, the current investment will expand and continue to do some fundamentals. I think the most important thing is to expand to all these order systems and modernize labor management, modernize customer-oriented technology, and really work hard to ensure that we are in a leading position. We are indeed a leader in the industry in bringing technology to our team and providing services to customers. So this is the fundamental difference. We stopped after a short start, and now we are expanding it.

But I don’t know, Melanie, what else do you want to add.

Melanie Kirkwood Ruiz - Chief Information Officer

Of course. I mean, like you said, staying ahead is very important. As you know, technology is constantly changing. Therefore, we continue to move to more cloud computing platforms, which allows us to update and upgrade and maintain technology leadership. I think it is very important to continue.

Paul Goldberg - Senior Vice President of Investor Relations

Thank you, Andy. Our next question today comes from Maxim's Tate Sullivan.

Tate Sullivan - Maxim Group - Analyst

Hi. thank you all. Hello, thank you for inviting me.

Scott Salmirs-President and Chief Executive Officer

Tate Sullivan - Maxim Group - Analyst

First of all, regarding electric vehicle charging, if I can start from there, you have mentioned some details with your parking customers, what can you bring in terms of electric vehicle charging solutions, mainly starting from parking, and then turning to other technical solutions Scheme customer, or is it? Have a broad base among your customers now?

Scott Salmirs-President and Chief Executive Officer

Yes. I mean-I will let Rene give you some background knowledge. But I can tell you that we are very excited about charging electric vehicles. Not only electric vehicle charging stations, but also infrastructure. This year, our revenue is approximately US$50 million. We can see doubling next year, and then who knows. We have also seen some catalysts, such as Rene and the Infrastructure Act, or it is starting to excite our people, right.

Rene Jacobsen - Executive Vice President and Chief Operating Officer

Yes. I mean, when answering your question specifically, what I mean is that we do see the electric car service line that is really introduced mainly in the ATS. But we started to really turn to the aviation sector. We mentioned earlier that the project we have at Lava LX [Phonetic] is a good example of how we can cross-sell between multiple teams, as I mentioned before. So we really see the huge cooperation between ATS and Aviation. Therefore, we regard it as a foundation and foundation so that we can study how to extend it to other IGs. We also see huge opportunities for B&I, especially those related to electric vehicle charging. This is the game plan.

Tate Sullivan - Maxim Group - Analyst

Okay thank you. Will you-can you quantify now or are you willing to quantify? I know that it may have developed from a very small foundation. Is it still less than 1%, 5% of revenue or-I mean, relative to what kind of growth-are you willing to provide any background information on the scale?

Scott Salmirs-President and Chief Executive Officer

Yes. Either way, I will answer this question. It is small now, it is emerging, but it has huge potential. I think, if you remember, there is $7.5 billion in the infrastructure bill for various forms of electric vehicle charging. Our pipeline is as big as ever.

Tate Sullivan - Maxim Group - Analyst

thank you. There is a separate question. In the past two years, you have done more work after Amazon, Google, FedEx, UPS and now the acquisition of Able. Is your customer concentration higher? You have less-is customer concentration a good thing for these types of companies? Or how do you view it strategically, Scott?

Scott Salmirs-President and Chief Executive Officer

Yes. So, look, I think it’s important to focus customers because it’s the focus, which is what Rene has been talking about. The more we focus, the better we do, and we can build teams around these customers. We have accelerated growth through some of the big names we mentioned because we are able to invest in these relationships and build solutions. So we will continue to do so. But I would also like to say that we will establish a business development team in the new M&D field to broaden our horizons and grow stronger, because now there are many e-commerce and logistics companies emerging, and we hope to catch them in the early stages. So, this is The combination of the two.

Tate Sullivan - Maxim Group - Analyst

thank you. Finally from me, a quick [unrecognizable]. Scott, you have mentioned FY25, and I think it has something to do with the compound annual growth rate in FY25. What exactly does that mean?

Scott Salmirs-President and Chief Executive Officer

Yes. I think it has gone up a bit, but I think you are talking about a compound annual growth rate of 10%?

Tate Sullivan - Maxim Group - Analyst

Scott Salmirs-President and Chief Executive Officer

Yes. Therefore, this is an organic combination, we say it is a mid-single-digit acquisition. We are on the way, yes, together with Able, we have invested $1 billion in our core high-level synergy, which will open up territory for us. The ability to cross-sell will be amazing. We have been talking about IFS, the integrated facility solution. This really means controlling the customer's facility expenditures, and Able will become an important promoter in this regard. Therefore, for us, it just shows the importance of M&A growth and building and creating scale. So, I think this is a combination of mid-single-digit organic growth, and then the acquisition will enable us to achieve a compound annual growth rate of 10%.

Tate Sullivan - Maxim Group - Analyst

Paul Goldberg - Senior Vice President of Investor Relations

Thanks, Tate. Your next question today comes from Sean Eastman of KeyBanc.

Sean Eastman - KeyBanc Capital Markets - Analyst

Hello everyone. Thank you for answering my question. Going back to Andy's fringe problem, I just want to make sure I understand the rhythm correctly. Therefore, we dropped 100 basis points in FY22, which is a normalization after COVID. Then, we rose 20 basis points from there every year. In other words, the profit rate for 23 years will not decline. Is that right?

Earl Ellis-Executive Vice President and Chief Financial Officer

Yes, this is completely correct. Therefore, if you consider our starting point for this year, which is fiscal year 21 this year, it is a 7% profit margin. Then, entering next year, if you look at our 6.2% to 6.6% range, the middle range is 6.4%, we are down by about 90 basis points. Most of the decline was actually caused by cuts in COVID benefits (if you will). So, if you think about it, we actually have a new bottom EBITDA margin, which is a 6% ratio, which now allows us to increase it. Therefore, in order to directly answer your question, we believe that there was no decline in FY23, but a year-on-year increase of 20 basis points from FY23.

Scott Salmirs-President and Chief Executive Officer

Yes. You know what I will add, I think it is very exciting. If you think that before COVID, when we were in the 5% profit margin range, we set an ideal range of 5.5% to 6%, everyone is very excited about it. If I go back to the background of 3.8% in 2015, this is astronomical in itself. Now, to say that the bottom line is higher than our ideal target for 2018-2019, this makes this team vigorously believe that we are moving towards 7% and may exceed this target.

Sean, the other thing I want to say is that if you think back to the 2020 vision, our growth rate is 3.8%, we outlined a 100 basis point growth, and I think some people are skeptical because we have stagnated 15 years margin. We ended up with 140 basis points instead of 100 basis points. Therefore, we will enter Elevate and outline approximately 100 basis points. I think you will have to give us a few years. We will see how things develop. But there is currently no reason to believe that 7% is the company's final upper limit. It's just-this is our truly powerful sight now.

Sean Eastman - KeyBanc Capital Markets - Analyst

OK. This is a good background. The market seems to be telling you that the goal seems unachievable. It seems that the biggest concern in the investment world may be labor restrictions and whether you will see some additional profit margin drag as it becomes difficult to re-equip. I think we have seen this in the education department this quarter. So, maybe we can learn more about some of the changes surrounding the flexible labor model and see how confident you are in these goals, because the labor market will not really relax too much in the next year or two?

Scott Salmirs-President and Chief Executive Officer

Of course. I will give you my explanation. I will pass it to Raul and he will tell you what we are doing. But I think let us know some background information, yes, 50% of our labor expenditure is for union labor, and they have clearly outlined the collective bargaining agreement. So we know what those labor rate increases are. And you start with a baseline, wages usually accelerate compared to the market, and they are reaping benefits. So we did not see much turnover. It is not that difficult for us to obtain unionized labor. So this is half, right.

Then the other half are non-union workers, which is definitely more challenging. But on the other hand, this is something we are very good at, right. If you think back to 2018 and 2019, what I mean is that I don’t think there is a day that is not in the headlines without talking about labor challenges and historical labor shortages. So we have experienced this situation before, but we are not satisfied with the status quo, right. Part of Elevate and part of our ongoing investment is being able to hire quickly. Raul, why don't you give us some insights about what you are doing.

Raul Valentin - Executive Vice President and Chief Human Resources Officer

Of course. Thank you, Scott. Of course, this is a challenging labor market. As Scott said, we really have been leaning towards what we call a rapid recruitment plan, which has a few key tenants. Therefore, one is to go deep into local communities, churches, community centers, and other direct contacts to attract candidates. The other is a very active campaign and method that is used to promote social media and really touch the different pockets of the community and talent pool that we can draw from. Then in other cases, we are looking for key markets where entities and recruitment centers may be established in major urban centers. Our scattered workforce means that there is no panacea, but I feel very good about the work the team is doing. We have a dedicated talent recruitment team that can really promote this process. At the same time, we are studying retention plans to ensure that our wages are competitive. As Scott said, in other areas, such as promoting training, development and career paths for our team members, to promote retention so that the equations for both sides are being processed. .

Scott Salmirs-President and Chief Executive Officer

Rene, I mean, I think you need to put this in perspective, especially on the customer side, right.

Rene Jacobsen - Executive Vice President and Chief Operating Officer

Yes, I mean, we have become very, very self-disciplined and methodical in upgrading. As Scott mentioned, half of the business is, I wouldn’t say it is automatic, but in terms of unions, it’s definitely more It is easy to pass the upgrade process to customers. On the non-union side, of course, we-we see improvement year by year, we really focus on looking at each customer individually. Obviously, we must also consider the impact of this on retention rates. Therefore, we always make trade-offs when considering each customer. But you know, we have always been very good at reporting to customers, and for us, this is indeed what we have-we are very bold. This is something we have to be very bold, and we are related to this type of upgrade.

Scott Salmirs-President and Chief Executive Officer

Yes, I would add that Rene is very humble about this. He is the mission masker of our team, yes. This is again related to his attention and the promotion of the growth of these customers, we just feel that we are adding value. When you add value and you are doing well, you should not be afraid to demand an increase, especially in this labor market. In capturing these costs, Rene has done more than just an extraordinary job. Very enthusiastic about the results we will achieve in 22 years.

Sean Eastman - KeyBanc Capital Markets - Analyst

OK. I appreciate the detailed response, guys. I want to turn it over.

Scott Salmirs-President and Chief Executive Officer

Paul Goldberg - Senior Vice President of Investor Relations

thank you. Our next call today is from David Silver of CL King.

Scott Salmirs-President and Chief Executive Officer

David Silver - CL King & Associates, Inc. - Analyst

Good morning. Can i pass?

Scott Salmirs-President and Chief Executive Officer

David Silver - CL King & Associates, Inc. - Analyst

very good. Well, let me comment first. I really benefit from the contributions made by other members of the team that we usually don't hear. So I think this is a good supplement to this speech.

Scott Salmirs-President and Chief Executive Officer

David Silver - CL King & Associates, Inc. - Analyst

I will start with Scott’s comment, and towards the end, you said that “COVID” exists in one form or another. And I think that among the many assumptions behind the speech I heard today, people expect that as we enter the post-pandemic period, the number of high-margin label jobs or jobs outside of core contract services will decrease. I just want to know, but my assumption is the standard, assuming that the cleaning contract must also be changed, I think the terminology you used in the past, Scott, is embedded, right? Therefore, considering how your business will develop in the next few years, what are your expectations for standard cleaning contracts or standard technical service contracts? How much of the enhanced sanitation in the disinfection work you are doing outside of the standard contract will be embedded in the updated contract?

Scott Salmirs-President and Chief Executive Officer

That's great. So, I think your view of this David is like cleaner, safer, and healthier buildings will continue to exist. We have seen one survey after another of employees and they are talking about the fact that the only way they are willing to return to work is for their company or their landlord to prove that they will work in a safe and healthy space. And we" have invested a lot of money, this is what you have been asking for, how much COVID income do you think you will retain, we say 50 basis points to 70 basis points. So we do think that many of the work orders we receive will be embedded in Contract. But this does not mean that profit margins will drop significantly, because you must remember to disinfect, perform the cleaning that we must perform to fight COVID, more expensive equipment, more expensive personal protective equipment, and more The higher the value of the training, it will be baked, but it will be baked at a higher profit margin. So we still believe that we will maintain 50 to 70 basis points, which will be the new normal. Think about Omicron, This is only three or four weeks of narrative, everything is changing. So there is no doubt that safety will be the most important.

David Silver - CL King & Associates, Inc. - Analyst

okay, thank you. My next question, I apologize, I will try to be less wordy, but I may fail. I mean, it has to do with IT development. So in your 2020 plan, Scott, there are some expenses there. But I would say that this is more catch-up spending, in other words, to improve your backlog of industry standards. However, when I heard some speakers today, digital transformation is getting more into the forefront and becoming a tool for developing revenue streams. So, there are a few things. But basically, this is a new level of IT spending and a new goal of the IT plan, and I am painting with an unfair paintbrush. In the past 20 years, I have many companies installed SAP [Phonetic] type systems, but they always take too much time, you miss the schedule, the cost is too high, which usually leads to the hair of the CEO and CFO[ Speech Overlap] But seriously, compared to what you are trying to do, how confident or what is IT spending accomplished, what is it-what is control, what is the stage gate, and what will keep the core strategic IT spending and productivity The valuation of the target?

Scott Salmirs-President and Chief Executive Officer

Yes, this is a good question. So, first of all, I want to say that the first thing is to let incredible leaders lead the plan. Those who have done this have a script, and I want to pass it on to Josh and Melanie. Maybe Josh you start. But like, I want to pass it on to someone who has participated in many of these tasks in his career, and he will pass it on to someone who has also participated in many, many of these tasks, you may want to talk a little bit about the stage The door flow and what it really means, because this may sound in jargon [Phonetic] So Josh, why don't you start.

Josh Feinberg - Executive Vice President and Chief Strategy and Transformation Officer

Thanks, Scott. Yes, so our IT implementation and the overall governance of the Elevate program do include three components. The first is accountability. Therefore, every plan, every part of IT implementation, every element has a management team owner who is also responsible for delivery. So-first, put the responsibility in a single place. Second, what Scott is referring to is the stage gate process. No matter what the initiative is, or what the IT part is, it must go through a phased gate process. I will talk about it soon, and then I will pass it on to Melanie.

The first is a business case. There must be a clear business case for any element of IT implementation, including the return on investment, including the metrics you want to track. That is the first. If you pass, then you get the design. Okay, okay, what is design, what is it-what this looks like, do we feel comfortable, because it has the potential to create the value we say in the business case. Then the third one is, let's test it. Let us actually continue to test it to see if it works and prove some value before we expand it. But in each of these four stages, it must go through the governance process. If it does not pass, it is over, we stop, pause and fix it, and you get funding all the way. So we feel very, very good about this and we have controlled it. Again, it's not like you write a blank check from the beginning, then give it to someone, and then see them within a year. It is very gradual and well controlled in this way. So I may have stolen Melanie's thunder, but I will pass it on to her.

Melanie Kirkwood Ruiz - Chief Information Officer

Great, thank you, Josh. So think about it. We have-we are implementing a phased implementation plan. The purpose of this is to allow us to mitigate the risks you have implied. Accompanying the FAA's implementation plan is a very detailed roadmap. What we are doing is that we will have a strong internal tracking system and project management capabilities to maintain this accountability. It also tracks our success against those milestones we planned. So it keeps us on target.

David Silver - CL King & Associates, Inc. - Analyst

OK. thank you very much. Appreciate it.

Paul Goldberg - Senior Vice President of Investor Relations

Thank you, David. The next question comes from Marc Riddick of Sidoti.

Scott Salmirs-President and Chief Executive Officer

Mark Riddick-Sidotti-Analyst

Scott Salmirs-President and Chief Executive Officer

Mark Riddick-Sidotti-Analyst

So, first of all, thank you all for participating in the presentation. This is very helpful and I am glad to hear from you all. We do not always receive news. So it must be good. I want to talk about the possibility of continuing to discuss this topic. During the digital transformation process, I would like to know if you have talked about how you developed this plan. Is this a work that you have carried out extensively internally? Is this what you have been working with external partners for? How should we consider how to always maintain the plan? Then I have some simpler follow-up actions.

Scott Salmirs-President and Chief Executive Officer

Yes. Then why don't I start. Then I will go back to my right again. But I want to say that many of our plans-Josh mentioned how COVID happened earlier, we paused, what we all saw in COVID, right. We see that we need to figure out how to work in a remote environment and how to communicate in a remote environment. Therefore, most of the work we do in digitization is to digitally communicate with customers, that is, the customer-oriented technology we talked about. How do you obtain customer information in a remote format? How do you work-Josh should definitely talk about labor management. How do you work with your team members in a remote environment? So it started with the social trends that Josh talked about in his prepared speech.

But with this, let me kick it to Josh.

Josh Feinberg - Executive Vice President and Chief Strategy and Transformation Officer

Yes. Thanks, Scott. I think it is important to answer this question very directly. How did it come about? Where did digitization come from? The entire Elevate program has four inputs. It’s really through listening and analyzing market trends, digitization and mobility to yell at us what the customer’s needs are and how we will meet these needs-the needs of team members, and then the entire economy. So what comes out of this is Focus on customer experience and team member experience, and then support both through data and analysis. This is where digitization comes in.

From the perspective of the third pillar, Elevate's core tenants are to make digitalization a competitive advantage. That is the first. Second, it happened today. You see it today, it just didn't happen on a large scale. Because of our footprint, we have the opportunity to scale it up. We have the largest architectural footprint in the United States, and we have the opportunity to do this on a large scale. Third, we can collect an unlimited amount of data from the building. They come in from the device. It comes from people, team members, customers, etc. in the building, and can complete an unlimited amount of data. Then, in Scott's point of view, it is where you use the data. So, how do you use this data for labor management, especially to ensure that our employees use the information provided to operate most effectively to ensure that our customers have the information needed to manage the building.

Therefore, we are very focused on creating value, whether in the income statement or in more leading indicators such as customer retention, which will start to generate more other growth. But if this is where digitization comes in, we really feel that this is the core tenant that supports team member experience and customer experience and creates a competitive advantage.

Scott Salmirs-President and Chief Executive Officer

The one thing I really like to talk about that excites me and I think will resonate with you is the fact that our frontline staff cannot move. So, this is the picture I want to pay for you. Our employees enabled the mobile function, we installed sensors in the building, a cleaner walked through the meeting and saw on their mobile device that the meeting room was not in use today, you can pass by, right. And usually they don't know this, they spend 10 minutes cleaning the meeting room.

So the effect of this is that, first, it makes us more efficient and ultimately saves labor costs, because they will be able to do more; second, it provides our customers with a wealth of data because they suddenly start to understand their Facilities and start asking questions. Why is that meeting room not used by so many people? Oh, it's a meeting room for 10 people. It seems that the four-person conference room is used more. That's it-this is a simple way to let you understand how we can provide such value to our customers by deploying such a system in place, and consider how sticky we are to our customers if we provide this rich data. It will be brilliant. We are very excited about this.

Mark Riddick-Sidotti-Analyst

great. So, I can go into many different directions, but I will be more specific in this part. I think this is part of the prepared comments, there are comments about building development teams-business development teams in manufacturing and distribution. I want to know if there are any-can you comment on this, and if there are other goals or priority hiring areas that may be higher than the company average? thanks.

Scott Salmirs-President and Chief Executive Officer

Of course. Speaking of manufacturing and distribution, I will hand it over to Rene. But one of the elements of Elevate is high positioning and how we will focus on where to grow and how to grow and increase business developers. But maybe you want to talk about M&D, because I know you are very excited about this industry group.

Rene Jacobsen - Executive Vice President and Chief Operating Officer

Yes. I mean, as I mentioned earlier today, I mean, there are 1 billion square feet of space to meet the needs of customers in retail distribution. Therefore, a huge market is coming, and we want to take advantage of the renewed focus on retail distribution. This is indeed the prerequisite for transforming from the perspective of T&M to M&D with retail distribution as the core. For the high-growth customers we already have, Amazon, UPS, Wal-Mart, etc., there are still huge opportunities in this field. Really for us, you always hear this word, it's about concentration. We know that focus is here to create results. So, this is the key we really want to take advantage of. What we also do is, we just-we are building M&D business around big customers. We only focus on the large customers served through it, and we are using the branch network system within B&I to capture small and medium-sized customers. There is also efficiency there.

Therefore, as we develop our business at the end of Elevate, our M&D story, in addition to ATS, we expect this to be a high-growth IG, possibly the highest IG other than ATS.

Paul Goldberg - Senior Vice President of Investor Relations

great. Thank you, Mark. Today's last question is entered through the platform. The question is, has there been any change in ABM’s capital allocation strategy and your views on dividends and stock repurchases?

Scott Salmirs-President and Chief Executive Officer

Yes, I want that. Thank you for your question. Therefore, the good news is that our capital allocation strategy remains the same and really depends on investing in organic growth. If you look at Elevate, it is a good example of our ability to allocate capital in a way that not only drives revenue growth, but also drives profitability. At the same time, we talked about Elevate also including M&A opportunities. Therefore, we will continue to look for opportunities to acquire valuable assets that will contribute to our long-term growth opportunities while enhancing our profitability.

When we considered the opportunity to allocate capital to our investors, we just announced an increase in dividends by 2.6%. Therefore, we will continue to fund our long-term dividend plan. As you know, we are currently authorized by the board of directors to carry out a share repurchase of approximately US$145 million. Stock repurchases are what we have done in the past and will continue to be part of our script. So this is a tool that we will continue to focus on every month. So, the good news is that with our strong cash flow and relatively low leverage, it gives us a lot of flexibility

Paul Goldberg - Senior Vice President of Investor Relations

Scott Salmirs-President and Chief Executive Officer

Earl Ellis-Executive Vice President and Chief Financial Officer

Josh Feinberg - Executive Vice President and Chief Strategy and Transformation Officer

Rene Jacobsen - Executive Vice President and Chief Operating Officer

Raul Valentin - Executive Vice President and Chief Human Resources Officer

Melanie Kirkwood Ruiz - Chief Information Officer

Tim Muloney-William Blair-Analyst

Andrew Wittmann - Robert W. Baird & Co., Inc. - Analyst

Tate Sullivan - Maxim Group - Analyst

Sean Eastman - KeyBanc Capital Markets - Analyst

David Silver - CL King & Associates, Inc. - Analyst

Mark Riddick-Sidotti-Analyst

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