Abm Industries Inc /De/ Q2 FY2021 Earnings Call

Greetings and welcome to ABM Industries Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. David Gold, Investor Relations for ABM Industries. Thank you. You may begin.

Thank you for joining us this morning. With us today are Scott Salmirs, our President and Chief Executive Officer; and Earl Ellis, our Executive Vice President and Chief Financial Officer. We issued our press release yesterday afternoon announcing our second quarter fiscal 2021 financial results. A copy of this release and an accompanying slide presentation can be found on our corporate website. Before we begin, I would like to remind you that our call and presentation today contain predictions, estimates and other forward-looking statements. Our use of the words estimate, expect and similar expressions are intended to identify these statements. These statements represent our current judgment of what the future holds. While we believe them to be reasonable, these statements are subject to risks and uncertainties that could cause our actual results to differ materially. These factors are described in a slide that accompanies our presentation as well as our filings with the SEC. During the course of this call, certain non-GAAP financial information will be presented. A reconciliation of those numbers to GAAP financial measures is available at the end of the presentation and on the company’s website under the Investors tab. I would now like to turn the call over to Scott.

Thanks, David. Good morning and thank you all for joining us today to discuss our second quarter results. As detailed in yesterday's press release, ABM reported strong second quarter financial results, building on the progress we achieved in our first quarter. Second quarter adjusted income from continuing operations per diluted share increased to $0.82, up nearly 37% from the year ago quarter. We generated significant operating leverage with adjusted EBITDA improving 17% year-over-year to $106.6 million and adjusted EBITDA margin increasing 100 basis points to 7.1% on slightly higher revenues. We're pleased to note that for the first time in five quarters growth in four of our key segments B&I, T&M, Education, and Technical Solutions more than offset the softness in Aviation, which while improved on a sequential basis, continued to reflect the impact of the pandemic. In short, our second quarter performance reflected a consistently high level of operational execution by our team amid gradually improving business conditions in sync with the reopening of the economy. This strong showing in our current visibility has enabled us to increase our full year guidance for adjusted earnings per share while we continue to invest to support future growth. Consistent with what we have discussed over the past several quarters, our customers continue to prioritize protecting their people and spaces, driving strong demand for our higher margin virus disinfection work orders. EnhancedClean, our proprietary and trusted protocol for cleaning and disinfecting spaces was an important contributor to our second quarter results as well. We also continue to benefit from efficient labor management as our flexible labor model enabled us to identify and capitalize on staffing efficiencies arising from the adoption of remote and hybrid work environments, particularly within our B&I segment where office occupancy in large metropolitan areas remains relatively low. As employees transition back to the office, we anticipate some easing in our labor efficiency, but we expect revenue growth in the second half of the year and increased work orders to mitigate that effect. With our scale, capabilities and market diversity and breadth of services, ABM remains well positioned for continued revenue and earnings growth as the reopening momentum continues. There are several key trends that support our outlook for continued strong performance in the coming quarters. First, our clients in both the office and manufacturing markets indicate they plan to continue to incorporate disinfection into their cleaning protocols as they prepare for the return of staff and workers to their offices and industrial facilities. In fact, given the heightened concerns around pandemic risks and greater awareness of public health issues in general, we expect these specialized services to remain in demand and to become part of our client contracts. ABM has been an essential partner in helping our customers navigate through the challenges of the past year and our 90% plus retention rate, which ticked up in the second quarter speaks to the confidence our customers have in our services and capabilities. Second, we expect continued sequential improvement in our aviation segment as pent up demand for travel translates into higher demand for aviation services. As Earl will discuss in his comments, we are transitioning our aviation business mix to favor higher margin contracts with airports and adjacent facilities with less of a focus on airline services. This strategic shift has created attractive growth opportunities for ABM outside of the airport, such as parking services and provides for a more consistent and more profitable business mix in our aviation segment. Additionally, we expect to see increased demand for disinfection and cleaning services in line with the pickup in travel activity. Early signs of return to leisure travel have been encouraging and increased business travel is projected to follow later in the year and into next year. Third, school districts have accelerated the return to in-person learning. Our conversations with school district professionals and educational institutions indicate that with the full-time return to school expected this fall, cleaning and disinfecting will be a priority throughout the school year. We expect these services to become part of the broader scope of services for new contracts and rebids, providing ABM with revenue and growth opportunities. Finally, the energy efficiency and retrofit solutions that we offer in our technical services segment, our highest margin business, provides significant operating cost savings for our customers and enable them to reduce their environmental impact. Now that we have greater access to client sites, we expect to increasingly work through our technical services backlog, which was at a record level at the end of the second quarter. Additionally, this segment is well-positioned to benefit from the new administration's priorities around decarbonization and energy efficiency. As we look toward the second half of the fiscal year, we are confident that we can leverage our significant competitive advantages to achieve continued progress. You may recall that at the very outset of the pandemic, we established 19 operational task forces, or Pods as we call them, to marshal our tremendous internal resources on the issues at hand to focus on our virus disinfection offerings, our field operations, as well as finance, legal, liquidity, cash flow, and human resources. This task force model proved to be a fast and effective way of identifying potential business issues and utilizing cross-functional expertise to develop and implement solutions. Given the success of these initiatives, we will continue to use this model to address emerging situations. In fact, our human resources task force is now focused on recruiting and retention and will be instrumental in helping us manage utilization as additional staffing is required to accommodate increased occupancy levels. Additionally, our strong balance sheet and robust cash flow provide us with substantial resources to fund investments to support future growth. We invested in information technology initiatives during the first half of fiscal 2021, and we anticipate investing further during the second half of the year. These investments in technology, data analytics, and strategic initiatives are designed to strengthen our client relationships and further empower our employees. While we will speak about these initiatives later in the year, I can share that we're currently piloting client-facing solutions using sensors to generate real-time occupancy data that inform our janitorial programs and allow us to share service delivery details with our clients via digital displays. Additionally, we are expanding our use of technology to workforce management with a digital task management solution that records work performed and facilitates dynamic route changes to accommodate shifting client demand. Lastly, the ABM brand is recognized worldwide, and our recent advertising campaign has served to reinforce the scale, scope, and capabilities of our organization. These attributes enabled us to step in immediately to provide our branded services to clients needing a safe environment for their employees and consumers. The ABM brand is synonymous with this tremendous commitment to customer service, which is supported by our ability to deliver as we enter a post-pandemic environment we believe the ABM brand will provide us with considerable competitive advantages across our business segments. Turning now to the specifics of our outlook. Given our strong performance in the first half and our expectations for continued year-over-year growth in the second half, we are maintaining our guidance for full year fiscal 2021 GAAP income from continuing operations of $2.85 to $3.10 per diluted share, inclusive of a second quarter litigation reserve of $0.32. At the same time, we are increasing our guidance for full year 2021 adjusted income from continuing operations to $3.30 to $3.50 per diluted share, up from $3.00 to $3.25 previously. This includes additional investments in client-facing technology and workforce management. We're also increasing our outlook for adjusted EBITDA margin to a range of 7% to 7.3% from 6.6% to 7% previously. We also ended the first half with robust new sales of $727 million, including $100 million associated with our EnhancedClean offerings, another first-half record. This supports our confidence in the company's organic second-half performance. Additionally, we continue to explore acquisition opportunities, where as a strategic buyer we would be able to drive meaningful revenue and operating synergies. Before I turn the call over to Earl, I'd like to thank all of our ABM team members for their continued dedication and hard work. Over the past year, we have made tremendous operational progress and have proven our value as an essential partner to our clients during these dynamic and challenging times. I have never been more inspired by our purpose, our team, and our organization. I also want to thank our customers for their confidence in us. As we emerge from this difficult period, I am so pleased with our performance and am more confident than ever in our future potential. I will now turn the call over to Earl.

Thanks, Scott, and good morning, everyone. Second quarter revenue was $1.5 billion, up 0.1% from last year. As Scott mentioned, revenue in four of our segments grew on a year-over-year basis, offsetting the continued pandemic-related softness we've experienced in the aviation segments. Key revenue growth drivers in the quarter included higher disinfection-related work orders and continued strong demand for our EnhancedClean services. On a GAAP basis, income from continuing operations was $31.1 million or $0.46 per diluted share. By comparison, in last year second quarter, we reported GAAP income from continuing operations of negative $136.8 million or negative $2.05 per diluted share. As Scott mentioned, GAAP income from continuing operations in this year's second quarter includes a non-cash $30 million reserve for ongoing litigation, equivalent to $0.32 per diluted share. This non-cash reserve relates to litigation dating back 15 years, primarily relating to a legacy timekeeping system that was phased out in full by 2013. You will find additional information in our form 10-Q, which will be filed later today. The recorded reserve is based on a host of factors considerations and judgments, and the ultimate resolution of this matter could be significantly different. As this litigation remains ongoing, we are unable to disclose further information at this time. As a reminder, last year's GAAP loss included a $2.55 per share impairment charge. Excluding these charges, our adjusted income from continuing operations in the second quarter of fiscal 2021 was $55.5 million or $0.82 per diluted share compared to $40.4 million, or $0.60 per diluted share in the second quarter of last year. The increase in adjusted income from continuing operations was attributable to our strong operational performance, including growth in our higher-margin services as well as efficient labor management and the recapture of bad debt. In addition, we benefited from favorable business mix, particularly in our Technical Solutions segment where we executed on higher margin projects. Excluding items impacting comparability, corporate expense for the second quarter increased by $26.6 million year-over-year. Approximately $10 million of the variation was due to increased stock-based compensation with the remaining $16 million representing investments and other related expenses. Thus, information technology and other strategic investments spend in the first half of fiscal 2021 was $20 million in line with our expectations. Now turning to our segment results. Business & industry revenue grew 1.4% year-over-year to $796.2 million, driven largely by strengthened demand for higher margin disinfection-related work orders and EnhancedClean services. As a result, operating profit in this segment increased 44.1% to $85.3 million. Our Technology & Manufacturing segments continued to see upside from demand for COVID-19 related services. Revenue here increased 5.4% year-over-year to $246.3 million and operating profit margin improved to 10.9%, up from 8.4% last year. We benefit from the recapture of roughly $2 million of bad debt in this year's second quarter. But even adjusting for this, our profit margins still showed improvement. The growth in revenue and margin was fueled by a higher level of work orders and new customer contract wins for our services. Education revenue grew 7% year-over-year to $214.2 million, representing the strongest growth rates among our segments in the second quarter. The acceleration in revenue growth primarily reflected the positive impacts from the reopening of schools and other educational facilities in the second quarter, and the shift towards more in-person learning. Education operating profit totaled $13.6 million, representing a margin of 6.3%, slightly down year-over-year on an operating basis as a result of labor challenges in our southern U.S operations. Bad debt expense was roughly $1 million lower than last year, and this was a contributing factor to the operating profit improvement we experienced in this segment. Although the specific labor costs I mentioned will not recur in the third quarter, we anticipate that the return of students to school on a full-time basis will lead to some reduction in labor efficiency within this segment in the second half. Aviation revenue declined 19.7% in the second quarter to $148.3 million. Although reduced global travel continued to weigh on this segment, revenue improved 3.6% on a sequential basis, marking the third consecutive quarter that Aviation segment revenue has improved sequentially. With industry data points indicating a progressive recovery in global travel, we are optimistic that revenue in our Aviation segment will continue to improve over the second half of fiscal 2021. Aviation operating profit was $5.8 million, representing a margin of 3.9%. While our airline customers continued to request higher margin enhanced cleaning services, such as electrostatic spraying, margins remain below normalized levels given reduced volumes. As Scott mentioned, we are focused on securing more profitable overall business with airports and related facilities and have continued to deemphasize our airline services work. This strategic shift in our Aviation segment business mix had a positive revenue and margin impact on our second quarter results and should benefit future periods as well. Technical Solutions revenue increased 2.6% year-over-year to $125.5 million. Operating margin was 8.2% in the second quarter, up significantly from 5.3% in the first quarter of fiscal 2021 due to a favorable mix of higher margin projects. As client site access improves, we remain positive on the growth trajectory of the Technical Solutions segment. Shifting now to our cash and liquidity. We ended the second quarter with $435.7 million in cash and cash equivalents compared to $394.2 million at the end of fiscal 2020. With total debt of $797.9 million as of April 30, 2021, our total debt to pro forma adjusted EBITDA, including standby letters of credit, was 1.7x for the second quarter of fiscal 2021. Second quarter operating cash flow from continuing operations was $125.9 million, down from $162.3 million in the same period last year. The decline in cash flow from continuing operations during the second quarter was primarily due to the timing of cash taxes. For the six-month period ending April 30, 2021, operating cash flow from continuing operations totaled $171.2 million. Free cash flow from continuing operations was $117 million in the second quarter of fiscal 2021 and $156 million for this year's first half. As a reminder, cash flow is benefiting from payroll tax deferral related to the CARES Act. Beginning next year, the deferral will be paid at $66 million in each of the next two years. We were pleased to pay our 220th consecutive quarterly dividends of $0.19 per common share during the second quarter, returning an additional $12.7 million to our shareholders. Our Board also declared our 221st consecutive quarterly dividend, which will be payable in August to shareholders of record on July 1. Supported by the strength of our balance sheet, we have the financial resources to support our capital allocation priorities of adding additional growth by investing organically while pursuing potential acquisitions.

Now I'll provide some additional color on our guidance and outlook. As mentioned, our increased guidance for full year fiscal 2021 adjusted income from continuing operations is now a range of $3.30 to $3.50 per diluted share compared to $3.00 to $3.25 previously. Our upward revised adjusted earnings forecast reflects the strength of our first half as well as our positive view for the second half. As a reminder, our third quarter has one fewer day than last year, equivalent to about $6 million in reduced labor expense. On a GAAP basis, we continue to expect EPS from continuing operations of $2.85 to $3.10, inclusive of the $0.32 litigation reserve in the second quarter. We continue to expect a 30% tax rate for fiscal 2021, excluding discrete items such as the Work Opportunity Tax Credits and the tax impact of stock-based compensation awards. As we noted in our first quarter conference call in March, our expectation was to achieve cash flow above our historical range of $175 million to $200 million for fiscal 2021. Now having generated $171 million of operating cash flow in the first half alone, we are confident that we will achieve free cash flow for fiscal 2021 of $215 million to $240 million. We are pleased with our positioning as businesses across the country emerge from the pandemic. And we look forward to helping our clients provide safe environments for their employees and customers. And I am personally looking forward to meeting with each of you in person hopefully as soon as later this year, and to connecting with you virtually until then. Operator, we are now ready for questions.

Our first question comes from Tim Mulrooney with William Blair. Please go ahead with your question.

Good morning, Scott. Good morning, Earl.

Good morning.

Good morning.

Thank you guys for taking my questions. So, a couple of questions on labor first, labor cost and then labor availability. On the labor cost side, in the last quarter you said that you anticipated retaining most of your labor arbitrage through year end, and that is a big part of your margin expansion coming from labor savings. But here we are a couple months later, and inflation is on the rise and on the forefront of everyone's mind, do you think the piece of your margin expansion that came from labor savings over the last 12 months, is that your expectation that eventually gets inflated away in the coming periods?

Yes, that's a good question. The answer is yes, and we've consistently communicated that. However, it's important to clarify this. Just as a reminder, 50% of our revenues come from unionized labor, which offers above-market wages and benefits, so we don't see much pressure there. The real concern is in the other 50%. We have strategies in place to address this. To manage labor effectively, we've formed a specialized team similar to what we did during COVID, focusing on recruiting and labor efficiencies. We're targeting specific areas, recognizing that conditions vary by location. For instance, cities like Orlando, Dallas, and Houston experience more pressure than others. Our focus is primarily on non-union areas. This is a significant priority for us, but I often reference the experiences of 2018 and 2019 when we also faced labor pressures and successfully navigated those challenges. We anticipate that the efficiencies we’ve gained will diminish as people return to work and we restaff, but we will retain some savings due to more effective staffing practices. Additionally, we eventually recoup these labor costs from our customers. While it's not perfectly elastic, we have demonstrated in 2018 and 2019 that we are capable of passing on rising labor costs to customers since they are experiencing similar challenges. So, while this issue is important to us, we believe we are well-prepared to manage it.

Okay. That's very reassuring. Thanks, Scott. Any of the investments that you've made recently, is there anything there that would help you pass on this cost in a different way, new capabilities that you have that you hadn't had before or is that not really related to this piece of the business?

It's not directly tied to this specific business area, but I want to share that a couple of years ago we made significant progress in our technology strategy by upgrading our HR system and moving to the cloud, which provided us with much improved capabilities. This transition has allowed us to gain insights and information that we lacked in the past. In the current labor environment, having access to this information is crucial for identifying pressure points and effectively managing staffing. I would mention that our recent investments are not explicitly focused on labor-related issues, as we were fortunate to be proactive about that.

Understood. If I could just squeeze one more in, I wanted to ask about labor availability. I mean, you guys had 114,000 employees toward the year-end. And I know this is down from 2019, but still more employees and pretty much every other company on my coverage list. So, my question here is not about labor costs, it's about labor availability. Most companies I talk to list labor availability as the prevailing issue right now even more so than inflation. So, is labor availability a major issue for you right now? And if so, has this affected service levels in any material way?

Yes. So funny, I would say, probably for our 112-year history, labor availability is always top of mind, right, because of what we do, right. But what I would say is this. I'd say, it's still a little early in the game, right? There's a federal stimulus out there of $300 a week, which we all know about over and above unemployment. And we do the math on that, you think about a $15,000 a year bump for people who are receiving unemployment. So that's something that keeps people at home, and we're starting to see some of the states rolling off starting this month, and in September, the federal program rolls off. So, I think it's a little early to see about what the labor availability will be in the fall when people return to work, because that's when we're really going to need it. Like, we don't have this massive need right now because generally speaking, Tim, right now it's still very muted occupancy in office buildings, right and travel is still only at 60% of where it was. So, I think we'll have more to say and other companies are going to have more to say after the federal stimulus wears off, and how many people reenter the workforce. So for now, we're navigating it well. But, again, we'll acknowledge it's definitely at muted levels right now of need, right? So, I think September is going to be the time where everybody is going to really understand what the availability pressures are. But I think anything before that is just speculation in our mind.

Okay.

Is that helpful?

Thank you very much.

You got it, Tim.

Thank you. Our next question comes from the line of Sean Eastman with KeyBanc Capital Markets. Please proceed with your question.

Hi, guys. Thanks for taking my questions and nice job again this quarter.

Thank you.

I guess just going back to the margin discussion, the different moving parts there, I mean, we have an updated second half outlook. But it seems like the dynamic in the business doesn't really change too much until the fall, September, October. So it's kind of right at the end of the fiscal year. I'm just wondering how much we can extrapolate from this second half updated margin guidance, as we think about what's sustainable going into next year. And then, I could just go round and round in circles around the different moving parts between labor efficiencies and how these IT investments trend. ATS coming back and being a growth driver again. I mean, is this implied second half run rate sustainable? What are the big moving parts we really need to consider on our models going into next year relative to that run rate?

Sure. We are not ready to provide guidance for 2022 yet, but we are very confident about the second half of this fiscal year. That's why we have raised our guidance. A significant reason for this confidence comes from our improved visibility. We have consistently emphasized the importance of being responsible, and we will not make bold predictions until we have clear insights. Currently, we feel we have strong visibility for the remainder of this year, and the dynamics appear favorable. Our EnhancedClean services and work orders in the second half have stayed at the same levels as in the first half, and we expect strong performance through the end of the year. There should be a return to work, though it won't reach 100% office occupancy. We're seeing an average of around 25% across the country, with southern states closer to 40% and coastal areas around 16%. This increase in return to work will translate to higher revenues for us and more demand for disinfection services. While we will experience some impact on labor efficiencies due to the need to re-staff, we view this as a positive trend. Additionally, we have a backlog of over $250 million in Technical Solutions business, our strongest ever, and our churn rate has risen. Historically, our churn rate for the second quarter was about 12%, but it improved throughout the quarter. We expect to see revenue growth in the second half, strong demand for disinfection, and an increase in ATS churn as well. We feel very positive about these developments and will monitor how things progress as we approach 2022. November 1 starts our fiscal year 2022, and we anticipate that it will coincide with more people returning to work, giving us a strong start. However, it is still early to provide guidance.

Yes, it does. The balance sheet is prepared for capital deployment. It seems that your comments on mergers and acquisitions have increased this quarter. Can you discuss the activity in the acquisition pipeline? I'm hearing from many companies that their decision-making for selling is speeding up.

Yes, there is definitely increased activity. We were clear last year that we wouldn't consider any moves until we were through the pandemic and had stabilized liquidity. We're still relatively new to this, but our teams are actively engaged. We believe there will be opportunities for us. The advantage we have as a strategic buyer is that we can leverage both operational and revenue synergies, making us competitive when attractive assets become available. M&A is a key priority for us because growth is crucial, and we're excited about the opportunities we are beginning to see.

Okay, excellent. I'll turn it over there. Thanks so much, Scott.

Thanks, Sean.

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

Great. Good morning. Thanks for taking my question. Scott, in your prepared remarks you mentioned that your B&I customers and some of your manufacturing customers, they're going to keep cleaning, you think that some of the enhanced cleaning services might become part of the contract. And so I just wanted to understand that mechanism a little bit more. Do you expect that those would be negotiated contracts, or as they look to increase the size? Do you think generally speaking that your customers as they look to increase the amount of cleaning that they do that they go out to rebid with that? And what do you think as these things become part of the base contract and less tag worker or work order work? What, if any, implications are there to the margins? What are your thoughts on that one?

That's a great question. I think we've been consistent over the past few quarters in stating that the natural direction of this work will be to become part of the main scope. As the former facility manager, I would approach it that way. I anticipate that as clients consider retendering contracts in the next year or two, they will incorporate this work, which is a smart move. We have discussed margins of around 30% for this work, and I expect that to decrease somewhat. I’m not sure where it will ultimately settle, whether at 20% or 25%, but the key point is that this service holds higher value, allowing for higher margins. There are training, equipment, and protocols involved. Therefore, I believe we can maintain a significant portion of the margin. However, the expectation is that this will become part of the base contracts for larger clients, while smaller tenants are likely to think of it on a work order basis, which makes sense for them as well.

That makes sense. But as we sit here today in June, are you seeing those kinds of discussions happening or this is just still, I mean, you've been saying this for a while, like you just said there, but are you seeing anything today that towards this trend here in June?

Not yet. People aren't really focused on rebidding contracts right now. For facility managers, the priority is preparing for workers' return, reoccupancy programs, space planning for offices, and health and safety measures. Rebidding a janitorial contract requires significant focus and effort. I believe this activity will take place in 2022 or 2023 rather than the latter half of this year, as we haven't seen any plans on a large scale to enter the market for rebidding. Additionally, when facility managers are uncertain about future occupancy or floor layouts, it would be premature to bid for contracts since they can't define a comprehensive scope yet. Therefore, in their position, it would make sense to hold off on formal planning for new work arrangements until more people return.

Yes, that makes sense. Regarding Technical Solutions, you are installing electric vehicle charging stations and retrofitting schools with various systems. Some of these projects have been funded by the recent $1.9 trillion allocation for schools. I'm curious if you're already bidding on projects that relate to this funding. You mentioned having a record backlog, so I'm interested to know whether that backlog was formed before or after the stimulus and any insights you can share on that matter.

Yes, the positive aspect is that we haven’t yet witnessed the direct impact since many of these programs are still in the process of being formalized. However, I can share that our Bundled Energy Solutions, which encompass project retrofits, are experiencing significant activity due to the availability of other government programs. School districts have the opportunity to secure capital as they continue facing pressure on their operating margins. We are observing an increase in the pipeline of clients interested in finding ways to reduce operating expenses, which aligns perfectly with our Bundled Energy Solutions. Furthermore, the administration’s renewed focus on decarbonization and e-mobility, particularly our easy charging initiative, is still a relatively small segment for us, but it is rapidly growing and gaining considerable attention. We believe that the societal trends and the administration's initiatives will serve as a strong advantage for us in 2022 and 2023.

Okay, that's helpful. I have one last question for Earl regarding the results of the unallocated corporate expense segment. You mentioned in your prepared remarks that the $20 million in investments this year compared to last year is on track. You've indicated it will total $40 million for the year, which seems to align with your current investments. However, I want to clarify for our models that last year's unallocated corporate expense segment will show an increase of $40 million due to these investments. Additionally, as you noted in the press release, stock compensation will also be rising. Could you provide insight into how much stock compensation is increasing year-over-year? This information would help us understand that line better and allow us to assess the implications for the operating segment margins. It would be useful to know your perspective on the unallocated segment line.

Sure, Andy. I'd be happy to do that. To start, as we noted last quarter, we are continuing to invest in our talent to support future growth opportunities, along with the planning and design phase of our technology solutions rollout. This investment has increased by about $40 million year-over-year, and to date, we have spent $20 million of that. If you remember, the first quarter was a bit of a late start, where we likely spent around $3 million to $5 million, but we caught up in the second quarter. Looking ahead to the second half of the year, we will continue to spend that $10 million portion in the third and fourth quarters. However, from a year-over-year perspective, it may appear uneven. For example, in the third quarter, we benefited from the furlough last year, which will reflect positively. In the fourth quarter, even though we will still spend that $10 million, this spending actually began in Q4 of last year, so year-over-year it may appear fairly stable. Nonetheless, we remain on track for the $40 million investment this year. Additionally, our share-based compensation is increasing by approximately $15 million year-over-year. This rise is due to several factors, including special grants from last year and how we are tracking with grants that will vest this year. Expect some fluctuations in this year-over-year increase, particularly noticeable in the second quarter compared to last year, when we significantly reduced our reserve in anticipation of pandemic impacts. We began ramping up that investment in accruals last year. In the latter half of this year, we foresee a smoother year-over-year progression regarding share-based compensation.

All right. That's very helpful. Thank you very much. Have a great day, guys.

Thank you.

Thank you.

Thank you. Our next question comes from the line of David Silver with C.L. King & Associates. Please proceed with your question.

Yes, good morning. I would like to ask Earl to elaborate a bit on the stock-based compensation discussion that just concluded. There are several factors at play in these programs, but for clarity moving forward, should we be monitoring the change in your share price from January 31 to April 30, which drove much of the expense this quarter? Or is it more based on accrual over time or an average share price? Could you possibly provide some guidelines that might help us adjust our expectations for that expense item? Thank you.

Sure. When we examine our share-based compensation, we find that a significant portion is closely tied to our financial performance, specifically our revenue and EBITDA. It's evident that we can clearly monitor our progress on these two metrics. Particularly this year, our EBITDA and earnings have benefited from margin expansion, which has played a major role in the increased accrual we are observing in our stock compensation plan.

Thank you for that. Scott, I have a question about the project reserve your companies established a few quarters ago, which was around $18 million pre-tax. My understanding is that this was related to your customer's inability to start operations. Could you provide an update on whether the current pace of reopening workplaces and social venues suggests that this reserve might be reversed in the coming quarters? Also, please give us an update on that issue.

Yes, I tend to be quite optimistic. However, I want to let you know that we are actively engaged in discussions right now, but it's challenging to provide specific comments because things are still in progress. Like with any reserve we establish, we don't abandon it; instead, we pursue it. So, to sum up, we are having ongoing conversations and will have more updates on that in the future.

Okay. I have one more broader question regarding your branding and marketing strategies to date. You've mentioned previously that you've increased your marketing efforts across various platforms, and I’ve noticed your national commercial on CNBC quite frequently. First, could you share any concrete results, specifically related to certain product lines or sub sectors, where increased awareness and visibility have made a difference? Secondly, looking at the long-term perspective, your company has a history of over a century and a national presence, yet you've intensified your marketing efforts. From a one to two-year perspective, where do you believe that increased awareness and branding will have the most significant impact? For instance, could this encourage customers who previously used regional competitors to choose your higher level of service? Or are there specific regions you're aiming to penetrate where this branding might be essential for success? Overall, how do you assess your branding success so far, and where should we anticipate the biggest impact in the next year or two? Thank you.

I believe what we're doing with our commercial brand is crucial. We're aiming to create differentiation in the market, which is evident in our resources and scale compared to others. This has been particularly beneficial in our supply chain; we have always had access to disinfectants and PPE due to our sourcing capabilities, unlike many clients who relied on regional providers. Additionally, we formed an advisory council of external experts to help our clients better understand guidance from the CDC and World Health Organization—something smaller regional players struggled to offer. Coupled with our commercials on CNBC, this creates a distinct choice that we expect will significantly impact client retention over the next few years. Our retention rates have been over 90%, and even a small increase in that number is significant for our business. Last I checked, our website saw about a 10% increase in traffic, and our sales team has reported more digital engagement. It's a combination of factors, enhancing our brand visibility through TV and social media. Our goal with ABM is to differentiate our platform from smaller regional competitors.

Okay, great. Thank you very much.

Thank you.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. Salmirs for any final comments.

Yes. So, I just want to take a moment to thank everyone for supporting us through this period. So proud of what our team members have done and appreciate the interest from our investor base and analysts base on what we're doing. And you can tell that there's a strong level of enthusiasm about the future for ABM between the brand elevation, between our margin elevation and about societal reflections on virus protection going forward. We think we're just in a super good spot to continue to invest in and accelerate the platform. And the most important thing is just we're not out of this yet. And I would just urge everybody to not let their guard down and stay safe through this, and we have good things coming. So, thank you all for the time today. Really appreciate it.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.