Greetings, and welcome to the ABM Industries second quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Paul Goldberg, Senior Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to ABM's second quarter 2026 earnings call. My name is Paul Goldberg, and I'm the Senior Vice President of Invest Relations at ABM. With me today are Scott Salamir, our President and Chief Executive Officer, and David Orr, our Executive Vice President and Chief Financial Officer. Please note that earlier this morning, we issued our press release announcing our second quarter 2026 Financial Results and Outlook. A copy of that release and an accompanying slide presentation can be found on our website, abn.com. After Scott and David's prepared remarks, we will host the Q&A session. But before we begin, I would like to remind you that our call and presentation today contain predictions, estimates, and other forward-looking statements. Our words of these estimate, expect, and similar expressions are intended to identify these statements, and they represent our current judgment of what the future holds. While we believe them to be reasonable, these statements are inherently 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 historical non-GAAP numbers to GAAP financial measures is available at the end of the presentation and on the company's website under the Investor tab. And with that, I would like to now turn the call over to Scott.

Good morning, everyone, and thank you for joining us to discuss ABM's second quarter fiscal 2026 results. We had a strong quarter. Organic revenue growth came in at 6.1%, and I'm especially pleased to report that our first half new sales bookings reached $1.2 billion, a new record for ABM. Organic growth was especially strong in technical solutions and aviation, While on M&D, we saw healthy, underlying organic demands complemented by the WGN-STAR acquisition, which is performing well and adding meaningfully to the segment's results right out of the gate. Education continued to post steady growth, and B&I was flat organically. B&I was impacted by the exit of a large UK client during the second quarter and by our decisions to exit several other clients, especially on the West Coast, where commercial real estate markets have yet to fully recover, creating pressure in the market. Stepping back from the top line for a moment, we also executed well operationally. Margins improved sequentially, and free cash flow was up significantly in the first half compared to last year, which I'm very pleased with. As we look ahead to the second half, the setup is compelling. We expect volume to ramp meaningfully in both ATS and M&D, and service mix within ATS in particular should improve as the project pipeline matures and our backlog execution ramps sequentially. Layered on top of that, our cost discipline and price escalation actions are gaining traction. Taken together, we expect these drivers to produce a significant step-up in both earnings and margin as we move through the back half of the year. While the near-term macroeconomic environment remains dynamic, ABM operates in markets that offer a compelling combination of secular growth opportunities in areas like energy infrastructure, semiconductors, and airport modernization, alongside the steady, predictable revenue streams that have always been ABM's foundation. When taken together with the strong operating culture we have in place, ABM is well-positioned to capture the long-term growth opportunities ahead. So let me share more. Within business and industry, the prime office recovery continues to gain traction, although, as mentioned, the market is still experiencing some softness on the West Coast. U.S. office leasing is approaching 2019 levels. Net absorption turned significantly positive in the first quarter, the strongest since 2020, and prime vacancy rates continue to tighten. New supply remains extremely limited, with the construction pipeline nearly 90% below its 2020 peak. The flight-to-quality dynamic continues to favor exactly the types of prime assets where ABM is concentrated, and we expect to see positive spillover into the next tier of high-quality buildings. This dynamic is translating into real wins. Last year, we were selected to service the new headquarters of the nation's largest bank here in New York City, And we recently followed that with a significant new facilities contract with another of the nation's leading commercial banks. These wins reflect both the strength of the office recovery and the confidence that world-class clients are placing in ADM. Turning to M&D, the semiconductor build-out may turn out to be one of the most compelling growth stories in American manufacturing in the 21st century. Over $645 billion in private investment has been announced across 140-plus projects since 2020, with major commitments from companies such as TSMC, Micron, Intel, Samsung, and Texas Instruments. The WGM Star acquisition has significantly strengthened our presence in semiconductor fabrication environments, and the benefits are already becoming evident. During the second quarter, we secured tens of millions of dollars in new business and delivered high double-digit organic revenue growth across our semiconductor market. Beyond semiconductors, e-commerce growth and U.S. manufacturing reshoring continue to support healthly demand across the segment, which will continue to benefit us. In aviation, the fundamentals remain strong. TSA throughput is running close to 3 million passengers per day, and leisure demand remains robust. Airport infrastructure investment is at elevated levels as aging terminals drive a sustained modernization pipeline, and our recent wins at Orlando International, Miami International, and LaGuardia Terminal D reflect the strength of that pipeline. While rising fuel costs will likely create some near-term challenges for our airline clients, The long-term trajectory of this business is positive, and our pipeline of new opportunities continues to evolve. In education, the numbers tell a compelling story. K-12 schools in this country average 49 years in age. There is an $85 billion annual funding gap for repair and modernization. and higher education construction spending in that area continues at near record levels. These dynamics should create durable, long-term demand for ABM services. Our strong retention rates and ABM Performance Solutions offering position us to capture an increasing share of this opportunity, and our recently awarded $25 million Detroit Public Schools contract is a tangible demonstration of that. And in technical solutions, the tailwinds are as strong as we have seen. Nationwide battery storage installations were up 52% in 2025. AI is accelerating data center construction at double-digit pace globally, and microgrids are becoming essential infrastructure for the modern electric grid. This is precisely where ATS is most differentiated. sitting at the intersection of energy resiliency, electrification, and AI infrastructure. Another recent microgrid win with a major big box retailer, along with a variety of other energy storage and infrastructure projects booked this quarter are proof points of what we believe will be a multi-year growth cycle for this segment. Now, looking specifically at the remainder of the year, We expect strong results in technical solutions driven by higher volume and improved mix. M&D is also expected to deliver robust results as new business continues to come online and WGM Star ramps up. Education will continue to be solid. B&I revenue will likely moderate in the back half of the year due to client exits, including the large UK client I previously discussed. And in aviation, while air travel demand remains robust, we are watching the potential impact of rising fuel costs on our airline clients. Overall, though, our end markets remain largely constructive, and we continue to closely monitor the evolving macroeconomic environment. We remain focused on reducing leverage to below three times, maintaining a disciplined approach to capital allocation, and executing against our full-year outlook as we operate with focus and financial discipline. With that, I'll turn it over to David.

Thanks, Scott, and good morning, everyone. Let's start on slide six. Revenue grew 8.4% year-over-year to a second quarter record of $2.3 billion, driven by 6.1% organic growth and a 2.3% contribution from acquisitions, primarily WGN-STAR. Consolidated organic growth was the strongest we've delivered since Q3 of 2022, with technical solutions and aviation leading the way. By segment, technical solutions grew revenue 27%, aviation was up 20%, and manufacturing and distribution grew 17%. Education grew 2%, while B&I was essentially flat. Overall, we remain pleased with the growth trajectory of the business, reflecting the resiliency and diversity of our in-markets, as well as our investments in sales talent and industry expertise, which helped deliver record first-half new sales bookings of $1.2 Turning to slide seven, that income for the quarter was $43.1 million, or $0.73 per diluted share, compared to $42.2 million, or $0.67 per diluted share, in the prior year period. Adjusted net income was $52.9 million, or $0.90 per diluted share, versus $54.1 million, or $0.86 per diluted share, last year. These year-over-year changes primarily reflect higher interest and amortization expense, offset by lower tax expense and corporate costs. Per share measured or boosted by our recent share repurchase activities. Adjusted EBITDA increased $5.8 million over the prior year to $131.7 million. Segment operating margin increased 20 basis points sequentially to 7.3%. On a year-over-year basis, segment margin decreased 60 basis points, primarily reflecting the impact of contracts that came online last year in M&D and B&I, as well as higher amortization expense related to the WGM-STAR acquisition. We expect healthy sequential margin improvement in the third and fourth quarters, driven by improved mix in ATS and our ongoing price escalation and cost actions. Now let's turn to segment performance, beginning with slide eight. B&I revenue was essentially flat with last year at $1 billion. This performance was driven by overall strength in our U.K. markets, partially offset by the mid-quarter exit of a large U.K.-based client and the impact of certain other client exits, particularly on the West Coast. Looking forward, we expect growth to moderate in the back half of the year, primarily due to the full run rate impact of the previously mentioned client exits. Operating profit was $76.7 million, and margin was 7.6%, compared to $83 million and 8.2% respectively last year. This margin change primarily reflects shifts in contract mix, along with increased investments in sales resources to support long-term growth. Margin improved 10 basis points sequentially as we continue to make progress on our cost and price escalation actions. Aviation revenue grew 20% to $310.8 million, supported by healthy travel demand and the ramp of new contract wins, particularly our new Heathrow contract. Looking to the back half of the year, organic growth will remain strong, but moderate from Q2 as we anniversary several large contracts that were brought on in Q3 of last year. operating profit was 16.3 million with a margin of 5.3 percent compared to 16.5 million and 6.3 percent last year profit and margin were pressured by incremental weather related cost certain contract scope changes and tsa driven operational disruptions during the quarter as well as by ramp up costs for the new heat throw contract turning to slide nine m&d generated 463.8 million in revenue, a 17% increase year-over-year, including organic growth of 7% and 9% growth from the WGN Star acquisition. The strong organic growth was driven by recent contract wins, particularly in the technology sector, along with continued client expansions across the segment. Operating profit was $40.6 million, with a margin of 8.8%, compared to $39.9 million and 10% last year. As anticipated, margin increased 20 basis points sequentially. On a year-over-year basis, the margin change reflects the mix of newer contracts secured last year that are helping to drive organic growth. Margin was also impacted by $4 million in incremental amortization expense connected with the WGN STAR acquisition. Excluding incremental amortization, margin was 9.6%, which we believe better reflects the underlying long-term earnings power and margin profile of the segment. Education revenue rose 2% to $232.2 million, primarily driven by escalations. The segment delivered strong operating performance, with operating profit increasing 19% to $16.4 million and margin expanding 100 basis points to 7%. This improvement was driven by enhanced labor efficiency and effective escalation management. Our education team continues to execute at a high level and win meaningful new business, such as a large ABM performance solutions contract from the Detroit public school system, which will come fully online in the fourth quarter. We also expanded our scope with the University of Miami, a longstanding and important client. Looking ahead, we expect margin to improve in the third quarter, which is always a seasonally strong period for education. Technical solutions second quarter revenue was $267.3 million, up 27% year over year. including 22% organic growth and 6% from acquisitions. Organic growth reflected robust activity in our data center markets, as well as strong growth in battery energy storage system and HVAC project activity. Additionally, we booked significant new microgrid business in the second quarter with a major big box retailer, which supports our expectations for a strong second half in terms of revenue and mix. operating profit was 16.8 million with a margin at 6.3 percent compared to 13.4 million at 6.4 percent last year the increase in profit was driven by significant volume growth margin primarily reflected service mix that was less weighted to design and engineering and more weighted to equipment intensive infrastructure project services as well as ongoing investments and growth we expect the service mix to improve in the back half of the year as has been our historical performance cadence within technical solutions. Now turning to slide 10. We ended the quarter with total indebtedness of $1.9 billion, including $23 million in standby letters of credit. Our total debt to pro forma adjusted EBITDA ratio was 3.2 times. Available liquidity stood at $614 million, including $95 million in cash and cash equivalents. As expected, the WGN Star acquisition pushed leverage above three times in the second quarter, and we expect to work it back down under three times by the end of our fiscal year. Second quarter cash from operations was $66.2 million, and free cash flow was $22.4 million. For the first six months, cash flow from operations was $128.2 million, and free cash flow was $71.2 million, versus a use of cash of $73.9 million and negative free cash flow of $107.8 million in the prior year period. This year-over-year improvement of approximately $180 million during the first six months was driven by strong working capital management efforts and continued progress on our ERP stabilization.

Now turning to capital allocation.

As mentioned, we're focused on reducing our leverage below three times, and as such, our near-term priority is debt repayment, but we'll remain flexible as potential value creation opportunities present themselves. At quarter end, $89 million remained under our existing authorization. Interest expense in the quarter was $28.1 million, up $4.2 million from last year, reflecting larger average debt balances driven by our WGN-STAR acquisition. Turning to our fiscal 2026 outlook on slide 11, as Scott noted, while we remain encouraged by the relative health of our end markets, we're mindful of broader economic uncertainty. Accordingly, we're maintaining our previously communicated fiscal 2026 adjusted EPS outlook. As a reminder, our full-year organic revenue growth outlook is 3% to 4%, and we now expect to be toward the higher end of that range. Aviation, M&D, and technical solutions are expected to grow above that range, while B&I and education are projected to be below that range. The WGN-STAR acquisition is expected to deliver approximately one additional point of revenue growth, bringing total growth to the high end of our 4% to 5% range. Segment operating margin is expected to be toward the low end of our range of 7.8% to 8% for fiscal 2026, with margin expansion weighted toward the back half of the year, primarily driven by improved mix and volume in ATS. Interest expense is now forecast to be approximately $110 million, driven by higher-than-forecasted interest rates. We plan to offset this headwind with additional cost actions. Our normalized tax rate before any discrete items, including the possible extension of the Work Opportunity Tax Credit Program, is still expected to be 29 to 30%. We feel good about our progress generating cash and are confident in our expectations. And as a reminder, we expect free cash flow of approximately $250 million in 2026 before the impact of transformation and integration costs, the final Ravenvolt earn-out, and any incremental restructuring. Putting it all together, we continue to expect full-year adjusted EPS to be in the range of $3.85 to $4.15. In addition, we've been actively implementing operational and process improvements to our insurance program over the last six months. We believe these changes will ultimately enable us to better predict the in-year impact of prior-year self-insurance adjustments. As such, our full-year fiscal 2026 outlook no longer excludes the expected impacts of such adjustments, which we believe provides greater predictability and transparency in our outlook going forward. And with that, I'll hand it back over to Scott for closing remarks.

Thanks, David. In closing, I'm pleased with where ABM stands. We are growing, we are generating cash, and our end markets are largely constructive. We have more work to do, particularly in driving consistent margin improvement but the trajectory is positive, and the back half of the year gives us real opportunity to demonstrate that. We remain disciplined stewards of capital. Near term, that means staying focused on deleveraging. Longer term, it means continuing to shape our portfolio and invest in areas where ABM can become a more integrated and important supplier to our clients and generate the most shareholder value. Lastly, I want to take a moment to thank our team. More than 100,000 people show up every day and deliver for our clients, and their commitment is what makes ABM's long-term story possible. With that, we'll open up the line for questions.

Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation term will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. To allow for as many questions as possible, we ask that you each keep one question and one follow-up. Thank you. Our first question comes to the line of Tim Mulrooney with William Blair. Please proceed with your question.

David, good morning. So I wanted to ask your power solutions business here, which seems to be running pretty hot right now with more microgrid activity, I guess, expected in the back half here. But on the second quarter specifically, were there any really large projects in there, like the battery storage system or anything else that had a significant contribution to that 22% organic growth number we saw in the quarter?

Yeah. Hey, Tim. It's David. Thanks for the question. We did have a really good quarter on the battery energy storage side. There was a couple of large projects, as you mentioned. And, you know, those projects carry a little bit different profile, right? They're heavy on equipment, heavy on infrastructure, and the margins are a little less just because you've got so much equipment going into the jobs. But we see that momentum continuing on not only those jobs in the second half, and really ramping up our more traditional microgrid work for switchgear and generators in the second half as well.

Yeah, and Tim, just to give you a little more build-out on that, and I'll go super high level on this, but when you look at our ATS project work, you can almost think of it in two phases. It's like the design and the engineering, and then it's the turning the wrenches part, and the turning the wrenches part is lower margin than designing and engineering. So when you look at the mix for this quarter, when you look at margin, we were heavily weighted towards the turning of the wrenches part. And we think in the back half, or we know in the back half, we're going to have a lot more of the designing and engineering. And you'll see the margins ramp in the back half, if that helps a little bit.

Yeah, that's really helpful. That was actually my other question, was I was going to ask about the margin trajectory and the mix. But I appreciate the color there, Scott. And David, maybe I'll follow up with something else in technical solutions. I noticed in your slides you highlighted higher HVAC project activity in the quarter. Now, HVAC technicians we all know right now are in such a high demand nationwide for data center construction projects. I'm curious if you're seeing more work kind of crop up in the building environment on the retrofit side, because perhaps some other companies that you'd normally compete with on these jobs are now just solely focused on new data center construction? Are you seeing more opportunities open up?

I would say we're strong across the board. I don't think we're seeing one particular segment versus the other. Obviously, data centers are really strong, but I think we're seeing it kind of broad-based right now, Tim.

Okay. Thank you.

Thank you. Our next question comes from the line of Jasper Biff, with Truist Securities. Please proceed with your question.

Hey, good morning, guys. I know you raised the organic growth side of it today. It still implies like a little bit of deceleration in the back half of the year. It sounds like at the segment level, things are mostly running ahead of that range with the exception of B&I due to some client exits, I guess. I'm wondering if the flat growth in the second quarter reflects the full impact of those client exits in B&I, or maybe the segment would dissower a bit more in the next two quarters.

Hey, Jasper, you're calling from a bad line. Maybe you could just repeat that question. Hopefully, it'll come across clear. We hardly heard it.

I'm sorry. Hopefully, this is better.

Yeah, okay, great. Yeah, so my question was on BNI. You mentioned some client exits in the quarter. I was wondering if the flat growth in the second quarter reflected the full impact of the client exits or maybe the segment would decelerate a bit more in the next two quarters as you, I guess, see the full impact of the exits you talked about.

Yeah, maybe I'll just break down BNI for you. Like, you know, I think the majority of the pressure that, you know, we're seeing was that the TFL exit that we talked about. And that was pretty significant. And then, you know, the other part of it that we talked about a little bit was the West Coast. And, you know, maybe I'll just give you a little bit more background on the way we see that market and what's going on. And if you were to look at vacancy rates in cities like L.A., San Francisco, Seattle, to give you a context, they're probably two or three times worse than New York City. And if you were to think about those markets, think West Coast is kind of tech-heavy, whereas East Coast is banking, legal. And from a return to work standpoint, also, as you guys know, like the West Coast, when it comes to the tech sector, they're not returning to work the same way financial services and legal is. So we're seeing pressure in those markets. And what ends up happening with that pressure is competitors will start, especially when it's prolonged, the way it's been prolonged for the last couple of years, competitors start making pricing decisions and margin decisions that just don't meet our economic thresholds. And I'll just tell you, I've seen this before in my long career at ABM, and this stuff, it tends to be episodic, and it's not sustainable. So we see it waning over time, but right now we're seeing some of that pressure. And, you know, if I were to distinguish this quarter versus last year when we made some strategic decisions, for us, we have to see a path to profitability. It has to be a highly strategic account. Those were the dynamics in Q3 of last year versus what we're seeing now. So we made these decisions. We're actually happy about the decisions we made on the exits because what you will see in BNI in the second half is our operating margins flex up, and we feel that's really important.

And Jasper, I'll just – one more bit of color on that looking forward for BNI. The TFL exits accounts for about 300 basis points of growth impact for BNI in the back half. So when we talk about the proportion of the impacts, it's clearly the majority of that's going to be because of that contract exit.

Thanks. And then could you maybe provide a bit more detail on where you're at with the ERP at this point, what kind of margin opportunity you think you have there with ERP in place and running in, I think, three of your five segments at this point?

Yep, you're right. three of five on the platform. We're in the planning phases for the last couple segments, and, you know, based on all the things we learned from the first go-lives, we'll be taking that into consideration. I think the opportunities lie ultimately in scalability, you know, and what we anticipate from an AI perspective and, you know, how we load contracts in, how we process the invoicing, you know, our efficiencies in collecting cash. So we're mindful of that, but first things first is just getting the planning done for the next groups, and we'll provide clarity to that in a future call.

Yeah, and kind of I would just say what I'm excited about in terms of getting done with the ERP is we're just going to have a clean data set, and when you think about AI and all the leverage, it's so important to have clean data to leverage your tool set on, and And we're heading in that direction, and I think you're going to see some meaningful opportunities in 2027, 2028 as our data set matures, as our AI matures. We see there's just a lot of runway in what we're going to be able to do with scheduling and workforce management. I mean, there's a lot of exciting initiatives coming, and, you know, we always feel like it can't come soon enough, but we're mindful of the pace and the balance. We're in a long-term situation here.

Heather, thank you for taking the questions, guys.

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

Great. Good morning, and thank you for taking my questions, guys. I wanted to first ask about the, I guess, the standby generator microgrid work that you're doing at the retailers. You've had a large retailer that has been working with you guys to install these for several years now. I think you're on at least I know you're on here at least your second maybe your third kind of tranche of stores that that that legacy retailer that you've been working with has given you it sounded like I guess I heard here that there's a there's a new large retailer that signed you up and so I'm just trying to understand now that we've got two of these kind of where they are in terms of of installing these types of things on their stores both for the legacy and how much you have with this new customer and how you're thinking, Scott, about the long term with this customer. Obviously, you need to deliver, you know, quality work and all of that. But is this the beginning or is this new one, are you expecting that it is likely to have phases as well? Thank you.

Thanks. Look, I would just say kind of high level, Andy, like we think there's just a lot more runway in the microgrid business. And it's for us, it's not necessarily customer by customer. And, you know, the big trip is having customer concentration, which you don't want to have. So we're very focused from a business development standpoint of spanning out and strategically going after a broader range of clients. So it's not about like one or two clients for us for the long term, although right now we are heavily weighted to one and two. But we're growing out of that, and we're optimistic about what the next year or two is going to bring in terms of, again, broadening that perspective. But with these other clients, we see really good runway in their portfolio and their programs.

Got it. I guess my follow-up question has been for David. So I wanted to just talk about the prior year self-insurance accounting here that's in your adjusted results. I'm sorry. I don't know if I quite followed this. As I understood it, like going back here as we came into the year, you are no longer adjusting for this, and it was going to be – it's been an ad back for years. It was not going to be this year. Did I hear you say that you made a change this quarter to putting it back in? I'm sorry, can you just clarify that? And did the change that you made this quarter have any, I mean, the nominal number that you're saying in terms of EPS for the range for the year is the same, but was there an impact from the change that you made this quarter? I'm sorry, could you just please explain that maybe more slowly this time so we can all understand? Yeah, sure, Andy, no problem.

So just to take a step back for context, last year, 2-2, we had communications with the SEC, and they were strongly advising us to record any prior year self-insurance adjustments above the line as part of our operating earnings. So we did that, and fast forward to the guidance for this year, for fiscal 26, what we said was we would continue recording those adjustments as part of operating earnings. However, we weren't factoring that into our guidance, right? And at the time, it was really a visibility issue. You know, we had a $23 million adjustment, unfavorable adjustment last year. We were obviously not very pleased with that. And then, so what I would say is, as a result of that, we've made some real investments in this program, and specifically investments to find ways to dampen the volatility, and some real operational improvements that we think is going to result in meaningfully better predictability going forward and specifically we're focused on real insurance related programs return to work you know timely claims closing aggressive claim settlement driver behavior programs and we think the combination of our focus on that Andy is going to really allow us to to be more confident about predicting this type of adjustment in the future and you know as such we're we're now confident that the results of the study that will do this Q4 for the full year of 26 can be captured and contemplated within the guidance of 385 to 415. So at the end of the day, we felt like this is about transparency. We're going to include it in the guide going forward.

We're going to own it operationally and treat it like any other operational program at this Yeah, and what I would say, Andy, and why I think this is a pretty significant move is I like to think for investors, we just de-risked Q4. Because, you know, prior to this, we didn't have it in the guidance. And, again, what happened last year is we had this $0.20 plus hit to EPS in Q4, and it wasn't a great effect on the stock price, to be frank. And, you know, for us to come out now and say, you do not have to worry about the Q4 effect.

We are absorbing it into our guidance, we think is, you know, a big statement for investors. yeah okay that that makes more sense i guess um maybe another way i just want to check my understanding for i think everybody can benefit from this um it sounds like you've sufficiently narrowed um the way you're accounting for this and the programs and all these actions so that that even the if there are changes uh in in you know how this comes through like you think they're narrow enough that that it's more predictable now than it used to be and so so now you can you can bake it in there fully baked, which is a good outcome. Is that kind of another simple way of looking at it, David?

You nailed it, Andy. It's all about predictability, and we really firmly believe that the actions we've taken and the focus on the program gives us that narrowing ability.

Okay, good.

All right, I'm going to leave it there, guys. Have a good day.

Thank you. Thank you. Our next question comes from the line of Saiza Alway with David.

Please proceed with your question yes hi thank you so much I wanted to ask about WGN star you know now that you've owned it for a few months just wanted to get an update I know you sound pretty good about the opportunity there but just give us some additional color in terms of you know are you seeing any changes around the competitive environment there and gonna how do you think about are you growing with you know new business or are you seeing just you know your existing customers grow a lot faster. I just would love to hear more about that.

Sure, Faisal. So we're thrilled with this acquisition and the integration has gone really, really well. They're already starting to contribute meaningfully to our semiconductor space. And as I think we've mentioned in the past, but let me just reiterate, if you think about the semiconductor space and you think of like a bullseye, right, is the way I like to think about it. The center of the bullseye is the fabrication part, which is highly, you know, protected. Think about people in hazmat suits. And the outside of that bullseye is the facility itself. We were big with semiconductor companies on the outside of that fab, whereas WGN Star was inside that fab. And the combination of the two is making us a kind of seamless provider. And over, you know, if you look year over year in semiconductor we've doubled our growth there we're let me just give you some statistics about how we're doing in the semiconductor market we have over 60 clients we're at over 300 sites right now if you were to look at like kind of fab capacity between US and European fab makers we're in 75% of those clients right now. And when you look at the OEMs, there's kind of like 10 big OEMs. We're doing work with seven of them right now. So we feel like, you know, to be positioned in that space, to be positioned in that space and have that opportunity with the client to grow with them and to grow inside the fab and outside the fab is just going to be tremendous for us. So I can tell you, we see in semiconductor space, double-digit growth continuing for a while.

Great. That's very helpful. And then I just wanted to follow up on B&I margins because you talked about an improving trajectory, it sounds like, from mix. And then you're also investing in sales resources, it sounds like. So just give us a bit more perspective around, Like, where do we think sort of steady-state B&I margins should be? Sort of how much opportunity is there just from mix alone? And maybe once you, you know, ramp down the sales investment.

Sure. So you saw some sequential movement in our margins. We were up 30 basis points between Q1 and Q2. So we're seeing movement. And I think with the decisions that we've made specifically on the West Coast, you know, You'll see some ramp down in revenue in B&I. Between that and the TFL, we're not expecting positive organic growth necessarily. However, you're going to see margin acceleration in the back half. You'll see the proof points play out that the decisions we're making and how we're managing the business are going to have accretive margins. We're really optimistic about B&I.

All right. Thank you.

Thanks, Faiza.

Thank you. Our next question comes in line of Josh Chan with UBS. Please proceed with your question.

Hi, good morning, Scott and David. Thanks for taking my questions. So obviously really strong organic growth in the first half, 5% to 6%. Your guide, obviously, you're pushing it up to the high end of 3% to 4%. But I guess does that decel imply the B&I slowdown in the second half? It seems like, you know, there may be opportunity even with B&I to still get perhaps above the 4% growth rate for the year. Am I on the right track in thinking that way?

Yeah. Hey, Josh, David, thanks for the question. So, you know, as we said, clearly the decel and B&I in the back half is largely driven by the TFL exes we talked about and some of the pressure on the West Coast that Scott talked about. So I think, you know, from a full fiscal year perspective, we're looking at more a flat, maybe slightly positive growth for B&I on a full year perspective. We see that deceleration and just, you know, obviously takes a little bit of time to lap that, lap those kind of exits, especially with TFL for the year.

And then on the, yeah, thank you, David. And then you mentioned price escalations. And so I guess in terms of the magnitude of those price escalations, do you feel like your pricing is sufficient to offset whatever you're seeing in terms of wage inflation?

Yeah, one of the things I think we're excited about and actually a benefit of some of the new systems we have installed, we've got really good visibility on our cost basis, especially for a lot of the bigger groups that have the high volume of contracts. So B&I being the main one there. So, you know, as part of our just core operating day-to-day, we've got a tremendous focus on escalations. We feel really good about the path to capturing any cost burdens that we've experienced. And that's part of the momentum, as Scott mentioned, that's going to continue the back half of the year for BNI to really help ramp that sequential margin performance up.

Yeah, and what I would say that, again, I get enthusiastic about is kind of AI-based initiatives. And on Escalations, this is one of the places where we had an AI-based initiative where we went through, scanned the contracts, generated escalation letters, and done this with an AI initiative. So I think that the AI initiatives are all, you know, they're starting to mature, they take time, but this is one area. I'm glad you brought up Escalations because this is one area with what we're doing on the AI front.

Yeah, that's good to hear. Thank you for the color, and good luck in the second half.

Our next question comes from the line of David Silver with Freedom Capital Markets. Please proceed with your question.

Yeah, hi. Good morning. I'd like to maybe just ask for a little bit of color behind the $1.2 billion of new contract wins. So, you know, a couple of things, but just, I mean, certainly it's a big number, and I think you're on track, you know, clearly for another record in terms of new business wins overall. But I'd also say beyond that, I mean, just seeing it highlighted in a quarterly earnings release, that struck me as a little unusual. And then, you know, I even wrap it around with the idea that, you know, you highlighted maybe some decisions to walk away from some business that wasn't generating uh sufficient you know profit or path to sufficient profitability and i guess i just would like to know i mean if we could just focus on the non-ats portion of that um you know how much of the the new business wins that you're getting or what would you attribute maybe the incremental the the faster pace at which you're winning new business and i guess i would just break it down is you know offense versus defense i mean are you out there specifically targeting you know business that um a new business that you know you you want to be in strategically or is it more defense where you know just due to regional or company specific characteristics you know they're they're looking for concessions or or terms of business that but as a company, you're just not acceptable. So just some thoughts on the incremental pace of new business wins and from your perspective, what's behind that?

Yeah, and let me start with that. You had mentioned that it was unusual that we mentioned it, but just so you know, we do have a history in Q2 of updating the first half. So we've done it before, so probably not that unusual. And we're excited about where we are at $1.2 billion because I think what you have to do is you have to step back and you have to look at sentiment, right? And the sentiment from our standpoint is like clients continue to want to work for us. We're winning this business going through presentations with broad groups of clients who are all saying yes to ABM. So we like the fact that we're seeing this positive trend year after year of growing ourselves, and I would say it's less defensive and more strategic. We've talked in the past about how we're hiring business development assets, and we're targeting certain areas, certainly like the Sunbelt regions. We've targeted also by industry group and data centers and semiconductor. So it's, you know, for us, like, I'll just give you a proof point between semiconductors and data centers. If you combine those two little micro groups, that's 7% of ABM's revenue right now. That's pretty significant. And it's a strategic initiative that we set out a couple of years ago to accomplish. And that's also a segment that's going to grow double-digit. So I think for us this has all been strategic, and clearly there's always defensive. There was a nice balance, but the majority of it was strategic.

Okay, great. Thank you for that. And then, you know, this is a question that maybe you've touched on anecdotally or partially already. But, you know, Scott, your company's been in business for a very long time, and you've been very careful to segment your business by end market, you know, and even within that, you know, you've segmented aviation in different ways, for example, and other segments. I'm just wondering, but as a company, does it make sense to maybe think about things more geographically now? In other words, you know, technology business in one part of the country might not be, might require a different strategy than, you know, maybe another part. I'm just thinking California versus Texas or West Coast versus non-West Coast, just based on your comments. But, you know, you use the term episodic, but, you know, my sense is over the past few years, some of these trends have not really changed much. So just as a company and, you know, with a very clear national view, I mean, what role does maybe a more, you know, discrete, more explicit geographic strategy make sense?

Sure. No, that's a good question. We do have a geographic strategy. I would say, look, we segment by industry group, by end market, and we still feel like it's absolutely the right way to do it. We pressure test all these assumptions every year strategically, you know, it's a management team with our board of directors. So it's, we still firmly believe by, you know, aligning with the customer segment, that's the best way to go. Within those customer segments, though, we do have a geographic focus. And maybe earlier I mentioned about the Sun Belt. Like, we look at the certain growth zones in the places that we operate, and we apportion business development assets based on those growth zones, operational assets. So I'd like for you to think about it as the industry groups are kind of, and the segments that are the overlay, and within that overlay, you have an approach that absolutely incorporates a geographic attitude.

Thank you. Our next question comes from the line of Mark Riddick with Sidoti & Company. Please proceed with your question.

Hey, good morning. Thanks for taking all the questions. I wanted to just recover quite a bit already this morning I did want to touch a little bit on with the expectation of reducing leverage by the end of the year back to three times or so maybe talk a little bit about what you're seeing in the acquisition pipeline currently and you know sort of comfort levels valuation levels that they've changed much over the last few months and you know sort of how your appetite looks there Thanks, Mark, David.

Definitely appropriate question. As we said in Q1, we did anticipate our leverage to tick up over three times with the acquisition of WGNSTAR. Clearly, our near-term priority remains de-levering, and we anticipate, based on our cash flow strength in the back half, to be able to get back down below three times by the end of the year. And obviously, that doesn't mean we're walking away from other value creation opportunities and capital return. We're just sequencing it appropriately, basically. So I think from a leverage perspective, and then again, based on the strength of our sequential cash flows, we feel really solid. Scott, I'll let you comment on the M&A pipeline.

So the M&A pipeline, we continue to monitor it. We think there are going to be some interesting opportunities in the back half of this year and in the first half of next year. And frankly, that could coincide with our leverage going down below three. And the fact that we very much care about getting integrations right. So we're still integrating WGN-STAR. So I think the confluence of this could be positive from an M&A standpoint. Again, more towards the back half and maybe Q4 or dripping into fiscal Q1 for us. But, you know, we're monitoring it and, again, being very strategic about where we play.

That's helpful. And then just a quick follow-up. There was, I guess there wasn't much mentioned as far as any effects that you've seen, you know, from the war or, you know, sort of the geopolitical disruptions. I was wondering if there was, you know, any areas that you've seen any influence from that or how that sort of – how the pacing through the quarter and into 3Q might be impacted there or if you've seen anything that's come from that.

Yeah, so what I would say is where we see a little hint of it right now is in the aviation sector, specifically on our international business because, you know, flights – there's been pressure. on the international sites in terms of volume hasn't been incredibly material yet. But, you know, as we said in the prepared comments, we're just watching it and staying on top of it. But, you know, the one great thing about ABM is even in these cycles, we get through them pretty well because of our flexible labor model and the fact that, you know, the services we perform largely are not discretionary, so we'll definitely, you know, in extreme times, we'll get some pressure, but we ride through it.

Thank you. Our final question this morning comes from the line of Tate Sullivan with Maxim Group. Please proceed with your question.

Thank you, and thanks for the earlier comments on organic growth, and that's one thing we're looking for, accelerating the earnings growth from last fiscal year when it was a 3.8 percent, so I think you clear that up with BNI. And just one quick, David, on the pre-cash flow guidance of $250 million, what does that exclude specifically? And can you disclose some of the figures on the excluded amounts?

Certainly, Tate. So the items that would exclude a total of roughly $65 million on an annual basis. So some remaining transformation costs, about $20 million, the anticipated earn-out payment for the Ravenvold acquisition, the final one, which is roughly $30 million, and then some acquisition costs associated with the WGM Star acquisition, about $9 million, $8 to $9 million, and just any other restructuring charges fill out the gap there. So what I would say is, as I mentioned earlier, we still feel really good about where we're on cash flows. We're at about 40% of our pacing on a normalized basis, so about $100 million out of the $250 million guide. And you've been following the stock for a while. You guys know that the majority of the cash flow for ABM is tilted towards the second half of the year. So it just puts us in a good position on cash flow for the year.

Okay. Thank you all.

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

Sure. thanks everybody for participating we hopefully you can see how optimistic you know David and I are about where we're heading and what the back half is going to be so we'll look forward to seeing you in Q3 and have an amazing summer everybody thank you this concludes today's conference call you may disconnect your lines at this time thank you for your participation