Earnings Call Transcript - ABM Q2 2025

Paul E. Goldberg, Senior Vice President, Investor Relations

Good morning, everyone, and welcome to ABM's Second Quarter 2025 Earnings Call. My name is Paul Goldberg, and I'm the Senior Vice President of Investor Relations at ABM. With me today are Scott Salmirs, our President and Chief Executive Officer, and Earl Ellis, our Executive Vice President and Chief Financial Officer. Please note that earlier this morning, we issued our press release announcing our second quarter 2025 financial results and outlook. A copy of that release and an accompanying slide presentation can be found on our website abm.com. After Scott and Earl's prepared remarks, we will host a 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 use of the words 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 the 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 now to turn the call over to Scott.

Scott B. Salmirs, President and Chief Executive Officer

Good morning, everyone, and thank you for joining us to review our second quarter results. We achieved several important milestones this quarter. Notably, we returned to organic growth in both B&I and M&D, significantly improved our cash flow compared to the first quarter and generated $1.1 billion in new bookings during the first half, marking a new record for ABM. Overall, we posted 3.8% organic revenue growth, highlighted by continued recovery in our core commercial office markets, new contract wins and a diminished impact from prior year client exits in M&D. We also saw solid performances in our Aviation and Education segments. While growth in ATS remained strong, it could have been even higher had we not experienced some temporary project delays and service mix headwinds that impacted profitability. As we've discussed before, this business can be a little lumpy quarter-to-quarter based on construction timing, but the market is extremely healthy overall, and we expect ATS to deliver a very strong year. In total, ABM delivered $2.1 billion in revenue and adjusted EPS of $0.86. Looking ahead, despite ongoing macroeconomic uncertainty, we remain confident in our core markets, particularly high-quality office properties, manufacturing and distribution facilities, commercial aviation, as well as energy resiliency and microgrids. We expect delayed projects from Q2 to resume in the third quarter and are reaffirming our full year adjusted EPS guidance. As I noted earlier, we're pleased to see B&I return to organic growth in the second quarter. Market indicators for prime commercial office space have been improving steadily. CBRE reports that the prime vacancy rate declined 50 basis points year-over-year in Q1 to 14.8%, well below the broader office market vacancy rate of 19%. Demand continues to favor high-quality amenity-rich buildings and well-connected locations. We've been intentional in focusing our strategy on this premium segment. Geographically, the lowest prime vacancy rates are in the Northeast and Midwest, two of our largest markets. Given these trends, we expect to see market improvements translate into growth and account expansion, and that's exactly what's happening. In addition to the rebound in U.S. prime office, our U.K. operations and Sports & Entertainment and Parking businesses continue to perform well. Turning to M&D. I'm pleased to report that the segment returned to organic growth a quarter earlier than anticipated. Our teams have done an excellent job expanding with existing e-commerce clients and winning new business with semiconductor and tech manufacturers. In total, M&D posted nearly $400 million in revenue in Q2 or 20% of total company revenue. More broadly in this segment, we're evolving our service offering from traditional cleaning and maintenance to include ancillary support services like material handling and test and balancing services. These offerings help clients focus on their core operations and deepen our strategic relationship with them. We believe the long-term fundamentals of the M&D market remain strong as companies continue to invest in U.S.-based manufacturing, and we're investing accordingly in technical sales and industry-specific capabilities. As mentioned earlier, we booked $1.1 billion in new sales in the first half, up 11% year-over-year and a new record. A key highlight was securing approximately $190 million of new business from a major big box retailer for the next phase of their microgrid build-out. This reflects their confidence in our electrical engineering expertise, technology, and client-first approach. Beyond that, ATS secured a large battery energy storage system project supporting renewable thermal hybrid energy centers, helping communities achieve ambitious sustainability goals. In Aviation, we won a $25 million contract at Miami International Airport and also had a large Cabin Cleaning win at the Dallas-Fort Worth Airport, two of the nation's busiest by passenger volume. Our team continues to do a great job on building on the successes at O'Hare, LaGuardia, and JFK to showcase our differentiated tech-enabled solutions that drive favorable client outcomes, and it's truly resonating in the market. We also secured other high-profile wins, including new contracts with two major investment banks in New York City, several top technology firms, including a global autonomous driving company and a storage leader, as well as with well-known semiconductor and aerospace manufacturers. These wins reflect our strong reputation among sophisticated clients with complex needs and rigorous standards. Increasingly, they're turning to ABM to leverage our scale, integrated capabilities, and tech investments, and we're raising our game accordingly in talent and execution. We've made important progress on our ERP implementation this quarter, reducing operational friction and setting the stage for continued improvements in the second half, particularly in cash flow. Our teams are fully aligned and focused on driving this initiative to completion with strong coordination and a shared commitment to delivering lasting operational benefits. Let me now give you a brief update across our segments. In B&I, according to JLL, U.S. office leasing activity in Q1 2025 grew 15.3% year-over-year to 50.4 million square feet, 89% of pre-pandemic levels. Prime office space continues to outperform with over 2 million square feet of positive net absorption and a 14.8% vacancy rate compared to the market average of 19%. This plays directly to our strength in Class A urban properties. With regard to M&D, we're benefiting from strong industrial activity. The Semiconductor Industry Association reports over $200 billion in U.S. semiconductor investments since 2020, driven by AI, automotive, and cloud sectors. E-commerce also continues to grow with Q1 online sales up 6.1% year-over-year, reaching $300.2 billion and 16.2% of total retail. This macro data coupled with our new business pipeline and expansion efforts positions us well for the future. Turning to Aviation. Domestic air travel remains strong. TSA data shows daily screening frequently exceeding 2.5 million in May. Our technology-led offerings, especially ABM Connect, and wins like the $25 million Miami International Airport contract give us confidence in outpacing sector growth. Our Education segment remains a stable contributor of earnings and cash flow. According to Gordian, 27% of higher education institutions are modestly expanding some portion of their facilities. We continue to focus on large school districts and universities, maintaining high retention and cost efficiency while pursuing new opportunities. Finally, in Technical Solutions, our Microgrid business is strong and total segment backlog now sits at $700 million. We're also positioned to benefit from accelerating demand in data centers. JLL projects global data center capacity will grow 15% annually with construction expected to hit record levels in 2025 and significantly more in the future. These positive market dynamics strongly reinforce the strategic costs we set over the past several years. Our focused investments in talent, technology, and go-to-market execution combined with targeted M&A have positioned ABM to capture outsized opportunities across our portfolio, whether it's capitalizing on the resurgence of prime office space, supporting the expansion of high-growth sectors like semiconductors and e-commerce, or leading the energy transition through our technical solutions platform. We believe our capabilities and our strategies to enhance them are fully in line with where demand is going. As a result, we remain highly confident in our ability to sustain healthy top-line growth and expand margins over time. With that, I'll turn it over to Earl to walk through the financials.

Earl Ray Ellis, Executive Vice President and Chief Financial Officer

Good morning, everyone. Before we review the Q2 financial results, I would like to highlight a recent update to our financial disclosures. After communications with the staff of the Securities and Exchange Commission, we have revised the definition of our non-GAAP financial measures, including adjusted net income, adjusted earnings per share, adjusted EBITDA and adjusted EBITDA margin to no longer exclude the positive or negative impact of prior year self-insurance adjustment. These adjustments reflect net changes to our self-insurance reserve for general liability, workers' compensation, automobile, and health insurance programs, specifically related to claims for prior year incidents. This definitional change has been applied to our Q2 2025 results and retroactively to all prior periods presented to ensure comparability. Importantly, there was no impact on our current quarter's results. However, the updated Q2 2024 figures now include an unfavorable $4.3 million or $0.05 per diluted share from prior period self-insurance adjustments. Now let's review the second quarter results, starting on Slide 6. Revenue grew 4.6% year-over-year to $2.1 billion, driven by 3.8% organic growth and contributions from our 2024 acquisition of Quality Uptime Services. Revenue growth was again led by Technical Solutions and Aviation, which delivered 19% and 9% growth, respectively. As Scott mentioned, we also saw both B&I and M&D returned to organic growth, up 3% and 2%, respectively. Education posted steady performance with 1% growth. Turning to Slide 7. Net income for the quarter was $42.2 million or $0.67 per diluted share compared to $43.8 million or $0.69 per diluted share in the prior year. Adjusted net income was $54.1 million or $0.86 per diluted share, up slightly from $52.3 million or $0.82 per diluted share last year. The increase was primarily driven by higher segment earnings and lower corporate costs, particularly from the absence of unfavorable prior year self-insurance adjustments. These gains were partially offset by higher interest expense. Adjusted EBITDA was $125.9 million compared to $121 million last year, and adjusted EBITDA margin was flat at 6.2%. Now let's turn to segment performance, beginning with Slide 8. B&I revenue reached $1 billion, up 3% from last year. This performance was driven by expansion with existing clients, improved conditions in the U.S. prime commercial office market, strong retention, and continued strength in our U.K. Sports & Entertainment and Parking businesses. Operating profit rose 7% to $83 million and margin improved 40 basis points to 8.2% on the back of higher volume and strong cost controls. Aviation revenue grew 9% to $260.1 million, supported by positive travel trends and new wins with both airport and airline clients. This includes Core Cleaning Services at Miami International Airport, which will ramp up in the third quarter. Operating profit for Aviation was $16.5 million, up 26% with margins up 80 basis points to 6.3%. These results reflect volume growth and a favorable contract mix. Turning to Slide 9, M&D generated $398.1 million in revenue, a 2% increase year-over-year. The return to organic growth was driven by new contract wins, expansion with existing clients and a reduced impact from a client exit. Operating profit was $39.9 million with a margin of 10% compared to $43.6 million and 11.2% in the prior year. The year-over-year margin decline reflects investments in technical sales talent and capabilities, to drive growth in key sectors like semiconductors and data centers, along with strategic pricing on new select contracts. Education revenue rose 1% to $227.8 million, supported by favorable pricing and stable retention rates. Operating profit increased 19% to $13.8 million, with margin expanding 90 basis points to 6% primarily due to improved labor efficiency and tight cost control. Technical Solutions delivered 19% revenue growth to $210.2 million with 10% coming from organic growth and 9% coming from the acquisition of Quality Uptime Services. Continued growth was driven by strong demand for microgrids and mission-critical and power services. Revenue growth and profits would have been even higher had we not experienced some delays in mechanical and electrical project execution during the quarter. Operating profit was $13.4 million with a 6.4% margin, down from $17 million and 9.6% last year. The decline reflects project timing and service mix shifts, particularly within Microgrid, where more revenue last year came from higher-margin design and engineering work. Margin was also impacted by higher amortization costs. We expect margin to improve in the second half as delayed projects move forward and mix normalizes. Now turning to Slide 10. We ended the second quarter with total indebtedness of $1.6 billion, including $29.7 million in standby letters of credit. Our total debt to pro forma adjusted EBITDA ratio was 2.9x. Available liquidity stood at $657.8 million including $58.7 million in cash and cash equivalents. Free cash flow for the quarter was $15 million, an improvement of $138 million over Q1. This reflects progress in reducing operational friction from our ERP conversion. While working capital remains elevated year-over-year, we're encouraged by the momentum and expect billing and collections to normalize in the second half. Assuming continued progress, we believe we're positioned to meet our full year normalized free cash flow target with sequential improvement expected in both Q3 and Q4. As a reminder, normalized free cash flow for the full year is expected to be in the range of $250 million to $290 million. This forecast excludes $30 million to $40 million of ELEVATE and integration costs and any portion of the RavenVolt earn-out payment that will be recorded as operating cash outflow. Interest expense in the quarter was $23.9 million, up $3.3 million from last year due to higher average debt balances. We expect quarterly interest expense to moderate over the second half of the year. Turning to our outlook on Slide 11. As Scott mentioned, we are reaffirming our full year guidance for adjusted EPS to be in the range of $3.65 to $3.80 and an adjusted EBITDA margin between 6.3% and 6.5%. Going forward, we will highlight any material impacts resulting from the inclusion of prior year self-insurance adjustments in our non-GAAP results. Finally, we are maintaining our interest expense forecast of $80 million to $84 million and continue to expect a normalized tax rate before discrete items of 29% to 30%. With that, I'll hand it back to Scott for closing remarks.

Scott B. Salmirs, President and Chief Executive Officer

Thanks, Earl. Before we wrap up, I want to extend my thanks to the entire ABM team for their continued focus and execution in what remains a dynamic and evolving market environment. I especially want to recognize the dedication and resilience of our team supporting the ERP implementation. As anyone who's been part of a transformation of this scale knows, these efforts are complex and never straightforward. That said, we're confident this investment will enhance our service delivery, improve operational efficiency, and further elevate the client experience, ultimately strengthening ABM's competitive position. And to our client-facing team members, your hard work directly contributed to delivering record new bookings in the first half of the year, driving organic growth across all our segments and advancing our strategic priorities. Thanks to all your efforts, we are confident in our ability to deliver long-term value for our clients, our teammates, and our shareholders. With that, let's take some questions.

Operator, Operator

The first question is from Tim Mulrooney with William Blair.

Timothy Michael Mulrooney, Analyst

Congrats on a nice quarter, guys, clearly some real momentum building in the businesses here. This is great to see. Earl, I wanted to start out on the cash flow. Can you remind me what the earn-out on RavenVolt is expected to be?

Earl Ray Ellis, Executive Vice President and Chief Financial Officer

The total earn-out for last year was $75 million, and for this year, we are currently expecting it to be around $30 million.

Timothy Michael Mulrooney, Analyst

So $30 million plus $30 million to $40 million...

Earl Ray Ellis, Executive Vice President and Chief Financial Officer

Probably about $280 million all in total. Inclusive of the original purchase, which was $170 million.

Timothy Michael Mulrooney, Analyst

Understood. Got it. And with your cash flow guidance this year being $250 million to $290 million, right, if I pull off your ELEVATE and the RavenVolt earn-out that's going to get me close to what, like $180 million, $190 million?

Earl Ray Ellis, Executive Vice President and Chief Financial Officer

So two things. The majority of the RavenVolt payout is more about a financial cash flow or an investment cash flow as opposed to operational. We're still working out that. But if you actually back out kind of like what we would call like one-time things, which really would include our ELEVATE investments as well as integration expenses or cash flow, you'd be looking at a normalized cash flow projection for the year of between $250 million to $290 million.

Timothy Michael Mulrooney, Analyst

Okay. So that excludes all of that. I got you. Okay. That's helpful. And you guys in the first half of the year, have done, I think, about negative $108 million in free cash flow. So to get to positive $250 million implies a really strong second half of the year. Can you just help bridge that gap for me?

Earl Ray Ellis, Executive Vice President and Chief Financial Officer

Yes. No, absolutely. If you look at kind of where we're trending right now from a Q2 perspective, you're absolutely right, we are down. And that really is attributable to our go-live with regards to our Oracle deployment for M&D and B&I, where we actually had some challenges in really just getting some of these bills out. And most of that really is due to the fact that we are being very prescriptive in doing a deep analysis and review of all bills before they go out. And as a result of that, you saw that impact our Q1 results. Good news is we've actually made some really good progress on getting these bills out. And this is really evidenced by the quarter-over-quarter improvement in cash flow, which was about $138 million. We continue to make progress. And based on where we're stacking up, we believe that we're going to have incremental improvements in cash flow for both Q3 and Q4. And as a result of that, we will actually catch up to our full year projection in cash flow by the end of the year, which, again, on a normalized basis would be $250 million to $290 million.

Timothy Michael Mulrooney, Analyst

Okay. That's helpful. And hey, you'd rather get the billing right to begin with and have to go back later and deal with the customer that way. So I understand. And then maybe just switching gears here, Scott, for my second question. And I really appreciate you sharing those data points on the prime office vacancy rates. Curious how you're thinking about organic growth in the B&I business in the second half of the fiscal year? I mean, do you hope to build upon that strong growth that we've seen here in the second quarter? Or is that more of an easier comp situation and maybe organic growth steps back a little bit in the second half here?

Scott B. Salmirs, President and Chief Executive Officer

Yes. I don't see it coming back. Look, we were excited to bridge this chasm here and get to positive. Could it be a little choppy, possibly, but we like to believe now we're in positive organic growth territory for B&I from here on out. So, it was exciting to get over that hump.

Operator, Operator

Our next question comes from the line of Andy Wittmann with Baird.

Andrew John Wittmann, Analyst

I wanted to ask about the M&D segment. In your prepared remarks, you mentioned that you're offering more solutions to customers than before, specifically in material handling and test and balancing. Can you provide more details on that? How many customers are utilizing these services? Is this just for one particular customer? How developed is this strategy? Ultimately, how much opportunity remains in this area? Could this become a significant part of your M&D segment results? It seems like it would mainly benefit warehouse customers, but I would appreciate your insights on this.

Scott B. Salmirs, President and Chief Executive Officer

We believe this will be an emerging trend for us as we focus more on areas outside of traditional janitorial services. This expands beyond just one client. To illustrate, think of a semiconductor facility where the fabrication center is at the core. Our work has typically been outside this core area, focusing on janitorial and engineering services, without entering the fabrication space. Now, we are beginning to get involved in the fabrication facility itself, engaging in more mechanical work and cleaning inside. This represents our transition into more strategic areas that provide better client relationships and higher margins. We see significant opportunity in the semiconductor, automotive, and pharmaceutical sectors within manufacturing and distribution, and these areas will be our primary focus moving forward.

Andrew John Wittmann, Analyst

That's helpful. I want to delve deeper into your comments about that segment. The M&D segment has consistently had high margins, being your most profitable annuity segment for quite some time. I'm curious about your remarks on strategic pricing for new accounts. Is the market becoming more competitive, or is this simply a continuation of what you've mentioned in recent months? Some customers in that segment have already been competitive, so I'm wondering if there's any significant change in the broader market. What do you mean by that comment?

Scott B. Salmirs, President and Chief Executive Officer

We have a few key focuses this quarter. Firstly, we're beginning to invest more in sales assets, particularly in the M&D segment, which we've discussed for quite some time. We're committing resources to enhance our sales efforts in that area. Additionally, we mentioned the rebalancing with a larger client from last year, which requires us to adjust our pricing. We view this as a strategic pricing move because we believe it will lead us back on the right track. These are the main challenges we are facing. However, I do not believe there is a significant overall trend of declining margins in that business due to competition. The current issues are limited to these specific factors. Investing in our sales team will yield positive returns in the coming years.

Andrew John Wittmann, Analyst

Even with some pressure on margins, the quarter's results and margin profile are decent, especially in comparison to other aspects. I'm going to ask another question, even though I was told I could only ask one with a follow-up. I wanted to inquire about the $1.1 billion in awards, which have significantly increased year-over-year. Could you clarify how much of that total you’ve allocated to projects? You've already mentioned the $190 million for Big Box, and it seems a fair portion is from the project business. Earl, could you explain how the total number divides between annuity and project businesses and how each compares year-over-year? Understanding that breakdown would be beneficial for us all.

Scott B. Salmirs, President and Chief Executive Officer

Yes. I mean I can take that one, Andy. I think there was nothing real monumental within that, there was a big shift. You pointed out the $190 million, which is a big chunk of that. But when you normalize for the $190 million and look at that other, call it, $900 million, I would say it was pretty evenly paced across the board between the percentages of our normal business. So it was a good across the line, which we're always encouraged by.

Operator, Operator

Our next question comes from the line of Faiza Alwy with Deutsche Bank.

Faiza Alwy, Analyst

I wanted to ask about ETFs and the status of the project delays. You mentioned that the delays have had an impact on margins as well. Can you explain what factors are causing these project delays? When do you anticipate things will return to normal? Additionally, how should we view the expected normalized margin in this business in the future?

Earl Ray Ellis, Executive Vice President and Chief Financial Officer

Yes, I'll start off with that. So if you look at the delays, part of them are just approvals, getting the customer approval for certain jobs. But again, natural, if you look at APS, it naturally is a back half of the year. A lot of activity is really start in the back half. So we expect this timing shift that we actually saw in Q1 or Q2 to actually revert into the back half. When we look at the margins, again, we expect that margin to be very similar to what they have been in the past, which would be kind of like your 9% to 10% margins.

Faiza Alwy, Analyst

I wanted to ask about the Education segment. Can you provide some insight into what you're observing in the market, particularly regarding concerns about higher education on a macro level? It seems like there may be more renewals for new business in the latter half of the year. Please share your thoughts on new business and your perspective on the overall market.

Scott B. Salmirs, President and Chief Executive Officer

Sure. The Education segment is performing well, and we have a strong growth pipeline. Regarding renewals, this year has been particularly strong for us. We are encouraged to see many of our clients investing in their facilities, with noticeable construction activity at campuses. This indicates positive momentum in the industry. However, it's important to note that Education does not yield double-digit growth for us; rather, it aligns more closely with GDP growth and provides steady, strong cash flow. We have a dedicated team focused on securing larger contracts, especially those under our integrated APS offering, where we bundle services. As we move into 2024 and early 2025, we are gaining significant traction with this bundled approach, as it offers greater value by addressing all client needs. Most services will be self-performed, but we are also able to subcontract as needed. Overall, this strategy is progressing well.

Operator, Operator

Our next question comes from the line of Jasper Bibb with Truist Securities.

Jasper James Bibb, Analyst

Maybe following up on our earlier question. The organic revenue growth for the quarter was 4%, and I think you comped a working day in there too. So do you think mid-single-digit organic growth is possible in the second half? Or how should we think about the trend there?

Earl Ray Ellis, Executive Vice President and Chief Financial Officer

We don't provide guidance on revenue growth. However, we are currently focused on the fact that all of our industry groups have returned to organic growth. It’s easy to think that M&D and B&I were still not there, but we're excited about this development. As for predicting revenue growth, it's difficult to gauge at this moment. The trends across each industry group are robust.

Jasper James Bibb, Analyst

Fair enough. And then hoping if you could maybe give us a bit more detail on the battery energy storage contract win. Can you maybe frame for us how big that business is within APS today? Or what you're seeing in the pipeline for that service offering?

Scott B. Salmirs, President and Chief Executive Officer

Yes. I mentioned in the prepared remarks that we have $700 million in backlog, which is the highest we've ever had and represents a historic high for us. We're maintaining a good pace, though the start of the tariff discussion has made us a bit nervous regarding its potential impact. While most of the equipment we purchase is not produced overseas, there is a portion that is, and it could influence project economics. However, we are currently still receiving positive signals from our clients to proceed with these projects. The only concern we have is a provision in the new budget bill that proposes to repeal some tax credits for energy projects. We don't believe this will affect the feasibility of our projects due to their high margins, but we are keeping a close watch on the situation. Additionally, our Microgrid business is performing exceptionally well.

Operator, Operator

Next question comes from the line of Josh Chan with UBS.

Joshua K. Chan, Analyst

I guess on your APS margins this quarter of the roughly 300 basis point headwind you saw. Was the bigger impact from the project delays? Or was mix the bigger headwind? And I guess, related to that, when you say the project delays are going to be recouped in the third quarter, did that kind of already happen in May?

Scott B. Salmirs, President and Chief Executive Officer

Let me revisit the margin question. Part of the issue stemmed from project delays, while another aspect is related to the business mix. When considering large microgrid or energy projects, it's helpful to break it down into two main phases, although there are more than two phases involved. The first phase involves the design and engineering, which are complex projects. This phase typically generates higher profits since it requires fewer personnel and more office work on drawings, resulting in higher margins. In contrast, the second phase is the actual field execution, where margins tend to be lower due to the need for more on-site labor. Looking at our performance year-over-year, last year we had significant engineering and design work, leading to higher margins. However, this quarter saw a greater emphasis on field execution, which put some pressure on margins. There's nothing fundamentally wrong; it's simply a matter of timing within the project. That's why we experienced some margin pressure. There has been a recent uptick in May, and we expect this trend to continue throughout the year regarding these projects. We believe that APS is on track for a very strong performance this year.

Joshua K. Chan, Analyst

Maybe switching to B&I. Could you talk about how you are positioned to win these prime office markets? I assume those markets are where everybody wants to go after. So could you talk about your ability to win there and whether ABM can gain share in that market going forward?

Scott B. Salmirs, President and Chief Executive Officer

Yes, we are not only positioned to succeed, we have actually been succeeding. A significant part of our success stems from our execution capabilities, our relationships, and our track record. This matters a great deal. For instance, if you're considering a headquarters building for a financial services firm in New York City and you're evaluating ABM, you'll notice that we already work with 9 out of the other 10 firms. This gives clients confidence in our understanding of this sector. Clients feel assured knowing that if they want insights into how other financial services companies are constructing their trading floors or designing their conference rooms, they can turn to ABM because we have an extensive portfolio. Our scale, diverse client base, execution capabilities, and ongoing investments in technology really distinguish us from our competitors. This is why we have captured a larger share of the market compared to others.

Operator, Operator

Our next question comes from the line of Marc Riddick with Sidoti & Company.

Marc Frye Riddick, Analyst

So a lot of my questions have already been covered, but I did want to circle back around to the cash usage prioritization. Maybe give a bit of an update on what you're thinking there as well as if you could maybe give some thoughts or views on the potential acquisition pipeline, maybe what you're seeing valuation-wise and some as far as levels of attractiveness currently?

Earl Ray Ellis, Executive Vice President and Chief Financial Officer

Yes. So for us, we always prioritize internal investments and growing our ability to be organic. But the pipeline on M&A is looking really good. We've been seeing a little turnaround in companies coming to market, private equity companies looking to monetize some of their portfolio companies. So we're probably seeing as big of a pipeline for M&A as we've seen in the last couple of years. And there are some interesting things out there that are really going to help us to differentiate in some of the industry groups, really consistent with some of the remarks that we've been talking about even with the Q&A and how you go deeper in places like M&D and start doing things that create more strategic value for our clients and make us stickier. So you'll see us have a focus on M&A for sure.

Marc Frye Riddick, Analyst

And then shifting over with B&I. I was wondering if you could talk a little bit about if you're seeing much in the way of regional differentiation of activity levels?

Scott B. Salmirs, President and Chief Executive Officer

Yes, there are notable differences within markets. For example, while Century City in L.A. is thriving, Downtown L.A. is lagging. This regional variation is significantly influenced by the return to office trends. We're optimistic about the situation in San Francisco as it begins to recover, especially with recent investments in AI, after being somewhat overlooked about 18 months ago. The Midwest is performing well, and New York City is experiencing significant activity; it's quite crowded during lunchtime. We're also seeing increased investments in AI and data centers in the Carolinas, which is contributing to their growth. Overall, there are distinct areas of expansion across different regions.

Operator, Operator

We've reached the end of the question-and-answer session. And I'll turn the call over to Scott Salmirs for closing remarks.

Scott B. Salmirs, President and Chief Executive Officer

Okay. Well, first, I just want to thank our team again for everything they're doing to allow us to post results like we just did in Q2. We're really happy with what we've been able to do, especially considering the macro environment and some of the uncertainty out there. And I just want to thank everybody on this call for listening, being interested and look forward to seeing you again in Q3. Thanks, everybody.

Operator, Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation. Have a wonderful day.