ABM Industries Inc (ABM) 2010 Q4 法說會逐字稿

Good morning. I am David Farwell, ABM's Senior Vice President, Investor Relations. Welcome to our fourth-quarter fiscal 2010 earnings webcast and investor briefing. Thank you for joining us today. These are indeed exciting times for the Company and today we will provide some additional details and color, directly from our executive leadership team, about what we believe is the bright future of ABM Industries. As a reminder, this event is available via webcast and is being recorded. I ask that everyone in attendance to please ensure cell phones are off. I'll pause for a moment to ensure that everyone has taken care of that. Additionally, there is a slide presentation that accompanies today's remarks. Webcast participants may access this presentation by going to the investor relations section of our website at www.ABM.com and clicking on the presentation tab. All webcast participants are in listen-only mode. If you'd like to ask a question please submit your question electronically via the webcast interface and we will address it during our question-and-answer session.

Joining me today are Henrik Slipsager, President and Chief Executive Officer; Jim Lusk, Executive Vice President and Chief Financial Officer; and the newest member of our management team, Tracy Price, Executive Vice President -- pardon me -- and President of ABM Engineering. Also in attendance today are Jim McClure, Executive Vice President and President of ABM Janitorial Services, and Executive Vice President and Chief Executive Officer of ABM Security Services, and AMPCO System Parking, Steve Zaccagnini. For our agenda today Henrik will review the fourth quarter and 2010 highlights, Jim will then discuss our 2011 financial outlook, Tracy will provide an overview of the Linc Group and the combined entity, ABM Engineering Services. We will conclude today's meeting with a presentation from Henrik of our 2010 to 2014 strategy.

Before we begin the review of our fourth-quarter I need to tell you that our presentations 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 are subject to risk and uncertainties that could cause our actual results to differ materially. These factors are described in the slide that accompanies our presentation. During the course of our presentation certain non-GAAP financial information will be presented. The reconciliation of these numbers to GAAP financial measures is available on the Company's website under investor relations.

Now I am pleased introduced Henrik Slipsager. Henrik?

Thank you, David. Thank you, everybody. Let me first start by thanking everybody for coming today. It's a very exciting day for us to just finalize what I believe is probably the most exciting acquisition in the history of ABM, and the way we're going to do this is I'm going to shortly go through the quarterly numbers. Jim Lusk is going to go through the future and the guidance for the year next year. And then, finally, as the keynote speaker of today I've got Tracy Price who is going to tell you about this wonderful new Company and I am going to finalize this whole presentation with a combined strategy presentation of why we did what we did and why we believe this is probably a game changer in the business.

I'm going to change to slide number six, as you see right there. Slide number six is the quarterly achievements. What we did in this quarter was pretty unique. We first of all finalized a very exciting parking acquisition. We saw the long, long negotiation. The -- it's been very successful from day one. It puts our parking Company just in a different spot than they were before. And in the numbers that you saw for the quarter only one month of performance for L&R was in and the synergies probably won't take place until the second and third quarter -- I'm sorry, first and second quarter of fiscal 2011. We successfully integrated the acquisition of Diversco. Diversco happened six, seven months ago and it's been a very, very good and positive investment and it's fully integrated and delivering to the bottom line and the top line will be expected.

We reorganized Janitorial. Janitorial, as you know, has had a pretty rough year, a tough year. In spite of achieving excellent results it's been a year with sales being a challenge. First of all we see the major change in sales going forward. We have seen clearly improvement in the sales success the last quarter, especially the last month, but at the same time Jim McClure and his team have made major changes to the organization to fit the size they have now and I'm very, very proud to say that the infrastructure of ABM Janitorial looks much stronger today than it did yesterday and looks much more probable than it did yesterday, in spite of being clearly the most profitable janitorial company in the industry.

Revenues continue to improve. Part of our revenue benefit this quarter was, of course, the acquisitions but nonetheless, we have stopped the downturn of revenue. We, of course, one more time the 178th time paid dividends and this time it's increasing dividends and for the ones who like dividends I hope you can appreciate that and it's close to 45 years in a row so that's pretty steady. On the earnings side 2010 was, I think, very, very successful. In spite of the challenges we have on the top line we did very, very well. And for the quarter we were ahead of our own forecast on the GAAP and we're just in line with our non-GAAP guidance. We have pretty much done first base of our Project Transform and we had the strongest cash flow from operations in the Company's 101-year history. And that includes when we got $80 million back for the royalty rates in our insurance claims, so we exceeded that year in spite of that.

One of the reasons we had such a strong cash flow year, or the last two years been so strong, is for those who remember when we did the One Source deal we had some huge tax benefits associated with it and those last two years were the two strongest years when it comes to these tax benefits. The tax benefits will continue the next five years but these first two years were clearly better than what you're going to see the coming five years. Those tax benefits, by the way, still is at the level we expected when we did the OneSource acquisition in the first place.

Turning to -- he's throwing it at me right behind me. We don't know each other that well yet. Turning to slide number seven. On the revenue side, as you can see if you go down on the table all the operations grew. There was some small acquisitions involved in Janitorial and Engineering. Parking, as well as Security, is just doing pretty well right now on the sales side and we're very pleased with that, but all-in-all it was a growth year. One thing about engineering that you should understand because the growth is smaller than what we've seen in the past, only 7.5%, last year's fourth quarter included a one-time job. We did an energy job at around $5 million in revenue that impacted 2009 in a positive way so if you do comparison that was a one-time very good job in Engineering. Tag revenue still remains the same at $11 million to $13 million. Has not moved up to $50 million and $60 million we saw in the past and it's probably going to take a long time before the Tag revenue will get back to the good old days, that's at least our estimate.

Moving to number eight. Again, if you look at the overall numbers the cash flow for the quarter was, I think, spectacular but what's even better is our database is now down to 47 days. They've never been to 47 days in my time running the Company. It was the result of extreme disciplined operations, focused on cash flow and to be quite frank, the fact we've been so strong doing cash flow also, of course, made us able to make the acquisition we just made. So it's not only earnings but it's cash flow, as well, and we had quite a year in cash flow for the Company. The EBITDA is up and, again, it's real good year over year one of the key numbers to focus on in my mind is EBITDA. Why is EBITDA more important if you just look at these numbers? Well, in 2009 we had some tax benefits -- one-time tax benefits so our tax rate was considerably lower in 2009 than 2010. Unfortunately, 2010 it's probably more the norm than 2009 was but if you look at the increase in adjusted EBITDA, 16% for the quarter and 7% for the year, that pretty much reflects the way we thought the year went.

Going to tab number nine, the operating results Q4, of course we did very, very well on the operating profit side. I mentioned a couple of things but in addition to the things I mentioned we have very few one-time costs any more. We're done with the IT implementation. We didn't have any major negative insurance as we had last year. So on a year-by-year basis we looked like it was a very golden year but the key thing is we did very good in the quarter but last year was also impacted by these negatives. So I'll say we had a very good and very strong quarter, but not a 50% improvement kind of quarter because it's all one time. If you look at corporate we, again, have proven that we're able to run the operations pretty tight and $8.1 million lower expenses speaks for itself.

Please go to slide number ten, and we'll do that very quick, but pretty much overall insurance were flat and working capital was pretty flat, as well, and the [Shield] was pretty flat. So not a major movement in any of those key balance sheet items, which I believe is good news. The next slide, which is number 11, again I think speaks for itself. Cash flow from operations was tremendous for the year and it helped us when we had to do the new financing deal. It just helps us in general that we show that we can generate cash. We are a cash flow business when the day is up.

Going to 12, I'm going to give to Mr. Lusk. Jim? We're going to have you have questions about the year after Jim's presentation. After that presentation we'll go into the acquisition and the strategy. Thank you.

Thanks, Henrik, and actually thanks. Payback time, yes. I don't know about all of you guys but my just -- that was clearly my favorite Undercover Boss show that I've ever seen and for a guy who's afraid of heights he's jumping when glasses fall, I don't know. All right. But it was your favorite Undercover Boss show too, right? That was an absolutely? All right.

We're going to give you more information than we've given you in the past. I know that disappoints a lot of my analyst friends but I think this should be very helpful. So right now I am on chart 13, for those of you on the call. I'm going to start with the bookends. We'll talk about the top line and the bottom line and then I'm going to fill in some details in between to help you understand where we come out at the bookends. So if you start with the $1.34, which is excluding items that Henrik just walked through, we're going to increase that next year 7% to 14%, so that'll give you a range, excluding items next year, of $1.43 to $1.53 and I'm going to work on more detail as I go through the next couple of slides. Including items, the pure GAAP number, Henrik showed you $1.21, we're going to increase that 2% to 10% and then I'll give you a range of $1.23 to $1.33. Our effective tax rate will be between 39% and 40%. The Linc acquisition will be taxed at a slightly higher rate than overall ABM was from a GAAP tax perspective.

If you look at the acquisitions we did this year, which were L&R and Diversco, those were done toward the end of the year. The top-line growth from those acquisitions will be some place between $190 million and $200 million on the base of ABM. And if you look at the revenue that Linc Group adds it's between $575 million and $585 million next year, so that'll be incremental to the base you saw this year. If you look at the operating profit growth that comes out of our business, the organic growth is $7 million to $8 million and all the acquisitions all-in are $5.5 million to $6.5 million.

Now with that much revenue you're going to say why is not everything flowing to the bottom line and I want to describe that for all of you to make sure we're all together, so I'm going to chart 14. Here's some things now in between the bookends of revenue and EPS. First of all, our [SUI] rates are forecasted to go up again next year $6 million to $7 million. Not every state has finalized their budgets, as you can read every day about what's going on there, but we kind of projected state by state what we believe is happening and our view is even though we saw increases this year we're going to see them again and we expect them in the range of $6 million to $7 million. Now that's forecasting what some of the governments are going to do because not every state has set their rates yet, but you can imagine with the situations municipalities are in states we're going to see increase. So we clearly see that off our base this year was higher -- which was higher than last year going up again.

Additionally, we have one additional work day and for those of you that have been following us you know we're very sensitive to that. When you have an additional work day, especially driven by our janitorial business, you're not bringing extra revenue in per se but you're paying an extra day of expense. And just to make your modeling a little more challenging this year, in the first quarter, as you can see on the chart on the right, in the first quarter we have one more day versus the previous year, in the second quarter we have one less day and we're okay in Q3 and then in Q4 we have one more day, so all-in we have one more day. But that extra day for the year will be an additional $4 million to $5 million. So that's very important for those of you that have been following us.

Our SG&A expense ABM base will remain flat year over year. The Linc acquisition will add SG&A of about $48 million to $53 million, so that kind of fill in some of the pieces. The other thing that's really important here for the new debt capacity that we have, what used to be interest rate of LIBOR plus 1, basically, is now going to LIBOR plus 2 or 2.5, somewhere in that range depending on how much we have out. That will create total interest for us of about between $14.5 million and $16.5 million, depending on how much we pay down, so is an incremental interest of about $10 million year over year. So we still have a great rate, roughly 3%, but it's versus 2%, so that delta is on a higher debt number because we used some money to buy Linc, obviously, and things like letters of credit, et cetera, also have a higher rate. So interest entirely will go to between $14.5 million and $16.5 million.

Cash flow, as Henrik said we had our best cash -- we had our best DSOs ever. We're projecting next year DSOs between 49 to 52. Linc's DSOs were a little bit longer. They have very good history with the government but the government does pay a little slower and that's a big part of the receivable so that will bring our DSOs up a little bit. Cash taxes -- this is not on the income statement now, this is on operating cash flow -- the NOL that we received the credit from our OneSource acquisition is starting to tail off and therefore cash taxes will increase $23 million to $27 million so that will impact your operating cash flow. It does not impact the income statement. As Henrik mentioned, all the Project Transform initiatives are completed so there's no more one-time cost there. Strategic Solutions, which is our end-to-end process group, will generate incremental savings that'll flow into SG&A and costs. And it's things like giving our employees pay cards workforce management, which is how we collect time, how we use time to help the divisions run their jobs better and more efficient, et cetera, and that work will be continuing but there's really no more big IT investments per se just related to that.

And on the bottom of slide 15, just a reminder of the deals that we disclosed that generate incremental revenue that I talked about on the previous slide. We closed Diversco 7/1, L&R 9/30 and Linc on 12/1. We've had a busy fall. It's been a lot of fun but the issue is -- the good news is we now have the capacity to take an acquisition, we have the capacity to not add a lot of cost to our fixed infrastructure, and as divisions generate incremental profit that's going to the bottom line. So that's the strategy we talked about several years ago now implemented and coming alive here.

I'll move to my last chart, which is 16, and this summarizes some of the key points that I just talked about. GAAP net income, $1.23 to $1.33 per diluted share, excluding items $1.43 to $1.53. We're at the point now we do anticipate gradual improvement in organic revenue. We've seen the inflection point in the fourth quarter here, as Henrik said. As I described, we do have higher debt at this point in time and slightly-higher borrowing rates, which increase interest expense $10 million to $12 million. The acquisition of Linc Group is slightly accretive, not in Q1 though. I'm sure you're thinking, well, how can it be slightly accretive given how much it is? The way we're looking at this is you take the incremental profit being generated by Link -- and yes, we have some synergies that go with that, but we also have $10 million of extra interest expense for the whole Company and we have the amortization of the intangible for buying with them. You put that all together we are slightly accretive, just not in Q1.

We have the one additional work day that I talked about, which is $4 million to $5 million. We expect continued strong operating cash flow. The delta year over year will be the cash tax benefit going down from the OneSource acquisition . We anticipate the SUI expense to be up $6 million to $7 million and the effective tax rate between 39% and 40%. Now that's more than we've given you in the past but that explains why we're giving you the two ranges that we gave you.

And I think with that we're going to take Q&A -- Henrik and I and whoever else we're going to take Q&A for a few minutes.

Good morning. A couple of questions. Jim -- sorry. Oh, sure, David Gold from Sidoti & Company. Jim, embedded in the guidance can you give us a sense for what type of organic growth you might look for next year, even it's just a general range?

Think the organic growth will go back to what we've talked about in the past. A couple points for divisions like Janitorial and a little bit more for Engineering, which has always historically gotten better rate.

So we'll get back to some of those rates we've seen in the past, going from flat, getting back up there.

And then the Link acquisition. You talked a little bit about the timing -- maybe more for you, Henrik -- of integration and it will depend -- I don't know if it's too early but synergy potential there?

No, I'd be happy to talk about that. As you know we are going to make a separate presentation about Link following this Q&A, but turning to your question we expect synergies from the organization to be in the $12 million range when it's fully implemented and we are planning the $7 million level -- or $6.5 million to $7.5 million level for this particular fiscal year. The first meetings have been taking place and pretty much no impact in the first quarter, slight impact the second quarter, and then you'll see the increase in the third and fourth quarter. I would say 90% implemented in 2012 and 100% in 2013. I think that 's a pretty [fair] best estimate.

90% in 2012, you said, not 2011?

No I said 2012.

Just wanted to be clear. One more if I can just (inaudible. There was some comments on Janitorial and some change there. Curious if there's a change in go-to-market strategy, or if it's more the environment that's helping them?

There is an on-going evaluation if going to market is the right strategy and Jim McClure's organization have changed the organization and one of the benefits we hope to get out of it is the way we will go to market. He's actually the number of regions from 13 down to four mega regions and if you [look at] those four mega regions each of them have the size of the second-largest janitorial company, at least, if not bigger. So each of those guys are very, very capable of running their own operation and have their own growth strategy. But there's a growth strategy for what we see in national sales and there's a growth strategy for what we're seeing on regionalized sales. But on that, the market looks to be a little better than it did a year ago. It's not exactly taking off, but it does look a little better.

Perfect, thanks.

Thanks.

Hi, good morning, Mike Gallo with CL King. A couple questions. I was wondering if you're 2011 guidance contemplate any potential price increases to offset some of the incremental SUI expense that you're going to be hit with again next year?

Yes, what they do is primarily covering the SUI increase we had in this year. Often when you get these increases very late in the ballgame you can go back to the client. Some of those rates in April we get effective January 1 and we've already negotiated with the clients. January 1 it's very difficult to go back and get these increases retroactive. We were able to get some of them and, of course, the cost-plus side it is relatively easy. There's no doubt we are a little gun shy with respect to believing we're going to get everything back. We have [calculated] getting some of it back, but there will be a net expense of at least $3 million or $4 million associated with it in our opinion.

Great, and just follow up -- this question for Jim on the interest expense. Does the guidance for interest expense contemplate the possibility [some fixed floating off], assuming probably end up swapping some of that, or is this something that would be incremental?

We're looking at the capital structure right now. Right now there's nothing of the that fixed but we're going to look at interest rates and do what makes sense. I would expect interest rates would be going up so I've got to do the trade off of how much it'll take to lock something in, but it would -- that'd be a very logical thing to think about right now.

Okay, great. Thank you.

I'll also add to that, though, that the cost of the level we're looking at is within the $1 million. It's nothing that's going to be material.

Good morning, it's Adam Thalhimer at BB&T. Jim, maybe just a housekeeping question first. Amortization of intangibles next year, do you have any forecast for what that might be?

The acquisition will raise it about between $15 million and $17 million, so kind of on top of what we were doing this year. That's pretty typical to what we see in a deal like this where half the excess purchase price tends to be intangible and then we kind of amortize it with some of the year's digits. The nice thing is it kind of tails off over time.

And then I'm curious what's your stand with regards to Tag revenue and what you expect to see on that in 2011?

We have pretty much budgeted flat Tag revenue, we don't expect any kind of explosion. If it happens I will sure look forward to meet you in a couple of quarters with a big smile on my face. It seems like it's leveling out so the assumption is the same as 2010.

Are there any other questions at this time? At this point there's no questions coming in from the website -- or webcast so we'll turn it over to Tracy Price.

Good morning, everyone, delighted to be here. First and foremost -- get to the right slide deck -- I wanted to give an explanation as to why I think ABM took the opportunity to make the acquisition of Linc and really there were three legs of the stool. We were going to bring them into the federal space, we were going to get them more into turnkey retrofit work and we were going to take them internationally. And the way that we've been able to do that as a company is we have been very sales driven, operations checked -- and you'll see meet some of our folks that are responsible for that portion -- but technology enabled. And we have architected the company so that we can make it very extensible, very scalable and take it internationally. The review that I'll go over today covers where we are and where we think we're headed and then we'll open it up to questions at the end, David, et al.

As far as the Linc Group we have a pretty unique pedigree in that we have significant technology background coupled with [demand] expertise. That's typically unusual in our industry. We tend to be a laggard industry and as a company Linc has always been at the vanguard of change. We've gone to market with a total cost of selling strategy. We've brought that into federal space so we are always looking to bundle services and protect margin. Not be a one-off provider, get picked apart by people who can come in regionally or locally with some more compelling pricing models because they don't carry the SG&A that we do. And again, we've done this in a fashion to compel outcomes with technology. Instead of being autocratic and demanding results we actually help people get their work done throughout the day.

Typically we focused on mission-critical environment so we look for high-value workers in critical environs. We want to make sure that we're adding to the value proposition for the customer so our typical revenue for STE is generally going to be significantly higher than what you're probably expecting, or used to in other verticals. As far as lead certifications, we've been at the forefront of those activities sustainability. We started initiatives many, many years ago.

The green world we were involved in many years ago. One of our largest project is AT&T Park, where the world champion San Francisco Giants play and that park was voted the most beautiful sports venue in the company after being in operation for eight years. So our opportunity with a customer is to intercept the degradation of that facility over time and make sure that it looks just as good ten years later than it did the day it opened. We also run Midway Airport, so some of your been through Midway and you can eat up the floors there. Not that I'd advocate that but it looks as good today as it did when it opened. So we're very proud of the fact that we can literally interrupt the degradation of that facility cycle. As a business model we only pursue annuitized revenue. We will do a lot of one-time work but it's for existing customers. We'll do one-time work in the federal space but the basis of every single one of those contract opportunities is that we have some sort of long-term service and maintenance agreement that grows off annuitized revenue.

We'll get to the run rate numbers and others. I'm not going to read you the slides one by one, but as far as the platform for us we were primarily a domestic company. We went international, we followed our customers. Primarily that customer was the Department of Defense significantly with the Army, with the Corps of Engineers, with US AID, with the State Department and then we started to develop commercial operations ostensibly in the Middle East but any questions on that later we can certainly speak to it. In terms of physical locations, our ambition was to purposely distribute the executive team so that we could get anybody in our company at a top level to an opportunity or problem in a two-hour flight in the same time zone. So what I'm not fond of is burning people out and flying them across country, spending lots of miles in airplanes.

We linked all of our offices up early, early on with technology to develop a telepresence concept and make it so that if there were any interruptions to the national transportation service we could still deliver what we needed to do locally. But we have hubs in Irvine; Houston directly across the street from the ABM office, strangely enough. Irvine's directly across the street from ABM office. Again, Alexandria, Virginia; Atlanta, where we have our [route]-based businesses and retrofit. Hopkinsville is really the hub for the government services space and then Pittsburgh is the hub for our franchise business.

The evolution of the company has been an interesting one. We inherited a rather innovative business model and unique culture and endeavor to make that a world-class company, and we did that effectively by putting all of the infrastructure in place up front and then growing the company on top of that infrastructure. So we made some awfully large bets on the emerging technology that we were familiar with because of our development background. Those turned out to be reasonably (inaudible). We were able to start building upon that and the development of our technology infrastructure was not back office bits and bytes and high-power crunching of numbers. It was literally to take quality management systems, embed them in the platform, add education and training and deploy that out to the field so we could compel behavior at the point of service. That is our hallmark. Our claim to fame is creating visibility and transparency in real time at the point of service.

We made some acquisitions to diversify. We had several people in our company who had a significant background in federal space and we did zero revenue with the federal government. We went about buying into niche markets that were complementary to what we were doing and have grown those companies, both organically and also through additional acquisitions quite well. We got into the medical space, we got into the electrical space, and with the wave of potential retrofits for energy across the spectrum, whether it's LED lighting or changing out chillers and boilers or adding control systems or adding renewables we plan all of those environments right now.

We went international a couple of years ago, and specifically in the Middle East where we saw the vectors all up and to the right in terms of operations and maintenance. We were not impacted by the construction downturn and the hundreds of cranes that were sitting in Dubai not moving. What they realized out there is that they spend billions and billions of dollars on infrastructure and they do not have the incumbent workforce or business model to be able to, again, maintain and interrupt the degradation of that facility over time. So I think there's a real opportunity for us there and we've already made some marque accounts in our travel. We've won some neat awards over time and of late, in the last year or so, we put together a concept called Linc Energy hub, which will be aptly renames, but we're going to talk to that a little bit later and let you know where it is that we think the world's headed.

On this slide I think the most important thing here is that --

(inaudible) slide that you're on.

Oh, I'm sorry.

(inaudible)

Slide 24 on the deck. The most important piece of the slide is that the attrition rate for this company is about 6% completely blended and the industry is really in the 20s. For our on-site business that attrition rate is even lower. That's indicative of the kind of leadership that our company enjoys across a broad spectrum. It's very costly to try and find workers in our environment. There is a dearth of talent, there is a lack of skilled top-end qualified people to do what we do and it's very, very critical that we over train, over communicate with these folks and give them the right technology to make their job function very (inaudible). So this is, again, an area that we've focused on and done quite well.

20 -- 25 gives you a little idea of the kind of things that we do. Operations and maintenance, while it might seem fairly mundane it is what makes the wheels go around and at the end of the day it is a number one thing that you can do in a building to save energy. So we go into a lot of facilities that have been tinkered with by the engineers, overdesigned and not run or maintained properly and bringing them back and doing a retrofit of just the existing operations to appropriate design to save significant amounts of dollars and energy. On the specialized technical service piece it's by vertical so in aviation we're talking jet bridges and baggage-handling systems. In hospitals we're talking about triple systems there, the clinical engineering equipment et cetera. So depending on the vertical we have a specialty and we have the subject matter experts who can provide the services to maintain whatever is core to that operation and we tend to take that responsibility on.

The energy solutions business, I think the most important staff that we have related to that is that we are 100% referenceable and this has a reputation-based sale. It's all about what you've done in the past. We compete against ESCO's, manufacturers, construction companies and I tell people by nature we're an insupious -- a sequious hoop-jumping company. In energy retrofit you have to be more than that. And we guarantee savings, we've never missed a guarantee, we're 100% referenceable. So when we go to compete against these other companies we literally give the customer all of our existing projects to call on. It's a daunting task when they're trying to compete against us when we can help shape the expectation of the customer and actually deliver the result. That's a business for us that we think is going to be significantly up and to the right. And unlike what ABM has probably done in the past we provided those services (inaudible) in-house.

As far as the value proposition, there are many for us and we're excited about the fact that there is an increasing trend towards outsourcing. Cross and Sullivan has the (inaudible) at double digits, but it is proven out that going from insource to outsource there's a 15% to 20% savings. So you're going to see a big move in the municipalities, counties, states. They're not going to be able to meet their target given their eroding tax base without outsourcing. We see a massive opportunity in the public space. But those savings are quantifiable, we have demonstrated that many, many times.

The business and the buildings are becoming increasingly complex. We're happy about that. The more controls they have the more sophistication, the more real-time systems, the more integration required all (inaudible) to our benefit. Most customers are looking for one throat to choke so they're going for a single-service provider. I think that was one of the main reasons why Henrik, et al, said this would make sense. Our businesses are very complementary. We can put more arrows in the same quiver and it gives the customer literally one-stop shop.

We used to perform primarily part services and we would subcontract soft services. Now we can bundles and provide both. Helps reduce everyone's sales cost and increase margins so we're very excited about the synergies there. As far as green initiatives we'll talk about sustainable FM and sustainable PM that we do a little later. Again we've targeted primarily 24/7 operations, critical environment, high-value workers and [Dave Whaley], who's our CO, and I like to talk about the fact that we hire 25/8 workers for a 24/7 environment and that's no small trick. But as far as the overall affregate dynamic in the industry that we see, the aging workforce and the population demographics are probably the thing that is most compelling for driving the numbers in our business. They cannot find replacement workers, the systems are becoming more sophisticated, it's impossible to train them and keep them current and it just lends itself towards a customer or a manufacturing facility focusing on what they do best and giving us the rest.

27 is about service delivery and capabilities -- excuse me. We are very strong technically. Again, our model is to compel outcomes at point of service and we do that by training transparency and in real time get guys to compete against each other to deliver the right outcome for the customer. We do everything in the integrated FM space, currently turnkey in-house. We are a one-stop shop. We're a more expensive one-stop shop now, thankfully. The business methodology that we have is grounded in a philosophy that was based on this collaborative service management framework.

I'll get into that a little bit later in terms of technology and what we did to build it. But when we looked what existed in the marketplace everything was primarily oriented towards manufacturing, so it wasn't really an ISO-style service management business platform so we took it upon ourselves to build our own. We talked about DES (inaudible) solutions being 100% referenceable and then as far as the international platform we have the ability to do both the on-site business and the federal space, as well as take franchise opportunities there and we already have some international franchisees.

The technology platform that we built -- and there were lots of guys involved in it -- it was about having a national brand with local service delivery. In the service businesses, like politics, it's all local You have to outperform the local guy that you're competing against and you have to be able to do it in the same way in Washington as you do Miami, as you do Bangor, Maine, and that's what we endeavored to put into place. We took elements of Six Sigma, Baldridge, Balanced Scorecard, ISO, and combined them into a closed-loop accountability system that we then embedded our education and training into and deploy that out into the field.

To give you an idea, when we acquired these companies they were -- the back office and infrastructure was going dark in seven months. We had seven months and 23 different initiatives to stand this up and we actually deployed this entire platform remotely to 1,100 different people who didn't come in for office-based training. So this was quite an achievement, quite an undertaking, but it also talked to the fact that you can do this in a very standardized office-shell fashion. We kid people from time to time that we had 3,000+ people in our company and seven people in the IT group. Reason we can do that is we took off-the-shelf components, we integrated them and personalized them. We didn't customize anything.

So for service delivery has to be simple, has to be able to be supported remotely with help desk and things that guys in the field, of course technicians, that technology is there not there first and only love. They know equipment, they know machines, they're very good at what they do, but if you can facilitate their existence and do the things that they haven't been good at for most of their business career you can really drive productivity and that's what we did. Really close loop systems with SOP's, work instructions all standardized. Be happy to do a webinar with (inaudible) at some point in time if anyone has additional questions or interest on that level.

As far as our business development process, again we're all about total cost of operations. We go to the customer and we identify that soft savings, the hard savings, what they can do from a FT standpoint, what they can do from an energy standpoint, what they can do from a commodity standpoint and try and integrate those into an organized fashion that we can then perform or finance over seven-to-ten years. So we want to create customer stickiness, we want to have that be a long-term relationship and the only way to do that is to not be a commodity. You have to be a solution. We've always been a solutions player. We're very thorough. We've done a nice job of cross-pollinating between the division and so we will subcontract work to ourselves in a lot of markets. And again, the customer is looking for single point of responsibility. If we can provide those services ourselves we're reducing our sales costs and we can pass those savings on to the customer. So there are a lot of compelling reasons for them to want to use us in multiple verticals and if you're organized properly and you can present to them a platform that they can interact with you on in a real-time basis it tends to facilitate that model.

As far as BD, how we go to market in different sectors in the government space, we have a significant business development capability. We crunch out 80 to 100 different RFPs a year. They're significant. The close rates are traditional but we tend to be very disciplined in what we go after, so we know we're going to get opportunities. The nice thing for us in that business is we have the experience and the qualifications so it tends to reduce the number of potential competitors from 20 to five. A lot of the government contracts now are going from multiple bidders to a reduced number of bidders that are qualified contractors and then they're giving IDIQ, or field-type contracts within the auspice of that agreement. So it's really a much better way for us to go to market. It's a much better way for government to go to market. They know they're getting a competent, qualified provider and we know we're not going to be sword fighting with 30 different guys to try and see how low you can go to on the margin to get the work.

The on-site business, again we help drive outsourcing decisions, we respond to RFPs, we bundle services, we package things up, we try and protect our margins with bundling and multi-year agreements. And in then in the mobile business, the energy-billing solutions, that's really the route base business, the franchisee business, the energy retrofit business tends to be significantly higher margin requires higher SG&A. So very different infrastructure requirements for these three entities but when you blend them together and hopefully when we take some of the synergy costs -- our intent is to try and drive towards a double-digit EBITDA business in all of our verticals. Today we are in a few of them and we have the opportunity to do that and certainly the ambition.

The next page talks about the development strategy and, again, we have standardized offerings that we customize by vertical. We talk about an inside-out strategy, so essentially what we're trying to do is get as close to customer spend as we can, be the solutions provider, package and bundle services and then provide those for an extended period of time. Bring in our mobile business to support that with energy retrofit and the other things that we can do with sustainability. But if you can get close to the customer and you're the trusted advisor then you have the right to do all the downstream services, too. And we have example after example after example where we started in at $1 million contract, it's now $7 million. We started in doing O&M, we're now doing everything from help desk to energy retrofit to modest construction management programs on behalf of these customers. But the central theme for every single one of these relationships is we have some sort of long-term service agreement that generates all of that other activity.

Where we think the world is headed -- and we call this the convergence of megawatts to megabytes -- there's a lot of things that we do already to impact energy consumption in the facility. We've added some additional tricks to our bag to bring in the opportunity for commodity on a wholesale basis, to do demand response, demand shaping, to add in products like the one from Cisco that we're currently putting the pilot sites together for. We think there's a huge opportunity to be a systems integrator in this business. And some of our past history in the world that we came from we had the opportunity to do systems integration work. Systems integration you have to have technology, pedigree and demand expertise. We have that.

The margins on systems integration are significantly better than any margin business that we're in. The world is becoming much, much more complex and when it gets to real-time pricing and you're going to have to have something facing the web that's also going to work downstream in the building, when you're going to have to take 300+ different ITs, integrate that and sympathize it into one router-based type component and then have that interact with the different pricing schemas that are going to be coming from the utility provider, now that's a very complex work. And we're excited about that because that's how we play and it should be tremendous for us. The opportunity is evolving. It takes three years or five years or seven years. The grid is going to get smart. The problem with infrastructure right now is there's not enough pipe to support what it is that they'd like to do anyway. So there's a massive infrastructure retrofit that's going to be required of utilities themselves. The embedded smarts that are going into all of the different devices that used to be stand-alone in a building are now being integrated into one backbone. That's a massive opportunity and we're very well positioned for that. We'd certainly answer any questions you guys have on that later.

As far as the combined entity today we're a facility solutions business. We want to bundle services. The acquisition, I think, is a very, very complementary and we're excited about it. So when Henrik took me aside and gave me the litany of reasons as to why this make sense to him I was able to check all those boxes and say yes, it makes perfect sense to me, too. Being able to leverage their customer base to provide more services to us is a dream come true. Been able to deal with guys like Jim and Steve and others who have significant businesses underneath them that we can talk about the similar customer (inaudible) and start integrating those activities, leveraging them with our sales force.

The difference probably between ABM traditionally and what Linc has been is we have about 100 people in business development, so people in sales carrying bags, generating RFPs -- responding to our RFP's. Our franchise business has another 300 sales people that carry a Linc bag, so we've got a very significant BD footprint. We have no advertising, little -- no marketing,, so we're a bit of a well-kept secret but that's going to change. And when you've got that many people that are carrying your brand every day and you can put behind it the power and the strength of a company like ABM and then get the word out it should be a great time or us.

There will be lots of synergies and efficiencies. We have teams that are driving that today. The enterprise combined -- 35 on the deck -- will be north of $900 million. The revenue growth we will see the tradition is low double digits but we have a lot of neat things in the offing that we'll be developing over time, and as they mature I'm sure Henrik will be wanting to share those with you. The synergies will drive our margins up so we're excited about that. We built a large infrastructure to support the growth of our company in a private equity-backed environment and without the need for that we can certainly streamline and leverage off and take advantage of what ABM's already built. We have probably the biggest pipeline in the history of the company, the biggest backlog in the history of the company, so the timing for us is about execution on what we have while we're making the transition and I think we're pretty convinced that we'll do a good job of that.

Next piece talks about what we can do together in terms of scope, customer size. I think the massive opportunity for us is to pull ABM's existing businesses through the federal space. We have a significant amount of expertise there and the contract vehicle to do it. To date, ABM has not been in the federal space. It's $70+ billion depending on whose metrics you look at. Great opportunity and all it requires for us to do is open our funnel up to the kinds of things that Jim and Steve and the other businesses provide. To give you a little anecdote, for us and the frustration of being a smaller, private equity-backed company there were two contracts last year that we were the top technical bidder and we were the low priced and we weren't awarded either because they were both over $100 million and that would have been more than 15% of our revenue. So it's very frustrating to win large contracts and not be awarded them. We don't believe this's going to happen to us in this world so we're really excited about that. Again, opportunity is going to be to take advantage of the synergies. Henrik's already posted the numbers so I guess I'll hit it or I'll be one of the synergies. So, you have it.

As far as the market trends, again, up and to the right with outsourcing expanding the client base long-term growth potential is certainly there. The integrated model for us is going to be deeper and wider and more sophisticated than it's been. We're very excited. Our teams have been together and these guys are all like they just unwrapped a new toy. They're very, very enthusiastic about what we're doing together. As far as the energy efficiency space, that really is the high-growth market and done well. When you turnkey on these kind of projects, when you compete against ESCOs they're essentially subcontracting all the work and marking it up, so there's 20% to 30% of customer value that's not be captured by the customer, it's being captured by ESCO. We perform the work turnkey in-house so we can do more work for the same customer and we can do more work at a better margin for ourselves. So in past model brokers margins tend to erode over time. If you control the labor force and you've got the skilled competent qualified workers to do it you can enjoy picking the project that you want to work on, doing them effectively and ending up with the result that we have where literally we guarantee savings and we have 100% referenceability.

The big growth opportunities we talked about the market for out sourcing. I think there's a slide next on that. Sustainable FM is something that we helped to craft and lead and we'll talk to that a little bit. The convergence of megawatts to megabytes is real, it's happening. The international expansion is outstanding for us and very exciting. We can now go after larger-scale facilities, and also as a company we have never pursued a national account strategy because we didn't have the resources to do it. And early in my career I was a national accounts and I know done well and done poorly what the results can be. With a platform and a footprint like ABM we should be able to go after that and do it quite well. Today we have large regional accounts who are asking us to go national. We've never had the horsepower to do it.

And then energy efficiency in residential, that's an incubator model that we put together called "GreenHomes America," which I'll talk to in a minute. The trend towards outsourcing -- you can get these numbers from Frost and Sullivan -- a double-digit CAGR in our industry is something I've never seen before. We've been a pretty sleepy business. It's 3% to 4% and we've always been the guys who've done three, four X that. To have an industry that's targeting double-digit performance in terms of revenue growth is very exciting. I think collectively we're responding to more RFPs than we've ever seen and it's flattened out from last October through about summer of this year when there was so much uncertainty in the economy and the marketplace, that seems to have abated and the volume and the velocity of the proposals is increasing pretty dramatically.

We put together several years ago a program called "Sustainable FM and Sustainable PM; one for our mobile-based business, there's one for site-based businesses. And what we did is we tied the lead icons -- or lead pillars to certain icons and then the goal was to put them into the customer facility, discreetly put them throughout. Not garishly put them everywhere but make it a top-of-mind awareness issue for all the people in the business. Because it used to be you do a big energy retrofit they'd would win an award, they'd get a plaque, goes on the wall in the energy czar's office and until Earth Day nest year nobody thinks about it, and Earth Day they trot it back out. Oh, yes, we did that, isn't that great. Energy savings erode over time. People forget about it, you don't maintain it properly, it's a problem. So what you need to do is have that top-of-mind awareness and make sure that everybody's having the visibility and knows what these enterprise is trying to do on a daily basis.

This is one way that we've done it. We literally sat down with the customer and whether they've got a three-year contract or a five-year contract our ambition is to [stairstep] them up the lead process. Whether they want to be silver, gold, platinum, whatever their aspirations are, but to make sure that we do it in a fashion that it's planned, it's organized, and they know that if I start a contract with ABM today in five years I'm going to have that lead certification that I wanted. My people are going to be aware of it. My customers are going to be aware of it when they come into our building and it's not going to be a high-cost, low-profile activity within our business. It's going to be the appropriate cost and it's going to have tremendous visibility and it's going to say all the right things about us as a corporate citizen.

As far as international expansion we touched on that. We have many projects today. We have lots in the pipeline. The thing that was most exciting about the Middle East is the sheer volume of the construction activity in the places that we're in Qatar and Abu Dhabi, Saudi and others is shocking. We've never seen anything like it and they want American business models, they want American technology, they want the cache of doing business with someone who's ranked in the top five in the world. We were number five, ABM was number four so this is a good marriage for us. But we've got marvelous opportunities and we have wonderful, wonderful joint venture partners. We've spent several years vetting these guys to not end up with bad actors and have to restart in different countries, and I can say today we have great partners, we have some marque facilities and marvelous opportunities ahead of us, so happy to discuss any of that later, as well.

And then GreenHomes America, which is kind of my favorite business model. Home performance, something that we got into six-plus years ago before it was ever an industry. There's significant amount of legislation supporting things like Home Star, Building Star. There are energy tax credits. All of the states are coming out with similar programs. We've turned this into a franchise opportunity. It'll be hosted the same way that we host our existing Linc franchisees. High margin business, great business and it's something that is not cash positive today but will be in the next couple of years. I assure you. Global drive toward green buildings we discussed. The ABM Engineering today, again, we're moving toward a facility solutions business. We do everything turnkey in-house. We leverage technology quite well. There's marvelous growth opportunities,, we're very excited about that. We have a large balance sheet and a public company environment to support us. And I would just say we used to tell everybody that our ambition was to become of the one great company in an industry of good ones and I think where we landed is the absolute best spot we could have and we are going to be a great company in this industry and I look forward to being able to work with Henrik and team to do that. So thank you very much.

Just one technical (inaudible). Well, for those of you who saw me working on a microphone in a shuttle bus (LAUGHTER), believe me, working this computer is (inaudible), but I didn't curse.

There you go, Edward.

Well, Tracy, thanks it's a great presentation. Let me talk -- back up. Let me talk about why -- now we're at page 49, thank you. Tracy talked about everything here but I want to talk about why did we do Linc. How did it fit in and why we so excited about it. First of all, Linc basically was exactly like us. They have the same tone from the top that we believe we have so that was a good beginning.

The second thing was (inaudible) management. They were a company that was very well managed, probably more into the role than we were, but I think I'm looking at that as a positive, because we needed inspiration, we needed new ways of growing, so that's exciting, as well. But the two or three things that makes me real happy is, one, I think we got it at a reasonable price. As you know, we bought the company with $300 million, that's what we had at the time. If I look at the EBITDA we are buying for that, including the synergies the company will probably survive $45-plus million in EBITDA. I'm not sure we had made that clear for everybody, but there's a discounted tax advantage in the numbers that we have not publicized. We might have, might have not, but it is slightly below $40 million. If you look at an investment of $260 million providing EBITDA $45 million to $50 million in a double-digit growth business that's a heck of a good return and is something that I think we'll see back many, many times, both short term and long term.

While we talk about the heartbeat of the companies I want to talk about the heartbeat of the industry. The facility service industry is attacked from different angles. You've got catering companies attacking the market, you've got the cleaning companies -- global cleaning companies attacking the market, you've even got security companies attacking the market. But if you want to attack facility services globally we want to attack it with the heart. The heart is the engineering. Nobody is catering to self-service cleanings as a soft service, but the heart of the building is engineering. We bought the heart, we chose to be a billion-dollar operation in the most important piece of the building and not a prob -- probably -- not probably, for sure the build -- the piece that's toughest to change you out. If you know the building, if you know the heartbeat of the building you're not going to be taking a bid out every two or three years. You're not viewed as a commodity, as we are in our services. So from that perspective it's a different angle to look at it but it is as exciting an acquisition that I (inaudible) about.

If you look at -- now I'm going to talk about strategy 2010 to 2014. We've not presented this before so this is something new, but we thought it was important that you understand that this was a part of our long-term strategy. In our Engineering group, as an example, has been a double-digit growing in the company for the last number of years and Linc's growth speaks for itself. But of you look at these strategic goals here, (inaudible) organic growth, we're assuming the combined energy group will grow at a 10% clip over the next many years from the reasons that Tracy just presented, but also if you look at our historical success that's probably laggable.

We will continue to do accretive acquisitions but not until we have paid back some of the debt that we put on as far as the deal. Our capital structure's going to be the same. (Inaudible) but the capital structure's going to be the same as we've always been. We're looking at shareholder value where we are anticipating double-digit ROIs and EBITDA growth that's pretty strong in this environment, in our opinion. And the fact that we have done our corporate infrastructure means we have the platform in place to make the acquisitions without having to rebuild the cap. We built the castle now people fit in. This is pretty exciting. If you look at this one it's all about an improving economy. You talk about all of the things I just talked about, including strategic acquisitions and a strong client base, and that is the foundation for the top-line growth that we have not seen [come by] for the last couple of years, but I am absolutely certain we'll see it for many years.

Now moving to the growth strategy, and Tracy touched on it, but our strong presence in basically all vertical markets and our ability to attack those vertical markets is going to be key. And on the technology side we are -- we've separated ourselves from the pack by doing this particular acquisition and this is as good as it gets. And hopefully this will start a broader international expansion now we have it in place. Hopefully we'll be able to do that over the next two or three, four years. The -- more of the same growth strategy, we want to stay at the debt level we have done in the past, which means or strategy is based upon average 1.5 times debt levels to our EBITDA. We're willing to go up to three times EBITDA, which we were close to this particular deal, but we haven't changed anything from our past philosophy. We believe that it's a very conservative strategy but also a proven strategy in the business we're in.

Acquisition strategy, we will try to keep doing what we're doing. We have completed ten acquisitions the last three years generated over $1.5 billion in revenue, accretive earnings and great return. We will continue to do that. We'll continue to look at the tuck-in acquisition. Tuck-in acquisitions, especially janitorial, they're just very, very, very profitable. We have, again, the infrastructure to do it and it's a question of finding the right company with the right ethical standards and the right customer base and pricing is the $5.5 million range but we should be able to make much lower than that.

The capital structure future I talked about that and the strong cash flows we will use to fund further growth. We have in our plan included dividends at the level we have done in the past so I'll give you the strategy. Has not changed in our plans we have presented here. The infrastructure strategy, we talked about the financing leverage. Operating efficiency I think speaks for itself. You see what we accomplished the last three or four years. We are very efficient when it comes to that and we're very disciplined. So when we talk about her synergies those synergies are very defined. It's not just 8% of something or 12% of something, it's Joe, Pete and Harry and a site over in the corner or a lease we're going to eliminate. So that's a different way of doing it and -- I need my glasses. I've been trying to read this (inaudible). Slide 56. And our base profile improved because our systems are so much stronger than they were and in my opinion very little can go wrong in our future the way we've set it up in the systems.

57 is -- the infrastructure, again, is key and we are ongoing working with end-to-end management on the admin side to keep generating savings and if you saw our numbers of this year I think it dropped around $8 million year over year in our overhead administrative support and we will be able to be maintain a growth level much lower than our growth level is expected on the top line. In our plan I think we expected growth around 3% on the cost side as a long-term growth and you'll see greater growth on the top line than that. We're very much focusing more than ever on the vertical markets. We have grown the vertical markets and that is something that we are very close to be able to take that next step towards. We also are talking about bundling of services. I think you heard Tracy talked about that.

Bundling of services won't be easy, it's not easy. I've made many speeches from here that it's not easy to bundle services but it's easier to bundle services when engineering is the heart of the business. It's very difficult for Janitorial group to sell engineering services. It's much easier for the Engineering group to sell janitorial services. That has not changed. Tracy also talked about the unique opportunity we have to sub some of his -- the services they're already subbing out to others that we're going to take that over. That's not included in our synergies that I'm just looking. It's a nice surprise, we look forward to it. I still want to see it before I believe it but there are truly many more opportunities here than we've seen in the past.

When you look at our growth rate that we put to the strategy here is the growth rate. Janitorial we believe are going to grow at a 3% to 5% level, which I think everybody's going to say is not overly impressive. Parking at a 5% to 7% level. We had Engineering at a 10% to 12% level, and if you go back both on Linc and us since 12% could even look as pretty conservative. And Security we're looking at a 6% to 8% growth level. But again, it's a $300 million to $350 million business, 6% to 8% is still $20 million to $25 million, which is very much achievable. Admin expense we expect to grow at a 3% year-over-year level because we have, again, the foundation in place to take care of growth in these particular divisional segments.

If you take all this and put this whole thing together with the growth we're talking about it is our belief that in 2014 our EBITDA will be exceeding $300 million without taking risks in excess of what we've done in the past. So we are on a path -- I look at this as being the start of a new era. We're right on the path, we made the acquisition, we're right now in the process of integrating that acquisition in the rest of our businesses. Culturally, which is always a challenge, or mostly a challenge with acquisitions, does not seem to be a great issue here because we are very, very in line in where we want to go and we're both very in line with the opportunities this brings with the table. So if we can take this from where we are to this that will be a different company three years from now than we are now.

And here's a summary. We have a different position in the marketplace now than we had in the past. We will continue to do our acquisitions, but this particular acquisition broadened our base and put us in a different spot. Capital structure I talked about; our risk threshold has not changed. The cost structure and the shareholder value I think is the key and at the same time, including the shareholder value, we do maintain a dividend component, which we believe is very important to our existing shareholders. So you can read the investment pieces yourself but this is what we believe that we're all about for the short term and long term.

On that note I will be more than happy to open up the Q&A, so please. Have any?

Sure, Henrik, just a quick one. On the $300 million EBITDA number for 2014, can you give a sense for how much of that would be acquired, or how much acquisition activity you need to do to get there?

David, not that much. If you just look at where we are right now -- just for the sake of argument -- and you add in the run rate of the acquisitions, for the sake of argument say $45 million to $50 million we're right now at a $220 million level run rate after the synergies are in place with no growth. That's basing on -- I'm taking 2010, adding the $45 million to $50 million of that. So the $220 million I would say what we've done in the model is where we went below forecasts -- where our cash flow was below 1.5 times EBITDA we moved our weight back up 2.5 times. So we basically took the free cash flow in excess of the 1.5 threshold to pay back the first two years and then load up.

Got it. So on that basis would it be safe to say then that for the first two years you'll be a bit slower on the acquisition front as you pay down some debt from the Linc acquisition?

I would say it's fair to say that the next nine months will be very much focused on this deal. I'm not going to commit myself longer than nine months because if there's some great opportunities coming by and they are coming by within the (inaudible) profile we just presented to you I would absolutely it if it's something that is coming after a successful implementation and successful restructuring of what will need to be done and we are ready administratively and management.

Perfect, thanks.

Mike Gallo, CL King. Follow-up question, Henrik. Obviously Linc brings with it an international footprint with the opportunity to expand and add additional services. I was wondering if you see that as a platform with which to expand ABM's business internationally and what kind of revenue growth internationally do you contemplate over the next three-to-five years?

Mike, we took this company over 14 days and two hours ago (LAUGHTER) and I don't have the future of international strategy. I can check my pockets but I don't think it's here yet. There is no doubt we will take what Linc has and learn from it, but there's still a component that we've been working on a European growth strategy in the past that I'm not going to throw away yet. But the fact that we have a presence is going to help us and I might have to change our prior strategy based upon what Tracy and his group has already developed. So, I think it's a early for me to commit this way or that way but it's exciting though and nothing in the plan for that.

And then just had a follow-up question for Jim. Obviously a lot of exciting commentary on Linc and Tracy's presentation. If we look at the 2011 guidance, I look at the revenues, I look at the operating income projections, I look at the expected synergies of roughly $7 million, we've got $200 million in additional acquisitions you've done incremental of the revenue. If you back all that out, even with the additional interest expense doesn't look like there's really much if any organic growth in 2011 in the rest of the business, so I wonder if you can just comment there? Certainly Linc on the surface should add $0.20 based on the commentary you've laid out in 2011 earnings, so I was wondering if you could just give some more color? Hard to put the commentary that you expect organic growth in the business in 2011 with the guidance. Thank you.

The way we're looking at incremental -- we call it slightly accretive on Linc is, we're -- you have to remember we have a lot more amortization, which I talked about, right, between $15 million and $17 million. And the way we're looking at this acquisition is the new credit facility that we moved to everything that's incremental there we're attributing to the deal itself because that is an additional $10 million of interest expense that we had not counted on earlier. So I think from an earnings perspective, total bottom line it is slightly accretive but if you look -- if you take your question at the adjusted EBITDA level, Linc clearly brings in some strong EBITDA, as Henrik mentioned. And Steve and Jim's businesses are growing organically, I can to you that. So I think part of the issue is if you put your thesis at the EBITDA level you will see both. The incremental interest and the incremental amortization are what's putting that pressure on the bottom line, but even with that the total bottom line is up. So at an EBITDA level you're definitely seeing growth in these guys business. And the infrastructure that we built and basically where all that's really built into the plan is incremental salary increases. We are not adding incremental bodies to support all this additional business, so over time it'll help leverage the bottom line. But if -- I think if you think about it on an adjusted EBITDA level I think the premise works better for you.

Thank you.

I have one comment there, Mike, also. Remember, again, it's 11 months of the year. You're only going to get 11 months you're not going to get 12 months and what Jim gave you is the 11 months cost but also only have 11-month income. [It's the simple one.]

Adam Thalhimer, BB&T. Tracy, I'm just curious, how much of the business is institutional versus commercial?

Joe Franz, it's right there. Joe, you want to given the numbers? Depending on what deck we've looked at they've either characterized it as public, federal, government so the splits are a little different.

Minus institutional will give me governmental?

(Inaudible)

When we looked at it

Joe, just introduce yourself.

I'm sorry, Joe Franz, Chief Financial Officer of Linc Group. When we look at it, the breakdown, we look at it as commercial versus government and we attribute [qwansi government RFPs along with the federal government (inaudible) revenue would be (inaudible).]

Okay. And then also for you, I'm just curious. A lot of -- some companies in your line of business, similar to what you said, have talked about increasing RFP activity but when push comes to shove facility owners are still kind of hesitant to move forward and commit capital. Where are we in the process of going from RFPs to increased work activity?

Well, I would say we've seen the increased work activity. The RFP responses that we started responding to in September, October have already started to be let as contracts so what we saw last year was about October everything just stopped and it really didn't start moving again until July, August and what we had anticipated as it pretty robust a bid season was exactly that here. So we responded in the federal government to significantly more proposals than we would have in the past and while those contracts through a type of great uncertainty in the political world were being held the tendency in the federal government is if people don't know exactly the right thing to do they don't do nothing, therefore they don't get their papers graded poorly. What we found was as soon as the election was know -- at least the response from the electorate was pretty well known in advance contracts started to be let. So we're seeing significant buildup in backlog and Dave -- Dave Whaley's our COO. Dave spent been 30+ years in the federal space -- he's a retired two star in the Army Hall of Fame -- he can comment to you on the processes within the federal government and how we respond to what is characterized as bid season there.

On the commercial side we are seeing people let contracts on the energy retrofit project level and capital side we'll see. We're hopeful that Q1, Q2 of next year is not like what we've seen the past couple of years. But big push for energy retrofit, sustainability measures and the federal space is starting to free up some of those contracts. We have certain contracts that we're waiting to be rewarded for 687 days. Dave, you want to expand on that?

Certainly. Dave Whaley, and again, I'm the Chief Operating Officer. The federal government is protectible yet not predictable in the way that they do business. I think we're seeing some improvement in that area, not just contracting activity, if you will, but the release of -- the announcements of who's winning them. There's still another step, if you're familiar with it. And the commercial space is about a 7% sales process and the federal government is 14 and until you get to 14 you're not doing the work, so there's a delay point at 14 different intersections, if you will. But in the recent 90 to 100 days that sales cycle is compressing. We're seeing some activity along those lines. In fact, we're in the middle of four very large pieces right now. They're not awarded yet, but if they are that starts to turn very nicely for us. Any follow on with that?

Yes, that's great.

Good morning. Dave Gold with Sidoti. Tracy, on the 70% repairing business can you speak a little bit to, A, contract duration, both government and otherwise? And B, the second contract duration what's the average tenure length that you've been able to hold a customer?

We go to market with a couple of different types of contracts; fixed price cost plus and hourly rate. The lion share of what we try and do is fixed price and that might be a (inaudible) to most people but for us fixed price is where we can get in and drive productivity and drive margin. That's our preferred route and we don't lose money on fixed price contracts. The duration of the hold changes on the depending on the vertical and you tend to get much more stickiness in the on-site business because we do get them pretty addicted to our technology and the switching costs can become quite high. I think 11-to-12 years is about the typical hold in the on-site business probably seven-to-ten years in the mobile or route-based business. And a generally speaking, if we lose a contract it's because we've been dramatically underbid in pricing, or in the last couple of years people have closed companies. They've closed facilities, they've moved facilities, they've consolidated facilities so it's a little difficult to continue maintaining and operating a building that nobody's in.

We like the stickiness that we have in our business. We can grow year over year because of the fact that we aren't really exposed to the construction cycles, which are great fun when you're on top and not much fun when you're at the trench. But I think over time and we've the history, the results demonstrated and we can certainly share those with you guys in terms of what the average contract hold period is. Depending on the business there's a different dynamic that's involved there but generally speaking seven-to-ten years in the mobile business, 11-to-12 years in the on-site business.

And one other thing I think I might want to add. In the on-site business we've done a very good job of taking annually renewable agreements and extending them three, five, seven years. We essentially blended and extended a lot of our customer opportunities before the contract hits the street so we'll approach them one year, a year-and-a-half before the contract expiration and say, listen we'll give you better terms, more scope, we'll jump higher, run faster, provide the technology, do some neat things to encourage them to give us a contract extension, especially through a difficult period in the economy. We've seen this three times in my business career. The dynamics have been the same every time, this has been more dramatic. But if you can get your customer to extend the contract through the difficult period and get to the other side everybody starts doing better. They start paying more attention to their top-line growth, less sensitivity to what we're trying to do, and they're willing to spend more money on capital and infrastructure projects, which we're hopeful is going to start happening in Q1, Q2 next year.

Can you just give us the split revenue wise between on-site and mobile?

On-site and mobile. Well, we've got federal we've got commercial on-site and we've mobile and I think we're about $100 million all-in on the mobile businesses and the remainder would be on-site and training between the federal and the commercial piece.

Perfect, thanks.

Andy Whitman from Baird, just a question. Tracy, on the federal tax incentive for energy investments -- energy saving investments, can you just talk about the impact that is to your business maybe last year and how important -- maybe what percentage of the CapEx that you're helping implement is a result of that and just generally how important that is to your business today?

Yes. Well, today not very important at all because we haven't benefited very much from that and even the stimulus dollars that were supposed to be going into infrastructure the delay on that, where we're the incumbent and we should've seen projects coming down the pipe they really didn't really start until towards the tail end of last year. There is pending legislation and all kinds of discussion in Congress and the Senate about extending energy tax credits, doing things for the residential marketplace, doing things for the commercial marketplace.

You've heard about recovery through retrofit. Vice President Biden talked about, [John Dorse] talked about energy efficiency for homeowners is the place to go to reduce demand across the country. So right now they're currently bantering about a couple of different ways to increase the -- either extend or increase energy tax credits for commercial and for residential and our preferred route is rebates because only about 50% of people actually pay taxes. It's a little difficult to get a tax credit if you don't pay any. A lot of times they target programs at low income, HUD, multi-family and those are great place to do the work because generally the infrastructure's been degraded over time. It's always a benefit to us if there's a tax credit involved. It's easier on the residential and multi-family side if it's a rebate program, but we'll have to see.

The Home Star legislation has been pending for a year. It passed Congress, it did not pass the Senate. The problem there was the pay for and even though there were spending stimulus dollars the Republican side was unwilling to allocate them to Home Star. But there will be additional tax credits,there will be additional incentives. I don't think they should be pointed at solar, but if we can reduce demand in the built environment we're much better off than subsidized renewables on a lot of levels.

Great, thanks. And I wanted follow up with a little bit more color on the franchise business. I think it's a pretty small part of your business today but I wanted to hear a little bit about -- there's the residential franchise. It sounded like you alluded to a bit of a commercial franchise, too, just want to clarify have clarify that. And then a question for Henrik just on the long-term future of that business, what you think? I know it's early days, but what you're bantering about today?

Sure. So the franchise business we have is for mechanical heating and air conditioning contracts where we provide everything toi them cradle-to-grave from their back-office systems to their work order management, contract management, CRM, all of their award systems, their training for their business systems managers, their pricing modalities, methodologies, how they function. It's a turnkey operation and for most people franchising is anathema to their being. It's difficult, it's Supercuts, it's a whatever it is, but we have 99% customer satisfaction. We have done a marvelous job of over delivering into that business and you will find that there's a significant loyal customer base there and these guys want to get into multiple verticals. So our goal --because it's a significant profit contributor even though it's a low-revenue business our goal was to move that into some other verticals that we knew that we could exploit based on our abilities and take it into the mass market because my dream of dreams was have a mass-market offering that commercial is hard, residential's harder but there's not as much competitive pressure and no one has done a national residential platform to date, doesn't exist.

So we came up with one five, six years ago. We had it vetted by one of the MBA classes at Carnegie Mellon. They came back with a punchline saying, yes, this could be the biggest market opportunity out there, home performance, et cetera, et cetera, but you're going to have to educate the marketplace on what it is and that's why we worked with [Nycerta] and some of the other utilities to come up with a program. And I would tell you that, had we not inherited a franchise business as part of the acquisition that we did originally buy these companies I would not have taken that step. Having been in it and understanding that they identify niche markets for us, they're carrying our logo, carrying our bag, they're all doing it based on standard methodologies, it's a marvelous way and it's a very capital efficient way to grow.

You can grow sequentially or serially making acquisitions and you've got to integrate them. It's a long haul. You can grow exponentially more quickly by franchising. And in certain markets where it's a land grab the timing is everything, so the most capital efficient way to go to market is as a franchise business. And if you do it right it can be very rewarding. It's a very sticky because of the technology and we've got a marvelous group of folks there that understand the value proposition. So, again, it's something that was broken when we bought it and our commitment was that we were going to over deliver to them until they said stop, and I think we've more than delighted them. As for the long term I defer to Henrik.

Let remind you we took it over 14 days ago (LAUGHTER) so what Linc has done on the franchise side has been -- it's very impressive. Our history with franchising is zero, we have no base for that. I see no reason not to continue a very successful franchise business on the engineering side. I think when it comes to green homes we have to see what the political future is on green homes, but on our long-term strategy none of that businesses are expected to explode. If it explodes it will be in addition to us, so (inaudible). Tony?

(inaudible) from Paradigm Capital Management. Where you're really going 40 miles an hour in that garage? (LAUGHTER)

I went 37, maybe a little more.

In case I missed this, I was wondering have you provided the metrics regarding the purchase price for Linc?

I didn't get that.

How much you paid for Linc. I haven't seen it and I'm wondering if you could just walk me through.

Oh, $300 million.

Okay, thank you.

[Gary Burwitz] from (inaudible) in Maryland. Tracy, I was wondering if you could just walk through what the decision process is for a customer and as you can talk about that I just wonder if you could differ to that period I know a deep recession, which if this is a big cost save just wondering why maybe there wasn't more demand in the recession and why it picked up more recently?

Okay, so -- I'm sorry, the decision process that a customer goes through and then --

Yes.

Right, right. And maybe the return characteristics? Well, the decision process it depends on the market. If they're talking about going from insource or outsource that's an emotional decision for them. And what you seen, especially in laggered markets like healthcare, is they have cut the number of STEs to the bone so it's really difficult to tell them that there's a compelling financial reason to do it unless you're doing it on a portfolio basis. So if you have a healthcare chain that's got 15, 20 hospitals than in outsource play is going to be still financially compelling even though they've cut everything to the bone. But if it's an insource versus outsource play for the customer it's usually, okay, this is new territory, it's uncharted, help us shape an RFP. We need to get some competitive bids, we need to understand what other services you're bringing to bear and then they do it or not.

When it's an existing outsource opportunity then most of the customers, at least in our world, ask us to help them save more money. They weren't very interested in going back out to bid. The bid process is very expensive, very costly. They're not guaranteed to get a better result and if you're delivering tremendous service their motivation is not to get rid of you, their motivation is to find ways for you to do what you do more cheaply. So there's some trade-offs typically and we've -- whether it was Delta Air Lines or other people we've said, okay, we're willing to help you out here but on the back end you're going to give us two years of the contract, et cetera, et cetera.

As far as the deer in the headlights behavior that we saw I used to get year-end spending that was pretty dramatic. People continuing their budgets out, buying controls, buying products, buying services. The last two years that hasn't happened at all, so guys that I know that are heavily dependent on year-end spend it evaporated. So my expectation is, the budgets that existed for people in 2007 got lowered in 2008, got lowered in 2009 and by 2010 there's nothing left there.

So you have two issues relative to the value proposition. Yes, customers know that they can save money by doing it, but when people are very concerned about their jobs a lot of people are not going to introduce massive change in that environment. And so where we went more to the areas where we saw markets expanding and where we saw growth in verticals and where you still had high-value workers in critical environments, because the driving force in these businesses is dearth of talent, aging workforce, lack of skilled workers, so it's all demographic based. And in the federal space you saw this Jekyll and Hyde behavior where the pronouncement were we're going to pull everything back in. We're done with subcontracting and outsourcing. Then, unfortunately, AP came out with a study that showed that it was $12-plus an hour more expensive to insource to the government than to outsource. We had some contracts that were waiting to be let that got pulled back. Nine months later they're being put back out to bid.

So there's a little of this back and forth that's happening, a little bit of confusion relative to the government contracting space. What they are taking inside -- or in-house again are the purchasing management function so that you don't have a contractor putting an RFP together for contractors to subcontract to a contractor. So that's being pulled back, which makes sense and we agree with that. But the exigencies of people circumstance usually have them stop what they're doing, not increase the volatility. And so I think what you'll see is, as the economy starts to pick back up and they're focused more on top-line growth and less on cost of operation we're going to see that that anticipated slew of RFPs continue to grow. I don't know, (inaudible). Anybody else?

Just one quick follow up. If the federal government does go to more of a cost-cutting mode how do think that would impact you?

Well, because we're not Boeing and we don't build rockets or airplanes or things like that the area that we're in is it moves inexorably up and to the right, so the spend has never gone down. And what you're finding is, as they start to bring material back from Iraq, Afghanistan, it increases the amount of required maintenance, repair, retrofit so we happen to be in the repair, O&M and training space. Those are the areas that are growing and we've been reasonably good at seeing around the corner and predicting where the government spend was going to go over time. If I was a large manufacturer of hardware I would be very concerned. Thankfully we are not.

Before Adam asks a question I have a question from the webcast. It comes from Jeff Kessler. Ingersoll-Rand, Snyder, Siemens, they've all moved their businesses by moving up from the manned security to security using the company network and providing greater value added, as well as higher return on investments to the end user and higher margin. Henrik, is this in your horizon?

Thanks, Jeff. There is no way -- there's no doubt that Linc and expertise that Linc is to the table is going to impact all of our services. It's going to impact our service delivery on the prior services we had to the government and could probably impact security more than anything else. We are not in the 14-and-a-half days been able to develop a new long-term strategy for each of our segments, but clearly the strategy that we will be looking at adjusting will include input on the -- from the government side, especially, of where we can go and should go.

Thanks. I just want to ask a few questions to try to get at where the -- what the contribution of Linc might be when we look toward fiscal 2012. Jim, do know what happens to the amortization of intangibles on 2012?

The amortization will go down a little in 2012 but not a lot. It's kind of a sum of years digits that we do, so a couple of years it'll go down dramatically. Probably the bigger improvement, besides the intangible itself, is really you'll have a full year of synergies and you'll have more synergies, as Henrik said. So I think that's the bigger issue than just the amortization change. It'll go down the little bit but not a lot.

Yes. And I think the three key numbers, the impact, that one is we're going to pay down debt, which is going to have a some kind of impact. The way we do amortization, I'm not sure everybody understand that, but we did on a cash-flow basis, which means it's on a straight line so we have very heavy amortization the first years and then it lowers dramatically over the years, so the line goes like this. And lastly, but not least, we do believe that we are in a double-digit growth business so we do expect that 2012 will be a growth year. I'm only committing myself to 2011 right now as we speak, but we do expect growth in the Engineering segment, as presented to you earlier, and I have no reason to believe that growth shouldn't continue. The reason we bought this company was for growth. This changes ABM from being somewhat of a stalled sales company to a growth company and think that's pretty exciting.

And then did you give targets for Linc's EBITDA growth?

I don't think we gave targets for Linc's EBITDA growth. I think we gave -- the Linc EBITDA given here is adjusted with the full-year impact that's between $45 million and $49 million, I would say, as we are right now and then you could put the growth numbers in. I'm talking about 2011.

And then --

2011 with the full year of synergies, not partly.

Okay, right.

Just wanted to make sure we got that.

And the only other piece was Linc free cash flow positive (inaudible) the trailing 12 months?

Yes.

Great, thanks.

I think there is another question.

Henrik, I was just wondering if you could comment. You've done a lot of deals over time, just wondering where do you see the greatest risk? In the integration, or just successfully moving forward as you think about your plan?

Where I see the greatest risk with Linc? I couldn't hear, that's why I'm asking.

Yes, yes.

Okay. Well, the link -- the greatest risk for ABM, or the greatest concern I had going into this was, of course, the government sector. We have very little base of -- we don't have the knowledge base and one of the reasons why we fell in love with Linc was their knowledge base was very, very impressive. But if you look at it from my point of view is at least a month ago that would be my biggest concern. Now it's a concern and I think the thing that I have to get used to is that some of the predictability we've had in the past will probably change, because from the government side you can end up getting a $50 million, two-and-a-half year project that's going to impact the next two-and-a-half year very positively. The problem is, when you lose that after two-and-a-half years it's going to impact it the other way. So, if you look at ABM historically we've been very much portfolio based and pretty steady eddie. There's going to give some variances to what we've had in the past. The good news from that perspective is that the government business is less than 10% of our overall business so the variance is on the 10% number and not on the 90% number. But that's going to be some more variances hopefully to the good side than we've seen in the past.

The other thing that you're always concerned about is, when you bring in a company like this and in this particular case I was so impressed with the management and some of the key management from the acquired company is going to run the combined group. But, again, after having interviewed the management team if I had any doubts those are gone now and I see many more upsides than downsides in this. I did make a very interesting scenario. I asked Jim Lusk to do that at some point in time saying, okay, Jim, with amortization going down and everything going wrong and the world falling apart and we have flat sales over the period up to 2014 -- do you have the one, do you have that? -- just look at those growth numbers because amortization's going to drop, we're going to have cash flow from the existing deals, et cetera, et cetera, but just growth on -- I'm sorry, earnings per share. Growth on earnings per share will be in the $0.10 level if we have totally flat sales in all our lines of businesses and just get the synergies, because synergies shouldn't be impacted by sales. So worst-case scenario I really believe is, yes, we're only going to grow 5% to 10% bottom line but that assumes that we won't get any new sales next four years, which I think is pretty unlikely.

And how did you structure the deal to create incentive for the management teams you're bringing in?

Outside my natural charm and the fact they want to work me (LAUGHTER) I'll be happy to talk about that. What we intend to do is -- again, it's 14 days and a couple hours, what we intend to do is making a very attractive options and some of the long-term options for the key management, looking into a (inaudible) option structure for those particular people with a three-to-five year range and it's going to be ABM the stock because now they're part of ABM. Based upon what we saw when we bought the company, which made us very happy, was if you look at both long and short-term compensation for the masses we were very competitive with each other. So outside some small changes in health and welfare and other places that might be a little hurtful for some of the Linc employees I think all of the other programs, including bonuses, salaries, 401(k), et cetera, are very much in line after we make small adjustments but these are very minor adjustments. And it's a very good question because you don't want to come in there and start by lowering everybody's salary on Friday. That is not a very good motivating factor. So we were lucky enough, or we pay our people competitively enough that we've stayed very well into Linc or Linc's fit very well into us. So with the exception of the key individuals that are given an option model in excess of our normal long-term compensation I'm very comfortable that we can retain the talent. Right, Tracy? (LAUGHTER)

Yes, Henrik's very comfortable he can retain the talent, yes, and he is charming.

Yes.

All right. With that since there appears to be no more questions, either from the webcast or here in the room, on behalf of Henrik and the executive team of ABM Industries I want to thank you all for taking time out of your busy schedules to come here today and to listen to our 2010 investor briefing. Thank you again.