ABM Industries Inc (ABM) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ABM Industries Q4 FY14 conference call.

(Operator Instructions)

As a reminder, today's conference is being recorded.

I'd now like to turn the call over to your host for today, Mr. Henrik Slipsager, President and CEO.

Sir, you may begin.

Thank you.

Good morning.

Joining me on the call today are Jim Lusk, Executive VP and Chief Financial Officer; Jim McClure, our Executive VP; Tracy Price, Executive VP; and Sarah McConnell, Executive VP and General Counsel.

Today I'll provide an overview of the 2014 fourth quarter and fiscal year that ended October 31. Jim Lusk will discuss the details of our financial results. Jim McClure will then provide an update of our Onsite business. And Tracy will comment on the Company's operational results for Building and Energy Solutions as well as sales. I will discuss Air Serv's performance for the quarter and then conclude our prepared remarks with our outlook for FY15.

There's a slide presentation that accompanies today's call. You may access this presentation now by going to our website at www.abm.com. And under the tab investors, you'll see the event tab. This presentation will be the first listed.

Sarah?

Thank you, Henrik.

Please turn to slide 2 of the presentation. Before we begin, I need to tell you that our presentation today contains predictions, estimates and other forward-looking statements. Our use of the words estimate, expect, and similar expressions are intended to identify these statements.

These statements represent our current judgment of what the future holds. While we believe them to be reasonable, these statements are subject to risks and uncertainties that could cause our actual results to differ materially. These factors are described in the slide that accompanies this presentation.

During the course of this presentation, certain non-GAAP financial information will be presented. A reconciliation of those numbers to GAAP financial measures is available at the end of the presentation and on the Company's website under the Investors tab.

Thank you, Sarah.

Now please turn to slide 4 for an overview of our fourth quarter fiscal year highlights. Revenues were very good for our fourth quarter and up 5% from the same period last year. Janitorial posted top-line growth of over 5% (sic, see Earnings Release, "4.6%") on strong organic sales, and this contributed to an over 13% increase in the operating profit.

Building and Energy Solutions had another very good quarter both of revenue and operating profit. BESG achieved top-line growth of 18%, and operating profit increased over 29%. The growth came from all three parts of their business.

Parking ended the year with good momentum. They grew revenue by approximately 3%, and operating profits were up almost 12% year over year. Air Serv revenue was up 13%, benefiting from organic growth in the UK and improving revenue trends with our business related to US commercial carriers.

For the quarter, offering profit was up 15% compared to FY13 and, on an adjusted basis, up 10%. During the quarter, in our effort to retain shareholder value, we acquired GBM Support services, a UK-based enterprise. This not only adds to our growing presence internationally, but also creates a platform to accelerate our growth strategies throughout the UK. We also acquired Airco Commercial Services, based in California, with expertise in energy solutions and building controls.

I'm very pleased with the initial performance of both these businesses. We repurchased 387,000 shares of stock, paid a dividend of $8.7 million.

And now I'd like to make a few comments regarding FY14. We achieved record revenues, exceeding the $5 billion threshold for the first time by generating the best growth we've seen since FY07. We generated and recorded an adjusted operating profit of $153 million, up nearly 10% compared to FY13.

We increased adjusted earnings per diluted share, despite delay impacts of WOTC. Keep in mind that FY13 includes a benefit of $0.17 per diluted share from this Work Opportunity Tax Credit, of which $0.05 is related to the retroactive reinstatement of 2012.

We achieved significant growth in both our BESG business and our Air Serv business, 20.5% and 12.5% respectively. Combined, these two segments now represent 17% of consolidated revenue, up from 15% last year. That's great progress and supports the investment we made to acquire these enterprises and expand our presence in energy, aviations, government and healthcare verticals.

We began repurchasing stock under our $50 million authorization. For the year we bought back 765,000 shares at a cost of $20 million. We acquired three companies for a total of $48 million net of cash. And we completed our realignment of our Onsite Services, creating savings exceeding $7 million for FY14 and on an accumulative basis since FY13 of nearly $11 million. And we paid $34.6 million in dividends.

I'm very satisfied with the Company's consolidated performance, as we remain on track with long-term strategic goals to enhance not only our growth but also our key abilities, and to provide our integrated facility services.

Now I'd like to turn the call over to Jim Lusk for a financial review of our fourth quarter.

Jim?

Thank you, Henrik.

Good morning, everyone.

Turning now to slide 5. As Henrik noted, revenues of $1.3 billion for the fourth quarter were up 5% compared to the prior year, including organic growth of $46.6 million, or 3.8%. Gross margins for the 2014 fourth quarter were 10.9%, flat compared to the fourth quarter of 2013.

SG&A expense for the fourth quarter increased $1.3 million, or 1.4%, to $92 million primarily as a result of higher costs associated with additions to our sales force. Amortization of intangible assets for the fourth quarter decreased by $0.2 million to $6.9 million.

Our effective tax rate for three months ended October 31, 2014, and October 31, 2013, were 34.7% and 33.9%, respectively. The year-over-year difference is primarily from a lower Work Opportunity Tax Credit. Adjusted net income, which excludes items impact to comparability, was up $2.7 million to $29.7 million for the fourth quarter as a result of higher operating margins.

Now turning to slides 6 and 7. Days sales outstanding at quarter end were 53 days, up 1 day on a year-over-year basis but down 1 day sequentially. Cash generated and operating activities for the quarter ended October 31, 2014, was $63.7 million. This with an increase of cash generated of $12.7 million, compared to the same period in FY13, primarily related to the timing of collecting receivables and payment to vendors.

Turning to insurance, total insurance claim liabilities at October 31, 2014, were $349.7 million, down $8.3 million compared to the fourth quarter of 2013. For self-insurance claims paid during the quarter, the total cash paid was $23.6 million, down $1.5 million year over year.

As we discussed in the third-quarter call, one of the accomplishments we achieved in FY14 is improvements to our safety and risk management programs. I, along with the executive team, continue to focus on this critical area.

As Henrik noted, we repurchased 387,500 shares, at an average price of $25.81, for a total cost of $10 million. We have an additional $30 million outstanding under the 2012 authorization. And yesterday, we announced our 195th consecutive dividend and increased the amount to $0.16 per share, continuing the long established pattern as evidenced by the chart at the bottom half of slide 7.

I would now like to turn the call over to Jim McClure.

Thank you, Jim.

Please go to slides 9 and 10. I'll now provide some operational highlights of our Onsite services for the fourth quarter and fiscal year before turning the call over to Tracy. Janitorial top line growth for the quarter was 5.3% compared to 2013 with revenue of $666.1 million. Janitorial sales momentum continued, with jobs starting in our sports and entertainment, automotive, industrial, financial services and high-tech verticals.

All four of our regions posted top-line gains with the West and Northeast regions achieving year-over-year revenue growth in the fourth quarter of 8.6% and 5.7%, respectively. Tag revenue was strong in the quarter and, compared to FY13, grew 7%. Looking at the year, revenues grew 4.1% to $2.6 billion, primarily from net new business.

For the fourth quarter, the Janitorial segment earned $38.7 million in operating profit, an increase of $4.6 million, or 13.5%, primarily related to the new business we've added across all four of the regions, realignment savings and lower expenses as a result of safety initiatives.

Operating profit margins increased by 42 basis points to 5.81%, compared to the fourth quarter of FY13. Operating profit for the fiscal year was $144.4 million, up 6.6% compared to FY13. Operating margin for the fiscal year was 5.59%, an increase of 13 basis points over 2013.

Moving to Facility Services. Revenue, as expected, decreased by $5.7 million to $147.1 million as we continue working diligently to replace revenue loss in earlier quarters. We have recently won a few national jobs in our automotive and high-tech verticals that should make comparables improve later in FY15. Despite the lower revenue, operating profit improved 4.9% to $8.5 million, a good job by the team.

For Parking, revenue was $156.7 million, up $4.4 million, or 2.9%, compared to 2013. Management reimbursement revenues were essentially flat at $74.7 million. This marks the best quarter of growth as we are benefiting from new jobs and improved economy.

Parking operating profit increased by $1 million, or 11.9%, as compared to fiscal fourth quarter of 2013. Operating profit margins increased by 48 basis points during this period. The increase in operating profit margins were primarily from lower labor expense from the realignment of our Onsite operational structure and improvement in safety programs.

Parking ended the year with their best quarter in terms of revenue growth and operating profit earned. The team did an excellent job all year managing their business, and we enter FY15 in really good shape.

Turning to Security. The top line was at $94.2 million, down 3%. Despite a number of cross-selling successes in our Security business, as I mentioned on a prior call, there was some significant jobs that we lost that we remain disciplined on pricing. We are making progress replacing the revenue. However, I anticipate quarterly comparisons won't improve until the second half of FY15.

For the year, with revenue of $383.1 million, Security did manage a slight increase compared to FY13. Security generated operating profit of $3.8 million for the quarter, a decrease of $1.4 million compared to 2013. For the fiscal year, operating profits were down $0.5 million.

After two years of strong performance, it's frustrating for me to see these numbers. But there are some good opportunities in the pipelines of sales execution, along with strong labor management across Securities job portfolio, will be keys to getting back to higher levels of profitability.

I want to make a couple of additional comments before ending my prepared remarks. First, I want to remind everyone that we have successfully completed the Onsite reorganization. And we are really seeing a significant amount of opportunities to cross-sell. This will, of course, take time. And we know future sales at times can be lumpy. But I am pleased with the consolidated growth achieved by the Onsite business in FY14, especially from the Janitorial team.

Lastly, our client retention levels for FY14 were acceptable, at just over 92% for consolidated operations; but this can be improved upon. With the reorganization behind us, we can now renew our focus and efforts in this critical area. I believe improvements will come gradually and anticipate seeing positive changes in the second half of FY15, as we work on enhancing our retention capabilities.

I will now turn the call over to Tracy.

Thanks, Jim.

Continuing on slides 9 and 10, I will provide an update on our Building and Energy Solution segment, which includes ABES, Government Services and ABM Healthcare Support Services. This was another strong quarter for the team, and we're very pleased to share these results.

Starting with revenues, we accomplished an 18.3% increase to $135.7 million. Excluding acquisitions, we achieved organic growth of 9% as we benefited from an increase in energy retrofit projects, service and maintenance contracts, and continued growth in our Healthcare business. Another outstanding quarter for the ABS team and reflective of our continuing record backlog and strong sales momentum.

Revenue from our ABM Healthcare Support Services was up 19.9% to nearly $27.7 million, compared to the fourth quarter of FY13. With year-over-year growth in revenue by ABES, contributions from ABM Healthcare, Government Services, and acquisitions, including our most recent Airco, BESG generated operating profit of $10.1 million, up 29.5%. In addition, adjusted EBITDA for the quarter was $13.4 million, up 24.2% year over year.

Looking at FY14, I am truly proud of the results achieved by the BESG businesses with revenue increasing 20.5% to $483.8 million driven by ABES up 25%; Government up 12%; and ABM Healthcare up 24%. Operating profit grew 51% to $23.1 million, compared to FY13. And adjusted EBITDA for FY14 was $34.8 million, an increase year over year of 29%. A tremendous effort by all three businesses and a nice turnaround by our Government team. I'm very confident about the position of these business units as we enter into FY15.

Turning to slide 11, I want to mention a few of the sales highlights from the past quarter and for the year. As previously communicated, we have reinvested in the Company a portion of the savings from our Onsite realignment, mainly to enhance our sales and marketing capabilities and improve technology. We are encouraged by the response to our differentiated approach, our integrated facility services, and our technical capabilities. We continue to gain market share in a number of key strategic verticals with wins in our automotive, industrial, and sports and entertainment verticals where our Onsite businesses perform various services for five NFL teams.

Looking across the enterprise, we remain very excited about our long-term sales opportunities and the Company's position within the integrated facility services market. I've noted on previous calls, we believe we're in the early stages of a long-term opportunity to drive sales growth. We now have nearly 2,200 leads submitted through the Solve One More program, and this is with the roll out to only 20% of ABM's over 300 offices. Closed leads are little over 10% of the total, and the sales pipeline for Solve One More continues to grow and is now approximately $110 million on an annualized basis.

In addition, I'm very pleased with the progress we're seeing with the sales initiatives. For example, just in California, we've recently won over $18 million of new business from our executives collaborating on cross-selling opportunities. While small in comparison to our consolidated sales, this is just the beginning of what we can accomplish as we really start to leverage all of the different leads being generated from our various sales programs.

And with that, I'll turn it back to Henrik.

Thanks, Tracy.

Before discussing our outlook for FY15 I want to say a few words about Air Serv. This segment listed as Other in our financials had revenues of $99.1 million, up $11.7 million, or 13.4%, compared to the fourth quarter of FY13. We continue to benefit from significant growth in our UK business, and we are just beginning to experience an improvement of revenue growth trends with our US commercial carriers.

Operating profit of $3.4 million was down $0.5 million for the quarter on a year-over-year basis, as Air Serv had approximately $1 million of one-time costs. Looking at the year, I'm very pleased with the acquisition of Air Serv considering that in the second year after joining the ABM team, they achieved top-line growth of 12.5%, of which 8.1% was from new business.

Operating profit increased over 3% to $12.2 million and excluding one-time costs of over 10%. By our expanding UK operation and recent sales wins for US commercial carriers, we believe this business is set up for a very successful FY15.

Please now turn to slide 13 for a review of our financial guidance for 2015.

The Company expects the following. $1.65 to $1.75 for adjusted net income per diluted share. $1.45 to $1.55 for net income per diluted share. This guidance excludes potential benefits associated with the Work Opportunity Tax Credit should Congress reenact that credit.

The reenactment of the calendar 2014 WOTC credit could provide a benefit of an additional $0.10 per diluted share FY15. If Congress were to extend the WOTC credit for calendar 2015, the Company could have a further benefit of $0.08 per diluted share in FY15, making a total of $0.18 in addition.

One less work day for fiscal year which is expected to reduce labor expenses by approximately $4 million on a pretax basis. Please review the (inaudible) on slide 13, which contribute to the EPS guidance we have provided. And as is customary, our guidance is exclusive of any future acquisitions.

At this time we should like to open the call for questions.

Operator?

(Operator Instructions)

Andrew Wittmann, Robert W. Baird.

Henrik, I wanted to start out with looking at FY14 year in review here. When you look at the realignment savings, can you quantify what you saw this year in 2014 versus 2013? And recognizing that some of that did get reinvested, but the gross savings I think would be helpful to give us some context on that.

I think the gross savings, as we said before, was about $7 million which was accomplished for the year. And we reinvested around between $2 million and $3 million in sales and marketing.

Got you. Okay, that's helpful. And then I think, not last quarter but the quarter before that, you talked about startup costs being a factor to the margins in the quarter. You haven't talked about it recently here, but I'm curious, where are you on that curve? Would you say startup costs in the quarter were about normal? Better or worse? Just to give us some context there to understand the underlying margin performance I think would also be helpful.

Right, startup costs in general is a good thing because it means it's start new business. But the reason we called it out in a earlier quarter was we had one particular very big job with startup costs exceeding our normal startup expenses. And that's the only time I'm going to call out, so I will say now this quarter and every quarter hopefully going forwards if we don't have some very unusual major startups, we won't call it out.

Got you. Okay, that's helpful. And then on the Air Serv, you mentioned that there was a $1 million one-time item. I think some detail around what was one-time about it, what the costs were, would give us some context there as well.

Yes, it was associated with some write-offs of some receivables on disputed businesses with a couple of clients.

Okay, that's helpful. And then maybe one for Jim. And wanted to dig into the last quarter's insurance revaluation. When you look at the Q Jim, it looks like there was a $6.3 million adjustment that was cumulative for the first three quarters. So the question is, maybe to verify, is the insurance -- the new rate at which you're accruing, should it be thought about at about $2 million per quarter difference recognizing that it was $6 million divided by three and therefore an $8 million benefit to the year from your new systems on the Safety initiatives you've made; is that a fair way of thinking about it?

Yes, in general, yes. Basically we book our actuarial report once a year and we do our best to estimate what that's going to be as we accrue each quarter and then when the third quarter comes up, we true it up. So what you said is --

Yes, I want to add one thing, Andrew, because I think it's very important to understand this piece. The best comparison you're going to have is year over year. So through our Safety programs where we have a lot of costs associated with that Safety program invested in the year, very solid and pretty much a $2 million savings per quarter. Not a one-time- type benefit in the third quarter but a retroactive situation because we were somewhat conservative in first and second quarter before we saw the result of the Safety program.

So we do a year-over-year comparison. We have a $2 million benefit per quarter associated with it as a gross amount net of costs associated with the program. And it's a benefit going forward. So it's not a one-time issue.

Yes, totally makes sense. And then one final technical question and I'm going to jump back in the queue. But in the guidance, Jim, is there incremental buyback assumed or should we assume that the [57.2 million] that you reported for the quarter is the share count that's assumed in that guidance?

Right now it'll be part of our capital program and we'll see what we do. So -- but we do have $30 million still outstanding that we can do.

Yes, and if you look at the $30 million, Andrew, that's not really going to move the needle from an earnings per share point of view.

Yes, that's true. But, Jim, the total was put here. If you did the buyback, would the guidance shade slightly higher or is it included in the number?

When you have a margin of $0.10 plus or minus $0.05, it's not going to change anything.

All right. Thanks, guys.

Joe Box, KeyBanc Capital Markets.

Jim Lusk, from a high level I see the puts and takes from your guidance which probably includes the $0.04 benefit from one less day offset by $0.01 or so of higher interest expense and then the tax rate headwind. But what I'm trying to understand is net, net, is there anything else in that $1.65 to $1.75 that maybe isn't called out in the slide deck that we can't see that's worth talking about?

I think the basic strong operations of the business which we really -- so nothing unusual that we haven't talked about.

Okay. Because I guess I would have thought that the net income growth would have been north of that 5% to 10% which the guidance is alluding to.

It is guidance and it's for 2015 and hopefully we're going to do better. We have great momentum in BESG. Jim is coming off a very strong year. It is our best view as of right now, the way it looks with the pluses and minuses. But there are no additional surprises and one-time benefits across baked into the number.

And, Joe, remember all that excludes the WOTC credits that Henrik mentioned in his remarks too. Those would make the number a lot bigger.

Of course, which is the prudent way to do it. Question for -- I guess this probably for both Tracy and Jim McClure. Can you guys help us a little bit to understand the magnitude of what the Janitorial and the BES pipeline looks like? And directionally what your expectations are for organic growth rates in these businesses in FY15?

I'll speak -- this is Jim. On the Janitorial side, what we're seeing with the Onsite consolidation is we're seeing much larger opportunities coming our way. And so those are both good things and bad things. You can win and be happy or lose and miss an opportunity. So basically the difference I see in the Janitorial opportunities within Onsite is we're having the ability to package multiple services which is giving us the ability to enter at a different level with our clients and to sell at a different level and we're able to get those bigger opportunities across our books. So that's the real benefit I'm seeing from Onsite.

And then to follow up on the BESG pipeline, it's as robust as we've ever had it. We've also added pretty dramatically to the sales headcount, so we have 120 people in sales driving that activity and carrying an ABM bag for all of the multiple services we're providing.

The sales target for 2015 is $200 million just in our ABS business. That's double from when ABM acquired us. So I think we believe we're going to continue to see robust growth not only across the traditional ABS business but also in Government and Healthcare. And I guess as evidenced by some of the early wins we've already had this year, we're tracking quite well.

And let me -- one thing, Joe, we are not giving revenue guidance.

Understood and appreciate that. I guess what I was trying to understand is, do the growth rates that we've seen this year, do they hold or do we see those revert to the mean --

We believe that the growth is sustainable. As you can see, we had some very strong growth quarters in certain segments of the business. Unfortunately we also had -- Security was not a good surprise from a growth point of view. And you're always going to have one hiccup and six successes, but we believe it's sustainable. And I think if you look at the last three or four quarters, it's pretty sustainable.

So we feel very strong about the fact that we've been able to turn this Company much more into a growth-oriented, growth-focused Company, especially with the addition of Tracy's focus on sales and marketing which has a tremendous impact on the whole Company.

I appreciate that. Thank you. And I want to go back to Andy's question earlier on the growth savings from the realignment. Curious, have we realized the full benefits here? And then that reinvestment of about $2 million to $3 million, is that -- does that go away in FY15 so the net savings gets bigger?

No, see, the wonderful thing about having growth is that we have to put some money into the machine to create the growth. And we have done that and now you see the impact of the investment we made in that sales and marketing function. And as Tracy said, you might have heard that, is he had increased the number of sales people pretty dramatic going into 2015 as well.

So you'll see an ongoing effort on the sales marketing side and the gross savings is still around $7 million. You probably have a point that we might only have realized $7 million for the year, could be a little more for next year if you look at it year over year. So maybe the additional $1 million or $2 million, but nothing material.

Okay, understood. And then last housekeeping item for you. Jim Lusk, looking at the interest expense guidance, it looks a little bit above where we're at currently in FY14. Anything there we should be thinking about?

Well, we did have some smaller acquisitions later in the year so that would be a piece of it, but nothing unusual. We're not really expecting a major move on rates yet. Although keep a look on the horizon.

Okay. Great, thank you, guys, I appreciate it.

George Tong, Piper Jaffray.

Can you provide some additional detail around strategies you're pursuing to sustain Janitorial growth in that mid single-digit range?

Well, Janitorial is just one piece of the strategy. The overall global strategy, I think has been pretty clear of how we split up the business into Onsite and on demand business. It's clearly that, for me, that Janitorial is positioned in a way that, as Jim explained before, our ability to take on, bid and start bigger jobs is going to give us growth that we haven't seen in the past. So hopefully we can sustain the growth level that we're seeing right now and hopefully it can add some acquisitions here or there if needed.

And within Onsite we do have a much higher degree of cross-selling capabilities which adds to our ability to grow and sustain that number.

Got it. And then switching gears to the BESG segment, maybe provide a little bit of commentary around Government trends there if we're starting to see sustainable improvement?

Well, Government hit their plan in 2013. They hit their plan again in 2014. We have seen an uptick in activity there. And as a matter of fact, one of the contract that was canceled unceremoniously three or four years ago when the Government departed the Middle East has come back and we've recently been awarded that.

We've been awarded another spot on the Eagle contract. We have expanded our business in Doha. So the Government business is tracking quite well. We had a very robust bid season and we've had a very good Q1 coming out of the chute. So I anticipate we're going to hit our numbers in the Government business which show a pretty good double-digit growth.

Got it. Okay. And if we looked a little bit at your recent sales investments, how much are you increasing sales staff by headcount percentage growth-wise and when do you expect to see these sales staff ramp to productivity?

Support staff we haven't really increased at all. The headcount that are doing direct sales we have increased about 20% within our business segment. And I think the thing that you have to understand is there's a very virtuous cycle in how we've strategically set the Company up and as evidenced by what we've done in California. We are leveraging and benefiting from the footprint of the Onsite business.

And the relationships that ABM has developed over 50 years inure to our benefit as we bring technical services into those markets where we have customer clients -- customer and client concentrations. So to the extent that we can add sales headcount in markets where we have an existing heat map that shows a customer concentration for ABM, we don't have the same startup anxieties that a company would entering a market. We're coming into warm leads with existing clients providing additional services and package them in a way that's unique in the marketplace.

So as we add headcount, they're coming into a situation where maybe the normal run ramp to get them productive would be nine to 12 months. These people are really knocking over some opportunities in the three to six-month range which allows us to reinvest to drive additional headcount sooner. So it's not really a matter of how much money did you save because you took the synergies out of the back office consolidation that Jim did and then you spent it in marketing, it's how much -- what's the efficacy of those sales and marketing dollars and how many more salespeople can you onboard to drive additional top line revenue in margin?

Got it. And then last question, can you talk about your expectations for SUI rates and how that will impact margins and comment on how you expect mix to drive margin performance going forward?

Well, we expect for this particular year for 2015, worst-case scenario I believe is still flat. Best case an improvement. The problem with most of these rates is we won't see them until January, February, March. But based upon our initial evaluation, they shouldn't be worse than this year and hopefully they'll be better. That's all I can give you. Unfortunately, that's the way the world is.

And then mix?

I'm sorry?

Mix of the business, how that will drive margin performance?

Well, if you've seen our growth, high growth in Tracy's area, that business has much higher both gross profit and EBITDA percentage than the rest of the business. And as I've explained over the years, the new mix that we see, I think I mentioned the special services of BHG and others now went from 50% of our business to 17% of the business. Hopefully that's going to be around 20% in this coming year and with a higher margin it's going to drive the overall percentage of profit and EBITDA on the bottom line.

Thanks very much.

Saliq Khan, Imperial Capital.

Speaking on behalf of Jeff Kessler, we had a couple real quick questions for you as well. One of interesting things that you guys thought that was a fact that SG&A is going up because of the strategic hires that you're doing. And my question is not necessarily around the number of hires as a percentage of hires, more certainly around the types of training that you're giving the salespeople so you can continue to win more contracts and larger contracts as well. What's the differentiation there between these hires versus last hires and the type of training that they're receiving?

I think the differentiation is you've got a unified mindset across all of the business units that we're going to do this the same way, every way, every day, in every market and every region. So we've implemented a challenger sales training program. We've leveraged off our sales force tools. We've done face-to-face training for 15 different groups and workshops. 320 different participants.

And you have to understand, in the past, ABM was very operations driven and relying on the operators and the relationships to help garner additional incremental business from the existing customer base. Now we are truly leaning forward with a sales orientation and driving sales behaviors and activities. And it's a new environment.

So some of this is crawl, walk, run. You got to come up to speed and you got to get fluid in what you're doing before you see the success. I think early signs are evident that it's working and it's been embraced. And even the legacy folks on the Onsite business, the folks in the newer businesses that are acquired, are all clamoring for the training. It's been adroitly presented, well received, and it's driving the results.

Great. And I would assume that the contract wins that you're talking about particularly in California as well -- in California, excuse me, is a byproduct of the types of training these salespeople are receiving. Is there any insight that you can give us on that pipeline, or the $110 million pipeline that you had talked about across the overall Company, what segment those might be in?

Sure, it's pretty broad based. The $110 million we talked about is in the Solve One More pipeline. So what you can expect there is more the same. The numbers on Solve One More for what business is closed versus what business has been quoted equates to about $250,000 per closed lead.

Remember, this is a nascent program that we did kick off in the West that has had tremendous productivity at this point. We've closed $42 million on that program year to date. What is not captured in that number is the -- is what's really, I think, unique and quite profound that's happening at ABM is their Executive to Executive selling that's taking place that are not recorded in Solve One More because that's more of a point of service program for the employees.

But Jim's team, because we've reorganized and restructured into Onsite and these guys are wearing the multiple hats and having visibility into the other services that they hadn't really provided directly before, they are communicating intra-Company and then reaching across to the mobile and technical guys. So you're seeing Executive to Executive collaboration in selling that hadn't taken place.

Just in California, that's been another $18 million. So if you look at a program that we literally kicked off about 18 months ago driving $60 million of incremental additional revenue -- and I tell these guys it's like compound interest. We have the customer. We have the opportunity to provide more services. This is the lowest cost, highest margin way for us to grow the top line and it's bearing fruit.

So it's really for us a ground game. It's about the resources to get to the other couple hundred offices we have. It's a face-to-face activity. It's not something you can train the trainer or put out a webcast or do a video. We have to get the people engaged in the local market, create the awareness, create the relationships and then drive the activity. And it's programmatic, it's well led and it's bearing fruit.

I think you guys are doing an absolutely fantastic job and obviously people would envision that as the transformation continues to take hold that the revenue, the uptick in the revenue is going to continue to increase as well.

The one interesting thing that you had mentioned earlier on the call was the fact that there was a contract, a series of contracts that you may have lost on the Security side of the business, particularly because of your overall discipline when it comes to the pricing. How is that going to change in the coming year? Would you be more lenient in regards to the types of pricing that you're taking on? But you want to continue to go ahead and take hold and say, well, this is the price and we're going to stick with it. And so we can make sure the types of client space that we do want we continue to get. Thought process on that as well going forward?

Well, I think we have a very, very strong position that we are competitive, but we need to be paid for all our services. We deliver a professional service. We believe we are delivering a better or equal service than anybody else. And the day we start only bidding on price, that'll be the day, I think, that you're going to see very bad develop in this Company, so, yes, we have to be disciplined and we'll stay disciplined. And if you look at the overall growth in the business, I think that is a reflection of being disciplined. We could probably have a little higher growth. But that higher growth will result in lower margins.

Great. Thank you, all; appreciate it.

David Gold, Sidoti.

A little bit of a follow-up there. When we think about the growth that you're benefiting from on the Janitorial side, obviously pricing is not a factor. But how do you think about it by way of market share versus growth, say, at existing clients? How should we think about where it's coming from?

David, it's very difficult to do that one. Because there will always be growth within existing clients. Unfortunately there will also be negative growth within existing clients. You'll have clients selling off [properties] and it is -- you'll probably have an excess of 15,000 clients.

It's impossible for me to give you exact details and square feet, who is added, who was not added. I would say, as a general statement, most of the business that Jim is adding on is mature business. What I'm trying to say here is it's not new business going contract. So it's pretty much all market share associated or related.

Okay. And when you talk about -- comment on the pickup in tag work, can you give some sense for where that's coming from, whether it's certain industry verticals or areas that maybe were neglected before?

David, the tag work is coming from our new organization structure, so we're seeing it across the board. And we're in-selling multiple services as a byproduct of that. We're also getting the enhancement on the tag business as well. We are out in front of them. They're seeing us and those opportunities are there because we're pushing the services and it's a byproduct of that environment, and you'll see that continuing in 2015.

Got you. So presumably naturally as that grows, we should see some nice margin contribution as well?

Yes. As we all know, tag work does have a nicer margin than the contract basis, yes.

Got you, okay. And then one other. When we think about the WOTC climate. One, you can say your guess is as good as mine but I'm going to guess -- but I'm going to bet your guess is better. What do you think happens there?

And, two, managing a business given the uncertainty there, does that change anything by way of both hiring and pricing as you go out to customers?

The WOTC credit has nothing to do with pricing. It's reading as a tax issue. The WOTC credit was approved by the House; it's in the Senate. I spent last week, part of the week, in Washington, DC, and did see a lot of politicians. Not my favorite thing, but nonetheless, I did.

The fact of life was -- what I was told was that the Senate will take this up for vote this particular week, this coming week, because I think they're going on their six-month vacation on Friday.

So it's very frustrating to be depending on politics in Washington, but I actually believe that it's going to get through based on what I hear from both sides of the floor. But again it is Washington, so you never -- you can't say never. But again, the House approved it. It's in the Senate and hopefully they'll vote on it today, tomorrow or Friday.

Okay. But it doesn't change anything in how much hiring you do or anything along those lines?

No, because we have continued posing on hiring to get those particular credits so our discipline has been there. So our retroactive piece is going to be the $0.10 we talk about because it's for the full calendar year. And it's really -- I'm not going to put percentages on, but I feel very strongly that we're going to hit the $0.10.

I think what's in front of the Senate is a one-year extension, not a two-year extension. If policies get back to normal, we hope that during 2015 there'll be an additional vote on the 2015 WOTC credits. But learning from our experience this year, we didn't include in our guidance, so we hope we can add it to our guidance after the first quarter.

Got you, okay. And then lastly, as we think about the reorganization now largely done, with some benefit to come presumably later in the year, presumably you're not one to sit on the sidelines by way of major projects. So does that put us back more aggressively in the acquisition market or are there other projects around ABM that you'd like to undertake, or both?

The acquisition [market] we have, I would say, a decent pipeline. But, as we've said before and I'm going to say again, is that we -- it's all opportunity driven. And our guidance excludes all kind of acquisitions. But we are ready for the right acquisition at the right time. We are fighting with sponsors out there, private equity, and they are driving the price up. So sometimes we have to stay disciplined and wait till the right opportunity comes.

Perfect. That's all I have; thank you.

Adam Thalhimer, BB&T Capital Markets.

Hey, good morning, guys, nice quarter.

Thanks.

Most of my questions have been asked. I did want to ask broadly about -- Henrik, you just said in response to David's question that you're not seeing a lot of RFPs for new buildings, but most of the companies we cover see about 5% growth in nonres construction next year. And I -- how are you thinking about that in terms of your guidance? And if you get significant new construction like you had back in 2007, could that be added to the guidance?

New construction in itself is not going to help us. I can give you examples of what we've seen in Chicago over the last 10 years is we see new construction but we see our existing buildings, the older buildings, being closed up and then people moving to new buildings. The way we look at it is occupied square feet. So if the 5% also means 5% new tenants and 5% increase in activity, that's where we're going to see some benefits. But we don't see that high playing level because again in the numbers you have is new construction and not necessarily the impact on old buildings.

Okay, fair point. Thanks, guys.

Thank you. And that does conclude our Q&A session. I'd like to turn the conference back over to Mr. Slipsager for any closing remarks.

Okay. Thank you very much. I just want to thank all our employees for a wonderful year; wish them happy holidays. Thanks to our shareholders and investors. It's been a great year, we believe, and we expect to continue this going forward. So thank you very much for your support. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect. Have a great rest of your day.