ABM Industries Inc (ABM) 2018 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the ABM First Quarter 2018 Conference Call.

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

I would now like to turn the conference over to Susie A. Choi.

Thank you.

Please go ahead.

Thank you, all, for joining us this morning.

With us today are Scott Salmirs, our President and Chief Executive Officer; and Anthony Scaglione, Executive Vice President and Chief Financial Officer.

We issued our press release yesterday afternoon announcing our first quarter fiscal 2018 financial results.

A copy of this release and an accompanying slide presentation can be found on our corporate website.

Before we begin, I would like to remind you that our call and presentation today contain predictions, estimates and other forward-looking statements.

Our use of the words estimate, expect and similar expressions are intended to identify these statements.

These statements represent our current judgment of what the future holds.

While we believe them to be reasonable, these statements are subject to risks and uncertainties that could cause our actual results to differ materially.

These factors are described in a slide that accompanies our presentation.

During the course of this call, certain non-GAAP financial information will be presented.

A reconciliation of those numbers to GAAP financial measures is available at the end of the presentation and on the company's website under the Investor tab.

I would now like to turn the call over to Scott.

Thanks, Susie, and good morning.

We appreciate everyone joining us today as we discuss our performance for our first quarter, which was announced yesterday.

Today, I'm particularly happy because these results now reflect our new operating segments as ABM and GCA are now fully combined.

It represents the culmination of a great deal of work to get all this organized and set up both operationally and administratively.

And while they're still work ahead of us, I cannot be more pleased of where we stand today.

We embarked on an important journey with our 2020 Vision and this represents another milestone on our path.

We are now leveraging our strengths and growing our presence in the Aviation, Business & Industry, Education, Healthcare and Technology & Manufacturing sectors.

And our Technical Solutions segment is positioned to capitalize on our new structure as we intensify our cross-selling initiatives.

We are also making good progress with other key initiatives such as centralized procurement, shared services and the deployment of the ABM Way.

Let me first turn to the quarter's performance.

I'm pleased with our start to the new fiscal year.

As I stated in the press release, our results met our expectations as we delivered total revenues of $1.6 billion, an increase of 19.7% versus last year.

This was driven predominantly by our first full quarter of GCA-related revenue and enterprise organic growth of 3%.

Also, keep in mind that on a year-over-year basis, our results for the quarter excludes the Government business, which we sold during the third quarter of fiscal 2017.

Organically, revenue growth was driven by strength within our Business & Industry and Aviation segments.

Our Business & Industry segment had good expansions with some larger scale clients who were growing and view us as strategic partner as they expand their footprint.

We also benefited from an increase in tag work in the quarter.

Aviation continues to show promise in nascent service lines as we recently grew our catering logistics business platform with a multimillion-dollar award from a second client.

As you recall, we just greenfielded the service over the past 12 months, and now we have a pipeline that is growing.

Our adjusted EBITDA margin was 4.1% versus 3.6% last year.

These results led to GAAP EPS from continuing operations of $0.42 for the first quarter and $0.26 on an adjusted basis.

This reflects higher interest expense, amortization and share count as a result of our GCA transaction.

We are also on pace to generate free cash flow in excess of $120 million this year.

Now I'd like to discuss our progress against our key strategic priorities for the full year.

As many of you may recall from our Investor Day, we described in great detail our transformative 2020 Vision journey and what we are building.

We've restructured our organization, we are making back-office improvements and we're investing in technology to streamline operations and enhance performance, increasing our earnings power over the long term.

2018 will be a pivotal year along our path to 2020 and we are especially focused on a few key areas to drive our longer-term vision.

First, we are more determined than ever to accelerate organic growth.

With Scott Giacobbe at the helm as our Chief Operating Officer, our firm is embracing a new sales culture.

We are adding sales resources as part of our plan, and through the end of February, we added more than 30 salespeople out of a targeted goal of 60 for the year.

This will bring our total sales headcount to approximately 300.

Sales roles are arguably the hardest roles to fill in any business at the moment.

I'd like to think our success in attracting top talent has been related to how compelling our 2020 Vision is and the fact that we've developed robust support tools to enable effective selling.

It may sound cliché, but salespeople want to sell.

They need to be convinced that there is a holistic support structure that allows them to succeed.

Anthony is going to discuss our segment performance shortly, but each group has specific growth plans on where we believe we can leverage our strengths.

Some are focused by service line, some by geography, and some are focused by type of client within their industry group.

For the most part, all have elements of everything I just described.

The key for us is being strategic about how and where we find growth through our account plans and ensuring that we are not just growing indiscriminately.

As an example of strategic growth, on the heels of B&I's blockbuster U.K. win for the Transport for London, B&I in the U.S. recently won a multiyear contract with the City of Chicago to provide facility services for city-managed properties, including police stations and libraries.

This is a great example of how we are leveraging our global resume as a key differentiator and winning large profitable contracts.

Another key area of focus for us is the smooth integration of GCA, which is going really well.

We started the fiscal year concentrating on building an organizational structure that maximizes the combination of the 2 firms and aligns with our synergy targets.

Since then, we remapped our operations across the enterprise to the new industry group structure and our organizational realignment is now complete.

This was a really important milestone.

Operating as one combined entity lets everyone begin to focus on the future.

I will tell you that this has only underscored what a great cultural match GCA is to ABM, both internally and externally with our new client base.

Employees are excited to be part of a growing public company, and the client reception has been amazing, including some key renewals in the last 45 days.

The next steps of integration involve IT, procurement and marketing, which include system convergence, supplier alignment and rebranding.

We remain on track to achieve the high end of our targeted synergy range of $20 million to $30 million by next year.

We also continue to be focused on the ABM Way, which remains the key to unlocking operational efficiencies and margin expansion over the long term.

We moved away from managing the ABM Way solely as a corporate function and pursued what we call an ownership model, which embeds teams within each industry group.

We are staffing these teams with high-performing talent, and investing in tools such as the TAG Pricer.

For those of you who joined us on Investor Day, you may recall that the TAG Pricer is an app that we've developed internally to facilitate the processing of work orders or tags as we call them, and improve efficiencies by reducing processing time.

This leads to better project management and increases clients' satisfaction, which will ultimately lead to greater client retention.

It will also provide valuable data, which through our AI functionality will lead to pricing optimization over time.

We've rolled the TAG Pricer out in the B&I group and it's being adopted and embraced.

The rollout began in mid-November.

Since then, we have seen the usage increased each month, with 15% of eligible tags being processed through the TAG Pricer in December to now over 30% and growing fast.

This is tremendous adoption by any measure.

Lastly, as you saw in our press release, we increased our full year GAAP guidance outlook by $0.55 to a range of $1.88 to $1.98 per share and $2 to $2.10 per share on an adjusted basis as a result of the Tax Cuts and Job Act.

The excess cash generated from this new legislation will predominately be used to delever.

We will also look at how we can enhance frontline or manager training as well.

As always, our capital allocation priorities remain: reinvestment in the business, the distribution of our dividend and deleveraging.

So as you have heard here and at our Investor Day, we are positioning our 100-year-old company for the next 100 years.

Everyone at ABM, more than 130,000 of us, are mobilized and ready to execute against our short-term and long-term goals for our business.

Our 2020 Vision is predicated on organic revenue growth, margin and earnings growth and free cash flow conversion.

I cannot thank our employees enough as they are the driving force behind the structural improvements we are making.

We have learned a great deal over the last 2 years, and our ethos of continuous improvement will continue to make our path to the future clear.

Now I'll turn the call over to Anthony for further commentary on our fiscal and operational performance.

Thank you, Scott, and good morning, everyone.

Before I begin the financial review on today's call, I want to convey my enthusiasm for our expectations for the remainder of this year as we are already off to an exciting start.

Given the recent tax reform and our ongoing integration of GCA, both of which we will discuss in great detail today.

Before I do so, I want to express my gratitude to our entire financial organization for yet another quarter of tremendous work.

As you can imagine, concurrently navigating the complexities of integrating the largest acquisition in ABM's history, dealing with the most significant overhaul of the U.S. tax code in more than 30 years and reorganizing our financial reporting structure as a newly-combined ABM and GCA business was no small fee.

I commend the entire finance team for closing a historic first quarter on many levels.

With respect to GCA, let me preface today's conversation with a reiteration of the acquisition's impact on our business.

We covered this at Investor Day, but as a reminder, on a segment basis, GCA impacted all of our business segments, except for Technical Solutions.

And our overall results are reflective of the higher amortization, interest expense and share count (inaudible) that resulted from the transaction.

Additionally, this year's first quarter also excludes the contribution from our previous Government Services business, which we divested at the end of the second quarter last year.

Moving to results, which are described in today's earnings release and presentation.

Total revenues for the quarter were $1.6 billion, up 19.7% versus last year, driven by GCA revenues of roughly $252 million and good get organic growth within the Business & Industry and Aviation segments.

Organic growth for the quarter was 3%.

On a GAAP basis, our income from continuing operations was $28 million or $0.42 per diluted share versus $16.1 million or $0.28 per diluted share last year.

Tax reform had a significant impact on the year-over-year increase due to a onetime discrete tax benefit of $28.7 million due to the remeasurement of deferred tax assets and liabilities.

Offsetting this was a onetime $7 million tax expense related to the repatriation of foreign earnings.

The total GAAP impact from these items was $0.33.

In addition, the reduction of our federal corporate income tax rate impacted the quarter by approximately $600,000.

Our results also reflect the following items that are predominantly related to our acquisition of GCA: higher amortization of $10.7 million, which is embedded within each industry's reportable segment; higher interest expense of $11.1 million; and an increase in weighted average shares outstanding on a diluted basis to 66.3 million.

Excluding the impact of segment-related amortization, our overall operational results benefited from GCA-related revenue, predominantly within the Education and Technology & Manufacturing segments.

On an adjusted basis, income from continuing operations for the quarter was $17.4 million or $0.26 per diluted share.

During the quarter, we generated adjusted EBITDA of $65.1 million for an adjusted EBITDA margin of 4.1% compared to 3.6% last year.

Now let me dive into the segment results for the quarter, which are described on Slide 12 of today's presentation.

At our Investor Day in January, we provided a comprehensive overview of each of our business segments, which I hope you found helpful and which are now posted on our website.

Please note, and as I discussed, GCA will have a large impact on our fiscal 2018 operating segment results in a number of ways.

This quarter, we have introduced our new operating segment to better reflect our combined business and to align to the way we will manage the business going forward.

Part of this process involve the intricate path of remapping overhead expenses, which was very similar to what occurred last year upon our 2020 Vision realignment.

Therefore, due to the GCA acquisition and the remapping of overhead expenses, including allocation, our operating segment result will not be easily comparable on a year-over-year basis.

To help you assess our operating performance during the first year of integration, we provide a full year operating margin guidance as part of our Investor Day presentation, which we are reiterating today.

Moving to segment and providing a brief summary for each.

Business & Industry, or B&I, is our largest business with a steady and more mature growth profile, predominantly comprised of commercial real estate clients across a breadth of contracts.

Revenues for the quarter increased 10.1% to $722 million versus last year, driven by $41 million of additional revenue related to GCA, including approximately $20 million in the vehicle services business, which has historically performed at a breakeven operating margin.

For the quarter, B&I exhibited good organic growth stemming from new janitorial wins, expansion of existing key accounts and strong tag revenue.

Operating profit for the quarter was $28.5 million for a margin of 3.9%.

Excluding GCA-related amortization, the operating margin for this business was 4.2%.

As previously indicated, we anticipate a full year operating margin in the low 5% range and as you know, for each year, our first and second quarter operating margins are typically lower than the full year average due to the timing of SUI taxes and other burdens.

Also, as I cover the segments full year margin expectation, they are all inclusive of amortization.

Aviation is a segment characterized by a larger concentration of contracts with several major airlines and airports and with bid cycles and awards that tend to be clustered.

The increase in revenues during the quarter related primarily to new growth and expansion we experienced in the last fiscal year, with revenues increasing 10.5% to $256 million this quarter.

This was driven by organic growth attributable to parking, cabin cleaning and catering logistics.

GCA had a nominal impact of approximately $4 million in this segment.

Operating profit came in at $5.8 million for a margin of 2.3%.

We continue to expect to end the year in the mid-3% margin range.

Our new Technology & Manufacturing, or T&M segment reported $232 million of revenue for the quarter.

This was a combination of GCA revenue of approximately $59 million as well as our legacy technology and legacy industrial and manufacturing client base.

T&M is defined by a diverse client base with typically larger enterprise accounts where we see opportunities for integrated facility services.

We remain excited for the potential growth in this business as we view the underlying industry fundamentals to have a longer-term, faster growth profile over time, primarily characterized by Silicon Valley and pharma clients.

Operating profit came in at $16.9 million for the quarter for a margin of 7.3%.

Excluding GCA-related amortizations, the operating margin would have been 8.3%.

On a reported basis, we continue to expect low 8% operating margin range for this segment.

Moving to Education.

As you know, the now standalone Education segment was most heavily impacted by the acquisition.

Revenue for the quarter was $206 million, reflecting approximately $140 million of GCA-related revenue.

While we have started the year as anticipated on the top line, we are seeing some labor pressure in parts of the business due to the fact that the majority of the portfolio is in nonunion geographies, which typically have a higher turnover and which can lead to over time pressures.

On the top line, we have also not yet anniversaried some of the lost ABM contracts we discussed in 2017.

As a result, we expect the business to normalize during the latter part of this year.

I also want to discuss seasonality for a moment given the size of this new segment.

Contracts servicing the K-12 market are typically awarded in the March through May time frame, with work beginning over the summer as schools prepare for the new academic year.

In higher Education, contracts are awarded throughout the year, with the summer typically being a period when tag work is performed to prepare the schools for the coming year.

Therefore, results may exhibit some seasonality from quarter-to-quarter with normalization over time.

Operating profit for the quarter was $9 million, for a margin of 4.4%.

Excluding the impact of amortization, operating profit margins were 7.5%.

We continue to expect an operational margin range in the low 5%.

Healthcare, which was part of our emerging industry segment last year is now a standalone segment.

Revenues for the quarter were approximately $68 million reflecting $8 million in GCA business, which was almost entirely within the nonacute commercial space, aligning with our business strategy for Healthcare.

Excluding GCA amortization, operating margins were 4.3% for the quarter, and 4% on a reported basis.

We continue to expect to end the year with operating margins in the low 5% range.

Technical Solutions is the only segment whose results were not impacted by our GCA integration.

Revenues were $104 million for the quarter, down 3.4%.

If you recall, we previously discussed the shift in timing, which was related to lower project bookings at the end of fiscal '17.

Bookings and our pipeline are off to a good start in our first quarter, with one of our best booking month ever in January.

With our focus on cross-selling and opportunities in both the government and commercial market, we expect our project and revenue trend to begin to normalize in the second half.

Also, we are excited that we booked an Education cross-sell during the first quarter with a school district in Georgia.

This exemplifies our organization's focus on cross-selling into existing customers with our stronger new presence in the Education market.

Operating margins were 5.3% compared to 7.3% last year.

These margins reflect our investment in U.S. salespeople and support as well as lower margins in the U.K. We continue to expect a high 8% operating margin range for this segment.

Let me spend a few moments on the non-Aviation U.K. business in general, which is reflected in the B&I and Technical Solutions segment while small, compared to ABM's total book of business, we have begun to see some impact to the business based on localized conditions, impacting facility service providers in general.

Market uncertainty has slowed some outsourcing decision-making and created a more competitive pricing structure in certain parts of the market.

Our U.K. team is navigating these components deftly, but we expect continued near-term margin pressure for this business.

Turning to liquidity.

We ended the quarter with total debt, including standby letters of credit of roughly $1.3 billion and a bank-adjusted leverage ratio of approximately 4x.

During the quarter, we paid a quarterly cash dividend of $0.175 per common share for a total distribution of $11.5 million to shareholders.

Our board has also approved our 208th consecutive quarterly cash dividend.

Now turning to our revised guidance outlook for the year.

As described in our press release, we are increasing our GAAP and non-GAAP guidance to reflect recent tax reform.

We anticipate our GAAP guidance outlook to be heavily impacted by a onetime net discrete tax benefit of $0.33.

Due to the complexity reflecting the exact impact of the Tax Act, we continue to analyze the accounting impact and expect to refine these estimates throughout the fiscal 2018 period.

As such, we now expect GAAP income from continuing operations to be in the range of $1.88 to $1.98 per diluted share compared to our previous range of $1.33 to $1.43 per diluted share.

On an adjusted basis, we are raising our guidance outlook to $2 to $2.10 per diluted share compared to our previous range of $1.70 to $1.80 per share.

This guidance assumes a tax rate between 28% to 30% for the fiscal 2018 year, compared to our previous guidance of 38% to 40%, reflecting a reduction in our federal corporate income tax rate from approximately 35% to 23%.

This decrease is reflective of 10 months of the impact from the tax reform act but does not include other provisions of the Tax Act, which will become effective for us in fiscal 2019.

This rate also excludes discrete tax items such as the 2018 work opportunity tax credit and the tax impact of stock-based awards, also referred to as FAS 123R.

At this time, we anticipate a little more than $10 million in discrete tax items for the full year, which is an increase from the $9 million we originally anticipated.

This increase is due to our revised estimates for WOTC and 123R, and we continue to refine all tax elements.

While all other components of our guidance outlook remain unchanged, I want to discuss interest for a moment given the broader context we are seeing in the marketplace.

Through swaps, we have hedged approximately 50% of the floating component of our current outstanding debt to fixed rate at approximately 1.6%.

Due to the increase in interest rate expectations for the future, these swaps have an unrealized mark-to-market gain of roughly $21.5 million.

While we are hedged 50%, we continue to evaluate the interest rate market and its impact to our current and forecasted interest expense.

Finally, as Scott discussed, our GCA integration is proceeding as planned, and we continue to expect to achieve synergies at the high end of our $20 million to $30 million range on a run-rate basis.

We will begin to realize these synergies as we progress throughout the year.

With that, operator, we are now ready for questions.

(Operator Instructions) Our first question comes from the line of Michael Gallo from CL King.

Scott, my question is on GCA.

You've had 4 or 5 months to look through the integration and see how they are doing some things.

And I was wondering, some of the bigger opportunities you think about in terms of exporting best practices from GCA over to how you are doing things at ABM, what kind of opportunities you see their relative to your original expectations, or whether you think that might be an area of upside relative to what your thoughts in terms of synergies.

Yes, that's a great question, Michael.

So I'd say, we're off to a really fast start on cross-selling, and we just -- we're talking about the pipeline and it's been -- there's a lot of traction and opportunity from these accounts that never really have the opportunity to have Technical Services as a lever to enhance our clients.

So that's been really good.

And as we talked about before, we're just getting a lot of learnings about how they operated from a shared service standpoint.

And we've actually stood up a group that's working on our internal rewiring, we're calling our transformational office, specifically from the learnings that we've had, so we think that's going to be helpful over the long term.

So it's not just kind of top line and bottom line, it's a lot of the learnings inside the organization as well.

Anything in terms of specifics and best practices that you might want to call out, or any examples that -- kind of notable that -- they're doing things in a way that you see an opportunity to export that over and do it a lot more efficiency at legacy ABM?

Yes.

I mean, I think for us, it's kind of their approach to the clients and being disciplined with standard operating practices as an example.

If you look at ABM, we may have 65 ways in round numbers of doing invoices across the country, right?

By being very kind of open to doing whatever clients ask for, right?

And we looked at GCA, and they narrowed it down to maybe a couple of ways to do it.

And they were prescriptive about that approach and when you do that, and you define with your clients, you get efficiencies in the back-office.

So that's a great learning.

It's a great takeaway and long term will give us good synergies.

Our next question comes from the line of Andrew Wittmann from Robert W. Baird.

I guess, I wanted to dig into the sales force comments a little bit more here.

Scott, you kind of quantified the number of people you're looking to hire, 30 so far, 60 for the year.

I guess, how incremental is that from what you were thinking about when you initially gave guidance?

And then can you talk a little bit about the sales productivity that you've been seeing out of your sales force in the last quarter or 2, and specifically, maybe, out of even the new hires?

I guess, what I'm trying to get a sense of here is when do these investments start paying off and seeing tangible results and accelerating organic growth?

Yes.

So just generally speaking, our sales force is in line with what we guided to.

As I said in my speech, it's difficult finding salespeople right now, they're just in high demand, and we're just -- we're not going to compromise there.

Because when you hire an ineffective salesperson, it's just not a good thing, right?

So we're being -- again, we're being very disciplined in how we're onboarding people.

And it does take time, it can take 6 to 9 months before a salesperson can hit the ground running, build their book of business and starting to get some results, right?

So I would say that's kind of the timing of it.

And I would also add, Andy, it's also looking at the marketplace much more analytically around where the opportunities truly exist.

And rather than just hiring across the portfolio, we're really looking at markets where we may have a stronger opportunity to grow the business and putting salespeople in that market.

And that's also causing us to look at our existing sales force and making the appropriate actions around driving that long-term behavior.

How do you get comfortable adding 20-plus percent to the sales force?

Are you seeing the early returns that give confidence there?

Or is 60 the target for the year?

If you follow, they'll shy, it sounds like Scott, maybe you're okay with that because you want the right people, is that potentially margin upside to the guide if you don't get the hires?

And I guess, my question is, is this the right pace given that, that's a substantial increase?

And I want to make sure that you get good returns on them.

We really feel good about it.

And we just instituted a 16-week training program when we onboard our salespeople, with a checklist of things that has to happen every week.

So for us, it's the right pace of hiring.

Remember, we're doing it over a pretty broad spectrum so even though it feels like a lot, it may be incrementally, one or maybe 2 in a marketplace, right, especially when you stratify that across the different industry groups, right?

So we don't think it's an overburden, and we think if we're disciplined about who we hire and we have a great onboarding program, it's going to lead to better longer-term success.

Got it.

All right, then just maybe a couple of modeling questions that might come more towards Anthony.

And Anthony, I want to talk about Technical Solutions, you've talked about this at length.

But I just want to get a sense from you, or maybe Scott, it's from you about how big that fourth quarter is going to be for you guys?

It sounds like you, obviously, reiterated the moderation in the first half of the fiscal year, but I mean are we looking at 40%, 50% of the operating profit coming in that fourth quarter?

I just want to get some sense do we have an expectation of what to think about there.

Sure.

And I think it follows the cadence that we've had in the past, being a second half story for the Technical Solutions business, and really breaking it apart between the U.S. and the U.K. business.

And looking at it from the U.S. perspective, it's truly a second half story, and that would drive more than 50% of the operating profit in the second half, and that's right in line with the way we're seeing the pipeline and the backlog in that business and the churn.

So we're still extremely confident that, that's going to continue to be a high single-digit grower, not a low double-digit grower this year.

The team is really excited about the opportunities, both from prospects on the traditional business and also, prospects on the cross-sell.

So we feel pretty good about where this is heading from a U.S. perspective.

Now that's helpful.

And Anthony, just keep going with you, just thinking kind of longer term about tax rates.

You said you were going to pick up some incremental benefits in fiscal '19.

What do you think as you take your initial cut here is the right tax rate out there in '19 where you get the full year of contribution from tax reform and these other things that are kicking in?

It's actually the way that you need to look at it is, obviously, this year.

From a pure tax reform perspective, we're getting 10, 12 for the benefits but we're actually not yet incurring some of the costs associated with limitations such as 162(m) and there are some additional limitations that are going to kick in in '19.

So when you look at it from a pure rate perspective, even though we're going to get a full year on the absolute rate, we are going to have some headwinds on those other items, so I would be modeling flat to slightly higher taxes in '19.

But for now, I would just use '18's rate as a good proxy for '19.

(Operator Instructions) Our next question comes from the line of Marc Riddick from Sidoti.

I wanted to touch base on, and maybe if you could bring us up to date a bit on -- if you've gotten some feedback from some of the new Education clients post GCA.

You touched on this a little bit, I suppose with some of maybe the other areas that you can expand in.

But I was just wondering if you could sort of update us on the feedback that you're getting from them and sort of maybe some of the differences that you're seeing there?

Yes.

I mean, so I think, for us, having GCA now, even with the legacy ABM portfolio, we now bring the ground's perspective, which we never had before on landscaping on ground, so that's been good.

And then from their portfolio, we're bringing the Technical Solutions.

So it feels like a much more robust offering in K-12 and on the university side.

And just in the last 2 or 3 months, we renewed Volusia County Schools in Florida, which is a big K-12 system, Hamilton County schools in Tennessee.

We have big community college in Texas, so like -- I feel like our offering's really resonating.

The team is pulling together with some really definitive wins in the last 45 days.

So I think there's just a lot of energy around the pipeline and our approach to the market now.

Okay, great.

And I was wondering -- it might be a little early for this, but it can't hurt to ask, I suppose.

I was wondering if you had a general feel for the funding environment of the Education markets and if you had sort of some thoughts around that.

That's hard to tell.

I think as we've talked about before, when you've kind of look at the deferred maintenance in schools, it's really a problem and it's gotten a lot of notoriety lately.

So we think they're over time, especially if there is any infrastructure funding, that remains to be seen.

But we think over time, it's really going to play to the strengths of our Technical Solutions and our engineering business.

So I think more to come on that, but I think it's a big opportunity for us in the future.

Okay.

And then you've covered a lot of this on the -- going back for a moment over to the additional sales folks.

I was wondering what the timing and cadence was like of the 30 that you've brought on so far, was that sort of beginning of the year weighted?

Or what was that cadence like?

So it was probably even across -- since the beginning of the fiscal year.

And I think you have to do these things with a certain pace and cadence.

And again it is difficult finding salespeople, right?

But again as I said before, as long as we have the right process, we feel good that we are going to staff up and hit our goal of 60.

And that's not a net number, right?

Because there will be people that will drop out because we're being really good about looking at people's performance.

And if you cannot meet your performance goals, we'll be making the appropriate changes.

So 60 is more of a gross add number rather than a net-net, which may be closer to 50 or 45.

Okay.

And then one last one for me.

I wanted to go back to TAG Pricer and the rollout there and how that's going.

I was wondering if there was sort of some areas of low-hanging fruit that you've seen so far.

I mean granted it's very early, but I was wondering if you could -- if there was a sense of surprise as to what's worked with it so far?

Or what hasn't, that type of thing?

Yes.

So I think the great surprise for us is the adoption rate and how happy our managers are because it creates efficiency.

So a process that maybe use to drag on for 2 or 3 days with all the transposing of numbers and filling out work orders.

Now gets done right on an app pretty instantaneously.

So people in this system are just really happy that they're getting a piece of technology that's useful and helps them spend less time in the office and more time out with clients managing the staff.

So to have an adoption rate over 30% in such a short period of time, we think is pretty dramatic.

So I think it's less about pricing optimization right now and increased profitability because we're just rolling it out, we're just getting the learnings.

And we don't even have a baseline yet, right, because we just started using the tool.

So yes, probably it won't be -- realistically, till a year from now that we could start doing some year-over-year comparisons of that side of it, but people are so happy these days to get efficiency tools, so it can be more effective again with their clients and their staff.

It's been really exciting.

Our next question is a follow-up from the line of Michael Gallo from CL King.

Just had a follow-up on the tag optimizer, I think you mentioned 30% of the tag work was going through that of late.

I didn't hear you and perhaps I missed it.

Have you seen it actually driving the overall level of tag business up?

Or is it more just driving the efficiency and satisfaction among your employee base because it's really freeing them up in the back-office?

Yes.

I think it's the latter Mike.

This is a new initiative for us, right?

And for us, it's all about adoption, training.

Hey look, we are in phase 1 of this, there will be a phase 2 of it in terms of even improving it.

So it's less about creating more tags right now or creating better margin right now.

If this is an efficiency player this year and remember, it's only B&I, we haven't rolled it out to the other industry groups.

So I think there's just a lot more to come, a lot more from a learning standpoint and the margin and kind of the frequency of tags is probably more of a '19 story than an '18 story at this point.

Right.

And then just sort of a second part of this, I know this is kind of rolled out to the -- in the field.

I was wondering if there's an ability to roll out something to the customer, where the customers themselves could have an app and say, "Oh, I want my carpet cleaned," and they could actually reach out directly to ABM for certain services, or is that not something you'd contemplate?

Absolutely something that we're working on, absolutely.

We're looking at a lot of technology innovation and the goal is to get stickier with clients.

So the more we can create platforms that the clients could be on, sharing with our employees is the way we were going to increase our retention.

So all of that stuff is in the works.

And I would say more than ever nearer term rather than longer term.

Thank you.

Ladies and gentlemen, at this time, we have no further questions in queue.

I would like to turn the floor back over to company management for closing comments.

Well, thanks, everyone.

And again, I want to just tell you how much I appreciate you making the time for this call and we are excited about the start to the new year and we look forward to being back with you in June to talk about our second quarter results.

Have a great day.

Thank you, ladies and gentlemen, this does conclude our teleconference for today.

You may now disconnect your lines at this time.

Thank you for your participation, and have a wonderful day.