ABM Industries Inc (ABM) 2018 Q4 法說會逐字稿

Greetings, and welcome to the ABM Industries Fourth Quarter and Fiscal Year 2018 Earnings Call.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Ms. Susie Choi, Investor Relations and Treasurer for ABM Industries.

Thank you.

You may begin.

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 fourth quarter and 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 the slides that accompanies our presentation as well as in our filings with the SEC.

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 congratulations on your new role as Treasurer and Vice President of Investor Relations, couldn't be happier for you.

Good morning, everyone, and thank you for joining us today as we discuss our fourth quarter and full year earnings release, which we issued just yesterday afternoon.

It's hard to believe fiscal 2018 has already come to an end.

When we began the year, we had just closed on our GCA acquisition, opening a new chapter in ABM's future.

What followed was a monumental year for us on several fronts.

In addition to adding more than 30,000 new team members from GCA, we also faced one of the toughest labor markets in American history and the acute impact of Brexit on our U.K. retail business, all while keeping our clients happy and team members engaged.

At no point during the year were we deterred from achieving our goals of accelerating organic growth through new sales, integrating GCA successfully, protecting margins and driving free cash flow generation.

I'm so proud of the team's ability to navigate the challenging macroeconomic environment while delivering against our short-term plans and progressing towards our long-term goals.

To summarize our performance for the year, we concluded 2018 with record revenues of more than $6.4 billion, driven by 4% organic growth.

Our GAAP continuing EPS was $1.45 per share or $1.89 per share on an adjusted basis and our adjusted EBITDA margin was 5.1% for the year.

We also generated a record level of free cash flow at more than $200 million.

These results are consistent with what we outlined in the second half of the fiscal year, and I'm pleased that overall, the team's delivered on their commitments.

Let me dive into some of the drivers of these results.

And let me start by saying, I was really pleased with our organic growth in fiscal 2018.

All year, we've been discussing our determination to accelerate by adopting a sales culture and supporting this initiative by investing in sales resources and revamping how we train, manage and measure our teams.

Even in this tight labor market, we successfully attracted new sales people to the company and in collaboration with our operations team, we achieved our stretch target of approximately $900 million in new sales, demonstrating how our investments are bearing fruit.

Our strategic key accounts continued to expand with us as well, particularly in Business & Industry and Technology & Manufacturing.

Even in our more customer-concentrated portfolios like Aviation, we expanded in our core service lines and by entering new business lines.

We recently announced our multiyear contract with JetBlue for catering and logistics, a service line that was nascent just earlier this year and is now targeted for growth with our other Aviation clients.

As we enter fiscal 2019, we're excited about our sales momentum and our pipeline.

We're dedicating our efforts to retaining our customer base through our account planning process and ensuring that we are making the right long-term decisions for the business.

It'll probably be helpful to do a 1-year look back at GCA, since that was so foundational for our 2018 results.

The acquisition increased our scale and scope by adding more than $1 billion in revenue to our overall portfolio this year, in line with our expectations.

During our first year of integration, we combined our sales and operations teams and aligned the business with our procurement and marketing standards while managing all back-office support function.

This integration was no small feat, considering we operated on 2 separate ERP systems.

Furthermore, we overdrove synergies during the year, exceeding our original projections by ending 2018 with approximately $18 million in realized savings.

We remain on pace for run rate synergies at the higher end of our original $20 million to $30 million range.

These synergies, in addition to several cost mitigation strategies, enabled us to maintain our margin outlook for 2018, even given the continued labor pressures.

On that note, let's discuss what has become one of the most highly publicized topics this year.

ABM is one of the nation's top employers with a labor force of more than 130,000 skilled and nonskilled team members.

This puts us in the unique position of understanding and seeing the effects of the labor markets.

Once the level of unemployment and underemployment in the U.S. economy began to dip to historic lows, we were among the first companies to discuss its potential impact.

Towards the end of the second quarter, we began to see a heightened decrease in both the availability and quality of the labor force.

It was particularly acute for us in industries with stricter application processes such as Education and Aviation as well as certain geographic markets.

At that time, we projected a total 60 basis points of incremental labor and labor-related pressures to our margins.

Since then, we have not seen the labor environment improve but we also haven't seen it worsen materially either.

While challenges remain, we've been getting ahead of some of the pressures through proactive dialogues with clients and tighter expense management.

I mentioned that our U.K. business saw challenges from the impact of Brexit.

The London retail economy has been particularly pressured and that is where we had our biggest concentration of Technical Solutions work.

While we messaged these challenges throughout the year, we're clearly disappointed by our results.

Despite this specific issue, our overall U.K. portfolio benefited from a full year of our Transport for London win, which is one of the largest organic contracts in ABM history as well as expanding services with key Aviation clients.

From an enterprise perspective, we continue to make progress in transforming our back-office operations.

It's hard to believe our Houston-based shared services center began the fiscal year overcoming the challenges from Hurricane Harvey and are now fully functional and beginning to see the benefits of operational consistency.

This has led to quantifiable results with our cash flow, which is an important metric for our organization and a key indicator of our strong fundamentals.

It has enabled us to deleverage faster than anticipated, and in 2019, we expect to see a continuation of strong cash flow.

2019 will be one of the most important years on our path to fulfilling our 2020 Vision transformation.

We will be implementing a number of technology-based modernization efforts that will make us more efficient operationally and enable our goal of ultimately being a more data-driven company.

In the first half of the year, we'll have a new HRIS system that will give us the ability to manage our human resources and learning and development function more strategically, as well as reduce the cost of employee acquisition over time.

Also, manual administrative processes will be automated, which will reduce overhead as we progress.

We have already begun the implementation of e-pay, our new cloud-based time and attendance system for our field operations, which will improve scheduling and facilitate daily labor reviews, ultimately creating efficiencies for ABM as well as our clients.

And finally, later this fiscal year, we will have a new unified financial system, combining our 2 legacy ERP systems.

The migration to a state-of-the-art ERP system will equip our team with data and analytics to drive our business.

Just based on the technology initiatives alone, 2019 will set the stage for financial benefits in 2020 and beyond.

And progress is not only happening in our back-office and with technology, but we're also improving all aspects of our organization all the way up to the board room.

Recently, we welcomed to our Board of Directors LeighAnne Baker, the Chief Human Resources Officer for global food and agriculture company, Cargill Incorporated.

Cargill is one Of the largest companies in the country and employs more than 150,000 people, so clearly, you can see how LeighAnne's experience and guidance will be invaluable to us as we move forward.

2019 will mark ABM's 110th year in business, which is a tremendous milestone.

We are the leader in the industries and markets in which we serve and have grown to become the country's 44th largest employer, which means we have the scale to support our remarkable clients.

So as much as the current condition in the labor markets have become a short-term headwind, the incredible breadth of our 130,000-person team will be our greatest long-term tailwind and competitive advantage.

We are a durable and resilient business with a highly diversified model that can manage in a variety of different economic cycles.

Our 2020 Vision transformation has pushed every era of our company, and we're stronger than we've ever been.

The investments we are making will enable us to continue to differentiate our offering in the market and position ABM for the next 110 years.

Now let me turn it over to Anthony.

Thank you, Scott, and good morning, everyone.

Before I review our results, please keep in mind the results presented in this release reflect our acquisition of GCA, which closed on September 1, 2017.

Therefore, the financial results and associated year-over-year comparisons discussed today reflect 12 and 2 months of GCA operations for fiscal 2018 and fiscal 2017 respectively, which include the related revenue and profit contributions as well as higher amortization, interest expense and share count.

For fiscal 2017, the fourth quarter and full year results also reflect the transaction's acquisition cost.

Additionally, our fiscal 2018 results for the quarter and year reflect the benefit of the U.S. Tax Cut and Jobs Act of 2017.

Now on to our results for the fourth quarter.

Total revenues for the quarter were $1.6 billion, up 10.1% versus last year, driven by incremental GCA revenues of $88 million and 4.2% organic growth within the Business & Industry, Technical Solutions and Technology & Manufacturing segments.

On a GAAP basis, our income from continuing operations was $8.9 million or $0.13 per diluted share compared to a loss of $2.5 million or $0.04 last year.

This quarter's results reflect a noncash impairment charge of $26.5 million, which resulted from our revised outlook of our Technical Solutions business in the U.K, which I will discuss in more detail shortly.

On an adjusted basis, income from continuing operations for the quarter increased 65% to $38.8 million or $0.58 per diluted share compared to last year.

During the quarter, we generated adjusted EBITDA of approximately $90 million at a margin rate of 5.5% compared to $70.8 million at a rate of 4.7% last year.

I'll now turn to our segment results, which are described on Slide 12 of today's presentation.

As we've noted all year, our 2018 operating segment results reflect a remapping of overhead expenses related to GCA, including allocations and additional amortization.

Therefore, year-over-year comparisons will not be meaningful until 2019.

Our B&I segment grew 7.8%, achieving revenues of $737 million, driven by $14.5 million of incremental revenue related to GCA.

Organically, B&I finished the year strong with organic revenue up 5.7%, which primarily reflects our TfL win in the U.K. We have now anniversaried the TfL contract, and as a result, its incremental contribution to organic growth will decrease over the next few quarters.

Management reimbursement revenue also increased by more than $6 million.

Operating profit for the quarter was $43.6 million for a margin of 5.9%, reflecting approximately $2 million of amortization related to GCA.

Excluding GCA-related amortization, the operating margin for total B&I was 6.2% this quarter.

For the full year, B&I delivered operating margins of 5.3% or 5.6% excluding amortization compared to our low 5% expectation.

B&I stable performance all year has been the cornerstone of our business and demonstrates the strength of our diversified model.

Aviation reported revenues of $265 million.

During the quarter, we continued to expand into strategic service lines across major airlines, which offset certain contract losses we previously discussed.

Operating profit for the quarter was $2.6 million.

During the quarter, startup costs associated with our catering and logistics service line was beyond our original projections, which impacted the quarter by 90 basis points.

These costs have now normalized and our operating margin should begin to trend back in line with our original projections.

Operating margins also reflect the acute impact that the current labor environment continues to have on the Aviation segment.

For the full year, Aviation ended with an operating margin of 2.3% with a minimal impact from amortization compared to our high 2% expectation.

Technology & Manufacturing revenues increased to $234 million for the quarter, up 15% versus last year.

This was driven by incremental GCA-related revenue of $19 million and organic growth of 5.9%.

We grew through a combination of new wins and expansions at our top High Tech clients.

Operating profit was $17.5 million for a margin rate of 7.5%.

Excluding $2.7 million of GCA-related amortization, operating margins were 8.7% for the quarter.

For the full year, operating margins were 7.3% or 8.4% excluding amortization.

Overall, we are pleased with the results we have seen in the T&M segment, as they performed in line with our expectation of low 7% operating margins during this first year as a newly integrated group.

Revenue in Education was $214 million, reflecting approximately $50 million of incremental GCA business.

Operating profit for the quarter was $12 million or 5.6% in margin.

Excluding $6.8 million of amortization, operating margin was 8.8% for the quarter.

Similar to our Aviation segment, our Education team has been particularly challenged with the current labor markets.

Operating margins for the full year were 5.2% or 8.3% excluding amortization.

The Educations segment delivered full year results that were in line with our operating margin expectation of high 4%.

In addition, Education benefited from a onetime inventory adjustment during the quarter as a result of our standard year-end review procedures.

Looking ahead, we are encouraged by the momentum of our Education team and the sales pipeline we continue to develop where we are seeing opportunities to cross-sell other services within the portfolio.

Healthcare revenue was $67 million for the quarter, including $2 million from GCA.

Operating profit was $0.9 million, which includes $0.2 million of GCA amortization.

Finally, Technical Solutions reported revenues of $131 million, a year-over-year increase of 15% for the quarter.

The Technical Solutions segment has been a tale of two cities all year.

Our domestic business has been thriving with increases in BES revenue and core project work for the quarter and year.

Fourth quarter results also reflect beneficial timing of certain projects that were executed later in the quarter.

On the other hand, our U.K. business has been underperforming as a result of the uncertain economic conditions precipitated by Brexit and its impact at certain sectors of the economy.

As we've shared on previous calls, we have been monitoring this business acutely.

Given the expected continued challenges in this market as well as a customer deflection, we impaired goodwill and intangibles associated with this segment in the amount of $26.5 million during the quarter.

This noncash charge is excluded from our overall adjusted results but reflected in our segment results.

Excluding this charge, operating profit for the quarter would've been $18.1 million or a 13.8% in margin, leading to normalized operating margins of 9.2% for the full year, in line with our 9% margin target.

Turning to cash and liquidity.

Cash flow from operations was approximately $93 million for Q4.

The combination of our new scale of GCA as well as the foundational improvements we've made through our enterprise shared service center helped drive sustainable working capital management improvement throughout the year.

We also benefited from certain strategic actions we took during the year such as the midyear termination of our swap as well as onetime tax and insurance collateral refunds.

Even excluding these onetime benefits, we generated more than $210 million of free cash flow for the year, above our recent projection for $175 million to $200 million.

In 2019, we anticipate consistent performance and to further strengthen our healthy balance sheet.

We ended the quarter with total debt including standby letters of credit of $1.1 billion and a bank-adjusted leverage ratio of 3.2x.

I am pleased with our accelerated pace of deleveraging.

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

And I am pleased to report that our board has approved our annual dividend increase to $0.18 per share, marking our 211th consecutive quarterly cash dividend.

As Scott said, 2019 will be our 110th birthday, and we are so proud to have raised our dividend for more than 50 consecutive years as part of our history.

Now for a quick recap of our annual results.

Overall revenues increased by 18% or $988.6 million compared to last year.

The increase in revenues was attributable to $858 million of incremental revenues predominantly from the GCA acquisition and organic growth of approximately 4%.

Our GAAP income from continuing operations for fiscal 2018 was $95.9 million or $1.45 per diluted share.

On an adjusted basis, income from continuing operations for the year was $125.3 million or $1.89 per diluted share.

Adjusted EBITDA for the year grew to $326.4 million, and we ended the fiscal year with an adjusted EBITDA margin of 5.1% versus 4.3% last year.

Now turning to our guidance outlook.

We are introducing a fiscal 2019 GAAP guidance outlook range of $1.65 to $1.80 and on an adjusted basis, $1.90 to $2.05 per share.

Next year will be the second full year that we operate under our current business segments following the acquisition of GCA.

Therefore, quarterly results will be comparable on a year-over-year basis.

However, given our extensive discussions regarding various initiatives as well as the overarching labor headwinds we've been facing, I want to provide additional details to contextualize the cadence of the year.

Our revenue growth in fiscal '19 will be predicated on both continuing our new sales and the expansion momentum we saw in fiscal '18 as well as retaining accounts that are up for renewal.

With retention, our focus is with the right customers and contracts with a path to quality long-term business.

So overall in fiscal '19, we expect our top line to be in the range of our historical results and on a comparative basis, we expect to see some front-end and back-end normalization, as large contracts like the TfL anniversary and our new sales begin to comp out.

Turning to margins, we are forecasting adjusted EBITDA margin in the range of 5.1% to 5.3%, which reflects a full year headwind of labor, which we saw escalating at the end of the first half of fiscal 2018, offset by proactive price escalations, labor-management processes we are and have been implementing as well as the full year impact of synergies associated with GCA.

Keep in mind, any improvement would be partially offset by the continuation of investments we are making in our IT infrastructure to create and optimize our scalable platforms.

Given 2019 will be our first full fiscal year under the Tax Cuts and Job Act, I want to discuss some of the reasons why we expect our overall tax rate to increase 30% compared to fiscal 2018.

Our expected 2019 tax rate of 30% excludes discrete tax items such as the Work Opportunity Tax Credit and the tax impact of stock-based compensation awards, which we currently expect to be approximately $7.5 million for 2019.

This compares to $11 million in fiscal 2018.

Additionally, while we will continue to benefit from a full year of lower overall federal tax rates, there are a number of items that did not impact us in fiscal 2018.

These include limitations or deductions related to meals and entertainment and executive compensation plus some foreign tax provisions.

The culmination of all these items will have an approximately 200 basis point increase in our effective tax rate year-over-year.

We expect capital expenditures in fiscal 2019 to be between $50 million to $60 million, and we expect depreciation of $50 million to $55 million.

These ranges reflect our continuing investments in IT as well as growth CapEx.

When considering our quarterly EPS cadence for fiscal 2019 on an adjusted basis, we expect a proportion of earnings between the first half and second half of the year to largely mimic what we saw in fiscal 2018.

I also want to discuss some changes that will be implemented in fiscal 2019.

As stated in our earnings release, we have adopted the new revenue recognition standard also known as ASC 606.

The guidance we are giving today does not reflect any accounting impact that may arise due to timing from ASC 606, which could be in the range of plus or minus $0.05.

The main drivers that could cause some variability include:

Sales commission cost, which will now be deferred and recognized over the expected customer relationship ranging from 1 to 8 years.

Previously, commission costs were expensed as incurred.

Profit margin on uninstalled materials associated with our Technical Solutions project-related contracts are deferred until installation is substantially complete.

Previously, margin on uninstalled material was recognized upon delivery under the percentage of completion method.

Initial fees from sales of franchise license will now be deferred and recognized over the terms of the initial franchise agreement, ranging from 1 to 3 years.

Previously, initial fees from sale of franchise license were recognized upon the completion of the sale.

We'll provide clarity on these items as results are reported and we navigate the fiscal year.

Finally, in fiscal 2019, we intend to expand our disclosures by providing intersegment revenue as well as revenue by service lines.

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

(Operator Instructions) Our first question comes from the line of Andrew Wittmann with Robert W. Baird.

I wanted to dig into, I guess, factors driving the top line here in fiscal '19.

I guess maybe starting with, I think, Scott, you had a stretch goal of $900 million, you hit that, but it sounds like you guys talked out some moderation in the organic growth rate year-over-year.

I guess it sounds to me like maybe the missing hole there is retention rate.

Can you talk about, maybe, about some of the dynamics that you're looking at and you also had -- are annualizing the contracting TfL, But can you just talk about some of the dynamics that you're seeing in terms of top line in general but maybe retention specifically, maybe it's falling out of the discussions you're having on the price-cost dynamics from labor?

Sure.

That is great, Andy, and that's right on.

We feel like we're going to be able to replicate if not overachieve what we did this year in new sales.

So all's well on the top line for expanding with our customers and cross-selling and bringing in new business.

I think for us, this is the year of having a keen focus on retention, right?

Because we have had some pricing pressures as we know because of the wage rates and the current labor market, but I think this is the time where we're going to dig in and make some strategic decisions about accounts that aren't performing to our expectation level, and as we look -- we don't think there'll be a dramatic difference in retention rates, we're talking about toggling a point or so, but I do think it's something that's going to have added pressure, especially as we have mid-cycle conversations with clients where we're not performing.

Yes.

I guess that makes sense.

I mean have -- just in terms of visibility you have into that point or so that you're identifying here, I mean have those accounts that need to have those tougher conversations already been engaged and identified that gives you confidence in that point?

Or do you feel like you still need to work through your overall portfolio to develop some confidence as '19 proceeds?

Yes.

As we planned 2019, we looked at every account.

We developed account plans.

So we feel like we've identified the accounts where we're having more challenges.

And we're going to be strategic about it too, right?

Because if it's a large-scale client that we have the opportunity to continue to expand with and move through the cycle, it will be a very different decisions map than a client maybe that has just one asset and is more price-focused than really buying into our platform.

And that's the way we're thinking about it, and just to give you some idea of how we're thinking about it, when we planned our escalations for 2019, we've budgeted into our guidance about 25% increase year-over-year.

So -- that's not necessarily a number you put in your model but you should just understand directionally that we feel that we're going to have some good success but it just -- there is some risk with that.

Got it.

Okay.

The other thing I heard in the prepared remarks and I thought was kind of interesting, was the number of IT systems that you're putting in: HR, e-pay and then combining your financial systems.

I think in '18 you also had some systems implementations.

I guess -- I have no doubt that they're baked into guidance, Anthony, but most of these systems are SaaS type of things that do get expensed and pressure the P&L.

Just so we can get a sense of what this margin guidance, you gave us here today, really represents, can you talk about what the cumulative headwind to margins is from all of these systems implementations?

Sure, Andy.

And you're exactly right, our strategy over the last, call it, 1.5 years has been to move more of our infrastructure and software to the cloud.

So over time, you should see a reduction in the CapEx associated with the IT systems and then the corresponding increase in our OpEx.

And then we're expecting obviously efficiencies from these new systems on the labor side as well as from the back-office perspective.

From a total cost year-over-year, we're anticipating the increase in IT spend to be approximately $10 million on a year-over-year basis, and that will be primarily reflected in our corporate segment.

And you know what, Andy, if you think about 2020 Vision and the cadence of the transformation, the part one was to change our operating model and be more solution provider, right, bringing more of our services to bear for our clients.

And then part two of it was working through our shared service center, right, our procurement, all the things that we've talked about.

This is the stage now where we are investing in the platform to enable a lot of the best practices that we outlined through our 2020 Vision program.

So it's really exciting because in our minds, the ABM of 2020 is going to be a more data-driven, analytic company as a result of all these investments and that's just going to help us drive our business and ultimately accelerate in the future.

So this is, kind of, right in line with where we want to be.

Yes.

No doubt this is that vision.

I guess Anthony, given that some of these are not implemented.

I guess there were some that you did say are in effect today, but some are coming in over the course of the year.

If it's $10 million cost for this year, what's the annualized run rate because presumably, there's some carryover that's going to get lapped into 2020 that we want to be aware of as well.

Yes.

I think the way to look at it, Andy, is the cost increase year-over-year going to be primarily the result of the SaaS model as well as the beginning depreciation of the CapEx associated with putting in place these systems.

On a go-forward basis, we're not anticipating incremental so the run rate from an operating expense should be in line with what we forecast or what we're anticipating fiscal '19 to be, the biggest difference is going to be the switch between depreciation and OpEx over time becoming much more an OpEx -- both of our systems, although they're deploying throughout fiscal '19 from a software-as-a-license perspective, they're expensed -- they're fully expensed in '19, so we're not going to see a lot of year-over-year going into '20.

Got it.

Okay, and then just -- I'm going to finish up here at this -- at least for this go around on tax rate.

So just you went through a lot there pretty quickly but you guys give this guidance of 30%, but obviously, the number that's going to be on the income statement is going to be a little less because WOTC is the big one.

And I think you said it's going to down like what $7.5 million from, was it, $11 million last year?

Is that right, Anthony?

Yes.

The way to look at it is really in 2 components.

Our discretes are primarily going to be WOTC and FAS 123R and then we have 179B, which are associated with our energy-efficient projects, which is the one that we frankly don't have very good visibility because it's project dependent.

So when you look at WOTC and 123R, we had roughly $11 million in fiscal '18.

We're anticipating $7.5 million in fiscal '19.

The WOTC should be relatively consistent, the biggest driver is going to be the drop in 123R, and that's really a function of the share price as well as the exercise option value, when these options were -- options or stock-based comps were put in place.

Okay.

So then the 30% really turns into something closer to what, 25% or 26%?

Yes.

And then you would also get the benefit of the -- or the deductibility of stock compensation, which would lower the tax rate a little bit further and that would get you to your adjusted EPS, right?

I just wanted to make sure that for people listening into the call that this is all very clear, the tax rate that they're actually going to see is not 30%, it's going to be something closer to 25%, maybe...

Yes.

The way to look at it, the 30% is reflective of the full year of the U.S. Tax Cut Act, but it has incremental increases for provisions that didn't impact us in '18.

So from a year-over-year basis, purely from the tax rate, we would have an increase, which is not intuitive, and I think I've been signaling that since Q3 of last year around making sure our investors understand that tax is just comparable, are going to go up year-over-year and then exactly to your point, what offset that will be the benefits from these discretes.

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

Wanted to touch a little bit on the CapEx guide and wondering if you could parse out for us, what -- how much of that would be considered, sort of, the growth CapEx, if you will and what will be maintenance CapEx for '19?

And how we should think about how that might evolve beyond '19?

Sure.

So CapEx in general should be roughly about 1% of our sales.

That's the way we look at it internally and then the split of that is going to be -- $45 million to $50 million of that is going to be kind of the maintenance CapEx, and that will be for equipments.

Historically, that would be for systems implementation as well as our software when we would host it.

As you look forward, I would bake in 1% as being the right run rate.

It's harder -- it's hard for me to say that number should materially different from what we've historically seen given the growth in the business and some of the CapEx associated with that growth.

Okay.

Great.

And then I wanted to be shift over to a little bit of -- if we can sort of get some thoughts and updates around the pricing discipline and go-to-market strategy benefits?

And how -- what differences that you're seeing by segment a little bit because, I mean, certainly, there's quite a bit going on and then, of course, you're going to be layering on the technology changes, but I did want to get a sense of maybe the receptivity that you're seeing and the differentiation by -- from one segment to another that might be helpful?

So look, I think the pricing impact on the business is universal.

It's not in any particular industry group.

This is a situation that's facing each of our segments and really facing each of our clients as well.

And I think that's what has gotten us in a good place because you have these quarterly conversations with clients.

So it's not the first time they're hearing about it, and they're facing the same challenges.

So that's why we think there is going to be more receptivity this year on escalations as we go forward and why we felt comfortable budgeting higher.

And as I said earlier, there is no question that there's a risk with that and we'll be more discerning, but it's nice to have something impact you that -- this is one way misery loves company, because you have a narrative that everyone can share in, and that's why we're getting the reception that we're getting.

Okay.

Great.

And then one of the things I was thinking about, as far as the -- as you go through the year with the technology enhancements throughout the year, I was wondering if you could touch a little bit on where you feel you are on the analytic side I suppose?

And if you feel as though you have that capability in-house as take advantage of what you'll be deriving during the course of the year from your technology improvements?

Or whether we should see an update in some of the analytic needs within the company?

So it's early on, right?

We're in the point now where we're just starting to deploy all of this technology.

So I think from a pure analytics and data from these systems, it's really going to be a 2020 story because that's when we'll start to be able to talk about year-over-year changes.

However, we still have the infrastructure like for example, one of the things that we're very focused on is managing daily labor, right?

So it's a manual process right now when it's getting done.

So when we enable the technology, it's going to just make us more efficient, and it's going to free us up to do some of the other things we'd probably like to be doing.

But the reality is we're still focusing on all the key things we have to do in this labor environment.

It's the technology that's going to enable us.

So it's an evolving story.

These systems are all starting to come online throughout the year but in terms of having true data analytics, that's not going to be more manually derived, that's really something that we're going to feel comfortable in 2020.

Okay, that makes sense.

And then one last thing for me, I was wondering if you could give maybe some thoughts as to some of the things that you've learned initially as to the strategic service line enhancements within Aviation and then maybe some of the things that you've learned from there is that something that you could see in -- taking into others segment as far as expanding service line opportunities?

The main thing we learned is that clients appreciate when we come to them with solutions, right?

We've historically been a single service company, and we are just starting on this path, right?

But by now, as our teams are getting adept at talking about cross-selling, like this year was our best cross-selling year ever.

We did close to $100 million in cross-selling services.

And we've seen it happen in unique places, in our Education line, we're expanding with healthcare, so a lot of the universities will also have hospitals as well.

So it's something that we can talk to with clients now and -- but this is still -- it's a long-term process to get our people skilled at cross-selling but to think that we did close to $100 million this year, we were pretty encouraged by that, but we still feel like we have a lot more runway.

So being a solution provider, it is going to prove out as part of our long-term thesis.

And you enable that with technology and the account plans and standard operating practices, and we just think we have a winning combination in the future.

At this time, I'll turn the floor back to management for any final comments.

I just want to thank everybody for following us and participating throughout the year and just wish everybody a happy and healthy holiday season and a prosperous 2019.

We look forward to updating you at the end of Q1.

Thanks, everybody.

Thank you.

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