ABM Industries Q3 2026 Earnings Report

ABM Industries EPS Results

• Actual EPS: $1.04
• Consensus EPS: $1.01
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: $0.82

ABM Industries Revenue Results

• Actual Revenue: $2.32 billion
• Expected Revenue: $2.32 billion
• Beat/Miss: Missed by -$2.66 million
• YoY Revenue Growth: +4.20%

ABM Industries Announcement Details

• Quarter: Q3 2026
• Date: 9/8/2026
• Time: Before Market Opens
• Conference Call Date: Tuesday, September 8, 2026
• Conference Call Time: 8:30AM ET

ABM Industries (NYSE:ABM) (NYSE: ABM) is a provider of integrated facility and workplace solutions. The company helps organizations operate and maintain their buildings and infrastructure through services that include janitorial and custodial work, engineering and maintenance, electrical and lighting solutions, HVAC services, landscaping, energy management, and facility operations.

ABM also provides specialized services for aviation, parking, education, healthcare, manufacturing, logistics, commercial real estate, sports and entertainment venues, and government facilities. Its offerings are designed to support the day-to-day operation, appearance, safety, and efficiency of properties and transportation facilities.

Founded in 1909 as a window-washing business, ABM has expanded into a large facilities-services company serving customers across the United States and in select international markets. The company is headquartered in New York City and is led by President and Chief Executive Officer Scott Salmirs.

ABM Industries Q3 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong quarterly results led to higher guidance: Revenue reached a record slightly above $2.3 billion, while adjusted EPS rose 27% to $1.04. ABM raised its fiscal 2026 adjusted EPS range to $3.95-$4.10 and reported free cash flow guidance to approximately $210 million.
• Positive Sentiment: Semiconductor, microgrid, and data-center businesses are expanding rapidly. These markets generated nearly $775 million of year-to-date revenue, growing 26% organically and about 40% including WGNSTAR, with double-digit blended operating margins and a growing pipeline.
• Positive Sentiment: Technical Solutions is expected to rebound sharply in the fourth quarter. Approximately $15 million of microgrid projects were deferred from the third quarter, but management said nearly all are now moving forward and expects double-digit organic ATS growth with materially higher revenue, profit, and margins in Q4.
• Negative Sentiment: Some core businesses remain under pressure. Business & Industry revenue declined about 3% because of client exits, particularly in the U.K. and West Coast, while Aviation margins fell to 5.6% as airlines sought cost relief amid elevated fuel prices.
• Positive Sentiment: Cash generation and balance-sheet performance improved materially. Year-to-date free cash flow increased by more than $150 million to nearly $200 million, leverage fell below three times adjusted EBITDA, and management expects leverage to decline further by year-end.

Presentation

[Operator]

Greetings. Welcome to ABM Industries' third quarter 2026 earnings call. At this time, all participants will be in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note that this conference is being recorded. At this time, I'll turn the conference over to Paul Goldberg, senior vice president, investor relations. Thank you. You may now begin.

[Paul Goldberg, SVP of Investor Relations at ABM Industries]

Good morning, everyone, and welcome to ABM's third quarter 2026 earnings call. My name is Paul Goldberg, and I'm the senior vice president of investor relations at ABM. With me today are Scott Salmirs, our president and chief executive officer, and David Orr, our executive vice president and chief financial officer. Please note that earlier this morning, we issued our press release announcing our third quarter 2026 financial results and outlook. A copy of that release and an accompanying slide presentation can be found on our website, abm.com. After Scott and David's prepared remarks, we will host a question-and-answer session. Before we begin, I would like to remind you that our call and 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, and they represent our current judgment of what the future holds.

[Paul Goldberg, SVP of Investor Relations at ABM Industries]

While we believe them to be reasonable, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially. These factors are described in a slide that accompanies our presentation as well as our filings with the SEC. During the course of this call, certain Non-GAAP financial information will be presented. A reconciliation of historical Non-GAAP numbers to GAAP financial measures is available at the end of the presentation and on the company's website under the Investor tab. With that, I would like to now turn the call over to Scott.

[Scott Salmirs, President and CEO at ABM Industries]

Good morning, everyone, and thank you for joining us. We had a strong third quarter, particularly when you consider some of the puts and takes across the business. We delivered record quarterly revenue, 27% adjusted EPS growth, and exceptional year-to-date cash flow despite project timing and Technical Solutions and the anticipated impact of client exits in B&I. I think the quarter demonstrates both the resilience of our portfolio and our ability to execute operationally, even when individual parts of the business don't move in a straight line. On the revenue side, most of the business performed largely as we expected. Aviation and Manufacturing & Distribution continued to deliver strong growth. Education performed as expected, while B&I reflected the client exits we have discussed over the last several quarters. Technical Solutions was the one area where revenue came in below our expectations, driven by certain project deferrals from an important client.

[Scott Salmirs, President and CEO at ABM Industries]

Based on our discussions with that client, we believe this is principally a timing issue rather than a change in the underlying demand environment, and we expect a meaningful portion of that activity to move into the fourth quarter. What I am particularly pleased with this quarter is our execution on profitability and cash flow. The cost actions we have been driving throughout the year, combined with disciplined working capital management, resulted in 27% adjusted EPS growth, 40 basis points of sequential segment margin improvement, and an increase of over $150 million in year-to-date free cash flow. Cash generation has historically been an important strength of ABM. Following the disruption associated with our ERP implementation, we have been very focused on restoring that performance, and the progress is increasingly visible in our results. Given our performance through the first nine months, we are raising our full-year free cash flow outlook.

[Scott Salmirs, President and CEO at ABM Industries]

I want to spend a few minutes on the part of the ABM story that I think is becoming increasingly important: our position in semiconductor, microgrids, and data centers. Because some of these businesses are project-oriented and can be lumpy quarter to quarter, I think the year-to-date numbers provide the best perspective. Through the first nine months, these businesses generated nearly $775 million of revenue, growing 26% organically and approximately 40% when including WGNSTAR. Together, they now represent more than 11% of ABM's revenue and carry a double-digit blended operating margin. These businesses have become meaningful within ABM, and we believe they have significant runway ahead. In semiconductor, we made a strategic decision several years ago to invest ahead of what we believed would be a significant expansion of advanced manufacturing capacity.

[Scott Salmirs, President and CEO at ABM Industries]

We invested in industry expertise, developed relationships with many of the leading manufacturers, and established a strong position supporting semiconductor facilities. WGNSTAR significantly expands that opportunity. One way to think about it is to picture the fab as the bullseye in a semiconductor facility. Historically, ABM has operated around the bullseye, providing a broad range of services. With WGNSTAR, we now have the highly specialized technical capabilities to operate inside the bullseye as well. That significantly expands our addressable opportunity and allows us to provide a much broader range of services to semiconductor clients. The results so far have been really encouraging. Semiconductor revenue grew 65% organically during the first nine months, and more than doubled when including almost two quarters of WGNSTAR. And we are still early in realizing the opportunities across the combined client portfolio.

[Scott Salmirs, President and CEO at ABM Industries]

In microgrids, including battery energy storage systems, we have approximately quadrupled the size of the business since entering the market in 2022. Through the first nine months, revenue grew 17% organically. The underlying demand drivers remain compelling as clients increasingly invest in power resiliency and redundancy. We are also focused on broadening the client base and increasing the recurring component of the business over time. To highlight our progress on diversification, in the coming days, we expect to finalize a contract to build a microgrid for primary backup power for the U.S. Army Corps of Engineers as part of a joint venture with a strategic partner. The total value to ABM is approximately $20 million, and we expect the project will be executed in calendar 2027. And finally, data centers.

[Scott Salmirs, President and CEO at ABM Industries]

Year to date, revenue grew 8% organically, but we believe the opportunity ahead is considerably larger than what is reflected in that current growth rate. Our pipeline and backlog continue to build, including work with many co-location customers, and we expect a meaningful portion of that activity to convert into revenue in fiscal 2027 and into 2028. Taken together, these businesses represent an important evolution in ABM's portfolio. We have a large, resilient core business that generates significant cash flow, while at the same time building meaningful positions in markets benefiting from powerful long-term investment trends. We believe that combination can contribute meaningfully to ABM's growth and margin profile over time. Let me step back and briefly talk about what we are seeing across our markets as we move into the fourth quarter. Within Business & Industry, the trends we discussed last quarter remain largely intact.

[Scott Salmirs, President and CEO at ABM Industries]

The Northeast continues to be our strongest commercial real estate market, while the West Coast, particularly Northern California, remains challenging. We continue to be disciplined in how we pursue and retain business. Our objective isn't simply to maximize revenue. We want client relationships where we see a credible path to attractive returns over time. Looking ahead, we expect B&I to return to organic growth around the middle of fiscal 2027 as we lap the large U.K. client exit we've previously discussed. In Manufacturing & Distribution, the environment remains very constructive. Technology continues to lead the way, particularly semiconductor, and we're also seeing healthy activity in e-commerce, pharma, and broader industrial manufacturing. Based on what we see today, we believe M&D is positioned to sustain strong organic growth into fiscal year 2027 and beyond. In Aviation, passenger demand remains healthy.

[Scott Salmirs, President and CEO at ABM Industries]

The near-term issue is pressure on airline economics from higher jet fuel costs, which is creating some pressure on our margins. We have incorporated that into our outlook and are actively working to mitigate the impact. At the same time, our deliberate shift towards airports continues to improve the long-term profile of the business. Airports now represent approximately 60% of Aviation revenue and provide greater consistency, broader cross-selling opportunities, and more stable economics. Education continues to be a consistent cash-generative business. The team is executing extremely well, and we expect low single-digit organic growth as we move into fiscal 2027. Finally, in Technical Solutions, the underlying market fundamentals across energy resiliency, data centers, and HVAC remain strong. As I mentioned earlier, Q3 was affected by certain project deferrals at an important client. These delays were not driven by interest rates, supply chain constraints, or permitting challenges.

[Scott Salmirs, President and CEO at ABM Industries]

The client made a decision to prioritize other capital projects during the quarter. We are now executing on many of those deferred projects, which should translate into significant sequential improvement in ATS revenue, operating profit, and margin in Q4. More broadly, given the demand we continue to see across ATS, we expect another year of strong growth in fiscal 2027. As we enter the fourth quarter, I would leave you with three things. First, the majority of our end markets remain healthy. Where we do have pressure, we understand the issues and are actively managing them. Second, our operational execution continues to improve. Margins increase sequentially, cash flow has strengthened considerably, and the cost actions we've been taking are showing up in our results. Third, semiconductor, microgrids, and data centers are becoming increasingly meaningful contributors to ABM, and we believe they have substantial runway ahead.

[Scott Salmirs, President and CEO at ABM Industries]

We are raising the midpoint of our adjusted EPS outlook and raising our full-year free cash flow outlook based on our strong third-quarter results and our confidence in delivering the fourth quarter. There's still work to do, but we feel good about the position we're in and the foundation we are building as we head into fiscal 2027. With that, I'll turn it over to David.

[David Orr, EVP and CFO at ABM Industries]

Thanks, Scott, and good morning, everyone. Let's start on slide seven. Revenue grew 4.2% year-over-year to an all-time quarterly record of slightly above $2.3 billion, driven by 2.1% organic growth and a 2.1% contribution from acquisitions, primarily WGNSTAR. Organic growth was especially strong in Aviation and M&D, which grew 12% and 8% respectively. Education was up slightly, while Technical Solutions posted organic growth of 2%, reflecting project timing, which I'll discuss shortly. B&I declined 3% as expected. We'll get into the segment details in a few minutes. Turning to slide eight. As Scott mentioned, we delivered a strong earnings quarter. Net income increased 19% to $49.7 million, or $0.84 per diluted share, compared to $41.8 million or $0.67 per diluted share in the prior year.

[David Orr, EVP and CFO at ABM Industries]

Adjusted net income was $61.5 million, or $1.04 per diluted share, versus $51.7 million or $0.82 per diluted share last year, reflecting increases of 19% and 27% respectively. These significant year-over-year increases primarily reflect higher segment operating profit, lower tax expense, and reduced ongoing corporate cost, partially offset by higher interest expense. Per share measures were further benefited from share repurchase activities completed earlier in the year. Adjusted EBITDA increased $13.8 million or 11% over the prior year to $139.6 million, driven by higher segment operating profit and lower corporate costs. Segment operating margin increased 40 basis points sequentially to 7.7%. On a year-over-year basis, segment margin was essentially flat as operational efficiencies in B&I, M&D, and Education were offset by anticipated pressures in Aviation and higher amortization expense related to the WGNSTAR acquisition. Excluding acquisition-related amortization, margin would have been 7.8%.

[David Orr, EVP and CFO at ABM Industries]

Now let's turn to segment performance, beginning with slide nine. B&I revenue declined 2.6% in the third quarter as expected, driven by the Q2 exit of a large U.K.-based client and the impact of certain other client exits, particularly on the West Coast. We expect revenue trends to be similar in Q4, though we anticipate continued incremental margin improvement as our operational actions take further hold. Operating profit increased to $75 million, and margin expanded 30 basis points year-over-year to 7.4%, compared to $73.8 million and 7.1% in the prior year period. These improvements primarily reflect cost actions and operational improvements, along with the benefit of lapping certain lower margin contracts entered into in the third quarter of last year. Aviation grew 12% to $328.1 million, supported by healthy travel demand and the continued ramp of our Heathrow contract.

[David Orr, EVP and CFO at ABM Industries]

Operating profit was $18.4 million with a margin of 5.6%, compared to $19.7 million and 6.8% last year. Profit and margin were pressured by airline clients who are reacting to elevated fuel costs by seeking cost relief from their service providers. We factor this into our outlook and are actively managing the pressure through operational efficiencies. Turning to slide 10. M&D generated $481 million in revenue, an 18% increase year-over-year, including organic growth of 8% and 10% growth from the WGNSTAR acquisition. The strong organic growth was driven by continued client expansions across the segment. Operating profit was $40.5 million, with a margin of 8.4%, compared to $36.4 million and 8.9% last year.

[David Orr, EVP and CFO at ABM Industries]

On a year-over-year basis, the margin change primarily reflects ongoing investments in sales and industry expertise talent to support our long-term growth strategy, as well as nearly $4 million in incremental amortization expense connected with the WGNSTAR acquisition. Excluding incremental amortization, margin was 9.2%, which we view as a solid base from which to expand as we outgrow the amortization and continue to cross-sell higher-value solutions to our semiconductor and technology clients. Education revenue rose slightly to $235.8 million and delivered excellent operating performance in the quarter, which is the seasonally strongest for profit and margin. Operating profit increased 9% to $23 million, and margin expanded 70 basis points to 9.7%. This improvement was driven by enhanced labor efficiency and effective escalation management. Technical Solutions third-quarter revenue was $259.9 million, up 4% year-over-year, including 2% organic growth and 2% from acquisitions.

[David Orr, EVP and CFO at ABM Industries]

Organic growth reflected strong HVAC and battery energy storage system activity, partially offset by certain project delays in our microgrid business driven by an important client. These delays were compounded by a difficult comparison against a very strong third quarter last year. Operating profit was $21.5 million, with margin at 8.3%, compared to $19.4 million and 7.8% last year. The increase in operating profit and margin was mainly driven by positive service mix, partially offset by impacts in our microgrid business due to project delays. Looking to the fourth quarter, we expect significant sequential increases in revenue, operating profit, and margin on higher microgrid activity as projects that shifted out of the third quarter move forward. As we discussed earlier in the year, the back half of the fiscal year, and specifically the fourth quarter, has historically been the strongest operating quarter of the year for Technical Solutions.

[David Orr, EVP and CFO at ABM Industries]

This year will be no different. Now turning to slide 11. We ended the quarter with total indebtedness of $1.8 billion, including $22 million in standby letters of credit. Our total debt to pro forma adjusted EBITDA ratio was 2.9x. We achieved our goal of leverage being below 3x a quarter earlier than originally planned, reflecting strong sequential progress driven by our robust cash flow. We expect to drive leverage even lower by year-end. Available liquidity stood at $606 million, including $110 million in cash and cash equivalents. During the quarter, we closed on a $300 million accounts receivable facility. This diversifies our funding sources and reduces our marginal cost of borrowing relative to our existing revolving credit facility and also represents a meaningful enhancement to our overall capital structure.

[David Orr, EVP and CFO at ABM Industries]

As Scott mentioned, we had a very strong cash generation quarter, which has long been a hallmark of ABM. Third quarter cash from operations was $146.8 million, and free cash flow was $128.4 million. For the first nine months, cash from operations was $275 million, and free cash flow was $199.6 million, versus cash from operations of $101 million and free cash flow of $42.4 million in the prior year period. This represents an improvement of over $150 million in free cash flow during the first nine months, driven by strong working capital management and ERP stabilization. As a result of our progress on cash generation year to date, we are raising our full year free cash flow expectations, which I will discuss in a moment. Interest expense in the quarter was $29.5 million, up $4.2 million from last year, reflecting larger average debt balances driven by our WGNSTAR acquisition.

[David Orr, EVP and CFO at ABM Industries]

This was partially offset at the net income level by lower tax expense, which was $4.1 million below last year, reflecting certain discrete tax benefits recognized in the quarter. Turning to our fiscal 2026 outlook on slide 12. As Scott noted, we are encouraged by the relative health of our end markets while remaining mindful of the broader economic uncertainty. As such, we are raising the midpoint of our fiscal 2026 adjusted EPS range, which is now expected to be $3.95-$4.10. This raise reflects our strong third quarter performance and our confidence delivering on our fourth quarter expectations. As a reminder, our full year organic revenue growth outlook is 3%-4%, and we continue to expect to be toward the higher end of that range. Aviation, M&D, and Technical Solutions are expected to grow above that range, while B&I and Education are projected to be below that range.

[David Orr, EVP and CFO at ABM Industries]

The WGNSTAR acquisition is expected to deliver approximately one point of additional revenue growth, bringing total growth to the high end of our 4%-5% range. We are modestly updating our segment operating margin outlook to 7.7%-7.8% for fiscal 2026, reflecting year-to-date performance and slightly higher intangible amortization for WGNSTAR, which in aggregate accounts for 10 basis points of operating profit margin impact for the full year. That said, fourth quarter margin is projected to be meaningfully above the high end of that range, reflecting the anticipated seasonal improvements in ATS mix and the continued benefit of our operational actions across the portfolio. Our forecast for interest expense remains at approximately $110 million, and our normalized tax rates before any discrete items, including the possible extension of the Work Opportunity Tax Credit program, is still expected to be 29%-30%.

[David Orr, EVP and CFO at ABM Industries]

As I mentioned earlier, we are encouraged by our progress generating cash and are raising our full year expectations. We now expect normalized free cash flow of approximately $285 million in fiscal 2026 before the impact of transformation and integration costs, final RavenVolt earn-out, and any incremental restructuring. On a reported basis, free cash flow is expected to be approximately $210 million versus our prior forecast of $185 million, a $25 million improvement that reflects the strong working capital performance we have delivered through the first nine months of the year. I also want to take a moment to recognize the efforts of our operators and our finance and treasury teams who drove outstanding third quarter cash flow. These results are a product of discipline and focus on the fundamentals of working capital management. With that, Scott, I will turn it back to you for closing remarks.

[Scott Salmirs, President and CEO at ABM Industries]

Thanks, David. Let me close with a couple of thoughts. We feel good about where ABM stands today. Our core business remains resilient, cash flow has improved significantly, and we are making progress on margins and operating efficiency. At the same time, the investments we have made in semiconductor, microgrids, and data centers have created meaningful growth platforms in markets where we believe demand will remain strong for years. As we move towards fiscal 2027, our priorities are straightforward: finish this year strong, execute on the opportunities already in front of us, continue improving margins and cash flow, and allocate capital with discipline. Finally, I want to thank our team. More than 100,000 people show up every day and deliver for our clients. Ultimately, the results we are discussing today come from their execution, expertise, and the trust they build with our clients.

[Scott Salmirs, President and CEO at ABM Industries]

We look forward to sharing our fiscal 2027 outlook when we report fourth quarter results. With that, we will open up the line for questions.

[Operator]

Thank you. We will now be conducting a question-and-answer session. In the interest of time, please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question is from the line of Tim Mulrooney with William Blair. Please proceed with your questions.

[Tim Mulrooney, Analyst at William Blair]

Yeah. Thank you, and good morning. Scott, I am going to start off here with your high-tech business, your semiconductors, data centers, microgrids. They are 11% of your business today. But I am curious, what do you think that will represent in terms of your sales mix a couple years from now? I know these high-tech sectors are growing faster than the rest of your business, but I also know the microgrids can be lumpy. So I am really curious to get your broad thoughts on that.

[Scott Salmirs, President and CEO at ABM Industries]

Yeah. So look, we are still super optimistic about that area of work, and it is going to continue becoming a more and more meaningful part of our business just by the fact of the mix, right? Because it is growing double digits where some of our other segments are more of GDP or GDP+. So it will continue to be meaningful and we also continue to invest in, because it is not only executing on the work, which you have to do, obviously, in the highest of fashion, but we are hiring experts that understand this business. We are hiring sales associates. So this is an area that we think has a lot of trajectory for years and years to come.

[Tim Mulrooney, Analyst at William Blair]

Okay. Thank you for that. And what did you say how the profitability of these three businesses combined compares to your corporate average?

[Scott Salmirs, President and CEO at ABM Industries]

Yeah. So we are talking about double digit versus our average, which is typically in the low single digits.

[Tim Mulrooney, Analyst at William Blair]

Yeah. Okay. Very interesting.

[Scott Salmirs, President and CEO at ABM Industries]

That was more on the growth side, I should say. But you know where our EBITDA margins are in comparison to this. In a lot of cases, it could be double in these markets.

[Tim Mulrooney, Analyst at William Blair]

Yeah. Okay. Thank you. Appreciate that. David, I had one for you on the cash flow guide, and then I'll hop. I think last time you communicated about this, you said you were targeting $250 million of free cash flow less, I guess, $65 million of non-recurring cash expenses. So really, it was like $185 million, and now you're saying $210 million, which is $25 million higher. Is that right? Is all of that right? Is all of that apples to apples?

[David Orr, EVP and CFO at ABM Industries]

Yeah, Tim, you've got it right. So $210 million on an as-reported basis is the number we're targeting.

[Tim Mulrooney, Analyst at William Blair]

Okay.

[David Orr, EVP and CFO at ABM Industries]

As you said, we're really pleased with where we landed cash flow for the quarter and our raise of guidance there.

[Tim Mulrooney, Analyst at William Blair]

Yeah. No, it looks great. You kind of sound like you're changing the way we're talking about a little bit here. Before it was pre all of that stuff, and now it's just on a reported basis, $210 million. Why did you raise the free cash flow guidance? Was it due to higher operating cash flow than you were expecting before? Or is it due to fewer of that $65 million bucket of non-recurring charges than you previously thought?

[David Orr, EVP and CFO at ABM Industries]

I think the way to reflect on it is we had a really strong working capital quarter. Specifically, I think from my perspective, the good news is we're starting to really leverage some of the capabilities of the new system. In doing so, in the quarter, we're able to accelerate some of the collections for the quarter. So it's just another step to stability on our transformation. Ultimately, that was the driver for the cash flow performance.

[Tim Mulrooney, Analyst at William Blair]

Yeah. Good execution. Well, congrats on a nice quarter. Thanks, guys.

[Scott Salmirs, President and CEO at ABM Industries]

Thank you.

[David Orr, EVP and CFO at ABM Industries]

Thank you.

[Operator]

The next question is from the line of Justin Hauke with Robert W. Baird. Please proceed with your questions.

[Justin Hauke, Analyst at Robert W. Baird]

Oh, great. Thanks for taking my question. I guess I wanted to go back to the ramp in the fourth quarter. Scott, I appreciate you kind of walked through some of the moving pieces, but I guess I'm just curious on the deferred projects. Given that we're halfway through the quarter, how much has already started? Is there anything that needs to still start? I'm just trying to understand the line of sight and the visibility on those deferrals.

[Scott Salmirs, President and CEO at ABM Industries]

Sure. Again, before I even answer that, you know we don't really look at this quarter by quarter, year to date, in terms of just ATS in general. We have 10% year-to-date growth, and the microgrids and those projects are in that segment. This quarter was about $15 million in deferrals, and largely, almost all of those projects are going to land in Q4, a little bit in Q1 of next year. We're already turning wrenches on those projects, so we're still not waiting to see if the deferrals are going to be put into action. So we're actively working on them now, and I think what you're going to see in Q4 is double-digit organic growth in ATS.

[Justin Hauke, Analyst at Robert W. Baird]

Okay. That's helpful. Then just on the Aviation, the margin concessions that you talked about with the fuel pressure that the airlines are seeing. I appreciate that color that the 60% of what you do there now is with the airports and not the airlines. But can you quantify just what impact that had on the margin in the quarter?

[Scott Salmirs, President and CEO at ABM Industries]

Well, without going into too much detail, I will tell you, just first to level set, the segment is still really strong. Demand is strong. I guess the best way to look at this is that we feel like that pressure is stabilizing. Sequentially, the margins, actually this quarter, modest improvement. So we feel like a lot of that impact is behind us and you'll start seeing us accelerating over time now, once we get a little bit of relief on fuel costs.

[Justin Hauke, Analyst at Robert W. Baird]

Okay. Then I guess my last one, because you're growing all the high-tech businesses so fast, the 26% organic growth year-to-date that you called out in the release. Obviously, the intangible amortization that's been weighing on the Manufacturing & Distribution segment, but, I guess maybe it's a question for David. But can you remind us what's the bridge, the intangible for this year, and then how much of that falls off next year, given that that's such a high margin segment?

[David Orr, EVP and CFO at ABM Industries]

Yeah, we had about $12 million allocated to this year for the intangibles. For next year, we'll have some modest fall off of that next year. But I think what I'm most excited about, ultimately, about WGNSTAR is, you may recall, we guided to roughly $120 million-$130 million of annualized revenue for WGNSTAR. They're tracking well above that now, and we see that kind of growth rate continuing into next year. The good news is, an enhanced growth rate will help us continue to outgrow the amortization expense.

[Scott Salmirs, President and CEO at ABM Industries]

Yeah I would also point out that we've already had two or three cross-sells in such a short period of time, which is really part of the thesis of this. And you heard in my prepared remarks of how inside that bull's eye of the fab and outside. Now, when you think about that and you say that, ABM has about 50 semiconductor clients that we were dealing with prior to WGNSTAR. WGNSTAR has 30+ clients. To be able to start cross-selling this, we're just seeing the start of it, but it's really positive.

[Justin Hauke, Analyst at Robert W. Baird]

Yeah. Cool. Thank you very much, guys.

[Scott Salmirs, President and CEO at ABM Industries]

Thank you.

[David Orr, EVP and CFO at ABM Industries]

Thanks.

[Operator]

The next questions are from the line of Faiza Alwy with Deutsche Bank. Please proceed with your questions.

[Faiza Alwy, Analyst at Deutsche Bank]

Yes, hi. Thank you. Scott, I want to follow up on the high growth end market. I know you've mentioned that there's a blend of project and recurring revenue. I'm curious if you could expand on that. How much of your revenues are recurring, and is there a way to shift more of it to recurring? I guess I'm curious under what circumstances is it project-based versus recurring?

[Scott Salmirs, President and CEO at ABM Industries]

Yeah. The goal is to make it more recurring, and kind of what that means on the most basic level is you do a project, and instead of walking away, you get a maintenance contract where you stay a client for the long term, and then hopefully, not only are you getting that revenue, but as other projects come up, you're right in the sweet spot for that. So, that's a big focus of ours in the whole ATS area is how do we, over time, blend the mix to be more recurring revenue?

[David Orr, EVP and CFO at ABM Industries]

Yeah. And Faiza, this is David. I would say right now, roughly 15%-20% of that revenue is on a project basis, which is still great for us because it means we're staying really connected with the client at good margins. As Scott mentioned, over time, we'd like to turn that to recurring business, longer term contracts. But make no mistake, having a line of sight into this project work and this space is really important for us.

[Faiza Alwy, Analyst at Deutsche Bank]

All right, great. That's very helpful. Just on the, you have strong cash flow improvement this year. I'm curious if you have, I know it's early and you're not giving a 2027 guide or anything like that, but David, as you look at kind of where we are, how should we think about cash flow in 2027? Are there any sort of big expense items or anything else that we should keep in mind?

[David Orr, EVP and CFO at ABM Industries]

No big expense items out of the ordinary, I would say. Obviously, as I mentioned earlier, we're very, very pleased with our performance year to date on cash flow. When I step back and think about it, we've funded a roughly $250 million acquisition, and within the last nine months, used $100 million of our capital to buy back shares and had $51 million of dividends. All the meanwhile, driving below 3x levered at the end of the day. So we're excited about that, and I don't think there'd be any surprises next year relative to cash flow, but we'll look forward to come back and talk to you about that in December.

[Faiza Alwy, Analyst at Deutsche Bank]

All right, sounds good. Thank you.

[Scott Salmirs, President and CEO at ABM Industries]

Thank you.

[Operator]

The next question is from the line of David Silver with Freedom Capital Markets. Please proceed with your questions.

[David Silver, Analyst at Freedom Capital Markets]

Yeah. Hi, good morning. Thank you. I guess the first question I would like to go back to slide six and your discussion of your opportunities in technology. In particular, I wanted to focus on the data center panel. In my view, that's an area where there's a tremendous amount of growth or build-out that's going to occur over the next handful of years. From your perspective, Scott, maybe two questions. One is, have you been bidding for business for data centers that are kind of under construction, or what is the cadence on contract, your pursuit of contracts, and when they get awarded. Then secondly, taking up your analogy of the bullseye and the target and everything. Is Quality Uptime kind of, in some sense, your path to getting inside the bullseye of the more significant data center projects?

[David Silver, Analyst at Freedom Capital Markets]

If that's the case, can you expand that geographically, organically, or is this the case where you're going to be looking for maybe similar service companies in targeted geographies? Thank you.

[Scott Salmirs, President and CEO at ABM Industries]

Sure. As it relates to the data center question first, we have been doing a lot of mining in that area, and we're bringing on sales assets for that, too. I think I even said in my prepared remarks that the 8% organic, I don't believe it's reflective of what we see over the next two or three years. In fact, our pipeline right now is a multiple of where it was at this time last year. So we're really optimistic that will be, over time, very healthy double-digit growth in data centers. Then with Quality Uptime, that's largely UPS power, which I think I've said this before on the call, but think of that as the transition between the power going out and the generator starting or the microgrid starting up. You would need these UPS batteries to transition through.

[Scott Salmirs, President and CEO at ABM Industries]

The way to think about Quality Uptime, it is just a big piece of the puzzle. It is a really important part as we go selling to data centers, as we go selling to big retailers. Anyone who is looking for power generation is also going to be looking for UPS power for the transition. Quality Uptime is very important to the piece, to the puzzle. From our perspective, it was a very strategic acquisition for us.

[David Orr, EVP and CFO at ABM Industries]

David, I would add, from a pipeline perspective, really the co-locators are our main target in the data center space. That is where we see the fastest and most robust part of our pipeline growing here near term.

[David Silver, Analyst at Freedom Capital Markets]

Okay, great. Thank you very much. If you do not mind, I would like to swing over to some of your comments about, I guess over the last couple quarters, but about just developments in the California market in particular or maybe the West Coast. But really California, it is kind of a foundational business for your company. Not too long ago, you did do the big Able Services acquisition. Certainly there is a lot of headlines about business trends in that area, in that geography. Just from a big picture perspective, Scott, what are the keys to kind of optimizing what you are doing in that geography here? Are the pressures more on the integrated services side, or is it more just standard B&I? Where do you think the opportunities are when the dust settles a little from the

[Scott Salmirs, President and CEO at ABM Industries]

Yeah

[David Silver, Analyst at Freedom Capital Markets]

the current trends you are seeing? Thank you.

[Scott Salmirs, President and CEO at ABM Industries]

Yeah, that's a good question. I'm glad you brought that up because I want to make sure it's clear that this isn't what we view as a systemic problem. It's really now migrated to Northern California. We had pressures early in the year on Southern California. That's stabilized. That's behind us now. In Northern California, it's part of a trend right now. Even though there's strong growth in that market from AI, it's not a people-heavy business. As we go through those spaces, there's still a lot of work from home. What's ended up happening, which is a unique thing right now, and it started in Southern California, now NorCal, which is the competitors are just pricing at places that we're just not willing to work at.

[Scott Salmirs, President and CEO at ABM Industries]

This has been a theme, David, as you know, over the last decade about ABM not wanting to work for free, right. We think this is not systemic. We think you'll see this reverse. If the trend of what happened in Southern California holds in NorCal, by mid-next year, we think a lot of this will be behind us. The proof in the pudding on this is you look at B&I and our margins are up 30 basis points. Sequentially from quarter over quarter. So we're heading in the right direction. We're making the right decisions and we talk internally about no regret decisions, and this falls into it. Again, not systemic.

[David Silver, Analyst at Freedom Capital Markets]

Thank you.

[Operator]

The next question is from the line of Brianna Camden with UBS. Please proceed with your questions.

[Brianna Camden, Analyst at UBS]

Hey, good morning, Scott and David. This is Brianna Camden in for Josh Chan. Thanks for taking my questions. On the outlook, can you maybe talk through why EPS midpoint is higher if margins are lower and most of the other items stay the same?

[David Orr, EVP and CFO at ABM Industries]

Yeah, sure. I think it just reflects where we are nine months through the year. We have good line of sight on what we think the revenue's going to be for the full year. And we have a very prescriptive approach to margins in our forecast. I think you could expect margins north of 8% in the fourth quarter, and that tracks to basically what we did last year at 8.2%. And as you know, Q4 has just been historically very seasonally strong quarter for us. So it gives us that confidence.

[Brianna Camden, Analyst at UBS]

Thank you. Can you touch a bit more on confidence around the margin ramp in Q4, and then maybe, I know there's no guide for next fiscal year, but how should that accelerate in Q4 and going forward? Thank you.

[David Orr, EVP and CFO at ABM Industries]

Yes. I think the biggest margin accelerator in Q4, which has been very, again, historically consistent, is the ATS business has done anywhere between 11% and 13% operating profit margin for the last two core fours in 2024 and 2025. We don't see this year being any different. In fact, we're really encouraged by the health of the backlog and what we're seeing as an early start within the quarter. So that's the single biggest driver.

[Brianna Camden, Analyst at UBS]

Thank you.

[Operator]

The next question is in the line of Marc Riddick with Sidoti & Company. Please proceed with your question.

[Marc Riddick, Analyst at Sidoti & Company]

Hey, good morning.

[Scott Salmirs, President and CEO at ABM Industries]

Morning, Marc.

[Marc Riddick, Analyst at Sidoti & Company]

Wanted to touch on some thoughts as to the pricing dynamic that you're seeing in some of the key service areas and visibility there, because it seems as though there's some crystallization that's beginning to form. Maybe you could talk a little bit about your comfort level as far as pricing and as well as the revenue mix benefit on that. Then I have a quick follow-up.

[Scott Salmirs, President and CEO at ABM Industries]

Yeah. We're real positive on our pricing approach here. For medium-sized to large contracts, we have a pricing council that goes through, and we have hurdle rates that you have to hit. That's been super helpful in terms of discipline. Escalations, really important part of our mix on pricing. We have to go out there every year and get wage escalations, and you know that's always been a historic strong point for ABM, even in times when there was significant labor pressure. So it's a muscle strength we've built. We don't think there's anything dynamic happening in the market that's going to hurt us from a pricing standpoint. If anything, I think we've just gotten stronger and disciplined year over year after year. So feel really good about that.

[Marc Riddick, Analyst at Sidoti & Company]

Great. Then shifting gears over to Aviation. I really appreciated the commentary as far as the airport airline and what's going on with the airlines. Maybe talk a little bit about that mix shift that you've accomplished over the years and sort of maybe where you see that maybe settling out. What's sort of a reasonable. We're at 60/40, I guess now with airports and airlines. Maybe we could talk a little bit about what might be a reasonable target or view and maybe the kind of timeframe that you might have in mind there.

[Scott Salmirs, President and CEO at ABM Industries]

Yeah. It's kind of hard to predict, to be honest with you. I know our focus is on that, and if it landed three to five years from now at 70/30, I think we'd all be happy with that. I think it's not necessarily even a reflection that we think the airlines are going to be weaker. I think there's going to be so much infrastructure going on in airports. I think there's going to be an opportunity as airports upgrade around the country, that they're going to want more enhanced services, and they're going to want the kind of service that we perform at LaGuardia, which we've talked about, where we're kind of an integrated approach. So 70/30 is not necessarily scientific. It's just kind of a sentiment that we're thinking over time. There's a lot that can happen in that industry.

[Scott Salmirs, President and CEO at ABM Industries]

But we love the way we've been heading.

[Marc Riddick, Analyst at Sidoti & Company]

Great. Thank you very much.

[Scott Salmirs, President and CEO at ABM Industries]

Thanks.

[Operator]

The next questions are from the line of Tate Sullivan with Maxim Group. Please proceed with your questions.

[Tate Sullivan, Analyst at Maxim Group]

Thank you very much. A couple follow-ups. Scott, in the prepared remarks, you mentioned an award for the microgrid work for the U.S. Army Corps of Engineers. Is that a longtime customer of ABM's? Is it related to an acquisition? I think you had a previous announcement with them, but just checking, please.

[Scott Salmirs, President and CEO at ABM Industries]

Yeah. They're not a long-term client for us, which is even more exciting, actually. It's part of a joint venture that we went in to pitch this with another company. We're a component part of this, but it's really thrilling because the provider picked us to partner with because of the work that we do in microgrids. As you can imagine with the U.S. Army Corps of Engineers, we think there is a big addressable market within the government on these types of projects. Hopefully this is the beginning of a really healthy future over time.

[Tate Sullivan, Analyst at Maxim Group]

Great. Thank you. A follow-up on Aviation. You mentioned cost relief from the customers or seeking cost, but the revenue growth has been double digits the last three quarters. Are you continuing to see good traffic in the airports you work in?

[Scott Salmirs, President and CEO at ABM Industries]

Yeah. The pipeline's strong. Whether or not it'll be double digit, we'll do more when we talk to you in Q4 as we shape up and look at the pipeline. But we feel really good about that segment. It's been a good performer. We're in this mode now with fuel costs and some of the pressures on airline profitability that hopefully what's going to inure to our benefit is that we've been really good strategic partners, and we've made the concessions that we needed to make to kind of stabilize and hopefully grow those longer-term relationships. It's things that you do in the airline industry when they go through these cycles, and we've all seen them before. Yeah. It's nothing, again, that is troubling to us over the long term.

[David Orr, EVP and CFO at ABM Industries]

Yeah. Tate, I would add, too, obviously, a good chunk of the revenue growth in Aviation is the start-up of the Heathrow contract in the U.K., which has been very successful for us. As Scott said, we're just really happy with the growth profile there, and we'll continue to manage the operational challenges.

[Tate Sullivan, Analyst at Maxim Group]

Thank you. Just on that, you mentioned Heathrow. Can you comment on your international mix with the U.K. after the U.K. client exit that you mentioned, return to organic growth in B&I with Heathrow, or can you quantify the international contribution?

[David Orr, EVP and CFO at ABM Industries]

Yeah. I would say it hasn't actually changed a whole lot. The loss of the TfL contract is a pretty good balance with the win of the Heathrow contract. So all in all, not a big mix change, but if you do look at the U.K. markets specific to itself, we are seeing some healthy growth rates over there, and we're continuing to invest in that team. The team's doing a great job of driving growth and profitability. So a great market for us.

[Tate Sullivan, Analyst at Maxim Group]

Okay. Thank you.

[Operator]

Thank you. At this time, I'll turn the floor back to Scott for final comments.

[Scott Salmirs, President and CEO at ABM Industries]

Well, thanks, everybody, for joining in. Hope you have a happy fall. Everyone's back to work now. Summer's over, and we will see you in Q4 with our results and our full year guide for 2027. Thanks, everybody.

[Operator]

Thank you. This will conclude today's.

Participants

Executives

• Paul Goldberg, SVP of Investor Relations
• Scott Salmirs, President and CEO
• David Orr, EVP and CFO

Analysts

• Tim Mulrooney, Analyst at William Blair
• Justin Hauke, Analyst at Robert W. Baird
• Faiza Alwy, Analyst at Deutsche Bank
• David Silver, Analyst at Freedom Capital Markets
• Brianna Camden, Analyst at UBS
• Marc Riddick, Analyst at Sidoti & Company
• Tate Sullivan, Analyst at Maxim Group