Abm Industries Incorporated · NYSE:ABM
Abm Industries — Investor Day (October 2015)
88 slides from Abm Industries's investor day presentation, Oct 28, 2015
Slide 1: Welcome & Agenda
Welcome & Agenda October 28, 2015 Investor Day
Slide 2: 2015 Investor Day Agenda
2015 Investor Day Agenda 2 Time Speaker & Topic 9:00 a.m. David Farwell , SVP Investor Relations Introductions and Agenda 9:10 a.m. Scott Salmirs , President and CEO, ABM The ABM Journey and 2020 Vision 9:50 a.m. Tom Marano , President, Air Serv Establishing an Enterprise - wide Vertical Market Syst
Slide 3: Forward-Looking Statements and Non-GAAP Financial Information
Forward - Looking Statements and Non - GAAP Financial Information Forward - Looking Statements • Discussions during our Investor Day presentations will include forward - looking statements about, among other things, our anticipated future operating and financial performance, expected growth and bene
Slide 4: Scott Salmirs, President and Chief Executive Officer
Scott Salmirs President and Chief Executive Officer 4
Slide 5: 2015 Investor Day Agenda
2015 Investor Day Agenda 5 Speaker & Topic Scott Salmirs , President and CEO The ABM Journey and 2020 Vision Tom Marano , President Air Serv Establishing an Enterprise - wide Vertical Market System Scott Giacobbe , President ABM Building & Energy Solutions Building Value Across Verticals Jim McClure
Slide 6: International
300+ US. & International <~ Locations sacmen | Zina ABM. a SB
Slide 7: Strong Client Base
Strong Client Base . . A Lax B USA. Eg? Los Angeles World Airports HARLEY-DAVIDSON TIAA randsMart LE [ a / JL Heathrow @) JLL Comell University ‘yp Regional West ah Services Making every journey better The \/, arena TO Google , XY 2 ——- Ouse American Airlines “@ Brookfield wricut stare Ox Center GIA
Slide 8: Adapting Through Change
Adapting Through Change 8 2007 2010 2014 2015 2008 Great Recession ABM Names Industry Veteran Scott Salmirs as Next CEO Onsite Reorganization 2013 2012
Slide 9: International
300+ US. & International <~ Locations sacmen | Zina ABM. a SB
Slide 10: Revenue and Adjusted EBITDA 2010–2015 Est.
Revenue and Adjusted EBITDA 2010 – 2015 Est. $3,496 $4,247 $4,300 $4,809 $5,033 $5,200+ 2010 2011 2012 2013 2014 2015 Est. Adj. EBITDA Margin Flat Adjusted EBITDA Margin of ~4% 10
Slide 11: Competitive Landscape
Competitive Landscape 2 WAKEFIELD ity CUSHMAN & Building Value
Slide 12: Strategic Review
Strategic Review Market / competitor analysis across industries and service lines Org design workshops to understand structure feasibility and implications Industry expert interviews to assess trends, implications Robust project - level economic model to assess "true" profitability Client interviews
Slide 13: Common Themes from Clients and Employees
Common Themes from Clients and Employees 13 • Focus and clarity • C onsistency and quality service • Engaged and well - trained employees • Effective use of technology • Client - centricity • Act as "one" enterprise
Slide 14: Choosing Our Verticals and Services
Choosing Our Verticals and Services 14
Slide 15: A Comprehensive Assessment
A C omprehensive Assessment 15 Above average Around average Below average LEGEND Overall Margin accretive Market growth/size Outsourcing growth potential Opportunity for scale advantage Competitive positioning Capabilities needed to win Aviation Healthcare Education High Tech Industrial & Manuf. Com
Slide 16: Current Organizational Structure
Current Organizational Structure 16 Onsite BESG AirServ Multiple Service Lines ABES (Technical Services) BESG Govt. BESG Healthcare MW NE W SC MW NE W SC
Slide 17: Vertical Operating Model
Vertical Operating Model ABES ( T echnical Services ) Shared Services, Support Functions 17
Slide 18: Realizing the Vision
Realizing the Vision @ ABM. Building Value 2020 Vision OO — —E_E—_—-"”"—<—i—CC VV
Slide 19: Comprehensive Transformation Strategy
Organizational realignment Integrated vertical focus Comprehensive Transformation S trategy 19 1
Slide 20: Integrated Vertical Focus
Integrated Vertical Focus 20 ABES ( T echnical Services ) Shared Services, Support Functions
Slide 21: Customer Alignment
Customer Alignment BrandsMart USA. it Nnrow @) . Heathrow JLL The \/, arena American Airlines “¢_ Brookfield CommonWealth John F. Kennedy partners ® NEw ORLEANS SAINTS Docges ‘WRIGHT STATE @ a A LAX 62 i : ZF. os Angeles World Airports HARLEY-DAVIDSON ae Regional West Goog le nell University Coane U
Slide 22: Customer Alignment
Customer Alignment Aviation Building & Industry Education Healthcare High - Tech 22
Slide 23: Comprehensive Transformation Strategy
Consistent excellence Operational improvements Comprehensive Transformation S trategy 23 Organizational realignment Integrated vertical focus 1 2
Slide 24: Operational Improvements
Operational Improvements 24 Account management • Robust account planning process to drive higher client retention and profitable growth • Improved client mix , with emphasis on high - margin accounts • Aligned incentives to ensure focus on inputs (key metrics) and outputs (financials) Labor manageme
Slide 25: Comprehensive Transformation Strategy: Cost Optimization
Cost optimization Effective cost management Comprehensive Transformation S trategy 25 Consistent excellence Operational improvements Organizational realignment Integrated vertical focus 1 2 3
Slide 26: Effective Cost Management
Effective Cost Management Enterprise - wide Procurement Materials and supplies Sub - contracted services Equipment 26
Slide 27: Three-Phased Approach
Three - Phased Approach • Organizational design & realignment • Shared services enablement • Operational structure improvement • Vertical acceleration initiation • Strategic alternatives (Security) • Vertical acceleration planning • Sales training & enablement • Vertical marketing enhancement • Acco
Slide 28: A Solution-Driven Company
A Solution - Driven Company 28
Slide 29: Establishing an Enterprise-wide Vertical Market System
Establishing an Enterprise - wide Vertical Market System Tom Marano President, Air Serv 29
Slide 30: Establishing an Enterprise-Wide Vertical Market System
Establishing an Enterprise - Wide Vertical Market System 30
Slide 31: Vertical Markets Solution Capabilities in Place
Onsite BESG AirServ Multiple Service Lines ABES (Technical Services) BESG Govt. BESG Healthcare MW NE W SC Vertical Markets Solution Capabilities in Place • 3 years experience in Aviation and Healthcare • Strong growth results – Process is Working • Proven the customer - centric business model drive
Slide 32: Delivering Customer-Centric Vertical Solutions
Delivering Customer - Centric Vertical Solutions 32 Customer segments where we can leverage our capabilities ✓ Deliver a compelling “value proposition for target markets” - SOLUTIONS ✓ Sell at the strategic level – move from supply chain to value chain ✓ Build relations that strengthen customer loya
Slide 33: Value Proposition By Stakeholder: Building Value
Value Proposition By Stakeholder: Building Value Shareholders Customers Employees • Consistent customer experience • Single point of contact • Industry - focused solutions • Multi - service portfolio • Improved brand image • Improved employee engagement • Increased career advancement opportunities •
Slide 34: Market Prioritization
Market Prioritization Support for 4 Stand - Alone Verticals 34 Executed a comprehensive assessment of key industries and services line to select markets
Slide 35: Market Prioritization Criteria
Market Prioritization Criteria 35 Margin accretive 100+ bps > ABM avg. +/ - 75 bps vs. avg. Market size Market growth >$10B >10% ~$5 - 10B ~3 - 10% Outsourcing growth potential Significant growth Moderate growth Opportunity for scale advantage ~$1.5M+ / Site (and/or) High Geo Density ~$1.0 - 1.5M /
Slide 36: Aviation
Aviation Leverage Air Serv's Strong P osition to Grow Revenue, Margin; Opportunity to Integrate Onsite Overall assessment Integrate legacy OnSite aviation and apply legacy AirServ model Margin accretive Margin differential (legacy AirServ advantaged) drives overall opportunity Market size and growth
Slide 37: Healthcare
Overall assessment Prioritize and position for growth Margin accretive Margin potential high Market size and growth Large (~$15 - 20B+) and growing market Outsourcing growth potential Relatively low outsourcing penetration (~20 - 40%), but growing Opportunity for scale advantage Relatively high reve
Slide 38: Education
Overall assessment Create stand alone vertical and position for growth Margin accretive Margins above enterprise average Market size and growth Large (~$15B+) and growing market Outsourcing growth potential Relatively low outsourcing penetration (~10 - 30%), but growing Opportunity for scale advanta
Slide 39: High Tech
Overall assessment Create stand alone vertical and position for growth Margin accretive Margins above enterprise average Market size and growth Moderate market size (~$3 - 5B), but with strong growth Outsourcing growth potential Moderate outsourcing penetration today (~40 - 60%) Opportunity for scal
Slide 40: ABM Aviation: Positioned to Win
ABM Aviation: Positioned to Win
Slide 41: Aviation Strategic Flight Plan
Aviation Strategic “Flight Plan” – Build Value 41 OUR PURPOSE T o create sustainable value for our customers OUR STRATEGY Leverage integrated aviation and facilities services portfolio to airlines and airports OUR BUSINESS MODEL Technology - driven , end - to - end i ntegrated a viation and faciliti
Slide 42: Aviation Ecosystem
Aviation Ecosystem Providing End - to - End Solutions through ABM Aviation 42
Slide 43: Aviation Served by Air Serv and OnSite Today
Aviation Served by Air Serv and OnSite Today In FY14, Air Serv had ~$370M revenue In FY14, Onsite aviation had ~$370M revenue 43 * * Includes management reimbursement
Slide 44: Domestic Growth Case Study – Atlanta
Domestic Growth Case Study – Atlanta FY2010A FY2014 Starting with a single $4 million fixed route bus operation in 2002, Air Serv has transformed the Atlanta market into a dense, multi - service, multi - customer growth business Business Mix FY2002A ~$4 million ~$45 million ~$85 million Driven by wo
Slide 45: Operational Synergy
Operational Synergy Leverage Density for Growth Operating Margin Industry Multiple Aviation Services Janitorial Passenger Transportation Parking Electrical Power Energy Value Migration Brand Value 3% 4% 5% 6% 7% 45 Engineering
Slide 46: Vertical Markets Summary
Vertical Markets Summary 46 Our system works, it will improve Well positioned to “win” Value is in the verticals
Slide 47: ABM Building & Energy Solutions
ABM Building & Energy Solutions Scott Giacobbe President, ABM Building & Energy 47
Slide 48: Leveraging Opportunities
Leveraging Opportunities ABES (Technical S ervices ) 48
Slide 49: Mechanical & Energy
Mechanical & Energy ABM Building Solutions ABM Building Services 33 Offices ABM Electrical Power Solutions / ABM Electrical & Lighting Solutions ABM Franchising Group • 2,000+ Buildings • Acceptance Testing and Commissioning • Preventive & Proactive Maintenance • Power Quality Solutions • Safety & T
Slide 50: ABM Franchise Network in Action
ABM Franchise Network in Action 50 BMW i8
Slide 51: Educational Institutions Projects
Wright State University Ohio $36.4M in Project Value Phase I & II • Projected $50.9M in operational and energy savings • 1 st year audit exceeded guarantee providing $1.8M in savings • 2 million square feet, 557 - acre campus • 56 different energy conservation measures Colquitt County Schools Georgi
Slide 52: Healthcare and High Tech Projects
Arnot Ogden Medical Center New York $8M in Project Value • Expected to reduce annual energy use by an estimated 20 % • Projected $14.5M in operational and energy savings • Major enhancements to central plant including installation of new boilers and chillers and modifications to existing energy cont
Slide 53: ABM Building & Energy Solutions Technical Services
ABM Building & Energy Solutions (ABES ) Technical Services 53 HVAC Mechanical and Electrical Services Preventive & Proactive Maintenance of Electrical & Lighting Systems Preventive & Proactive HVAC Maintenance Electrical Acceptance Testing 135 Linc Locations 75 TEGG Locations in 18 Countries Proven
Slide 54: The Process of Transformation
The Process of Transformation Jim McClure EVP and President, Onsite Services 54
Slide 55: Transformation to a Vertical Operating Model
Transformation to a V ertical O perating M odel 55
Slide 56: Managing the Transformation Process
Managing the Transformation P rocess 1. Running the "day to day" business 2. Leading the transformation 3. Managing the change 56
Slide 57: Transformation to a Vertical Operating Model
Transformation to a V ertical O perating M odel Current: Services - led business Future: Solution - driven company 57 ABES ( T echnical Services ) Shared Services, Support Functions
Slide 58: Structuring the Transformation Team
Structuring the Transformation Team 1 Optimizing the Organization • Full "blank sheet" design, talent selection and process redesign Commercial Operations Support Functions Shared Services Team 2 Vertical Acceleration • Vertical strategy and operational plan development and execution ( for high - pr
Slide 59: Timeline
Timeline 2015 2016 2017 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr M&A, UK strategy, ABES strategy, comp & benefits, employee onboarding, business intelligence, etc. Other W ork S treams (to stay coordinated with) Transformation Office & Change Management Vertica
Slide 60: Organizational Realignment
Organizational R ealignment Org Structure Branch Footprint 60 ABES ( T echnical Services ) Shared Services, Support Functions
Slide 61: Aligning the Organization to Strategy
Aligning the Organization to Strategy Lack of visibility across accounts Lack of knowledge sharing & best practices Disconnected systems & processes Isolated incentives & reward alignment Inconsistent application of Innovation Slow decision making and speed to market Current Challenges 2020 Vision F
Slide 62: Financial Impact of 2020 Vision
Financial Impact of 2020 Vision Anthony Scaglione EVP and Chief Financial Officer 62
Slide 63: Company Reaffirms Fiscal 2015 Adjusted EPS Guidance
The Company Reaffirms its Fiscal 2015 Adjusted Net Income Per Diluted Share Guidance 63 Guidance excludes the impact of the sale of our Security business Security business will be reported as discontinued operations in our consolidated financial statements for the fiscal years 2015, 2014 and 2013
Slide 64: Sale of Security
Sale of Security 64 Financials*: Revenue ~$400M Operating Profit ~$12M Depreciation & Amortization ~$1M EBITDA ~$13M Transaction: Multiple 10x+ Sale Price $131M Book & Tax Value ~$86M Cash Proceeds Net of Taxes ~$110M *Financials are trailing twelve months (TTM )
Slide 65: Finance Transformation
Build Competitive Cost Structure Foster Capital Stewardship Partner with Business Leaders Optimize Shared Services Finance Transformation 65
Slide 66: Financial Impact of 2020 Vision: Revenue & Margin
66 Financial Impact of 2020 Vision Where We’ve Been Revenue & Margin Low Single Digit Organic Growth Largely Supported by M&A Flat Adj. EBITDA Margin Where We’re Going Revenue & Margin Targeted Profitable Organic Growth Accelerated by Vertical Alignment and M&A +100 bps Adj. EBITDA Margin by FY18
Slide 67: Historical Revenue Growth Buoyed by M&A
67 Air Serv HHA Linc Group GBM Services Key Acquisitions Historical Revenue Growth H as B een Buoyed by M&A Flat Adj. EBITDA Margin of ~4.0%
Slide 68: Vertical Recast 2015 Est.
~$3.1B ~$1.4B ~$0.4B ~$0.3B 68 Vertical Recast 2015 est. ~$5.2B ABES (Technical S ervices) Stand - Alone Verticals Business & Industry Vertical Total Revenue Security
Slide 69: Vertical Acceleration Revenue Outlook
~$3.5B ~$3.3B ~$1.7B ~$3.1B ~$1.4B ~$0.4B ~$0.3B ~$0.4B 69 Vertical Acceleration ~$5.4B 2018 est. 2015 est. ~$6.0B ~$0.5B ~$2.0B 2020 est. ABES (Technical S ervices) Stand - Alone Verticals Business & Industry Vertical Total Revenue Security ~$5.2B
Slide 70: Margin Trajectory
~$1.7B 70 Margin Trajectory ~$5.4B 2018 est. 2015 est. ~$6.0B 2020 est. +90 - 110 bps Adj. EBITDA Margin Continued Adj. EBITDA Margin Accretion ~4% Baseline Adj. EBITDA Margin ~$ 4 .8B
Slide 71: Financial Impact of 2020 Vision: Capital Allocation
71 Financial Impact of 2020 Vision Where We’ve Been Capital Allocation Strong Cash Flow Consistent Dividend Policy Inconsistent Share Repurchase Activity Service Line Focused M&A Historical Leverage Base of 2.0x Where We’re Going Revenue & Margin Low Single Digit Organic Growth Largely Supported by
Slide 72: A More Disciplined Capital Allocation Framework
A More D isciplined C apital A llocation F ramework 72 Optimize Capital Structure Strong Balance Sheet Shareholder Return M&A
Slide 73: A More Disciplined Capital Allocation Framework
Optimize Capital Structure Strong Balance Sheet Shareholder Return M&A A More D isciplined C apital A llocation F ramework 73 ▪ M&A strategy that will create value and generate growth ▪ D eals prioritized that are vertically focused and/or enhance existing service lines Capital available for M&A ▪ S
Slide 74: Leverage Profile
Leverage Profile 74 Note: Does not include impact from the sale of Security or potential M&A/investments Leverage Target 2.5x FY11 FY12 FY13 FY14 FY15 FY16 (in millions) Total Indebtedness (Incl. LC’s) Leverage Historical T arget L everage – 2.0x Revised Target Leverage – 2.5x
Slide 75: A Balanced Approach to Shareholder Return
A Balanced A pproach to Shareholder R eturn 75 *Assumes board approval Note: Does not include impact from the sale of Security or potential M&A / investments that could alter share repurchase strategy *
Slide 76: Financial Impact of 2020 Vision
76 Financial Impact of 2020 Vision Where We’ve Been Where We’re Going Revenue & Margin Low Single Digit Organic Growth Largely Supported by M&A Flat Adj . EBITDA Margin Capital Allocation Strong Cash Flow Consistent Dividend Policy Inconsistent Share Repurchase Activity Service Line Focused M&A Hist
Slide 77: ABM Insurance Factoids
77 CLAIMS 5,000 320 1988 460 250 Number of Claims in “Open” Inventory Average Number of Days to Close a WC Claim Average Number of Days for “First Notice” of GL Claim Policy Year of Oldest Claim in Open Inventory Average Number of Days to Close a GL Claim E XPOSURES 118K $5.2B 4,300 Total Revenue: G
Slide 78: TCOR Drivers and Self Insurance Program
78 TCOR (Total Cost of Risk) Drivers *$1m Self I nsurance R etention Exposures (Revenue, Payroll, And Vehicles) Medical Inflation Wage Inflation Benefit Level Creep A CTUARIAL A SSUMPTIONS /P ROCESS A ND S AFETY /R ISK I NITIATIVES Contractual Indemnity Excess Premium Expense Denotes item with Exter
Slide 79: Insurance Impact to Financial Results
79 Denotes item with External Force influences Insurance Impact to Financial Results * Self insurance retention amount for the majority of our insurance programs Adj. EBITDA Impact FY15 (~25 - 30 bps) FY16 (~30 - 35 bps) Legal Expense and Strategy Retained Claim Costs (Frequency and Severity)
Slide 80: Key Risk and Safety Levers for 2020 Vision
80 Measurable Accountability • Enhanced accountability program for WC; new programs for GL and AL • P ortion of incentive compensation Safety and Risk performance “True Cost” Model • Conservative methodology based on recent “actual” trends • Rates borne by the business reflect updated loss experienc
Slide 81: Financial Impact of 2020 Vision
81 Financial Impact of 2020 Vision Where We’ve Been Where We’re Going Continuous Improvement Onsite Reorg Savings Reinvested With No Meaningful Bottom Line Impact Disparate Compensation Plans Continuous Improvement 2020 Vision Will Drive Sustainable EBITDA Growth Improve and Enhance O perational Cap
Slide 82: Full Run Rate of $40m-$50m in Savings in FY17
Full Run R ate of $40m - $50m in Savings in FY17 82 Costs Severance Consultant’s Fees IT Infrastructure Real Estate Savings/Growth Reorganization Managing Labor Costs Procurement Process Vertical Acceleration Account Planning $40m - $50m Run Rate Savings by 2H FY17 Savings/Growth $10m - $20m $35m -
Slide 83: Increase in Higher Margin Vertically Focused Revenue
83 Increase in Higher Margin Vertically Focused Revenue $45m - $60m Costs Incurred by 1H FY17 +90 - 110 bps EBITDA Margin Growth by FY18 $40m - $50m Run Rate Savings by 2H FY17 Strong Cash Flow Optimized Capital Structure Cultural Shift in Safety and Risk Disciplined Approach to Shareholder Returns
Slide 84: Q&A
Q&A 84
Slide 85: Appendix - Unaudited Reconciliation of non-GAAP Financial Measures
Appendix - Unaudited Reconciliation of non - GAAP Financial Measures 85
Slide 86: Unaudited Reconciliation of non-GAAP Financial Measures
Unaudited Reconciliation of non - GAAP Financial Measures 86
Slide 87: Unaudited Reconciliation of non-GAAP Financial Measures
Unaudited Reconciliation of non - GAAP Financial Measures 87
Slide 88: 88
88