ABM Industries, Inc. (ABM) Q4 2021 Earnings Call Transcript

ABM Industries, Inc. (NYSE: ABM) Q4 2021 earnings call dated Dec. 15, 2021

Corporate Participants:

Paul Goldberg — Senior Vice President, Investor Relations

Scott Salmirs — President and Chief Executive Officer

Earl Ellis — Executive Vice President and Chief Financial Officer

Josh Feinberg — Executive Vice President and Chief Strategy and Transformation Officer

Rene Jacobsen — Executive Vice President and Chief Operating Officer

Raul Valentin — Executive Vice President and Chief Human Resources Officer

Melanie Kirkwood Ruiz — Chief Information Officer

Analysts:

Tim Mulrooney — William Blair — Analyst

Andrew Wittmann — Robert W. Baird & Co., Inc. — Analyst

Tate Sullivan — Maxim Group — Analyst

Sean Eastman — KeyBanc Capital Markets — Analyst

David Silver — CL King & Associates, Inc. — Analyst

Marc Riddick — Sidoti — Analyst

Presentation:

Paul Goldberg — Senior Vice President, Investor Relations

[Starts abruptly]

With me today are Scott Salmirs, our President and Chief Executive Officer; Earl Ellis, our Executive Vice President and Chief Financial Officer; as well as other members of our executive leadership team, whom you will meet later during the Investor Day portion of today’s program. We are all very pleased you have joined us this morning.

Please note that earlier this morning, we issued our press release announcing our fourth quarter and full year fiscal 2021 financial results as well as details about the elevated initiatives we are undertaking. A copy of this release and an accompanying slide presentation can be found on our website abm.com.

Regarding today’s program, we will first review our fourth quarter and full fiscal year 2021 financial and operating results. After that, we will take a short break, we will then begin the Investor Day portion of the program where we will provide an update on our strategic positioning, discuss our newly announced Elevate initiative and provide a multi-year outlook. After that, we will host a Q&A session. Instructions on how to submit a question will be provided at the end of our prepared remarks.

Before we begin, I would like to remind you that our webcast 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 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 on the company’s website under the Investor tab.

And with that, I would like to now turn the webcast over to Scott.

Scott Salmirs — President and Chief Executive Officer

Thanks, Paul. Good morning, and thank you all for joining us today to discuss our fourth quarter and fiscal 2021 results. Following our comments, we are hosting a virtual Investor Day, where we will provide a long-range strategic update and financial outlook, including a comprehensive discussion of our Elevate investment initiative. I hope everyone can join us for that part of the webcast and we look forward to speaking with you and answering your questions.

Fiscal 2021 was an exceptional year for ABM, highlighted by continued strong financial performance and the acquisition of Able Services, a key transaction that substantially expanded our geographic footprint and broadened our capabilities. Throughout the year, our global team continued to execute at the highest level, successfully navigating a dynamic environment with agility, resiliency and dedication to serve our clients. Fourth quarter revenue grew over 14% to $1.7 billion and adjusted EPS increased 23%, representing a great finish to our fiscal 2021 year, where revenue of $6.2 billion was accompanied by an adjusted earnings per share increase of 47% to $3.58.

Our strong revenue growth in the fourth quarter was driven by one month of contribution from Able, as well as organic growth in our B&I, Aviation and Technical Solutions verticals, which more than offset a modest decline in our Education segment. I’m pleased with the progress we’ve made in enhancing our overall profitability as full year adjusted EBITDA margins reached a record 7.3% and fourth quarter adjusted EBITDA margins increased 40 basis points from prior year. Throughout the year, we continued to experience demand for disinfection and virus protection services as clients prioritized our EnhancedClean protocols to maintain hygiene in high traffic spaces. In addition, we continued to manage our labor cost efficiently as office occupancy trends increased gradually through the year.

As anticipated, overall demand for our higher margin work orders and EnhancedClean services eased as the year progressed, yet we maintained elevated in the fourth quarter compared to pre-pandemic levels. Going forward, we expect that ongoing concerns around COVID-19 variance will lead to incremental opportunities for our disinfection services, providing support for our adjusted EBITDA margins exceeding 6% in fiscal 2022 per our guidance.

Turning to our segment performance. Fourth quarter revenue growth was led by a continued rebound in aviation. This industry group, which was most impacted by the pandemic, generated 43% year-over-year revenue growth in the fourth quarter as air travel trends improved markedly over the prior year and we capitalized on new business opportunities, including the expansion of our parking operations at airports. Our fourth quarter was also benefited from 21% growth in Technical Solutions revenue, reflecting growth in our emerging e-mobility business and improved access to client-site. Technical Solutions backlog increased by 20% sequentially compared to the third quarter and reached a record level in the fourth quarter, driven by the transition to electric vehicles and the associated need for charging stations, our e-mobility business has significant long-term growth potential. Key growth drivers for this business include federal stimulus funds designated for energy efficient projects as well as the recent passage of the federal infrastructure bill that included $7.5 billion towards deploying EV charging stations nationwide.

Our B&I segment continued to perform well as revenue grew at a double-digit rate in the fourth quarter, benefiting from the addition of Able, new contract wins and continued client demand for work orders. While office occupancy trended higher over the past year, office occupancy levels remained low by historical standards, which should lead to a continued tailwind from labor efficiencies perspective in this segment during the first half of fiscal 2022 and possibly longer.

Turning to Education. Fourth quarter revenue and margins declined compared to the prior year. Earlier this year, we communicated that the return of students to school on a full-time basis with diminished Education segment labor efficiency, as increased staffing would be required to accommodate educational institutions reopenings in the fall. This [Indecipherable] we expected, though the unusual rapid staffing ramp combined with the state of the labor markets resulted in higher labor costs, dampening segment margins in the quarter. With this staffing increase now behind us, we believe Education segment profitability will return to more normalized levels starting in the first quarter.

I’d now like to provide some color on Elevate, our transformational investment initiatives that we will discuss in detail during our virtual Investor Day event following this call. Five years ago, we announced 2020 vision, a long-range strategic plan to drive profitable growth and shareholder value. Today, we are building on the success of that initiative with Elevate, a multi-year comprehensive investment initiatives that will enhance our strategic and competitive positioning, leverage the advantages of leading-edge technologies, inclusive of data and analytics and enable us to capture incremental growth and profit opportunities arising from macro shifts in demographics, rapidly changing workplace dynamics and the heightened need for increased corporate sustainability. Elevate will include strategic investments in revenue growth initiatives, team member development, workforce management and digital transformation. These investments will accelerate our organic growth, strengthen profitability and create a more rewarding experience for both clients and team members. The total Elevate investment is estimated to be $150 million to $175 million and the initiatives is expected to be largely completed by the end of fiscal 2025. In fiscal ’22, we expect to invest approximately $80 million in Elevate, enabling us to significantly advance the implementation of our digital transformation.

With these foundational elements in place, by the end of fiscal 2022, we anticipate lower levels of Elevate investments in subsequent years. We are excited about the opportunities that Elevate will provide and we’ll share more detail with you on this whole initiatives in a few minutes on the Investor Day portion of the program.

We are entering fiscal 2022 from a position of strength, supported by a healthy balance sheet, solid cash flow and favorable growth trends across our businesses. We continue to support our clients by providing high value services and solutions that have enabled them to navigate unprecedented challenges over the past couple of years and with the recent acquisition of Able, we significantly expanded our capabilities to comprehensively address our clients’ evolving needs across the spectrum of facilities management and engineering solutions.

Now I’d like to comment briefly on our guidance. For fiscal 2022, we forecast GAAP earnings per diluted share of $2.05 to $2.30 and adjusted EPS of $3.30 to $3.55. Within this guidance, we assume an easing of COVID related disinfection services and work orders, leading us to project fiscal ’22 adjusted EBITDA margins of 6.2% to 6.6%, inclusive of synergies from Able Services acquisition. While EPS and margins are projected to decline from fiscal 2021, they are significantly above pre-pandemic levels and above our targeted long-term metrics we outlined in 2019 when we signaled an aspirational margin range of 5.5% to 6%. We’ll provide more detail on our outlook and fiscal 2022 guidance later during our virtual Investor Day portion of the program.

I’ll now turn over the call to Earl for a discussion of our financials.

Earl Ellis — Executive Vice President and Chief Financial Officer

Thank you, Scott, and good morning, everyone. Fourth quarter revenue increased 14.2% to $1.7 billion, primarily driven by one month of contribution from the acquisition Able Services, continued client demand for disinfection services and a generally improving economic environment. GAAP income from continuing operations in the fourth quarter was $34.3 million or $0.50 per diluted share, compared to $53.1 million or $0.78 per diluted share in the same period last year. The decrease in GAAP income reflects higher operating and corporate expenses, which included acquisition related costs of $19.7 million, initial investments in our Elevate initiative and a lower benefit from self-insurance adjustments related to prior years.

On an adjusted basis, fourth quarter income from continuing operations grew 25% to $58.2 million or $0.85 per diluted share compared to $46.7 million or $0.69 per diluted share in the fourth quarter of last year. The increase in adjusted EPS reflects revenue growth and a benefit from the absence of a reserve for notes receivable related to a single project within the company’s Technical Solutions segment recorded last year, partially offset by reduced labor efficiencies and disinfection work.

Corporate expenses were $40.9 million higher compared to the fourth quarter of fiscal 2020, due to acquisition-related expenses, a lower benefit from prior year self-insurance adjustments and costs related to hiring initiatives. Corporate expenses in the fourth quarter of fiscal 2021 were also impacted by $10.3 million of initial investments in the Elevate transformation initiative that Scott mentioned, and that we will discuss more fully later on.

Now turning to our segment results in the fourth quarter. B&I revenue increased 17.5% year-over-year to $933 million, driven primarily by a one-month contribution from Able Services, increased office occupancy and the expansion of key accounts. Excluding the contribution from Able, B&I revenue increased 4.7% from the prior period. Operating profit in B&I declined 3% to $82.1 million from the same period last year, reflecting an easing in higher margin work orders.

Aviation revenue increased 43% to $201.7 million, marking the second consecutive quarter of robust year-over-year revenue growth. This improvement was driven largely by increased airline passenger volume and the expansion of our airport parking operations. Aviation operating profit increased to $13.2 million, compared to $3.5 million in last year’s fourth quarter, driven by the significant rebound in revenue as well as our efforts to emphasize higher margin airport facility services.

Revenue within our Technology & Manufacturing segment was essentially flat year-over-year at $245.5 million, as new business starts were offset by reduced client demand for COVID related work orders and EnhancedClean. However, operating margins for T&M improved to 10% in the fourth quarter, up 40 basis points from last year’s fourth quarter benefiting from efficient labor management and contract expansions.

Education revenue declined 3.7% to $204.4 million, largely reflecting the timing of contract rebids. While client retention rates remain consistent on a year-over-year basis, certain contract rebids were not completed in the fourth quarter, impacting segment revenue. Operating profit totaled $7.7 million, down from $15.1 million in last year’s fourth quarter. The decline in segment operating profit was in part due to normal seasonality. However, the magnitude of the decline this year was amplified by the widespread reopening of educational institutions that necessitated a near instantaneous ramp-up of staff, as Scott has discussed. Moving forward, we anticipate Education segment profit margins will be approximately 6% in fiscal 2022, representing an increase of more than 100 basis points compared to pre-COVID levels, resulting from a sustained uplift in labor efficiency and higher disinfection revenue.

Revenue within our Technical Solutions segment grew 21% to [Technical Issues] million, aided by continued strong growth in our emerging electric vehicle charging infrastructure business, improved access to client sites and strengthened client demand for energy efficient solutions. Segment operating income returned to profitability and generated an operating profit margin of 12.8%.

We ended the fourth quarter with $62.8 million in cash and cash equivalents, compared to $394.2 million with total debt of $1.06 billion as of October 31, 2021. Our total debt to pro forma adjusted EBITDA, including standby letters of credit was 1.9 times at the end of the fourth quarter of fiscal 2021. As for our dividends, I am pleased to report the Board approved a 2.6% increase in our quarterly dividend to $19.5 to be paid out in February.

Now, I’ll briefly discuss our outlook. As Scott mentioned, our guidance for full year fiscal 2022 adjusted income from continuing operations is a range of $3.30 to $3.55 per diluted share. Our adjusted earnings forecast reflects a favorable growth outlook across our business segments in fiscal 2022, as well as an expected easing in COVID-19 related disinfection work and a reduction in labor efficiencies from anticipated rising office occupancy rates. Please note that our adjusted earnings guidance excludes approximately $72 million in Elevate related expenses that are planned in fiscal 2022. These are general and administrative expenses for delivering and implementing technology and process solutions related to our digital transformation. We plan to exclude these expenses from adjusted earnings to provide for more accurate comparisons regarding operating performance.

We expect that fiscal 2022 tax rate to be approximately 30% excluding any discrete items. Fiscal 2022 will have one additional workday compared to fiscal 2021. As a reminder, each workday represents approximately $7 million of labor expense. In terms of the timing of quarterly workdays throughout the year, we will have one additional work day in both the first and fourth quarters versus the comparable periods in fiscal 2021 and one less workday in the second quarter.

Capital expenditures for fiscal 2022 are expected to be approximately $54 million, including $8 million related to Elevate investments. We forecast depreciation to be approximately $50 million for the year. We hope you will remain with us for our virtual Investor Day presentation, which will start shortly after a brief break. Following the presentation, we will be available to answer your questions. Thank you.

Scott Salmirs — President and Chief Executive Officer

Welcome back. What a great representation of who we are and what we do. I’m super excited to kick off the Investor Day portion of our program, especially in light of the incredible results we shared earlier. Joining me are the members of our executive leadership team, who you’ll be hearing from later today. This team brings an incredible mix of industry experience and diverse backgrounds. We’ll share our strategic plan that will unlock significant long-term value for our shareholders and strengthen our industry-leading position through end market repositioning and building on our core services. Our new strategic plan will transform ABM from a position of strength, using what we learned from 2020 vision and our COVID response to launch our organization into the next phase of our journey.

We’re going to leverage the market trends that will impact our business over the next five years. This will not only sharpen our focus, but also inform the investments we’ll be making and we’re going to optimize our portfolio of services and markets and geographies to better position our businesses to thrive as society evolves and moves forward, and we will innovate in the areas of technology and data to modernize service delivery. This will improve the productivity of our frontline workforce and create digital connections with our clients and our teammates and will drive profitable growth, will accelerate organic revenue growth rates by close to 50% with sustainable adjusted EBITDA margins almost double where we started in 2015, while building on our significant cash flow.

Over the course of the next hour, we’ll dive into each one of these elements. But before we jump into our strategic plan and tell you how we’re going to elevate ABM, we’ll briefly lay the foundation for first. So we’re confident that we can implement our strategic plan because we’ve done it before. In 2015, we launched 2020 vision, a watershed moment for ABM, driving long-term profitable growth and enhancing shareholder value. These investments we’ll make over the next few years are a direct result of learnings from the success of 2020 vision.

So let’s start with a review of what we’ve accomplished. First, our go-to-market strategy shifted us from a service-centric to a client-centric organization and created industry groups organized by end market. This allowed us to focus on industries where we have a meaningful competitive advantage, like Business & Industry, with our unmatched commercial real estate portfolio. It also gave us the opportunity to seek out segments where we knew we could build a leadership position, like we did with Education. We are now clearly the number one facilities provider in that segment.

This approach was well received by clients and led to improved organic growth. You see, having an established industry group structure makes it easier for us to cross sell multi service solutions to our clients, leading to stickier, higher margin contracts. We were also aggressive in optimizing our portfolio by divesting non-core assets like security and government services and quickly reinvesting those proceeds into an emerging higher growth, higher margin service line, our Technical Solutions business. Through the acquisition of GCA, we were able to take to sub-scale vertical markets, Education and Technology & Manufacturing and solidify them as standalone industry groups. In a moment, we’ll share the ways we’ll continue to evolve our industry group mix towards high growth, high-margin sectors.

We also now have mature key corporate functions like centralized shared services for finance and HR. We were able to improve productivity and we’re now in a position to take advantage of our scale as we continue our growth trajectory through synergistic M&A. A good example of the benefits of scale is how our procurement team continues to drive efficiencies in large dollar spend categories, as we have more meaningful relationships with our suppliers. The power of this has never been more evident than during the pandemic when we were able to procure PPE and supplies, while others could not. This provide a critical protection for our team members and our clients.

Procurement is among many key areas where we can find synergies from M&A, and our sales culture dramatically change through 2020 vision. This resulted in a record five consecutive years of new sales growth and unparalleled achievement for us. And in the field, we established standard operating procedures and a consistent service delivery approach, so our large-scale national clients knew what they can expect from market to market. To fund our acquisition strategy during 2020 vision, we upsized our credit facility from $800 million to $1.6 billion. We also consistently increased our dividend for over 55 years. And this past quarter, we paid our 222nd consecutive dividend.

We’ll continue to drive growth and create value by focusing on thoughtful capital allocation to fund organic investments, pursue M&A and distribute cash to shareholders. We learned a lot through 2020 Vision and I’m proud of the financial results we delivered. Our journey started with a 3.8% adjusted EBITDA margin. By 2019, our adjusted EBITDA margin expanded by 140 basis points to 5.2%. Revenue grew by 23% to $6.5 billion and adjusted EPS grew 27%, reaching $2.05 per share. And we delivered these results during one of the worst labor crises in recent memory from 2018 to 2019. And we displayed the resilience that investors have come to expect from ABM year-after-year.

We also continue to evolve on the executive leadership front. Toward the end of 2019, we made a key hire bringing on Josh Feinberg, our Chief Strategy and Transformation Officer. Josh helped guide our 2020 Vision as a partner at BCG. And now, he is instrumental in developing our strategic vision and building a digitally-enabled operating model.

I’ll hand it off to Josh now to continue laying the foundation for our strategic plan.

Josh Feinberg — Executive Vice President and Chief Strategy and Transformation Officer

Thanks, Scott. Really appreciate the introduction. I feel so fortunate to be here. It’s truly a pleasure to chart ABM’s path forward from a position of strength. And we have a lot to leverage our market leadership position in a large and still very fragmented industry, our unmatched footprint and service portfolio, our blue chip client base in our industry-leading team. But perhaps more than anything else, our business continues to prove time and time again to be incredibly resilient.

We were tested in 2020 and 2021 as the COVID-19 pandemic took hold. We acted quickly and decisively, rapidly building and deploying new capabilities and mobilizing our teams to lead our clients through the unpredictable shutdowns and reopenings we’ve all experienced over the past 20 months. And throughout it all, we perform at record-breaking profitability.

So how did we do it? And how has it further strengthened us for the path ahead? We prioritized the health and safety of our team members and clients, always our top priority, by assembling an advisory council with some of the nation’s leading experts in industrial hygiene and infectious disease and establishing the leading pandemic-specific health, safety and operations protocols that we quickly deployed across our client base. We laser-focused on our cash flow and liquidity. When many in our industry struggled, our cash position improved significantly. We developed our own proprietary experts-backed solutions, EnhancedClean & EnhancedFacility to deliver healthy safe spaces and peace of mind to our clients and their employees, so buildings could reopen and stay open.

We’ve built and deployed a flexible labor model to accommodate the changing landscape. And we shifted our growth to pandemic appropriate end markets, like manufacturing and distribution, which helped offset the revenue decline in more impacted areas like aviation. These actions led to bottom line profitability beyond expectation, driving our pre-COVID adjusted EBITDA margin baseline from 5% up to 7.3% in 2021, while generating cumulative COVID-related revenues of $600 million over 2020 and 2021.

Our ability to perform during the pandemic clearly illustrates our agility and resilience. But the structural enhancements we made during this time, particularly the installation of a flexible labor model and the conversion of higher margin disinfecting into permanent scope additions, will serve us well going forward. Our world has fundamentally changed over the past 20 months. Society’s demand for healthy and safe spaces will continue well into the future, especially as new variants continue to emerge. We are confident that this will translate into long-term margin expansion, whether new variants continue or not. We have moved beyond being a trusted partner. We are now a trusted and differentiated brand.

Today, we are well positioned to invest in our future and are fortunate to be launching our strategy from a position of strength. We have unrivaled competitive advantage anchored in our market leadership across all end markets and industries we serve, unparalleled reach with a large distributed network of people and branch offices to serve our clients across the US and UK, a unique portfolio of services spanning janitorial, engineering, parking, technical solutions and aviation services, a trusted reputation that we have earned over the last 110 years of long-lasting client relationship and a strong balance sheet that we will use strategically and opportunistically as expansion possibilities arise.

Our performance during the pandemic afforded us the opportunity to look ahead and craft our longer-term strategy, while others struggle day to day. We started by refreshing our deep understanding of the market and trends, impacting our industry now and for years to come. Five trends rose to the surface. First, societal shifts are leading to the demand for healthy, safe and efficient spaces as well as a renewed commitment to diversity, equity and inclusion. Changes in demographics, higher rates of urbanization and consumer preferences have accelerated the need for expanded logistics ecosystem from clients like Amazon, Walmart, FedEx and UPS looking to enhance the reach.

Second, the future of work is centered on drastically changing employee expectations, which are causing employers to rethink workplace design, assess the appropriate work models for their teams and create efficient collaboration tools to drive sustained improvements in employee productivity and satisfaction. This trend highlights the need to invest in dynamic workforce capabilities and employ flexible operations to accommodate rapidly changing workplace dynamics.

Third, sustainability is no longer a consideration for the future. It is required to operate a business responsibly right now. Our recently published Sustainability Report reaffirms our commitment to leaving a healthier planet for the next generation and beyond. More specifically, the demand for renewable energy, clean air, reduction in energy consumption and the elimination of harmful pathogens are just a few sustainability trends that directly align to our janitorial, facilities engineering and technical solutions businesses, all of which our strategic growth priorities.

Fourth, mobility is shaping various industries, leading to significant investments in autonomous vehicles and electrification, which is driving new infrastructure builds across the world. This presents a substantial opportunity for our fast-growing EV charging segment in our Technical Solutions business, in our Smart Parking Solutions, in our B&I and Aviation segments.

And finally, digitization. It continues to accelerate with leading-edge technologies and data and analytics, becoming more prevalent in day-to-day use. Smart buildings are evolving with artificial intelligence, cloud computing and IoT sensor technology. This is leading to our investment in both workforce and client-facing technology at a time when clients are demanding innovation.

Our purpose, putting people above all else and amplifying what matters most to them has never meant more. The value and demand for what we do has never been higher. Our clients will benefit, our team members will benefit, society will benefit and our investors will benefit. We’ve anticipated the seismic shifts ahead. We’re prepared to embrace these changes and capitalize on the future they’ve opened up. This is our time.

Let me now pass it back to Scott to unveil our strategic vision.

Scott Salmirs — President and Chief Executive Officer

Thanks, Josh. To continue to win in the future, we must build on our positioning to capture the opportunity ahead and sustain the resilience our shareholders depend on. Elevate is the next step in our journey. We will elevate the client experience as a trusted advisor and innovate with multi-service solutions and consistent service delivery to drive sustained profitable growth. We’ll elevate the team member experience by training and developing the next generation of leaders and building on our inclusive culture and will elevate our use of technology and data to power client and team member experiences with cutting-edge data and analytics, processes and tools that will fundamentally change how we operate our business and result in significant financial returns. This will separate us from our competitors that just don’t have the financial resources to make these investments, w will elevate ABM.

Let’s take a look at the Elevate launch video that brings our vision to life. we are really inspired by this vision.

Now I’d like to introduce Rene Jacobsen, our Chief Operating Officer. Rene is responsible for leading operations for all of our industry groups and has created an environment centered on collaboration, accountability and client focus. He is now going to take you through the market landscape, our service line and industry group portfolio and a view into how we’ll elevate the client experience.

Rene Jacobsen — Executive Vice President and Chief Operating Officer

Thanks, Scott. We play in a large and diverse market with many different types of competitors. The total addressable market although very large at $250 billion is highly fragmented. Oftentimes our greatest competition comes from small regional players and local companies. While we are well positioned from a competitive standpoint in each market, growth rates for our core services tend to be generally in line with GDP. You’ll see that we plan on investing in our platform in ways that our competition cannot. We’re also well positioned to ensure business continuity for our clients in response to new variants given our established protocols, expert advisory council and the essential services we provide to meet their needs. Elevating the client and team member experiences through the use of technology and data will differentiate ABM in the marketplace and help us achieve above market growth.

We operate with a vast number of service lines to well-defined and diversified end markets and geographies. While the diversity of our business is a strategic choice we want to preserve, we continue to evolve our focus. We spent significant time and effort analyzing market trends, competitive intelligence, client needs and economics to assess both our current portfolio and potential adjacencies. Let’s take a look at how we’re structured and provide you with an aerial view of our industry groups and service lines.

Let’s start with our service lines. Janitorial Services have always been the core of ABM service offering. Our position as a market leader in the geographies we operate opens up tremendous possibilities for growing into new whitespace. We will pursue organic initiatives to improve our client retention rates and maintain our market leading position. We will also invest heavily in tools to unlock efficiencies in our frontline workforce. We’re excited to share more about these initiatives later on today. We will also seek out M&A opportunities to grow our footprint in geographies with favorable economies of scale. Our foothold in key markets provides a firm foundation for synergies.

Advances in technology and a focus on sustainability, particularly in energy efficiency and consumption have propelled engineering services to the forefront. Preventative maintenance dictated by time based schedule is phasing out as facilities are now being outfitted with Edge networks sensors and other smart devices to drive data that allow our engineers to predict failures before they happen. The demand for expert engineering services is high and the ability to lead with advanced processes and technology, one of our key areas of investment over the next few years is quickly becoming a place where we can differentiate.

We’ll also continue to seek out opportunities to improve our scale in key markets through M&A like we did with Able Services. Success in parking centers around technology and advanced revenue management capabilities as we seek to optimize our clients parking facilities operations and revenue. We will continue to modernize our parking business and create a consistent operating model around technology and automation to drive value for our clients. We’ve already begun to deliver first generation smart parking solutions to enhance the parking experience at LAX [Indecipherable] automation artificial intelligence and machine learning are some of the ways we can provide frictionless entry and exit, smooth way finding and automated payment solutions.

We can also offer a unique bundling opportunity with the installation and modernization of EV charging stations. We are consolidating this data into a single analytics platform to drive revenue and over the next few years, we will invest in scaling these areas to become a unique solution provider for our clients. We are increasingly pursuing client opportunities that include multiple services. Our ability to self-perform engineering, janitorial and other maintenance services is a big differentiator with prospective clients. Along with a strong strategic partnership network, these contracts require a dedicated technology platform to manage the full suite of services and advance procurement capabilities to negotiate service contracts where we need a subcontract.

There is a continuum between adding an additional service versus a fully integrated IFS contract and there is a lot of white across that spectrum. Our goal is to move further along that continuum towards IFS. The Able acquisition advanced our position in this area, as you’ll see, when we dive deeper into that strategic move a little later. These capabilities provide higher margin and increased retention or stickiness, a key to growing our business and profit profile. Our industry group structure was similarly strengthened by this new strategic approach.

Let’s start with a review of our Technical Solutions business. Technical Solutions has been our highest growth and highest margin business for years. Historically, we’ve achieved these results with our HVAC, mechanical, electrical and lighting services, which are often bundled together and packaged in a unique offering to our clients to generate cost savings, while yielding healthy margins for ABM. We call that bundled energy solutions. We’re seeing greater demand for services in higher growth segments of the market related to electrification, sustainable energy savings programs and power and electrical, consistent with the long-term mega trends we discussed earlier.

Our team is poised to continue on a growth trajectory powered by the momentum we’re seeing in the market for vehicle electrification, where we are one of the largest installers of electrical vehicle charging stations in the country; bundled energy solutions that guarantee energy savings and address critical aging infrastructure; power and electrical services that support the growth of mission-critical facilities like data centers for clients in technology, health care and the federal government. The $1 trillion bipartisan infrastructure bill that just passed will open doors for us. In fact, it allocates $7.5 billion that could be used to construct EV charging stations.

We are planning investments in talent and technology to attract salespeople who can sell these complex solutions, highly skilled engineers and project managers, and hardware and software to build unique solutions and integrate data sources. The revenue and margin potential for ATS continues to be very high, relative to other industry groups. Investments in public infrastructure, the growth of electrification and the focus on energy and sustainability project significant market growth for years to come.

Next, let’s turn to B&I, our largest industry group. B&I is anchored by our commercial real estate client portfolio, which consists of both third-party managed and owner managed facilities. Janitorial, engineering and parking are the primary service lines in B&I, which have generated solid margins and cash flow for ABM. We are planning investments in workforce management that will increase the productivity levels of our onsite operations as well as our use of technology like sensors, autonomous equipment and data platforms. To enhance our value proposition to clients by providing real-time insights to better run their facilities. B&I fared extraordinarily well throughout the pandemic.

While we sustained some top line impact due to facility closures early on and more recently low rates of occupancy, our margins flourished as we were able to drive labor efficiencies and higher margin EnhancedClean services to our clients. Revenue growth potential for B&I. Is that a company average and remains a reliable source of organic growth year in and year out, given its overall size and impact on the organization. The margin potential for B&I continues to be above the industry group average and will be further augmented by elevated investments. The market for commercial office space is projected to grow at modest rates with the types of clients on the upper end of that growth range very much aligned to our operating model, skewing towards large national companies.

Next, let’s cover our Education segment. Education is operating a near pre-COVID levels as schools have largely returned to in-person learning across the country. We expect both higher education and K-12 schools to continue to invest in disinfection programs, while also focusing on indoor air quality. We are advising clients on different ways to pay for these services, including government funding through the CARES Act and other programs. Our breadth of services in this segment makes us a true industry leader with janitorial, facilities engineering, landscape and ground services in all markets. Our education clients have also been a major focus for cross-selling bundled energy solutions from the ATS group.

Revenue growth and margin potential for education is slightly below company average. However, there is an upside as our team shifts focus to higher margin contracts with private higher-education institutions that have longer buying cycles. The education market is primarily in-sourced, but we are well positioned to generate more first generation outsourcing opportunities with integrated service offering that includes janitorial, engineering and grounds. This solution was bolstered by the acquisition of Able Services.

Now, let’s switch gears and turn to Aviation. Aviation was our most impacted industry group during the COVID-19 pandemic. However, our exposure to airports and not just airlines insulated us against the more severe impact as flight volumes dropped almost 90% during the peak. Our breadth of service offerings in this space and our commitment to providing healthy and safe spaces for passengers both on-board and in airports helped us sustain a significant portion of our revenue over the last few years.

As flight volumes are returning to normal, we’re also continuing to secure higher margin service contracts with airports and related facilities, which tend to be more stable. We’re an end-to-end provider of services in the aviation industry as we handle everything from parking and transportation, to wheelchair, to cabin cleaning and many below the wing services like baggage handling.

While revenue in our Aviation segment remains below pre-pandemic levels, we expect to see continued growth, driven in part by new airport parking, transportation and janitorial contracts. Over the last few years, we’ve evolved from 45% airport clients and 55% airline clients to 55% airport clients and 45% airline clients as airports are less impacted by fluctuating passenger volume.

Revenue growth potential for aviation is projected to be high with the aviation sector recovering after the initial COVID shutdown. While margin potentially is structurally lower than company average, we’re expecting significant improvement in this area due to volume improvements and customer mix. We believe the market potential is high, given the recently passed infrastructure bill.

Finally, let’s discuss some key trends in our Technology & Manufacturing business. Over the last few years, our presence in logistics, distribution and manufacturing has grown double-digits. As we covered earlier, several mega trends are accelerating growth in these markets. Consumer preferences have changed. They now expect faster fulfillment without an increase in costs, which is leading to a boom in US distribution and warehouse space that is now reaching urban markets. Estimates show that 1 billion square feet of net new US distribution warehouse space is needed to support e-commerce growth due to consumer demands. This represents more than 100% growth in these types of facilities.

ABM has a strong presence in this high growth market and has client relationships with the likes of Amazon, Walmart, FedEx and UPS, who’ve experienced significant growth over the last few years. Add to this robust end markets like food and beverage, auto, aerospace and other large industrial companies, and we are uniquely positioned to compete in this growing market.

Today, we’re excited to announce the creation of a new industry group, Manufacturing and Distribution. M&D will replace our T&M industry group and shift our incredible portfolio of technology clients into B&I where they’re best served. This will allow us to become even more client-centric in how we deliver our services to manufacturing and distribution clients who have similar business needs and are also essential service providers in our economy. It will also leverage ABM’s scale to drive service excellence, increasing density and proximity of support to all of our technology, manufacturing and distribution clients as well as position M&D for innovation and growth by putting our best operation around each client and focusing on large specialized client sites to give us a better chance to expand multiple service offerings to these accounts. The accelerated growth of our technology clients with their expanded office footprint is best served by B&I and the branch network with roughly $300 million in annual revenue moving over. This includes clients like Facebook, Google and Adobe. M&D will maintain our large manufacturing clients and add distribution clients with roughly $400 million in annual revenue moving over.

We have already achieved operational savings from this change, which is part of our Elevate related run rate adjusted EBITDA margin that Earl will outline in the fiscal ’22 guidance section later on in the presentation. Revenue growth potential for M&D is projected to be well above average as we leverage foundational client relationships with large organizations who are realizing exponential growth. Margin potential is projected to be high due to the specialization required to perform service in these unique high demand facilities. We believe the market potential is extraordinarily high [Technical Issues]

Raul Valentin — Executive Vice President and Chief Human Resources Officer

That variability makes it difficult to support how each team member can be most productive across the organization.

We will transform how we work together adopting industry leading smart processes and tools by investing in a new workforce platform with modern time keeping, scheduling forecasting modules, providing a simple user interface that our teams can manage and access via desktop, tablet or mobile. Ultimately, our goal is to create a digital connection with our workforce to enable just in time and on-demand training and development, providing them with insights to get their jobs done more productively, which will deliver better client satisfaction. We expect these investments to produce significant benefits due to increased labor productivity and will also provide us with better controls to help us comply with the ever-changing regulatory environment in these areas.

We are a people business. Our team members will be a driving factor in our long-term success if we empower them to inspire, lead, manage and execute. To accomplish this, we will strengthen our culture and reaffirm our commitment to an inclusive workplace. Last year, we launched a culture and inclusion council and now this cross-functional, multi-level council is beginning to help in this area. With the guidance of the council, we selected outside organizations to partner with. As a result, we’ve entered into multi-year partnerships with respected organizations like the Hispanic scholarship fund, the after-school Alliance and The Thurgood Marshall College Fund.

All our focus on building a more equitable society for the next generation. This not only resonates with our leaders, but directly to our team members at every level. We will empower and engage workforce through improved talent acquisition capabilities and enhanced coaching and development programs, beginning with the frontline manager. We will evolve our rewards by implementing a totally reward system and recognition program that enhances ABMs value proposition for team members and drives retention and productivity. We will build stronger HR capabilities by enhancing our HR shared services center that provides team members with support in HR related information 24/7, while we continue to evolve our broader HR capabilities.

While we’re excited about our vision to elevate the team member experience, we realize we are in the midst of a global labor shortage. Our teams have been keenly focused on mitigating this risk by launching several targeted initiatives to keep our client facility staffed, including strategies to better attract and retain talent. In this spring, we launched a rapid recruiting program that expands the reach of most of our impactful recruiting activities, like deploying local sourcing teams, hosting grassroots hiring events, opening new standalone brick and mortar recruiting centers in key markets, driving incentive programs and social media brand promotion across all our major channels. These activities have driven a strong pool of candidates and we will continue to invest in these programs across all of our key markets.

Structural realignment of our centralized field recruiting model has significantly improved yield and accepted offers. This is resulting in both improved time to fill and more hires with the same number of recruiters. We expect to continue to realize staffing efficiencies as we scale these initiatives. While we’ve improved our candidate flow, we’ve also started to build additional solutions to retain our team members. We developed a predictive retention model to identify areas of the business that may experience higher levels of team member attrition. This data coupled with strong HR and operational partnership has led to site-specific action plans. Early results show reduction in turnover in half of all site where this approach has been deployed. With a solid strategy in place to keep our facility staffed and the investments we’re making and enhancing our workforce management capabilities, we feel as prepared as we can be considering the current tight labor market.

Now to introduce you all to the third pillar in our strategic plan is Melanie Kirkwood Ruiz, our Chief Information Officer. Melanie is a visionary technology leader with more than 20 years of experience across diverse industries, including gaming, commercial real estate, manufacturing, health care and aviation. Melanie will explain how we elevate ABM through the use of technology and data.

Melanie Kirkwood Ruiz — Chief Information Officer

Thank you, Raul. Elevating the client and team member experiences requires us to create a digital connection that links the buildings we service to our teams and our clients. This connection will be enabled with technology and real-time data to promote visibility, it’s a facility operations and insights to drive meaningful action. This will result in increased productivity and improvements in client satisfaction and retention.

Leading-edge technologies such as AI, machine learning and advanced data analytics are radically changing the way we do business and deliver value to our clients and team members. To effectively capture the opportunities in front of us and stay at the leading edge, we must embrace these trends and develop a digital platform consistent with our market leadership position. We will elevate our use of technology and data by investing in our systems, tools, business processes and operating models to enable the following outcomes.

We will engage our clients and team members in new ways to further differentiate us in the industry. This includes launching a new team member at that will serve as a one-stop shop to manage their schedules and shifts, access new training and development content and communicate with their managers and clients. By developing and deploying client-facing technology and data platforms, we can drive actionable insights that improve service delivery and our ultimate value to the client. A great example being the smart parking solution you heard about earlier in the presentation.

We will expand our use of data by building and advanced data and analytics capability that will develop data products for high value use cases like some of the ones [Indecipherable] mentioned already, team member retention, hyper targeting for sales and recruiting among others. This will establish data and analytics as a strategic asset for ABM. We will modernize the digital ecosystem to support core activities and enable high value business outcomes. Investments in this area will include upgrades to enterprise software like our ERP and payroll systems along with infrastructure and cyber security builds to support our new capabilities. Technology data, and process will power our ability to provide best-in-class client and team member experiences. We will undergo a fundamental transformation with careful pace and cadence.

And now to talk through our 2022 guidance and forward outlook is Earl Ellis, ABM’s Chief Financial Officer.

Earl Ellis — Executive Vice President and Chief Financial Officer

Thank you, Melanie, and good morning, everyone. I am so pleased to have the opportunity to share with you our fiscal 2022 guidance and the details of our strategic investments that will transform ABM over the years to come. These investments will accelerate our organic growth, expand our profitability and significantly enhance both our client and team member experiences. Over the next four years, we are confident these investments will drive substantial and sustainable improvements to our operational and financial performance, while improving both employee and client retention.

Now before I dive into the details of our fiscal ’22 guidance and longer-term outlook, I think it’s important to first ground us in what’s transpired over the past year and a half. Since the third quarter of fiscal 2020, we have experienced significant tailwinds from the dramatic impact of COVID-19. The substantial increase in demand for disinfecting services combined with our team’s continued strong operational execution and drive for labor efficiencies contributed to record adjusted EBITDA margins exceeding 7% in fiscal 2021. This represents a more than 200 basis point improvement versus pre-COVID adjusted EBITDA margins in fiscal 2019. Much of this improvement reflects COVID related benefits from increased work orders, EnhancedClean and labor efficiencies.

While we anticipate an easing of these tailwinds as we emerge from the pandemic, we are confident that we can retain approximately 50 basis points to 70 basis points of uplift over the long-term as we expect to maintain a portion of both the disinfection related revenue and profitability along with a higher baseline level of labor efficiency.

So turning to fiscal 2022 guidance. As we build upon the improved positioning gained over the past 18 months, we are guiding to an adjusted EBITDA margin within a range of 6.2% to 6.6%. This represents a meaningful improvement over our baseline pre-pandemic adjusted EBITDA margin of 5.2% reported in fiscal 2019, but lower than fiscal 2021 as the pandemic tailwinds ease and our business begins to normalize. In addition, our adjusted EBITDA margin guidance includes the initial benefits of Elevate, which I will speak to shortly in more detail, as well as contributions from the initial synergies associated with Able Services acquisition.

As we look to fiscal ’22 and beyond, we are excited about the topline and bottom line opportunities from Elevate. Our Elevate strategy includes a series of discrete transformational investments that total between $150 million to $175 million. These investments are wide-ranging, from workforce management, to data analytics, to the digitization of platforms that will support employee recruiting, development and retention. In short, we believe Elevate is a game changer. It will allow for the implementation of leading-edge processes, technology and tools that will drive a higher level of substantial financial performance and, at the same time, benefit our team members and clients by providing more digital tools and actionable data to enrich their experiences. Ultimately, Elevate will enable ABM to grow faster and more profitably and provide a higher value proposition for our clients.

By design, the Elevate plan is front-end loaded as we plan to spend approximately $80 million in fiscal 2022 or by approximately $45 million in fiscal ’23 and approximately $15 million in each of the following two years. Of the $80 million planned in fiscal 2022, approximately $72 million will be a discrete expense and will be reported as items impacting comparability and as such will not be included in adjusted EPS guidance of $3.30 to $3.55. The balance of approximately $8 million will be included in capital expenditures. The relatively large investment in year one is necessary to meaningfully advance our digital transformation. And with these elements in place by the end of fiscal 2022, we anticipate we can begin to scale the benefits across the organization with lower levels of investments in subsequent years.

Now, to help conceptualize the individual components of the Elevate program, let me categorize the investments over the next four years in three buckets; digital transformation, workplace and people and our go-to-market initiatives. About half of our investments will be focused on digital transformation initiatives as we invest in client-facing technology, data and analytics and our enterprise IT infrastructure. We will make our technology more robust and seamless as we better harness our data to create a competitive advantage while we upgrade and refine our business processes. These enhancements will enable us to engage our clients in new ways, use our data to more effectively drive decision-making and modernize our digital ecosystem.

About 30% of the investments will be allocated towards workforce management and the investment in our people. We will make significant investments in centralized workforce management tools and capabilities, including forecasting and scheduling solutions and standardize task management. These investments will allow us to deploy labor more efficiently and deliver a greater value to our clients. We will invest in on-demand and just-in-time training tools and advanced career development capabilities that will not only improve recruiting and retention, but also position ABM as an employer of choice.

The remaining 20% will be used to fuel our organic growth initiatives and our go-to-market strategies, including investments in centralized platforms to support capabilities such as hyper sales targeting, price optimization and strategic account management. Elevate will drive revenue growth and increased profitability by supporting favorable business mix, increasing client retention, optimizing price escalations and driving cost efficiencies primarily through labor optimization.

Our goal is for Elevate to accelerate our organic revenue growth rate to the mid-single digit range, up approximately 50% versus our previous growth rate with potential upside from additional strategic acquisitions. As revenue growth accelerates, we also anticipate a corresponding and gradual improvement to our adjusted EBITDA margins of approximately 20 basis points annually starting in fiscal 2023.

In summary, we are confident that Elevate will enhance our potential to capture profitable growth. The related investments are expected to generate $110 million to $130 million in incremental adjusted EBITDA on a run rate basis by fiscal 2025, driving a projected internal rate of return of 28%. To put this in perspective, at the conclusion of Elevate in fiscal 2025, we envision ABM will generate annual revenue of approximately $9 billion with a sustainable adjusted EBITDA margin of 7%, representing a significant improvement from our baseline level of $7 billion in revenue with a normalized adjusted EBITDA margin below 6%. We are also targeting annualized free cash flow at a run rate of approximately $400 million by fiscal 2025.

While these financial metrics are compelling, the benefits and strategic value of Elevate go well beyond financial returns. We are confident Elevate will be a transformational initiative, strengthening our competitive position in the facility services industry and creating a more rewarding experience for all of our team members.

So with that, let me pass it back over to Scott, who will close out our presentation and lead us into our Q&A session.

Scott Salmirs — President and Chief Executive Officer

Thanks, Earl. We couldn’t be more excited about our future. Our industry-leading position will be rooted in innovation and technology and enable us to drive significant long-term value for our shareholders. By implementing our new strategic plan, we can ensure growth based on our commitment to transform from a position of strength, leverage our understanding of market trends, optimize the portfolio of services and end markets, innovate in technology and data to modernize service delivery and drive enhanced profitable growth.

Our goal is to be a roughly $9 billion business with [Technical Issues] sustainable adjusted EBITDA margins by the end of 2025. To achieve this and build the capabilities to expand our position in the market, we expect to make investments in areas of the business that Earl just spoke about. These investments will drive improvement across several key metrics.

From a growth perspective, our investments will drive organic growth rates, almost 50% higher than — approaching 4% annually. When factoring in our M&A strategy, we are targeting an overall compounded annual growth rate of over 10%. The focus on the client experience through investments in customer-facing technology and innovation and a new retention strategy aim to improve our client retention rates to between 92% and 94%. We believe these efforts, along with our strategic account management program, could double cross selling performance by the end of 2025.

Our people initiatives you just heard about will yield lower cost per hire and reduce team member turnover, which translates to operating margin improvement. Our workforce management initiatives has one of the largest paybacks on our Elevate program, resulting in labor productivity, which will show up in higher operating profit at the industry group level. And the impact of the digital transformation will be felt across the entire firm. As you saw, technology and data are key components of our growth strategy, people strategy and how we execute on workforce management. All the improvements that we’ll experience throughout Elevate will be supported in some way by the investments we’re making in our digital transformation.

Lastly, we’ll continue to lean on the protocols that we put in place during the onset of the pandemic. COVID is here to stay in one form or another and the emergence of new variant could be the new normal. At ABM, we are prepared to support our client’s ability to stay open, stay safe and be productive.

Before we start our Q&A session, we want to share a few housekeeping items. So hang in there and we’ll kick things off shortly. Thank you.

Questions and Answers:

Paul Goldberg — Senior Vice President, Investor Relations

Welcome back. We will now begin the Q&A portion of our Investor Day. This is Paul Goldberg again and I will serve as moderator. [Operator Instructions]

And with that, our first question of the day comes from Tim Mulrooney of William Blair.

Tim Mulrooney — William Blair — Analyst

Good morning. Can you guys hear me okay.

Scott Salmirs — President and Chief Executive Officer

Perfect, Tim.

Tim Mulrooney — William Blair — Analyst

All right, thanks. Really appreciate all the color that you guys gave today, it was very helpful. I was wondering if you could dive in a little bit more on your EnhancedClean services. It wasn’t discussed a lot today. But what’s built in your guidance basically for 2022 relative to how much revenue that you’ve made in 2020 and 2021? I know it’s coming down, but at the same time more and more contracts I think our integrating this. Would love to hear your thoughts on that.

Scott Salmirs — President and Chief Executive Officer

Yes, sure. So look, it’s still remains vital for us, Tim, and it will be moderating and coming down. We signaled that probably for well over a year as things return to normal, but we have said that we’re going to be retaining 50 basis to 70 basis points of COVID benefit in our numbers in 2022. So it’s still there. It’s just not going to be at the crazy record levels that we saw in 2020 and ’21, but it’s still baked into our numbers.

Tim Mulrooney — William Blair — Analyst

Okay, that’s helpful. Thanks, Scott. And I don’t know who this should be directed to. But this is for anyone, but would love to hear a little bit more detail about your plans to improve customer retention over the next several years. I thought it was interesting that you’re talking about building back to those rates of 92% to 94%, that really caught my hearing. Would love to hear more about that.

Scott Salmirs — President and Chief Executive Officer

Sure. I’m going to — I’m going to pass over to Rene, but I will tell you it’s a major element in our Elevate program and I think we’re going to. Well, I’ll let Rene handle it, he is best to answer that.

Rene Jacobsen — Executive Vice President and Chief Operating Officer

Well, I mean we — we’ve certainly been doing well, I would say overall if you look at the industry average. But we definitely want to improve dramatically here and strategic account management is the way to go for us and we’ve been — we’ve been working on this for roughly the last 12 months. Very, very detailed, very focused from the standpoint of looking at our clients, not only from the standpoint of individual IG related, but also looking at how we can basically cross sell into these clients in a bigger way than we’re doing today and we’ve really built a great team in the last year that really works together as a tremendous unit and therefore for us it’s all about focus, right? It’s all about looking at focus as a key word, everybody knows at ABM. So that’s the key for us. So clearly we’re improving the program in a big way.

Scott Salmirs — President and Chief Executive Officer

Yeah, we, for us it’s so important to have a team approach and what we’re doing around the strategic account management stand up, its a raise point is going to be game changer for us because it’s all going to be about finding solutions and remaining stickier.

Rene Jacobsen — Executive Vice President and Chief Operating Officer

Hey, Scott, if I could ask — if I could add one thing.

Scott Salmirs — President and Chief Executive Officer

Sure.

Josh Feinberg — Executive Vice President and Chief Strategy and Transformation Officer

Part of the Elevate program is focusing on — specifically focusing on initiatives that drive client retention, to the question. Client facing technology is a great example of that. You saw that in the video and some of the remarks that were made, that is very deliberate, bringing — some clients have been asking for that as Rene will and the operators will share for years and I think now we’re finally delivering on it and it’s going to be a real game changer, providing a stickier solution that we have as we provide the client with the data that they need.

Tim Mulrooney — William Blair — Analyst

That’s a great point, Josh.

Paul Goldberg — Senior Vice President, Investor Relations

Thank you, Tim. Our next question today comes from Andy Wittmann of RW Baird.

Andrew Wittmann — Robert W. Baird & Co., Inc. — Analyst

Yeah. Great. Can you guys hear me okay.

Scott Salmirs — President and Chief Executive Officer

Go ahead, Andy. Good morning.

Andrew Wittmann — Robert W. Baird & Co., Inc. — Analyst

Okay, great. Just wanted to make sure, we’ve had some technical difficulties this morning. I just wanted to take into the margin that you guys are forecasting here. I heard it two different ways on the conference call. I heard that you’re targeting a 7% margin in the out-year at the end of the time planning period here. We also heard that you going to plan on picking up, I think you said 50 — or keeping 50 basis points to 70 basis points of the margin improvement that you saw during COVID. So, I guess I just wanted to reconcile what the 50 basis points to 70 basis points is based off of? I think as I think back pre COVID, you guys were kind of guiding adjusted EBITDA margins in the low 5s, which would get me something in the high 5s or maybe 6% versus the 7%. So maybe Earl or Scott maybe that one’s for you. But could you just clarify kind of the discrepancy there and maybe some of the cadence that you see that on?

Scott Salmirs — President and Chief Executive Officer

Sure, and I wouldn’t say it’s really necessarily a discrepancy. What I would say is, I think you outlined it right. Pre COVID, we were at 5.2%. So you tack on to that 50 basis points to 70 basis points just from COVID and then you land somewhere under 6% as kind of the new normal and then you take all the investments in Elevate and everything we’re doing and you add another 100 plus basis points and that gets you to the 7% over the elevate period. Does that makes sense.

Andrew Wittmann — Robert W. Baird & Co., Inc. — Analyst

Okay, that’s, yeah totally makes sense. That’s clear. Thank you. And then maybe just — so the revenue CAGR here is 10% mid-single digit organic, you get about the same amount from M&A. I guess you’ve already kind of landed half of that $2 billion with Able or a little bit more than half, so you have to find $1 billion of revenue to hit these targets. But I guess with these margin goals that you have outlined and maybe I missed it, but what’s the EPS CAGR attached to that revenue plan?

Scott Salmirs — President and Chief Executive Officer

Earl, you want to try and take that all.

Earl Ellis — Executive Vice President and Chief Financial Officer

Sure. Yeah, so if you look at what we’re going to be driving over the next five years and if you look at what Elevate is driving for, it’s about $110 million to $130 million of EBITDA. So really going from EPS starting with this year at 355, over the next four years to five years we’re looking at probably roughly, I would say approximately a 40% ish increase over that period of time.

Andrew Wittmann — Robert W. Baird & Co., Inc. — Analyst

Got it, okay. If you will, for me, one more. I’ll just cleanup of this final question. Scott, over the years we’ve heard you talk about investments in technology. Certainly, I think we’ve heard about different payroll time keeping systems and all these things. They all seem to have a new iteration with the Elevate plan, so I don’t know if there’s a concrete way to answer this or even to ask it. But can you talk about maybe summarize what you’ve done so far because some of these initiatives have had investments already, so I’m trying to get a sense of how much different the next wave of investments are? If that makes sense.

Scott Salmirs — President and Chief Executive Officer

Yeah, no, thanks for that, Andy. What I’ll do is, why don’t I let Josh kick that off and I’m sure he’ll have Melanie, have part of that answer as well. But Josh, do you want to take that?

Josh Feinberg — Executive Vice President and Chief Strategy and Transformation Officer

Yeah, I’m happy to, Scott. So if you think about some of the investments in the past and that predated us a bit — a couple of us a bit, that was focused mainly on getting the ERP and some of the core financial systems up — up and running, then COVID hit and we really paused a lot of that. So, the investment now is going to expand on that and continue to do some of those fundamentals. And I think the biggest thing is, expanding to all of those order systems and modernizing workforce management, modernizing the client-facing technology, really trying to make sure that we’re at the leading edge. And we are really leading the industry in bringing technology to our teams into our clients. So that’s the fundamental difference. We kind of stopped after a short start and now we’re expanding it.

But I don’t know, Melanie, if there’s anything else that you want to add.

Melanie Kirkwood Ruiz — Chief Information Officer

Sure. I mean, like you said, staying on a leading edge is extremely important. And as you know, technology continues to change. So, we continue to move to more cloud computing platforms that allows us to have the updates and upgrades and stay ahead of technology. And I think that’s extremely important to continue.

Paul Goldberg — Senior Vice President, Investor Relations

Thank you, Andy. Our next question today comes from Tate Sullivan of Maxim.

Tate Sullivan — Maxim Group — Analyst

Hi. Thank you, all. Hi, thank you for having me then.

Scott Salmirs — President and Chief Executive Officer

Good morning.

Tate Sullivan — Maxim Group — Analyst

First, on EV charging, if I can start there, you’ve mentioned some details with your parking customers is what you can bring in terms of electric vehicle charging solutions, starting mostly with parking and then moving to other technical solutions customers or is it broad-based across your customers right now?

Scott Salmirs — President and Chief Executive Officer

Yeah. I mean — I’ll let Rene give you a little background on that. But I can tell you, we are super excited about EV charging. And it’s not just the EV charging stations, it’s infrastructure as well. This year, we did somewhere around $50 million in revenue. We can see that doubling next year and then who knows from there. And we’ve seen some catalysts like Rene with the infrastructure bill as well or it started getting our folks excited, right.

Rene Jacobsen — Executive Vice President and Chief Operating Officer

Yeah. I mean, in answering your question specifically, I mean, we are seeing really the electrical vehicle service lines really introduced within the ATS side primarily. But we’re starting to really shift into the aviation space. We mentioned earlier, the project that we have at Lava LX [Phonetic], and that’s a great example of how we’re able to cross-sell between several groups, as I alluded to earlier. So we’re really seeing great cooperation between ATS and Aviation specifically. So, we’re looking at that as kind of the basis and the foundation to be able to look at how we can broaden that out to the other IGs as well. We see great opportunity within B&I specifically relative to EV charging as well. So that’s kind of the game plan.

Tate Sullivan — Maxim Group — Analyst

Okay, thank you. And would you — can you quantify now or willing to? I know it’s growing from probably a small base. Is it still less than 1% of earnings, 5% or — I mean, what kind of growth relative to — are you willing to give any context around the size?

Scott Salmirs — President and Chief Executive Officer

Yeah. Either way, I would answer that. It’s small now, it’s emerging, but huge, huge potential. I think, if memory recalls, the infrastructure bill has $7.5 billion targeted to EV charging in many forms. And our pipeline is as big as it’s ever been.

Tate Sullivan — Maxim Group — Analyst

Thank you. And a separate question. With where you’ve come in the last two years and it sounds doing more work with Amazon, Google, FedEx, UPS and now following Able acquisition, do you have larger customer concentration? Do you have less — is customer concentration a good thing with those types of companies? Or how do you look at it strategically, Scott?

Scott Salmirs — President and Chief Executive Officer

Yeah. So, look, I think it’s important to have customer concentration because it’s focus and this is something that Rene always talks about, the more we focus the better we do, and we can build teams around those customers. We’ve had accelerated growth with some of the big names that we’ve mentioned because we’re able to invest in those relationships and build solutions. So we’ll continue to do that. But I would also say, we are going to be building business development teams in our new M&D segment to broaden the horizon and grow because there are so many e-commerce and logistic companies that are emerging now and we want to capture them in early stage. So, it’s a combination of both.

Tate Sullivan — Maxim Group — Analyst

Thank you. And last from me, a quick [Indecipherable]. Scott, you’ve mentioned, with the fiscal year ’25, I think it was related to fiscal year ’25 CAGR. What was that referring to specifically?

Scott Salmirs — President and Chief Executive Officer

Yeah. I think it was up a little bit, but I think you said referring to the CAGR of 10% on growth?

Tate Sullivan — Maxim Group — Analyst

Yes.

Scott Salmirs — President and Chief Executive Officer

Yeah. So, it’s a combination of organic, which we said was mid single-digit and also acquisitions. And we’re on our way, right, with Able, a $1 billion right in our core highly synergistic that’s going to open up geographies for us. The ability to cross-sell is going to be phenomenal. And we’ve been talking about IFS, which is Integrated Facility Solutions. And what really that means is controlling the facility spend for clients, Able is going to be a great enabler for that. So, for us, it just shows how important it is to have M&A growth and to build and create scale. So, I think, it’s a combination of that mid single-digit organic growth and then acquisitions will get us to that 10% CAGR.

Tate Sullivan — Maxim Group — Analyst

Thank you, all.

Paul Goldberg — Senior Vice President, Investor Relations

Thanks, Tate. Your next question today comes from Sean Eastman of KeyBanc.

Sean Eastman — KeyBanc Capital Markets — Analyst

Hi, everyone. Thanks for taking my questions. Just going back to Andy’s question on the margins, I just wanted to make sure I understand the cadence correctly. So, we’re coming down 100 basis points in fiscal ’22, that’s sort of post-COVID normalization. And then, we’re marching up 20 basis points annually from there. In other words, there is going to be no step down in margins in ’23. Is that correct?

Earl Ellis — Executive Vice President and Chief Financial Officer

Yeah, that’s absolutely correct. So if you think about where we’re starting the year, this year FY ’21, it’s the 7% margins. And then, going into next year, if you look at our range of 6.2% to 6.6%, the midrange being 6.4%, we’re down about 90 basis points. The majority of that decline is really driven by the retrenching, if you will, of the COVID benefits. So, if you think about it, we now actually have a new ground floor for EBITDA margins, which is in the 6%-ish rate, which now allows us to elevate. So, to answer your question directly, we do not see a step down going into FY ’23, but yet a 20-basis-point increase year-over-year starting in FY ’23.

Scott Salmirs — President and Chief Executive Officer

Yeah. And you know what I would add to that what I think is so exciting. If you think pre-COVID, when we were in that 5% margin range, we set out an aspirational range of 5.5% to 6%, which everyone was pretty excited about. And if I give context back to 3.8% in 2015 was astronomical in and of itself. And now, to say that the floor is above what our aspirational target was back in 2018-2019, it gets this team pretty energized to think that we’re on a path towards 7% and with the possibility of going beyond that.

And the other thing I would say, Sean, is that if you think back to 2020 Vision and we were at 3.8% and we outlined a 100 basis points in growth, I think there were some that were skeptical because we had 15 years of stagnation on margin. We ended up at 140 basis points, not 100. So, we are going into Elevate and outlining approximately 100 basis points. I think you’re going to have to give us a couple of years. We’re going to see how things unfold. But there is no reason to believe at this point that 7% is an ultimate cap for the firm. It’s just — it’s what we have really strong line of sight to right now.

Sean Eastman — KeyBanc Capital Markets — Analyst

Okay. That’s great context. It seems like the market is telling you that maybe the target doesn’t look achievable. And it seems like maybe the biggest concern from the investment community is the labor constraints and whether you see some additional margin drag as it becomes difficult to restaff. I think we saw that in the Education segment this quarter. So, maybe we can just get a little more color on some of the changes around the flexible labor model, just how confident you are in those targets to the extent the labor market doesn’t really loosen up that much over the next year or two?

Scott Salmirs — President and Chief Executive Officer

Sure. And I’ll give you my explanation. I’m going to pass it to Raul, who is going to tell you about what we’re doing. But I think, let’s get some context, right, 50% our labor spend is with unionized labor where they have clear outlined collective bargaining agreements. So we know what those labor rate increases are. And you’re starting from a baseline where wages are generally accelerated compared to market and they’re getting benefits. So we don’t see a lot of turnover. And it’s not as hard for us to get unionized labor. So that’s half of it, right.

And then the other half is the non-union labor, which is definitely more challenging. But on the other hand, this is something we’re really good at, right. And if you think back to 2018 and 2019, I mean I don’t think a day went by where the headline wasn’t talking about labor challenge, historic labor shortages. So we’ve been through this before, but we’re not resting on our laurels, right. Part of Elevate and part of the investments we’re making is to be able to do rapid recruiting. And Raul, why don’t you give us some insight on the things that you’re working on.

Raul Valentin — Executive Vice President and Chief Human Resources Officer

Sure. Thank you, Scott. Certainly, it’s been a challenging labor market. And as Scott said, we’ve really been leaning into what we call rapid recruiting program, which has a couple of key tenants. So one is kind of an outreach into the local communities, churches, community centers and other direct reaches to get candidates. The other is a very aggressive campaign and approach for driving social media and really reaching to different pockets in our communities and talent pools that we can draw from. Then in other situations, we’re looking in key markets where we might establish brick and mortar, hiring centers, right, in key urban centers. Our distributed workforce means there isn’t a silver bullet, but I feel really good about the work the team is doing. We’ve got a dedicated talent acquisition team that’s really driving that forward. And at the same time, we’re looking at retention initiatives, making sure our wages are competitive, as Scott said, in other things like driving training, development and career pathing for our team members to drive that retention so that both sides of that equation is being addressed.

Scott Salmirs — President and Chief Executive Officer

And Rene, I mean, I think you need to give your take on this right, especially on on the customer side, right.

Rene Jacobsen — Executive Vice President and Chief Operating Officer

Yeah, I mean, we’ve become very, very disciplined and regimented around escalations and as Scott mentioned, half the business is, I wouldn’t say automatic, but it definitely is on the union side an easier process of passing on escalations for clients. It’s on the non-union side, certainly that we — that we see improvement year-over-year and we’re really focused on looking at each client on its own. We obviously have to consider the impact this has relative to retention as well. So there is always these trade-offs that we go about looking at each individual client. But you know, we have been quite good at getting escalations to clients and really for us it’s something that we have — we are very bold about. It’s something that we have to be very bold about and we are relative to escalations as such.

Scott Salmirs — President and Chief Executive Officer

Yeah, and what I would add is, Rene is being very humble about this. He is a task masker with our team, right. It’s all again about his level of focus and driving those customer increases and we just have this feeling like we’re adding value. And when you are adding value and you’re doing a good job, you should not be afraid to ask for an increase, especially in this labor market. And Rene has done more than a phenomenal job of capturing those costs. So really enthusiastic about the result we’ll get in ’22.

Sean Eastman — KeyBanc Capital Markets — Analyst

Okay. I appreciate the detailed responses, guys. I’m going to turn it over there.

Scott Salmirs — President and Chief Executive Officer

Great.

Paul Goldberg — Senior Vice President, Investor Relations

Thank you. Our next call today comes from David Silver from CL King.

Scott Salmirs — President and Chief Executive Officer

Good morning, David.

David Silver — CL King & Associates, Inc. — Analyst

Good morning. Am I coming through okay.

Scott Salmirs — President and Chief Executive Officer

Yes, fine.

David Silver — CL King & Associates, Inc. — Analyst

Very good. Okay, first I’ll just make a comment. I really benefited from the contributions made by the other members of the team that we don’t normally hear from. So I thought that was an excellent addition to this presentation.

Scott Salmirs — President and Chief Executive Officer

Thank you.

David Silver — CL King & Associates, Inc. — Analyst

I’m going to start maybe with Scott’s comment, right near the end where you said “COVID” is here to stay in one form or another. And I think in a lot of the assumptions underlying the presentations I heard today, there is the expectation that the quantity of the high margin tag work or outside the core contract services were going to moderate as we enter the post pandemic period. And I’m just wondering, but my assumption is that the standard, let’s say cleaning contract is going to have to change as well and I think Scott the term you used in the past was embedded, right? So underlying your thinking about how your book of business is going to evolve over the next few years, what are your expectations for that standard cleaning contracts or standard Technical Services contract? How much of the enhanced sanitation in disinfection work that you’re now doing outside the standard contract is going to become embedded in maybe a newer evolving contract?

Scott Salmirs — President and Chief Executive Officer

That’s great. So, I think the way you got to think about this David is like cleaner, safer, healthier buildings are here to stay. We see survey upon survey of employees who were talking about the fact that the only way they’re willing to come back to work is to have proof by their companies or their landlords that they’re going to be in safe healthy spaces and we’ve put a stake in the ground and it’s what you’ve always asked for, how much of the COVID benefit do you believe you’re going to retain and we said 50 basis points to 70 basis points. So we do think a lot of the work orders that we’re getting will be embedded into the contracts. But that doesn’t mean that there is going to be significant margin deterioration because you have to remember, to do the disinfecting, to do the cleaning that we have to do to combat COVID, more expensive equipment, more expensive PPE, more training, higher value, it gets baked in, but it’s going to get baked in at a higher margin rate. So we still believe we’re going to keep 50 basis to 70 basis points and it will be the new normal. Think about with Omicron, that’s just three or four weeks old in the narrative, how everything is changing already. So there’s just no question that safety is going to be paramount.

David Silver — CL King & Associates, Inc. — Analyst

Okay, thank you for that. And my next question and I apologize, I’ll try to not be so wordy, but I’ll probably fail. I mean, it has to do with the IT development. So in your 2020 program, Scott, there was some spending there. But I would say it was more catch up spending, in other words improving your backlog as to where industry standards were. Whereas when I hear a number of the speakers today, the digital transformation is much more moving into the leading edge and becoming a tool to develop revenue streams. So, couple of things. But basically this is a new kind of level of IT spend and a new target goal for your IT program and I’m painting with an unfair brush. Over the last 20 years I’ve had a number of companies who put in SAP [Phonetic] type systems and they always tend to take too much time, you miss timelines, cost too much, and it usually causes the CEO and the CFO’s hair to fallout [Speech Overlap] But in all seriousness, how confident or what, as opposed to what you’re trying to do were accomplished with the IT spend, what are the — what are the controls, what are the stage gate, the valuations that are going to keep that core strategic IT spend and productivity on target?

Scott Salmirs — President and Chief Executive Officer

Yeah, that’s a good question. So first, I would say it starts with having unbelievable leaders leading that program, ones that have done it already, have the playbook and I’m going to pass it off to Josh and Melanie. Maybe Josh you start. But like, I’m going to pass it off to someone who in his career has been involved with many of these and he is going to pass it off to someone who has been involved in many, many of these as well and you may want to talk about the stage gate process a little bit and what that really means because that sounds like maybe jargon [Phonetic] So Josh, why don’t you start off.

Josh Feinberg — Executive Vice President and Chief Strategy and Transformation Officer

Thanks, Scott. Yeah, so the governance of our IT implementation and the Elevate program holistically really has three components to it. The first one is accountability. So every initiative, every piece of the IT implementation, every element has a single management team owner who is also responsible for the delivery. So that — number one, puts accountability in a singular place. Two, and what Scott was referencing is the stage gate process. No matter what the initiative is, what the IT piece is, it has to go through the stage gate process. And I’ll quickly talk talk about it a bit and then I’ll pass it to Melanie.

The first one is a business case. There has to be a clear business case for any element of the IT implementation, including in ROI, including the metrics that you want to track. That’s number one. If you pass that, then you get the design. Okay, well, what’s the design and what is that — what does that kind of look like and are we comfortable that that has a potential to create the value that we said in the business case. And then third is, let’s test it. Let’s actually go ahead and test it and see whether not its working, prove some value and only then do we scale it. But at each of those four stages it has to pass a governance process. Where if it doesn’t pass, it’s out, where we stop and pause and fix it and you get funding along the way. So we feel really, really good about that, that we have it under control. And again, it’s not like you’re writing a blank check from the beginning and handing it off to someone and see them in a year. It’s very incremental and it’s very controlled in that manner. So I may have stolen out Melanie’s thunder, but I’ll pass it to her.

Melanie Kirkwood Ruiz — Chief Information Officer

Great, thank you, Josh. So, think about it. We have a — we’re going with the phased implementation plan. And the point of that is so that we can mitigate the risk that you’re alluding to. And with FAA’s implementation plan comes a very detailed roadmap and what we’re doing is we’re going to have a robust internal tracking system and program management capability that keeps that accountability. It also tracks our success against those milestones that we have planned. So it keeps us on target.

David Silver — CL King & Associates, Inc. — Analyst

Okay. Thank you very much. Appreciate it.

Paul Goldberg — Senior Vice President, Investor Relations

Thank you, David. And next question comes from Marc Riddick of Sidoti.

Scott Salmirs — President and Chief Executive Officer

Good morning, Marc.

Marc Riddick — Sidoti — Analyst

Hi. Good morning, everyone.

Scott Salmirs — President and Chief Executive Officer

Good morning.

Marc Riddick — Sidoti — Analyst

So, first of all, thank you everybody for the part of the presentation. It’s very helpful and it’s good to hear from everyone. We don’t always hear from. So it’s certainly beneficial. I wanted to talk a little bit about maybe continuing on the thread a bit. The digital transformation process, I was wondering if you talk a little bit about sort of how you developed that plan, is that something that you did extensively internally? Was that something you’ve been working with outside partners for? And how should we think about how that plan gets maintained throughout? And then I have a couple of little simpler follow-ups.

Scott Salmirs — President and Chief Executive Officer

Yes. So why don’t I get started on that. Then I’ll pass back again to my right. But I would say, a lot of our plan — and Josh alluded to it a little earlier about how COVID happened and we paused, what do we all see in COVID, right. We saw that we need to figure out how to work in a remote environment, how to communicate in a remote environment. So, so much of what we’re doing with the digitization is about communicating with customers digitally, the client-facing technology that we spoke about. How do you get your clients information in a remote format? How do you work — And Josh definitely should touch on workforce management. How do you work with your team members in a remote environment? And so, it started with the societal trends that Josh talked about in his prepared remarks.

But with that, let me kick it over to Josh.

Josh Feinberg — Executive Vice President and Chief Strategy and Transformation Officer

Yeah. Thanks, Scott. And I think it’s important just to answer the question very directly, how did it come about? How did digitization come about? The whole Elevate program came about with four inputs. And it was really from listening and analyzing the market trends, digitization and mobility is one that was screaming out at us what the client needs are and how we’re going to satisfy those — the team member needs and then the economics across it all. So what that generated then was this focus on client experience, team member experience and then powering both of those with data and analytics. That’s where the digitization comes in.

A core tenant of Elevate from that third pillar is to make digitization a competitive advantage. That’s number one. Number two is, it’s happening today. You see it today, it’s just not happening on scale. We have the opportunity to make it happen on scale because of our footprint. We have the largest footprint in buildings across the US and we have the opportunity to do this at scale. Number three is, there is an infinite amount of data that we can collect from buildings. They come in from the equipment. It comes in from the people that are in the buildings, from the team members, from the clients, etc, there is an infinite amount of data that can be done. And then, to Scott’s point, it’s where do you use that data. So how do you use that data for workforce management in particularly to make sure that our people are operating most efficiently and effectively with the information that’s being provided to make sure our clients have what they need to manage the building.

So, we’re very specifically focused on creating value, whether it be in the P&L or in more leading metrics like client retention that’s going to start to generate some more other growth. But if that’s where the digitization comes in and we really feel like this is the core tenant to support the team member experience and the client experience and create that competitive advantage.

Scott Salmirs — President and Chief Executive Officer

One of the things that I really like to talk about that excites me and I think would resonate with you is understanding the fact that our frontline workers won’t be mobily enabled. And so, here’s here’s the picture I want to pay for you. Our workers on mobily enabled, we have sensors in a building and a cleaner is walking by a conference from and sees on their mobile device that conference room wasn’t used today, you can pass by, right. Whereas normally they wouldn’t know that and they spend 10 minutes cleaning the conference room.

So what that does is, first, it makes us more efficient and ultimately save on labor costs because they’ll be able to do more; and two, this enriches our clients with data because all of a sudden they start learning about their facilities and start asking questions. Why is that conference room not being used as much? Oh, it’s a 10-person conference room. It seems like the four-person conference rooms are being used more. So that’s — this is a simple way for you to understand about how we can provide such value for our clients by putting systems like this in place and think about how sticky we get with our clients if we’re providing this rich data. It’s going to be brilliant. We’re very excited about it.

Marc Riddick — Sidoti — Analyst

Great. And so, there is a bunch of different directions I could go in, but I’ll be a little more specific on this part. I think it is part of the prepared remarks, there was a commentary around building development teams — business development team within the manufacturing and distribution area. And I was wondering if there — if you could give a little commentary on that as well as if there are other areas that are targeted or prioritized for hiring both maybe above company average? Thanks.

Scott Salmirs — President and Chief Executive Officer

Sure. When it comes to manufacturing and distribution, I’ll pass it off to Rene. But one of the elements of Elevate is hyper targeting and how we’re going to focus on where to grow and how to grow and adding business development folks. But maybe you want to talk a little about M&D, because I know you’re super excited about that industry group.

Rene Jacobsen — Executive Vice President and Chief Operating Officer

Yeah. I mean, as I alluded to earlier today, I mean, there is a 1 billion square feet of space coming on to meet the needs of the clients within the retail distribution side. So there is the huge market coming and we wanted to kind of take advantage of refocusing our attention to retail distribution. And that was really the premise for changing from a T&M perspective to M&D with the anchor around retail distribution. And with the high growth clients we already have, Amazon, UPS, Walmart, etc, there is tremendous opportunity still to be had within that space. And really for us, you hear the word all the time, it’s about focus. We know focus creates results here. So, it’s a key one for us to really tap into. And what we also did was, we just — we’re building the M&D business around the big clients. We’re looking at only big clients to be serviced through that and we’re using the branch network system within B&I to capture the small to medium size. And there’s efficiencies there as well.

So, the M&D story for us as we grow the business through the end of Elevate, this will be, apart from ATS, we expect this to be a high growth IG, probably the highest aside from ATS.

Paul Goldberg — Senior Vice President, Investor Relations

Great. Thank you, Marc. And today’s last question comes via the platform and it was typed in. And the question is, has anything changed with regard to ABM’s capital allocation strategy and the way you think about dividends and share repurchases?

Scott Salmirs — President and Chief Executive Officer

Yeah, I’ll take that one. And thanks for the question. So, the good news is, our capital allocation strategy remains the same and is really hinged on investing in organic growth. And if you look at Elevate, that’s a great example of us, being able to allocate capital in a way that drives not only top-line growth, but also bottom line profitability. At the same time, we’ve talked about Elevate also including M&A opportunities. So we will continue to look at opportunities to acquire value assets that will contribute to our long-term growth opportunities and at the same time embellish our profitability.

When we look at the opportunities to allocate capital back to our investors, we just announced a 2.6% increase in our dividend. And so, we will continue to fund our longstanding dividend program. And as you know, we currently have Board authorization for about $145 million of share buybacks. Share buybacks has been something we’ve done in the past and will continue to be part of our playbook. So that’s a tool that we will continue to look at on a month-to-month basis. So, the good news is that with our strong cash flow and relatively low leverage, it gives us a lot of flexibility

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