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Earl Ellis

Good morning, everyone. As Scott mentioned, we are pleased with our first quarter results, and we believe we are well positioned to achieve our full year financial goals. For those of you following along with our earnings presentation, please turn to slide 6.
First quarter revenue of $2.1 billion increased 2.2%, comprised of 1.6% organic growth with the remainder from last year's acquisition of Quality Uptime Services. Organic revenue growth was once again led by Technical Solutions and Aviation, which grew 14% and 8%, respectively. Education grew 2%, while our B&I and M&D segments remained resilient. B&I continued to benefit from its focus on high-quality buildings and geographic diversification, while the impact of a planned client exit in M&D has been largely mitigated by new wins.
Moving on to slide 7. Net income was $43.6 million or $0.69 per share as compared to net income of $44.7 million or $0.70 per share last year. This result benefited from higher segment earnings and the absence of prior year self-insurance adjustments, which were offset by higher corporate investments as planned, higher income taxes and interest expense as well as a legal settlement.
Adjusted net income was $55.3 million and adjusted earnings per share was $0.87, up from $54.8 million and $0.86, respectively, in the prior year. First quarter performance reflected higher segment earnings, which were partially offset by increased corporate investments, higher taxes, and interest expense. Adjusted EPS benefited from a lower share count driven by our share repurchase activity.
Adjusted EBITDA increased 3% to $120.6 million, while adjusted EBITDA margin was flat at 5.9%. These results reflected higher segment earnings, particularly from ATS, which I'll discuss shortly, partially offset by planned increases in corporate costs.
Now turning to our segment results, beginning on slide 8. B&I posted revenue of $1 billion, which was slightly below last year. This performance demonstrated resilience through our diversified portfolio, which includes exposure to sports and entertainment, health care and a focus on high-quality properties.
We remain confident that an improving commercial real estate market and strong sales initiatives will drive growth in the second half of fiscal 2025. Encouragingly, B&I's operating profit and margin was largely consistent with last year on slightly lower revenue as we benefited from tight cost controls.
Aviation revenue grew 8% to $270.1 million driven by positive travel markets and new business wins from both the airport and airline side of the business. We have continued to win new business, including core cleaning work at the Dallas-Fort Worth Airport as well as a large transportation contract at a major Southeast hub airport, as Scott mentioned.
We believe 2025 will be another record-breaking year for Aviation, continuing our multiyear streak of organic growth. Aviation's operating profit was $12.2 million, up 26%, and margin was 4.5%, an increase of 60 basis points. These improvements largely reflect normalized operating results compared to the prior year and the benefit of tight cost controls.
Turning to slide 9. Manufacturing & Distribution generated revenue of $394.3 million versus $400.9 million last year. This performance was due primarily to our decision to exit a contract with a sizable client which did not meet our financial hurdles, largely offset by growth from other clients.
We remain confident in our ability to achieve mid-single-digit organic growth later in 2025 in M&D. Operating profit was $39.4 million and operating margin was 10% as compared to $41.3 million and 10.3%, respectively, last year. These results principally reflect increased investments in incremental sales positions and capabilities to drive growth in target markets like semiconductor and data centers.
Education revenue grew 2% to $225.3 million driven by favorable net pricing, increased work orders and stable retention rates. Education operating profit increased 10% to $14 million and margin was 6.2%, an increase of 40 basis points. This was largely attributable to improved labor efficiency and mix.
Technical Solutions had another great quarter growing revenue 22% to $202.3 million, with roughly 2/3 representing organic growth and the remaining 8% from our acquisition of Quality Uptime Services. Organic growth was once again driven by extremely strong microgrid project activity.
Looking forward, results in this segment should remain strong, reflecting several medium-sized projects recently won, continued strong demand dynamics in our energy resiliency and data center markets and our strong sales pipeline, all of which is supported by $490 million of backlog. Technical Solutions operating profit more than doubled to $16.6 million and operating margin increased 420 basis points to 8.2%, reflecting significantly higher volume as well as improved operating performance versus last year, which was impacted by project delays.
Moving on to slide 10. We ended the first quarter with total indebtedness of $1.6 billion, including $29.7 million of standby letters of credit, resulting in a total debt to pro forma adjusted EBITDA ratio of 2.9 times. At the end of Q1, we had available liquidity of $296.9 million, including cash and cash equivalents of $59 million.
Of note, after the quarter closed, we successfully amended and extended our senior secured credit agreement. The upsized credit facility now totals $2.2 billion, consisting of $1.6 billion of revolving credit facility and a $600 million amortizing term loan maturing on February 26, 2030.
This replaces a $1.3 billion revolving credit facility and a $650 million amortizing term loan, which had an outstanding balance of $528 million. The facility also reflects our growth as a company and the confidence our lenders have in our strategy. I'd like to thank our treasury team for successfully renewing the facility.
Free cash flow in the first quarter was negative $123 million. This result largely reflected a temporary increase in working capital related to the transition to the company's new ERP system for B&I and M&D. This transition involves extended preplanned quality control reviews for invoicing and enhanced hypercare processes to ensure client satisfaction.
First path automated invoicing is ramping up in the second quarter as the first wave of manual quality control activities have been completed. As such, we expect to hit our full year free cash flow targets, though there will likely be some continued choppiness near term given the scale of the implementation.
As a reminder, full year normalized free cash flow is anticipated to be in the range of $250 million to $290 million. This forecast is normalized for an estimated $30 million to $40 million of ELEVATE and integration costs and $16 million of total earn-out payments that will be recorded as a use of operating cash. Interest expense was $22.9 million, slightly higher than the prior year, largely reflecting higher debt balances. We expect the quarterly interest run rate to moderate in the second half of the year.
We purchased approximately 415,000 shares in the first quarter at an average price of $51.23 per share for a total cost of $21 million. At the quarter end, we had $133 million remaining under our share repurchase program.
Now let's briefly review our full year 2025 outlook, as shown on slide 11. As Scott mentioned, we are raising the lower end of our guidance for adjusted EPS based on our solid start to the year and our constructive outlook. We are now forecasting full year 2025 adjusted EPS to be in the range of $3.65 to $3.80. Our outlook for adjusted EBITDA margin remains unchanged at 6.3% to 6.5%. Our interest expense forecast is now $4 million higher at $80 million to $84 million, reflecting higher debt. And we still expect the normalized tax rate before discrete items to be between 29% to 30%.
With that, let me now turn it back to Scott for closing comments.

Scott Salmirs

Thanks, Earl. I want to thank our team for their hard work implementing our many initiatives and delivering a great quarter while staying focused on our clients. What we're doing isn't easy but is setting us up for long-term success. We're building on our positioning as an industry leader, and we appreciate the trust of our clients and investors. With that, let's take some questions.

Question and Answer Session

Operator

(Operator Instructions) Tim Mulrooney, William Blair.

Timothy Mulrooney

So starting with your B&I business, the 24% improvement in commercial office leasing activity in the fourth quarter. I'm just curious how that compares to the last several quarters before that. Like was that a significant acceleration in the trend line? And how does that compare to the fourth quarter typically from a seasonality standpoint? In other words, can you just put in context for investors how significant that move is?

Scott Salmirs

Yes. I mean, look, there's no real seasonality in terms of leasing activity. It really goes by, in large measure, the expirations of tenants' leases, right? But it is -- it just -- it represents a good cadence. I mean, this is a story that's been playing out over the last year, year, and a half, and we're delighted when we see the activity.
And we also look at something called net absorption, which is how much additional space is being taken, right? Because you can have good leasing activity, but if there's a lot of leases that are expiring and are not getting renewed, you don't necessarily see that unless you look at the absorption rates. And they've been really good, too.
So Tim, I just think this is a continuing trend that has to do with -- I think there's some optimism out there and return to work. You've been reading about -- or we've all been reading about it. And I've been seeing this not only with clients but in my networks, management wants people back in the office incrementally more. We may never go back to full return five days a week. But hybrid is incrementally better, it feels like, quarter after quarter.

Timothy Mulrooney

Yes. That all sounds very encouraging. We're certainly seeing that everywhere as well, Scott. Just one more question about -- just shifting gears a little bit, but I just wanted to ask about your federal exposure, so still on the B&I segment. How much of your B&I segment revenue, I guess, is generated from work being completed in federal buildings?
I'm just trying to think about the potential risk here from those as it relates to a footprint reduction. And maybe while you're at it, what's your technical -- how much of your Technical Solutions revenue is related to projects with federal agencies or are being funded with federal dollars? Just any color there would be helpful.

Scott Salmirs

Yes. Like when you look at the size of our enterprise, we have almost no risk when it comes to that. We're not in that segment where we're doing any kind of cleaning or engineering in terms of stationary engineering in those federal buildings. Where we do, do a little work is in mission-critical, and that's not anything that DOGE is cutting right now.
So our mission-critical business, which again is literally small compared to our $8 billion-plus in revenue, we feel like that's highly protected because of the nature of the work we do with special clearance and working in their data centers and critical environments. So we feel we're really resilient there.

Operator

Josh Chan, UBS.

Joshua Chan

So thanks for proactively addressing the labor situation. I guess, could you talk about kind of your playbook if you were to see kind of spot rate labor costs accelerating? Recognizing that you have a decent part of union labor too, where maybe you have more visibility. So maybe can you just talk to how you would react, what your exposure is to the spot rate labor?

Scott Salmirs

Sure. We are -- to your point, we're fully -- we feel like we're fully in command here because half of our revenues are from union labor, and those labor rates are set now for the next three-plus years and they're at a very reasonable rate between 3% and 4%. So we feel really good there. And then on the nonunion side, one thing you guys have always seen is we passed the majority, the vast majority of the labor increases through to our clients. We have major proof points for that. So we feel good there.
And even if there are potential labor shortages due to what's going on with immigration, again, if you look at our past history, we've always done really well in those times. And the only thing that's probably changed for us in the last few years when it comes to capturing labor in the field is that we've upgraded our talent acquisition team dramatically and through ELEVATE.
We've invested in technology to have cloud-based systems for hiring and vetting employees. So our time to hire has dramatically increased, too. So we feel like we're in really great shape here.

Joshua Chan

That's good color, Scott. And then on the ERP side of things, I guess what does it take to kind of catch up on the free cash flow just like operationally? And what's your confidence given that's kind of all within the same fiscal year?

Earl Ellis

Yes. No, thanks for the question, Josh. So again as we stated, we went live this past quarter with the new system on two of our largest ERP -- our B&I and M&D, two of our largest industry groups. And we did a thorough review of all of the invoices to ensure accuracy and customer satisfaction before putting them out. That actually resulted in a delay in the invoicing and obviously a delay therefore in cash collections. We anticipate that, that will actually start to pick up in Q2. And for the balance of the year, we'll actually resume all of our cash collections and deliver against our committed cash flows for the year.

Scott Salmirs

Yes. And I'll give you some color on that, too. Whether it's through our vendor that's doing the ERP or through some of our networks, we've heard horror stories about ERP conversions and how invoices go out wrong. And we weren't going to do that.
You guys know us to be super cautious and careful. So we just said like rather delay getting some of these invoices out and go invoice-by-invoice and review to make sure that clients don't get wrong invoices. So we're just going to be super, super cautious here. And we feel like for a little bit of the delay on the invoices and some pressure on cash flow, well worth keeping our customers.

Operator

Faiza Alwy, Deutsche Bank.

Faiza Alwy

So Scott, just taking a step back. You sound really good about new business, about the pipeline. I'm curious if you can give us some color on what -- maybe what your win rate is like now versus what it was historically. And maybe help us think through like what you're seeing from a retention versus new business versus existing volume perspective. And to the extent you're seeing higher win rates, maybe talk a little bit more about how you're differentiating yourself.

Scott Salmirs

Sure. I mean, this is another area where our ELEVATE expenses have come through. Like -- well, there's so much to unpack here. I'll try to do it in a somewhat sensible order here. But like when you -- the first thing you do from win rate is you have to have business development people in the field. And we've invested in business development or salespeople, if you will, and we've increased the number that we have out in the field, which has been incredible.
We've spent a ton of time and energy on training them up. We have all new initiatives now on how to get people into our company and up to speed quickly. Our -- we call them rookies, people in the first year or so. The win rate on new business for rookies and what they've been able to book has been at an all-time high.
Another thing that we've been doing, which has been great, is leveraging AI and working on something called our deal desk, which is where we respond to RFPs. And between upgrading the talent there over the last couple of years and adding AI, we've been so much more efficient in how we've been able to respond to RFPs.
And it's -- we don't publish our win rates, but I can tell you they've been incrementally better. And we're feeling really good. We had incredible bookings. We -- half year is when we publish our new bookings. And I think for the last five years, we had record wins and increases in new bookings. And we think that trend will continue.
And just the last piece of it that hopefully is comforting, we're really, really selective on the accounts and the clients we pick up because as you guys know, that as you've been on the path with us, we don't work for free here. And that's something we've changed culturally at ABM. So we're really, I guess, decisive about the margin profile and the type of client that we bring on. So I know that was a long, long diatribe here, but we're really enthusiastic about what we're doing on the new business side.

Faiza Alwy

Great. And then just a follow-up on the ATS business, right? Like we've seen some volatility, ups and downs over the last couple of years. Do you think things have stabilized at this point? Like how should we think about revenue growth there? I know you've talked about -- historically, you've talked about sort of backlog in the business. So give us some perspective on how to think about maybe the various pieces within ATS.

Scott Salmirs

Sure. So one thing we have over on the -- when I think about ATS right now, for purposes of that question, I'll talk about two areas. One is our microgrid business where we have a record backlog, and that business has been on fire, which I know you've been following us, so you know. So we're as encouraged as we've ever been that 2025 is going to be just a phenomenal year for us on the microgrid business.
And we're still seeing softness on the bundled energy solution, which is the project side, because as you know, really dependent on interest rates and finding ROIs. And so we actually are seeing incremental pickup versus where we were last year. So that's a really good sign. But in terms of overall, we still need to see interest rates come down a bit to have that really start taking off.

Operator

Jasper Bibb, Truist Securities.

Jasper Bibb

M&D came in a bit better than we expected in the quarter. I just wanted to ask about the large client rebalancing impact. Curious if you have a little bit more visibility into revenue hit there. Has that moved through to additional phases? And separately, you talked about the new wins in that segment, too. So I'm curious if the run rate in the second half on revenues is a little bit better than the initial guidance assumption.

Scott Salmirs

Sure. So like on the large client, we've really lapped that now. It's not making a material impact. There was another large client to the tune of about $50 million of revenue where we passed on the business. It was going to be awarded to us but it was going to be at a margin profile that was just not acceptable to us.
So we have the courage to not take that business, which I was really proud of the team on, and that was last year. So we've lapped those and we'll lap -- next year, we'll end up lapping that customer, the $50 million customer. So you'll see some pressure. Really, what we're looking for in M&D is the back half to start becoming incrementally positive on the year-over-year compares. So that's that.
And we think when you look at M&D and you think about what's going on right now with the push towards onshore manufacturing and semiconductor business which are our big segments within the M&D space, we are really, really excited. And our pipeline is strong. We had one of our highest quarters in terms of new sales this quarter. And it's going to be one of our big stories for 2025, the M&D segment.

Jasper Bibb

Apologies if I missed it but hoping you could specifically quantify collections that were deferred out of the first quarter into the balance of the year. And then I guess, more broadly, wondering how you're thinking about the opportunity to generate cost savings from ERP as you've now migrated, I think, most of the revenue base out of the new platform.

Earl Ellis

Yes. So as we stated, we did a very manual process reviewing all the invoices. So we anticipate that Q2 will actually have a significant increase in cash flow versus Q1, and that in the back half we'll actually catch up in order to actually resume our committed full year cash flows. So we feel very comfortable and confident on that.
With regards to ELEVATE, we are well through kind of like the ELEVATE program now that we actually have three of our industry groups on there. And when we look at the benefits, we've now realized probably close to 2/3 of the total benefit case. Now the balance will actually come as we get the full enterprise on the new suite of systems. Because as you can see right now, we're actually still maintaining legacy systems.
And once we actually have the full enterprise on the new suite, we'll actually get rid of the legacy systems and actually get to the full optimization of the implementation, and that should come through in the next fiscal.

Operator

David Silver, CL King.

David Silver

Just a couple of questions, I think, for Earl. But firstly, with ATS growing 22%, I'm just kind of scratching my head. There was not an incremental accrual for contingent consideration or anything on RavenVolt. Is it -- I know you took a larger accrual last year, but are we -- are you fully accrued on that? Or should we be looking for some incremental charges as maybe fiscal 2025 goes on?
And then separately, just to comment on the $21 million of share repurchase. Would you characterize that as opportunistic and maybe a permanent reduction in share count? Or is that really designed to offset new issuance this year?

Earl Ellis

Yes. No, thanks, David, for the question. First of all, on the ATS, you're absolutely right. We're very pleased with RavenVolt's performance over the last number of quarters. As you recall, last quarter, we actually took that contingent liability up. And if you recall, the earnout was really based on three years on a calendar year '23, '24, '25. We're in that last year. And so we feel that we are adequately reserved. And having said that there is still potential for higher earnouts based on higher levels of performance. We look at this on a quarterly basis.
We will continue to look at this for the balance of the year. And provided that they continue to perform high, we will accrue accordingly. And remember, the good news is that any incremental accrual obviously comes higher EBITDA and actually has a very attractive payout. So we will continue to look at that on a quarterly basis.
With regards to the share repurchases that we did in this last quarter, we're always committed to buy back shares against the anti-dilutive share-based compensation, and that's what we actually did this past quarter. Provided that we continue to see opportunistic opportunities, we will evaluate those accordingly and look to do more if it makes sense from an economic perspective.

David Silver

Okay. Great. And then one more question, I think, on the M&D side. The previous questions have covered off most of what I was going to ask. But Scott, I was wondering if you could just comment on kind of the success with new business there in terms of your value proposition?
I mean, I'm guessing M&D is a category where there's larger spaces, there's probably more automation or digitalization in your product offering apart from growth in the segment in terms of the customer base. But maybe if you could just touch on your go-to-market strategy or your value proposition there and why you're very optimistic about it for the balance of the year and the win rates and whatnot.

Scott Salmirs

Yes. I think there's a couple of things. I appreciate the question. One, we had record Q1 bookings this year, which has been great and our pipeline is fantastic, as I said on the last call. So super optimistic. I think what makes us so special in this space is that we do not attack this segment as we would an office building or any -- just as a straight janitorial job.
We look at these as almost like an APS account, like a bundled offering, meaning we may get in with the janitorial assignment but we're really good about being in the facility, taking on additional work, production support, working in clean rooms. Everything from that to like constructing boxes, right?
We'll do anything that we can so that in this segment, the clients think of us as extra, really, a resource in the facility that can handle things that they may have been subcontracting to four or five other vendors. And now they're consolidating under us. And we've been really intentional in the segment of hiring subject matter experts.
So whether it's in pharma, whether it's in semiconductor, whether it's in e-commerce, we have a suite of executives that are subject matter experts that can talk to the clients in their language, and that's been the secret to our success, David. It's been taking a very focused intentional approach with experts rather than just treating it like a janitorial assignment in an office building.

Operator

Justin Hauke, Robert W. Baird.

Justin Hauke

Great. Yes. So I mean, it seems like the story is -- at least going forward, is the improvement in B&I and M&D. The markets that have been really strong for you, have been Aviation and Technical Solutions. And I guess first on Aviation, I guess, I just wanted to ask if you saw the delta preannouncement on kind of demand trends.
And just any updated thoughts on what you're seeing there in terms of sustainability? And then in the Technical Solutions, it looks like the backlog, the $490 million, a year ago, it was $590 million. And I guess, is that mostly kind of the bundled solutions and the EV charging stuff that's down? Or just what's been the driver of that backlog decline?

Scott Salmirs

Sure. So let me start with Aviation and Delta's announcement, not an effect on us. So if you think about what we're doing in that space, right, we're inside an airport. And even if demand is down incrementally, it doesn't change our scope of work, whether you have 10,000 people in an airport at any given time or 9,000, it's not going to change a reduction in scope.
So we feel really good about the fact that we're resilient around the edges on any shifts in demand there. The same thing with the other things that we do, which will be like to do the cabin cleaning of a plane. If you're full or you're 90% occupied on a plane, you still have to go through and do the cleaning. So we haven't seen any falloff in demand. Our bookings have been great in Aviation and our pipeline is terrific. So no real warning signs for us yet based on the Delta announcement.
And the RavenVolt, which has been one of the key drivers in our Technical Solutions group has been just super strong, and the backlog is terrific. And give us another quarter or two, I think we're going to have some really good news for you on other things that are happening. So probably as excited as we've ever been at this point in time about offering -- the offerings in ATS.
And I guess the last color or commentary is any client that we talk to, whether it's directly regarding our Technical Solutions business or it may be in Aviation or B&I, everyone's talking about power resiliency right now. Everyone's talking about the grid. Everyone's talking about what's going on in the overall geopolitical spectrum around energy. And we just feel like we are at the right time and the right place to have such an unbelievable offering. So really optimistic.

Operator

Tate Sullivan, Maxim Group.

Tate Sullivan

Scott, reviewing some of your comments about large awards, you said you're awarded a large contract for an advanced office building in New York. And I think you also mentioned $30 million in business from a large tech company. Are these two separate contracts?

Scott Salmirs

Yes, they are. Two separate contracts, yes.

Tate Sullivan

And then the large contract for the office building in New York, is that still a building that employees are moving into, it's not fully in operation?

Scott Salmirs

That's correct. It's a brand-new construction that's going to be occupied in full by the end of this year and first quarter of next year. But we're already starting with construction cleanup, and it's going to be a wonderful project for us from a great client.

Tate Sullivan

And then is there -- I've asked before, but is there opportunity for backup power work on this type of advanced building? Or is that already in the engineering specs before when they did the contract?

Scott Salmirs

Yes, that happens. When you're building a new building, you don't go to a provider like ABM in the commercial space. That will be done with the general contract when you let that contract. So for us, it's more about going into data centers, schools, existing facilities.

Operator

At this time, I'll now turn the floor back to management for closing remarks.

Scott Salmirs

Well, thanks, everyone. Appreciate you taking the calls today and listening in. And we're really optimistic. Hopefully, you can hear that in our remarks. And we feel like we're going to have a strong 2025 and looking forward to getting back to you in Q2 with our results. So have a good spring, and we'll see you soon.

Operator

Thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines at this time.