Conferencia de resultados del 3T 2026 de ABM Industries: se elevan las perspectivas de BPA y flujo de caja

Puntos clave

• ABM Industries presentó unos ingresos récord de algo más de 2.300 millones de dólares en el tercer trimestre fiscal de 2026, lo que supone un aumento del 4,2% interanual, con un crecimiento orgánico del 2,1% y una contribución del 2,1% procedente de adquisiciones.
• El BPA diluido ajustado aumentó un 27% hasta los 1,04 dólares, mientras que el EBITDA ajustado creció un 11% hasta los 139,6 millones de dólares. El margen operativo de los segmentos mejoró 40 puntos básicos en comparación con el trimestre anterior, situándose en el 7,7%.
• El flujo de caja libre en lo que va de año alcanzó los 199,6 millones de dólares, frente a los 42,4 millones de dólares del mismo periodo del año anterior. ABM elevó sus previsiones de flujo de caja libre reportado para todo el año en 25 millones de dólares, hasta aproximadamente 210 millones de dólares.
• Las operaciones de semiconductores, microrredes y centros de datos generaron casi 775 millones de dólares en ingresos durante los primeros nueve meses, con un crecimiento orgánico del 26% y un crecimiento de aproximadamente el 40% incluyendo WGNSTAR.
• La directiva elevó el punto medio de sus previsiones de BPA ajustado para el ejercicio fiscal 2026 a un rango de 3,95 a 4,10 dólares. Se mantiene la proyección de crecimiento orgánico de los ingresos del 3% al 4%, con tendencia hacia la parte alta del rango.
• Technical Solutions afrontó aplazamientos de proyectos por valor de aproximadamente 15 millones de dólares en el tercer trimestre. La directiva señaló que casi toda la actividad retrasada debería trasladarse al cuarto trimestre, mientras que se espera que una menor parte pase al primer trimestre fiscal de 2027.

Datos financieros clave

Rendimiento comercial y operativo

Empresas e Industria: Los ingresos cayeron un 2,6% debido a la pérdida de un gran cliente en el Reino Unido y a la salida de otros clientes, especialmente en la Costa Oeste. El beneficio operativo aumentó a 75 millones de dólares, mientras que el margen se amplió 30 puntos básicos hasta el 7,4%, ya que las medidas de costes y las mejoras operativas compensaron la reducción de ingresos.

Aviación: Los ingresos crecieron un 12% hasta los 328,1 millones de dólares, impulsados por la sólida demanda de pasajeros y la puesta en marcha del contrato de Heathrow. El margen operativo disminuyó del 6,8% al 5,6% debido a que las aerolíneas clientes buscaron reducciones de costes como respuesta al encarecimiento del combustible para aviones. Los aeropuertos representan ahora aproximadamente el 60% de los ingresos de Aviación.

Manufactura y Distribución: Los ingresos aumentaron un 18% hasta los 481 millones de dólares, lo que incluye un crecimiento orgánico del 8% y un crecimiento del 10% procedente de WGNSTAR. El beneficio operativo aumentó a 40,5 millones de dólares, pero el margen disminuyó del 8,9% al 8,4%. Excluyendo la amortización incremental de WGNSTAR, el margen fue del 9,2%.

Educación: Los ingresos subieron ligeramente hasta los 235,8 millones de dólares. El beneficio operativo aumentó un 9% hasta los 23 millones de dólares y el margen se amplió 70 puntos básicos hasta el 9,7%, impulsado por la eficiencia laboral y la gestión eficaz del escalado de precios.

Soluciones Técnicas: Los ingresos aumentaron un 4% hasta los 259,9 millones de dólares, incluyendo un crecimiento orgánico del 2%. La sólida actividad en climatización (HVAC) y almacenamiento de energía en baterías se vio compensada en parte por retrasos en proyectos de microrredes. El beneficio operativo aumentó a 21,5 millones de dólares, con una mejora del margen del 7,8% al 8,3%.

Los negocios de semiconductores, microrredes y centros de datos representan ahora más del 11% de los ingresos de ABM y presentan un margen operativo combinado de dos dígitos. Los ingresos por semiconductores crecieron un 65% de forma orgánica en los primeros nueve meses y se más que duplicaron incluyendo casi dos trimestres de WGNSTAR. Los ingresos por microrredes aumentaron un 17% orgánicamente, mientras que los ingresos de centros de datos crecieron un 8% de forma orgánica.

ABM también espera concretar un contrato de empresa conjunta para suministrar una microrred o un sistema principal de energía de respaldo para el Cuerpo de Ingenieros del Ejército. La parte correspondiente a ABM se valora en aproximadamente 20 millones de dólares y se prevé su ejecución en el año natural 2027.

Previsiones de la directiva

• BPA ajustado: De 3,95 a 4,10 dólares para el ejercicio fiscal 2026, elevándose el punto medio tras los resultados del T3.
• Crecimiento orgánico de los ingresos: Del 3% al 4%, y la directiva sigue esperando un resultado orientado hacia la parte alta del rango.
• Crecimiento de los ingresos totales: Se prevé en la parte alta del rango del 4% al 5%, incluyendo aproximadamente un punto porcentual aportado por WGNSTAR.
• Margen operativo de los segmentos: Del 7,7% al 7,8% para el ejercicio fiscal 2026. La directiva espera que el margen del T4 se sitúe significativamente por encima de este rango e indicó que podría superar el 8%.
• Flujo de caja libre normalizado: Aproximadamente 285 millones de dólares antes de costes de transformación e integración, el pago contingente (earn-out) final de RavenVolt y cualquier reestructuración adicional.
• Flujo de caja libre reportado: Aproximadamente 210 millones de dólares, superior a la previsión anterior de 185 millones de dólares.
• Gastos por intereses: Aproximadamente 110 millones de dólares.
• Tasa fiscal normalizada: Del 29% al 30%, antes de partidas extraordinarias.

La directiva prevé que Soluciones Técnicas registre un crecimiento orgánico de dos dígitos en el T4 a medida que avancen los proyectos de microrredes aplazados. Para el ejercicio fiscal 2027, la empresa espera que Empresas e Industria vuelva al crecimiento orgánico hacia mediados de año, que Manufactura y Distribución y Soluciones Técnicas mantengan un sólido crecimiento, y que Educación registre un crecimiento orgánico de un dígito bajo.

Riesgos y aspectos a vigilar

• Soluciones Técnicas sigue expuesta a la volatilidad trimestral derivada de los plazos de los proyectos. Los retrasos del T3 se debieron a la decisión de un cliente de priorizar otros proyectos de capital.
• Empresas e Industria sigue afrontando presiones derivadas de la pérdida de clientes, la tendencia al trabajo desde casa y la agresiva fijación de precios por parte de la competencia en el norte de California.
• El aumento de los costes del combustible para aviones está presionando la situación económica de las aerolíneas y los márgenes de Aviación, aunque la directiva señaló que el efecto parece estar estabilizándose.
• La amortización de intangibles vinculada a WGNSTAR está pesando sobre los márgenes de Manufactura y Distribución. ABM asignó aproximadamente 12 millones de dólares de amortización de intangibles al ejercicio fiscal 2026.
• Los gastos por intereses aumentaron en 4,2 millones de dólares interanualmente hasta los 29,5 millones de dólares en el T3, debido a un nivel medio de deuda más elevado tras la adquisición de WGNSTAR.
• La directiva mantiene la cautela ante la incertidumbre económica general, a pesar de calificar la mayoría de sus mercados finales como sólidos.

Puntos destacados de las preguntas y respuestas de los analistas

• La directiva afirmó que la cartera de proyectos de centros de datos multiplica por varias veces su nivel de hace un año, siendo los operadores de coubicación el objetivo principal a corto plazo. ABM prevé que el crecimiento en centros de datos alcance una sólida tasa de dos dígitos con el tiempo, aunque no se facilitó ninguna previsión formal.
• Aproximadamente entre el 15% y el 20% de los ingresos de alto crecimiento comentados se basan en proyectos. ABM pretende convertir un mayor número de proyectos completados en contratos de mantenimiento recurrente y relaciones con clientes a más largo plazo.
• WGNSTAR está evolucionando por encima de las previsiones anteriores de ingresos anualizados de ABM de 120 a 130 millones de dólares. La directiva también citó dos o tres primeros éxitos de venta cruzada en la base combinada de clientes de semiconductores.
• ABM indicó que sus mejores perspectivas de tesorería reflejan principalmente una mayor eficiencia en los cobros, la ejecución del capital de trabajo y un uso creciente de las capacidades de su sistema ERP ya estabilizado.
• La directiva sugirió que una composición en Aviación de aproximadamente el 70% en aeropuertos y el 30% en aerolíneas en un plazo de tres a cinco años sería favorable, pero subrayó que se trataba de una estimación orientativa y no de un objetivo formal.

Transcripción completa de la llamada de resultados

Transcripción completa de la conferencia de resultados

Comentarios de la dirección

Operator

Greetings. Welcome to ABM Industries Third Quarter 2026 Earnings Call. [Operator Instructions] Please note that this conference is being recorded.

At this time, I'll turn the conference over to Paul Goldberg, Senior Vice President, Investor Relations. Thank you. You may now begin.

Paul Goldberg

Good morning, everyone, and welcome to ABM's Third Quarter 2026 Earnings Call. My name is Paul Goldberg, and I'm the Senior Vice President of Investor Relations at ABM. With me today are Scott Salmirs, our President and Chief Executive Officer; and David Orr, our Executive Vice President and Chief Financial Officer.

Please note that earlier this morning, we issued our press release announcing our third quarter 2026 financial results and outlook. A copy of that release and an accompanying slide presentation can be found on our website, abm.com. After Scott and David's prepared remarks, we will host a Q&A session.

But before we begin, I would like to remind you that our call and presentation today contains predictions, estimates and other forward-looking statements. Our use of the words estimate, expect and similar expressions are intended to identify these statements, and they represent our current judgment of what the future holds. While we believe them to be reasonable, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially. These factors are described in a slide that accompanies our presentation as well as our filings with the SEC.

During the course of this call, certain non-GAAP financial information will be presented. A reconciliation of historical non-GAAP numbers to GAAP financial measures is available at the end of the presentation and on the company's website under the Investor tab.

With that, I would like to now turn the call over to Scott.

Scott Salmirs

Good morning, everyone, and thank you for joining us. We had a strong third quarter, particularly when you consider some of the puts and takes across the business. We delivered record quarterly revenue, 27% adjusted EPS growth and exceptional year-to-date cash flow, despite project timing in Technical Solutions and the anticipated impact of client exits in B&I. I think the quarter demonstrates both the resilience of our portfolio and our ability to execute operationally even when individual parts of the business don't move in a straight line.

On the revenue side, most of the business performed largely as we expected. Aviation and Manufacturing & Distribution continued to deliver strong growth. Education performed as expected, while B&I reflected the client exits we have discussed over the last several quarters. Technical Solutions was the one area where revenue came in below our expectations, driven by certain project deferrals from an important client. Based on our discussions with that client, we believe this is principally a timing issue rather than a change in the underlying demand environment, and we expect a meaningful portion of that activity to move into the fourth quarter.

What I'm particularly pleased with this quarter is our execution on profitability and cash flow. The cost actions we've been driving throughout the year, combined with disciplined working capital management, resulted in 27% adjusted EPS growth, 40 basis points of sequential segment margin improvement and an increase of over $150 million in year-to-date free cash flow.

Cash generation has historically been an important strength of ABM. Following the disruption associated with our ERP implementation, we've been very focused on restoring our performance, and the progress is increasingly visible in our results. Given our performance through the first 9 months, we are raising our full year free cash flow outlook.

I want to spend a few minutes on the part of the ABM story that I think is becoming increasingly important. Our position in semiconductor, microgrids and data centers. Because some of these businesses are project-oriented and can be lumpy quarter-to-quarter, I think the year-to-date numbers provide the best perspective. Through the first 9 months, these businesses generated nearly $775 million of revenue, growing 26% organically and approximately 40% when including WGNSTAR. Together, they now represent more than 11% of ABM's revenue and carry a double-digit blended operating margin. So these businesses have become meaningful within ABM, and we believe they have significant runway ahead.

In semiconductor, we made a strategic decision several years ago to invest ahead of what we believe would be a significant expansion of advanced manufacturing capacity. We invested in industry expertise, developed relationships with many of the leading manufacturers and established a strong position supporting semiconductor facilities. WGNSTAR significantly expands that opportunity.

One way to think about it is to picture the fab as the bull's eye in the semiconductor facility. Historically, ABM has operated around the bull's eye, providing a broad range of services. With WGNSTAR, we now have the highly specialized technical capabilities to operate inside the bull's eye as well. That significantly expands our addressable opportunity and allows us to provide a much broader range of services to semiconductor clients. The results so far have been really encouraging. Semiconductor revenue grew 65% organically during the first 9 months and more than doubled when including almost 2 quarters of WGNSTAR, and we are still early in realizing the opportunities across the combined client portfolio.

In microgrids, including battery energy storage systems, we have approximately quadrupled the sides of the business since entering the market in 2022. Through the first 9 months, revenue grew 17% organically. The underlying demand drivers remain compelling as clients increasingly invest in power resiliency and redundancy. We're also focused on broadening the client base and increasing the recurring component of the business over time.

To highlight our progress on diversification, in the coming days, we expect to finalize a contract to build a microgrid or primary backup power for the Army Corps of Engineers as part of a joint venture with a strategic partner. The total value to ABM is approximately $20 million, and we expect the project will be executed in calendar 2027.

And finally, data centers. Year-to-date, revenue grew 8% organically, but we believe the opportunity ahead is considerably larger than what is reflected in that current growth rate. Our pipeline and backlog continue to build, including work with many co-location customers, and we expect a meaningful portion of that activity to convert into revenue fiscal 2027 and into 2028.

Taken together, these businesses represent an important evolution in ABM's portfolio. We have a large, resilient core business that generates significant cash flow, while at the same time building meaningful positions in markets benefiting from powerful long-term investment trends. We believe that combination can contribute meaningfully to ABM's growth and margin profile over time.

Let me step back and briefly talk about what we are seeing across our markets as we move into the fourth quarter. With the Business & Industry, the trends we discussed last quarter remain largely intact. And Northeast continues to be our strongest commercial real estate market, while the West Coast, particularly Northern California, remains challenging. We continue to be disciplined in how we pursue and retain business. Our objective isn't simply to maximize revenue. We want client relationships where we see a credible path to attractive returns over time. Looking ahead, we expect B&I to return to organic growth around the middle of fiscal 2027 as we lap the large U.K. client exit we've previously discussed.

In Manufacturing & Distribution, the environment remains very constructive. Technology continues to lead the way, particularly semiconductor, and we're also seeing healthy activity in e-commerce, pharma and broader industrial manufacturing. Based on what we see today, we believe M&D is positioned to sustain strong organic growth into fiscal 2027 and beyond.

In Aviation, passenger demand remains healthy. The near-term issue is pressure on airline economics from higher jet fuel costs, which is creating some pressure on our margins. We have incorporated that into our outlook and are actively working to mitigate the impact. And at the same time, our deliberate shift towards airports continues to improve the long-term profile of the business. Airports now represent approximately 60% of the Aviation revenue and provide greater consistency, broader cross-selling opportunities and more stable economics.

Education continues to be a consistent cash-generative business. The team is executing extremely well, and we expect low single-digit organic growth as we move into fiscal 2027.

And finally, in Technical Solutions, the underlying market fundamentals across energy resiliency, data centers and HVAC remains strong. As I mentioned earlier, Q3 was affected by certain project deferrals of an important client. These delays were not driven by interest rates, supply chain constraints or permitting challenges. The client made a decision to prioritize other capital projects during the quarter. We are now executing on many of those deferred projects, which should translate into significant sequential improvement in ATS revenue, operating profit and margin in Q4. More broadly, given the demand we continue to see across ATS, we expect another year of strong growth in fiscal 2027.

So as we enter the fourth quarter, I will leave you with 3 things. First, the majority of our end markets remain healthy. And where we do have pressure, we understand the issues and are actively managing them. Second, our operational execution continues to improve. Margins increased sequentially, cash flow has strengthened considerably, and the cost actions we've been taking are showing up in our results. And third, semiconductor, microgrids and data centers are becoming increasingly meaningful contributors to ABM, and we believe they have substantial runway ahead. We are raising the midpoint of our adjusted EPS outlook and raising our full year free cash flow outlook based on our strong third quarter results and our confidence in delivering in the fourth quarter. There's still work to do, but we feel good about the position we're in and the foundation we are building as we head into fiscal 2027.

And with that, I'll turn it over to David.

David Orr

Thanks, Scott, and good morning, everyone. Let's start on Slide 7. Revenue grew 4.2% year-over-year to an all-time quarterly record of slightly above $2.3 billion, driven by 2.1% organic growth and a 2.1% contribution from acquisitions, primarily WGNSTAR. Organic growth was especially strong in Aviation and M&D, which grew 12% and 8%, respectively. Education was up slightly, while Technical Solutions posted organic growth of 2%, reflecting project timing, which I'll discuss shortly. B&I declined 3% as expected. I'll get into the segment details in a few minutes.

Turning to Slide 8. As Scott mentioned, we delivered a strong earnings quarter. Net income increased 19% to $49.7 million or $0.84 per diluted share compared to $41.8 million or $0.67 per diluted share in the prior year. Adjusted net income was $61.5 million or $1.04 per diluted share versus $51.7 million or $0.82 per diluted share last year, reflecting increases of 19% and 27%, respectively. These significant year-over-year increases primarily reflect higher segment operating profit, lower tax expense and reduced ongoing corporate costs, partially offset by higher interest expense. Per share measures were further benefited from share repurchase activities completed earlier in the year.

Adjusted EBITDA increased $13.8 million or 11% over the prior year to $139.6 million, driven by higher segment operating profit and lower corporate costs. Segment operating margin increased 40 basis points sequentially to 7.7%. On a year-over-year basis, the segment margin was essentially flat as operational efficiencies in B&I, M&D and Education were offset by anticipated pressures in Aviation and higher amortization expense related to the WGNSTAR acquisition. Excluding acquisition-related amortization, margin would have been 7.8%.

Now let's turn to segment performance, beginning with Slide 9. B&I revenue declined 2.6% in the third quarter, as expected, driven by the Q2 exit of a large U.K.-based client and the impact of certain other client exits, particularly on the West Coast. We expect revenue trends to be similar in Q4, so we anticipate continued incremental margin improvement as our operational actions take further hold. Operating profit increased to $75 million and margin expanded 30 basis points year-over-year to 7.4% compared to $73.8 million and 7.1% in the prior year period. These improvements primarily reflect cost actions and operational improvements, along with the benefit of lapping certain lower-margin contracts entered into in the third quarter of last year.

Aviation grew 12% to $328.1 million, supported by healthy travel demand and the continued ramp of our Heathrow contract. Operating profit was $18.4 million with a margin of 5.6% compared to $19.7 million and 6.8% last year. Profit and margins were pressured by airline clients who are reacting to elevated fuel costs by seeking cost relief from their service providers. We factor this into our outlook and are actively managing the pressure through operational efficiencies.

Turning to Slide 10. M&D generated $481 million in revenue, an 18% increase year-over-year, including organic growth of 8% and 10% growth from the WGNSTAR acquisition. The strong organic growth was driven by continued client expansions across the segment. Operating profit was $40.5 million with a margin of 8.4% compared to $36.4 million and 8.9% last year.

On a year-over-year basis, the margin change primarily reflects ongoing investments in sales and industry expertise talent to support our long-term growth strategy as well as nearly $4 million in incremental amortization expense connected with the WGNSTAR acquisition. Excluding incremental amortization, margin was 9.2%, which we view as a solid base from which to expand as we outgrow the amortization and continue to cross-sell higher value solutions to our semiconductor and technology clients.

Education revenue rose slightly to $235.8 million and delivered excellent operating performance in the quarter, which is the seasonally strongest for profit and margin. Operating profit increased 9% to $23 million, and margin expanded 70 basis points to 9.7%. This improvement was driven by enhanced labor efficiency and effective escalation management.

Technical Solutions third quarter revenue was $259.9 million, up 4% year-over-year, including 2% organic growth and 2% from acquisitions. Organic growth reflected strong HVAC and battery energy storage system activity, partially offset by certain project delays in our microgrid business, driven by an important client. These delays were compounded by a difficult comparison against a very strong third quarter last year. Operating profit was $21.5 million with margin at 8.3% compared to $19.4 million and 7.8% last year. The increase in operating profit and margin was mainly driven by positive service mix, partially offset by impacts in our microgrid business due to project delays.

Looking to the fourth quarter, we expect significant sequential increases in revenue, operating profit and margin on higher microgrid activity as projects that shifted out of the third quarter move forward. As we discussed earlier in the year, the back half of the fiscal year and specifically the fourth quarter has historically been the strongest operating quarter of the year for Technical Solutions. This year will be no different.

Now turning to Slide 11. We ended the quarter with total indebtedness of $1.8 billion, including $22 million in standby letters of credit. Our total debt to pro forma adjusted EBITDA ratio was 2.9x. We achieved our goal of leverage being below 3x a quarter earlier than originally planned, reflecting strong sequential progress, driven by our robust cash flow.

We expect to drive leverage even lower by year-end. Available liquidity stood at $606 million, including $110 million in cash and cash equivalents. During the quarter, we closed on a $300 million accounts receivable facility. This diversifies our funding sources and reduces our marginal cost of borrowing relative to our existing revolving credit facility and also represents a meaningful enhancement to our overall capital structure.

As Scott mentioned, we had a very strong cash generation quarter, which has long been a hallmark of ABM. Third quarter cash from operations was $146.8 million, and free cash flow was $128.4 million. For the first 9 months, cash from operations was $275 million, and free cash flow was $199.6 million versus cash from operations of $101 million and free cash flow of $42.4 million in the prior year period. This represents an improvement of over $150 million in free cash flow during the first 9 months, driven by strong working capital management and ERP stabilization. As a result of our progress on cash generation year-to-date, we're raising our full year free cash flow expectations, which I'll discuss in a moment.

Interest expense in the quarter was $29.5 million, up $4.2 million from last year, reflecting larger average debt balances driven by our WGNSTAR acquisition. This was partially offset at the net income level and lower tax expense, which was $4.1 million below last year, reflecting certain discrete tax benefits recognized in the quarter.

Turning to our fiscal 2026 outlook on Slide 12. As Scott noted, we're encouraged by the relative health of our end markets while remaining mindful of the broader economic uncertainty. As such, we're raising the midpoint of our fiscal 2026 adjusted EPS range, which is now expected to be $3.95 to $4.10. This raise reflects our strong third quarter performance and our confidence delivering on our fourth quarter expectations.

As a reminder, our full year organic revenue growth outlook is 3% to 4%, and we continue to expect to be toward the higher end of that range. Aviation, M&D and Technical Solutions are expected to grow above that range, while B&I and Education are projected to be below that range. The WGNSTAR acquisition is expected to deliver approximately 1 point of additional revenue growth, bringing total growth to the high end of our 4% to 5% range.

We're modestly updating our segment operating margin outlook to 7.7% to 7.8% for fiscal 2026, reflecting year-to-date performance and slightly higher intangible amortization for WGNSTAR, which, in aggregate, accounts for 10 basis points of operating profit margin impact for the full year. That said, fourth quarter margin is projected to be meaningfully above the high end of that range, reflecting the anticipated seasonal improvements in ATS mix and the continued benefit of our operational actions across the portfolio.

Our forecast for interest expense remains at approximately $110 million and our normalized tax rate before any discrete items, including the possible extension of the work opportunity tax credit program, is still expected to be 29% to 30%.

As I mentioned earlier, we're encouraged by our progress generating cash and are raising our full year expectations. We now expect normalized free cash flow of approximately $285 million in fiscal 2026 before the impact of transformation and integration costs, final RavenVolt earn-out and any incremental restructuring.

On a reported basis, free cash flow is expected to be approximately $210 million versus our prior forecast of $185 million, a $25 million improvement that reflects the strong working capital performance we've delivered through the first 9 months of the year. I also want to take a moment to recognize the efforts of our operators and our finance and treasury teams who drove outstanding third quarter cash flow. These results are a product of discipline and focus on the fundamentals of working capital management.

With that, Scott, I'll turn it back to you for closing remarks.

Scott Salmirs

Thanks, David. Let me close with a couple of thoughts. We feel good about where ABM stands today. Our core business remains resilient. Cash flow has improved significantly, and we are making progress on margins and operating efficiency. At the same time, the investments we've made in semiconductor, microgrids and data centers have created meaningful growth platforms in markets where we believe demand will remain strong for years.

As we move towards fiscal 2027, our priorities are straightforward. Finish this year strong, execute on the opportunities already in front of us, continue improving margins and cash flow and allocate capital with discipline.

And finally, I want to thank our team. More than 100,000 people show up every day and deliver for our clients. Ultimately, the results we are discussing today come from their execution, expertise and the trust they build with our clients.

We look forward to sharing our fiscal 2027 outlook when we report fourth quarter results.

With that, we'll open up the line for questions.

Operator

[Operator Instructions] And our first question is from the line of Tim Mulrooney with William Blair.

Preguntas y respuestas

Timothy Mulrooney

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

Scott Salmirs

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

Timothy Mulrooney

And what -- okay. And what did you say -- how the profitability of these 3 businesses combined compares to your corporate average?

Scott Salmirs

Yes. So this is -- we're talking about double-digit versus our average, which is typically in the low single digits. In terms of -- and that was more on the growth side, I should say. But you know where our EBITDA margins are in comparison to us. In a lot of cases, it could be double in these markets.

Timothy Mulrooney

Yes. Okay. Appreciate that. David, I had one for you on the cash flow guide and then I'll hop. I think last time you communicated about this, you said you were targeting $250 million of free cash flow less, I guess, $55 million of nonrecurring cash expenses. So really, it was like $185 million, and now you're saying $210 million, which is $25 million higher. Is that right? Is all of that right? Is all that apples-to-apples?

David Orr

Yes, Tim, you got it right. So $210 million on an as-reported basis is the number we're targeting. As you said, we're really pleased with where we landed cash flow for the quarter and our raise of guidance there.

Timothy Mulrooney

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

David Orr

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

Timothy Mulrooney

Yes. Good execution. Congrats on a nice quarter.

Operator

The next question is from the line of Justin Hauke with Robert W. Baird.

Justin Hauke

Great. I guess I wanted to go back to the ramp in the fourth quarter. And Scott, I appreciate, you kind of walked through some of the moving pieces. But I guess I'm just curious on the deferred projects, just how much is already -- given that we're halfway through the quarter, I mean, how much has already started? Is there anything that needs to still start? I'm just trying to understand the line of sight and the visibility on those deferrals.

Scott Salmirs

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

Justin Hauke

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

Scott Salmirs

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

Justin Hauke

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

David Orr

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

Scott Salmirs

Yes. And I would also point out that we've already had 2 or 3 cross-sells over such a short period of time, which is really part of the thesis of this, and you heard in my prepared remarks how inside that bull's eye of the fab and outside, and now when you think about that and you say that, well, ABM has about 50 semiconductor clients that we were dealing with prior to WGNSTAR, WGNSTAR has 30-plus clients. So to be able to start cross-selling this, we're just seeing the start of it, but it's really positive.

Operator

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

Faiza Alwy

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

Scott Salmirs

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

David Orr

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

Faiza Alwy

All right. Great. That's very helpful. And then just on the -- you have strong cash flow improvement this year. I'm curious if you have -- I know it's early and you're not giving a '27 guide or anything like that. But David, as you look at kind of where we are, how should we think about cash flow in 2027? Are there any sort of big expense items or anything else that we should keep in mind?

David Orr

No big expense items out of the ordinary, I would say. Obviously, as I mentioned earlier, we're very, very pleased with our performance year-to-date on cash flow. When I step back and think about it, we've funded a roughly $250 million acquisition. And within the last 9 months, used $100 million of our capital to buy back shares and have $51 million of dividends, all the meanwhile driving below 2.9 -- driving below 3x levered at the end of the day. So we're excited about that. And I think -- I don't think there'll be any surprises next year relative to cash flow, but we look forward to come back and talk to you about that in December.

Operator

The next question is from the line of David Silver with Freedom Capital Markets.

David Silver

Yes. I guess first question, I would like to go back to Slide 6 and your discussion of your opportunities in technology. And in particular, I wanted to focus on the data center panel. So in my view, I mean, that's an area where there's a tremendous amount of growth or build-out that's going to occur over the next handful of years. From your perspective, Scott, maybe 2 questions. One is, have you been bidding for business for data centers that are kind of under construction? Or what is the cadence on contract, your pursuit of contracts and when they get awarded?

And then secondly, taking up your analogy of the bull's eye and the target and everything, is quality uptime kind of, in some sense, your path to getting inside the bull's eye of the more significant data center projects? And if that's the case, can you expand that geographically organically? Or is this the case where you're going to be looking for maybe similar service companies targeted -- in targeted geographies?

Scott Salmirs

Sure. Sure. So as it relates to the data center question first, we have been doing a lot of mining in that area and we're bringing on sales assets for that, too. So -- and I think I've said in my prepared remarks that the 8% organic, I don't believe it's reflective of what we see over the next 2 or 3 years. In fact, our pipeline right now is a multiple of where it was at this time last year. So we're really optimistic that, that will be, over time, very, very healthy double-digit growth in data centers.

And then with quality uptime, that's largely UPS power, which -- I think I've said this before on the call, but think of that as the transition between the power going out and the generator starting or the microgrid starting up, right? You would need these UPS batteries to transition through. So the way to think about quality uptime, it's just a big piece of the puzzle. It's a really important part. As we go selling to data centers, as we go selling to big retailers, anyone who's looking for power generation is also going to be looking for UPS power for the transition. So quality uptime is very, very important to the piece to the puzzle. From our perspective, it was a very strategic acquisition for us.

David Orr

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

David Silver

Okay. Great. I'd like to -- if you don't mind, I'd like to swing over to some of your comments about, I guess, over the last couple of quarters, but about just developments in the California market, in particular, or maybe the West Coast. But really, California, I mean, it is kind of a foundational business for your company. And then not too long ago, you did do the big Able Services acquisition. And certainly, there's a lot of headlines about business trends in that area in that geography. So just from a big picture perspective, Scott, I mean, what are the keys to kind of -- optimizing what you're doing in that geography here? I mean are the pressures more on the Able -- the integrated services side? Or is it more just standard B&I? And where do you think the opportunities are when the dust settles a little bit from the trends you're seeing?

Scott Salmirs

Yes, that's a good question. I'm glad you brought that up because I want to make sure it's clear that this isn't what we view as a systemic problem. It's really now migrated to Northern California. We had pressures early in the year in Southern California. That's stabilized. That's behind us now.

In Northern California, it's just -- it's part of a trend right now, even though there's strong growth in that market from AI. It's not a people-heavy business. And as we go through those spaces, there's still a lot of work from home. And what's end up happening, which is a unique thing right now, and it started in Southern California, now NorCal, which is the competitors are just pricing at places that we're just not willing to work out.

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

Operator

The next question is from the line of [ Brianna Camden ] with UBS.

Unknown Analyst

This is Brianna for Josh Chan. I guess on the outlook, can you maybe talk through why EPS midpoint is higher if margins are lower and most of the other items stay the same?

David Orr

Yes, sure. So I think it just reflects where we are 9 months through the year. We have a good line of sight on what we think the revenue is going to be for the full year. And we have a very prescriptive approach to margins in our forecast. I think you could expect margins north of 8% in the fourth quarter, and that tracks to basically what we did last year at 8.2%. And as you know, Q4 has just been historically a very seasonally strong quarter for us. So it gives us that confidence.

Unknown Analyst

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

David Orr

Yes. I think the biggest margin accelerator in Q4, which has been very, again, historically consistent, is the ATS business has done anywhere between 11% and 13% operating profit margin for the last 2 quarter [ 4s ], in 2024 and 2025. We don't see this year being any different. In fact, we're really encouraged by the health of the backlog and what we're seeing early -- as an early start in the quarter. So that's the single biggest driver.

Operator

The next question is from the line of Marc Riddick with Sidoti & Company.

Marc Riddick

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

Scott Salmirs

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

Marc Riddick

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

Scott Salmirs

Yes. It's kind of hard to predict, to be honest with you. I know our focus is on that. And if it landed 3 to 5 years from now, it's 70-30, I think we'd all be happy with that. And I think that's -- it's not necessarily even a reflection that we think the airlines are going to be weaker. I think there's going to be so much infrastructure going on in airports.

I think there's going to be an opportunity as airports upgrade around the country that they're going to want more enhanced services, and they're going to want the kind of service that we perform at LaGuardia, which we've talked about, where we're kind -- an integrated approach. So 70-30 is not necessarily scientific. It's just kind of a sentiment that we're thinking over time, but there's a lot that can happen in that industry. But we love the way we've been heading.

Operator

The next question is from the line of Tate Sullivan with Maxim Group.

Tate Sullivan

A couple of follow-ups, Scott. In the prepared remarks, you mentioned an award for the microgrid work for the Army Corps of Engineers. Is that a long-time customer of ABM? Is it related to an acquisition? I think you had a previous announcement with them, but just check in, please.

Scott Salmirs

Yes. No, this is part of a -- they're not a long-term client for us, which is even more exciting. Actually, it's part of a joint venture that we went in to pitch this with another company. So we're a component part of this. But it's really thrilling because the provider picked us to partner with because of the work that we do in microgrids. And as you can imagine, with the Army Corps of Engineers, we think there is a big addressable market within the government on these types of projects. So hopefully, this is the beginning of a really healthy future over time.

Tate Sullivan

And a follow-up on Aviation. You mentioned cost relief from the customers are seeing costs, but the revenue growth has been double digits the last 3 quarters. Are you continuing to see good traffic in the airports you're working?

Scott Salmirs

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

David Orr

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

Tate Sullivan

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

David Orr

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

Operator

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

Scott Salmirs

Well, thanks, everybody, for joining in. I hope you have a happy fall. And everyone's back to work now, summer's over, and we will see you in Q4 with our results and our full year guide for '27. But thanks, everybody.

Operator

Thank you. This will conclude today's [Audio Gap].