I'm Susie Choi, Head of Investor Relations for ABM. I thank you all for joining us today. I think we're about ready. So I'm just going to jump into the program for the day. 1st and foremost, I'm just going to say it, given the world we live in, if everybody can shut off their phones or put it on silent, that would be fantastic.
As you can see here, we have a great program for you and we've got an agenda that you should find very, very fulfilling today. Today, we are a SAFER ABM. So many of you who are familiar with the story will appreciate that. So before I introduce our first speaker, I'd like to just conduct our daily moment for safety, which will be contextualized later in the program. I'd like to point out the exits.
There's one here and there's one in the back of the room. So if there is an emergency, please proceed to the designated areas through those doors and wait for personnel to direct us. And it's always important to be calm and collected as we make our way through the doors. So please keep that in mind. And in the spirit of safety, I'd like to refer to our Safe Harbor statement.
As outlined on this slide, we will be making forward looking statements during our presentation today. And for more information about what factors might cause results to differ from these expectations or the nature of the non GAAP financial information we will be discussing, please refer to these concise slides. And with that, I'll turn it over to Scott Salmeyers, our President and Chief Executive Officer.
Thanks, Susie. Welcome, everybody. So happy you're here today. We just couldn't be more excited and the energy around ringing the opening bell of the New York Stock Exchange was just incredible. And we think of this as a privilege, right?
And feel very fortunate. It's great to see some familiar faces here. We have our senior management team, our industry group presidents in the 1st row. So at break, feel free to say hello to them. And we have a really, really well rounded agenda for today.
After my portion, Scott Giacobbe, our new Chief Operating Officer, is going to come up and give you some insight into each of our industry groups, their characteristics and why we think we have competitive advantage. After that, Dave Goods is going to come up, our new CHRO. Been here for 2, 3 years now, part of our journey. And he's going to talk to you about people, how we're engaging our people and what we're doing to fight some of the headwinds in our entire industry with the fact that we have rising wages and low unemployment. And he'll tell you why we think we are uniquely positioned to compete.
And then lastly, we're going to have Anthony Scaglione come up and give you the financial picture. We strategically placed Anthony at the end for the reason that if we put him before the break, we know you'd all leave. So we're not stupid. But so in addition to having a lot of familiar faces here, we have a lot of new faces here, not only in the room, but on the webcast, investors that have an interest in ABM. And for that reason, we thought it would be important for me to just reground everyone on the history of ABM and the original thesis behind 2020 vision.
So if you were here for the earlier ceremony, you heard the President of the New York Stock Exchange talk about ABM and the fact that Morris Rosenberg started this company in 190 9 with 1.25 dollars and the aspiration to clean storefront windows in San Francisco. Fast forward over 100 years, and we are a $6 plus 1,000,000,000 Fortune 500 company. And that's really incredible. We're a handful of companies that have survived over that period of time, maybe a handful, right? Think about all the changes that have happened in society over the last 100 years, right?
When Morris started this company, if you were living in America, you were hoping to get electricity soon in your house. I think there was about 8,000 cars on the road and 3 quarters was steam engine, right? There was no Internet, no PC, but the firm adapted. The firm changed with innovation, and the firm is resilient. Through that time period, there were 2 world wars, a Great Depression and many recessions, including the Great Recession a few years ago.
And what did ABM do? They thrived and survived. We're just a resilient culture that's adaptable. But more importantly, we stick to our core. We didn't morph into a manufacturing company or a technology company.
We stuck to our knitting, as they say. But just because we're defensive in nature and have this durable model, doesn't mean we were myopic and we buried our head in the sand. We did quite the opposite. Over the last 10 years, the firm has been on a journey and it really started in 2007 with the acquisition of OneSource, which took us to a $3,000,000,000 company and landed us as the absolute king of janitorial services in the United States. In just about any market you could go to, ABM was number 1.
And if for some reason we weren't number 1, we were number 2. And that was the core of ABM, and that's what we know today. But then a couple of years later, we did the Link acquisition, and that helped us broaden that core. Now we're doing sophisticated technical services, electrical, mechanical work, retrofit work, complementary to the janitorial service and letting us to continue to service our customers. Shortly after that, we did the and the AirServe acquisition.
Today, we have relationships with every major airline in the world. We're at over 100 airports. And with the Healthcare acquisition, we are doing services from acute to non acute in over 100 hospitals. Most recently, ABM didn't stop. We built our core outside of the U.
S. Into the U. K. With our Westway acquisition in GBM. And now we're doing integrated facility services across the U.
K. And it's one of our fastest growing segments. Just in the last few months, we won the largest aircraft cabin cleaning contract in the United Kingdom. We won the largest contract in the history of our firm with the TFL and servicing the London Underground. And as recently as a couple of weeks ago, we won the janitorial contract to service JPMorgan's European headquarters at Canary Wharf.
And this was all leading up to our biggest acquisition in the history of ABM with our acquisition of GCA. Right now, we are the absolute leader in education services, K-twelve and Higher Ed. And with their Industrial and Manufacturing business, that led us to build a new industry group, which I'll talk about a little later. But even though we were just broadening our core, we were also refining it. We made divestitures, key divestitures that didn't make sense on our platform anymore.
We sold our man guarding business. And most recently, we sold our government service business, which was essentially translation services for the military in places like Afghanistan and Iraq. It doesn't necessarily comport with what you think about for ABM. So over this time period, we've doubled our revenue base, we've broadened our services, and we've created a refinement and approach to the market that we think is compelling. So let's go back to that core and explore it
a little
bit. We think of our services in 7 discrete areas, founded by janitorial services. And when you think about janitorial services for ABM, you think of office cleaning, but we do far more than that. We are in biopharma companies doing clean rooms. We are in data centers doing under floor cleaning here and in the U.
K. We are in hospitals cleaning operating rooms and surgical centers. So we've taken that core business of office cleaning and built complementary services around that. In the Electrical and Mechanical division, you think of retrofit projects, but we are also doing massive lighting retrofits, not just in office buildings, but for retailers across the country. We're doing energy management programs.
And then even in our nascent business, Landscape and Turf, where you think about office parks, we are now doing golf courses. And with the education space that we now have with GCA, we just picked up 3 certified sports field technicians that there's only about 100 in the whole country. Last month, I had the good fortune to tour through the University of Miami, one of our newest clients through GCA. And I happen to personally be a big hurricanes fan. My son went there.
And I'm walking through with our turf manager, and he's telling me he's on the phone 2 or 3 times a day with Mark Rich, talking about how to manicure the practice deals. And I'm thinking back to 190 9 when this company was started with the squeegee and where we are today with this service platform that really lets us work with our clients in such a unique way, more than anybody can. Some of the things that we do require certifications and protocols that take years and are barriers for the small fragmented companies that are so rampant in our industry. But what that all lets you do is work with a client base like this. This is just incredible.
Just take a look at this slide. We started with 5 slides, and we ended up down to 1 saying, we don't want keep going through, but this is all about brand. And these brands want to be associated with the brand, right? They look at ABM as a brand. We're a brand that's considered to be a trusted partner, one that executes and one that does what we say we're going to do.
But just because we do that, it doesn't mean that we're organized correctly for long term profitable growth so that we're here for the next 100 years. So let's look at what the firm will look like in 2015. We were broken up into 3 segments. The core of that was our on-site services, which was $4,000,000,000 of our $5,000,000,000 And that was essentially a service line approach, janitorial, engineering, parking and back then security. And the execution of those services were in 4 segregated siloed regions that had complete autonomy on operation.
Then we had our BSG segment, which was our AIDS Technical Services Business, our Government Translation Services Business and Health Care. Not a lot of operating synergies between that segment. And lastly was our Other, and that's what we called it. And that was the AirServe acquisition, which was doing $350,000,000 of revenue in the aviation space, but we never married that up with the $350,000,000 in aviation business we were doing on-site. So from an enterprise standpoint, you could see it's not very strategic.
And then you have an operational framework that goes with that. You have to have 14 accounting centers, because if you have 300 branches within those segments, all autonomous, there was no way to centralize. You have to have procurement that's distributed because, again, if everyone has the autonomy to buy what they want, how could you really reach the scale to get best in class pricing? And how could you put together a compliance model? The IT approach had to be customized, because if everyone can face off with the clients however they wanted, you can customize your invoices, you can customize your processes.
So you take your ERP and you do hundreds of hundreds of patches to make it work. And then lastly, we couldn't really have operating leverage, right? Because if everyone is operating independently, how are you going to get best practices, because you have complete autonomy. So here's the financial picture in 2015. Dollars 4,900,000,000 in revenue, 3.8 percent EBITDA margin and $1,600,000,000 in market cap.
That was the starting point for 2020 vision. We did a 4 month deep dive study in the summer of 2015. We looked at all the things that we just talked about. We also talked to our clients. And there was a consistent theme with our clients.
And the theme was, we love you guys, but we wish you knew us better, we wish you did more for us, and we wish there was some consistency in service across your platform. The first area that we knew we had to attack was how we were structured and how we went to market. And from that, we came up with our industry group segments. No longer we were going to face off against the market by service line, we were going to try to be a solution provider where we can cross sell services and treat the customer as one, bringing our whole platform to bear. We picked these segments because they each had the characteristics that made sense for the platform that we already had, for our resume, and where we thought the market was going and how we can compete.
And Scott's going to talk to you more about that after me. But everyone has different characteristics. We have our Business and Industry Group, which is about half of our revenue portfolio, operating in a mature market. And are we expecting outsized growth from B and I in a mature market where we're the category killer? Probably not.
Actually, Renee Jacobson, who runs the group, is here, so you didn't hear that. We're expecting tremendous growth. But from a margin standpoint, incremental margins, the smallest of incremental margin moves the needle on an EPS perspective. So our standard operating practice from the ABM way is going to be compelling in B and I. Aviation Group is a little different.
We think over the long term, we could have terrific growth, both here and abroad. But we're not expecting much from the margin profile. And Don Stevens, you didn't hear that either. But the truth of the matter is, a third of our business in Aviation is large municipal parking contracts. These parking contracts don't have a great margin profile, but they have amazing free cash flow for us and drive amazing earnings per share.
But you're never going to see real margin accretion with the service mix that we have. And we believe we have to have that service mix in Aviation, because we talk about the passenger experience and taking people from car seat to plane seat. You have to be in the parking business to create that density. So Aviation not really a margin play, free cash flow. And then counter to that, let's just talk about Technical Solutions, terrific margin opportunity, terrific.
But every 6 months, they have to recreate their revenue portfolio. They're largely project work. 3 quarters of the sales force at ABM is in this $500,000,000 segment because of that. So again, everyone has their own characteristics between revenue growth, margin potential, free cash flow and earnings. But as a diversified offering, this is what creates our durability, this is what creates our resilience, and this is what lets us compete uniquely with our client base.
So after we got the framework set from our go to market model, we attacked some of the things we talked about with our operational framework. We built a shared service center in Houston. We centralized procurement. We started working with best in class mobile cloud providers for our ERP system. And we started with standard operating practices for our operators out in the field.
And this stuff takes time, right? If you think about the Shared Service Center, we had 300 people around the country in these 14 accounting centers. Their work had to be migrated into Houston with a brand new staff, right? Those are positions that don't get relocated. We've gotten past that hurdle, didn't miss an invoice to a customer or a payroll cycle.
But our work is not nearly done because now we have to remap the framework to get those synergies. So we're halfway through the battle, and Anthony will talk to you more about that in his segment. From procurement, we've talked to you all about how well we're doing there, but we still have plenty to go. We have a $700,000,000 addressable spend category, but it's not like you can hire 25 procurement people and roll out 200 initiatives. There's a cadence and a timing that happens to this.
And even with our ERP and our IT, you can call Oracle and then say, we want to centralize all these customizations, but they're going to say, well, you have to first rework your shared service center so that you can do that. So these things are all interconnected, not all mutually exclusive. And same thing with our standard operating practices. This is an area that we've talked to you about that's taking longer than we expected. I would say 25% of that reason is how we structured it in the field and how we're deploying it.
75% of that reason, I would say it's Anthony and I being too aggressive in our expectations. We have 5,000 project managers located on-site at our client accounts. They roll up to a network of branch managers and district managers. Each of those people have unique skill sets and capabilities. The operating practices that are standardized are compelling in each one of them, but the ability to leverage them and roll them out is more difficult than we originally anticipated.
We're going to get there. We're getting great traction. It's going to take some more time. But the good news for us is the results aren't binary. It's not like you arrive and you get the value.
We've been getting incremental value, and we will continue to get it. So I just wanted to bring this up just to recognize there's a cadence to the things that we're doing and the timing, but they're compelling, and we have a phenomenal team that's working towards it and delivering. And let's look at the results here. Over the last 2 years, we've grown our revenue by 12% through acquisition and organically. EBITDA has grown 28% in the last 2 years, our market cap almost 50%, and we've returned nearly $200,000,000 in cash to investors.
And recognize we've been in our industry group format for 1 year. So we are at the beginnings of our transformation and we're posting results all, all in the context of doing the largest acquisition in the firm's history and bringing on all these people and having 3 hurricanes that affected over 20,000 of our workers. So I'm really proud of this team. And you can't do it without a team. We have an amazing team of people.
Some of these people have been at ABM for a long time, but every one of these people is new to their role in the last 3 years. And they've galvanized towards 2020 vision. They understand how compelling it is, and we're hard charging and enthusiastic. So what you're going to hear today from us is you're going to hear about a firm that's energized, that's driving towards long term profitable growth, that's fixing its infrastructure, that's rolling out standard operating practices and working to create engaged people. So what I want to do is actually before I bring Scott to the stage to start, why don't you just come up one second.
So Scott's our new Chief Operating Officer. And I have to tell you, Scott, with all this transformation that's going on and everything that's happened and all the credible results, probably the most transformational thing that happened, and it is the elephant in the room here. When you see that picture of me from 2015, I had hair, okay? So that's the real transformation that's happened at ABM. Scott's our new Chief Operating Officer.
We'll be up here again in 2 years with Investor Day. I'm really excited to see the before and after picture for you as well. So, hey, good luck.
Hang on. Hang on. Thank you very much. Good morning and I'm very excited to be here. I'm going to start out with our purpose, vision and mission for the organization.
And it aligns with the change that Scott was talking about. And really when you think about it, getting a group, 130,000 people aligned, we want to be the clear choice in the segments we've chosen as an organization. And in today's marketplace, in most of the segments, we're an industry leader. So we're very excited getting everybody aligned on the new segments that I'm going to share here this morning. In addition, making a difference, having employees make a difference each and every day in our organization.
So, 130,000 people motivated and excited about what we do. I'd like to share with you, it's been almost 100 days I've been in my new role. My background is I joined ABM through the acquisition of The Link Group, but I have over a 30 year experience. I started my career doing technical solutions for commercial buildings with Honeywell. So I was there for about 10 years and very excited about my role as the Chief Operating Officer.
In the first 100 days, really what I did in the very beginning was get out to see our largest customers, talk to customers to see what they like about ABM, what do we need to improve at ABM. In addition, meeting employees. Went out and did town halls to talk to our employees to hear what we're doing well and the things that we need to get better. And I was very impressed when I heard the excitement about our 2020 vision. And really the excitement was around truly being subject matter experts in what we do.
When you focus on a particular industry or market and you have the domain expertise and the new realigned ABM, people feel confident, they're excited about the opportunity and their careers. So we're very excited to hear the positive feedback from our employees. And the other thing is our broad capabilities as an organization. We do so many things for our customers. And that we'd really like to take advantage of for our clients, big opportunity.
And in addition to that, our ability to differentiate. We have a very broad service offering that we're able to differentiate more so today than ever before. Scott talked about the technical solution side of our business. It's able to bring some very creative solutions to our customers. In addition to that, customer loyalty, we have very loyal customers.
Some of our customers have been with us more than 50 years. So it's very exciting when you go to customers and say, we love what you do at ABM. We want to continue the relationship and we want to expand what we do. So exciting times when you hear that type of loyalty, what we need to do is continue to evolve and grow and provide more services to our customers. The other thing is our leadership team, truly a highly motivated, high talent team with a lot of expertise and experience, truly focused on results.
Scott had talked about some of the change and results that we've achieved over the last couple of years. We want to continue to drive that and achieve great success at ABM. So a team that's motivated, excited about what we're doing and looking forward to great results. With that, I've got the senior leadership team and the organization together. We talked about the journey of 2020 vision and where we need to go into the future.
And 4 key strategic themes came up. And probably for me, one of the most important based on my background is the grow ABM portion of it. And really that's focused on organic growth. We are looking at we want to be a sales machine. We are investing in sales.
And some of these are consistent across all the industry segments that I'm going to talk about. But we're going to make an investment in sales. We have great offerings. What we need to do is continue to leverage that across the platform. For the first time in the history of the company, we hired an enterprise wide sales leader, a very high talented person that was running all the Americas for Honeywell.
He had a 20 year career. We talked him in and we shared our vision for ABM and he joined our organization and has really done a great job already in a short period of time of getting a team motivated about being proactively selling what we do across the United States and internationally. It's a great opportunity. In addition to that, being very client focused. The marketplace continues to change.
You have to evolve in the marketplace. So we're looking at we want to have customers that are truly raving fans. We want to leverage technology. In the marketplace, our technology is changing and the demands of technology is becoming more and more important. So we have some great initiatives in our in ABM that we're leveraging and we want to continue to drive.
With that, we'll also engage people. Dave Goods, our Chief HR Officer, is going to talk about the things we're doing. We think about 130,000 employees, you really have to get people that are trained and motivated to what you do each and every day. The next one is the ABM Way. And I'm going to talk about this, how it impacts all of our business units.
But really, it's about having excellence in what we do, excellence in service. It's about having a platform that we can mirror across the entire organization. Part of what I did in my background, I ran a very successful franchising group as part of the Link Group. And if you think about any franchising model, it's all about standard operating procedures. We want to be best in class.
We're leveraging new tools and we have a dedicated team in our center of excellence that's looking at leveraging and focusing on this. We see it as a great initiative that can help all of ABM. If you think about our number one controllable cost, it's labor. So top initiative is the labor initiative to become more efficient labor. And the other thing is account plan.
Just think about the number of contracts and the customers we do business with, we want to be able to do account management across the whole platform. So again, these are common things across all of ABM that we're going to be doing as an organization. And then in each industry group, there are some unique things that we are going to be working on and I'll share with those with you here this morning. Scott mentioned the different industry groups that we've separated into. If you think about 4 of them, if you think about the business and industry, aviation, the education market and technology and manufacturing, in most marketplace was either number 1 or 2 provider in the marketplace, very large business for us.
And then we have 2 evolving businesses, the technical solutions, which is a very profitable piece of our business, along with Healthcare, we continue to evolve the model. I'd like to start and talk about Business and Industry first. It is the largest segment at ABM. It's kind of the most consistent revenue, profitability, very consistent cash flow for us and a very stable portion of our business. Again, we are the dominant player in almost every market we're in at $2,800,000,000 We have a very strong brand recognition.
Usually, if somebody is going out in a major facility, they want ABM to be part of their bid process, looking at us as a potential partner with them. We continue to grow with key customers. But again, over half of the Fortune 500 companies are doing business with us. And we have a very, very strong leadership. Renee is here with us this morning, driving that business and we see it as a great opportunity going forward.
If you think about the breakdown of our business today, we're in the parking and transportation business. As Scott had shared, it's usually not a high margin, but again, it makes it a stickier relationship with our client. We can as soon as they come to a building, we're able to provide those services. So, it's an important part of what we do to building a relationship with our clients. But the core piece of it is our janitorial side of the business.
In addition to that, our facility engineering and IFS business. We want to continue to evolve the model and diversify the model, grow our engineering side of the business, the technical side. We have clients that are asking us to do that. We see it as a very sticky relationship because a lot of the people we compete against have single source or single source provider. So it is truly a differentiator within our business and we want to continue to evolve it.
We do a lot of work with the major real estate companies like CVRE, Jo and Lang LaSalle. But strategically, we also love to go owner direct. So if you look at part of our strategy in this marketplace, it's going more owner direct to the building owners themselves into the large corporations directly. So again, great opportunity for us. When you look at the marketplace, most of this marketplace has already been outsourced.
We see some additional outsourcing, but most of it has. For us, this business, we want to continue to focus on how do we get continuous margin improvement and expand our services to our clients. In addition, technology is changing, so we want to make sure that we're in the forefront of looking at new technologies with our customers. Usually when we compete, we are very well positioned because a lot of times we're competing against mom and pops or small little region players. Sometimes you're competing against large global companies, but very few companies have the breadth of service, especially today with our technical solutions group, very few people have the capabilities to provide such comprehensive services.
So again, when you think about our Business and Industry Group, it's not that we're focused on huge growth in this segment, but we're looking at margin improvement. How do we get incremental margin improvement in the business has a major impact on the bottom line. So when I first talked about the ABM Way, our standard operating procedures, we are really focused on our business and industry side of the business and how do we drive that across the organization. So we want to continue to focus on that. So great opportunity, great business for us, very consistent and we're excited about the opportunity in the future.
The next one is education. And this one really because of the GCA acquisition is a huge opportunity for us. When we look at it today, it's over $800,000,000 in revenue. We're in over 4,000 schools and 150 higher education facilities. With the strength of ABM and GCA now coming together, we're the dominant player in almost every market we're in.
We are the industry leader. And at most markets, we're either number 1 or 2. So we see our brand across the board that we can leverage that and also our great reference base. It's amazing in the schools how many school superintendents. The average tenure is around 3 years for a school superintendent.
So you look at it, they go from one district to the other. We have very strong customer brand recognition, but also relationships. You're able to leverage that in a lot of outstanding relationships we have today. We're expanding into new school districts as superintendents go to other facilities. So it's a tremendous opportunity.
When you look at our product mix today, what we do, it's primarily janitorial, but we're getting into additional services. We're also mirroring up with our technical solutions group to bring more service into the client base. So we talk about upsell and cross sell. Probably the largest opportunity is within the education space. We see a big opportunity.
And just in those last several months, we had an example where Hiram College in Ohio, they went out for bid for janitorial service. They had 5 bidders. We were one of the 5. Usually margin is compressed when you get into 5 bidders. We brought in our Technical Solutions Group.
We differentiated and we truly became 1 of 1. We were given a preference and we were awarded the contract. So those are the type of things that we're leveraging across all of ABM. How do we get higher margins? How do we differentiate?
We're the only player that's providing that broader set of services across the entire space. And if you look at the trends in the education market, we see a tremendous opportunity. Only about 15% of the market is outsourced today, but the trends are more and more outsourcing is taking place. The reason is so many schools have budget crunches, whether it's their operating budget or their capital budget. They're being challenged to do more with less and more and more outsourcing is taking place.
And historically, when you're at your first outsource with a client, usually the margins are higher. You've sold them on the concept and the solution and everything else. So we're looking very proactively how to go after the market with a very proactive sales team. So we are investing in our sales team in the education market, and we think we are very well positioned to grow the market share in the education market. Our strategies to win in this market are simple.
We're investing in sales. We're investing in sales people. We have a proven track record of producing productive salespeople. It's a tremendous market. The macro trends are all in our favor.
So we continue to leverage the GCA base for additional cross sell and up sell, but it's definitely a tremendous opportunity and we continue to invest in the market to take advantage of it. So we see an opportunity for the growth in the education market across our platform. Next is our Aviation space. We're over $1,000,000,000 in Aviation today. We want to continue to focus.
Scott had talked about some of the challenges in the marketplace. A lot of times you have very large contracts. So the challenge is you want to retain the large contracts. You have some when you think about some of the contracts, they're $20,000,000 to $40,000,000 contracts. So real important to win them, but also to make sure you keep the contracts.
So big customer base for us and a big opportunity. And part of this also goes to the trends in the United States, building out and improving the airline and the airports. This is probably our most diverse portfolio of products and services that we have. Scott had talked about from the car seat to the plane seat. If you think about it, I'll give you an example, Hartsfield Airport, which I get to visit usually every week.
You think about it, as soon as you pull up to the airport, you have a shuttle service that takes you into the airport. We do that service. When you get into the airport, we're the ones that are cleaning the facility. We have over 3,000 employees working at Hartsfield Airport. When you think of any part of the facility, we're cleaning it, whether it's technical equipment, mechanical equipment, electrical, we're helping maintain that.
Then when you get to the plane, you think about Delta Airlines and the plane, we're actually cleaning the planes. So we have a staff of people that maintain and clean the planes for Delta Airlines, great opportunity. Then when you're leaving to go home, you also think about the parking lots, the parking tickets, that's part of our business. So you think about this opportunity for us, it's to provide more services to key clients and to provide more broad across many different airports. We're in a 100 different airports and only a handful of them do we have that wider of our services sold.
So one of our key strategies, how do we continue to expand our services throughout the aviation market. If you think about the competitive landscape, it is heavily outsourced today, but we see an opportunity to expand our services, grab market share. And part of it is having the strong brand that we have in the aviation space with key customers. We do a lot of work with Delta. We do a lot of work with United and American Airlines.
And then in addition, we see a big opportunity at all the airports and how do we expand our services. And normally we're competing against the food service companies. And the interesting thing is some of our clients have now come to us and said, when you think about catering for the airlines, they're not all happy with that happy with their existing providers. So now we are doing some of the catering logistics for our clients at their request. So we see it as a gross margin improvement business for us.
It's a higher margin business. And when you have clients asking you to pick up that piece of business, it's a great opportunity. And the contracts are usually larger contracts, anywhere in the $10,000,000 to $20,000,000 range. It could be in 1st phase and everything else. So again, we continue to broaden our offerings across the aviation space.
When you look at the key things for us to win in this space, it's to continue to expand our offering within the different airports and also grow internationally. We do work at Heathrow today, we want to and British Airways, we want to look at how do we expand internationally. There is a demand from our clients to grow internationally. You think about the presence of Delta Worldwide, United American, we want to be able to be their single source provider wherever in the world they want us to help them. So great opportunity to expand internationally with our clients and we want to make sure we take advantage of it.
The
next one is Technology and Manufacturing. There's 3 major segments and kind of the good news for us is all the segments continue to grow. And probably the most exciting is the technology side. If you think about the major technologies and you think about like the FAANG stocks, the people that are growing so fast, we're doing work with almost the majority of the top technology firms today. So as some of them are growing and building facilities rapidly, whether it's a data center or a distribution center, we're doing business with them and they're bringing us along.
So our commitment to doing great service is absolutely mission critical. So if you're doing a great job in Seattle, they'll take you to the West Coast I mean to the East Coast when they're growing to the other parts of the country. So we see it as a tremendous opportunity to continue to grow in the technology space along with the manufacturing space and then the life sciences. It's almost $1,000,000,000 business for us today, but we see a tremendous opportunity. In this piece of the business, technology is more and more important than ever before.
So when you hear about some of the things we're doing like our Anthony Scaglione is going to give you a demo of our tag pricing tool, the things we're doing to be more technology savvy for our clients is absolutely important. And this is probably a mission critical. When you're doing work with high-tech firms, they go, how do you track data and information for your clients? And it's absolutely critical. If you think about the services that we do today, janitorial service is still the largest segment.
We want to expand our facility services side of our business. It's a higher margin business. It's a huge growth opportunity. And clients are asking us to do more and more. We have one of our product offerings or solutions is integrated facility services, where you do a very comprehensive solution for your clients.
We do work with very large automotive companies. So you think about the large automotive companies that have a big plan, could be 10,000,000 square feet. They're looking at anything that doesn't touch the automobiles, everything else in the facility, whether it's cleaning the facility, the mechanical, the electrical and outsourcing. These can be very large $20,000,000 $30,000,000 contracts. So part of our strategy is to continue to expand, but expand in some of the higher margin businesses.
Our Integrated Facility Solutions business is a great opportunity for us. So we have a team of people dedicated to doing that. So we want to change the portfolio to be advancing our facility services side of the business through our IFS solutions, so a tremendous opportunity. When I look at the market trends within this marketplace, it's a tremendous opportunity, partially because you have so many fast growing companies. So when the companies are growing in the high-tech space, even the trends where you're seeing more manufacturing coming back to the U.
S, Those companies are outsourcing their facilities. We're very well positioned to grab market share and build on the existing relationship we have. Normally, we're competing against regional companies, sometimes the large engineering construction companies. But one of our key advantages, we actually do the work. So our clients love that we're the single source provider in a very broad range of services for our clients, and it's something that we work very hard to leverage with our clients.
So big opportunity. We have a very strong pipeline in the technology and manufacturing side. We are working to differentiating, as I shared earlier, through our standard operating procedures in the business, also looking at differentiating by bringing in our technical solutions along with our facility solutions across the board, looking at how we differentiate that we're not just selling janitorial services. So it's a tremendous opportunity we want to continue to leverage within the technology and manufacturing space. The next one is Healthcare.
When I look at when I started in the beginning, I said it's one of our smaller businesses, but we see some trends in the marketplace that we're very excited about. When we look at outsourcing, this business continues to outsource and we're seeing a trend even more so today than ever before. It is about $275,000,000 business for us today,
but
we see a great opportunity to grow the healthcare side of the business. You look at what we do today, again, it's all about the patient experience. The critical nature of cleaning a hospital is you have to be hospital quality, you have to be able to help them with their joint commission approvals and certifications. Technical services is something that we're also leveraging. We have clinical engineering that we do for the hospitals.
So in a lot of times, we can be the single source solution. And an example of a hospital that we're doing is Yale University Hospital System. We started by doing their hospital. And you think about some of the trends that are taking place in the healthcare space, more and more when you look at the acute or the hospital side, the non acute is a huge growth opportunity for us. So when we first acquired or started doing business with Yale University Hospital, we helped them save a bunch of money, did high quality service.
So then they said, hey, can you guys do all of our out facilities? We added 65 additional facilities. So part of our strategy and trend is how do we continue to grow the out facilities? That is huge growth market. Those are the surgical centers within the hospital that are no longer part or in the main hospital.
Again, when I talk about the trends in the marketplace, the trend is more and more for the non acute side of it. So adding more and more surgical centers, outpatient centers that we see as a huge opportunity for us for growth. Very limited competitive pressures in that market. So we really feel like we have an industry first mover within that market we want to take advantage of. We see a good growth.
Again, it's one of our smaller businesses, but we do see strong growth and profitability the healthcare space that we want to take advantage of. And I kind of hit the highlights on that. But again, it's an opportunity in smaller and midsized hospitals. If you think about the trends in very large hospitals, when you start getting into 50, 100, that's not the sweet spot of what we go after. Normally, we're going after the 2 to 10 hospital organization.
Standard operating procedures in hospitals is absolutely critical. You have to have hospital quality service to keep the business and to continue to grow the business. So we're working with teams of people. And the other thing that's kind of unique that we did, when you think about Watson's IBM technology, we're using big data to help us. We helped retain a big count, where we're using data to differentiate in the marketplace.
So again, technology, data, information in the hospital space is becoming more and more important, and that's one of the things we're utilizing to differentiate in the hospital space. And the last segment is Technical Solutions. Scott had showed in the very beginning how we're trying to leverage the Technical Solutions portfolio across all of our business, roughly a $450,000,000 piece of our business. It's a very profitable piece, and we want to continue to grow and expand it with some very unique solutions that we do for our clients, and I'll share some of the things that we do. One of the big growth markets for us is what we call performance contracting.
It's where you have the ability to go into a client site and I'll give you an example, Wright State University, and it's in Ohio. They wanted to look at ways to become more efficient. We provided them an energy solution to upgrade all their infrastructure within their facilities. We did it over 3 we didn't know it was going to be 3 phases, but we did it over 3 phases. It was over $50,000,000 worth of business to help modernize the campus, to make it more efficient, to show them ways to upgrade their facility.
It's a very comprehensive solution, which can include anything from making it a smart building, building automation controls, mechanical electric equipment, lighting. Sometimes we get into very creative solutions, including solar. Even at Cornell University, we did a big solar project for Cornell University. It could include wind. We're even looking at battery technologies in some of the sites.
We're very, very successful in doing this in educational facilities, which mirrors very well with our GCA acquisition. How do we cross sell and up sell to their client base? We've already met with 30 to 40 of their clients to say these are the type of services that we can do for the first time. And some of them are very excited about it. Harris County Schools is another example.
We were doing janitorial work, and the customer said, we want to become more efficient. We're having pressures on our capital budget and operating budget. Can you show us ways to become more efficient? So we're really leveraging the strength of ABM with upselling and cross selling these services across the whole platform, and we see a tremendous opportunity. In addition to that, we have a power business, which is a very unique part of our business, not a big part of ABM, but we continue to invest and grow.
If you think about when some of the largest data centers are being built by the high-tech companies, whether it's a Microsoft, a Facebook or a Google, their data centers need to be certified, their power systems. And we're one of the leaders in the entire industry in certifying major data centers that are being built. So it's truly a differentiator that we're trying to leverage across all of ABM and take advantage of it. So when you think about this business, it's unique to the marketplace to be able to wrap all this together. In addition to that, we also have a franchising business, smaller business, but very profitable.
It allows us to also provide additional services, and I'll give you an example. BMW, they were looking at doing their electric car charging stations at all of their dealerships. With the strength of ABM and our franchising group, we did all of the dealerships in the United States for BMW in installing electric cars by using the strength of ABM and our franchising network in less than 12 months. So tremendous opportunity. We see EV as a growth opportunity for us.
We're actually talking to several of the main major manufacturers and we've been selected by 2 additionals to do all their dealerships and to help them grow the EV. And there's a macro trend of EV, I think it's coming in with so many of the automakers, and we're very well positioned in doing those type of solutions for our clients. It's a technical solutions. There's a tremendous opportunity to leverage across all of our businesses at a much higher margin than we normally get. But it's not just the margin, it's the ability to differentiate
for our clients. What are we
going to do to grow this piece? This is probably the area that we've proven out that when we continue to invest in sales, we've had great results and an outstanding return on investment. So we're continuing to invest in sales and sales leadership. When I talked about having an enterprise sales leader, his background came from the performance contracting or energy side of the business from Honeywell. We want to leverage his strengths and then also that he can leverage it across all of ABM to really look at how we differentiate all of our service to provide more value for our clients.
So a tremendous opportunity. In addition, we think we can also improve the margins in the business. We have a high margin profile, but we also see market opportunity by differentiating with new technologies that we're looking at today. So we're very excited about the technical solution side of the business and how it can help the entire enterprise at ABM. If you really if you summarize the things that we're looking at, trying to drive across all of our business, it starts with sales and organic growth.
Highest return to all of us, so we see it as a big opportunity. We have a proven track record. We are making an investment. And it's in different segments we're making a bigger bet than in some of the others, but we see it as a big opportunity. The other thing is leverage the entire enterprise.
All of our solutions that we do, we are truly 1 of 1 when you look at our broad capabilities, but we have to leverage that. We have to be 1 ABM to leverage all of our strengths. And then also the unique offerings, how do we continue to bring those to clients to add more value to our clients across the board. Standard operating procedures, I kind of think I hit it across all of them, but we need to get better as an organization. We know it.
We're talking about how do we optimize, how do we leverage the strength of a $6,000,000,000 company. When we're competing in the marketplace, we want to truly be best in class and optimize our stuff. Technology is changing in everybody's business. We have several key technology initiatives that we want to take advantage of for our clients. Our clients are really demanding in some segments and we want to be in the forefront.
We want to have leadership in the technology. Anthony will share one of the things we've done. And it's exciting for our clients and for us who want to take advantage of it. And real simply, we're in the people business. We have 130,000 people.
How do we get the team excited about what we do? Make sure they're trained, make sure we have a plan. The other thing is we say scorecards. We want to make sure that everybody on the team knows what their goals and objectives are and they're measured against those, that they have an opportunity with ABM and a career opportunity. So in summary, very excited about the opportunity.
I'm excited about my personal opportunity at ABM and looking forward to exciting 2018 2019. So thank you very much.
Hi. If we can slowly start making our way back to the seats, that would be great. We should probably wait for Scott. Great. So we will proceed with the rest of our presentation.
And then at the end, we will certainly have our Q and A session. So with that, I will introduce Dave Goods, our Chief Human Resources Officer.
Good morning, everybody. It's a privilege to be here and a privilege to be stuck between the break and the CFO, right? It's always a good spot. But I just want to reiterate how excited I am to share with you our HR strategies and how we are really trying to differentiate, how we're trying to create strength through our people. And you've heard a lot about the 130,000 employees.
And I'm going to talk to you a little bit about some of the things we're facing in the market, and how we're dealing with them, but also about how we're navigating and engaging that workforce. So what I'd really like you to do is walk away with an understanding of what our HR strategy is and have a confidence in the way we're meeting the labor demands of our business under the market conditions and that we've got programs in place to consistently improve the engagement of our workforce. That engagement will undoubtedly lead to enterprise wide results. We've talked a bit, you've heard both Scotts mention 130,000 employees. Let's just visualize that for a second.
If you fill up Giants Stadium, I'm a Giants fan, and then you fill up Yankee Stadium, that's 130,000 people. That's the people that we have pulling on our business every day and pushing the initiatives that we're pushing every day. The engagement of that 130,000 first, the selection and attraction selection and then retention and leverage of that 130,000 people is incredibly powerful. This shows you how we're geographically broken out. And I think the best way to describe our workforce on a macro perspective, and I'll get into some of the micro, is really drawing an imaginary line from this, call it San Diego to Washington, D.
C. And north of that line, you've got typically higher wages in more traditional union environments, which create interesting dynamics from an HR perspective. South of the line and these are in generalities now South of the line, you typically have lower union environments as well as lower wages and lower operating costs. So how we go about the marketing of our business to prospective candidates needs to be a little bit different based on the geography. And I'll talk a little bit more in detail like that.
I think it's important to recognize that our business is about 30% unionized. That's 70% nonunionized. And we really value our relationships with our union partners and really work to problem solve and work collaboratively to solve some of the issues that we all face together. So the current situation in the labor market has been pretty well documented. People are familiar that unemployment is low.
In fact, right now, we're in the low 4s from an unemployment on a national standpoint. Varies pretty dramatically by state, anywhere from 2% to 6% or 7%. And we'll talk a little bit about that. But in general, we're at 4%. 2,007 or 2,008, we were about 9%.
And it's gone down every year since then. So there is a bottom at some point, but we're not sure when that is, but it is at a traditionally lower level than we've seen in the last 10 years. We hear a lot about immigration reform. And with a generally low skilled work environment, that's going to impact the labor supply. And when you think about labor supply, which I'll get to in a minute, wages are really about supply and demand of labor.
And we'll talk a little bit more in detail about that. Strong economy is great for our business, right? More buildings as business grow. One of the things that you heard Scott Jacoby talk about is we love to grow with our clients. There's many clients that we've started at the beginning and grown with them.
The economy is great for that. It does put pressure on wages, right? As the economy gets better, people have more opportunities and therefore, the demand for labor in our industry also goes up. So when you think of these macro trends, and these are national figures that I'm talking about, they are all putting pressure on us finding the right people to meet the needs of our business. I'll tell you in 2017, I feel like we've weathered the storm pretty well from a recruiting and attraction and retention perspective.
If you think of we hired 60,000 people during the year 2017. We had an applicant base of 225,000. Dollars and we haven't seen macroeconomic wage increases across our business. That said, we have our eye on the ball and that doesn't mean that things aren't happening locally. And when you talk about specific local markets, you have a little bit of a different story.
So if you think of that imaginary line again from San Diego to D. C, on the north of that line, we tend to be in reasonably good shape. What you hear a lot about is state minimum wage changes. And those state minimum wage changes, the most aggressive states have been New York, California and Washington state of Washington and D. C.
Actually, most of which are pretty high unionized markets where we are already well above the minimum wage from an average wage standpoint. South of that line, south and east of that imaginary line, again lower wage, lower union environments, we are seeing wage pressures. And we're seeing them for a number of reasons. If you look at unemployment rates in those states, Florida, Tennessee, Georgia, some of the lowest unemployment figures, Most of them are in the 3s, some of them are in the low 3s. So what you're seeing there and a lot of jobs are moving there.
So what you're seeing there is the demand for labor is going up, right? And the supply is staying flat. So we're seeing wage pressures. We've got a number of things in place to help us mitigate those wage pressures. So again, north of that line, we feel like we're in reasonably good shape, keeping our eye on the ball.
South of that line, we are seeing some pressures. We mitigate those pressures, 1, through the scale that we have, right? The North offsetting some of the risk to the South. But also, many of our contracts are cost plus, and we'll hear a little bit more about that, which is really a pass through cost, It's probably the easiest way to think about it. Many of our contracts have wage escalations that are built in.
Some even have regulations around any wage increases that are mandated by legislation would be passed through to the customer. So we have some protection there. But I think the one that folks don't often think enough about is relationships we have with our customers. When we have a labor issue, we work with our customers on how we can attract more candidates and how we can relationship. So we go proactively to our clients so that they can build things into their budget when we are seeing issues and we try to get ahead of them wherever we can.
So certainly, pressures on a national level haven't seen that much on a local level, really zeroing in on specific markets that tend to have the biggest challenge. At the end of the day, what we're really trying to do is drive a funnel of candidates, right, to meet the demand of our business. So I talked a little bit about the geographical differences that we're seeing on a macro perspective and micro. There are dynamics within the industry groups as well. So I'll just highlight a couple and they're kind of grouped by color here.
But on the aviation education space, we typically have a more difficult thorough background check, right? So an employee going into aviation, working for our aviation group, tends needs to have TSA clearance. That clearance can take anywhere from 2 to 6 weeks, depending on the seasonality of the business. So it's complex. The pipeline that we need to feed to get to the bottom of the funnel is significantly higher.
Picture a minimum wage or slightly above minimum wage worker who gets offered a job and you're excited to have them and they're excited to have you. And you say, once you get clearance, you can start. And that could be 4 to 6 weeks later. That candidate can't always wait 4 to 6 weeks. So we're really working to engage them and trying to leverage other sides of our business to try to get them working in non sensitive areas quicker.
But it is a more complex process. Education is similar in that there's a much more thorough background check that needs to happen. So the way we feed the pipeline is different based on industry group. And then you cross sect that with the geography and you can really start about where we apply our recruiting resources. On the right side of the thing, you have the other side of the coin.
It's not about volume, it's about finding the right skills. In our technology and technical solutions. We've heard a lot about a shortage of engineers, and we're facing that. And what we're really doing about that is trying to get in with schools, apprenticeship programs, internship programs, and really trying to feed the pipeline that way where you've already got some experience with that candidate under our belt. So we feel like between the geographic position and understanding of the dynamics of each of our industry groups that we are really well positioned relative to our peers to drive the right applicant pool to our business.
Once we get that applicant pool, it's important to give them a first class experience, right? They're joining this brand and this company with 130,000 people. We want to make sure that they have an amazing onboarding experience. Java Align, we've introduced some technologies to help us streamline these. And if I think back or if I ask you to think back to pre-twenty 20, we would hire about 60,000, maybe it was 50 back then, 50,000 to 60,000 people a year without any centralized repository or process for onboarding paperwork.
So a new employee would need 50 to 75 pieces of paper, depending on the state and the requirements needed for that state, times it by 50,000 or 60,000, you're talking about 3,000,000 pieces of paper that need to be moved around and inputted. We've taken that out of the system basically and become far more efficient through the use of Job Align and the combination with Sterling Talent Solutions, which I'll talk about. So, Java Align has really acted as a repository for our large applicant pool, those 225,000 applicants, creating a 1st class experience through the way they apply and then are onboarded. And then it's combined with the Sterling Talent Solutions, which is really a consolidated background check company for us, which has dramatically reduced the time to get a background check back. In fact, there are many circumstances where it will come back within an hour.
So you think we used to fill out a form, someone would have to fax it, they would have all the stuff going back and forth. The minimum you'd get is 2 days. We've got that down to an hour in many cases. And the average time has been cut by more than half across the enterprise. So I feel like we're getting more efficient.
We're getting smarter about the way we attract the talent pool. And once we get them, giving them a 1st rate experience and becoming more efficient in the way we operate and manage that person through our process. So, Job Align and Sterling were really implemented in 2016, let's say, in a combined rollout. By the end of 2017, 90% to 95% of our new hires were going through that job aligned process. So great adaptation and providing a great tool to the field to better manage the workforce.
Oracle, we signed a deal 6 months ago, I would say. We're in the implementation right now and the implementation planning. Really huge opportunity. And the biggest piece of this is all the administrative work that our operators need to do, they need to do from a desktop today. And what Oracle HCM solution will help them is take their work from the desktop to the tablet or mobile device.
And that allows them to spend more time where they need to spend the time, which is with the customer and with our employees, right? So if we can ease the burden of the administrative on our operations group, the more time they can spend with the customer, the better off that's going to be for our business. So when you think about all of the other things that an HCM HRIS system can do, it's integrating all of the things that I'm talking about, right? The recruiting, the training can be based on the role they're going into and be fed through that. There's talent management systems and processes, compensation planning.
These are all disparate systems and processes that we do today, which ultimately will be housed under one system beginning fiscal 2019. So we're excited about it. And why are we doing all this? It's really to become more efficient, to become best in class, to drive productivity earlier for the workers, and to allow our operators to do what they do best and what they're paid to do, which is not administrative burden, but rather work with our customers and our employees in driving business. So now we've got them on board.
Now I talked at the beginning a lot about engagement and the power of engagement, and it's certainly got a lot of press. If you can get 160,000 people pulling or pushing in the same direction, it's incredibly powerful. And we've taken the research of Corporate Executive Board, CEB, which has really identified their 7 primary levers listed here for driving employee engagement. And the reason you drive employee engagement is to increase discretionary effort. If you can increase discretionary effort by just a little bit on 130,000 people, you're becoming far more efficient.
If that person is engaged and can clean 10% quicker, 2% quicker, 1% quicker, you're talking about tremendous opportunity. So I can assure you that I'm not going to go through all 7 of these, but I can assure you that there's work happening within ABM between HR operations and the other folks in the business to impact all 7. But I want to highlight 1 or 2 of them for you, and that's around performance management. And we've even shifted the name from performance management to performance feedback. We've adopted a process for our staff our management employees essentially, called GPS, right?
And GPS stands for Grow, Perform, Succeed. And it's a double entendre because what it really is, is how an employee navigates their career. Notice that it's not how the manager navigates or how the company navigates, the employee is responsible for their own career and we give them the ownership for that. The manager's responsibility is to provide the opportunity, to provide the feedback and create an environment where that person can succeed. This has fundamentally shifted the dialogue between our workforce and their manager.
It's gone from a manager led to employee led. And when you think about the dynamics of an ever changing demographics of our workforce, they're demanding this. So we've kind of we have leapfrogged in terms of getting our performance feedback process more in line with what today's workforce is asking for. What are they asking for? More regular feedback, what's in it for me, and I want an opportunity to speak up on how you can help me as my manager.
We've provided all that and we're really excited about it. I will tell you that the traction that this has generated across our business in a very short time is incredible. And when I see our little worksheets, interview guides for that in tables, it really sends the powerful message of these conversations are happening, right? They're happening every quarter and they're employee led. And no one can say, My boss never told me if I was doing well or not, because that's up to the individual.
So it's shifted the conversation. We're excited about that. And what performance feedback processes do is they are a key trigger to a cultural shift. And that cultural shift is what we're really excited about in terms of driving the engagement. At the end of the day, we all love feedback and performance feedback systems, but rewards are important.
And Anthony is going to touch on this a little bit as well. But we've worked really closely with our finance group to how do we better align the incentives and rewards for our field organization with investors, shareholders and the like. And we have become far more specific in how we're measuring field performance, holding accountabilities based on clear metrics that are aligned with what our overall objectives are. Example, you've heard a lot about ABM Way. It's a very big part of our field bonus program for 2018.
We haven't seen the traction. We're going to continue to see the traction now. And it's going to be rewarded or not based on that performance. So certainly not stopping and pushing forward on all of these things. But I'm really excited about the levels of engagement that we've seen and the performance that we've seen through that.
So not just in the performance that you see, but what you hear from employees when we're out talking and the engagement that they have in what we're trying to accomplish. So from an overall perspective, what I'd love for you to walk away with, our challenges in the labor market aren't unique, right? All of our competition and even our customer base is facing the same issues. What I would like to really drive is that our geographical mix and our awareness of what's happening in the market puts us in as good a position as anybody to meet the changing needs and the changing demands of the workforce. We've refined our process and tools to become more efficient and allow our operations folks to do what they do best.
And we've provided the tools and technology to enable them. At the end of the day, our goals for ABM to have a fully engaged workforce with best in class HR processes and the tools to support them. And we're excited about the journey we're on and the path forward. So I'd like to thank you for your time today. Now what you've all been waiting for, our CFO, Anthony Scaglione.
So thanks, Dave. It's great to be here and see both familiar and new faces. You heard a lot from Scott and Dave about the tremendous platform that we've built and we're looking to leverage. What I want to speak to is the significant cultural and structural changes we're making across these chevrons, where we're heading in the short term and ultimately what this means financially, which I know everyone in this room is here for. So when we started on the 2020 journey, one of the first things we anchored on was tying our performance measurements to what we're trying to align on from the executive and incentive plan perspective.
And the first tenants that we did was for the executive team, aligning with the 2020 goals. In 2017, we further cascaded that to our industry groups and industry group leadership. And I'm pleased to announce in 2018, we're rolling out consistent process for our project managers and our district managers, really tying them to things that they can control, account plans, gross profit, safety. So ultimately, driving a performance based culture. And as you can see here, we're always going to be modifying, linking and strengthening that culture.
Moving on to capital allocations. Since 2015, I think we've had a pretty disciplined capital allocation approach, investing in parts of the business that can drive that organic growth. As we sit here today, we're going to continue to invest in the business. We feel like that investment drives the best long term results. We're going to utilize our excess cash flow to deleverage, and we anticipate deleveraging approximately 0.5 turn a year over the next several years.
And then look at tactical M and A. We've built a platform that we feel that now we have an opportunity to really synergize, and I'll speak to that later on, really synergize acquisitions on a go forward basis. So as you all know, a lot of work goes into supporting our field operations. And just to put that in perspective, we process over 2,500,000 payroll transactions a year in house. We issue over 450,000 invoices.
So 2016 was really about strategy development. Scott spoke to you about the very siloed approach that we had prior to 2020. And really the accounting function to support that had to be siloed as well. 2017 was really about the lift and shift, taking these processes out of the field, centralizing them in Houston and beginning the process to rationalize. And GCA also provided us a lot of insight into where we're heading.
They had a much more simpler approach to the marketplace, and we're using that learnings along with what we've learned internally to drive the process forward. So 'eighteen and 'nineteen is really going to be about optimizing the core, standardizing, reducing our costs to support the organization on an enterprise basis and simplifying our technology. So I'm really excited, and we've organized a team across these 5 work streams. It's a really exciting time within the organization to start to look at these work streams more holistically and end to end.
So the first would deal
with our core billing, our quote to cash. This is going to improve cash flow and also improve our interactions with our clients from a billing standpoint. In addition, you've heard from Dave about our HR initiatives and our HRS investment. We'll also be addressing the end to end spectrum of an employee. And really, that's going to drive, and we've heard it before, drive a better interaction with our most important asset, which is our employees.
So as we look at these work streams and as we work them through, we'll move on to the other work streams, focusing on the key tenants, one being data. So the goal at the end of the day is to ensure that we have a scalable platform that can drive our costs. And as we continue to grow, continue to support the costs from a cost structure. So for finance, in particular, this is a really exciting time. So as we continue to streamline our processes and improve our data, indirect beneficiary is going to be our procurement efforts.
And just to put that into perspective, when we embarked on our procurement our centralized procurement efforts, one of the things that we went after was our chemical supplies in general. And what we noticed is that we didn't have the data actually support the actual line items that we were purchasing. So we knew we spent $100,000,000 in chemicals and supplies, but we actually didn't know if it was product X versus product Y. And we had to go out to our distributors to get that data. So if you think about that for a second, we knew we spent the money, but we couldn't tell based on information we had in house where we were spending it.
So we couldn't drive further compliance. We couldn't drive the use of the best supplies that would provide us the most cost advantage from a cost perspective. So now what we've done is we're capturing that data. We built a data warehouse. We're in the initial stages of building out a procurement platform.
And this slide is really intended to show all the initiatives that go on from a procurement standpoint. It's not a straight line, but one of the things that I hope you walk away with is that we are intending to accomplish a lot in the procurement effort and we see a lot of runway. Risk and safety is another area we spent a tremendous amount of time on. If you recall, when we started 2020, we took a roughly 40 basis point charge or headwind in terms of our safety and risk, and that was appropriate. We had not seen the results that we thought we were seeing from some of the investments that we made, and we've changed that both culturally and structurally.
You saw when we started today's meeting with a moment of safety, that's something that Scott continues each meeting with his executive team and for the organization in general. We have onboarding videos for our new hires, where we're talking about and speaking about the importance of safety. And we have a daily safety message that we launched in 2017 that gets emailed every single day to all of our employees. So the goal here is to keep our employees and customers safe at the end of the day. And as we look into 2018 and beyond, we're continuing to evolve that program.
We're now much more specific in the cost that we allocate the business, so that the cost is appropriate to the actual losses that we're seeing. And I'm hopeful that in the next 18 to 24 months, you're going to see some positive results coming out of our safety and risk programs. Finally, let me spend some time on IT to clarify what we're doing. Historically, our IT was as disparate as the business. So if you think about it, we had independent and siloed businesses, our IT supported that.
When we started the consolidation, we realized there was a lot of work to do to streamline our IT processes. And we had cobbled systems and workarounds. And one of the two questions that we ask ourselves is, when should we build and when should we buy? And as a result, we've pivoted. We began to look at software in 2 really lenses.
Does it provide us a proprietary or competitive advantage? And if so, we should potentially build it? Or are there out there partners that we can partner with or technology providers that we can partner with that will provide us what we want to accomplish? And there's really no need for us to develop our own software or develop our own solutions. So HRIS, it's a clear investment.
We're partnering with Oracle Human Capital Management. That's something that we will license. On the flip side, given the importance of tags, we've built our own tool. So we deployed an agile development methodology with this tag tool, which I'll showcase in a few minutes. TAGs, as everyone should know, is our work order systems.
Our work orders, these are typically higher margin because we're utilizing existing staff or we're pricing it at much favorable margin than existing work. But today, we manage it extremely manual. We have interactions with the customer on a manual basis. That project manager would have to go back to their desk, draw up the tag request, either e mail it or fax it or walk it over to the customer requesting it, manually signing off, manual, manual, manual. So we ask ourselves, if tags are so important and such a focus area for the company, how do we equip our operators to be more efficient?
And how do we make it more efficient for our back office to process tags? So let me just play you a short video about what we're doing in the space.
Introducing the TAD Pricer. The TAD Pricer is an easy to use mobile tool to price and sell TAD. It was made to help ABM operators drive business and save time. It helps operators to sell TAG at prices that reflects the value we deliver to clients. It makes pricing easier with guidance and automation.
It creates a more efficient and seamless process that reduces administrative work. And it develops a continuous learning loop through increased data and analytics. The tag pricer workflow is simple. 1st, you scope, cost and price a new tag job. You can then send a proposal to a client, create a Corrigo work order and manage your TAD pipeline all in one easy to use
tool.
So we're excited about this tool. We're rolling it out in 2018 for most of our business and industry group and then rolling it out to the other industry groups in 2018 2019. And if you think about our TAG tool in general, if you think about what we're trying to accomplish with the TAG tool and what we're trying to accomplish with investments like the TAG tool, it's really making it easier for our operators to deal with our customers and ensuring that we have good data and analysis and data points that we're picking up along the way. As I mentioned today, it's a manual process. Well, guess what, the pricing is also manual.
So if we had 2 buildings side by side, one project manager may price a 800 square foot carpet cleaning one way, the other one may price it the other way. So this tool is also going to provide us good insight into the types of tags that we're operating, the cost and the profitability of that tags that over time will help us refine the tag cost. So in summary, I want to provide a real time update of where we are, where we're heading, the investments that we're making and now the most important part, the financials. So in the next section, I want to be sure I cover all the info in detail. So bear with me and this is really for the webcast.
So let me first baseline and state we are comfortable confirming our full year guidance. For modeling purposes, the cadence of our quarterly earnings will be more pronounced than in prior years due to a variety of things: timing of project related revenue the timing of wind down of some of our contracts. Recall, the back half legacy ABM, the comps are going to get easier And synergies, while we expect them to be at the high end for the year, from a timing perspective, they will be back end loaded with some costs to be incurred in Q1. So as I announced last month, our full year guidance reflects the continuation of 2020, the integration of GCA as well as the investments we're making in our infrastructure and platform. Keep in mind, our fiscal 2018 guidance contemplates higher amortization related to the customer intangibles associated with GCA.
We expect the EPS impact of this amortization at the midpoint to be approximately $0.40 Also as indicated this morning's release, tax reform will have a material impact on both GAAP and non GAAP earnings for ABN. Let me take a moment to highlight the taxes in more detail. We continue to navigate the tax reform and we expect to provide a revised fiscal 2018 guidance update as part of our Q1 earnings schedule for March. That being said, let me provide a preliminary estimate of the potential impact on our GAAP based earnings per diluted share. We expect tax reform to have 3 primary areas.
The first is the overall change in our rate on continuing operations. The second is a one time tax expense associated with foreign profits and repatriation. The third is a non cash one time revaluation of our net deferred tax liability position. As a result of the GCA acquisition in 2017, we moved from a net deferred tax asset position to a net deferred tax liability position. The net effect of the one time items will have a significant positive impact to our GAAP diluted earnings of approximately $0.20 to $0.30 for fiscal 2018.
In addition, we expect the impact from the change in the federal tax rate for which ABM will be in effect for 10 months to be approximately $0.20 in diluted earnings per share. Finally, overall, we expect approximately $12,000,000 to $17,000,000 in incremental cash flow associated with tax reform for FY 'eighteen. As discussed, my plan is to refine these amounts during our Q1 earnings release. Also want to give you a quick update of our GCA integration efforts. The integration continues to proceed as planned, having completed the remapping and organization design with the longer term components being back office and cross selling.
We expect the comparable pieces to be mapped to our industry groups as indicated on the slide. In addition, we feel highly confident with the synergies and we are currently trending toward the higher end of the realized range for the year and continue to be confident with the net 20,000,000 to 30,000,000 dollars we outlined by fiscal 'nineteen. So overall, GCA is proceeding as expected. For external reporting purposes, we believe B and I, Aviation, Education, Technology and Manufacturing and Technical Solutions will be stand alone industry groups. We are currently determining whether Healthcare will be a stand alone segment or due to its size, map into another segment.
In addition, I wanted to share some information around our contracts. These contracts have unique characteristics that drive our operating performance. So a deeper understanding of mix can hopefully help support the investment thesis that ABM is a durable growth company. As we highlighted earlier, our combined business is composed of several different types of clients, services and ultimately contract types. Here's a high level view of our contract types.
Fixed price contracts typically associated with our janitorial service line enable us to leverage account planning and labor management favorably. However, the pricing escalations we've built into these contracts may not always counteract local labor pricing pressures. The key in fixed price is that we have an account plan to drive performance, and we are proactively working with our customers around escalations and localized labor cost pressures, as Dave alluded to. On the other hand, cost plus arrangements are perhaps the most protective contract arrangements as they enable us to bill our clients' actual wages, benefits and any other charges associated with our labor force. Having said that, these arrangements probably limit us in terms of productivity and labor efficiencies from ABM Way.
So maybe a little less margin opportunity, but great cash flow and great EPS growth. In addition, we're currently looking at ways within our cost plus, specifically in our integrated facility services contracts to see whether we can share some of the cost savings. So rather than have a cost plus arrangement where the savings are just passed through, is working with our customers on unique ways that we can manage the total spend and share in those savings. So there are some opportunities from a margin standpoint. Similar to Cost Plus, parking related management reimbursement contracts involve the pass through of revenue and expenses to our clients.
Our accounting rules dictate how these contracts flow through our financials, but in essence, the more revenue we collect, the lower our reported margins. While there are limited margin opportunities, these arrangements again enable steady cash flow and earnings flow through. And the remaining 20% of our contract types are a combination of different project related arrangements. This category would include higher margin work orders like TAG, our energy retrofits as well as our franchise business. While each offer greater margin opportunity and growth potential, these contracts can be a bit more volatile in the short term.
So hopefully, as you can see, our ABM contract mix is complex, but it provides us a stable and durable base to grow on. With the announcements of our proposed new segment structure for fiscal 2018, we would like to provide you with an outlook for our operating margin by segment. Because as in 2017, it will be challenging to assess our year over year performance due to the integration of GCA into our new reportable segments. While 2018 will be somewhat of a challenge from a year over year perspective, we are committed to providing transparency into the results as we navigate throughout the year. We covered a lot today, but before I turn it back over to Scott, I wanted to provide our financial roadmap.
So for revenue, we've historically been a GDP business. And with the investments we're making in sales, the investments that we're making in our back office and the investments we're making in IT, we think we can be a GDP plus business. Our industry segments may grow at different rates, but we're making the right investments and building a sales culture to propel the top line. Margin expansion and adjusted EPS growth will result from the initiatives we spoke about today, including focusing on the process redesign to increase our cash flow and increase our earnings per share growth. And finally, we expect to deleverage, as I mentioned earlier, roughly 0.5 turn a year over the next couple of years.
So we covered a lot today, but the takeaway should be we are well positioned to capitalize on the underlying industry fundamentals. We have a diversified business model, and we're investing in the right areas for growth. With that, I'll ask Scott to come up to close us out.
Thank you, Anthony. Well, thanks, everybody. I just want to say, hopefully, what's come through today is that ABM is on an extraordinary journey. We're in the midst of a transformation so broad scale, it's touching every area of the firm. You heard about it today.
We've restructured our organization. We're making back office improvements. We're dealing with our HR and our people function to engage and to accelerate our workforce, and we're making investments in technology. This is probably more than most organizations can handle. But not only are we handling it, we're delivering on a high level.
What you heard today is that there's a cadence to these improvements. They're not all linear and they're not all mutually exclusive, but also they're not binary. We'll have improvements over time as we move forward. But this is a story of long term profitable growth with the sales culture that Scott's bringing to the firm, with the operational improvements we're talking about with our SOPs in the ABM way, with the back of the house investments that we're talking about with Anthony's group. I think this is going to lead us to a place where we're going to have strong revenue growth, margin expansion.
We're going to continue to generate amazing free cash flow and drive oversized earnings per share. And as we deleverage and get to 2020, the new ABM, the ABM of 2020, is going to be able to take those improvements and start pursuing strategic M and A pretty aggressively, because we're going to be able to achieve synergies with this new efficient operation that nobody else in the industry can achieve. And we'll be able to drive through the inherent margin compression that we have in our business. And the fragmented nature of this business is going to let us capitalize on our ability to be in a deleveraged state. So we're really excited about where we're heading, and we're excited about what the new ABM is going to be in 2020.
So thanks for coming along on the journey for everyone who's with us. And for everyone who's new, I'm excited for you to join on and see how this is going to go because we're really energized around it. So thank you so much. Appreciate your attention, and I'll call up the rest of the panel to take questions. Thank you.
And Susie, we're going to bring some on Jazzy.
Yes. We're going to give it few minutes for chairs to come up.
Andy Wittmann from Baird. I wanted to start on the margins, I guess. And specifically, Scott, on your comments about the ABM way, When I think back to when you kicked off the 2020 vision, you outlined roughly 100 basis points, again, rough and tough, about half of that was going to be from corporate overhead, things that you clearly got at and you can see it in the numbers. With the GCA acquisition, it's harder to see the numbers from here. I guess, that second half of the cost savings for that 100 basis points that you're targeting from AVM away was supposed to come over, I guess, through the next year or so, it was going to be kind of implemented.
What's the new timetable with the ABM Way savings as you think about it as it related to your legacy business?
Well, I think the clearest picture we could give you, Andy, is what we're expecting over the next 2 years, which is the incremental 50 to 60 basis points. And I just want to make sure everybody understands, we're not stopping there, right? You've heard about all the investments we're making here. We're going to continue on this path and we're going to get efficiencies. But so much of this too is depending on margin mix, right?
Because if the Aviation segment grows faster than any of our segments at 3% operating profit, it's not going to be as much of a margin story as it will be a free cash flow story. So I think it's going to depend on our service mix, and it's going to depend on which industry groups accelerate. But make no mistakes, we are investing into these processes, and we want to continue expanding margins.
Just as it relates to that 50 basis points or 60 basis points that you outlined in the slide from the 2019 to 2020 period, with GCA integration, maybe you can remind us of the timetable of the GCA. It looks like you pick up about, I don't know, 10 or 20 basis points to that window from GCA alone. Can you talk about how much of the 50, 60s from GCA? And what are the large buckets you expect to tap into to receive the other remaining 50 or 60 basis points?
Sure. I don't know if you want to do the breakdown, and then I could go to where we're going.
So GCA on a full run rate basis with synergies should bring us roughly around the 5.7% mark. So the remaining 30 basis points is going to be a combination of ABNY, further procurement. What we haven't factored in, which should provide us some leeway for additional growth, is the streamlining of our back office. I went through a lot of the work that we're doing. Tom Gallo is sitting in the audience, our treasurer is leading that effort.
We've cobbled together a cross functional team of operators and our finance back office to really start to drive that. So we see some upside there, but roughly the 30 basis points is going to be a combination of those two things.
Okay. I'll leave it there
for now and jump back later. Thanks.
Anyone else?
Hi, Jeff Kessler from Imperial. You have you're in the process of putting your infrastructure in place to, I guess, as you said it, accelerate or begin to make better decisions on larger scale acquisitions post 2020. And I guess the question is, what are those what is needed right now in your infrastructure to be able to comfortably sit there and say, we can integrate something or we can't integrate something, as well as what strategically we need to do to fill in some holes. So what is what's in the process right now to allow you to be able to do that? And where will you be to be able to allow you to do that in what period of time?
Yes, I think it's more of coming to a standardized base where we can further synergize acquisition. So if you think about ABM, the past and some of the things that we spoke about today, it's a cobbled together situation of past acquisitions that never were truly integrated. And what we learned from GCA, and there was a lot of insight there and what the work that we were doing in parallel even prior to GCA is, we needed to standardize our back office. So as we begin to bring on additional revenue organically or inorganically, we had a fixed cost base by which to grow. And that was not always the case.
And so one of the key tenets here is driving more of a metric base. So as we grow, our cost of support stays relatively flat or grows at a lower CAGR than the top and bottom line.
Yes. I wanted to ask some questions just around the labor front. Clearly, you guys have spent a lot of time talking about some of the challenges in that market. David, I'm curious if you can give us a sense for maybe what overall wage pressure might look like for the business. If you can maybe define it between what's north of the line that you laid out and south of the line?
And then it's interesting to me that you also laid out your contract type. So is there any sort of price cost risk to the model, especially relative to your fixed cost business, which is substantial?
So on the contracts, the fixed cost contracts, typically we have built in escalations. So every year we're going back and putting through those escalations. It's really when the local labor I'm really talking about outside of union markets, when the local labor costs increases at a rate that's higher than what we've built into the escalations. And that's where the account plan and the relationship management comes into play, because we have the strongest relationships with our customers. It's us going back to those customer base, explaining to them exactly what's happening, which they're going to see in the marketplace as well and really trying to pass those costs through.
Now I will be the 1st event. It's not a one for 1. So when the costs go up, so there's always a delay. But with the account planning process, we're starting to see better insight into when those conversations need to happen so that the escalations occur at the appropriate time.
Yes. And to build on that, what I would say is these wage increases democratize the business because it's happening to everybody, right? But with the account planning process, here's a really good example. Part of the account plan is knowing your expirations of a contract, right, knowing when you get your escalations. And what we did as a team is we went back starting in September to our clients saying, look, we know you're building your budgets right now.
We're seeing some wage pressure in markets where we did say, normally, we would ask for a 2% increase, and I'm making this up, right? Normally, we'd ask for 2% increase. We're going to be coming to you with a 3.5% increase. So start putting that into your budget. The ABM of old never did that.
We never got ahead of that because we didn't have an account plan that would pop up and say we got to get ahead of this. So it's one area where having better planning to let you get ahead of it. And to Anthony's point,
we're not going to
say this is without risk, right? Because things can happen mid cycle, and you have to catch up and talk to your clients about it. So if there's any risk, it's probably having to increase wage because of market conditions midway through the year and then having to start talk to your client about getting some relief. So it's not one for 1. But if you have that strong relationship and you're performing, you get a seat at the table to make that request.
Mark Riddick with Sidoti. So one of the things I wanted to touch on following the GCA acquisition and the difference in the margin profile of GCA versus legacy ABM. One of the things I did want to touch on is some of that sharing of best practices. And I thought one of the things that was kind of interesting in the commentary was I think you made mention of maybe some of these things were actually simpler. So I was wondering if you could spend a little bit of time delving into the simplicity, it's always a good thing, especially leads to greater margin profile.
So I wanted to
see if you could delve into that? I have to give you an example because it's incredible. So I go to our shared service center in Houston. This is maybe 4 months ago. And think back to what Anthony said, we lifted and shifted in, but we didn't start remapping yet, right?
So they're touring me through the space and they take me into this room and I see 25 printers side by side. And I'm like, what's this for? It's like, oh, it's to print invoices. I'm like, how can we have that many invoices that we need 25 printers? They're like, no, no, no.
There's been so many customizations in the market because we were able to act autonomously. If somebody wanted a pink invoice that was trifold, we said, okay, this one wanted a blue that was bifold, okay. So you have all these printers of shapes and sizes lined up, generating over 60 different types of invoices at ABM. You look at GCA, now they weren't the same scale as us. I think they had 2 types of invoices across $1,000,000,000 because they had the discipline that when a client said, I want a pink invoice trifold, they said, Can we just talk about it?
I need to understand why, because that's really difficult for us. And a lot of times, I found out that the content okay, no, it's just the way we used to do it, no problem. We never did that. So that's the way when we simplify, we'll have less printers, less people taking care of those invoices. And that's the lesson we're learning from them about kind of demanding that simplicity in the market.
And I don't know if you but that's in essence my example.
And then one thing to piggyback on that and shifting over to the new technology and new tools. And I was wondering if you could sort of talk a little bit about the analytics behind the attack primer and kind of how that's developing? Maybe is that something that's going to be sort of like sort of dynamically adjusted as you get new learnings and things of that nature?
Yes. So it goes back to data. So one of the biggest challenges when we began to tag pilots or the tag development is getting data. So we actually had to go back and really sift through invoices, sift through how we were billing in the cost of data cost of performing the service, because we were not capturing that in our ERP. So what you would see is tag and you would see either the revenue or the margin associated with it, but you couldn't drill down and say, did we perform a carpet cleaning, power washing, etcetera, etcetera.
So one of the first things we did was we collected the data by market. So we actually went by market and said, let us understand exactly what the price point was, who was the customer that requested it. So in New York, you may have a law firm requesting it that accepts X price with this margin and we may have another institution accepting it with a different margin. So we even got granular in terms of the customer requests from a cost perspective. Now with the tag price, we didn't go into the full demo, but the tag price is going to drive is based on the inputs that a operator puts in and based on the type of service provided and even the type of client requesting it, it will come up with a recommended price.
So it would say 100 square feet, power washing, you should charge 800. Now the operator may decide to charge 500 because that's what he's always charged the customer. We're going to be able to capture that data and really understand why was there a difference in the price that we think the market would accept based on the labor that we have doing the job and based on the type of service and why was the price higher or lower. So over time, it should start to refine our pricing strategy as it relates to tags. Jason Kodak at Aberdeen.
Two questions around sales. 1 around the technical solutions side. Can you talk about that bidding activity? Seems to have kind of backed off some. Maybe talk about why?
And then secondly, on the B and I space, when you have contract renewals, can you talk about what customers are asking for and how you're kind of offsetting some of those pressures?
I'll hit the Technical Solutions side. Actually, last year on the sales side, new sales was actually a really strong year. So when you look at some of the revenue on Technical Solutions, some of it is a timing. We actually have a very robust sales backlog right now going into 2018. So we feel like we're going to see an uptick back to a higher revenue number for this year.
So we are very robust. We are investing in sales. Probably one of the challenges we got behind on hiring salespeople. It's probably beginning to be more challenging on hiring some of the salespeople. We've dedicated some additional resources to the recruiting side of it.
And we've brought on some high talent people. I shared the Sean Mahoney thing that's helping us enterprise wide, but we are seeing an uptick again and have some great targets on the technical solution side of the sales. So we're looking forward to it.
Yes. And with B and I, so that's inherent in that business. It's always price sensitive, right, and value sensitive. So what we're seeing when customers are talking about renewals, they're looking for efficiencies. How can you help us save money?
How can we play around with the specification to drive more value? That's really key for them. So they're a customer that's continually looking for ways to optimize their spend.
Great. Any other questions? Yes. You showed Anthony, you showed what the what you've been paying essentially for your tax rate. Do you have an idea of a range of where your tax rate is going to be going to?
Yes. So if you exclude the discrete WOTC and the ASU for FAS 123R, will be roughly 29%. And those discretes ballpark are approximately 9,000,000 dollars And just to clarify, for fiscal 'eighteen, it's 10 12ths of that rate.
I guess, on the safety initiatives, a couple of years ago, Scott, as you mentioned, you took a penalty to your margin as you looked at the way you're accruing for workers' comp and other insurance. Anthony, in your comments, you mentioned that you expect some payoff on those. I guess over the longer term, can you recapture that full hit that you took a couple of years ago? Or what's the order of magnitude that you think you can get back to?
We're hopeful that we can. As you know, the actuarial process is a long process, and that's one of the things that we've remained disciplined in is not to whipsaw that rate until we see consistent improvement. And we are seeing a reduction in our frequency, which is the first step of the process of looking at risk on an enterprise basis over the long term, and we're starting to see that starting in 'sixteen and 'seventeen. So if those trends continue, we have we feel confident that there's a recapture. I would I'd be remiss to say whether that's the full recapture or half the recapture or somewhere in between.
And just the cultural change is kind of palpable. Like, if you have an e mail address with ABM, you wake up in the morning, the very first email is a safety moment. And we've made it really concise. It's probably about this big. But it says, hey, if you're going to be lifting something today, make sure you do this, that, the other thing.
So everybody knows at ABM now, safety is important. You never saw a start at Investor Day with a moment of safety before, right? So it's
a new thing that's happening at
ABM over the last year or 2.
Great. And then strategically, Scott, for you, you've done a couple of divestitures here in the last year or so. I was just wondering some of your comments on parking, you talked about it as being good cash flow, but kind of low margin. Certainly, I think it's strategic in like healthcare, seems like and certainly made a case for in airports. But I just wonder if your parking business that's city center parking or what have you is just strategic for the long term or any other business that you're looking at that could be carved out to help you deleverage even faster?
I mean, sure. I think you can say that for any service line, right? Because there are some services that aren't as foundational in different industry groups. But that's not kind of way we run it. We don't run it by those segments.
And it's so important in the Aviation segment, which is where a lot of our parking is. And it's important in the Health Care segment. So I would have to say that doing a surface parking lot in Houston is non strategic for us, right? But that same portfolio manager may be running off to the airport, and there's probably not a lot to taking care of a manned surface lot. So I definitely think there's parts of our parking business that are absolutely non strategic.
But I would say that about our janitorial business as well, right? So for now, we're really happy with what it's doing for giving us this kind of diverse offering. And we think it's important, especially in aviation, to have that density in an airport. And again, maybe it sounds cliched now, but really that car seat to the cabin seat is a big deal, especially when you look at what's happening, Europe, the airports are all privatized. We're moving towards that.
We believe that's going to be a trend in the U. S. You see the infrastructure investments happening. If you go to Heathrow Airport, they think of it as a business. They say, if you're going to connect through Europe, you have to come here.
We don't want you going to Charles de Gaulle, so we're going to build all this infrastructure and services around it. That hasn't really started happening here, right? But they're starting to put investment. When they start privatizing, when they start putting infrastructure in, it's going to be about how do you create an experience for us. So it's an important part of our portfolio.
And it does generate terrific cash flow because this isn't a singular lens story, just about margin, right? So we're happy with it for now.
Okay. The other The other sector that I think is worth talking about is the Healthcare segment. This is a segment that over the years ABM has certainly done acquisitions in here and there, certainly talked positively that it's been a growth market for the company. It's sitting at 1% share of the target market that you laid out here today. And I guess my question is this, is how many organic initiatives you have around this business?
And for you to really capture share in healthcare, do you need to do some sort of acquisition to get you a platform like you did in K-twelve with GCA?
Yes. So, 2 part answer for that. Our strategic initiative now in healthcare is probably more compelling than it's ever been, because when we first did the acquisition, it was all about the acute space. What do you do in the hospital? Through 2020 vision, we pulled some of our BNI kind of office expertise that was in medical facilities and put that in with So now has a balance almost fifty-fifty between acute and non acute.
And you know non acute is the core of ABM. That's the driving force, our ability to that BNI esque type of cleaning. So what we're doing as a strategy now, and it's a new strategy that started last year that's starting to get traction, is we're going to these hospital systems and saying, Hey, listen, we're as good as the 3 big boys. We all know Sodexo, Compass and Aramark. They're the category killers in health care, right?
So we're this $250,000,000 more boutique company. But we're saying, where are you really growing, hospital? You're not growing in the acute. You're growing in the non acute areas, in the office space that you're needing in the surgical centers. This is our strength.
So we can do the acute just as well as the big boys, but how are they going to service your non acute areas the way we can? So that's our target. And we're not going to the big 20 hospital systems. We know that we don't have the right to win in that space. But in the 4 to 10 hospital systems, in the university single hospital systems, we think we have a compelling proposition here, and especially on the university hospital systems, where we have this big presence in education now.
So we're excited about the healthcare business. Do we have to do an acquisition? I don't think we need to do it in the next 2 or 3 years. I think we have enough organic runway with our platform to grow in that business. We're excited about it.
Nice presentation. Can you talk at all about how we should expect from the tag price, sir, in terms of what the percentage of tag revenue is today? What areas, what parts of the business you think this has the biggest potential to drive growth? How we should measure that a few years out, whether you've incorporated any potential margin improvement from that into your guidance looking at a couple of years or whether that's an area that might provide some upside? Thanks.
So I think this is something that's going to give us terrific upside. It's really hard to dimension it now. It's just getting rolled out. And as much as this is going to help us with margin and I'd love to at some point give you guys a demo of this tool because it's really incredible, because it puts in the labor rates, it puts in history, It's going to be incredible from a margin standpoint. But what's going to be so good about is it's going to be stickier with the client, because it's going to make the work order process efficient.
And for our people, it's going to get them to be with the clients and walking the buildings rather than down in the basement processing work orders. So this is a tool that's going to have multi lens for us. But the kind of the short answer is, we're just rolling this out now. I think we'll have better sense of how well it's adopting and how well it's accelerating our tags probably over the literally over the next year or 2. But so far, this is the first since I've been CEO at this firm and even dating back when I was running the Northeast, this is the first piece of technology or even a tool that our users or operators are saying, I love this thing.
This is amazing. And they are embracing this probably like nothing that's been rolled out so far. Yes, Michael, I
would just add, one of the benefits of the tool is we know how many tags we process and how many tags are processed in the tool. So as we start to get more data points, we'll start to understand exactly where it's working and where it's not working, so we can continue to modify. Tags are roughly 5% to 6% of our business today. Obviously, we'd like to grow that. So we'll have a measured way to say, as the adoption rate goes up, have we been able to improve the tag penetration?
And it's a great margin, right? It has.
Great. I think we're out of time, unless there's any last questions.
Just one question quickly on the tax. Do you have any priorities for how you're going to be spending that those incremental savings, whether that's reinvesting the business or any other initiatives like that?
Yes, they'll follow our typical capital allocation, but the excess cash for now will be used to delever.
Great. I'll turn it back over to Scott to close out the day.
I just want to thank everybody for coming. I know it's a big party a day and it's a little bit of a schlep to get downtown, but hopefully enjoy the day. Hopefully it was insightful. And Susie, Anthony, everyone's going to be around if you have some more questions. So thanks very much everybody.
Appreciate
it.