Good day, ladies and gentlemen, and welcome to the ABM Industries first quarter fiscal year 2015 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. If anyone should require operator assistance, please press star then 0 on your touch-tone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Henrik Slipsager, President and CEO. You may begin.
Thank you. Good morning. Joining me on the call today are James Lusk, Executive VP and Chief Financial Officer, Scott Salmirs, Executive VP and incoming CEO, and Sarah McConnell, our Executive Vice President and General Counsel. Today, I'll provide a brief overview of the 2015 first quarter that ended January 31st. James Lusk will discuss the details of our financial results. I will do an operational summary before concluding our prepared remarks with an updated outlook for fiscal 2015. There is a slide presentation that accompanies today's call. You may access this presentation now by going to our website at www.abm.com. Under the tab Investors, you will see the Event tab. Today's presentation will be the first listing. Sarah.
Thank you, Henrik. Please turn to slide two of the presentation. Before we begin, I need to tell you that our presentation today contains predictions, estimates, and other forward-looking statements. Our use of the words estimate, expect, and similar expressions are intended to identify these statements. These statements represent our current judgment of what the future holds. While we believe them to be reasonable, these statements are subject to risks and uncertainties that could cause our actual results to differ materially. These factors are described in the slide that accompanies this presentation. During the course of this presentation, certain non-GAAP financial information will be presented. A reconciliation of those numbers to GAAP financial measures is available at the end of the presentation and on the company's website under the Investors tab.
Thank you, Sarah. Please turn to slide four for an overview of our first quarter. I'm very satisfied with our performance this quarter as results were in line with our expectations. Revenues were a record for the first quarter and up just over 5% from the same period last year. Highlights were Air Serv up over 13%, ESG with nearly 17% growth, janitorial is up at 4%, and parking breaking through the 3% level. For the quarter, operating profit excluding the corporate segment was up approximately 12% compared to fiscal 2014. Adjusted net income increased over 52% to $21.5 million as we benefited from higher margins and tax credits. In January, ABM won a unanimous reversal of a $94 million adjustment in the Waitr now class action suit.
Now I'd like to turn the call over to Jim Lusk for a financial review of our first quarter. Jim.
Thank you, Henrik, and good morning, everyone. Moving to slide five. On the top line, we achieved revenues of $1.29 billion for the first quarter, up 5.1% compared to the prior year, including organic growth of $38.9 million or 3.2%. In December, our janitorial segment exited a large contract as we believe the price concession required to maintain the job would have caused it to be unprofitable. Excluding this contract, organic growth would have been 4.4% on a year-over-year basis. As a percentage of revenues, gross margins increased by 30 basis points to 9.9% for the 2015 first quarter compared to the prior year. The increase in gross margin was primarily attributable to lower payroll and related expenses as a result of one less working day, lower insurance expense due to enhancements to our risk management safety programs, and realignment savings.
This increase was partially offset by higher startup costs for certain newly acquired contracts and non-recurring costs associated with certain clients. SG&A expense for the first quarter increased to $15.4 million or 17.6% to $102.8 million. The increase was primarily in corporate expenses, which grew by $10.2 million. This includes approximately $3.1 million of expenses to support sales and IT personnel working on growth initiatives, as well as professional fees for employee tax credits. Corporate expenses also include $6.6 million of items impacting comparability. For the fiscal year, we expect a 7%-9% increase in corporate SG&A, excluding items impacting comparability compared to fiscal 2014. Amortization of intangible assets for the first quarter decreased by $0.5 million. Our effective tax rate for the three months ended January 31st, 2015, and January 31st, 2014, were 1.7% and 42.3% respectively.
The decrease was primarily from $4.8 million in 2014 WOTC and other employment-based tax credits. For the year, our estimate of our annual effective tax rate will be in the range of 34%-38%, which assumes Congress will not reenact the WOTC prior to October 31st, 2015, for calendar 2015. Adjusted net income of $21.5 million or $0.38 per diluted share was up 52.5% compared to $14.1 million or $0.25 per diluted share in fiscal 2014. The increase is the result of the retroactive reenactment of the 2014 Work Opportunity Tax Credit, a decrease in labor expense due to one less working day, lower in-year insurance expense as a result of safety initiatives and new business. Partially offsetting these items were higher compensation costs associated with sales and IT staff to support growth initiatives. Turning to slides six and seven.
Day sales outstanding at quarter end were 56 days flat on a year-over-year basis and up three days sequentially. Cash used in operating activities for the quarter ended January 31st, 2015, was $32.4 million. This was an improvement of cash used of $6.5 million compared to the same period in fiscal 2014, primarily related to the timing of collecting receivables. Turning to insurance. Total insurance claim liabilities at January 31st, 2015, were $343.9 million, down $13.7 million compared to January 31st, 2014. For self-insurance claims paid during the quarter, the total cash paid was $22.9 million, down $2 million year-over-year. During the quarter, we amended our credit facility for a one-time increase to the leverage ratio from 3.25 to 3.5 times in the event of a material acquisition. We continue to have $30 million outstanding under our previous share repurchase authorization.
Yesterday, we announced our 196th consecutive dividend at $0.16 per share, continuing the long-established pattern as evidenced by the chart at the bottom half of slide seven. I'd like to turn the call back to Henrik.
Thank you, Jim. Please go to slide nine and 10. I will now provide some operational highlights for the first quarter. Starting with our onsite business. JanSan supply growth for the quarter was 4.5% compared to 2014, with revenue of $666 million. Organic growth of 2.1% combined with approximately $60 million of revenue from our acquisition of GBM. As Jim mentioned earlier, JanSan exceeded a large contract for pricing reasons. Excluding the contract, organic growth for JanSan would have been up 4.4% compared with the first quarter of fiscal 2014. Tag revenue was very strong in the quarter and compared to fiscal 2014, grew 8.5%. For the first quarter, the JanSan segment earned $34.9 million operating profit, an increase of $4.6 million or 15.2% compared with prior year.
Operating margins increased 40 basis points to 5.2%, primarily from a $3.9 million benefit associated with one less working day in the quarter. Moving to facility services, revenue on a year-over-year basis increased by $4.5 million or 3% to $156.2 million as tax revenue was exceptionally strong in December. The operational profit increased near 16% to $5.9 million compared to prior year. A solid effort by our on-site facility service team. For parking revenue is $155.7 million, up $5.4 million or 3.6% compared to 2014, as we are benefiting from new jobs and improving economy. Parking operating profit increased by $1.3 million or 25% to $6.5 million compared to fiscal 2014. Nice start by the guys in parking. Turning to security. As we previously communicated, the first half of the year will be challenging on a comparative basis.
Revenue of $94.9 million and operating profit was $1.9 million, down $4.8 million and $400,000 respectively compared to 2014. We continue to expect an improvement in the second half, and we're working on successful closing some larger cross-selling opportunities. Looking at our ESG segment with revenues of $119.4 million, our team had another strong quarter of growth by achieving a 17% increase compared to 2014. However, operating profit of $1.2 million was down $1.5 million, resulting from a $1.2 million expense associated with the settlement of two client disputes and $700,000 increase in selling and business development costs. We are very confident that the ESG team will deliver double-digit growth in revenue and operating profit compared to fiscal 2014, with the one-time cost behind them and a pipeline that remains very strong.
Before discussing our outlook for the remainder of fiscal 2015, I want to say a few words about Air Serv. This segment listed as others in operations, had an outstanding quarter, with revenue increasing 13.6% to $97.2 million, up $11.6 million compared to the first quarter of fiscal 2014. We continue to benefit from significant growth in our U.K. business and from recent contract wins for the U.S. commercial carriers. Operating profit of $2.6 million was up $700,000 or 36.8% for the quarter compared to fiscal 2014. With our expanding U.K. operations and recent sales wins, we continue to believe our aviation vertical is set up for a very successful fiscal 2015. I will now turn the call back to Jim for an overview of our financial guidance for fiscal 2015. Jim?
Thanks, Henrik. Let's please turn now to slide 13. With the passage of the 2014 WOTC, the company is raising guidance as follows: $1.75-$1.85 for adjusted net income per diluted share and $1.55-$1.65 for net income per diluted share. This guidance excludes potential benefits associated with the 2015 Work Opportunity Tax Credit. If Congress were to extend the WOTC for calendar 2015 before October 31st, our fiscal year end, the company would have a further benefit of $0.08 per diluted share. The second quarter will have one more workday compared to the prior year. This will increase labor expense by approximately $4 million on a pre-tax basis.
Please review the other items listed on slide 13, which contribute to the EPS guidance we have provided. As is customary, our guidance is exclusive of any future acquisitions. Operator, at this time, Henrik, Scott, and I are ready to open the call to questions.
Thank you. Ladies and gentlemen, if you have a question at this time, please press star and then the 1 key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from Michael Gallo of C.L. King. Your line is now open.
Hi, good morning.
Good morning.
A couple questions. A good quarter. Congratulations. I just want to drill into Building and Energy Solutions a little bit. You had, obviously, strong revenue growth. I know you had the two items you called out, but even excluding that, it doesn't look like you would've had much growth in the operating profit line. Was there something else about that revenue growth? Is there some startup costs? Walk me through kind of why you think that'll get back to growing more in line with revenue as you get into the back half. Thanks.
Mike, I'm not overly concerned about that because we're dealing with the first quarter, which is a quarter where we have relatively few project-type jobs. There was some startup associated with our government business. That's included in the numbers. The good news about startup costs is the revenue and income will come later. I'm not concerned about it. The growth, I think, is very impressive. Knowing Tracy and his team, I know the profits will follow that growth. No reason for concern on that one.
Right. Okay.
I'd be more concerned if revenue was not up.
Right. Okay. Fair enough. Second question I have is just on security. I know it's been a couple of tougher quarters there. Obviously, that was one of the areas that should benefit from some of the cross-sells. Just wondering if you can give us an update on security, which I guess has been challenging for a few quarters now, and what your sort of thoughts are there going forward. Thanks.
Security will be challenged, I think, for the most of the year. I think we're going to see some rebounding in the second half. It is very much associated with the loss of one or two major jobs late last year, I guess it was. The middle of last year. They are clearly benefiting from the cross-selling. We see a lot of bidding activity and hopefully also closing activity. I don't even want to think about it if we didn't have that. Clearly benefiting from that. Security had a couple or three very good years. Now we are limping a little bit. We're not bleeding. We're just limping.
Okay, fair enough. Thanks.
Thank you. Our next question comes from George Tong of Piper Jaffray. Your line is now open.
Morning. Let me first say, Scott, welcome to your upcoming new role. Henrik, you certainly will be missed. I guess my first question, you made investments in the quarter in sales and IT personnel working on growth initiatives. Can you discuss areas these incremental hires will be focused on, how they evolve your growth outlook for the company, and when you expect them to ramp their productivity?
Well, let me give you a little more sophisticated answer, a little more detailed answer on that one. First of all, the IT folks that, a lot of them were hired, were simply shortages we have realized the last year. If you compare to the first quarter of last year, this is primarily a shortage of people. To reflect on where we stand on this is pretty much on our plan. We expected this. As a matter of fact, I'm happy to see we're fully staffed finally, so we don't have any holes in our IT department. IT department is very much associated with our overall business to make sure we have the technology as a leading part of our service provision. That's part of the business development part. The other thing Jim was talking about is sales and business people.
We always load up in the first quarter, or we loaded up in the first quarter. As you can see the past couple of years, that's why we realized growth we haven't seen in the past. It's somewhat associated with the hiring of salespeople.
Great. Makes sense. We've seen several quarters now where your margins have benefited from reduced insurance expense related to enhancements to your risk management and safety programs. Can you talk about how long you expect to continue to see margin upside potential from this?
Well, if you think about it, starting primarily the third quarter of this year, we had a huge benefit. That benefit in the third quarter, we had some benefits from the first and second quarter of fiscal 2014. I think you're gonna see a benefit in the second quarter of fiscal 2015. We're gonna be a little behind on the insurance on third quarter 2015, and that's associated with the pickup we had last year in third quarter 2015. Overall, we're pleased with our progress. We have, as you might know, hired a lot of safety people and have [burst] our safety program. So hopefully the improvement is going to continue for years to come, but short term, second quarter, we'll benefit from it, and third quarter, we'll have a deficit from it.
Great. Then last question. You've previously highlighted parking as a notable beneficiary of cross-selling initiatives under One ABM. Can you discuss other potential sources of revenue upside from cross-selling in metro areas?
I think security for sure. Maybe not metro areas, but security for sure. On the industrial side, we see some references right now taking place. Parking is somewhat a great story, in my opinion, because parking was pretty much the only company last couple of years we've not seen the growth, and finally I'm seeing growth both on top and bottom line. It is somewhat tough quarter because we did have a lot of snow in January. If you live on the East Coast, you know February is going to be tough for us as well. We got a lot of snow and then that does affect parking. Parking is still benefiting from the relationship, in particular, in the Janitorial area, and a lot of good activity in parking taking place right now.
Thank you.
Thank you. Our next question comes from Joe Box of KeyBanc Capital Markets. Your line is now open.
Hey, good morning, guys.
Morning.
Morning.
Henrik, congrats on the retirement.
Thank you.
Wanted to ask about the margin expansion in the janitorial business. Over the last few quarters, we've actually seen some nice margin expansion. I'm just trying to discern how much of that is maybe the new contract upfront expenses normalizing versus maybe your high margin tag business that seems to be picking up. Just any color on that would be helpful.
I think this quarter clearly benefits from one less day compared to last year. It's going to clearly impact the margins overall. The tag sales for sure is a much higher margin than any other sale. Other than that, the key number we're focusing on, and we'll keep focusing on also after my retirement, they promised me, is safety and the association of insurance expenses with the safety investment. We're making the investment now, and we do believe long term we'll get some nice payback, which also is a very good competitive tool as well. I would say, looking at it from 10,000 feet, the margins, with the exception of that one day in janitorial, is very close to be flat.
Can you maybe just put some parameters around the success that you called out on the West Coast? I know you guys are deploying your Solve One More out there, and you've got some alignment initiatives that you're doing in that region. I'm just curious what the success has been and maybe how that might compare to some of your other regions as you deploy it elsewhere.
I think the West is clearly something that proves to me, and I think proves to Scott that the value of a strong leadership team cannot be underestimated. We have a very strong leader, his name is Randy Jacobs, doing a great job. In Southern Cal, you've got Arnold Claver. He's doing a fantastic job. I think we saw the talent, and we picked those two guys to lead the effort. They have been instrumental in increasing communication between the different lines of business. If we can copy that success to other areas, we're going to see growth like this pretty much every place. The last thing I want to mention here is the depth of services we have in Southern Cal is much greater than any place else.
You have to remember, you might not know this, originally, most of these services, we talk about parking, security, and others, were starting in Southern Cal. That is still the area where we have the deepest penetration.
Understood. Thanks for that. James Lusk, when we look at the corporate expense being up 7%-9% for the full year, just curious, is that off of a GAAP number or a non-GAAP number?
That basically is a non-GAAP number. If you look at our SG&A run rate in corporate for this quarter, you do the 7%-9%, you're pretty much at the run rate. That's pretty much what it does. As Henrik described it, we had a lot of vacancies last year, especially in IT. Those vacancies were filled the latter half of the year last year. We've added a few salespeople. You're pretty much at your run rate right now.
Great. Thanks, guys.
Thanks.
Thank you. Our next question comes from Andy Wittmann of Baird. Your line is now open.
Hi. Good morning, guys.
Morning.
I wanted to understand a little bit about the lost contract in the janitorial business.
Right.
Just doing simple math here, it looks like roughly 2% growth for the quarter implies 15 for the quarter. Is that a $60 million contract for the year? Maybe more importantly, was this a contract that was in the middle of its duration that you decided to get out of as just a review of the contract, or did this one come due and go out for recompete?
This was the contract that I have been talking about indirectly for a very long period of time with a very long implementation schedule where the startup cost exceeded our expectations, and as a matter of fact, was not profitable, and very little profitable into the second or third quarter of fiscal 2014. We ended up in some price disputes with the particular client, and we decided to leave the relationship that was not very profitable for us by the, I would say, around November of 2014. It was an account at the level of around $4 million a month.
You left in November. Really, the janitorial, you were starting it up last year, but you kind of signed off in November where you started walking away from. In other words, you've got another couple of quarters here where it's going to be a tough revenue comp as a result of this. Is that a fair way of looking at it, Henrik?
Well, I think from a resolved bottom-line point of view, it's not going to be very tough because we didn't make that much money, if any. I think if you see our growth, it's pretty impressive because we more than absorbed that in our janitorial segment and still were up net organic growth by more than 2%, which is, and you remember back, Andrew, is still a good number for us to be up 2% in a market that's pretty flat if I look at my competitors. Without it, I'm up 4.5%; with it, I'm up 2%. The sales activity in janitorial is still very impressive, I don't foresee any issues in that respect.
Yeah. Okay. That's helpful. Maybe just one for Scott here is related to that. As you look at the company margins here today, Scott, and the opportunity, I know you've been doing your listening tour, going to your different offices and understanding the businesses, but is there an opportunity to look at more of contracts like that one? Maybe that's obviously a large contract, but are there more opportunities, you think, in the portfolio of ABM to look at contracts with more scrutiny, potentially walk away, and maybe it's an expensive top line, improve the overall bottom-line results? Is this something that you think is on your priority list, or I'm just kind of curious your thoughts around that.
I think this is something we do well as a firm, I think we've been doing well for quite a while. The operational discipline that we have in the field, I think, is unparalleled. If you remember, it wasn't too long ago that I was running the Northeast, I had a very micro window into this. That was always the theory. We don't work for free, that translates to pride in our people, it also says a lot to our customers. I think, as we go forward, this is going to be the same operational discipline that we've always had.
Okay. Scott, I think, given that this is your first conference call, it's probably fair to ask you, what are some of the things that you're looking at today potentially to put your stamp on? If you give priorities one, two, three, what are some of the things that are formulating in your mind as things that you want to go after to drive the future of ABM?
Well, for us, and it's something that we've spoken about before, it's the customer focus. We're going to continue on that. It's the vision that we've had as a firm, and I think we need to drive that deeper and deeper and turn it into a true operating strategy. That's something you're going to see a lot of and you're going to hear a lot about from us. More collaboration as a team. We started it with Solve One More on the sales side, and we've been doing it for a while now with our onsite restructure that we started a couple of years ago. Now we're going to look to our Air Serv division, our BESG division, our onsite division, and bring those three areas closer and closer together to have the true One ABM, and that's where a lot of the focus is going to be.
Okay, good. I think I'll leave it there for now. Thank you very much.
Thank you.
Thank you. Again, ladies and gentlemen, if you have a question at this time, please press star and then the one key on your touch tone telephone. Our next question comes from David Gold of Sidoti. Your line is now open.
Hey, good morning.
Good morning, David.
Henrik, it's been a pleasure working with you for about 15 years.
Thanks, David. Pleasure working with you as well.
Scott, obviously, welcome to the new role, or upcoming. A couple of just quick fill-ins. One, just going back for a second to the large contract. When you think about that one, just want to go over, for a second, I guess the takeaway of a lesson learned. Was it a function of mispricing, or was it a function of in the implementation, things changed and it just became more, let's say, expensive to you than expected it to be?
I'm sure it's a mistake Scott will never make, but I made it. I think sometimes when you start, you look at this wonderful, big job, great opportunity. I think we got somewhat carried away with the opportunity and didn't scrutinize the job deep enough before we said yes to the contract. Looking back, the screening process have to be stronger and better in that process because, one thing is what you see is the direct expenses associated with it, but there's also a lot of indirect expenses and frustrations associated with a job like that as well, where you just don't see the cost. We have to allocate management resources to a job like that that exceeds what you would do to a normal job. Lesson learned is, if it looks too good to be true, it is too good to be true.
Scott will absolutely not make that mistake.
Thank you, Henrik.
When we think about the pickup in tag work in the Northeast, which obviously is impressive in tag work. Inside margin is presumably you're pretty focused on doing what you can to spur that on. What does it take for other areas, say, the West, to catch fire on that?
You have to understand the difference in contracts between the different areas of the country. Especially the West, there are very few extras associated with it because the contract you have with a client is pretty much an all-inclusive contract. You can have some extra work, some extra carpet shampooing, et cetera. In New York, you're dealing with a minimum spec, and you have direct contracts with each tenant that drives a lot of these tag sales. You really can't draw a parallel between areas and make conclusions based upon areas. Give you an example. In New York, snow is unfortunately included in the pricing. If you go to Washington, D.C., it's an extra.
Every area is different, so I really can't give you the model other than saying to you that we know the difference in the marketplace, and we're focusing on it.
Based on the pipelines that you're seeing, how aggressive or how much stronger do you think the growth there gets?
I'm encouraged by it. We have a lot of very attractive offers in front of us, not offers, but bids in front of us and negotiations in front of us. I really believe that the growth is now It's been now for six to eight quarters, and I think it's sustainable. It's my hope, again, that Scott will take over something that will even grow more. I think we've been through some of the growing pains, we've been through the reorg, and things take time. That's why I feel it's the right time for me to get out of here and leave it for a very talented man who is extremely marketing and sales-focused, and I'm sure he'll do a fantastic job for you.
Got you. Perfect. One last, if I can just sneak in there. Looking at the growth in Air Serv, the other one, obviously, very impressed by it. We just wanted some thoughts there on, sounds like there's strong momentum. Is growth like this sustainable?
I believe when we bought the company that we could see 10% plus growth in that company. I did that based upon the leadership, the talent we see, plus the market opportunities as endless. Again, with that leadership and the direction that Tom is taking this company.
[Marano].
[Marano]. It is very impressive. My hope is that on an average basis, that you will see double-digit growth in the long run. That doesn't mean next year it'll be 7%, and the year after 15%. I can't tell you it's going to be 10% every year. On average, I really believe that this is going to be a double-digit growth, and it's going to be a long-term success story for Scott and the team.
That's more a function of market share gains or new contracts?
It's market share gains.
It's market share gains. There might be some new airports opening up, but in general, it's market share gains.
Perfect. Thank you all.
Thank you.
Thank you. Our next question comes from Jeff Kessler of Imperial Capital. Your line is now open.
Thank you. Congratulations, Henrik. It's been 20 years.
I know, Jeff. 20 years.
Going back to when you were with a competitive firm.
It will be that.
Taking a look at the You made some specific references to where One ABM was beginning to take hold with regard to parking. If I could get an idea from you for the rest of the fiscal year and into the next fiscal year, how do you see this playing out in terms of which areas of the company are going to be at most benefit, and where are we going to see it a little bit more lagging in terms of being able to integrate these pieces together under one roof, so to speak?
Jeff, I would love to say that now Scott is the leader, he's going to grow 22% everywhere, but that's unfortunately not the case. I think the small divisions will always benefit more because let's say the janitorial being the big kahuna here, has more relationships, has more contracts. The referrals will clearly benefit all the other divisions. As I said earlier, finally see it on parking. That was, in my opinion, a very good quarter for parking. Security, I think it's truly a short-term hiccup. Facility services had a good quarter, but probably not sustainable in the second quarter. We'll have a good growth year. Janitorial, I really believe the major jobs in janitorial, they are picking up, and you'll see growth in janitorial.
If you look at the growth without that big job that we talked a lot about today, you'd be seeing a growth between 3% and 5% in janitorial. It's on a big base, and it's taking nice market share out there. I feel very good that you're going to see long, sustained growth throughout the company, I'm not going to put a number on each area.
Okay. With regard to both janitorial facility services, what is the current tenancy
Tenancy rates going, are they continuing to improve? Is this the type of thing where improvement in the percentage of buildings that are occupied fully or partially, or at least partially fully, are going to drive this for an extended period of time? There's a tail to this, obviously.
I think, Jeff, the occupancy rates in buildings have very little to do with our growth. I've said that before. I really believe it. I think the vacancy rates or the occupancy rates, if the occupancy rates are high, that means the economy is good. I think you're going to see some reflection of a good economy. The rates in itself, outside the reflection of the status of the economy, really doesn't have a major impact by myself.
All right. What has to go on in Building & Energy Solutions to pick up the margin there? While the organic growth looked really good, operating profit, obviously, you had a couple of disputes. Were those the major reasons why the margins were as they were, or are there other things that are holding it back that could perhaps dissipate over the course of the next fiscal year?
No, I think you're dealing with two things. You're dealing with the first quarter that is historically, the first two quarters historically in [PSG] are the weaker quarters. That has a lot to do with our energy retrofits, which normally takes place in the third and fourth quarter. As you can imagine, we do a lot of schools. That is often done in the summer break. You cannot make any conclusion based upon this quarter, in my opinion. We did have a couple of one-time hits, which is not something we expect for the rest of the year. The cost increase we had on the sales and business development people in that particular segment is, of course, something I expect is going to show or mean that we're going to have the double-digit growth in [PSG] for the year.
I also am very certain they're going to have double-digit growth on the EBITDA level. I'm very proud of what they're doing, what they have accomplished because they have pretty much a very strong machine going right now. They're hitting on all cylinders. Outside the hiccups in this quarter, which truly are one time in nature. Unfortunately happens in all our divisions. Timing. We're not perfect.
Okay. Finally, with regard to healthcare support services, this has been kind of a smaller part of that division. It started out, I think, a little bit slowly. What are you doing at this point to really build that up? Because there's obviously a tremendous amount of potential there.
Well, we have invested in a very good team. We've seen pretty dramatic growth there on the top line.
We are picking up new business as we speak. They've had, as I said, one of the two of those hiccups we talked about earlier did happen in the healthcare business, and we did lose one of the jobs, or we resigned from a job. I think, again, you're going to see high double digits, high teen growth in healthcare both this year and these coming years. We are a very small player in the marketplace. It is an area where I would very much look at small acquisitions, but it's not my call anymore. I'm going to inspire them to look for small acquisitions because it is a healthy market segment. It is higher profitable than the rest of our business. Again, I got great leadership there.
Okay. Finally, Scott, I know that you've kind of answered this question before, but I'd like to hear it perhaps from a different point of view, and that is, one of the things that a lot of companies that are involved in services, whether they're in security services or integration services or for that matter, facility services are doing, is trying to become as focused as possible on margin and building and business process integration, so to speak, that part of it, as opposed to just revenue. In fact, walking away from and trying to be as disciplined as possible with revenue.
I know you've, again, you've partially answered this question already, can you give out what your view is as to what your tolerance is for margin versus revenue, and how you're going to look at the two and make sure that this trend that seems to be slower revenue growth with higher margins may affect you folks?
Well, first of all, I think they're equally as important, right?
Sure.
Revenue helps drive EBITDA and margin. Henrik have spoken about it before, that this is going to be one of our organizing themes as we go forward, which is to drive margin. I think that's going to come from the vertical or customer focus. We've seen that in the aviation business. We have seen it in the healthcare business, that when you focus on a customer rather than just a service, you drive higher bottom line. We're very hopeful that that's going to continue. The first thing that comes to mind to me as well is what we're doing around insurance and risk mitigation. We're seeing the results of it, changing our culture in the field, and that's going to help our bottom line as well. We're very much going to be focused moving forward on enhancing our margin.
Okay, very good. Thank you. Thank you very much, and welcome, Scott.
Thank you.
Thank you. Our next question comes from Daniel D'Arrigo of Jefferies. Your line is now open.
Hey, thanks for taking my question. A question on organic growth in janitorial. What should we expect in terms of organic growth for the balance of the year? Is it going to be in that 2% range going forward or higher?
Dan, you know I'm not going to give guidance on revenue.
I think you can conclude based upon what I've said earlier, that I don't expect it to be higher than five, and I don't expect it to be lower than two.
Okay, understood. On the incremental cost, what % or portion of those incremental IT costs were planned versus, I would say, more of a surprise to you guys?
Every dime was planned.
Every dime was planned. Okay.
We are ahead on our internal plans, both top and bottom line. We are ahead of where we expect to be for the quarter. I'm very pleased with the quarter. We had a very, in my opinion, very strong start to the year.
Okay, understood. Last question on M&A, Henrik. You mentioned in the past that valuations were one of the things that hindered you from making acquisitions were valuations. Can you maybe comment on how the M&A landscape looks like this day? Has it come down, or is it still very difficult to make M&A?
I think it's not easy for us to make M&A because we're also somewhat picky. It has to be in an area that fits our strategic view, which means we very much like to look at the verticals. As you've seen in the past year, Tracy has been making some good acquisitions in his area. If you go to the medium-sized to sizable companies, you will see private equity being very aggressive out there. I would say the multiples are still one to three times multiple higher than what I've seen in the past. Where we could look at a six, seven multiple in the past, you're probably looking at an eight, nine multiple now.
Okay, great. Thank you very much, and good luck on your retirement.
Thank you, sir.
Thank you.
Thank you. I'm showing no further questions at this time. I'd like to hand the call back over to Mr. Slipsager for any closing remarks.
Thank you. I want to first of all thank everybody for listening to our first quarter. I want to say thank you to employees, analysts for listening today, and other shareholders for the support I've received over the years. I'm very proud to welcome Scott here. I think it is going to be a heck of a move for the company, and I'm as proud as I can be. I think I'm leaving on top. At least that was my top. That's probably Scott's bottom. That's your upside. Scott?
Thank you, Henrik. My message is, I just want to make sure everyone understands how excited I am to lead this organization. When you look at the components that it takes to run a company successfully, it's your board, it's your support team, and your operators. I have a board that is rich in experience, that is supportive, that's going to be guiding me. I couldn't be more thankful. My support team here at 551 that I interact with day-to-day has been so helpful, and I'm excited to work with them in the future. They're so talented. Finally, you talk about operators and operational excellence, and you look to Jim McClure, Tracy Price, and Tom Morano, and you're talking about the A-team. I think they've been showing it in the field. It's just a lot to rally around.
This is as much about Henrik as anything else. What do you say about the person that's been here for 17 years, 14 years of which running this organization, that has literally transformed the company from when I started 12 years ago, which was a janitorial-centric firm, to an integrated facility service company that's global. It's just hard to believe what this man has accomplished in 14 years. He's leaving us a tremendous platform. Henrik, the way we will honor you is to move forward with the vision that you've developed with this company of customer focus, leading with character and ethics, which you have always done, and continuing to drive performance and value to our shareholders. We know you'll be watching over us as a shareholder, but I'm confident that we're going to be able to meet and hopefully exceed your expectations.
Thank you for your years of service, Henrik.
Thank you, Scott. By the way, those were not prepared remarks. I'm sitting here crying. Thank you very much for listening. Bye.
Well, ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Have a great day, everyone.