Yahoo Finance ABM Industries (ABM) Q3 2018 Earnings Conference Call Transcript
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ABM Industries (NYSE: ABM)
Q3 2018 Earnings Conference Call
Sep. 7, 2018 8:30 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Greetings, and welcome to the ABM Industries third-quarter fiscal 2018 earnings call. [Operator instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Susie Choi, investor relations for ABM Industries.
Thank you. You may begin.
Susie Choi -- Investor Relations
Thank you all for joining us this morning. With us today are Scott Salmirs, our president and chief executive officer, and Anthony Scaglione, executive vice president and chief financial officer. We issued our press release yesterday afternoon announcing our third-quarter fiscal 2018 financial results. A copy of this release and an accompanying slide presentation can be found on our corporate website.
Before we begin, I would like to remind you that our call and presentation today contain predictions, estimates, and other forward-looking statements. Our use of the words estimate, expect, and similar expressions are intended to identify these statements. These statements represent our current judgment of what the future holds. While we believe them to be reasonable, these statements are subject to risks and uncertainties that could cause our actual results to differ materially.
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These factors are described in a slide that accompanies our presentation. During the course of this call, certain non-GAAP financial information will be presented. A reconciliation of those numbers to GAAP financial measures is also available at the end of the presentation and on the company's website under the Investor tab. I would now like to turn the call over to Scott.
Scott Salmirs -- President and Chief Executive Officer
Thank you, Susie. Good morning, everyone. Before I begin my quarterly remarks, I want to welcome our newest board member, Don Colleran. We announced Don's appointment to our board yesterday.
As you may have seen in our press release, Don is a seasoned executive and currently executive vice president and chief sales officer at FedEx. He brings a wealth of experience and knowledge, particularly on sales and revenue generation, and we're thrilled to have him on our board. So by now I'm sure you had a chance to review our earnings release, and this morning Anthony and I will provide you some additional detail into our results. We'll also give you an update on what we're seeing from a labor perspective and discuss our areas of focus as we work to end the year in line with our outlook and prepare for 2019 forward.
Our results for the third quarter were largely as expected. We delivered strong organic growth of 4.5%, which continues to demonstrate our new sales culture. We saw expansion with some of our top clients, particularly in the business and industry, and technology and manufacturing segments, as marquis companies continue to choose ABM as they expand and grow. Additionally, technical solutions had a record sales quarter in the U.S., which enabled 14% organic growth.
Top-line growth remains a key priority for the entire company as our sales team and operations team work toward ending the year with a healthy pipeline. We believe we can continue the new sales momentum based on the $460 million we delivered in the first half of the year and head toward our goal of $900 million in annualized new sales. We are committed to recruiting, training and coaching great sales power. In fact, we currently have more than 90 sales rookies who are progressing through our new-hire sales academy, and we look forward to their increased contribution over the next 12 to 18 months.
I commend all of our teams for continuing to embrace our new sales mandate of pursuing new clients and continuing to cross-sell and upsell services. Our top-sales people spend all of our industry groups, and we are enthusiastic about the systemic changes we're seeing across the company. Our GAAP EPS, on a continuing basis, was $0.51, or $0.57 on an adjusted basis. These results were in line with our expectations and further demonstrates how resilient we are in a variety of different macroeconomic environments.
We are particularly encouraged by our ability to execute across all of our initiatives during the third quarter, considering the labor markets have not shown any sign of easing. Let me take a moment to share what we have seen on the broader labor front. On last quarter's call, we discussed the acceleration of labor pressures as our economy experience historically low levels of unemployment for both skilled and unskilled labor. This led to a lower level of qualified applicants and higher turnover, which affected wage growth and an overall increase in investment needed to attract and retain talent.
Given that direct labor cost comprised the majority of our expense line, these factors have a meaningful impact on our operations. Unfortunately, pricing is not immediately elastic when you have fixed-price contracts, and as we've said before, it will take time before the full-pricing environment has caught up to the current labor market. We're in early stages of having strategic discussions with some of our clients to address these cost pressures. While it's only been a few months, we've seen a mixed response so far.
In some cases, clients are open to a positive, proactive conversation on price increases, even before the contractual period expires. At the same time, we're also applying to a non-opening to revisiting prices prior to contract expiration. As we manage the next fiscal year, our organic growth will be predicated on retention, given the challenging operating environment and the need to increase prices on some contracts due to labor-based profitability deterioration. And let me be clear, our outlook on this front has not changed since we started seeing these pressures.
This is the natural dynamic within our business, and we're prepared to navigate our retention cycles just as we have in the past. Our priorities will be to grow our business with new sales and adopt the necessary pricing dynamics in today's environment, and then managing our retention prudently and responsibly. This underscores the necessity for the investments we have made and will make in the future as part of our 2020 vision strategy. On past calls, we've mentioned several key areas of focus such as upgrading our information systems to drive consistency across our standard operating practices.
I want to highlight a few areas where we're making upgrades in the first and second half of next year, setting the stage for benefits over the long term. First, we're upgrading our enterprisewide labor management platform. This will enhance our time and attendance process and give our field-level managers the ability to schedule our staff more efficiently. We will start to rollout the new system during the first half of fiscal 2019.
This is so important as we are a labor company at our core, and given my comments are only the challenges, this system will provide better insight and controls around our labor processing. We are also improving our unit resources capabilities with a new human capital management HRIS system. This new system will automate and transform many core HR areas such as workforce management, reporting and analytics, and HR compliance management. We're also making other investments to leverage of cloud-based data warehouse strategy.
The goal is to ensure that all of our systems will be seamlessly linked together, providing us with easy, fast access to data. The key benefactor of this cloud-based strategy will be our legacy ABM and GCA enterprise resource planning systems. As you know, we've been operating on two ERP systems through this year of integration. We took a responsible approach to making investments and internal processes and systems given the upcoming convergence to one centralized platform.
We look forward to the efficiencies and improvements this unified platform will bring for internal control framework. In addition to these transformative implementations, the enterprise continues to focus on processes that will support our back-office operations. We have made progress on a number of fronts in our new shared services environment, which has had a positive impact on the cash flow generation. During the quarter, we generated $60 million of free cash flow, and we are now poised to deliver more than $175 million for the year.
Given our successful execution during the third quarter and our unchanging view for the near-term macroeconomic labor environment, we are reiterating our 2018 guidance outlook today. Before I turn the call over to Anthony, I wanted to note that we recently celebrated our one-year anniversary of acquiring GCA. The past 12 months have been an amazing period of teamwork and change management. I've seen our employees working together diligently to integrate our two distinct organizations, including navigating multiple systems and delivering on the high end of our synergy targets.
As we close out our first year as the new, stronger ABM, I want to thank our entire organization, all 130,000 employees, for their dedication and commitment. Anthony?
Anthony Scaglione -- Chief Financial Officer
Thanks, Scott. I will now review the details behind our third-quarter results. As Scott just mentioned, we completed our acquisition of GCA Services Group on September 1 of last year. As a result, this will be the last full quarter in which our GCA business will be reflected on an inorganic basis for all impacted segments.
Of course, our overall results for future periods will continue to reflect higher amortization, interest expense, and share count dilution resulting from the transaction. In addition, our government services sale occurred in May 2017, and this will be the last quarter which any year-over-year comparison reflects this year's absence of that business. Now on to the third quarter. Total revenues for the quarter were $1.6 billion, up 23.2% versus last year, driven by GCA revenues of $260 million and organic growth within the business and industry, technical solutions, and technology and manufacturing segments.
More specifically, our organic growth rate for the quarter was 4.5%, which includes $8 million of higher management reimbursement revenue, primarily in our B&I and aviation segments. On a GAAP basis, our income from continuing operations with $33.7 million, or $0.51 per diluted share, versus $32.9 million, or $0.58 per diluted share. Last year's GAAP income from continuing operations reflected variable adjustments for certain tax positions of approximately $15 million. Our results also reflect the following items that are predominantly related to our acquisition of GCA.
Higher amortization of approximately $11 million, which is embedded within each impacted reportable segments. Higher interest expense of $10.1 million. And an increase in weighted average shares outstanding on a diluted basis. Excluding the impact of segment-related amortization, our overall operational results benefited from GCA-related revenue, predominantly within education, technology and manufacturing, and B&I segments.
On an adjusted basis, income from continuing operations for the quarter was $38 million, or $0.57 cents per diluted share, compared to $29.1 million, or $0.51 per diluted share. During the quarter, we had adjusted EBITDA of $88.4 million at a margin rate of 5.4%, compared to $57.3 million at a rate of 4.3% last year. Turning to our segment results, which are described in Slide 12 in today's presentation. As we have noted all year, are 2018 operating segment results reflect the remapping of overhead expenses related to GCA, including allocation and additional amortization.
Therefore, year-over-year comparison will not be meaningful. As a result, we have provided full-year operating margin guidance to help you track our segment performance for this year. Starting with B&I. B&I achieved a revenue of $735 million, growing 12.7% versus last year, driven by $45 million of additional revenue related to GCA and solid organic growth both domestically and internationally.
B&I's organic growth this year has benefited from our U.K.-based TSL win. Additionally, organic growth was also driven by expansions with key clients and an increase in management-reimbursement revenue. Operating profit for the quarter was $38.9 million for a margin rate of 5.3%, reflecting approximately $2 million of amortization related to GCA. Excluding GCA-related amortization, the operating margin for B&I was 5.5% this quarter.
Overall, B&I has proven resilient, and we are pleased with how well the team has executed this year. We continue to believe B&I will produce operating margins in the low 5% range for the full year, as we previously guided. Aviation reported revenues of $256.8 million, with an operating profit of $9.7 million and a margin of 3.8% for the quarter. Results were generally in line with our expectations, as the slight decline in revenue versus last year is primarily attributable to the loss of certain airline contracts.
Also, as you'll recall, last year we had the revenue and margin associated with a single contract, which we have since terminated. While the quarter was flat from a top-line perspective, we are encouraged by several recent catering logistics cross-sells that we have won, solidifying our entry into that market and proving our ability to compete as a provider of specialized services in the industries we serve. This year's operating margins increased by more than 170 basis points year over year, as last year's margin reflects the terminated contract, which I just referenced. GCA had a relatively small impact on this segment.
For the remainder of the year, our renewal strategy remains in focus, and we believe it would be prudent to remain conservative in light of the current labor market. Last quarter, we discussed the acute impact this labor cycle can have on specific segments such as aviation and education. Given these considerations, for the full year, we now expect aviation operating margins in the high 2% range, compared to our previous outlook for 3%. Moving to technology and manufacturing.
Technology and manufacturing revenues increased to $231 million for the quarter, up 43% versus last year. This was due to strong expected organic growth during the quarter, in addition to $60 million of GCA-related revenue. Organically, we expanded with our high-tech clients and from tag revenue through both the GCA and Legacy ABM portfolio. Operating profit was $16.9 million and our margin was 7.3%, reflecting new wins and better margins and prudent expense management.
Including amortization, we still expect operating margin in the low 7% range for the full year. Revenue in education was $211 million, reflecting $144 million in GCA business. During the K-12 summer buying season, we won key contracts with the Huntley Community School District in Illinois, one of the state's fastest-growing K-12 districts, as well as the Portland public schools system in Michigan. However, the education segment continues to experience a greater degree of pressure related to labor, which among other things, impacted some renewals and buying decisions.
While we are slightly disappointed in our total number of K-12 awards, we remain encouraged by our pipeline in the higher education market which is year round. We are also targeting first-time outsourcing opportunities across the segment as well as improving the retention moving forward. Operating profit for the quarter was $12 million, for a margin of 5.7%. Excluding the impact of amortization, operating margins were 8.8% as this segment is impacted most from GCA.
On a total basis, we believe we will end the year in a high 4% operating margin range, compared to our prior guidance of low 5%. Healthcare revenue was $69 million for the quarter, including $7 million from GCA. Operating profit was $2.5 million and operating margin was 3.7%. Excluding GCA amortization, operating margins were 3.9% for the quarter.
We continue to expect to end in the year with operating margins in the low 4% range. Finally, technical solutions. We've reported revenues of $122 million, a year-over-year increase of 14% for the quarter. As expected, based on the pace of bookings in the pipeline we discussed in the first half of this year, technical solutions had one of the strongest quarter ever, as projects and revenue churn normalized.
For this quarter, margins were 9.8%, compared to 8.8% last year, primarily due to greater operating leverage driven by higher revenues. Overall strength in our domestic business more than offset underperformance in the U.K. Operating margins for the year are now expected to be approximately 9%, above the high 8% range we previously announced. Looking forward, all of our industry groups will be focused on our contract renewal cycles and retention, while continuing to grow our already robust sales pipeline.
Turning to cash and liquidity. Cash from operations was roughly $74 million for Q3. We are seeing sustained improvements in our management of working capital. Due to the better management and timing of certain capital investments, we expect to end the year with free cash flow of between $175 million to $200 million, excluding the proceeds from last quarter's swap termination.
We remain focused on improving our front and back-office processes as free cash flow remains a key metric for our organization. We ended the quarter with total debt including standby letters of credit of $1.2 billion and a bank-adjusted leverage ratio of 3.6 times. I am pleased at the pace of our deleveraging to date. During the quarter, we paid a quarterly cash dividend of $0.175 per common share for a total distribution of $11.5 million to shareholders.
And our board as approved our 210th consecutive quarterly cash dividend. Turning to the macro environment. Given the continued uncertainty surrounding today's labor environment and the potential impact any change could have on our results, we believe our existing guidance outlook range remains appropriate due to the actions we have taken today. The outlook continues to contemplate the full-year annualized 60-basis-points headwind we are facing due to the current operating environment.
While the mitigation efforts we've put in place allow us to achieve our full-year guidance, we see no sign of significant labor pressure abatement, or worsening, for that matter, and we believe it's too early to predict the longer-term impact. However, we are actively managing our labor and customer renewal cycles and we're confident that our outlook will not materially worsen from our full-year margin run rate. In addition, we remain steadfastly committed to our strategic investments and systems to further drive operating and back-office efficiencies. As Scott discussed, investments that are fundamental to these initiatives include the first-half and second-half launches of our cloud-based human capital management, and time and attendance system as well as our new ERP system that will convert our legacy GCA and ABM infrastructure.
In closing, we are formally reiterating our GAAP and non-GAAP guidance outlook for the year. We continue to expect GAAP income from continuing operations to be in the range of $1.73 to $1.83 per diluted share. And on an adjusted basis, $1.85 to $1.95 per diluted share. This guidance assumes a tax rate between 28% to 30% for fiscal 2018.
This rate excludes discreet tax items such as the 2018 Work Opportunity Tax Credit and the tax impact of stock-based compensation awards, which, collectively, will be a little more than $10 million in discrete tax items for the full year as we disclosed last quarter. We are currently finalizing our fiscal 2019 tax expectations, including the full impact of the Tax Cuts and Jobs Act. At this time, while we continue to benefit from a lower overall federal tax rate, there are a number of items which did not impact us in fiscal 2018 that will come into effect in a new calendar year. Mainly, limitations or reductions related to meals and entertainment and executive compensation plus some foreign provisions.
In addition, we also expect the benefit related to FAS 123R to decrease in fiscal 2019. As always, we will provide you with a detailed discussion of our fiscal 2019 outlook in December, but I hope this additional context will help inform some of your expectations for next year. With that, operator, we are now ready for questions.
Questions and Answers:
Operator
Thank you. [Operator instructions] Thank you. Our first question comes from the line of Michael Gallo with C.L. King. Please proceed with your question.
Michael Gallo -- C.L. King & Associates -- Analyst
Hi. Good morning.
Scott Salmirs -- President and Chief Executive Officer
Good morning, Michael.
Michael Gallo -- C.L. King & Associates -- Analyst
Yeah. I just want to delve in a little bit on the -- obviously, your labor has been and continues to be a headwind. So you've had a little more time now with some of the mitigation and other -- other efforts around technology. I was wondering if you've been able to kind of dimensionalize what kind of offset -- you know, whether you think in time you can mostly offset, partially offset, completely offset? Obviously, pricing is always a -- is always a mixed discussion.
But I guess, in terms of kind of controlling what you can control, just without -- just assuming for a second that -- that you don't have pricing, how much you kind of offset internally? And then I was wondering if -- if there might be some opportunity, given your -- your size and scale that used the bundling strategy perhaps as a way to get price without getting priced but by perhaps offering greater scope of service. Thanks.
Scott Salmirs -- President and Chief Executive Officer
That's a good question. And I think, you know, all things being equal in the labor market -- and I think that's a big caveat, right? Because generally speaking, we don't know which way labor is going, is it going to stay the same or the pressure is going to increase our will they abate a little bit. But assuming all things being equal, I think we've done pretty well so far in terms of mitigating. And we talked about a 60-basis-points push annualized and that we've been able to overcome 40 basis points on it.
So we're very pleased at where we are. And as we go into next year with that as kind of the baseline, we'll look at some of the tools that we are putting forth on the IT side, specifically the new HRIS system to help us in terms of workforce management. And then a new time and attendance system that's going to be cloud-based, that's going to have tools to scheduling, alerts for our managers in terms of overtime. So there's a lot of good stuff coming to help us mitigate.
And I think the real question, Michael, is whether or not those tools will just allow you to stay even, right, or the hope that you accelerate. And that remains to be seen. But we're pleased about where we were heading ahead of time with our investments to help us mitigate that. And then cross-selling is always a big thing for us, right? Because the more you can bundle services -- it really does two things, it helps you get stickier with the client, so it should push out retention and your ability to retain.
But also you have a chance to increase your margins, right? Because typically it's the same overhead from an SG&A standpoint when you're adding services and you have one account manager. So I think when you bundle all that together, we feel like we were in pretty good shape, but the big wildcard for, not just ABM and for everybody, is where will labor markets go in 2019.
Michael Gallo -- C.L. King & Associates -- Analyst
And just as a follow-up to that, Scott, obviously a lot of the services are done in-house, everybody is dealing with the same local market labor pressures. So I was wondering if you had any discussions from perhaps people that didn't outsource traditionally who might be looking at this inflationary labor market and might not be more interested in outsourcing than they were in the past?
Scott Salmirs -- President and Chief Executive Officer
You know, that's the longer-term hope. We are actually organizing some of our sales force in certain verticals around targeting first-time outsourcing. We think it's particularly ripe in the education sector because so much of that is in-sourced right now. Whereas less than that in B&I.
B&I is a much more mature market, predominantly outsourced already. So I think we are trying to be very strategic about we replace our sales assets. And also how we structure a commission program so people go after an outsourcing, which is a longer-term play than going after a competitive bid.
Michael Gallo -- C.L. King & Associates -- Analyst
Thank you.
Operator
Thank you. [Operator instructions] Our next question comes from the line of Andy Wittmann with Robert W. Baird. Please proceed with your question.
Andy Wittmann -- Robert W. Baird & Company -- Analyst
Great. Good morning. Just wanted to dissect the quarter a little bit to understand some of the moving pieces, actually. I guess you guys are pretty clear on the call that you're -- the outlook that you laid out last quarter for the labor-market headwinds are really almost since with the same today as they were three months ago.
At that time, you talked about how on an annualized basis you're seeing -- you're expecting 40-basis-points net headwind to margins. It looks like that's still in place. I guess my question is as I look at kind of new segment margin guidance that you gave here, you took it down a smidge in aviation and education. Those are a couple of the markets that you highlighted last quarter as well with some labor market headwinds.
You took it up in technical solutions. Given that that's the case and that the aviation and the education are more in the annuity and the technical solutions is more of a project-based business, does that imply that there was some degree of labor inflation that you saw this quarter? It was maybe a little bit different from you've seen last quarter, or this is just a clear view after operating in these new segments for a longer period of time?
Anthony Scaglione -- Chief Financial Officer
So in the quarter, we saw incremental labor against our original forecast, specifically in those two segments that you just highlight -- highlighted. But again, we put in place mitigating actions, so we landed as expected, but slightly off, on the labor line.
Andy Wittmann -- Robert W. Baird & Company -- Analyst
OK. So what -- can you give us some bookends as to maybe how a labor on the annuity type business maybe varied versus your initial expectations there?
Anthony Scaglione -- Chief Financial Officer
We saw about 15 basis points more in the quarter than what we would have expected.
Andy Wittmann -- Robert W. Baird & Company -- Analyst
OK. OK. And then just digging into GCA a little bit, it looks like you guys are maintaining the comment that you're operating at the high end of the synergies. Can you just, Anthony, just refresh us about what the run rate of the synergies that have been actioned already was at the end of the quarter? And then just give us some context on how much tailwind is going to the profitability the next year?
Anthony Scaglione -- Chief Financial Officer
Sure. So we're still guiding to the full year, in year realized synergies of roughly $16 million at the midpoint. And that will guide toward a run rate heading into 2019 and the higher end of the $25 million to $30 million range.
Andy Wittmann -- Robert W. Baird & Company -- Analyst
Got it.
Anthony Scaglione -- Chief Financial Officer
So the synergies are pretty much completed by the end of Q4. There's a little bit that's going to be in fiscal '19. But for the most part, those actions have already been taken place.
Andy Wittmann -- Robert W. Baird & Company -- Analyst
OK. Just getting to go down the GCA tunnel here a little bit. There was some comments in our prepared remarks about the education end market. You went through it kind of fast.
You mentioned there's some retention issues, given that the labor pressures have been a little bit higher there. Basically, it sounded like you couldn't come to terms because the customer was thinking that they didn't have to pay for the higher labor. Can you talk a little bit maybe, Scott, more about what you're seeing in that end market in particular? It sounded like there's a bit of retention issue there and you sounded a little bit disappointed, so little bit more meat on that bone would be helpful for us.
Scott Salmirs -- President and Chief Executive Officer
Sure. Yeah. So I think from an education side, I would look this in two ways. I will look at the top-line sales and then also from the labor perspective.
And I think the sales, it wasn't what we hoped it would be, it was a little bit -- essentially flat. And I think I have to -- I have to take -- I have to be measured in my reactions to that, only because it was a year of integration, right? This was the year we were going our operation teams in line, we were getting our sales team shaped up. We just appointed the head of marketing as a permanent position. So there was a lot of moving parts per se, but I still would like to see a little bit better on the top line there.
And then on the bottom line, it was the labor markets, right? It's -- this is tough. We've always talked about how education for us is kind of stratified on the bottom half of the United States, which tends to be a non-union, lower-wage market. So you get more turnover, more wage pressure. So -- but I will tell you, we're pretty optimistic about next year.
We have a project that we have in place now. We're specifically targeting education facilities that are in-sourced right now, where we think we have an opportunity over the next 12 to 24 months to try to flip that, and we're very aggressively going after contracts that we think that are going to bid in the next 12 months. So our education team, now that they're solidified and they're operating as one unit and soon be on one ERP system, midyear next year, I think there's a lot of white space there for us over the long term.
Andy Wittmann -- Robert W. Baird & Company -- Analyst
OK. Great. I guess maybe one more, for now, from me. We've seen in other service companies different end-market health between domestic U.S.
markets and some level of degradation in the U.K. Everybody points to Brexit, so it's hard to attribute it to something or another. But just given that you do have some exposure to the U.K., I wanted to get your take on what you're seeing there and how that could affect your business on a go-forward basis?
Scott Salmirs -- President and Chief Executive Officer
Sure. I mean, it's still interesting, right? Because Carillion collapsed in January of this year, I think it was January 15. And then a lot of us were pretty optimistic that it would create a bigger market space and bigger opportunity, and it really didn't materialize and we're seeing that from a lot of our competitors across the space as well. Margins have compressed and it's been even tighter.
And I think a lot of that has to do with the U.K. economy itself, whether it's Brexit or not remains to be seen. But the U.K. market has -- is certainly tightened up, and it is 100% counterintuitive compared to what's going on.
But it's a reality of what we're facing. We're refocusing some of our services to go to places where we think would be higher growth. We've been traditionally focused on the retail segment over there as a larger portion of the market and we're going to be moving more toward commercial and maybe manufacturing, and really trying to leverage some of our U.S. clients because they are still having a big presence in the U.K.
despite everything you read about Brexit. So we're optimistic about the U.K., but certainly this year, it did not pan how we had hoped.
Andy Wittmann -- Robert W. Baird & Company -- Analyst
OK. Thanks for that color. I'm going to yield the floor and maybe pop back in at the end. Thanks, guys.
Scott Salmirs -- President and Chief Executive Officer
Thanks.
Operator
Thank you. [Operator instructions][ Our next question comes from the line of Marc Riddick with Sidoti. Please proceed with your question.
Marc Riddick -- Sidoti & Company -- Analyst
Hey, good morning.
Scott Salmirs -- President and Chief Executive Officer
Good morning.
Marc Riddick -- Sidoti & Company -- Analyst
I was wondering if you can give an update on where we are with the tag pressure and certainly the insights of your proceed there and kind of the benefits that we're seeing so far?
Scott Salmirs -- President and Chief Executive Officer
Yes. So tag pricing, we talked about this for the last few months as one of our bright spots from the technology standpoint. And the fact that the field was so excited that we were rolling out some technology that they felt was useful. We're really happy with where we are in our B&I segment, which is our biggest segment.
We're over 75% adoption on tags are eligible, not all tags our right to the tag price, but 75% adoption. And I think in this early stage, Mark, it's less about for us to increase year tags, to decrease your bottom line. I think we'll start understanding that over the coming months and realistically years as our AI component starts figuring out, in a particular building you can start moving your margin in a different place in a particular segment. Law firms pay more than investment banks, so over time, we'll start understanding the top-line and bottom-line implications.
For me, given all the challenges in the current market, I'm excited over the fact that it used to take 2 1/2 days to generate a tag, whereas now, it could just take a few hours between and putting it and getting it into a work order system, which we are making some enhancement in 2019 to even shrink that time period. So particularly excited that our teams are embracing the technology, they're using it, and it's allowing them to spend more time managing the staff with clients, collecting cash, all the things that we want them doing, rather than processing paperwork. So I think it's a two-part story right now, use it, adopt it, become more efficient. Day two, what has this done to increase sales and increase our bottom line.
Marc Riddick -- Sidoti & Company -- Analyst
And just as a reminder, so ballpark, when do you start to begin anniversary when it rolled out. I guess then you'll start to at least begin to start gathering year-over-year comparisons and what have you, right?
Scott Salmirs -- President and Chief Executive Officer
Yeah. We first started rolling this out in Q1 of last year. And really the anniversary, from a ramp-up standpoint, is really the second half of fiscal '18. So that'll be the first time that we have adequate data to make those correlations, Marc.
Marc Riddick -- Sidoti & Company -- Analyst
OK. And then one last thing, you talk about the efforts of -- on the human resources that you'll be layering in from the technological standpoint. I was wondering, does that -- is there much in the way of overlap for that data, that information will be able to begin to collect with something like tag pressure or would those be kind of viewed separately?
Scott Salmirs -- President and Chief Executive Officer
You know, it's interesting, it [Inaudible] separate. We are putting together a new IT strategy which is a data warehousing strategy, where we're basically going to have one repository for all information. So over time, we'll be pulling from one area, it just remains to be seen which data points we'll be able to pull and turn into data analytics.
Marc Riddick -- Sidoti & Company -- Analyst
OK. That makes sense. I appreciate. Thank you.
Scott Salmirs -- President and Chief Executive Officer
Thanks.
Operator
Thank you. Ladies and gentlemen, there are no further questions at this time. I'll turn the floor back to management for any closing comments.
Scott Salmirs -- President and Chief Executive Officer
Excellent. Well, thank you, everybody, and welcome, everybody, to the fall now that summer's over. And we're excited about where we're heading. We're excited about kind of, our new sales culture and how we're navigating the labor markets.
We think there's just a lot of positive things happening at ABM, and we're excited to come back to year end and update you on how we closed out the year and how we're going to guide to 2019. So thanks, everybody.
Operator
[Operator signoff]
Duration: 37 minutes
Call Participants:
Susie Choi -- Investor Relations
Scott Salmirs -- President and Chief Executive Officer
Anthony Scaglione -- Chief Financial Officer
Michael Gallo -- C.L. King & Associates -- Analyst
Andy Wittmann -- Robert W. Baird & Company -- Analyst
Marc Riddick -- Sidoti & Company -- Analyst
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