ABM Industries Incorporated — Q2 FY2021 Form 10-Q
Reporting period: Three and six months ended April 30, 2021. ABM provides integrated facility services, including janitorial, facilities engineering, parking, aviation services, and technical solutions.
Financial results
| Metric | Q2 FY2021 | Prior-year comparable |
|---|---|---|
| Revenue | $1,497.4 million | $1,496.0 million |
| Gross margin | 14.9% | 12.7% |
| Operating profit (loss) | $50.3 million | $(116.7) million |
| Net income (loss) | $31.1 million | $(136.8) million |
| Diluted EPS | $0.46 | $(2.05) |
- For the first six months, revenue fell 3.8% to $2,989.8 million; gross margin improved to 15.6% from 11.9%; operating profit was $160.1 million versus an operating loss of $70.8 million; and net income was $105.7 million versus a net loss of $108.8 million.
- Q2 operating results improved substantially mainly because the prior-year period included $172.8 million of goodwill and intangible-asset impairment charges. Higher-margin work orders, labor-cost management, and insurance reserve adjustments also supported margins; increased legal and corporate expenses partly offset these gains.
- Six-month operating cash flow was $171.2 million, compared with $128.0 million. Management attributed the increase partly to vendor-payment and receivable-collection timing and deferred payroll taxes. Investing cash outflow was $13.4 million; financing cash outflow was $118.5 million.
- Cash and equivalents were $435.7 million at April 30, 2021. Net balance-sheet debt was approximately $641.2 million, comprising current and long-term debt; facility borrowings were $645.1 million gross. Covenant-adjusted borrowing capacity was $622.1 million. The company reported compliance with its credit covenants.
- Q2 segment trends were mixed: Aviation revenue declined 19.7% year over year, while B&I, T&M, Education, and Technical Solutions revenue increased. Aviation remained affected by reduced travel and passenger demand.
Material changes and unusual items
- ABM recorded a $30 million Bucio litigation reserve in Q2, contributing to higher legal costs. The company also reduced casualty insurance reserves by $17.4 million in the six-month period, including $11.4 million relating to prior years.
- The $172.8 million prior-year impairment charge did not recur. Prior-year impairment included $163.8 million for goodwill and $9.0 million for customer relationships.
- Dividends paid in the first six months totaled $25.4 million; dividends declared were $0.380 per share. Share repurchases remained suspended, with $144.9 million of authorization unused.
Outlook, risks, and contingencies
- No specific financial guidance was provided. Management said operating cash flows and available credit capacity should be sufficient to meet cash requirements for the next 12 months, while cautioning that the duration and financial effects of COVID-19 remain uncertain.
- COVID-19 continued to disrupt client operations and service demand, particularly in Aviation; ABM also cited labor availability and cost pressures, account compression, and possible collection challenges.
- In Bucio, a California wage-and-hour class action, ABM denied liability and said it would defend the case. Plaintiffs’ class-claim damages model could reach $160 million, or significantly more under their most aggressive theories; PAGA penalties and attorneys’ fees were not estimable. ABM stated the $30 million reserve may not cover the ultimate loss. Separately, the company reported $14.6 million accrued for other probable litigation losses and an estimated $0–$8 million range for reasonably possible losses, excluding Bucio.
- Approximately $132 million of payroll taxes deferred under the CARES Act are payable in equal installments by December 31, 2021 and December 31, 2022. The credit facility matures September 1, 2022. LIBOR transition effects on the facility and swaps were not yet predictable.
- Other key exposures include self-insured claims, sales-tax audits, labor and employment litigation, and guaranteed energy savings obligations of $206.5 million extending through 2041. The facility is secured by substantially all company assets, subject to exceptions.
Investor verification priorities
- Track the Bucio case, including the reserve, scheduled proceedings, potential PAGA and fee exposure, and whether any settlement or court decision changes the estimated risk.
- Assess how Aviation demand and broader COVID-19 effects evolve, and whether margin improvement persists without prior-year impairments and favorable reserve adjustments.
- Reconcile reported operating cash flow with the $132 million payroll-tax deferral and working-capital timing; verify payment dates and liquidity implications.
- Monitor debt repayment, covenant headroom, and refinancing plans ahead of the September 2022 credit-facility maturity, as well as the LIBOR transition.
- Review casualty insurance reserve assumptions and developments in sales-tax audits and other litigation or contingent obligations.