ABM Industries Incorporated — FY2020 Form 10-K
Reporting period: Fiscal year ended October 31, 2020; filed December 17, 2020. ABM provides integrated facility services through Business & Industry (B&I), Technology & Manufacturing (T&M), Education, Aviation, and Technical Solutions. COVID-19 materially affected demand, operations, and financial results.
Key financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $5,987.6 million | $6,498.6 million |
| Gross margin | 13.9% | 11.2% |
| Operating profit | $95.7 million | $208.3 million |
| Income from continuing operations | $0.2 million | $127.5 million |
| Net income | $0.3 million | $127.4 million |
| Diluted earnings per share | $0.00 | $1.90 |
| Operating cash flow, continuing operations | $457.4 million | $262.8 million |
Annual revenue fell 7.9%; operating profit declined 54.0%. Gross margin improved 262 basis points, supported by labor-cost management, higher-margin pandemic-related work orders and EnhancedClean services, exits from certain lower-margin accounts, and a favorable $26.8 million prior-year insurance reserve adjustment.
Results included $172.8 million of non-cash goodwill and intangible-asset impairment charges, primarily in Education, Aviation, and U.K. Technical Solutions. The impairment included $163.8 million of goodwill charges that were not tax deductible. The resulting 99.6% effective tax rate compares with 20.4% in FY2019; excluding the nondeductible goodwill impairment, the FY2020 rate was 24.4%.
Fourth-quarter results
Unaudited FY2020 fourth-quarter revenue was $1,484.6 million, versus $1,648.0 million in FY2019. Income from continuing operations was $53.1 million, versus $48.1 million; diluted EPS was $0.78, versus $0.71.
Liquidity, debt, and capital
- Cash and cash equivalents were $394.2 million at October 31, 2020, compared with $58.5 million a year earlier.
- Credit-facility borrowings were $725.3 million, including $45.3 million on the revolving line and $680.0 million of gross term-loan debt. Reported long-term debt, net, was $603.0 million; current debt, net, was $116.7 million.
- Available borrowing capacity was $596.6 million, subject to covenant restrictions. ABM reported compliance with its amended covenants at year-end and said operating cash flow and borrowing capacity should cover requirements for the next 12 months.
- Operating cash flow benefited from collection timing and approximately $101 million of payroll-tax deferrals under the CARES Act; half of the deferred amount is due by December 31, 2021, and the remainder by December 31, 2022.
- Cash dividends paid were $49.3 million; dividends declared were $0.740 per share. Share repurchases were suspended in March 2020; $144.9 million remained authorized at year-end.
Material changes and segment performance
- Aviation: Revenue declined 33.1% to $680.9 million as travel restrictions reduced passenger volumes; the segment recorded a $59.6 million operating loss.
- Education: Revenue declined 4.6% to $808.8 million amid school closures; the segment recorded a $41.1 million operating loss, including a $99.3 million goodwill impairment.
- B&I: Revenue fell 2.9% to $3,157.8 million, while operating profit increased to $253.7 million and margin rose to 8.0%.
- T&M: Revenue rose 4.3% to $956.0 million and operating profit increased to $84.4 million.
- Technical Solutions: Revenue declined 14.6% to $506.6 million and operating profit fell to $9.5 million, affected by project delays, a $17.6 million reserve on notes receivable, and impairment charges.
Outlook, risks, and unusual items
Management did not provide numerical FY2021 guidance. It stated that the pandemic’s duration and full effects could not be reasonably estimated and could continue to adversely affect demand, client collections, operations, cash flows, and financial condition. ABM highlighted pandemic-related cleaning demand and its EnhancedClean offering, alongside cost controls, liquidity preservation, and a renewed ERP implementation in the fourth quarter after a temporary pause.
- Other material risks include labor availability and costs, union negotiations and multiemployer pension exposure, competitive bidding and client retention, self-insurance reserve volatility, cybersecurity and privacy, debt covenants and variable interest rates, and impairment risk if forecasts deteriorate.
- Self-insurance reserves, net of recoverables, were $434.8 million. ABM reduced reserves by $36.6 million in FY2020, including $30.2 million related to prior years; a 10% change in projected ultimate losses would have affected net income by approximately $32.4 million.
- Accrued probable litigation losses were $14.7 million; management estimated reasonably possible losses for estimable matters at $0–$4 million, excluding the Bucio California wage-and-hour class action. The filing states the Bucio matter’s outcome cannot be assured and does not provide a reliable loss estimate for it.
- Energy-savings guarantees totaled $182.8 million and extend through 2039. A subsidiary also has joint-and-several guarantees for certain joint-venture contracts.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether aviation and education demand recover, and whether pandemic-related service demand offsets account losses and reduced activity.
- How much FY2020 operating cash flow reflected temporary payroll-tax deferrals and working-capital timing, and the cash required to repay deferred taxes.
- Debt maturities, covenant headroom, interest-rate exposure, and refinancing plans ahead of the credit facility’s September 2022 maturity.
- Assumptions supporting goodwill valuations and the potential for additional impairment charges.
- Developments in the Bucio case and other litigation, self-insurance claims, and multiemployer pension obligations.