ABM Industries Incorporated — Q1 FY2021 10-Q
Reporting period: Three months ended January 31, 2021, compared with the three months ended January 31, 2020. ABM provides integrated facility services, including janitorial, parking, facilities engineering, aviation, and mechanical and electrical solutions. Amounts below are in millions of dollars unless otherwise noted.
Financial performance and position
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Revenue | $1,492.4 | $1,612.9 |
| Gross margin | 16.3% | 11.1% |
| Operating profit | $109.7 | $45.8 |
| Income from continuing operations | $74.6 | $27.9 |
| Net income | $74.6 | $28.0 |
| Diluted EPS | $1.10 | $0.42 |
| Operating cash flow | $45.3 | $(34.3) |
| Capital expenditures | $6.6 | $11.5 |
- Revenue fell $120.5, or 7.5%, primarily from pandemic-related disruption. Operating expenses declined 12.9%, supporting the gross-margin expansion. SG&A rose 4.2% to $122.6; no restructuring expense was recorded, versus $3.1 a year earlier. Interest expense decreased to $8.5 from $10.2.
- Cash and cash equivalents were $378.3 at January 31, 2021, versus $394.2 at October 31, 2020. Total assets were $3,782.2 and total liabilities were $2,213.1. Gross credit-facility borrowings were $695.3; the company reported $599.4 of borrowing capacity after covenant restrictions and $151.0 of standby letters of credit. It was in compliance with its credit covenants.
- Operating cash flow benefited from approximately $31 of deferred payroll-tax remittances under the CARES Act, as well as timing of receivable collections and vendor payments. Financing cash outflow was $57.8, including net debt repayments and $12.7 of dividends. The quarterly dividend declared was $0.190 per share.
Material changes and segment results
- Profit improvement reflected direct-labor and personnel-cost management, higher-margin pandemic-related work orders, and self-insurance reserve adjustments. The company reduced casualty reserves by $14.4 in the quarter, including $11.4 relating to prior years; this supported earnings and is subject to future claims development.
- Business & Industry: Revenue decreased 1.4% to $809.4; operating profit rose to $85.7 from $38.2.
- Technology & Manufacturing: Revenue increased 6.5% to $249.2; operating profit rose to $26.9 from $16.7.
- Education: Revenue increased 0.7% to $209.4; operating profit rose to $21.5 from $11.2.
- Aviation: Revenue declined 40.0% to $143.1 and operating profit fell to $3.2 from $5.6, reflecting reduced travel and passenger demand.
- Technical Solutions: Revenue declined 20.2% to $113.4 and operating profit fell to $6.0 from $8.3, partly due to access restrictions slowing project conversion.
Outlook, risks, and contingencies
- No numerical earnings or revenue guidance is provided. Management said operating cash flows and available credit capacity should be sufficient for cash requirements over the next 12 months, but stated that the pandemic’s full effects and duration cannot be reasonably estimated.
- Management cited ongoing pandemic-related effects on client demand, operations, receivable collections, labor costs, and the economy. It continued cost and liquidity measures, including managing frontline hours, focusing on collections, extending vendor terms where possible, and suspending share repurchases.
- Approximately $132 of payroll taxes had been deferred through December 31, 2020, with equal portions due by December 31, 2021 and December 31, 2022. The quarter’s operating cash flow included about $31 of that deferral.
- Probable litigation losses accrued were $13.8; the estimated range for reasonably possible losses that could be estimated was $0–$5, excluding the Bucio case. ABM stated it could not reasonably estimate a loss or range for that case; the class claims were set for trial on July 12, 2021, subject to pandemic-related uncertainty.
- Other exposures include self-insured claims, sales-tax audits, energy-savings guarantees totaling $173.8 through 2040, and the transition away from LIBOR. The company noted that actual insurance claims or litigation outcomes could differ materially from estimates.
Important facts for investors to verify
- Whether the large margin and earnings improvement persists after the $14.4 insurance-reserve reduction and pandemic-related work-order mix effects.
- Whether Aviation and Technical Solutions demand and project activity recover, and whether client credit risk or receivable collections deteriorate.
- Cash generation excluding payroll-tax deferrals and working-capital timing, alongside the scheduled tax remittances and credit-facility covenants.
- Developments in the Bucio litigation, sales-tax audits, and insurance reserves, including any changes to potential exposure.