ABM Industries Incorporated — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended July 31, 2021. Amounts are in U.S. dollars; financial amounts are in millions unless stated otherwise. ABM provides integrated facility services, including janitorial, parking, facilities engineering, aviation, and technical solutions.
Financial performance and position
| Metric | Three months ended July 31 | Nine months ended July 31 |
|---|---|---|
| Revenue | $1,543.1; up 10.7% year over year | $4,533.0; up 0.7% |
| Gross margin | 16.5%, versus 15.7% | 15.9%, versus 13.1% |
| Operating profit (loss) | $(9.4), versus $93.6 | $150.6, versus $22.8 |
| Net income (loss) | $(13.7), or $(0.20) diluted per share | $92.0, or $1.36 diluted per share |
| Operating cash flow | Not separately presented for the quarter | $258.8, unchanged from prior year |
- Quarterly operating loss primarily reflected a $112.9 million expense for the Bucio litigation settlement, alongside higher technology and enterprise spending and the return of management and staff costs that had been reduced during the prior-year pandemic period.
- For the nine-month comparison, results improved from the prior year’s $172.8 million goodwill and intangible asset impairment charge. 2021 results also included the Bucio settlement accrual and a $9.1 million noncash impairment of ERP-related software.
- Cash and cash equivalents were $505.4 million at July 31, compared with $394.2 million at October 31, 2020. Total assets were $3,897.4 million and stockholders’ equity was $1,580.3 million.
- Balance-sheet debt, net of deferred financing costs, was $655.2 million: $31.4 million current and $623.8 million long-term. Gross credit-facility borrowings were approximately $660 million; weighted average interest rate was 1.59%. The company reported $1.1 billion of borrowing capacity, subject to covenant restrictions, and compliance with its covenants.
- Nine-month investing cash outflow was $21.2 million, including $23.3 million of capital expenditures. Financing cash outflow was $128.7 million, including $38.2 million of dividends. Dividends declared were $0.570 per share for the nine-month period.
Changes versus the prior comparable period
- Quarterly revenue growth reflected recovering activity as pandemic disruptions eased, especially in Aviation, Business & Industry (B&I), and Technical Solutions. Aviation revenue rose 51.0% in the quarter, but remained down 13.5% for the nine-month period because of pandemic-related travel restrictions and lower passenger demand.
- Nine-month operating profit rose to $150.6 million from $22.8 million. The comparison benefited from the absence of prior-year impairment charges; current-year performance also reflected stronger margins in several segments and lower interest expense.
- Nine-month revenue was nearly flat overall: growth in B&I, Technology & Manufacturing, and Education was partly offset by the Aviation decline.
- Operating cash flow matched the prior-year nine-month amount. Management attributed cash generation in part to the timing of receivable collections, vendor payments, and deferred payroll-tax remittances.
Outlook, risks, and unusual items
- Management stated that operating cash flows and borrowing capacity were expected to fund cash requirements for the next 12 months. The filing provides no specific earnings or revenue guidance.
- On June 28, 2021, ABM amended its credit facility, extending maturity to June 28, 2026 and increasing revolving capacity to $1.3 billion. The amendment also changed certain covenants and removed restrictions on specified acquisitions and other payments.
- After quarter-end, ABM agreed to acquire Crown Building Maintenance Co. and Crown Energy Services, Inc. (Able) for $830 million in cash, subject to customary adjustments and closing conditions, including regulatory approval. ABM expected to fund the purchase with cash and revolver borrowings.
- The Bucio class action settlement was agreed at $140 million, subject to court approval. ABM accrued $142.9 million, including related payroll taxes; $112.9 million of settlement expense was recorded in the quarter. The filing states no payments would be made until final court approval.
- Actuarial reviews reduced prior-year insurance claim reserves by $29.7 million during the nine months. Management cautioned that further reserve adjustments could follow a planned fourth-quarter review.
- COVID-19 continued to create uncertainty, particularly in Aviation, and could affect demand, operations, collections, cash flows, and financial condition. Other disclosed risks include labor availability and costs, litigation, self-insurance estimates, acquisition execution and integration, and increased leverage after the planned Able acquisition.
- ABM deferred approximately $132 million of payroll taxes under the CARES Act, payable in equal installments by December 31, 2021 and December 31, 2022. Share repurchases had been suspended since March 2020.
Important facts for investors to verify
- Whether the Bucio settlement receives final court approval and whether the recorded accrual covers the ultimate costs.
- Completion, financing, integration costs, expected synergies, and post-acquisition leverage for the $830 million Able transaction.
- Whether Aviation revenue and margins continue recovering as travel demand and restrictions evolve.
- The sustainability of margin improvement and cash generation, including the effects of reserve releases, working-capital timing, and deferred payroll taxes.
- Available liquidity and covenant headroom after acquisition financing, as well as exposure to floating interest rates and the LIBOR transition.