ABM Industries Incorporated — Q1 FY2022 10-Q
Reporting period: Three months ended January 31, 2022; comparative period ended January 31, 2021. ABM provides integrated facility services across Business & Industry (B&I), Manufacturing & Distribution (M&D), Education, Aviation, and Technical Solutions. The company acquired Able in September 2021; its results are included in the current quarter, principally in B&I.
Key financial results
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Revenue | $1,936.2 million | $1,492.4 million |
| Gross margin | 14.3% | 16.3% |
| Operating profit | $106.0 million | $109.7 million |
| Income before taxes | $100.3 million | $101.9 million |
| Net income | $76.0 million | $74.6 million |
| Diluted EPS | $1.11 | $1.10 |
| Operating cash flow | $(93.6) million | $45.3 million |
Revenue rose 29.7%, including $307.7 million from Able, alongside recovering activity as pandemic restrictions eased and new business. Operating profit fell 3.4%; increased costs and lower higher-margin pandemic-related work more than offset revenue growth. Net income increased slightly, supported in part by lower interest expense and a lower effective tax rate. The reported gross margin contracted 200 basis points.
Cash, debt, and liquidity
- Cash was $46.6 million at January 31, 2022, down from $62.8 million at October 31, 2021.
- Long-term debt, net of financing costs, was $1,003.3 million, compared with $884.2 million at fiscal year-end. Gross credit-facility borrowings were approximately $1.008 billion; reported borrowing capacity was $749.3 million. The weighted-average borrowing rate was 1.60%, and ABM reported covenant compliance.
- Operating cash use reflected working-capital timing, including receivable collections and vendor payments, and a $66 million CARES Act deferred-payroll-tax payment. Investing used $12.4 million; financing provided $90.3 million, largely due to net credit-facility borrowings.
- Management said operating cash flows and available credit were expected to fund requirements for the next 12 months. The company paid $13.1 million in dividends and repurchased $13.3 million of stock during the quarter.
Segments and material changes
- B&I revenue increased 49.2% to $1,029.5 million, largely reflecting Able; operating margin declined to 8.1% from 10.5%.
- Aviation revenue increased 42.1% to $200.3 million as travel activity recovered; operating margin improved to 4.4% from 2.2%.
- Technical Solutions revenue increased 25.9% to $141.8 million, with operating profit benefiting from a $7.7 million contract-sale gain.
- M&D revenue increased 5.4% to $359.1 million. Education revenue declined 1.1% to $205.7 million, while operating profit fell 41.7% to $12.6 million, primarily amid higher direct labor costs as schools expanded in-person capacity.
- Corporate expenses rose $23.2 million, including higher compensation, ELEVATE technology-transformation spending, and Able acquisition and integration costs.
Outlook, risks, and unusual items
- ABM announced its multiyear ELEVATE strategy in December 2021, with planned investment of $150–$175 million over four years in client and employee experience, technology, data, and operating capabilities. The filing provides no specific full-year earnings or revenue guidance.
- Management said pandemic-related demand had eased but could still create opportunities; the ultimate effects of COVID-19 remained uncertain. Labor availability and costs, client retention, integration of Able, execution of ELEVATE, self-insurance estimates, and interest rates are among the disclosed risks.
- A first-quarter actuarial review reduced prior-period insurance reserves by $25.2 million, primarily reflecting favorable workers’ compensation experience. Reserve estimates could change as claims develop.
- ABM recorded a $142.9 million current accrual, including payroll taxes, for the $140 million Bucio class settlement. Final court approval remained pending at the filing date; plaintiffs sought $46.7 million in attorneys’ fees, and an intervenor sought to challenge the settlement.
- Able-related probable litigation losses were revised to $12.3 million during the quarter. The purchase-price allocation remained preliminary.
- ABM disclosed that a U.K. subsidiary had provided aircraft-cleaning services to Iran Air; the relationship ended in August 2021. Payments were approximately GBP 64,000 and profits GBP 6,400. ABM reported cooperation with OFAC and did not expect a material adverse effect from its review.
Important facts for investors to verify
- How much future revenue and profit growth is attributable to Able versus organic growth, and whether integration benefits materialize.
- Whether margins recover as pandemic-related work changes and labor costs evolve, particularly in B&I and Education.
- Cash conversion, receivables and working-capital trends, and the timing of remaining deferred payroll taxes.
- Debt levels, borrowing capacity, covenant headroom, and exposure to floating interest rates.
- Final approval and payment terms for the Bucio settlement, along with developments in other litigation and self-insurance reserves.
- Progress and returns on ELEVATE’s planned $150–$175 million investment, and any outcome of the OFAC review.