ABM Industries Incorporated

Greetings and welcome to the AUBM Industries Inc. Q3 2020 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Susie Kim, Vice President of Investor Relations and Treasurer, Thank you. You may begin.

Thank you all for joining us this morning. With us today are Scott Salmers, our President and Chief Executive Officer, and Dean Chin, our Interim Chief Financial Officer. We issued our press release yesterday afternoon announcing our third quarter and fiscal 2020 financial results. A copy of this release and an accompanying slide presentation can be found on our corporate websites. Before we begin, I would like to remind you that our call and presentation today contain predictions, estimates, and other forward-looking statements. Our use of the words estimate, expect, and similar expressions are intended to identify these statements. These statements represent our current judgment of what the future holds. While we believe them to be reasonable, these statements are subject to risks and uncertainties that could cause our actual results to differ materially. These factors are described in the slide that accompanies our presentation as well as in our filings with the SEC. During the course of this call, certain non-GAAP financial information will be presented. A reconciliation of those numbers to GAAP financial measures is available at the end of the presentation and on the company's website under the Investor tab. I would now like to turn the call over to Scott.

Thanks, Susie. Good morning, and thank you for joining us on today's call to discuss our third quarter results. As you saw in our press release, we reported revenues of $1.4 billion for the quarter. While this represents a 15% decrease versus last year, the aviation segment contributed to more than half of that decline, as you'd probably expect. Excluding aviation, revenue was down less than 8%. In addition, we saw trends improve as the quarter progressed across all of our other segments. And we saw another record quarter of pandemic-driven work orders, particularly within the business and industry and technology and manufacturing segments. This offset some of the scope reductions that occurred with client disruptions and modified operations due to reduced occupancies. We also expanded with key strategic accounts and other essential operations, such as manufacturing facilities. Even within technical solutions, site access improved as the quarter advanced and we were able to restart churning through our strong backlogs. So revenue has been resilient for us, especially when contrasted against the reduction in commerce during the quarter. And because of the dynamic nature of how our direct labor is structured, where we experience scope reductions, we align staffing to match the work. This preserves margin and can even enhance it as we find efficiencies through labor strategies and other tight controls. Our quarterly performance also reflected some difficult decisions we made early on to prepare us financially for the uncertainty of the pandemic, which was right in front of us. At the beginning of the quarter in May, we instituted temporary reductions in salary across certain staff and management, which included the executive team and the board. We also temporarily furloughed and reduced hours for certain corporate staff. And like many firms, we reduced or suspended benefits, such as our 401k matchings. These were really hard decisions that had to be made but necessary to potentially protect liquidity and ensure business continuity during very uncertain times. The combined impact of higher margin work orders, labor efficiencies, and corporate actions led to our significant year-over-year expansion in profit. Income from continuing operations grew to $56 million, or 83 cents per share, and on an adjusted basis, $50.1 million, or 75 cents per share. Adjusted EBITDA margin rose to 7.9% versus 5.6% last year, so we couldn't be more pleased with our performance. And we continued being disciplined on collections and payables during the quarter. Cash flow from operations was approximately $130 million or $121 million on a free cash flow basis. This is one of our all-time highs and enabled us to achieve leverage of 2.2 times Our team understood how much of a priority this was, and the results speak for themselves. Now that we've successfully managed through the past six months, we've reversed many of the temporary cost reductions occurring during the third quarter. Of course, this doesn't mean our intense focus on managing the business through changing conditions will relax in any way. In fact, much of the discipline we invoked during the past few months is now incorporated into our standard operating procedures. The health and safety of our team members and our clients has been our top priority, and I'm so proud of the determination our people have shown during this time. We quickly adapted our standard operating practices to follow the guidelines of the CDC and other governing authorities, as well as our own advisory council. And as an essential service provider, our team members were tasked with being agile and responsive, to the rapidly changing needs of our clients as they work to protect their employees, their customers, and their facilities. The feedback's been overwhelming, and we believe this will have a lasting impact on retention. Now I could spend hours on this call highlighting example after example of how our team members have made a difference during this stressful time. In the Northwest Independent School District of Fort Worth, Texas, our education team members helped the district conduct four modified graduation ceremonies by cleaning and disinfecting throughout the events. Administrators were able to preserve the special occasion for nearly 1,500 students and create a celebratory, safe, and sanitized environment. In the UK, our ABM team members were among those recognized by Prince Charles and London's mayor, Sadiq Khan, for our contributions in keeping the city's transit system to transport to London clean, and hygienic. And as you most likely have seen, our frontline workers have been featured by numerous media outlets for our critical disinfection work across airports and airlines as the aviation industry continues to respond to the pandemic. Again, these few examples only touch on the many, many instances of ABM fulfilling our mission of making a difference. As COVID persists, I continue to be inspired by how our team members face adversity with commitment and pride. These results don't happen by accident. They happen through dedication to each other, operational excellence, and strong client relationships. Now, what do these results mean for the full year and beyond? As we stated in our release, we feel it would be imprudent to attempt a guidance outlook at this time. Recent events have redefined the concept of uncertainty. and clients are still determining what the next few months will look like for them, and we're all still unsure of how COVID will play out. Dean will go through detail on some of the assumptions that could be considered at this juncture, but understand, information continues to come in daily, and we are still in a very dynamic period. I mean, more to the point, as I mentioned earlier, we saw top-line trends improve throughout the quarter. Is this encouraging? Absolutely. However, we can't ignore it. how recoveries, reopenings, and resurgences are still at different stages across industries and regions. We are not at a point of sustainable clarity yet when it comes to questions like how long will schools remain open or closed? How quickly will air travel start returning? Will there be a COVID spike this fall or winter? And what does that mean for office reoccupancy? And the diversity within our portfolio means there could be a variety of outcomes as well. Look at the variance between industries like aviation versus technology and manufacturing. As one sector faces headwinds, the other is remaining strong. And headwinds don't necessarily mean lower profitability. Our variable cost structure, especially with fixed fee and performance-driven contracts, have been a particular strength for us. So a lot remains highly unknown and not necessarily linear to results today. But more than ever, we appreciate the diversity in our portfolio mix. Longer term, we firmly believe heightened awareness of safe and clean spaces is here to stay, and we've continued to invest in our Enhanced Clean program to meet our clients' needs. Our Enhanced Clean program is a three-step approach that delivers healthy spaces with a certified disinfection process. We have an advisory council. consisting of internal and external leading experts in infectious disease and industrial hygiene. This group will advise us on so many different aspects of ABM's business going forward and provide significant value to our clients as they return to their spaces safely, navigate change, and deliver assurances to their employees, customers, and the public by demonstrating trustworthy cleaning and disinfection. During the quarter, we formally kicked off the first wave of our enhanced clean deployment plan, targeting our top clients and educating them on this unique offering. This will be a cornerstone for sustaining some of the higher margin demand we are currently seeing. Client commitments are spanning terms of six to nine months at a significantly higher margin profile that is reflective of the value we're providing. Ultimately, the total penetration of work orders plus enhanced clean demand can elevate our legacy margin profile regardless of operating environment. In conjunction with the Enhance Clean launch, we recently unveiled a targeted media campaign called Safety Scene to generate demand. Visit our IR website or go to enhanceclean.com to watch the video. This is the most comprehensive marketing strategy we have developed at the firm, and we couldn't be more enthusiastic. In fact, I'm thrilled to share that we recently crossed over the $100 million sales mark for our enhanced clean program. So many of our prestigious clients have begun to sign up, even clients like UnitedHealthcare, who are vested in the healthcare space and understand infection control. They want our services, which is tremendous validation. We are optimistic that we will continue growing our base, especially as we start to return to normalcy across our end markets, and reoccupancy accelerates. And the $100 million mark in enhanced clean is not the only milestone we reached. At the end of August, we crossed the billion-dollar mark in new sales. As you know, this is typically our annual target. Normally, we would wait until the fourth quarter for a sales update. But to have achieved this in August, during such an unusual year where so much of commerce has paused, is yet another testament of how remarkably our teams have executed, and we wanted to make sure we mentioned it on the call. And we will continue to build and invest in our sales effort as we've seen the powerful results of a well-trained sales force and an ingrained sales culture across the enterprise. Additionally, we'll restart projects that were put on hold as the pandemic developed. We intend to revisit areas like our IT roadmap, We couldn't be more pleased to have Melanie Kirkwood Ruiz on the team. As our new chief information officer, she will be instrumental in determining how we reengage these projects and accelerate towards a digital future. So despite the unpredictability of these extraordinary times, we are committed to driving the momentum we experienced during the third quarter by managing the financial, operational, and strategic elements within our control. As our results have demonstrated, our service excellence remains unparalleled, and we are focused on leveraging our strengths to enable our organization, our clients, and our communities to emerge from this pandemic even stronger. Before I turn the call over to Dean for our financial results, I want to comment on the social and cultural movements that are currently sweeping the country. As a representative of 140,000 team members who work and contribute in communities all across this country, there's never been a more powerful time to live our company's core values of respect, integrity, and trust. We have a responsibility to those who dedicate themselves to ABM every day. During the quarter, we launched an endeavor that we have been developing since the beginning of the year, ABM's Culture and Inclusion Council. of our team members will be responsible for aligning our overarching business strategy with diversity at ABM. We will shape our organizational priorities to continue to nurture and advance an inclusive workplace. We also joined other New York City headquartered businesses through the Partnership for New York City to reassert our commitment to diversity and inclusion among our board, executive leadership, and our entire workforce. We will be supporting programs that reinforce and reflect that this is a top priority for ABM. Fostering diversity is critical to our long-term success and our ability to fulfill our vision of being the clear choice through our people. In all respects, we are going to continue to build a stronger ABM, both financially and culturally. I'll turn the call over to Dean now. but not before thanking him for being our financial steward this quarter and continuing to drive excellence across the enterprise. Dean?