ABM Industries Incorporated

Greetings. Welcome to ABM Industries' fourth quarter 2020 earnings call. At this time, all participants are in a listen-only mode. A 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. Please note this conference is being recorded. I will now turn the conference over to Suzy 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 Earl Ellis, our new Executive Vice President and Chief Financial Officer. We issued our press release yesterday afternoon announcing our fourth quarter and fiscal 2020 financial results. A copy of this release and an accompanying slide presentation can be results. A copy of this release and an accompanying slide presentation can be found on our corporate website. 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. Before we begin, I'd like to remind everyone that Earl joined less than a month ago after the fiscal year end. And although quickly acclimating himself to the business, should you have any questions after today's call, please follow up with investor relations accordingly. I would now like to turn the call over to Scott.

Thanks, Susie. And good morning, everyone. Thank you for joining us on today's call. And we hope you and your families are safe and healthy. It's hard to believe we're already at the close of 2020 and covering our fourth quarter results. On the other hand, we're about to discuss only the second full quarter of COVID-19's impact on our financials. In Q4, we reported revenues of approximately $1.5 billion for the quarter. This represents a 9.9% decline versus last year and a considerable sequential improvement when comparing to our more than 15% decline in Q3. Once again, our diversified client base demonstrates the resilience of our business Our technology and manufacturing industry group grew almost 7%, and business and industry, as well as education, posted revenue results that were only slightly down. As one would expect, our aviation segment drove the majority of our organic decline versus last year. Technical solutions also saw a large revenue decline and continued to see challenges in site access, which affected churn rates. Positively, the backlog of committed work and technical solutions is healthy and the pipeline for 21 is robust. So all things considered, it was a good revenue story for the quarter. From a profit perspective, there was sustained demand for higher margin COVID-related work orders in our enhanced clean program, particularly in business and industry and technology manufacturing. Our financial performance was protected by our variable labor model and our ability to dynamically adjust staffing based on demand. And we continue to see profit arbitrage by efficiently managing labor as we scaled and consolidated staff during the quarter. This has been one of the key contributors of our financial performance through the pandemic. As a result of all of these factors, we grew earnings on both a gap and an adjusted basis versus last year. Income from continuing operations grew to $53.1 million or 78 cents per share. On an adjusted basis, we delivered $46.7 million or 69 cents per share. Adjusted EBITDA margin rose to 6.2% versus 5.6% last year. Even more compelling, these results incorporate a non-cash reserve we took for an entertainment related project within our technical solution segment. This was a unique circumstance and client and not a reflection of our broader project portfolio within technical solutions. This had 120 basis point impact on our adjusted EBITDA margin, as well as our earnings. So even when including this distinctive event, quarter after quarter, our performance continues to demonstrate consistent strength and execution. In so many ways, 2020 will stand out as a pivotal year for ABM. The pandemic has created a shift in the public mindset as professional Class A janitorial services are now unquestionably viewed as an essential and non-discretionary service. Facility owners must demonstrate that they are providing clean, healthy, and safe spaces that their occupants can trust. Not only will this be required, but it will be a reflection of their brand. Our response with our enhanced clean service gives our clients the peace of mind that comes with study protocols and practices that keep facilities safe. And this offering creates even more distance between facilities safe. And this offering creates even more distance between us and our competitors. As a company that's been around for more than 110 years, ABM has withstood and grown in during many global events. But 2020 tested us in historic ways, and I've never been more inspired by our organization. I want to take a moment to recap some of our team's accomplishments more specifically. Since March, we have been on the front lines battling a pandemic that has disrupted nearly every industry. While navigating a constantly evolving environment as we learn more about the virus, we prioritize the health and safety of our employees and our clients above all. And when it came to PPE and our global supply chain, our procurement team did not disappoint when others in our space did, as they couldn't accommodate surging demands. Also, we partnered with large cleaning contractors to form the Cleaning Coalition of America to represent our industry, which played a critical role in restoring our country. Coalition plans to press for vaccine priority for our industry and developed a focused campaign on awareness around what differentiates best-in-class providers. At ABM, we were particularly proud of how we proactively developed our own expert-backed certified programs to answer our clients' needs with disinfection protocols such as specialized training and signage, electrostatic spraying of disinfectant, and air filtration. In all of this, is being supported by one of the most comprehensive marketing campaigns we've ever developed. What shouldn't be minimized is the fact that we mobilized multiple cross-functional task forces across all of the critical areas of our business that elevated our adeptness and will endure long past the pandemic. These task forces led to improved operating procedures for labor management, sales, and financial activities. As an example, Our approach to collections led us to generate more than $450 million in cash flow from operations and $420 million in free cash flow, both records for the firm. This translates to nearly $1 billion of liquidity, including $400 million of cash, which is an extremely powerful position to be in during still uncertain times. As we move into 2021, our intention is to capitalize on the momentum and shift from defense to offense. Beginning with our executive team, we recently announced several appointments to further align our internal organizational structure to our business strategies. First, I'm pleased to introduce our new CFO, Earl Ellis, on this morning's call. Earl is a seasoned finance executive joining us from Best Buy, a leading Fortune 500 provider of consumer technology products and services, with 125,000 employees in North America. Earl held several executive positions across finance, and most recently, he was responsible for leading enterprise capital project planning, cost transformation and procurement, as well as supporting digital and technology, and global real estate. During his tenure at Best Buy, Earl also spearheaded several strategic initiatives targeting labor and logistics. Earl joined less than three weeks ago, but is quickly immersing himself in our business. I'm also excited that Renee Jacobson has been promoted to chief operating officer and will lead all of our client-facing industry groups. Since joining ABM eight years ago, Renee has consistently driven our operational performance and service excellence, and his leadership was unquestionably instrumental in our successful navigation of 2020. As COO, He will provide strategic guidance for our operations and drive our financial results across all of our platforms. Rene will also continue to work with Sean Mahoney, our new president of sales and marketing. Since Sean's arrival at ABM in 2017, we've broken sales records each succeeding year, and we achieved another record in 2020 with new sales at $1.2 billion, an amazing accomplishment for any year. but especially in a year when so much of the economy was paused. With both Renee and Sean's leadership, our operations and sales teams proved to be a powerful combination in 2020 and will undoubtedly exceed our expectations in 2021. Speaking of 2021, later in the year, we will be sharing our refreshed business strategy, which builds on the positive changes and the acceleration we saw with our agi, which builds on the positive changes and the acceleration we saw with our 2020 vision. At that time, we will be reviewing our technology plan and path towards a digital platform for our employees and clients. In fact, just as I discussed last quarter, some of our near-term investments are re-engagements of IT projects that were put on hold due to the pandemic, like our ERP system and data management roadmap. Other investments will be new, given the opportunities that arose as a result of the pandemic, such as Enhance Clean and the associated build of that program. On that front, from a payback standpoint, we concluded the year with over $300 million in sales for our Enhance Clean program and COVID related activities. And we have some really exciting sales and marketing plans lined up over the next few months to continue accelerating and differentiating ourselves in the marketplace. Of course, we will be responsible in our investment approach given how fluid the operating environment is, but we recognize that we must plan for the long term while also keeping our maniacal focus on what the near term may bring. There's no doubt that conditions remain uncertain, particularly as we operate over the winter months. COVID cases continue to rise throughout the country, and I'm sure you've seen or experienced various stages of closures in your own communities. Unfortunately, the operating environment isn't any more predictable than it was last quarter. Clients are still generally managing for the shorter term as they react to resurgences, which cause occupancy volatility, and they don't yet have the ability to predict when the workforce at large will return. While vaccine news is encouraging, the widespread availability and use is also an unknown today, which could impact the timing of recoveries and reopenings. Therefore, our visibility remains limited, and as you would expect, we are not providing guidance for the full fiscal year in 2021. However, we are going to share our near-term expectations for the first fiscal quarter. This is the only time we anticipate guiding to such a short-term view, given the uniqueness of the moment. For the first quarter, we expect GAAP EPS of 53 cents to 58 cents in earnings per diluted share, or adjusted EPS, of 60 cents to 65 cents per diluted share. These ranges compare to last year's 41 cents and 39 cents respectively, both considerable increases on a year-over-year basis. We also expect adjusted EBITDA margin in the range of 6.1% to 6.4%, expanding from 4.3% last year. At this time, we believe we may have seen the bottom in revenue compression as a result of COVID-19. Sequentially, we could see similar to slightly better organic declines than what we saw in Q4. We also anticipate good demand for pandemic-related work orders and enhanced clean to continue throughout Q1. The investments I discussed earlier should also continue into Q1, which you will see in both our segment profit and corporate lines. In general, investments will continue throughout fiscal 2021, but the magnitude and cadence will be determined by both our long-term strategy and where we see the broader recovery going. Earl will go through more detail on some of the assumptions for the quarter and year, which is obviously still dynamic. Should we have better line of sight for the full year by Q2, we would anticipate providing full year guidance at that time. Before I turn the call over to Earl, I want to thank our team members again for their dedication to our purpose as a company to take care of the people, spaces, and places that are important to you. This purpose has never meant more than it does today. Our value to clients has risen because our teams have been the ambassadors of our brands and demonstrated the operational excellence that sets ABM apart from our competitors. Nine months ago, we couldn't have imagined how 2020 would culminate for ABM. We not only exceeded our pre-COVID expectations, but actually accelerated into our long-term EBITDA margin range of 5.5 to 6%. Our 2020 vision journey has come to a climatic transition, leading us into the next phase of growth and excellence and building on our strong foundation to propel us into the future. Next year, we'll also mark our 50th anniversary on the New York Stock Exchange, and we look forward to celebrating this milestone in ABM's history. So while last year was certainly a memorable milestone in ABM's history, so while last year was certainly a memorable one for our organization, I am now looking forward to the opportunities that lie ahead and I'm more excited than ever. Now to Earl, who will cover our financial results.