ABM Industries Incorporated

Welcome to ABM Industries' first quarter 2021 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 Executive Vice President and Chief Financial Officer. We issued our press release yesterday afternoon announcing our first quarter fiscal 2021 financial 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 a slide that accompanies our presentation, as well as 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 all for joining us today to discuss our first quarter results. As you read in yesterday's press release, 2021 is off to a tremendous start, Total revenue was approximately $1.5 billion, representing a 7.5% decline versus last year, which exceeded our expectation and reflects continued sequential improvement. As anticipated, our aviation segment remains the primary driver behind the revenue decrease. On both a GAAP and an adjusted basis, earnings grew by 160% or more year over year. GAAP continuing EPS, due to $1.10 per share or $1.01 per share on an adjusted basis. Adjusted EBITDA margins expanded more than 400 basis points to 8.3% compared to last year. Anchoring these results was elevated demand for higher margin work orders for virus protection, as well as our enhanced clean services, which are longer term in nature. Effective labor management continued to be a lever for profitability. As you may remember, the majority of our contracts are performance-based, so any efficiencies we find in staffing as occupancy drops or schools are in a hybrid situation inures to our benefit. This is the advantage of having a flexible labor model. Earl will discuss our segments in more detail, but overall, our industry group drivers are similar to what we saw during the balance of last year. Not surprisingly, our aviation and technical solution segments were challenged by the pandemic due to decreased global travel and limited site access for retrofit projects in educational facilities. Education as a segment, though, grew top and bottom line during the quarter, which shows how well our team has adapted operationally to the hybrid learning system. In business and industry, and technology and manufacturing are still strong outperformers, they've been able to offset COVID-related revenue compression with higher margin work orders, enhanced clean contracts, and labor management. Now, we're now almost at the one-year mark since the start of the pandemic, and I've just summarized our fourth consecutive quarter of strong results. This sustained performance suggests that we have reached a level of consistency in our results and stabilization across our client portfolio. Let me now provide some thoughts on where we believe the operating environment is headed, especially in light of our full-year guidance. Before I dive into what momentum to normalcy looks like in 2021, I want to underscore that normalcy does not imply less vigilance around virus protection. Over the past several months, there have been countless news and scientific journals reminding us that COVID-19 and its after effects will continue to linger over the foreseeable future. Many believe it will be a permanent fact of life with people getting regularly vaccinated, similar to how we handle flu vaccinations. We're so enthusiastic that vaccine rollouts are underway across the country. Most importantly, the vaccines will save lives. But the rollouts will also lead to momentum back to work, school, travel, and attending entertainment venues. However, vaccine rollouts have not been uniform on a state-by-state basis, nor have state policies on masking, public gatherings, and other factors that impact infections and new cases. These factors, as well as the ongoing discovery of new variants, highlight how societies need to respond to COVID-19 on an elevated level will not end in the near term. This is why it's so critical for us to partner with our clients and assess their evolving needs and engage our expert advisory panel. In BNI, the vaccines will spur momentum back to work, which for us means a return of more traditional janitorial work as well as the continuation of disinfecting given higher occupancy. Currently, average occupancy across the country is approximately 15%. We anticipate This could increase to 25% by Labor Day and grow to 50 plus percent from calendar year end. As clients begin to plan their returns, they are focusing on building trust in their facilities through health and safety protocols. Rigor around cleaning, disinfecting, and especially physical spacing will be incorporated into their plans. For this reason, we do not anticipate a near-term reduction in space utilization across commercial real estate, especially with Class A buildings and blue chip clients. For a sector like education, we believe the hybrid model will be in effect for at least the rest of the school year. Soon, if not already, institutions will start planning for the fall 2021 semester with a push for more in-person learning in the K through 12 segment and higher ed. How this unfolds could vary by region. We should have a better line of sight when we speak to you after Q2 earnings. And I'm sure as vaccine adoption continues to expand, there's probably no sector more poised for a robust volume recovery than aviation. We are definitely hearing about pent-up demand for personal travel and minimally a modest return of business travel. For ABM, our business portfolio consists of both airlines and airports. As airports were opened during the pandemic, operations in areas like terminal cleaning, transportation, and shuttle service enabled us to mitigate reduced volumes on the airline side. And ultimately, this diversification helped us break even last year, which was a major achievement. On the airline side, current travel volumes are approximately 50% of pre-COVID levels. Assuming vaccine rollouts gain traction, we believe we could see that grow moderately by year end. As both airlines and airports see increased traffic, the need for disinfection, virus protection, and enhanced clean will grow. On an enterprise level, we conducted a pulse survey of approximately 200 clients last month that largely aligned to our own full-year expectations. Most respondents are expecting their facilities to more fully reopen and their companies to be endorsing reoccupancy in varying forms by September. And they plan to continue taking multiple measures to protect spaces against COVID-19 as they reopen, primarily in the areas of surface and air disinfection. And even with the increase in flexible work schedules and work-from-home protocols, the vast majority of our clients say that they expect the total amount of space utilization to remain largely the same. Now, the size of our survey is just a subset of our client base, but it supports what we are hearing more broadly as we communicate with our customers on their future plans. It also speaks to our confidence in providing full-year guidance today. For fiscal 2021, we are introducing full-year guidance of earnings per diluted share of $2.85 to $3.10, or $3 to $3.25 on an adjusted basis. Our outlook for adjusted EBITDA margins is 6.6% to 7%, which compares to 6% last year. We also expect a return to growth by the second half of this year and consistent demand for high margin work orders and enhance clean services through year-end. We also anticipate retaining most of our labor arbitrage through year-end. Now, our success will not translate to complacency. Based on how the pandemic has changed our trajectory, we've been capitalizing on our momentum to elevate our brand and business. At the end of February, we launched ABM's first national TV commercial. It was a celebratory moment for the entire firm and we could not be prouder. If you've not seen it on CNBC or Bloomberg TV, you can find it on our IR website today. As we discussed last year, we are going to be investing in our clients, team members, and infrastructure. We're focused on providing technology and data analytics capabilities to enhance client and team member experiences. We're also prioritizing areas like talent development to further empower our people and create even more consequential relationships with our clients. We are committed to building upon our strong culture and fostering a community of belonging where team members feel connected, valued, and inspired. This reinforces our mission and vision as an organization and will have significant long-term commercial outcomes for us. Internal initiatives such as our Culture and Inclusion Council are dedicated to driving meaningful social change and cultivating an inclusive environment for everyone at ABM. And we're taking active steps to turn this vision into reality. I'm excited to share that we have entered into partnerships with organizations that are focused on building a more equitable society. ABM has made a commitment to support the NAACP Legal Defense and Educational Fund, the Hispanic Scholarship Fund, the After School Alliance, and the Thurgood Marshall College Fund. We are partnering with these organizations in an effort to make a difference in the areas of advocacy and civil rights, basic human needs, education, and workforce development. Before I turn the call over to Earl, I want to look back at this time last year during our first quarter earnings call of 2020. We were just starting to discuss the coronavirus and its impact on the economy. At that time, I reiterated how our diversified portfolio coupled with our nimble operating model were hallmarks of our long-term success over the past 110 years. Our results over the past 12 months has proven this beyond a doubt. And with our solid liquidity and leverage, we are better positioned than ever to pursue growth and profitability that will unlock even greater shareholder value. I want to thank our employees for another quarter of absolutely incredible execution, particularly those who were impacted by the recent winter storms in the South. The dedication of the ABM team continues to fuel our performance quarter after quarter. We have a culture like no other in our industry. In addition to our team members, I'd like to thank our board of directors, including our newest director, Quincy Allen, for their guidance and encouragement. I also thank you, our analysts and shareholders, for your support during a time when the environment was particularly opaque. I'm proud that our results have been the greatest proof point of our resilience, agility, and excellence. I'll now turn the call over to Earl.