ABM Industries Incorporated

Greetings and welcome to the ABM Industries second 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. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Mr. David Gold, Investor Relations for ABM Industries. Thank you. You may begin.

Thank you 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 second 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'd 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. 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, David. Good morning, and thank you all for joining us today to discuss our second quarter results. As detailed in yesterday's press release, ABM reported strong second quarter financial results, building on the progress we achieved in our first quarter. Second quarter adjusted income from continuing operations per diluted share increased to 82 cents, up nearly 37% from the year-ago quarter. We generated significant operating leverage with adjusted EBITDA improving 17% year-over-year to $106.6 million and adjusted EBITDA margin increasing 100 basis points to 7.1% on slightly higher revenues. We were pleased to note that for the first time in five quarters, growth in four of our key segments, B&I, T&M, education, and technical solutions, more than offset the softness in aviation, which while improved on a sequential basis, continued to reflect the impact of the pandemic. In short, our second quarter performance reflected a consistently high level of operational execution by our team, amid gradually improving business conditions in sync with the reopening of the economy. This strong showing and our current visibility have enabled us to increase our full year guidance for adjusted earnings per share while we continue to invest to support future growth. Consistent with what we have discussed over the past several quarters, our customers continue to prioritize protecting their people and spaces driving strong demand for our higher margin virus disinfection work orders. Enhanced clean, our proprietary and trusted protocol for cleaning and disinfecting spaces was an important contributor to our second quarter results as well. We also continue to benefit from efficient labor management as our flexible labor model enabled us to identify and capitalize on staffing efficiencies arising from the adoption of remote and hybrid work environments particularly within our B&I segment, where office occupancy in large metropolitan areas remain relatively low. As employees transition back to the office, we anticipate some easing in our labor efficiency, but we expect revenue growth in the second half of the year and increased work orders to mitigate that effect. With our scale, capabilities, and market diversity and breadth of services, ABM remains well positioned for continued revenue and earnings growth as the reopening momentum continues. There are several key trends that support our outlook for continued strong performance in the coming quarters. First, our clients in both the office and manufacturing markets indicate they plan to continue to incorporate disinfection into their cleaning protocols as they prepare for the return of staff and workers to their offices and industrial facilities. In fact, given the heightened concerns around pandemic risk and greater awareness of public health issues in general, we expect these specialized services to remain in demand and to become part of our client contracts. ABM has been an essential partner in helping our customers navigate through the challenges of the past year, and our 90% plus retention rate, which ticked up in the second quarter, speaks to the confidence our customers have in our services and capabilities. Second, we expect continued sequential improvement in our aviation segment as pent-up demand for travel translates into higher demand for aviation services. As Earl will discuss in his comments, we are transitioning our aviation business mix to favor higher margin contracts with airports and adjacent facilities with less of a focus on airline services. This strategic shift has created attractive growth opportunities for ABM outside of the airport, such as parking services, and provides for a more consistent and more profitable business mix in our aviation segment. Additionally, we expect to see increased demand for disinfection and cleaning services in line with the pickup and travel activity. Early signs of return to leisure travel have been encouraging, and increased business travel is projected to follow later in the year and into next year. Third, school districts have accelerated the return to in-person learning. Our conversations with school district professionals and educational institutions indicate that with the full-time return to school expected this fall, cleaning and disinfecting will be a priority throughout the school year. We expect these services to become part of the broader scope of services for new contracts and rebids providing ABM with revenue and growth opportunities. Finally, the energy efficiency and retrofit solutions that we offer in our technical services segment, our highest margin business, provide significant operating cost savings for our customers and enable them to reduce their environmental impact. Now that we have greater access to client sites, we expect to increasingly work through our technical services backlog which was at a record level at the end of the second quarter. Additionally, this segment is well positioned to benefit from the new administration's priorities around decarbonization and energy efficiency. As we look toward the second half of the fiscal year, we are confident that we can leverage our significant competitive advantages to achieve continued progress. You may recall that at the very outset of the pandemic, we established 19 operational task forces, or pods as we call them, to marshal our tremendous internal resources on the issues at hand to focus on our virus disinfection offerings, our field operations, as well as finance, legal, liquidity, cash flow, and human resources. This task force model proved to be a fast and effective way of identifying potential business issues and utilizing cross-functional expertise to develop and implement solutions. Given the success of these initiatives, we will continue to use this model to address emerging situations. In fact, our Human Resources Task Force is now focused on recruiting and retention and will be instrumental in helping us manage utilization as additional staffing is required to accommodate increased occupancy levels. Additionally, our strong balance sheet and robust cash flow provide us with substantial resources to fund investments to support future growth. We invested in information technology initiatives during the first half of fiscal 2021, and we anticipate investing further during the second half of the year. These investments in technology, data analytics, and strategic initiatives are designed to strengthen our client relationships and further empower our employees. While we will speak about these initiatives later in the year, I can share that we are currently piloting client-facing solutions using sensors to generate real-time occupancy data that inform our janitorial programs and allow us to share service delivery details with our clients via digital displays. Additionally, we are expanding our use of technology to workforce management with a digital task management solution that records work performed and facilitates dynamic route changes to accommodate shifting client demand. Lastly, the ABM brand is recognized worldwide and our recent advertising campaign has served to reinforce the scale, scope, and capabilities of our organization. These attributes enabled us to step in immediately to provide our branded services to clients needing a safe environment for their employees and consumers. The ABM brand is synonymous with this tremendous commitment to customer service which is supported by our ability to deliver. As we enter a post-pandemic environment, we believe the ABM brand will provide us with considerable competitive advantages across our business segments. Turning now to the specifics of our outlook, given our strong performance in the first half and our expectations for continued year-over-year growth in the second half, we are maintaining our guidance for full-year fiscal 2021 gap income from continuing operations of $2.85 to $3.10 per diluted share, inclusive of a second quarter litigation reserve of 32 cents. At the same time, we are increasing our guidance for full-year 2021 adjusted income from continuing operations to $3.30 to $3.50 per diluted chair, up from $3 to $3.25 previously. This includes additional investments in client-facing technology and workforce management. We're also increasing our outlook for adjusted EBITDA margin to a range of 7% to 7.3% from 6.6% to 7% previously. We also ended the first half with robust new sales of $727 million, including $100 million associated with our enhanced clean offerings, another first half record. This supports our confidence in the company's organic second half performance. Additionally, we continue to explore acquisition opportunities where, as a strategic buyer, we would be able to drive meaningful revenue and operating synergies. Before I turn the call over to Earl, I'd like to thank all of our ABM team members for their continued dedication and hard work. Over the past year, we have made tremendous operational progress and have proven our value as an essential partner to our clients during these dynamic and challenging times. I've never been more inspired by our purpose, our team, and our organization. I also want to thank our customers for their confidence in us. As we emerge from this difficult period I am so pleased with our performance and I'm more confident than ever in our future potential. I'll now turn the call over to Earl.