ABM Industries Incorporated

Greetings and welcome to the ABM Industries Incorporated third 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. It is now my pleasure to introduce David Gold, Investor and Media Relations. 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 Darrell Ellis, our Executive Vice President and Chief Financial Officer. We issued our press release yesterday afternoon announcing our third 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 historical non-GAAP 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 third quarter results. As detailed in yesterday's release, ABM generated strong third quarter results featuring double-digit growth in revenue, continued solid cash generation, and a 20% gain in adjusted earnings per share. Revenue growth was broad-based as each of our five business segments achieved year-over-year gains in revenue, aided by an improving business environment and the gradual reopening of the economy. Our team members once again executed well and continued to provide exceptional service to our clients. Overall, demand for ABM's higher margin virus protection services remained elevated in the quarter, underscoring ongoing client concerns regarding cleaning and disinfection of their facilities. As anticipated, demand for virus protection eased slightly in the third quarter compared to the second quarter of fiscal 2021, but remained well above pre-pandemic levels. The emergence of the Delta variant and rising COVID-19 cases nationally have gained heightened interest in the need for disinfection prevention measures, particularly in high traffic areas. As we look forward to 2022 and beyond, we believe that virus protection services will remain a contributor to our overall revenue as disinfection becomes a standard service protocol in facility maintenance programs. During the third quarter, we continued to benefit from efficient management of labor as office occupancy levels remained relatively low nationwide and began to trend downward slightly as the third quarter progressed due to the spread of the Delta variant. In this evolving environment, our flexible labor model enabled us to capitalize on staffing efficiencies and the associated benefit to our margins. In light of the current pause in the return to the office trend, we anticipate a more gradual ramp in office occupancy levels during 2022, providing an opportunity for a longer tailwind arising from labor efficiencies. At the same time, we're proactively addressing current dynamics in the labor market, which include heightened competition for available talent. As I noted in last quarter's conference call, ABM has developed a task force model that leverages our substantial internal resources and cross-functional expertise to identify and implement solutions rapidly and effectively. Earlier this year, we established a human resources task force with a specific focus on recruiting and retention, and this task force has been instrumental in helping us to manage our staffing needs and ensure our resources are allocated efficiently and cost-effectively. As a reminder, roughly half of our revenue is generated from union labor accounts, which mitigates concerns around labor, inflation, and availability. Revenue growth in the third quarter was led by performance of our aviation segment, where revenues increased 51% compared to the prior year period, and the segment operated profitably. Our strong performance in aviation reflected a seasonal improvement in air travel, as well as our strategic shift towards securing high margin and more stable service contracts with airports and related facilities. While revenue in our aviation segment remains below pre-pandemic levels, we expect to see continued growth driven in part by new airport transportation and janitorial contracts. Our technical solution segment continued to perform strongly, generating nearly 23% revenue growth in the third quarter, as our broad capabilities address key client needs for energy efficiency, productivity, and mechanical performance throughout their facilities. Revenue growth benefited from improved access to client sites, enabling us to execute on a large number of projects. Technical Solutions ended the third quarter with a record backlog level, and the long-term outlook for this segment is particularly favorable given our position as a leading provider of electrical vehicle charging infrastructure. Although EV charging infrastructure services currently represent a limited portion of technical solutions revenue, electrical vehicle adoption continues to rise, aided by the current administration's target to make half of all vehicles sold in 2030 zero emissions vehicles. As a result, we see a long runway of growth for our e-mobility, EV charging infrastructure business as we look out over the next several years. Turning to education segment, school districts have accelerated the return to in-person learning as we estimate that 95% plus of K-12 and higher education institutions will resume in-school classes this fall. With the reopening of schools and educational facilities, education segment revenue grew solidly from the prior year period driven by increased demand for our services we believe the heightened concerns amid the prevalence of the delta variant may lead to incremental opportunities for disinfecting services in the fourth quarter and into 2022 but we do expect our labor savings from hybrid environment will wane quickly with a return to full-time in-person learning this fall overall our scale end market diversity, and breadth of service keep us well positioned for growth in the fourth quarter and beyond. Given the strength of our year-to-date performance and our positive outlook for the fourth quarter, we are increasing our full-year adjusted EPS guidance to $3.45 to $3.55, up from $3.30 to $3.50 previously. On the acquisition front, A few weeks ago, we announced a definitive agreement to acquire Able Services in a strategic transaction that we believe will create significant value for all of our stakeholders. We're excited to join with Able's talented team, and we look forward to working together to better serve our clients with a broad array of services and solutions that address their evolving needs. The combination of ABM and ABLE expands our core engineering and janitorial capabilities in attractive geographies. This acquisition is expected to be accretive to adjusted EPS from day one, aided by an estimated $30 million to $40 million in cost-saving synergies. As a larger company with enhanced scale, we will be better positioned to provide our clients with service offerings that will not only enhance our growth and margins, but will add significant value for our clients. We also see the potential for revenue synergies over time as we deepen our client relationships and realize cross-selling opportunities. We are progressing on the close of this acquisition, which we expect will occur by the end of September. As a reminder, we have not included any contribution from ABLE in our updated guidance forecast. In closing, The past nine months have been exciting, productive, and successful for ABM. We have executed well on our strategic growth objectives while generating strong financial results, and we are very much looking forward to the addition of ABLE services to ABM. In the next few months, we plan to share with you our strategic plan for the next five years, which I'm extremely excited about. I'll now turn the call over to Earl for a financial review of the third quarter.