UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 2, 2015
ABM Industries Incorporated
(Exact name of registrant as specified in its charter)
| Delaware | 1-8929 | 94-1369354 | ||
| (State or other jurisdiction | (Commission | (IRS Employer | ||
| of incorporation) | File Number) | Identification No.) |
| 551 Fifth Avenue, Suite 300 New York, New York (Address of principal executive offices) |
10176
(Zip Code) |
Registrant's telephone number, including area code: (212) 297-0200
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. Results of Operations and Financial Condition.
On September 2, 2015, ABM Industries Incorporated (the “Company”) issued a press release announcing financial results related to the third quarter of fiscal year 2015. A copy of the press release is attached as Exhibit 99.1, which is incorporated into this item by reference. As disclosed in the press release attached as Exhibit 99.1, the Company will hold a live web cast on September 3, 2015 relating to the Company’s financial results for the third quarter of fiscal year 2015. A copy of the slides to be presented at the Company’s web cast and discussed in the conference call relating to such financial results is being furnished as Exhibit 99.2 to this Form 8-K.
Item 7.01. Regulation FD Disclosure.
On September 2, 2015, the Company issued a press release announcing a comprehensive strategy and transformation initiative to drive long-term profitable growth and enhance shareholder value. A copy of the press release announcing the comprehensive strategy and transformation initiative is attached as Exhibit 99.3, which is incorporated into this item by reference.
Item 8.01. Other Events.
On September 2, 2015, the Company announced that the Board of Directors of the Company declared a quarterly dividend of $0.16 per share, payable on November 2, 2015 to stockholders of record on October 1, 2015.
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits.
| 99.1 | Press Release issued by ABM Industries Incorporated, dated September 2, 2015, announcing financial results related to the third quarter of fiscal year 2015 and the declaration of a dividend payable November 2, 2015 to stockholders of record on October 1, 2015. |
| 99.2 | Slides of ABM Industries Incorporated dated September 3, 2015. |
| 99.3 | Press Release issued by ABM Industries Incorporated, dated September 2, 2015, announcing a comprehensive strategy and transformation initiative. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| ABM INDUSTRIES INCORPORATED | ||
| Dated: September 3, 2015 | By: | /s/ Sarah H. McConnell |
| Sarah H. McConnell | ||
| Executive Vice President and General Counsel | ||
EXHIBIT INDEX
| 99.1 | Press Release issued by ABM Industries Incorporated, dated September 2, 2015, announcing financial results related to the third quarter of fiscal year 2015 and the declaration of a dividend payable November 2, 2015 to stockholders of record on October 1, 2015. |
| 99.2 | Slides of ABM Industries Incorporated dated September 3, 2015. |
| 99.3 | Press Release issued by ABM Industries Incorporated, dated September 2, 2015, announcing a comprehensive strategy and transformation initiative. |
Exhibit 99.1
ABM INDUSTRIES ANNOUNCES
2015 THIRD QUARTER FINANCIAL RESULTS
Revenues Increase 5.7% to $1.35 billion
Net income down as Company Records $46.5 million Pre-tax Charge for Current-Year and Prior-Year Insurance Reserves
Company Narrows Fiscal 2015 Adjusted EPS Guidance to $1.75 - $1.80
Separately, Announces Strategy and Transformation Initiative
Board Declares Quarterly Dividend
New York, NY - September 2, 2015 - ABM (NYSE:ABM), a leading provider of facility solutions, today announced financial results for the fiscal 2015 third quarter that ended July 31, 2015.
| Three Months Ended July 31, |
Increase/ (Decrease) |
Nine Months Ended July 31, |
Increase/ (Decrease) | |||||||||||||||||||
| ($ in millions, except per share amounts) (unaudited) |
2015 | 2014 | 2015 | 2014 | ||||||||||||||||||
| Revenues | $ | 1,348.8 | $ | 1,276.1 | 5.7 | % | $ | 3,908.3 | $ | 3,733.9 | 4.7 | % | ||||||||||
| Operating (loss) profit | $ | (7.3 | ) | $ | 33.7 | NM | * | $ | 42.7 | $ | 85.5 | (50.1 | )% | |||||||||
| Adjusted operating profit | $ | 35.8 | $ | 46.7 | (23.3 | )% | $ | 97.5 | $ | 106.5 | (8.5 | )% | ||||||||||
| Net income | $ | 1.5 | $ | 19.4 | (92.3 | )% | $ | 37.5 | $ | 47.7 | (21.4 | )% | ||||||||||
| Net income per diluted share | $ | 0.03 | $ | 0.34 | (91.2 | )% | $ | 0.65 | $ | 0.84 | (22.6 | )% | ||||||||||
| Adjusted net income | $ | 26.8 | $ | 26.9 | (0.4 | )% | $ | 69.6 | $ | 59.8 | 16.4 | % | ||||||||||
| Adjusted net income per diluted share | $ | 0.47 | $ | 0.47 | — | % | $ | 1.21 | $ | 1.05 | 15.2 | % | ||||||||||
| Net cash provided by operating activities | $ | 62.4 | $ | 19.3 | NM | * | $ | 101.4 | $ | 57.0 | 77.9 | % | ||||||||||
| Adjusted EBITDA | $ | 53.3 | $ | 62.4 | (14.6 | )% | $ | 147.1 | $ | 153.3 | (4.0 | )% | ||||||||||
| * | Not meaningful |
This release refers to non-GAAP financial measures described as “Adjusted EBITDA”, “Adjusted net income”, “Adjusted net income per diluted share” (or “Adjusted EPS”) and “Adjusted operating profit”. Refer to the
accompanying financial schedules for supplemental financial data and corresponding reconciliation of these non-GAAP financial measures to certain GAAP financial measures.
Third Quarter 2015 Results:
| • | Revenues for the quarter totaled $1.35 billion, an increase of 5.7% compared to $1.28 billion in the third quarter of 2014, due to contributions from acquisitions and organic growth of 2.8%. |
| • | Net income declined 92.3% to $1.5 million, compared with $19.4 million for the third quarter of 2014. Net income per diluted share declined 91.2% to $0.03, compared with $0.34 in last year's third quarter, primarily related to adjustments to insurance reserves. |
| • | Adjusted net income was flat at $26.8 million, or $0.47 per diluted share, compared to the third quarter of 2014. Contributions from discrete tax items, acquisitions, and net new business were offset by higher insurance expense. |
| • | Adjusted EBITDA decreased 14.6% to $53.3 million from $62.4 million in last year’s third quarter, primarily due to higher insurance expense for current-year claims. |
“We achieved strong revenue growth for the third quarter driven by new business and contributions from acquisitions. Our focus on developing unique facility solutions for our customers continues to drive the Company’s top-line growth,” said Scott Salmirs, ABM’s president and chief executive officer. “At Air Serv, our division focused exclusively on the aviation industry vertical, revenue grew organically 16%, marking the fifth consecutive quarter of double digit organic growth for the team.”
ABM’s cash flow for the quarter was exceptional, as operations generated over $62 million, bringing our year-to-date cash flow from operations to $101 million,” Salmirs continued.
Third quarter revenues increased by $73 million or 5.7% to $1.35 billion compared to the prior year period. Adjusted net income was flat at $26.8 million compared to the prior-year period. Contributions from discrete tax items, acquisitions, and net new business were offset by higher insurance expense.
The Company’s insurance reserves are based on an actuarially determined point estimate using the projection of ultimate losses. As ABM reviewed the actual claim data and benefits assumed from safety initiatives within each of its casualty insurance programs against expected changes in development, it was determined that an actuarial adjustment was required to reflect the current estimate of ultimate
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unpaid losses. As a result, the Company incurred a pre-tax charge of $46.5 million of which $7.0 million relates to current-year claims and $39.5 million relates to prior-year claims. This compares to a net charge of $4.3 million in fiscal 2014 (current-year benefit of $6.2 million and a $10.5 million prior-year charge). Going forward, ABM’s self-insurance expense will be higher and insurance rates charged to operations will not include the same level of risk and safety benefits as the Company estimated in the prior periods.
Liquidity & Capital Structure
The Company’s liquidity remains strong, with borrowing capacity of up to $378.8 million under the Company’s $800.0 million line of credit, subject to certain covenant restrictions. As of quarter end, total debt outstanding was $305.1 million. During the quarter, the Company paid a quarterly cash dividend of $9.1 million and repurchased 307,369 shares at a cost of $10.0 million.
Strategic Transformation
In a separate press release today, ABM announced a comprehensive strategic and transformation initiative focused on driving sustainable profitability and growth, as well as creating stockholder value.
“We have taken a fresh look at how our resources and people are deployed and will be taking steps to better align our structure to the Company’s long-term strategic goals. This initiative is designed to unlock greater value across the organization by enabling a more enterprise-wide approach to innovation and by effectively allocating resources to higher margin services and verticals where we have the most competitive advantage and can provide comprehensive facility solutions. Removing cost and complexity from our business will make us more flexible to rapidly meet changing customer demands,” Salmirs said.
As part of its strategic transformation, the Company anticipates pre-tax restructuring charges ranging from $45 million to $60 million. The majority of these restructuring charges will be incurred through the third quarter of fiscal 2016 and are primarily for severance, project fees, and the potential write-down of certain investments. ABM expects the majority of the organizational benefits to be in place by the end of the first half of fiscal 2016. Once the strategy and realignment is fully implemented by the second half of fiscal 2017, the Company expects an annualized run-rate for operational benefits of $40 million to $50 million in EBITDA.
The Company also announced today that Tracy K. Price, who has served as ABM executive vice president and president of ABM Facility Solutions Group, will be leaving the Company. In connection with
Price’s departure, ABM plans to contribute its “Unified Workforce” software platform into a newly formed company. Price will serve as chief executive officer of the new company, and ABM will retain a minority investment interest in the new venture.
“We wish Tracy all the best in his new responsibilities and look forward to the successful commercialization of Unified Workforce,” said Salmirs.
Authorization for $200 Million Share Repurchase
The ABM Board of Directors has authorized a $200 million share repurchase program. The Company intends to repurchase its common shares from time to time in open market purchases or privately negotiated transactions and may make all or part of the repurchases pursuant to Rule 10b5-1 plans. The timing of repurchases will depend upon several factors, including market and business conditions, share price and availability and other factors at the Company’s discretion, and the share repurchase program may be suspended or discontinued at any time without prior notice. As of August 26, 2015, the Company had approximately 56 million shares outstanding.
Anthony Scaglione, ABM’s executive vice president and chief financial officer, noted, “The $200 million share repurchase program authorized by ABM's Board of Directors underscores our belief that the strategic actions we announced today will improve our long-term results. The authorization does not alter our capital allocation philosophy. We will continue to maintain a strong balance sheet, with a leverage profile that will provide adequate liquidity to execute our strategic plan, while retaining the flexibility to pursue value-enhancing investments.”
Declaration of Quarterly Cash Dividend
The ABM Board of Directors has declared a fourth quarter cash dividend of $0.160 per common share payable on November 3, 2015 to stockholders of record on October 1, 2015. This will be ABM’s 198th consecutive quarterly cash dividend.
Fiscal 2015 Guidance
The Company has narrowed its fiscal 2015 adjusted EPS guidance to $1.75 - $1.80. This guidance excludes potential benefits associated with an extension of the Work Opportunity Tax Credit ("WOTC") for calendar 2015. If Congress were to extend the WOTC for calendar 2015 prior to October 31, 2015, the Company could have a further benefit of $0.08 per diluted share. The Company will not meet its
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original guidance for net income per diluted share as a result of the insurance charge and is withdrawing guidance due to the uncertainty relating to the timing of restructuring charges associated with its announced strategic transformation.
Earnings Webcast
On Thursday, September 3, 2015 at 9:00 a.m. ET, ABM will host a live webcast of remarks by president and chief executive officer Scott Salmirs and executive vice president and chief financial officer Anthony Scaglione. A supplemental presentation will accompany the webcast and will be accessible through the Investor Relations portion of ABM’s website by clicking on the “Events” tab.
The webcast will be accessible at: http://investor.abm.com/events.cfm.
Listeners are asked to be online at least 15 minutes early to register, as well as to download and install any complimentary audio software that might be required. Following the call, the webcast will be available at this URL for a period of 90 days.
In addition to the webcast, a limited number of toll-free telephone lines will also be available for listeners who are among the first to call (877) 664-7395 within 15 minutes before the event. Telephonic replays will be accessible during the period from two hours to seven days after the call by dialing (855) 859-2056 and then entering ID # 22688805.
Earnings Webcast Presentation
In connection with the webcast to discuss earnings (see above), a slide presentation related to earnings and operations will be available on the Company’s website at www.abm.com and can be accessed through the Investor Relations section of ABM’s website by clicking on the “Events and Presentations” tab.
ABOUT ABM
ABM (NYSE: ABM) is a leading provider of end-to-end facility solutions with revenues of approximately $5.0 billion and 118,000 employees in over 300 offices deployed throughout the United States and various international locations. ABM's comprehensive capabilities include facilities engineering, commercial cleaning, energy solutions, HVAC, electrical, landscaping, parking and security, provided through stand-alone or integrated solutions. ABM provides custom facility solutions in urban, suburban and rural areas to properties of all sizes - from schools and commercial buildings to hospitals,
manufacturing plants and airports. ABM Industries Incorporated, which operates through its subsidiaries, was founded in 1909. For more information, visit www.abm.com.
Cautionary Statement under the Private Securities Litigation Reform Act of 1995
This press release contains both historical and forward-looking statements. Forward-looking statements are not based on historical facts but instead reflect our current expectations, estimates or projections concerning future results or events. These statements generally can be identified by the use of forward-looking words or phrases such as “believe,” “expect,” “expectation,” “anticipate,” “may,” “could,” “intend,” “belief,” “estimate,” “plan,” “target,” “predict,” “likely,” “should,” “forecast,” “outlook,” or other similar words or phrases. These statements are not guarantees of future performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results to differ materially from those indicated by those statements. Forward-looking statements in this press release include, but are not limited to, statements regarding our future operating and financial performance, including, but not limited to, our fiscal 2015 guidance, statements regarding our plans to return capital to stockholders, whether through stock repurchases, cash dividends, or otherwise, statements regarding our review of strategic alternatives for our security business, statements regarding the ability of our risk management and safety programs to affect our insurance reserves for casualty programs, statements regarding the adoption of our strategy and transformation initiative, statements regarding the cost savings we have projected to achieve by the realignment of our business operations to better support specific industries and efficiently deliver client solutions and statements regarding the timing of any of the foregoing. We cannot assure you that any of our expectations, estimates or projections will be achieved. Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements. These factors include, but are not limited to the following: (1) changes to our businesses, operating structure, capital structure, or personnel relating to the adoption of our strategy and transformation initiative may not have the desired effects on our financial condition and results of operations; (2) our strategy of moving to an integrated facility solutions provider platform, which focuses on vertical markets, may not generate the organic growth in revenues or profitability that we expect; (3) we may not achieve the cost savings we have projected to achieve by the realignment of our business operations to better support specific industries; (4) we may not be able to control within expectations the costs and expenses of implementing our strategy and transformation initiative; (5) the adoption of our strategy and transformation initiative may have an adverse impact on our relationships with employees, customers and vendors; (6) we may not be
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able to timely sell our security business at a valuation or upon such terms as our board believes is in the best interests of stockholders and the costs that we may incur in connection with reviewing strategic alternatives for our security business may not be recouped if a sale of the security business is not consummated; (7) risks relating to our acquisition strategy may adversely impact our results of operations; (8) we are subject to intense competition that can constrain our ability to gain business as well as our profitability; (9) increases in costs that we cannot pass on to clients could affect our profitability; (10) we have high deductibles for certain insurable risks, and therefore we are subject to volatility associated with those risks, there is the possibility that our risk management and safety programs may not have the intended effect of allowing us to reduce our insurance reserves for casualty programs and there is the possibility that our insurance reserves may need to be materially adjusted from time to time; (11) our captive insurance company may not bring us the benefits we expect; (12) our restructuring initiatives may not achieve their expected cost reductions; (13) our business success depends on our ability to preserve our long-term relationships with clients; (14) our business success depends on retaining senior management and attracting and retaining qualified personnel; (15) we are at risk of losses stemming from accidents or other incidents at facilities in which we operate, which could cause significant damage to our reputation and financial loss; (16) negative or unexpected tax consequences could adversely affect our results of operations; (17) changes in energy prices and government regulations could adversely impact the results of operations of our Building & Energy Solutions business; (18) significant delays or reductions in appropriations for our government contracts may negatively affect our business and could have an adverse effect on our financial position, results of operations, and cash flows; (19) we conduct some of our operations through joint ventures, and our ability to do business may be affected by the failure of our joint venture partners to perform their obligations; (20) our business may be negatively affected by adverse weather conditions; (21) federal health care reform legislation may adversely affect our business and results of operations; (22) our services in areas of military conflict expose us to additional risks; (23) we are subject to cyber-security risks arising out of breaches of security relating to sensitive company, client, and employee information and to the technology that manages our operations and other business processes; (24) we are subject to business continuity risks associated with centralization of certain administrative functions; (25) a decline in commercial office building occupancy and rental rates could adversely affect our revenues and profitability; (26) deterioration in general economic conditions could reduce the demand for facility services and, as a result, reduce our earnings and adversely affect our financial condition; (27) financial difficulties or bankruptcy of one or more of our clients could adversely affect our results; (28) any future
increase in the level of our debt or in interest rates could affect our results of operations; (29) our ability to operate and pay our debt obligations depends upon our access to cash; (30) goodwill impairment charges could have a material adverse effect on our financial condition and results of operations; (31) impairment of long-lived assets may adversely affect our operating results; (32) we are defendants in class and representative actions and other lawsuits alleging various claims that could cause us to incur substantial liabilities; (33) changes in immigration laws or enforcement actions or investigations under such laws could significantly adversely affect our labor force, operations, and financial results; (34) labor disputes could lead to loss of revenues or expense variations; (35) we participate in multiemployer pension plans that under certain circumstances could result in material liabilities being incurred; (36) disasters or acts of terrorism could disrupt services; (37) actions of activist investors could be disruptive and costly and could cause uncertainty about the strategic direction of our business; and (38) the costs that we may incur in connection with reviewing strategic alternatives for our security business which may not be recouped if a sale of or strategic transaction involving the security business is not consummated.
The list of factors above is illustrative, but by no means exhaustive. Additional information regarding these and other risks and uncertainties the Company faces is contained in the Company’s Annual Report on Form 10-K for the year ended October 31, 2014, and in other reports the Company files from time to time with the Securities and Exchange Commission (the “SEC”) (including all amendments to those reports). The Company urges readers to consider these risks and uncertainties in evaluating its forward-looking statements. The Company cautions readers not to place undue reliance upon any such forward- looking statements, which speak only as of the date made. The Company disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements contained herein (or elsewhere) to reflect any change in the Company’s expectations with regard thereto, or any change in events, conditions or circumstances on which any such statement is made, whether as a result of new information, future events or otherwise, except as otherwise required by the federal securities laws.
Use of Non-GAAP Financial Information
To supplement ABM’s consolidated financial information, the Company has presented net income, net income per diluted share and operating profit, as adjusted for items impacting comparability, for the third quarter of fiscal years 2015 and 2014. These adjustments have been made with the intent of providing
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financial measures that give management and investors a better understanding of the underlying operational results and trends as well as ABM’s marketplace performance. In addition, the Company has presented earnings before interest, taxes, depreciation and amortization and excluding items impacting comparability (adjusted EBITDA) for the third quarter of fiscal years 2015 and 2014. Adjusted EBITDA is among the indicators management uses as a basis for planning and forecasting future periods. The presentation of these non-GAAP financial measures is not meant to be considered in isolation or as a substitute for financial statements prepared in accordance with accounting principles generally accepted in the United States of America. (See accompanying financial tables for supplemental financial data and corresponding reconciliations to certain GAAP financial measures.)
# # #
| Contact: | ||||
| Investors & Analysts: | David Farwell | Media: | Chas Strong | |
| (212) 297-9792 | (770) 953-5072 | |||
| dfarwell@abm.com | chas.strong@abm.com |
Financial Schedules
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT INFORMATION (UNAUDITED)
| Three Months Ended July 31, | |||||||||||
| ($ in millions, except per share amounts) | 2015 | 2014 | Increase / (Decrease) | ||||||||
| Revenues | $ | 1,348.8 | $ | 1,276.1 | 5.7 | % | |||||
| Expenses | |||||||||||
| Operating | 1,251.0 | 1,144.7 | 9.3 | % | |||||||
| Selling, general and administrative | 98.8 | 91.2 | 8.3 | % | |||||||
| Amortization of intangible assets | 6.3 | 6.5 | (3.1 | )% | |||||||
| Total expenses | 1,356.1 | 1,242.4 | 9.2 | % | |||||||
| Operating (loss) profit | (7.3 | ) | 33.7 | NM | * | ||||||
| Income from unconsolidated affiliates, net | 2.6 | 1.6 | 62.5 | % | |||||||
| Interest expense | (2.4 | ) | (2.7 | ) | 11.1 | % | |||||
| (Loss) income before income taxes | (7.1 | ) | 32.6 | NM | * | ||||||
| Benefit (provision) for income taxes | 8.6 | (13.2 | ) | NM | * | ||||||
| Net income | $ | 1.5 | $ | 19.4 | (92.3 | )% | |||||
| Net income per common share | |||||||||||
| Basic | $ | 0.03 | $ | 0.34 | (91.2 | )% | |||||
| Diluted | $ | 0.03 | $ | 0.34 | (91.2 | )% | |||||
| Weighted-average common and common equivalent shares outstanding | |||||||||||
| Basic | 56.8 | 56.2 | |||||||||
| Diluted | 57.5 | 57.0 | |||||||||
| Dividends declared per common share | $ | 0.160 | $ | 0.155 | |||||||
| * | Not meaningful |
| Nine Months Ended July 31, | |||||||||||
| ($ in millions, except per share amounts) | 2015 | 2014 | Increase / (Decrease) | ||||||||
| Revenues | $ | 3,908.3 | $ | 3,733.9 | 4.7 | % | |||||
| Expenses | |||||||||||
| Operating | 3,551.4 | 3,356.6 | 5.8 | % | |||||||
| Selling, general and administrative | 295.7 | 271.9 | 8.8 | % | |||||||
| Amortization of intangible assets | 18.5 | 19.9 | (7.0 | )% | |||||||
| Total expenses | 3,865.6 | 3,648.4 | 6.0 | % | |||||||
| Operating profit | 42.7 | 85.5 | (50.1 | )% | |||||||
| Income from unconsolidated affiliates, net | 6.3 | 4.3 | 46.5 | % | |||||||
| Interest expense | (7.6 | ) | (8.1 | ) | 6.2 | % | |||||
| Income before income taxes | 41.4 | 81.7 | (49.3 | )% | |||||||
| Provision for income taxes | (3.9 | ) | (34.0 | ) | 88.5 | % | |||||
| Net income | $ | 37.5 | $ | 47.7 | (21.4 | )% | |||||
| Net income per common share | |||||||||||
| Basic | $ | 0.66 | $ | 0.85 | (22.4 | )% | |||||
| Diluted | $ | 0.65 | $ | 0.84 | (22.6 | )% | |||||
| Weighted-average common and common equivalent shares outstanding | |||||||||||
| Basic | 56.7 | 56.0 | |||||||||
| Diluted | 57.4 | 57.0 | |||||||||
| Dividends declared per common share | $ | 0.480 | $ | 0.465 | |||||||
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
SELECTED CONSOLIDATED CASH FLOW INFORMATION (UNAUDITED)
|
|
Three Months Ended July 31, | |||||||
| (in millions) | 2015 | 2014 | ||||||
| Net cash provided by operating activities | $ | 62.4 | $ | 19.3 | ||||
| Purchase of businesses, net of cash acquired | $ | (15.0 | ) | $ | (0.3 | ) | ||
| Other | (7.0 | ) | (8.1 | ) | ||||
| Net cash used in investing activities | $ | (22.0 | ) | $ | (8.4 | ) | ||
| Proceeds from exercises of stock options | $ | 3.0 | $ | 2.5 | ||||
| Incremental tax benefit from share-based compensation awards | 0.5 | 5.0 | ||||||
| Repurchases of common stock | (12.1 | ) | (10.0 | ) | ||||
| Dividends paid | (9.1 | ) | (8.6 | ) | ||||
| Borrowings from line of credit | 272.0 | 261.0 | ||||||
| Repayment of borrowings from line of credit | (273.9 | ) | (276.5 | ) | ||||
| Changes in book cash overdrafts | 0.6 | 3.5 | ||||||
| Repayment of capital lease obligations | (0.6 | ) | (0.9 | ) | ||||
| Net cash used in financing activities | $ | (19.6 | ) | $ | (24.0 | ) | ||
| Nine Months Ended July 31, | ||||||||
| (in millions) | 2015 | 2014 | ||||||
| Net cash provided by operating activities | $ | 101.4 | $ | 57.0 | ||||
| Purchase of businesses, net of cash acquired | $ | (19.2 | ) | $ | (12.4 | ) | ||
| Other | (16.7 | ) | (26.8 | ) | ||||
| Net cash used in investing activities | $ | (35.9 | ) | $ | (39.2 | ) | ||
| Proceeds from exercises of stock options | $ | 16.5 | $ | 7.3 | ||||
| Incremental tax benefit from share-based compensation awards | 1.7 | 5.0 | ||||||
| Repurchases of common stock | (20.0 | ) | (10.0 | ) | ||||
| Dividends paid | (27.0 | ) | (25.9 | ) | ||||
| Deferred financing costs paid | (0.3 | ) | (1.2 | ) | ||||
| Borrowings from line of credit | 729.3 | 795.1 | ||||||
| Repayment of borrowings from line of credit | (744.0 | ) | (798.3 | ) | ||||
| Changes in book cash overdrafts | (5.3 | ) | 5.0 | |||||
| Repayment of capital lease obligations | (1.9 | ) | (2.8 | ) | ||||
| Net cash used in financing activities | $ | (51.0 | ) | $ | (25.8 | ) | ||
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION (UNAUDITED)
| (in millions) | July 31, 2015 | October 31, 2014 | ||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 51.2 | $ | 36.7 | ||||
| Trade accounts receivable, net of allowances | 783.2 | 748.2 | ||||||
| Prepaid expenses | 88.5 | 65.5 | ||||||
| Deferred income taxes, net | 47.1 | 46.6 | ||||||
| Other current assets | 29.6 | 30.2 | ||||||
| Total current assets | 999.6 | 927.2 | ||||||
| Other investments | 33.9 | 32.9 | ||||||
| Property, plant and equipment, net of accumulated depreciation | 80.4 | 83.4 | ||||||
| Other intangible assets, net of accumulated amortization | 119.0 | 128.8 | ||||||
| Goodwill | 916.6 | 904.6 | ||||||
| Other assets | 114.7 | 116.0 | ||||||
| Total assets | $ | 2,264.2 | $ | 2,192.9 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Trade accounts payable | $ | 167.0 | $ | 175.9 | ||||
| Accrued compensation | 132.7 | 131.2 | ||||||
| Accrued taxes—other than income | 40.4 | 29.4 | ||||||
| Insurance claims | 90.6 | 80.0 | ||||||
| Income taxes payable | 0.2 | 2.0 | ||||||
| Other accrued liabilities | 124.5 | 107.9 | ||||||
| Total current liabilities | 555.4 | 526.4 | ||||||
| Noncurrent income taxes payable | 54.1 | 53.7 | ||||||
| Line of credit | 305.1 | 319.8 | ||||||
| Deferred income tax liability, net | 17.2 | 16.4 | ||||||
| Noncurrent insurance claims | 300.6 | 269.7 | ||||||
| Other liabilities | 45.2 | 38.1 | ||||||
| Total liabilities | 1,277.6 | 1,224.1 | ||||||
| Total stockholders' equity | 986.6 | 968.8 | ||||||
| Total liabilities and stockholders’ equity | $ | 2,264.2 | $ | 2,192.9 | ||||
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
REVENUES AND OPERATING PROFIT BY SEGMENT (UNAUDITED)
| Three Months Ended July 31, | Increase/ (Decrease) | ||||||||||
| ($ in millions) | 2015 | 2014 | |||||||||
| Revenues | |||||||||||
| Janitorial | $ | 678.5 | $ | 648.3 | 4.7 | % | |||||
| Facility Services | 147.3 | 151.0 | (2.5 | )% | |||||||
| Parking | 162.0 | 156.5 | 3.5 | % | |||||||
| Security | 98.9 | 95.4 | 3.7 | % | |||||||
| Building & Energy Solutions | 149.1 | 127.5 | 16.9 | % | |||||||
| Other | 113.0 | 97.4 | 16.0 | % | |||||||
| Total revenues | $ | 1,348.8 | $ | 1,276.1 | 5.7 | % | |||||
| Operating profit | |||||||||||
| Janitorial | $ | 33.4 | $ | 41.6 | (19.7 | )% | |||||
| Facility Services | 6.0 | 7.0 | (14.3 | )% | |||||||
| Parking | 7.8 | 9.0 | (13.3 | )% | |||||||
| Security | 3.0 | 3.6 | (16.7 | )% | |||||||
| Building & Energy Solutions | 8.1 | 6.8 | 19.1 | % | |||||||
| Other | 4.5 | 4.5 | — | % | |||||||
| Corporate | (65.7 | ) | (37.2 | ) | (76.6 | )% | |||||
| Adjustment for income from unconsolidated affiliates, net included in Building & Energy Solutions | (2.6 | ) | (1.6 | ) | (62.5 | )% | |||||
| Adjustment for tax deductions for energy efficient government buildings, included in Building & Energy Solutions | (1.8 | ) | — | (100.0 | )% | ||||||
| Total operating (loss) profit | (7.3 | ) | 33.7 | NM | * | ||||||
| Income from unconsolidated affiliates, net | 2.6 | 1.6 | 62.5 | % | |||||||
| Interest expense | (2.4 | ) | (2.7 | ) | 11.1 | % | |||||
| (Loss) income before income taxes | (7.1 | ) | 32.6 | NM | * | ||||||
| Benefit (provision) for income taxes | 8.6 | (13.2 | ) | NM | * | ||||||
| Net income | $ | 1.5 | $ | 19.4 | (92.3 | )% | |||||
| * | Not meaningful |
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
REVENUES AND OPERATING PROFIT BY SEGMENT (UNAUDITED)
| Nine Months Ended July 31, | Increase/ (Decrease) | ||||||||||
| ($ in millions) | 2015 | 2014 | |||||||||
| Revenues | |||||||||||
| Janitorial | $ | 2,004.0 | $ | 1,917.1 | 4.5 | % | |||||
| Facility Services | 449.3 | 452.2 | (0.6 | )% | |||||||
| Parking | 471.2 | 459.4 | 2.6 | % | |||||||
| Security | 287.5 | 288.9 | (0.5 | )% | |||||||
| Building & Energy Solutions | 390.0 | 348.1 | 12.0 | % | |||||||
| Other | 306.3 | 268.2 | 14.2 | % | |||||||
| Total revenues | $ | 3,908.3 | $ | 3,733.9 | 4.7 | % | |||||
| Operating profit | |||||||||||
| Janitorial | $ | 108.2 | $ | 109.1 | (0.8 | )% | |||||
| Facility Services | 18.5 | 17.1 | 8.2 | % | |||||||
| Parking | 21.0 | 20.2 | 4.0 | % | |||||||
| Security | 7.5 | 7.9 | (5.1 | )% | |||||||
| Building & Energy Solutions | 12.5 | 13.0 | (3.8 | )% | |||||||
| Other | 10.1 | 8.8 | 14.8 | % | |||||||
| Corporate | (127.0 | ) | (86.3 | ) | (47.2 | )% | |||||
| Adjustment for income from unconsolidated affiliates, net included in Building & Energy Solutions | (6.3 | ) | (4.3 | ) | (46.5 | )% | |||||
| Adjustment for tax deductions for energy efficient government buildings, included in Building & Energy Solutions | (1.8 | ) | — | (100.0 | )% | ||||||
| Total operating profit | 42.7 | 85.5 | (50.1 | )% | |||||||
| Income from unconsolidated affiliates, net | 6.3 | 4.3 | 46.5 | % | |||||||
| Interest expense | (7.6 | ) | (8.1 | ) | 6.2 | % | |||||
| Income before income taxes | 41.4 | 81.7 | (49.3 | )% | |||||||
| Provision for income taxes | (3.9 | ) | (34.0 | ) | 88.5 | % | |||||
| Net income | $ | 37.5 | $ | 47.7 | (21.4 | )% | |||||
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (UNAUDITED)
| (in millions, except per share amounts) | Three Months Ended July 31, | Nine Months Ended July 31, | ||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Reconciliation of Adjusted Net Income to Net Income | ||||||||||||||||
| Adjusted net income | $ | 26.8 | $ | 26.9 | $ | 69.6 | $ | 59.8 | ||||||||
| Items impacting comparability: | ||||||||||||||||
| CEO/CFO Change (a) | — | — | (4.6 | ) | — | |||||||||||
| Litigation and other settlements | (1.2 | ) | — | (3.5 | ) | (3.4 | ) | |||||||||
| Strategic review and restructuring | (1.7 | ) | — | (1.7 | ) | — | ||||||||||
| Acquisition costs | (0.2 | ) | (0.3 | ) | (0.9 | ) | (0.6 | ) | ||||||||
| Onsite realignment | (0.5 | ) | (0.6 | ) | (1.3 | ) | (2.2 | ) | ||||||||
| Rebranding (b) | — | (1.4 | ) | (0.1 | ) | (3.2 | ) | |||||||||
| U.S. Foreign Corrupt Practices Act investigation (c) | — | (0.2 | ) | (0.2 | ) | (1.1 | ) | |||||||||
| Insurance adjustment | (39.5 | ) | (10.5 | ) | (42.5 | ) | (10.5 | ) | ||||||||
| Total items impacting comparability | (43.1 | ) | (13.0 | ) | (54.8 | ) | (21.0 | ) | ||||||||
| Benefit from income taxes | 17.8 | 5.5 | 22.7 | 8.9 | ||||||||||||
| Items impacting comparability, net of taxes | (25.3 | ) | (7.5 | ) | (32.1 | ) | (12.1 | ) | ||||||||
| Net income | $ | 1.5 | $ | 19.4 | $ | 37.5 | $ | 47.7 | ||||||||
| Three Months Ended July 31, | Nine Months Ended July 31, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Reconciliation of Adjusted Operating Profit to Operating (Loss) Profit | ||||||||||||||||
| Adjusted operating profit | $ | 35.8 | $ | 46.7 | $ | 97.5 | $ | 106.5 | ||||||||
| Total items impacting comparability | (43.1 | ) | (13.0 | ) | (54.8 | ) | (21.0 | ) | ||||||||
| Operating (loss) profit | $ | (7.3 | ) | $ | 33.7 | $ | 42.7 | $ | 85.5 | |||||||
| Reconciliation of Adjusted EBITDA to Net Income | ||||||||||||||||
| Adjusted EBITDA | $ | 53.3 | $ | 62.4 | $ | 147.1 | $ | 153.3 | ||||||||
| Items impacting comparability | (43.1 | ) | (13.0 | ) | (54.8 | ) | (21.0 | ) | ||||||||
| Benefit (provision) for income taxes | 8.6 | (13.2 | ) | (3.9 | ) | (34.0 | ) | |||||||||
| Interest expense | (2.4 | ) | (2.7 | ) | (7.6 | ) | (8.1 | ) | ||||||||
| Depreciation and amortization | (14.9 | ) | (14.1 | ) | (43.3 | ) | (42.5 | ) | ||||||||
| Net income | $ | 1.5 | $ | 19.4 | $ | 37.5 | $ | 47.7 | ||||||||
| Three Months Ended July 31, | Nine Months Ended July 31, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Reconciliation of Adjusted Net Income per Diluted Share to Net Income per Diluted Share | ||||||||||||||||
| Adjusted net income per diluted share | $ | 0.47 | $ | 0.47 | $ | 1.21 | $ | 1.05 | ||||||||
| Items impacting comparability, net of taxes | (0.44 | ) | (0.13 | ) | (0.56 | ) | (0.21 | ) | ||||||||
| Net income per diluted share | $ | 0.03 | $ | 0.34 | $ | 0.65 | $ | 0.84 | ||||||||
| Diluted shares | 57.5 | 57.0 | 57.4 | 57.0 | ||||||||||||
| (a) Represents severance and other costs related to the departure of our former CEO and CFO. (b) Represents costs related to the Company's branding initiative. (c) Includes legal and other cost incurred in connection with an internal investigation into a foreign entity affiliated with a former joint venture partner. |
Exhibit 99.2
Cover Slide Title (20pt. Bold) Third Quarter 2015 Teleconference September 3, 2015
Agenda 2 1 2 3 4 Strategic Review Third Quarter 2015 Operational Results Capital Structure Fiscal 2015 Outlook 5 Questions & Answers Forward - Looking Statements and Non - GAAP Financial Information: Our discussions during this conference call will include forward - looking statements. Actual results could differ materially fro m those projected in the forward - looking statements. Some of the factors that could cause actual results to differ are discussed in the Company’s 2014 Annual Report on Form 10 - K and in our 2015 report s on Form 10 - Q and Form 8 - K. These reports are available on our website at http:// investor.abm.com under “SEC Filings”. A description of other factors that could cause actual results to differ is also set forth at the end of this presentation. Also, the discussion during this conference call will include certain financial measures that were not prepared in accordance wi th U.S. generally accepted accounting principles (“U.S. GAAP”). Reconciliations of those non - GAAP financial measures to the most directly comparable U.S. GAAP financ ial measures can be found on the Investor Relations portion of our website at http://investor.abm.com and at the end of this presentation.
A Comprehensive Review 3 Geo - analysis Industry expert interviews Economic modeling Investor and Analyst discussions Procurement opportunity assessment Client interviews Employee interviews Organizational assessment Market / competitor analysis
Key priorities 4 Profitable growth Capital allocation focus Talent development Cost optimization Consistent excellence Organizational realignment Focus on industries and solutions where ABM can distinguish itself Efficiently return capital to shareholders Identify, manage and develop talent Leverage scale to manage costs Implement best practices in account and labor management and drive continuous safety improvements Organize around target industries by moving to an integrated end - market verticals focus
Other BESG Government Healthcare ABES (Tech. Svcs) Onsite 4 Service Lines Service delivery model Business & Industry Geo Aviation Healthcare Education High Tech National Shared Services, Support Functions ABES (technical services) New client - centric operating model will increase customer satisfaction while also driving margin New operating model 5 Today Where we are going Janitorial Facilities Parking Security
Timeline 6 Phase I 2015 – 2016 Phase II 2016 – 2017 • Realign organization • Leverage shared services and procurement • Pursue strategic alternatives for Security • Invest in key capabilities • Develop vertical acceleration plans • Develop account planning and labor management programs Phase III 2017 – 2020+ Key Initiatives Goals • Position company for focused growth • Create foundation for a more efficient organization • Provide management with best in class tools • Improve margin profile • V ertical business plans well underway • Higher penetration of high margin technical services across the enterprise • Achieve vertical growth trajectory • Accelerate margin growth
Immediate actions 7 Security Share Repurchase • Review strategic alternatives for security, including partnership, sale or other transaction • Board has authorized $200 million program Transformation • Mobilize transformation o ffice and teams
Third Quarter 2015 Review of Operational Results
Third Quarter Highlights • Revenues of $1,348.8m, up 5.7% y - o - y, organic growth of 2.8% • Adjusted Net Income of $26.8m and Adjusted EPS of $0.47, flat compared to prior year • Net cash provided by operating activities of $62.4m and $101.4m for the nine months ended July 31, 2015 • Insurance charge of $46.5m recorded in the period • ABM executed ~$10m in share repurchases of ~307k shares • Approved $200m share repurchase program • Announced 198 th consecutive quarterly dividend 9
Onsite Operational Results 10 Janitorial Services • Revenues of $678.5m, increase of 4.7% y - o - y, primarily due to acquisitions − Organic revenue growth of 1.5% ▪ 3.5%, excluding the termination of a large multi - regional contract • Operating profit of $33.4m, de crease of 19.7% y - o - y − Operating profit margins decreased to 4.9% primarily due to the insurance reserve adjustment − Expected Fiscal 2015 operating margin of about 5.6% Facility Services • Revenues of $147.3m, decrease of 2.5% y - o - y, due to termination of lower margin contracts • Operating profit of $6.0m, de crease of 14.3% y - o - y − Operating profit margins decreased to 4.1% primarily due to the insurance reserve adjustment − Expected Fiscal 2015 operating margin of about 4.2% Parking • Revenues of $162.0m, increase of 3.5% y - o - y, due to increased scope of work from existing clients • Operating profit of $7.8m, de crease of 13.3% y - o - y − Operating profit margins decreased to 4.8% primarily due to the insurance reserve adjustment − Expected Fiscal 2015 operating margin of about 4.8% Security • Revenues of $98.9m, increase of 3.7% y - o - y, due to increased scope of work from existing clients • Operating profit of $3.0m, de crease of 16.7% y - o - y − Operating profit margins decreased to 3.0% primarily due to the insurance reserve adjustment − Expected Fiscal 2015 operating margin of about 3.0%
Operational Results 11 BESG Other (Air Serv ) • Revenues of $149.1m, increase of 16.9% y - o - y, primarily due to acquisitions − Organic revenue growth of 3.9% primarily due to government contracts − Expected double digit growth in BESG through the end of the year − ABES project backlog bookings were $37m higher than in the prior year • Operating profit of $8.1m, in crease of 19.1% y - o - y − Operating profit margins increased to 5.4% primarily due to tax credits from energy projects • Revenues of $113.0m, increase of 16.0% y - o - y, primarily due to U.S. operations • Operating profit of $4.5m, consistent with prior year − Operating profit margins decreased to 4.0%, primarily due to the insurance reserve adjustment
Capital Structure
Select Cash Flow & Balance Sheet Items Cash Flow from Operating Activities 13 • DSO down 1 day on a y - o - y basis and unchanged sequentially • Days sales outstanding (DSO) for the third quarter were 53 days
Select Cash Flow & Balance Sheet Items Leverage 14 Q3 FY15 Leverage of 1.95x 1 1 Leverage as of Q3 FY15 takes into consideration the amendment of our Credit Facility Agreement Note: Acquisitions shown represent purchase above $15m
Select Cash Flow & Balance Sheet Items Shareholder Return 15 *Accelerated Q2 FY13 dividend payment in Q1 FY13
Fiscal 2015 Outlook
Fiscal 2015 Outlook • The Company is providing the following guidance: − A djusted net income of $1.75 to $ 1.80 per diluted share − This guidance excludes potential benefits associated with the Work Opportunity Tax Credit ( WOTC ), should Congress extend the WOTC for calendar 2015, prior to October 31, 2015,the Company could have a further benefit of $0.08 per diluted share in fiscal 2015 − Due to uncertainty related to the timing of restructuring charges and the insurance charge we are withdrawing our guidance for GAAP Net Income per diluted share • Effective tax rate in the range of 22% to 26% • Fiscal 2015 has one less work day, which the Company anticipates will reduce labor expense by approximately $ 4.0m on a pre - tax basis: − Work days for fiscal 2015 by quarter are as follows: Q1 65; Q2 64; Q3 66; and Q4 65. Year - over - year compared to fiscal 2014, Q1 has one less work day; Q2 has one more work day; Q3 work days are the same; and Q4 has one less work day • Interest expense of approximately $ 11.0m • Depreciation and amortization expense of $ 56.0m to $ 60.0m • Capital expenditures are expected to be in the range of $ 31.0m to $ 35.0m 17
Forward - Looking Statement This presentation contains both historical and forward - looking statements. Forward - looking statements are not based on historica l facts but instead reflect our current expectations, estimates or projections concerning future results or events. These statements generally can be identified by the use of forward - looking words or phrases such as “believe,” “expect,” “expectation,” “anticipate,” “may,” “could,” “intend,” “belief,” “estimate,” “plan,” “target,” “predict,” “likely,” “should,” “forecast,” “outlook,” or other similar words or phras es. These statements are not guarantees of future performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results to di ffe r materially from those indicated by those statements. Forward - looking statements in this presentation include, but are not limited to, statements regarding our future operating and financial performance, inclu din g, but not limited to, our fiscal 2015 outlook, statements regarding our plans to return capital to stockholders, whether through stock repurchases, cash dividends, or otherwise, statements regarding our review of str ategic alternatives for our security business, statements regarding the ability of our risk management and safety programs to affect our insurance reserves for casualty programs, statements regarding the adoption of our strategy and transformation initiative, statements regarding the cost savings we have projected to achieve by the realignment of our business operations to better support specific industries and efficien tly deliver client solutions and statements regarding the timing of any of the foregoing. We cannot assure you that any of our expectations, estimates or projections will be achieved. Numerous factors could cause our a ctu al results and events to differ materially from those expressed or implied by forward - looking statements. These factors include, but are not limited to the following: (1) changes to our businesses, operating str uct ure, capital structure, or personnel relating to the adoption of our strategy and transformation initiative may not have the desired effects on our financial condition and results of operations; (2) our stra teg y of moving to an integrated facility solutions provider platform, which focuses on vertical markets, may not generate the organic growth in revenues or profitability that we expect; (3) we may not achieve the cost sav ing s we have projected to achieve by the realignment of our business operations to better support specific industries; (4) we may not be able to control within expectations the costs and expenses of implement ing our strategy and transformation initiative; (5) the adoption of our strategy and transformation initiative may have an adverse impact on our relationships with employees, customers and vendors; (6) we may n ot be able to timely sell our security business at a valuation or upon such terms as our board believes is in the best interests of stockholders and the costs that we may incur in connection with reviewing strategi c a lternatives for our security business may not be recouped if a sale of the security business is not consummated; (7) risks relating to our acquisition strategy may adversely impact our results of operations; ( 8) we are subject to intense competition that can constrain our ability to gain business as well as our profitability; (9) increases in costs that we cannot pass on to clients could affect our profitability; (10) we h ave high deductibles for certain insurable risks, and therefore we are subject to volatility associated with those risks, there is the possibility that our risk management and safety programs may not have the intended eff ect of allowing us to reduce our insurance reserves for casualty programs and there is the possibility that our insurance reserves may need to be materially adjusted from time to time; (11) our captive insurance com pany may not bring us the benefits we expect; (12) our restructuring initiatives may not achieve their expected cost reductions; (13) our business success depends on our ability to preserve our long - term relations hips with clients; (14) our business success depends on retaining senior management and attracting and retaining qualified personnel; (15) we are at risk of losses stemming from accidents or other incidents at fa cilities in which we operate, which could cause significant damage to our reputation and financial loss; (16) negative or unexpected tax consequences could adversely affect our results of operations; (17) changes i n e nergy prices and government regulations could adversely impact the results of operations of our Building & Energy Solutions business; (18) significant delays or reductions in appropriations for our gover nme nt contracts may negatively affect our business and could have an adverse effect on our financial position, results of operations, and cash flows; (19) we conduct some of our operations through joint ventures, and ou r ability to do business may be affected by the failure of our joint venture partners to perform their obligations; (20) our business may be negatively affected by adverse weather conditions; (21) federal health ca re reform legislation may adversely affect our business and results of operations; (22) our services in areas of military conflict expose us to additional risks; (23) we are subject to cyber - security risks arising out of breaches of security relating to sensitive company, client, and employee information and to the technology that manages our operations and other business processes; (24) we are subject to business continuity risks ass oci ated with centralization of certain administrative functions; (25) a decline in commercial office building occupancy and rental rates could adversely affect our revenues and profitability; (26) deteriorati on in general economic conditions could reduce the demand for facility services and, as a result, reduce our earnings and adversely affect our financial condition; (27) financial difficulties or bankruptcy of one or mo re of our clients could adversely affect our results; (28) any future increase in the level of our debt or in interest rates could affect our results of operations; (29) our ability to operate and pay our debt obligation s d epends upon our access to cash; (30) goodwill impairment charges could have a material adverse effect on our financial condition and results of operations; (31) impairment of long - lived assets may adversely affect o ur operating results; (32) we are defendants in class and representative actions and other lawsuits alleging various claims that could cause us to incur substantial liabilities; (33) changes in immigration laws or en for cement actions or investigations under such laws could significantly adversely affect our labor force, operations, and financial results; (34) labor disputes could lead to loss of revenues or expense variations; (35 ) w e participate in multiemployer pension plans that under certain circumstances could result in material liabilities being incurred; (36) disasters or acts of terrorism could disrupt services and (37) actions of activi st investors could be disruptive and costly and could cause uncertainty about the strategic direction of our business. The list of factors above is illustrative, but by no means exhaustive. Additional information regarding these and other risks an d uncertainties the Company faces is contained in the Company’s Annual Report on Form 10 - K for the year ended October 31, 2014, and in other reports the Company files from time to time with the Securities and Excha nge Commission (including all amendments to those reports). The Company urges readers to consider these risks and uncertainties in evaluating its forward - looking statements. The Company cautions readers not to place undue reliance upon any such forward - looking statements, which speak only as of the date made. The Company disclaims any obligation or undertaking to publicly release any updates or revisions to an y forward - looking statements contained herein (or elsewhere) to reflect any change in the Company’s expectations with regard thereto, or any change in events, conditions or circumstances on which any such statem ent is made, whether as a result of new information, future events or otherwise, except as otherwise required by the federal securities laws. 18
Appendix - Unaudited Reconciliation of non - GAAP Financial Measures
Unaudited Reconciliation of non - GAAP Financial Measures 20
Unaudited Reconciliation of non - GAAP Financial Measures 21
Exhibit 99.3
ABM ANNOUNCES COMPREHENSIVE STRATEGY AND TRANSFORMATION INITIATIVE TO ENHANCE SHAREHOLDER VALUE
Realigning Operations for More Efficient Delivery of Client Solutions
With Projected Annualized Operating Savings of Approximately $40-$50 Million and
Opportunity for Accelerated Profitable Growth
New York, NY – September 2, 2015 – ABM (NYSE:ABM), a leading provider of facility solutions, today announced that its Board of Directors has approved a comprehensive strategy and transformation initiative to drive long-term profitable growth and enhance shareholder value. The initiative will focus ABM on its core strengths and most profitable businesses, and align its business operations to deliver unique industry and client solutions.
As previously announced in June 2015, the Company underwent a comprehensive strategic review with the assistance of the Boston Consulting Group to develop a long-term strategic plan for the business. As part of this process, ABM identified several key priorities designed to differentiate ABM in the marketplace, improve its margin profile and accelerate revenue growth. These priorities include:
| · | Profitable Growth: Growing by focusing on industries and solutions where ABM can distinguish itself on service and quality and drive profitable, margin-accretive growth. ABM will initially focus on key verticals where it has or can build a competitive advantage, including Business & Industry, Aviation, Healthcare, Education, and HighTech. |
| · | Organizational Realignment: Aligning business operations to better support specific industries and deliver excellence in client solutions, including a transition to an integrated end-market verticals focus, simplified organizational structure and a consolidation of |
certain shared services. The Company expects the majority of the organizational changes to be in place by the end of the second quarter of fiscal 2016.
| · | Consistent Excellence: Implementing best practices in account management and labor management across the organization, as well as developing a more integrated approach for continuous improvement in its safety program, including driving initiatives to help reduce future insurance claim frequency and severity. |
| · | Cost Optimization: Leveraging the Company’s scale to manage costs more efficiently and effectively, including supplier consolidation and process and procurement enhancement. |
| · | Talent Development: Creating greater opportunities and career paths for ABM employees by further developing the Company’s talent management system capabilities. |
| · | Capital Allocation Focus: Announcing a $200 million share repurchase program, a dividend consistent with current practice, and an increased focus on specific financial performance metrics. |
“We know that to compete effectively and continue creating value for our shareholders, the ABM of the future must be fundamentally different from the ABM that exists today,” said Scott Salmirs, president and chief executive officer, ABM. “Executing this strategy will enhance the quality of our client solutions and position ABM to become the undisputed leader in providing exceptional facility solutions and deliver sustainable top and bottom-line growth.
“Our long-term strategic vision sets out our plan for the next five years. This 2020 Vision has three primary phases. The first phase of the transformation is focused on implementing the operating structure that will enable the organization to increase efficiency and effectiveness necessary for growth and cost reduction. Phase two of the transformation will encompass the realization of the cost savings from procurement, account management and other organizational changes as well as an increased focus on driving growth under the realigned verticals structure. The final phase will be aimed at accelerating growth from our new vertical alignment and account planning systems, while continuously implementing additional cost savings initiatives.
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We look forward to providing more detail on the 2020 Vision at our investor day in October,” Salmirs said.
The Company anticipates pre-tax restructuring charges ranging from $45 million to $60 million. The majority of these restructuring charges will be incurred through the third quarter of fiscal 2016 and are primarily for severance, project fees, and the potential write-down of certain investments. The Company expects the majority of the organizational benefits to be realized by the end of the first half of fiscal 2016. Once the strategy and realignment is fully implemented by the second half of fiscal 2017, the Company expects annualized run-rate for operational benefits of $40 million to $50 million.
“While we are still in the early stages of implementing our comprehensive strategy and transformation initiative”, Salmirs said, “today’s announcement reinforces our ongoing commitment to further strengthen our financial performance and positions ABM for long-term profitable growth and the enhancement of shareholder value.”
The Company also reviewed all service lines and internal investments to assess whether ABM is best positioned to continue to competitively offer value added services to customers over the long-term. As a result of this process, despite its strong underlying fundamentals, the Company has determined that it will explore strategic alternatives for its Security business that may include a partnership, sale or other strategic transaction.
ABM’s review of strategic alternatives for its Security business is only in its beginning stages. As such, at this point, ABM cannot assess whether any particular strategic alternative for the Security business will be pursued or, if so, upon what terms and conditions or the timing thereof.
ABM plans to further discuss its strategy and transformation initiative during its investor meeting at the end of October 2015.
ABOUT ABM
ABM (NYSE:ABM) is a leading provider of facility solutions with revenues of approximately $5.0 billion and 118,000 employees in over 300 offices deployed throughout the United States and
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various international locations. ABM's service capabilities include electrical & lighting, energy solutions, facilities engineering, HVAC & mechanical, janitorial, landscape & turf, parking and security, provided through stand-alone or integrated solutions. ABM provides custom facility solutions in urban, suburban and rural areas to properties of all sizes — from schools and bank branches to the largest and most complex facilities, such as airports, hospitals and manufacturing plants. ABM Industries Incorporated, which operates through its subsidiaries, was founded in 1909. For more information, visit www.abm.com.
FORWARD-LOOKING STATEMENTS
This press release contains both historical and forward-looking statements. Forward-looking statements are not based on historical facts but instead reflect our current expectations, estimates or projections concerning future results or events. These statements generally can be identified by the use of forward-looking words or phrases such as “believe,” “expect,” “expectation,” “anticipate,” “may,” “could,” “intend,” “belief,” “estimate,” “plan,” “target,” “predict,” “likely,” “should,” “forecast,” “outlook,” or other similar words or phrases. These statements are not guarantees of future performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results to differ materially from those indicated by those statements. Forward-looking statements in this press release include, but are not limited to, statements regarding our future operating and financial performance, including, but not limited to, statements regarding our plans to return capital to stockholders, whether through stock repurchases, cash dividends, or otherwise, statements regarding our review of strategic alternatives for our security business, statements regarding the ability of our risk management and safety programs to affect our insurance reserves for casualty programs, statements regarding the adoption of our strategy and transformation initiative, statements regarding the cost savings we have projected to achieve by the realignment of our business operations to better support specific industries and efficiently deliver client solutions and statements regarding the timing of any of the foregoing. We cannot assure you that any of our expectations, estimates or projections will be achieved. Numerous factors could cause our actual results and events to differ materially from those expressed or
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implied by forward-looking statements. These factors include, but are not limited to the following: (1) changes to our businesses, operating structure, capital structure, or personnel relating to the adoption of our strategy and transformation initiative may not have the desired effects on our financial condition and results of operations; (2) our strategy of moving to an integrated facility solutions provider platform, which focuses on vertical markets, may not generate the organic growth in revenues or profitability that we expect; (3) we may not achieve the cost savings we have projected to achieve by the realignment of our business operations to better support specific industries; (4) we may not be able to control within expectations the costs and expenses of implementing our strategy and transformation initiative; (5) the adoption of our strategy and transformation initiative may have an adverse impact on our relationships with employees, customers and vendors; (6) we may not be able to timely sell our security business at a valuation or upon such terms as our board believes is in the best interests of stockholders and the costs that we may incur in connection with reviewing strategic alternatives for our security business may not be recouped if a sale of the security business is not consummated; (7) risks relating to our acquisition strategy may adversely impact our results of operations; (8) we are subject to intense competition that can constrain our ability to gain business as well as our profitability; (9) increases in costs that we cannot pass on to clients could affect our profitability; (10) we have high deductibles for certain insurable risks, and therefore we are subject to volatility associated with those risks, there is the possibility that our risk management and safety programs may not have the intended effect of allowing us to reduce our insurance reserves for casualty programs and there is the possibility that our insurance reserves may need to be materially adjusted from time to time; (11) our captive insurance company may not bring us the benefits we expect; (12) our restructuring initiatives may not achieve their expected cost reductions; (13) our business success depends on our ability to preserve our long-term relationships with clients; (14) our business success depends on retaining senior management and attracting and retaining qualified personnel; (15) we are at risk of losses stemming from accidents or other incidents at facilities in which we operate, which could cause significant damage to our reputation and financial loss; (16) negative or unexpected tax consequences could adversely affect our results of operations; (17) changes in energy prices and government
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regulations could adversely impact the results of operations of our Building & Energy Solutions business; (18) significant delays or reductions in appropriations for our government contracts may negatively affect our business and could have an adverse effect on our financial position, results of operations, and cash flows; (19) we conduct some of our operations through joint ventures, and our ability to do business may be affected by the failure of our joint venture partners to perform their obligations; (20) our business may be negatively affected by adverse weather conditions; (21) federal health care reform legislation may adversely affect our business and results of operations; (22) our services in areas of military conflict expose us to additional risks; (23) we are subject to cyber-security risks arising out of breaches of security relating to sensitive company, client, and employee information and to the technology that manages our operations and other business processes; (24) we are subject to business continuity risks associated with centralization of certain administrative functions; (25) a decline in commercial office building occupancy and rental rates could adversely affect our revenues and profitability; (26) deterioration in general economic conditions could reduce the demand for facility services and, as a result, reduce our earnings and adversely affect our financial condition; (27) financial difficulties or bankruptcy of one or more of our clients could adversely affect our results; (28) any future increase in the level of our debt or in interest rates could affect our results of operations; (29) our ability to operate and pay our debt obligations depends upon our access to cash; (30) goodwill impairment charges could have a material adverse effect on our financial condition and results of operations; (31) impairment of long-lived assets may adversely affect our operating results; (32) we are defendants in class and representative actions and other lawsuits alleging various claims that could cause us to incur substantial liabilities; (33) changes in immigration laws or enforcement actions or investigations under such laws could significantly adversely affect our labor force, operations, and financial results; (34) labor disputes could lead to loss of revenues or expense variations; (35) we participate in multiemployer pension plans that under certain circumstances could result in material liabilities being incurred; (36) disasters or acts of terrorism could disrupt services; (37) actions of activist investors could be disruptive and costly and could cause uncertainty about the strategic direction of our business; and (38) the costs that we may incur in connection with reviewing strategic alternatives for our security
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business which may not be recouped if a sale of or strategic transaction involving the security business is not consummated.
The list of factors above is illustrative, but by no means exhaustive. Additional information regarding these and other risks and uncertainties the Company faces is contained in the Company’s Annual Report on Form 10-K for the year ended October 31, 2014, and in other reports the Company files from time to time with the Securities and Exchange Commission (the “SEC”) (including all amendments to those reports). The Company urges readers to consider these risks and uncertainties in evaluating its forward-looking statements. The Company cautions readers not to place undue reliance upon any such forward- looking statements, which speak only as of the date made. The Company disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements contained herein (or elsewhere) to reflect any change in the Company’s expectations with regard thereto, or any change in events, conditions or circumstances on which any such statement is made, whether as a result of new information, future events or otherwise, except as otherwise required by the federal securities laws.
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| Contact: | ||||
| Investors & Analysts: | David Farwell | Media: | Chas Strong | |
| (212) 297-9792 | (770) 953-5072 | |||
| dfarwell@abm.com | chas.strong@abm.com |
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