ABM Industries Incorporated (NYSE:ABM) Q3 2020 Earnings Conference Call - Final Transcript
Sep 09, 2020 • 08:30 am ET
Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Tim Mulrooney of William Blair. Please proceed with your question.
Scott, Dean, good morning. Congrats on a great quarter.
Hey, thanks so much.
Thank you, Tim.
Yeah. So a couple of questions here. First of all, your consolidated EBITDA margin expanded by 230 basis points in the third quarter. Can you talk a little bit about how much of that was from higher margin EnhancedClean work versus labor efficiencies versus furloughs? And as I'm thinking about these three buckets, can you share with us what that implies from a broader perspective when we're thinking about your longer-term EBITDA target margin range of 5.5% to 6%?
Thanks, Tim. As you would expect, our 230 basis point margin expansion had puts and takes. First, I would like to describe the positive items that drove on a gross basis 320 basis points. During the quarter, as we described, we had temporary salary furlough and work hour reductions that had an impact of 130 basis points. Also included in the 320 basis point gross were the impact of labor efficiencies as we managed the COVID revenue compression, the significant higher demand that we had from work order demand, and there were also certain fixed overhead costs that we were unable to leverage during the quarter, as you would expect. Offsetting this gross 320 basis points was a 100 basis points related to bad debt as we continue to monitor our creditworthiness for certain clients and also our investment in EnhancedClean.
Yeah. And what I would add, Tim, too, is like when you kind of think of even the medium term now and what this means for us, we've talked in the past about kind of the right zone for us. So, we would say, like the golden zone was 5.5% to 6% EBITDA margin. And I think what this does -- what COVID is doing is accelerating that for us, and we are really enthusiastic about where we're heading. And there is -- there are certain disciplines that have happened within our organization through COVID in terms of SOPs, standard operating practices.
We've talked over the last few years with 2020 vision about how difficult it is to ingrain like really foundational changes in terms of getting 300 branch offices to adopt standard operating practices. Well, we've done it through COVID and we talked a little bit about this last quarter about our pods or our task force that were set up to manage collections, payables, labor, and that rigor has really resonated with our employees and they are really seeing the benefit of it. So we're going to continue with that muscle strength and that's really going to enure our benefit down the road.
And then with EnhancedClean, there is going to be embedded EnhancedClean going forward. I mean, I don't think anybody can imagine going back to an office talking to the landlord