ABM Industries Incorporated (NYSE:ABM) Q3 2020 Earnings Conference Call - Final Transcript

Sep 09, 2020 • 08:30 am ET


ABM Industries Incorporated (NYSE:ABM) Q3 2020 Earnings Conference Call - Final Transcript


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Dean Chin

stated in our press release, it remains difficult to provide an accurate range given the variability of outcomes that can occur in this environment. However, I would like to provide some additional content for the fourth quarter based on our current view of the business. Given the month-to-month top line improvement we saw during Q3 and new business wins, we believe we can continue to offset some of the COVID compression. As a result, we could see flat to modest sequential improvement in organic revenue for the fourth quarter.

Additionally, based on what we saw during the quarter, we do not anticipate a material slowdown in our higher margin work and labor management will also be an ongoing area of focus dependent on demand. As Scott described, dependent on the level of work we perform, labor can modulate up and down, leading to varying degrees of labor efficiencies. The fourth quarter will have one less working day which could lead to approximately $6 million in lower labor expense. As a result of our positive quarterly performance and our ample liquidity position, the temporary staff and management cost I described earlier concluded and therefore under the current circumstances will not materially impact the fourth quarter.

In addition to these operationally-driven elements, I also want to discuss our assumptions for interest expense, capital expenditures and income taxes for the remainder of the year and potentially next year as well. First, on interest. Based on the aforementioned operating assumptions and our current cash positions, we do not anticipate a significant increase in borrowings for the fourth quarter. As such, we believe interest expense will be approximately $10 million for the quarter.

Next, as I mentioned earlier, we plan to continue managing working capital and liquidity conservatively to ensure we are prepared, if conditions rapidly change in the near term. Therefore, we do not anticipate a material increase in capital expenditures to occur during the fourth quarter. As Scott discussed, we will be reviewing our strategic priorities over the next few months to determine which additional investments we will re-engage as we adjust to our new norm.

We are also assuming that any government-related benefits in the UK and the US such as the CARES Act will not recur. This should be considered when ascertaining free cash flow for next year. Obviously, we will continue to drive higher free cash flow conversion through the disciplines we have sharpened over the past few months.

Lastly, related to taxes, I wanted to remind everyone that given the disruption to traditional hiring practices due to the pandemic, we continue to believe WOTC will be less than our original pre-COVID expectation of $7 million and this could continue into next year as well.

In conclusion, while there are clearly a number of variables that we must consider during these unprecedented times, our results underscore how exceptionally our teams have executed. This foundation have strengthened our ability to navigate towards a profitable future.

Operator, we are now ready for