The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to facilitate an understanding of the
results of operations and financial condition of ABM Industries Incorporated and
its subsidiaries (collectively referred to as "ABM," "we," "us," "our," or the
"Company"). This MD&A is provided as a supplement to, and should be read in
conjunction with, our unaudited consolidated financial statements and the
accompanying notes ("Financial Statements") and our Annual Report on Form 10-K
for the year ended October 31, 2019 ("Annual Report"), which has been filed with
the Securities and Exchange Commission ("SEC"). This MD&A contains
forward-looking statements about our business, operations, and industry that
involve risks and uncertainties, such as statements regarding our plans,
objectives, expectations, and intentions. Our future results and financial
condition may be materially different from those we currently anticipate. See
"Forward-Looking Statements" for more information.
Throughout the MD&A, amounts and percentages may not recalculate due to
rounding. Unless otherwise indicated, all information in the MD&A and references
to years are based on our fiscal years, which end on October 31.
Business Overview

ABM is a leading provider of integrated facility services, customized by industry, with a mission to make a difference, every person, every day.




COVID-19 Pandemic
A novel strain of coronavirus ("COVID-19") has resulted in a worldwide health
pandemic (the "Pandemic"). To date, COVID-19 has surfaced in nearly all regions
around the world and resulted in business slowdowns and shutdowns, as well as
global travel restrictions. We, along with many of our clients, have been
impacted by recommendations and/or mandates from federal, state, and local
authorities to practice social distancing, to refrain from gathering in groups,
and, in some areas, to refrain from non-essential movements outside of homes.
The Pandemic has also created unanticipated circumstances and uncertainty,
disruption, and significant volatility in the broader economy. Refer to
"Consolidated Results of Operations" and "Results of Operations by Segment" for
additional information related to the impact of the Pandemic on our financial
results.
Given the unprecedented and uncertain nature and potential duration of this
situation, we cannot reasonably estimate the full extent of the impact that the
Pandemic will have on our financial condition, results of operations, or cash
flows. The ultimate extent of the effects of the Pandemic on our company is
highly uncertain and will depend on future developments, and such effects could
exist for an extended period of time even after the Pandemic subsides.
Our priority has been the health, safety, and support of our employees, our
clients, and the communities that we serve. We have also taken actions to
strengthen our liquidity, cash flows, and financial position to help mitigate
potential future impacts on our operations and financial performance. These
measures include, but are not limited to, the following:
Health and Safety of our Employees and Clients
As the Pandemic has developed, we have taken steps to support our employees and
clients based on recommendations from various global experts, including the
Centers for Disease Control and Prevention ("CDC"), the World Health
Organization ("WHO"), the Occupational Safety and Health Administration
("OSHA"), and the U.K. National Health Service ("NHS"). To help protect our
employees and our clients, face masks and other personal protective equipment
("PPE") are being used by our employees. We have also encouraged our employees
to practice social distancing and wash hands frequently. Additionally, we
transitioned many office-based employees to a remote work environment, suspended
non-essential travel, and adopted technologies to allow employees to effectively
perform their functions remotely.

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Client Focus
Over the past few years, we have focused on consolidating purchasing activities
to leverage our scale and identify preferred suppliers. While we have seen a
reduction in the availability of supplies and an increase in costs, our
procurement efforts have helped create a positive supply chain for our company
and clients during the Pandemic, particularly as city and state mandates on PPE
for employees have arisen. We will continue to monitor our supply chain for
potential impacts as future developments unfold.
The Pandemic continues to create a dynamic client environment, and we are
working diligently to ensure our clients' changing staffing and service needs
are met. We are also developing new cleaning initiatives in accordance with
various protocols issued by global experts, including deep cleaning services,
special project cleaning services, and other tag services.
In April 2020, we announced our EnhancedCleanTM Program ("EnhancedClean"), an
innovative solution that helps provide clients with healthy spaces. We designed
EnhancedClean under the guidance of some of the leading experts on infectious
disease and industrial hygiene to help provide our clients with processes that
use hospital-grade disinfectants, specialized equipment, and innovative
solutions and technology. These solutions include: hygiene and safety protocols,
utilization of disinfecting procedures and products for high-touch surfaces,
employment of PPE, and communication and training protocols.
Expense Management
As we adapt to the changing demand environment resulting from the Pandemic, in
April 2020 we began to implement, and will continue to implement, various cost
cutting actions, such as:
•Various human capital management actions, including: temporary pay reductions
for executives, certain employees, and our Board of Directors; temporary
furloughs or reduced working hours for certain staff and management employees;
and the temporary suspension of certain benefits, including our 401(k) match;
•Actively managing direct labor and related personnel costs, including furloughs
or reduced hours for certain service employees in markets significantly impacted
by shutdowns;
•Reducing our planned capital expenditures and operating expenditures for the
remainder of 2020, including the postponement of various technology initiatives
(such as our enterprise resource planning system) that are deemed non-critical
to our operations, and limiting travel and entertainment expenses; and
•Reducing our sales and marketing expenses and discretionary spending projects
across the Company.
Liquidity, Cash Flows, and Financial Position
As of April 30, 2020, we had $555.9 million of cash and cash equivalents and had
net cash provided by operating activities of $128.0 million during the six
months ended April 30, 2020. We have taken and continue to take actions to help
preserve cash, increase liquidity, and strengthen our financial position,
including:
•Borrowing approximately $300 million under our line of credit in March 2020,
which represented all remaining amounts then available under our Credit
Facility, as a precautionary measure to provide increased liquidity and preserve
financial flexibility due to uncertainty resulting from the Pandemic (refer to
"Liquidity and Capital Resources" for more information);
•Amending our Credit Facility on May 28, 2020 to further enhance our financial
flexibility as a precautionary measure in response to uncertainty arising from
the Pandemic (refer to "Liquidity and Capital Resources" for more information);
•Focusing on collection of client receivables and monitoring the adequacy of our
reserves;
•Extending vendor payment terms where possible;
•Utilizing certain governmental relief efforts (as further described below); and
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•Suspending share repurchases under our share repurchase program.
In response to COVID-19, Congress enacted the Coronavirus Aid, Relief, and
Economic Security Act ("CARES Act") on March 27, 2020. The CARES Act provides
various stimulus measures, including several tax provisions. Among the business
tax provisions is the deferral of certain payroll tax remittance to future years
and the creation of a refundable credit for employee retention. We evaluated the
impact of the CARES Act and determined that as of and for the three and six
months ended April 30, 2020, the CARES Act did not have a material impact on our
unaudited consolidated financial statements. The deferral of certain payroll tax
remittances may have a material impact on our financial statements in future
periods. Additionally, we received grants under the United Kingdom's job
retention scheme to reimburse us for a portion of certain furloughed employees'
salaries.
The Pandemic is an unprecedented situation and is continuously evolving. Since
we cannot predict the duration or scope of the Pandemic, we cannot fully
anticipate or reasonably estimate all the ways in which the current global
health crisis and financial market conditions could adversely impact our
business in fiscal 2020 or in the future. Even after the Pandemic has moderated
and the business and social distancing restrictions have eased, we may continue
to experience adverse effects on our business, consolidated results of
operations, financial position, and cash flows resulting from a recessionary
economic environment that may persist.
Restructuring and Related Costs
We may periodically engage in various restructuring activities intended to drive
long-term profitable growth and increase operational efficiency, which can
include streamlining and realigning our overall organizational structure and
reallocating resources. These activities may result in restructuring costs
related to employee severance, other project fees, external support fees, lease
exit costs, and asset impairment charges.
GCA Restructuring and Other Initiatives
Following the acquisition of GCA Services Group ("GCA"), during the first
quarter of 2018 we initiated a restructuring program to achieve cost synergies
and subsequently incurred expenses primarily related to employee severance, the
migration and upgrade of several key technology platforms, and the consolidation
of certain real estate leases. Additionally, during 2019 we reorganized our
former Healthcare business and incurred immaterial severance expense. In early
2020 we continued our technology-based modernization efforts, including
standardizing our financial systems. However, due to the Pandemic, the majority
of these projects were temporarily suspended during the second quarter of 2020.
                         Three Months Ended      Six Months Ended
(in millions)              April 30, 2020         April 30, 2020        Cumulative
Employee severance      $           0.1         $          0.2         $     18.3
Other project fees                  0.3                    3.3               15.7
External support fees               1.5                    1.4                4.9
Lease exit costs                      -                      -                0.7
Total                   $           1.8         $          5.0         $     39.6


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Segment Reporting
Our current reportable segments consist of Business & Industry ("B&I"),
Technology & Manufacturing ("T&M"), Aviation, Education, and Technical
Solutions, as further described below. During the third quarter of 2019, we made
changes to our operating structure to better align the services and expertise of
our Healthcare business with our other industry groups, allowing us to leverage
our existing branch network to support the long-term growth of this business. As
a result, our former Healthcare portfolio is now included primarily in our
Business & Industry segment. Our prior period segment data has been reclassified
to conform with our current period presentation. This change had no impact on
our previously reported consolidated financial statements.
                                         REPORTABLE SEGMENTS AND

DESCRIPTIONS


                                              B&I, our largest reportable

segment, encompasses janitorial, facilities


                                              services, and parking

services for commercial real estate properties,

[[Image Removed: abm-20200430_g4.jpg]] sports and entertainment venues, and traditional hospitals and non-acute


                                              healthcare facilities. B&I

also provides vehicle maintenance and other


                                              services to rental car

providers.

[[Image Removed: abm-20200430_g5.jpg]] T&M provides janitorial, facilities services, and parking services to


                                              industrial and high-tech

manufacturing facilities.


                                              Aviation supports airlines

and airports with services ranging from

[[Image Removed: abm-20200430_g6.jpg]] parking and janitorial to passenger assistance, catering logistics, air


                                              cabin maintenance, and

transportation.


                                              Education delivers

janitorial, custodial, landscaping and grounds,

[[Image Removed: abm-20200430_g7.jpg]] facilities engineering, and parking services for public school


                                              districts, private schools,

colleges, and universities.


                                              Technical Solutions

specializes in mechanical and electrical services.

[[Image Removed: abm-20200430_g8.jpg]] These services can also be leveraged for cross-selling across all of our


                                              industry groups, both

domestically and internationally.

Insurance


We review our self-insurance liabilities on a regular basis and adjust our
accruals accordingly. Actual claims activity or development may vary from our
assumptions and estimates, which may result in material losses or gains. As we
obtain additional information that affects the assumptions and estimates used in
our reserve liability calculations, we adjust our self-insurance rates and
reserves for future periods and, if appropriate, adjust our reserves for claims
incurred in prior accounting periods.
During the first quarter of 2020, we performed an actuarial review of the
majority of our casualty insurance programs that evaluated all changes made to
claims reserves and claims payment activity for the period of May 1, 2019
through October 31, 2019 (the "Actuarial Review"). This Actuarial Review was
comprehensive in nature and was based on loss development patterns, trend
assumptions, and underlying expected loss costs during the period analyzed.
During the second quarter of 2020, we performed an interim actuarial update of
the majority of our casualty insurance programs that considered changes in
claims development and claims payment activity for the period of November 1,
2019 through January 31, 2020 (the "Interim Update"). This Interim Update was
abbreviated in nature based on actual versus expected development during the
periods analyzed and relied on the key assumptions in the Actuarial Review (most
notably loss development patterns, trend assumptions, and underlying expected
loss costs).
The Actuarial Review and Interim Update again demonstrate that the changes we
have made to our risk management program are positively impacting the frequency
and severity of claims; however, there is some flattening of claims frequency
reductions as compared to prior periods. The claims management strategies and
programs that we have implemented have resulted in better-than-anticipated
improvements in early identification of certain claims that may potentially
develop adversely. Furthermore, we continue to focus on ensuring the
establishment of reserves consistent with known fact patterns. The Actuarial
Review and Interim Update indicated favorable developments relative to our
estimates of ultimate losses related to certain prior claims years.
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Based on the results of the Actuarial Review, at January 31, 2020, we decreased
our total reserves for prior periods by $6.6 million. The results of the Interim
Update performed during the three months ended April 30, 2020 did not require a
further adjustment to our reserves in the aggregate. For the six months ended
April 30, 2020, the total decrease to our reserves for claims related to prior
periods was $6.6 million. This adjustment compares to a $5.0 million increase to
prior year claims during the six months ended April 30, 2019. We will continue
to assess ongoing developments, which may result in further adjustments to
reserves.
Key Financial Highlights
•Revenues decreased by $98.7 million, or 6.2%, during the three months ended
April 30, 2020, as compared to the three months ended April 30, 2019, primarily
due to the impact of Pandemic-related shutdowns across our segments,
particularly within Aviation, Technical Solutions, and Education. However, this
decrease was partially offset by a significant increase in Pandemic-related tag
services (primarily within B&I, T&M, and Education) and the expansion of certain
accounts within B&I and T&M.
•We had an operating loss of $116.7 million during the three months ended
April 30, 2020, as compared to an operating profit of $54.5 million during the
three months ended April 30, 2019. This change was primarily driven by
impairment charges recorded on goodwill and intangible assets totaling $172.8
million during the three months ended April 30, 2020. However, in the current
period we benefited from higher margins on tag services (including
Pandemic-related tag services, particularly within B&I, T&M, and Education), the
loss of certain lower margin accounts within B&I and Aviation, and the
management of direct labor and related personnel costs during the Pandemic.
These benefits were partially offset by an increase in bad debt expense
primarily due to specific reserves established for client receivables associated
with increasing credit risk in certain industries (including for clients with
deteriorating credit ratings and resulting bankruptcies) arising from the
Pandemic.
•Our effective tax rate on income from continuing operations was (8.4)% for the
three months ended April 30, 2020, as compared to 29.6% during the three months
ended April 30, 2019. Our effective tax rate for the three months ended
April 30, 2020 was impacted by the impairment of non-deductible goodwill.
•Net cash provided by operating activities was $128.0 million during the six
months ended April 30, 2020.
•During the three months ended April 30, 2020, we purchased 0.2 million shares
of our common stock at an average price of $36.16 per share for a total of $5.1
million.
•Dividends of $24.6 million were paid to shareholders, and dividends totaling
$0.370 per common share were declared during the six months ended April 30,
2020.
•At April 30, 2020, total outstanding borrowings under our credit facility were
$1.2 billion, including the draw-down of all remaining amounts then available
under our revolving line of credit in late March 2020 as a precautionary measure
in response to the Pandemic. At April 30, 2020 we had up to $152.5 million of
borrowing capacity, reflecting covenant restrictions.
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