Categories Earnings Call Transcripts, Industrials

ABM Industries, Inc. (ABM) Q3 2021 Earnings Call Transcript

ABM Earnings Call - Final Transcript

ABM Industries, Inc. (NYSE: ABM) Q3 2021 earnings call dated Sep. 09, 2021

Corporate Participants:

David Gold — Investor Relations

Scott Salmirs — President and Chief Executive Officer

Earl Ellis — Executive Vice President and Chief Financial Officer

Analysts:

Tim Mulrooney — William Blair — Analyst

Sean Eastman — Keybanc Capital Markets — Analyst

Andrew Wittmann — Robert W. Baird & Co., Inc. — Analyst

David Silver — CL King & Associates, Inc. — Analyst

Marc Riddick — Sidoti & Co. — Analyst

Presentation:

Operator

Greetings, and welcome to the ABM Industries Incorporated Third Quarter 2021 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce David Gold, Investor and Media Relations. Thank you, you may begin.

David Gold — Investor Relations

Thank you for joining us this morning. With us today are Scott Salmirs, our President and Chief Executive Officer; and Earl Ellis, our Executive Vice President and Chief Financial Officer. We issued our press release yesterday afternoon announcing our third quarter fiscal 2021 financial results. A copy of this release and an accompanying slide presentation can be found on our corporate website.

Before we begin, I would like to remind you that our call and presentation today contain predictions, estimates and other forward-looking statements. Our use of the words estimate, expect, and similar expressions are intended to identify these statements. Statements represent our current judgment of what the future holds. While we believe them to be reasonable, these statements are subject to risks and uncertainties that could cause our actual results to differ materially. These factors are described in a slide that accompanies our presentation, as well as our filings with the SEC. During the course of this call, certain non-GAAP financial information will be presented. A reconciliation of historical non-GAAP numbers to GAAP financial measures is available at the end of the presentation and on the company’s website under the Investor tab.

I would now like to turn the call over to Scott.

Scott Salmirs — President and Chief Executive Officer

Thanks, David. Good morning, and thank you all for joining us today to discuss our third quarter results. As detailed in yesterday’s release, ABM generated strong third quarter results featuring double-digit growth in revenue, continued solid cash generation, and a 20% gain in adjusted earnings per share. Revenue growth was broad-based as each of our five business segments achieved year-over-year gains in revenue, aided by an improving business environment and the gradual reopening of the economy. Our team members once again executed well and continue to provide exceptional service to our clients.

Overall, demand for ABM’s higher margin virus protection services remained elevated in the quarter, underscoring ongoing client concerns regarding cleaning and disinfection of their facilities. As anticipated, demand for virus protection eased slightly in the third quarter compared to the second quarter of fiscal 2021, but remain well above pre-pandemic levels. The emergence of the Delta variant and rising COVID-19 cases nationally have gains heightened interest in the need for disinfection prevention measures, particularly in high traffic areas. As we look forward to 2022 and beyond, we believe that virus protection services will remain a contributor to our overall revenue as disinfection becomes a standard service protocol and facility maintenance programs.

During the third quarter, we continued to benefit from efficient management of labor as office occupancy levels remain relatively low nationwide and began to trend downward slightly as the third quarter progressed due to the spread of the Delta variant. In this evolving environment, our flexible labor model enabled us to capitalize on staffing efficiencies and the associated benefit to our margins. In light of the current pause in the return to the office trend, we anticipate a more gradual ramp in office occupancy levels during 2022, providing an opportunity for a longer tailwind of rising from labor efficiencies. At the same time, we are proactively addressing current dynamics in the labor market, which include heightened competition for available talent.

As I noted in last quarter’s conference call, ABM has developed a task force model that leverages our substantial internal resources and cross-functional expertise to identify and implement solutions rapidly and effectively. Earlier this year, we established a human resources task force with a specific focus on recruiting and retention, and this task force has been instrumental in helping us to manage our staffing needs and ensure our resources are allocated efficiently and cost effectively. As a reminder, roughly half of our revenue is generated from union labor accounts, which mitigates concerns around labor inflation and availability.

Revenue growth in the third quarter was led by performance of our Aviation segment, where revenues increased 51% compared to the prior year period and the segment operated profitably. Our strong performance in aviation reflected a seasonal improvement in air travel as well as our strategic shift towards securing high margin and more stable service contracts with airports and related facilities. While revenue in our Aviation segment remains below pre-pandemic levels, we expect to see continued growth, driven in part by new airport transportation and janitorial contracts.

Our Technical Solutions segment continued to perform strongly, generating nearly 23% revenue growth in the third quarter as our broad capabilities address key client needs for energy efficiency, productivity and mechanical performance throughout their facilities. Revenue growth benefited from improved access to client sites, enabling us to execute on a large number of projects Technical Solutions ended the third quarter with a record backlog level and the long-term outlook for this segment is particularly favorable given our position as a leading provider of electrical vehicle charging infrastructure. Although EV charging infrastructure services currently represent a limited portion of Technical Solutions revenue, electrical vehicle adoption continues to rise, aided by the current administration’s target to make half of all vehicle sold in 2030 zero emissions vehicles. As a result, we see a long runway of growth for our e-mobility EV charging infrastructure business as we look out over the next several years.

Turning to Education segment. School districts have accelerated the return to in-person learning, as we estimate that 95% plus of K-12 and higher education institutions will resume in-school classes this fall. With the reopening of schools and educational facilities, Education segment revenue grew solidly from the prior year period, driven by increased demand for our services. We believe the heightened concerns amid the prevalence of the Delta variant may lead to incremental opportunities for disinfecting services in the fourth quarter and into 2022. But we do expect our labor savings from hybrid environment will wane quickly with a return to full-time in-person learning this fall.

Overall, our scale and market diversity and breadth of service keep us well positioned for growth in the fourth quarter and beyond. Given the strength of our year-to-date performance and our positive outlook for the fourth quarter, we are increasing our full year adjusted EPS guidance to $3.45 to $3.55, up from $3.30 to $3.50 previously.

On the acquisition front, a few weeks ago we announced a definitive agreement to acquire Able Services in a strategic transaction that we believe will create significant value for all of our stakeholders. We’re excited to join with Able’s talented team and we look forward to working together to better serve our clients with a broader array of services and solutions that address their evolving needs. The combination of ABM and Able expands our core engineering and janitorial capabilities in attractive geographies. This acquisition is expected to be accretive to adjusted EPS from day one, aided by an estimated $30 million to $40 million and cost saving synergies.

As a larger company with enhanced scale, we will be better positioned to provide our clients with service offerings that will not only enhance our growth and margins, but will add significant value for our clients. We also see the potential for revenue synergies over time as we deepen our client relationships and realize cross-selling opportunities. We are progressing on the close of this acquisition, which we expect will occur by the end of September. As a reminder, we have not included any contribution from Able in our updated guidance forecast.

In closing, the past nine months have been exciting, productive and successful for ABM. We have executed well on our strategic growth objectives, while generating strong financial results, and we are very much looking forward to the addition of Able Services to ABM. In the next few months, We plan to share with you our strategic plan for the next five years, which I am extremely excited about.

I’ll now turn the call over to Earl for a financial review of the third quarter.

Earl Ellis — Executive Vice President and Chief Financial Officer

Thanks, Scott, and good morning, everyone. Third quarter revenue was $1.54 billion, an increase of 10.7% from last year. This improvement was driven by revenue growth in each of our five business segments, reflecting an improving business environment and continued demand for our virus protection services.

On a GAAP basis, the loss from continuing operations was $13.7 million or $0.20 per diluted share compared to $56 million or $0.83 per diluted share in last year’s third quarter. The GAAP loss from continuing operations in this year’s third quarter is attributable to a reserve of $112.9 million, equivalent to $1.24 per diluted share. The fully resolved previously announced outstanding litigation, you will find additional information related to the legal settlement in our Form 10-Q, which will be filed later today.

Excluding the impact of reserve taken in the third quarter as well as other one-time factors including a favorable prior year self-insurance adjustment of $26.1 million, our adjusted income from continuing operations was $61.3 million or $0.90 per diluted share in the third quarter of fiscal 2021, compared to $50.1 million or $0.75 per diluted share in the third quarter of last year. The increase in adjusted income from continuing operations was primarily the result of strong operational performance, including growth in our higher margin services. Additionally, our results benefited from several other factors, including efficient labor management, one less workday compared to the third quarter of fiscal 2020, and lower bad debt expense.

Corporate expense for the third quarter increased by $27.5 million year-over-year. The majority of this increase reflects a more normalized expense level in this year’s third quarter as furloughs and other cost saving measures taken at the beginning of the pandemic reduced corporate expenses in the same period a year ago. The increase in corporate expense this quarter also reflects planned investments of approximately $9 million, as we continue to execute on our technology transformation initiative. On a year-to-date basis, we have invested $29 million in information technology and other strategic initiatives relative to our previously disclosed target of $40 million for the full fiscal 2021 year.

Now turning to our segment results. Revenue in our largest segment, Business & Industry, grew 6.7% year-over-year to $807.7 million, benefiting from increased office occupancy in the quarter as well as continued elevated demand for virus protection services. In addition, we saw improved demand for sports venues, as spectator attendance levels increased significantly from the prior year period. Operating profit in this segment grew 18.2% year-over-year to $84.7 million, reflecting efficient labor management, reduced bad debt expense and ongoing client demand for higher margin virus protection services.

Our Technology & Manufacturing segment generated revenue growth of 1.2% year-over-year to $246.1 million, and operating profit margin improved to 10.4%, up from 10.1% last year. Since most of our clients in the T&M segment are considered essential service provider, this segment has been least impacted by COVID-19 disruption. As a result, segment revenue grew modestly on a year-over-year basis. However, the segment operating profit margin increased 30 basis points from the prior year period, reflecting lower bad debt expense.

Education revenue grew 10.5% year-over-year to $208.4 million, driven by the reopening of schools and other educational institution amid a return to in-person learning. Education operating profit totaled $17.7 million, down 3.3% from the same period last year. Although the return to school trend increased demand for virus protection services, the resumption of more normalized staffing levels reduced overall margins compared to the prior year, which benefited from minimal staffing requirement.

Aviation revenue increased 51% in the third quarter to $175.7 million, marking the first period of year-over-year revenue growth in the Aviation segment since the third quarter of fiscal 2019. Revenue growth was fueled by a rebound in U.S. passenger levels amid significantly busier summer travel season compared to the same period last year, as well as our increased focus on securing more business with airport and related facilities. Aviation operating profit improved to $10.3 million compared to an operating loss of $8.2 million last year. Aviation segment margins continued to improve on a sequential basis, rising to 5.9% in the third quarter from 3.9% in the second quarter of fiscal 2021. The improvement in operating margin is attributable to a favorable shift in business mix as we emphasize higher margin airport facility contracts and from stronger client demand for virus protection services compared to the prior year period.

Technical Solutions revenue increased 22.7% year-over-year to $146.1 million, highlighting continued strong market demand for our energy efficiency solutions as well as improved access to client sites. Segment operating margin was 9.9% in the third quarter compared to 11.1% in last year’s third quarter, reflecting a higher personnel costs compared to last year’s third quarter, which benefited from pandemic-related cost saving actions.

I’ll now discuss our cash and liquidity. We ended the third quarter with $505.4 million in cash and cash equivalents compared to $394.2 million at the end of fiscal 2020, with total debt of $811.6 million as of July 31, 2021. Our total debt to pro forma adjusted EBITDA, including standby letters of credit was 1.4 times at the end of the third quarter of fiscal 2021. In June, we announced an expansion of our credit agreement to $1.95 billion. The benefits of this revised and expanded credit facility include enhanced financial flexibility as well as increased liquidity to fund strategic growth initiatives. Additionally, the revised agreement has more favorable credit term on both the revolving credit facility and the term loan.

As you know, we recently announced the pending acquisition of Able Services for $830 million, which we plan to pay using a mix of cash on hand and borrowings from our credit facility. Following the close, we expect to have very manageable bank leverage ratio of approximately 3 times. Supported by strong cash flow of the combined company, we intend to reduce this leverage ratio in a timely manner.

Third quarter operating cash flow from continuing operations was $87.6 million compared to $130.9 million in the third quarter of last year. The decrease in cash flow from continuing operations during the third quarter was primarily due to a deferral in payroll taxes last year under the CARES Act. For the nine-month period ending July 31, 2021, operating cash flow from continuing operations totaled $258.8 million, unchanged from the same period last year. Free cash flow from continuing operations was $79.2 million in the third quarter of fiscal 2021, down from $121.1 million in the third quarter of fiscal 2020. The decrease in free cash flow reflected the CARES Act payroll tax deferral I mentioned.

During the third quarter, we were pleased to pay our 221st consecutive quarterly dividend of $0.19 per common share, returning an additional $12.8 million to our shareholders. Our Board also declared our 222nd consecutive quarterly dividend, which will be payable November 1, 2021 to shareholders of record on October 7, 2021.

Now, I’ll discuss our outlook. As Scott mentioned, our increased guidance for full year fiscal 2021 adjusted income from continuing operations is now a range of $3.45 to $3.55 per diluted share, compared to $3.30 to $3.50 per diluted share previously. The increase in our adjusted earnings forecast is due to our strong financial performance over the first nine months of fiscal 2021, as well as our favorable outlook for the fourth quarter of the year. Please note that this guidance excludes any impact from our pending acquisition of Able Services.

At this time, we are not providing guidance for full year 2021 GAAP income from continuing operations since we are unable to provide an accurate estimate and timing of the items impacting comparability relating to the Able Services acquisition, such as acquisition-related contingency advisory fees and integration costs. We continue to expect a 30% tax rate for fiscal 2021 excluding discrete items such as the Work Opportunity Tax Credits and the tax impact of stock-based compensation awards.

Operator, we are now ready for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first questions come from the line of Tim Mulrooney with William Blair. Please proceed with your questions.

Tim Mulrooney — William Blair — Analyst

Good morning, Scott. Good morning, Earl.

Scott Salmirs — President and Chief Executive Officer

Good morning.

Earl Ellis — Executive Vice President and Chief Financial Officer

Good morning.

Tim Mulrooney — William Blair — Analyst

A couple of margin related questions for me. So EBITDA margins are still very strong given the strong demand for higher margin work and some labor savings I think. So last year the margin expansion split was about 50:50 between those two factors. I’m curious how that split broke down? How that looked for the third quarter? And because the economy continues to reopen, how you’re thinking about those two factors based on the implied guidance that — which you gave for the fourth quarter?

Earl Ellis — Executive Vice President and Chief Financial Officer

Well, thanks for the question, Tim, it’s Earl. I’ll start by saying that this year in Q3 we’re now lapping a full quarter of the pandemic that started last year, so it’s now lapping year-over-year. Now having said that, out of the 50 basis points that we actually lost year-over-year, our gross profit margin was actually up about 40 basis points and a lot of that is actually driven by the continued labor efficiencies that we’ve gained as well as positive business mix, really driven by our Aviation business, and then we’ve actually been able to maintain the level of disinfection margin that we actually had last year. So again, if you think about it lapping year-over-year, we’ve maintained the margins from disinfection and we’re actually still maintaining the labor margin.

Tim Mulrooney — William Blair — Analyst

Okay, yeah, that’s…

Earl Ellis — Executive Vice President and Chief Financial Officer

And just — and your second question, as far as how that translates to the future. Again, as we look at the return to office, we’ve now seen a return to-in-class learning. We anticipate that will actually start to lose some of the labor efficiencies. However, in the long-term we still plan on maintaining a fair portion of that.

Tim Mulrooney — William Blair — Analyst

Okay, thanks. So I think maybe a good way to continue this discussion would be to actually dig into one of the segments, so you’re Aviation business not only did it recover in margin, but it actually — the EBIT margin expanded beyond what the business had done historically. How much of that increase do you think is structural due to changes that you you guys have made within the segment, whether it’s to focus on different areas of the business or whether it’s becoming more efficient in your operation as you move to the pandemic, has the EBIT margin structurally improved in aviation or is it just kind of elevated right now from all the higher margin cleaning work and travel increasing, that kind of thing?

Scott Salmirs — President and Chief Executive Officer

Yeah, hey Tim, this is Scott. Yeah, I do think there is a structural improvement here. First, I think the good performance is volume related. There is certainly more airline traffic, we’re at about 74% of where we were pre-COVID and that may ease off a little bit after the summer travel, but certainly much more heightened levels, which we were excited about. But there’s also been a shift in us moving from airline to airport, it used to be about 50:50, now we’re more like 60:40 airports to airlines, and we kind of like that shift mix. We think there’s going to be a lot of investment in airports. We also like the parking segment in that area. So I think there will be a structural change and structural stability more importantly when we gravitate more towards airports. So, but I think when you look at the results today, it’s a combination of that shift in mix, but also volume related.

Tim Mulrooney — William Blair — Analyst

Great, very helpful. Thanks for taking my questions.

Scott Salmirs — President and Chief Executive Officer

You bet, Tim.

Operator

Our next questions come from the line of Sean Eastman with KeyBanc Capital Markets. Please proceed with your question.

Sean Eastman — Keybanc Capital Markets — Analyst

Hi, guys. Thanks for taking my questions. I just wanted to continue on the margin discussion. I mean, earlier you did walk through the moving parts, that was really helpful. But it’s just interesting to see B&I revenue essentially back at fiscal ’19 run rates, yet margins holding in the double-digit territory. I mean, I was just wondering where these margins are going to settle out. I mean, just any more color you can provide, maybe within the footprint. Clearly some geographies have seen occupancy trends improve, maybe others not so much. But maybe just based on what you’re seeing in areas where occupancy has improved, just any kind of thoughts on where this sustainable B&I margin run rate settles out would be really helpful as we think about the go forward?

Scott Salmirs — President and Chief Executive Officer

Sure, Sean. Look, I think this is still evolving, right. I would tell you that if you look at geographically speaking, if you look at kind of the two coasts you’re talking about 20% office occupancy in B&I, give or take. And then kind of that middle of the country its 40% to 50%, but it hasn’t — it hasn’t ramped up as fast as we all thought because of the Delta variant. So I think it’s still hard for us to pin down a formal long-term margin. We’re looking forward to giving you full year guidance in the next three months and then that will give you the insight for the next year. But look, we’re going to say what we’ve continue to say throughout, which is the two for elevated margins are in disinfecting and labor arbitrage, and we believe we will permanently keep portions of that as we re-staff these buildings, we believe we’re going to be able to do it more efficiently and we’ll capture some savings. Again, still too early to figure out how much.

And then the disinfecting, we see like — maybe two quarters ago there was or maybe even a quarter ago there was no Delta variant, right. So I think this is going to continue to evolve and we’ve all just said it even anecdotally, it’s just — I don’t think facility managers or landlords or principles of schools, I don’t think anyone thinks it’s responsible to discontinue disinfection services, especially in high-touch areas. So that’s going to continue too. So we believe we will continue to be elevated, but give us till next quarter when we do full year guidance to kind of give you that year outlook.

Sean Eastman — Keybanc Capital Markets — Analyst

Okay, fair enough, thanks for that. And maybe shifting over to ATS. Could you just speak to kind of the velocity in new business wins there? I mean clearly some of this energy efficiency, sort of ESG related work is a big play with Able. So just some color on client decision making there, new wins, backlog trends as we think about the growth potential in that business line?

Scott Salmirs — President and Chief Executive Officer

Yeah, so look it’s — it’s thumbs up across the board when we look at new sales, we’re at record new sales. Our backlog, I think the number is 250 million plus in backlog, which is a record for us too. And our churn rate is going up. So not only is our backlog higher but we’re churning out the work faster because we have more access to sites. We love — I made some opening comments about EV charging, it’s amazing. We’ve installed nearly half of the EV charging stations in the country to date. Like, I don’t think people realize that, right. So kind of the bandwidth we have there as the world moves to e-mobility is going to be fabulous for us. So we continue to be excited about that segment. And then you take — you take Able and you take all the engineering assignments and the ability to cross sell into that, we think there is just going to be phenomenal ability there. We think there’s going to be phenomenal ability to create a IFs — integrated facilities platform.

And as we talked about Able with you all, we didn’t put any revenue synergies, so, that’s all on the upside that’s not factored in. So couldn’t be more enthusiastic about where ATS is going from our core business to our ability to cross-sell to where society is heading. We think it’s just again thumps up across the board.

Sean Eastman — Keybanc Capital Markets — Analyst

Okay, terrific. Thanks, Scott. I’ll turn it over.

Scott Salmirs — President and Chief Executive Officer

Thanks, Sean.

Operator

Thank you. Our next questions come from the line of Andy Wittmann with Baird. Please proceed with your questions.

Andrew Wittmann — Robert W. Baird & Co., Inc. — Analyst

Yeah, great. Thanks for taking my questions, guys. Maybe, Scott, I wanted to broaden out that last question that was focused on sales for the Technical Solutions segment and just talk about base contractual revenue and basically if you could talk a little bit about net new business in the quarter, over the last year or so, certainly early in the pandemic it was just all about kind of hunkering down and your retention was up because nobody wanted to change. Time has progressed, things are reopening. I wanted to get a sense from you about the level of customer discussions for changing providers to you or even from you, I suppose, on the contractual side of your business? If you could talk about that, please.

Scott Salmirs — President and Chief Executive Officer

Yeah, I think you said ATS, did you mean more B&I?

Andrew Wittmann — Robert W. Baird & Co., Inc. — Analyst

Yeah, the prior question was focused on Technical Solutions. My questions focused on all the other annuity businesses for B&I or T&M, that kind of stuff?

Scott Salmirs — President and Chief Executive Officer

Got you, got you. Yeah, so look, there has not been a lot of activity yet. I think my remarks would stay consistent with the last couple of quarters, which is facility managers and landlords are still trying to get level set for what the new reality looks like and now, Andy, with — and you know this policy as well as I do with companies pushing back their opening dates for getting people back, you’re still in this mode where you don’t want to kind of commit to like bidding out your work and figuring out what the new normal looks like because you just don’t know what the occupancy patterns are going to look like. And so we haven’t — we haven’t seen a lot of activity on that side and even with schools, right. This is — this is the first time that — we would say like probably 95% of the school is K through 12 and higher Ed or back in-person. So they’re just for us level setting on that right now and hoping to get through the semester with in-person. So I think there hasn’t been that activity. So it’s still — it’s still a little early for that.

Andrew Wittmann — Robert W. Baird & Co., Inc. — Analyst

Okay, good. I just wanted to check on that. And then, I guess there is — fundamentally in your comments there were two things that kind of stuck out is slight changes in terms of the demand for your services. One was that you actually saw occupancy trend down, obviously Delta is having an effect, like if we had to point to something that would be, so occupancy kind of trending down in the quarter and then the other thing you kind of mentioned was slightly softer deep cleaning demand, I don’t know. But just given that there was a slight change in both of those, so maybe you can elaborate on those.

Scott Salmirs — President and Chief Executive Officer

Yeah, I think — I think those, that’s a good call out, Andy. And I think those were all probably temporary. So occupancy trending down was really when Delta hit, and it goes to what I said a couple of minutes ago, which is people — if you remember, right, it was going to be like oh, first that people were talking about July 4th and they were talking about Labor Day. Now there’s a lot of people saying November 1st and January. So it’s — the tail is just getting longer and longer on occupancy, which as you know and goes [Phonetic] to our benefit, right, because we keep that labor arbitrage, so. But that’s a good tailwind for us.

And then the softening on kind of disinfecting. So I would say two things. One, clearly expected. I think we’ve had that narrative at least a year if not longer that it’s never going to stay at these levels, and if you think about it. So if you think about work orders kind of pre-pandemic, we were in that 5% range, right. That was our tag work order revenue, and we got as high as like 10 plus percent. So now we’re at like, I think it was 9.3% for the quarter. So you’ll see that start kind of tailing down, but we’ve always projected that. And I think — also remember this was, we had June and July in this quarter which was summer months, so even less occupancy and probably a more extreme ramping down of the disinfecting work. So I think some of it’s temporary. But again, I think the stuff really — the elongation of occupancy is good for us.

Andrew Wittmann — Robert W. Baird & Co., Inc. — Analyst

Yeah, that’s a very helpful answer. My last question, Earl, I guess is for you. And I just wanted to understand and interpret the guidance a little bit. I look at the quarter, you beat by, well I think $0.11 on consensus, that the midpoint goes up by by 10. It feels like the guidance change is mostly due to the third quarter’s outperformance rather than some change on your view for the fourth quarter specifically. Is that the right way of thinking about the guidance range because its really more about year-to-date performance than a change in your outlook for the fourth quarter?

Earl Ellis — Executive Vice President and Chief Financial Officer

Yeah, I think that’s correct, in that. When we do the guidance, we look at obviously what’s happened year-to-date and how we think that’s going to continue to trend into Q4. And as such, based on our performance in Q3, we felt comfortable raising both the top and as well as the bottom end of the guidance.

Andrew Wittmann — Robert W. Baird & Co., Inc. — Analyst

Okay, makes sense. Thanks, guys. Have a great day.

Scott Salmirs — President and Chief Executive Officer

Thanks, Andy.

Earl Ellis — Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. Our next questions come from the line of David Silver with CL King. Please proceed with your questions.

David Silver — CL King & Associates, Inc. — Analyst

Okay, thank you very much. I’ll just apologize in advance, I’ve had to step away and a couple of points here. My first question, Scott, would be kind of to try to get your perspective on something, a couple of things you talked about maybe a couple of quarters ago and it would be related to the demand for office space as you see it, and then secondarily the appetite for property managers to embed or include elements of your enhanced disinfection routines in the basic service contracts. So I think it was a couple of quarters ago. But you had mentioned that there was an active discussion between yourselves and the property managers and I think you characterized it is “like too early” for many of the property managers to really decisively kind of reach conclusions about; A, the demand for office space and B, what — what types of facility services would be used in the post-pandemic environment.

Scott Salmirs — President and Chief Executive Officer

Yeah, that’s right.

David Silver — CL King & Associates, Inc. — Analyst

I’m just wondering if you could just update us on your thinking in those two areas? Thank you.

Scott Salmirs — President and Chief Executive Officer

Yeah, sure, David. So look, in terms of demand for office space and how that’s going to work out, if you remember, it was probably like a year ago everyone was predicting this massive flood of subleasing and people rationalizing their space, and we said we weren’t seeing it. We said it was too early. And I think we also said that we believe based on our kind of our knowledge of the space that people are going to wait till tenants got back into the space, so how they were using it before they were going to make these longer-term decisions about the demand for office space. So I think that’s still in play. That’s still hasn’t happened yet because as I said a couple of minutes ago, we haven’t seen that return to office yet. So nothing new to report on the demand side. And then in terms of EnhancedClean and embedding in the contracts, I think it’s the same thing where people haven’t gotten back yet, they haven’t figured out how to rationalize their cleaning specs, how it’s going to work and that’s something that we suspect is going to be more of a 2022 event frankly than a ’21 event.

David Silver — CL King & Associates, Inc. — Analyst

Okay, great. I’d like to follow-up with maybe a question related to Able Services, and in particular, their Technical Solutions capabilities. So, and one — this is a question about how that group will look following the completion of the acquisition. So your existing Technical Solutions unit certainly has a number of strengths, energy efficiency, and I think a very strong positioning in the Education segment. And I’m just wondering if you could maybe compare and contrast what the Able Services Technical Solutions unit brings either in terms of spread [Phonetic] the capabilities, scale in certain areas? In other words, you’ve talked about cross selling, but is the cross selling opportunities more of the traditional opportunities that you’ve been working on with your legacy Technical Solutions unit? Or how will it broaden and extend your ability to cross sell. Thank you.

Scott Salmirs — President and Chief Executive Officer

Yeah. So, so Able services doesn’t have a Technical Solutions unit the way we have, which is — remember our Technical Solutions is mostly project work, right. So we’re — we’re retrofitting electrical mechanical systems, their engineering capabilities or on the stationary engineering, which are the engineers that are located on site in the building operating the equipment and we have a segment as large as theirs on that. So if you look at that, the opportunity is for our Technical Solutions Group to cross sell into those engineering assignments and for us to bring a broader set of capabilities because they also have somewhere in the neighborhood of $400 million in janitorial assignments that we’ll be able to cross sell as well. So we look as our Technical Solutions as a catalyst for that. But again, I’ll repeat what I said earlier, which is we have not factored that in to any of the economics, that’s all upside for us, all those revenue synergies which should be well received by someone like you.

David Silver — CL King & Associates, Inc. — Analyst

Okay, great. Thank you very much.

Scott Salmirs — President and Chief Executive Officer

Thanks, David.

Operator

Thank you. Our next questions come from the line of Marc Riddick with Sidoti. Please proceed with your questions.

Marc Riddick — Sidoti & Co. — Analyst

Hey, good morning.

Scott Salmirs — President and Chief Executive Officer

Good morning.

Marc Riddick — Sidoti & Co. — Analyst

So I was wondering if we could start with the Education segment for a moment. I was wondering if you could spend a little time delving into maybe what you’ve seen so far. And particularly I was somewhat curious as to the ramp-up going into school reopenings. Have you seen any meaningful difference in ordering or preparation for the younger grades as opposed to college-age, particularly those that are too young to be vaccinated? I was wondering if there is any difference in what clients were asking you to do or is it somewhat similar across the board?

Scott Salmirs — President and Chief Executive Officer

Generally speaking, it is somewhat across the board. I think for — if you are a President of a college or if you’re principal of the school, you’re just trying to protect the kids as best you can, right. And so we don’t see a real distinction between maybe doing more disinfection in K through 12 than higher Ed, it’s similar across the board.

Marc Riddick — Sidoti & Co. — Analyst

Okay. And then I was thinking about the sort of — some of the commentary that you had in the press release around some of the return to normalcy. You’ve talked about travel. So what we’ve — aviation to the side for a moment, that certainly was clear. You did talk a little bit about things like sporting events and the like. And then I was wondering if you could talk a little bit about those kinds of other leisure activities that are not necessarily travel because it does seem as though we’re seeing full stadiums again with football and some level of concert activity, though that’s been a little bit spotty, so I think you touch a little bit about what you’re seeing there?

Scott Salmirs — President and Chief Executive Officer

Sure, and just as a reminder, sports and entertainment, we love that segment. It’s just — it’s great to be in, but it’s a very small piece of our revenue, but it’s been encouraging, right, because it’s been almost like a binary event, whereas last quarter it was like no activity and now we’re having activity again where people are getting back to events and stadiums are becoming full or hybrid full, if you will. And so it’s a path to normalcy, which we really like and that’s been one of our fastest growing segments, albeit it’s a smaller one, but it’s a fast-growing one. So we’re just — we’re just pleased that it’s getting back to normal.

Marc Riddick — Sidoti & Co. — Analyst

Okay, and then I wanted to also switch gears a bit and go into the sort of where you are on the branding efforts and the exercise there. I mean, it’s been a little bit of time now since you started with the commercials, but also sort of just sort of putting the ABM brand upfront. I was wondering if you sort of give some thoughts as to maybe what you’re seeing there and then what type of commitment we should be thinking about as far as sort of keeping the ABM brand in front of people and making that part of the, I guess the structure of your go-to-market strategy?

Scott Salmirs — President and Chief Executive Officer

Yeah, so look, it’s been important to us through 2021 and we renewed our engagements with folks like CNBC, you’ve probably seeing our ads continue to run and we have those engagements throughout the rest of the fiscal year. It remains to be seen what we’re going to do in 2022. But we will certainly address that with you when we do our guidance, but we’ve enjoyed the up-branding and it’s just going to be a cost benefit analysis that we continue to iterate on, but definitely more color on that when we give guidance.

Marc Riddick — Sidoti & Co. — Analyst

Okay, great. And then one last thing for me. I was wondering going switching back to the hiring and what you’re seeing there. Is there any difference as to any regional differences as to labor availability, hiring and the like? And I was sort of thinking about the — what we’ve seen in certain areas in certain states that ended the unemployment support earlier in the summer. I wasn’t sure if there was much in the way of difference that you were seeing there, but just wondered if you had any commentary there as to how that — maybe what you’re seeing there and what benefits you might be getting? Thanks.

Scott Salmirs — President and Chief Executive Officer

Yeah, I think the way we think about it, Marc, is really more union territories versus non-union. So in our kind of union markets we see less pressure, right, because wages a higher, there is full benefits and that mitigates a lot of the concern we have around labor. It’s more on the non-union markets which tends to be at the bottom half of the country. And we’re seeing some pressure there. But that’s why we put our task force in place, but it’s also been muted because there hasn’t been the return to work and we’re only beginning with return to school. So we’re feeling pretty good about it and we’ll see what happens as the benefits roll off now on unemployment and we’ll see what happens with the the childcare tax credit next year because it was elevated this year. It used to be about $2,000 per child and now it’s between $3,600. So we’ll see if that gets renewed and that’s not taxable. So it’s another incentive to not get into the workforce. So I think more to come on that story.

Marc Riddick — Sidoti & Co. — Analyst

Great. Much appreciated. Thank you.

Scott Salmirs — President and Chief Executive Officer

Thank you.

Operator

Thank you. There are no further questions at this time. I’d like to hand the call back over to management for any closing comments.

Scott Salmirs — President and Chief Executive Officer

Yeah, just want to tell everyone to make sure you continue to stay safe and healthy and do all the proper guidelines, that’s our moment of safety for this quarter, and we look forward to giving you an update next quarter when we’ll have much more to say about the Able acquisition and then our full year guidance. So, thanks everyone for your support and look forward to chatting soon. Thanks, everyone.

Operator

[Operator Closing Remarks]

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