Abm Industries Inc (ABM) Q3 2021 Earnings Call Transcript

Greetings and welcome to the ABM Industries Incorporated, Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded, and it is now my pleasure to introduce David Gold, Investor and Media Relations. Thank you. You may begin.

Thank you for joining us this morning. With us today are Scott Salmirs, our President and Chief Executive Officer, and Daryl Ellis, our Executive Vice President, and Chief Financial Officer. We issued our press release yesterday afternoon, announcing our Third Quarter of Fiscal 2021 financial results. A copy of this release and the accompanying slide presentation can be found on our corporate website. Before we begin, I'd like to remind you that our call and presentation today contains 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, and we believe them to be reasonable. These statements are subject to the 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.

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 executed well and continued to provide exceptional service to our clients. Overall demand for ABM 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 slightly decreased in the third quarter compared to the second quarter of fiscal 2021 but remains well above pre-pandemic levels. The emergence of the Delta variant and rising COVID-19 cases nationally have 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 in facility maintenance programs. During the third quarter, we continued to benefit from efficient management of labor as office occupancy levels remained relatively low nationwide and began to trend downwards 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 more gradual ramping in office occupancy levels during 2022, providing an opportunity for a longer tailwind arising 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. This task force has been instrumental in helping us 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 the 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 for 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 electric vehicle charging infrastructure. Although EV charging infrastructure services currently represent a limited portion of Technical Solutions' revenue, electric vehicle adoption continues to rise, aided by the current administration's target to make half of all vehicles sold in 2030 zero-emissions vehicles. As a result, we see a long runway of growth for our eMobility EV charging infrastructure business as we look out over the next several years. Turning to the education segment, school districts have accelerated the return to in-person learning, as we estimate that over 95% 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. We do expect our labor savings from a hybrid environment will be quickly diminished 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 Able's talented team and we look forward to working together to better serve our clients with a broader range 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 in 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're 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. We're 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 will now turn the call over to Earl for our financial review of the third quarter.

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, to fully resolve 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 the 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 shares 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. The 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. The decrease in corporate expenses in the same period a year ago was attributed to cost-saving measures taken at the beginning of the pandemic. The increase in corporate expense this quarter also reflects planned investments of approximately $9 million, as we continue to execute on our technology transformation initiatives. 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 year 2021. Now, turning to our segment results. Revenue in our largest segment, business, and 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. Additionally, we saw improved demands at 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 and manufacturing segment generated revenue growth of 1.2% year-over-year to $246.1 million. 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 providers, this segment has been least impacted by COVID-19 disruptions. 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 institutions 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 requirements. 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 a significantly busier summer travel season compared to the same period last year, as well as our increased focus on securing more business with airports and related facilities. Aviation's 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 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 higher personnel costs compared to last year's third quarter, which benefited from pandemic-related cost-saving actions. I will 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 perform an 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 terms 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 borrowing from our credit facility. Following the close, we expect to have a very manageable bank leverage ratio of approximately three times. Supported by the 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 accrual 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.

Thank you. We will now be conducting the question-and-answer session. One moment, please, while we poll for your questions. Our first question comes from the line of Tim Mulrooney with William Blair, please proceed with your question.

Good morning, Scott. Good morning, Earl.

Morning.

Good morning.

A couple of margin-related questions from me. So EBITDA margins are still very strong, given the strong demand for higher-margin work and some labor savings, I think. Last year, the margin expansion split was about 50/50 between those two factors, I'm curious how that split broke down, how that looks for the third quarter. And as the economy continues to reopen, how you're thinking about those two factors based on the implied guidance that you gave for the fourth quarter.

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. 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 had last year. So we're going to be thinking about it lapping year-over-year, we've maintained the margins from disinfection and we're actually still maintaining the labor margins. Okay, yeah. And just your second question. As far as how that translates to the future, even as we look at the return to the office, we've now seen a return to in-class learning. We anticipate that we'll actually start to lose some of the labor efficiencies. However, in the long term, we still plan on maintaining a fair portion of that.

Thank you, Earl. I believe a productive next step in our discussion would be to examine one of the segments in detail. Your aviation business not only saw a recovery in margins but the EBITDA margin also expanded beyond its historical performance. How much of that growth do you attribute to structural changes within the segment, such as a focus on different business areas or improvements in operational efficiency during the pandemic? Has the EBITDA margin in aviation improved structurally, or is it currently elevated due to the higher-margin cleaning services and an increase in travel?

Yeah. Hey Tim, this is Scott. I really believe there is a structural improvement happening here. First, the strong performance is largely due to increased volume; there's definitely more airline traffic, and we're currently at about 74% of our pre-COVID numbers. That might decrease a bit after the summer travel season, but we're still seeing much higher levels, which we find encouraging. Additionally, we've made a shift from focusing on airlines to airports. It used to be a 50/50 split, but now we’re more at 60/40 in favor of airports, and we appreciate that change in our mix. We anticipate significant investment in airports, and we are also enthusiastic about the parking segment in that area. Therefore, I think we will see both structural change and stability as we shift our focus more towards airports. Overall, when we examine today's results, they reflect both this shift in our mix and the volume increase.

Great. Very helpful. Thanks for taking my questions.

Great, Tim.

Thank you. Our next questions come from the line of Sean Eastman with KeyBanc Capital Markets, please proceed with your question.

Hi, guys. Thanks for taking my questions. I just wanted to continue on the margin discussion. I mean, Earl did walk through the moving parts there. That was really helpful, but just interesting to see B&I revenue essentially back up fiscal '19 run rates, yet margins holding in the double-digit territory. We're all 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 thoughts on where the sustainable B&I margin run rate settles out would be really helpful as we think about the go-forward.

Sure, this situation is still developing. If we look geographically at office occupancy, B&I is around 20% while in the central regions it's about 40% to 50%. However, the recovery hasn't progressed as quickly as we anticipated due to the Delta variant. It's challenging for us to provide a definitive long-term margin at this stage. We're planning to offer full-year guidance in the next three months, which will give more clarity for the upcoming year. We maintain that the two key areas for increased margins are in disinfecting and labor arbitrage, and we believe we can retain some of that advantage. As we re-staff these buildings, we expect to operate more efficiently and achieve cost savings, although it’s early to determine how significant those savings will be. In terms of disinfecting, a couple of quarters ago, the presence of the Delta variant was minimal, and I believe this situation will continue to change. Our observations suggest that facility managers, property owners, and school administrators do not see it as responsible to stop disinfection services, especially in high-touch areas. Therefore, we anticipate that these elevated services will persist. Please allow us until next quarter for our full-year guidance to provide a clearer outlook for the year ahead.

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

Yes, we are seeing great results in new sales, reaching record levels. Our backlog is over 250 million, which is also a record for us. Additionally, our churn rate is increasing, meaning we are completing work more quickly due to greater site access. We are particularly excited about the EV charging segment, having installed nearly half of the EV charging stations in the country, a fact that may not be widely recognized. This area presents fantastic opportunities as the world transitions to eMobility. We see significant potential with Able and the engineering assignments, allowing us to cross-sell effectively. We believe this will lead to outstanding opportunities in creating an integrated facilities platform. We did not account for any revenue synergies from Able, so that represents additional upside. Overall, we couldn't be more optimistic about ATS, whether it's from our core business or our cross-selling opportunities aligned with societal trends. It's clearly a positive outlook across the board.

Okay. Terrific. Thanks, Scott, I'll turn it over.

Thanks, Sean.

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

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.

I think you said ATS. Did you mean more B&I?

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

There hasn't been much activity thus far. My comments remain consistent with what we've seen over the past few quarters. Facility managers and landlords are still trying to establish what the new normal looks like. Companies are delaying their reopening dates, which creates uncertainty around occupancy patterns, making it hard to commit to bidding out work. As a result, there's limited activity in this area. Even schools, which are mostly back in person now, are just beginning to reassess their situations and hope to complete the semester in person. It's still a bit early for significant changes.

I wanted to inquire about a couple of points from your comments regarding the demand for your services. First, it seems that occupancy trends have declined, possibly influenced by Delta. If we were to identify a specific issue, it would be that occupancy is decreasing this quarter. Additionally, you mentioned a slight decrease in demand for deep cleaning services. Given these changes, could you provide more details on both points?

That’s a good point, Andy. I believe those factors will likely be temporary. The decline in occupancy began when Delta emerged. As I mentioned earlier, discussions about occupancy deadlines keep shifting from July 4th to Labor Day, and now many are talking about November 1st and even January. This extended timeline regarding occupancy actually works in our favor since it allows us to maintain our labor arbitrage, providing a positive support for our business. Regarding the decrease in disinfecting demand, I want to highlight two things; first, this was anticipated. We've been communicating for over a year that the high levels of demand wouldn’t last. If we reflect on work orders, pre-pandemic we were in the 5% range, but we peaked at over 10%. Currently, we estimate we are around 9.3% for the quarter. You'll see that trend downwards, but we have always expected this. It's also important to note that this quarter included June and July, which are summer months, leading to lower occupancy and possibly a more pronounced decrease in disinfecting work. I view some of this decline as temporary, but the extended timeline for occupancy is beneficial for us.

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 I think $0.11 on the consensus that the midpoint goes up by 10. It feels like the guidance change is mostly due to the third quarter's outperformance rather than some change in your view for the fourth quarter specifically. Is that the right way of thinking about the guidance range, that it's really more about a year-to-date performance than a change in your outlook for the fourth quarter?

I believe that's accurate. When we set our guidance, we naturally consider what has occurred so far this year and how we anticipate that will carry into the fourth quarter. Given our performance in the third quarter, we felt confident in increasing both the higher and lower ends of our guidance.

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

Thanks, Andy.

Thank you.

Thank you. Our next question is coming from the line of David Silver with C.L. King. Please proceed with your questions.

Thank you very much. I want to apologize in advance as I may need to step away at times. My first question, Scott, is to get your thoughts on a couple of topics you discussed a few quarters ago. This is related to the demand for office space as you perceive it. Additionally, I am curious about the willingness of property managers to incorporate your enhanced disinfection routines into their basic service contracts. A couple of quarters back, you mentioned there was an ongoing discussion between your team and property managers, and you indicated it was somewhat premature for many property managers to definitively conclude about the demand for office space and the types of facilities and services that would be utilized in a post-pandemic setting.

Yes, that's right.

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

Yes, sure, David. 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. 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 knowledge of the space, that people are going to wait until tenants got back into the space, saw how they were using it before they were going to make these longer-term decisions about the demand for office space. I think that's still in play; that still hasn't happened yet because, as I said, a couple of minutes ago, we haven't seen that return to the office yet. Nothing new to report on the demand side. And then in terms of enhanced cleaning 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.

Okay. Great. And I'd like to follow up with maybe a question related to Able Services. And in particular, their Technical Solutions capabilities. So, 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 perhaps compare and contrast what the Able Services Technical Solutions unit brings, either in terms of breadth 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.

Yeah. Able Services doesn't have a Technical Solutions unit the way we have, which is, remember, our Technical Solutions is mostly project work, right? We're retrofitting electrical and mechanical systems. Their engineering capabilities are on stationary engineering, which are the engineers that are located on-site in a building operating the equipment. We have a segment as large as theirs on that. 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 will be able to cross-sell as well. We look at our Technical Solutions as a catalyst for that. But again, I will repeat what I said earlier, which is we have not factored that into any of the economics; that's all upside for us. All those revenue synergies, which should be well received by someone like you.

Okay. Great. Thank you very much.

Thanks, David.

Thank you. Our next question comes from the line of Marc Riddick with Sidoti, please proceed with your questions.

Hi, good morning.

Good morning.

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 too young to be vaccinated? I was wondering if there's any difference in what clients were asking you to do, or is it somewhat similar across the board?

Generally speaking, it's similar across the board. I think if you are a president of a college or the principal of a school, you're just trying to protect the kids as best you can, right? We don't see a real distinction between maybe doing more disinfection in K-through-12 than higher education; it's similar across the board.

Okay. I was considering some of the comments in the press release regarding the return to normal, particularly with travel, although I will set aviation aside for now. It was evident that you mentioned returning to events like sports, and I was curious if you could discuss other leisure activities that don't necessarily involve travel. It seems like we are witnessing full stadiums again with football and some concert activity, although that's a bit unclear. Could you elaborate on what you're observing in that area?

Sure. Just as a reminder, sports, and entertainment, we'd love that segment. It's just 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 buy-in area event whereas last quarter, it was like no activity and now we are having activity again where people are getting back to events and stadiums are becoming full or hybrid full, if you will. 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. We're just pleased that it's getting back to normal.

I wanted to shift focus and discuss your branding efforts. It's been a while since you launched the commercials and introduced the ABM brand. Can you share your thoughts on what you've observed and the level of commitment we should anticipate regarding keeping the ABM brand visible and integrating it into your go-to-market strategy?

Yeah. Look, it's been important to us through 2021 and we renewed our engagements with folks like CNBC, you're probably seeing our ads continue to run. 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.

Okay, great. One last thing I wanted to ask about is hiring and what you are observing in that area. Are there any regional differences in labor availability and hiring? I've been considering what we've seen in certain regions that ended unemployment support earlier in the summer. I wasn't sure if you noticed any significant differences, but I would appreciate any insights you might have on that and what benefits you are experiencing. Thanks.

I believe our perspective is focused more on union versus nonunion territories. In our union markets, we experience less pressure due to higher wages and comprehensive benefits, which alleviates many labor concerns. The pressure is more apparent in nonunion markets, particularly in the lower half of the country. We've established a task force to address these challenges. The situation has been somewhat muted due to the slow return to work and only starting to see a return to school. We're optimistic about the future as unemployment benefits taper off. We'll also be monitoring the childcare tax credit next year, which increased this year from around $2,000 per child to between $3,000 and $3,600. Whether this credit gets renewed remains to be seen, and since it’s not taxable, it may discourage some from entering the workforce. So, we expect further developments on this issue.

Much appreciated. Thank you.

Thank you.

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

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. We look forward to giving you an update next quarter when we will have much more to say about the Able acquisition and then our full-year guidance. Thanks, everyone for your support, and look forward to chatting soon.

Thanks, everyone.

Thanks for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.