What changed in this filing

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Item 1A. Risk Factors

2023-12-18 compared with 2022-12-21 · 63 added, 56 removed, 158 unchanged (43% of the section changed)

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The low barrier of entry in the facility services business results in a very competitive market.

We compete mainly with regional and local owner-operated companies that may have more insight into local market dynamics and significantly lower operating costs, providing them with a competitive advantage in those regards.

We compete mainly with regional and local owner-operated companies that may have more insight into local market dynamics and significantly lower operating costs, which could provide them with a competitive advantage in those regards.

We also compete indirectly with companies that can perform for themselves one or more of the services we provide.

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We must attract, train, and retain a large and growing number of qualified employees while controlling related labor costs.

Our ability to control labor and benefit costs is subject to numerous internal and external factors, including changes in the unemployment rate, changes in immigration policy, regulatory changes, prevailing wage rates, and competition we face from other companies for similarly qualified employees.

During 2022, we continued to experience labor shortages, inflationary pressures on wages, and an increasingly competitive labor market.

A sustained labor shortage or increased turnover rates within our employee base could lead to increased costs, such as increased overtime incurred and/or increased usage of temporary labor to meet the demands of our customers, as well as increased wage rates to attract and retain employees.

During 2023, we continued to be impacted by labor shortages, inflationary pressures on wages, and an increasingly competitive labor market.

Continued labor shortages or increased turnover rates within our employee base could lead to increased costs, such as increased overtime incurred and/or increased usage of temporary labor to meet the demands of our customers, as well as increased wage rates to attract and retain employees.

Further, many of our contracts provide that our clients pay certain costs at specified rates, such as insurance, healthcare costs, salary and salary-related expenses, and other costs.

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Our future performance depends on the continuing efforts and contributions of our senior management and on our continued ability to attract and retain qualified personnel.

Any unplanned turnover in senior management or inability to attract and retain qualified personnel could have a negative effect on our results of operations.

Unplanned turnover in senior management or inability to attract and retain qualified personnel could have a negative effect on our results of operations.

In addition, activities related to identifying, recruiting, hiring, and integrating qualified management employees may require significant time and expense.

We may not be able to locate suitable replacements for any key employees who leave, or offer employment to potential replacements on reasonable terms, each of which may adversely affect our business and financial results.

Investments in and changes to our businesses, operating structure, financial reporting structure, or personnel relating to our ELEVATE strategy, including the implementation of strategic transformations, enhanced business processes, and technology initiatives, may not have the desired effects on our financial condition and results of operations.

We have made and expect to continue to make significant investments in various initiatives intended to drive long-term profitable growth and increase operational efficiency.

These investments in and changes to our business systems and processes may not create the growth, operational efficiencies, competitive advantage, or cost benefits that we expect and could result in unanticipated consequences, including substantial disruption to our back-office operations and service delivery.

Moreover, the execution of our ELEVATE strategy may result in substantial expenses in excess of what is currently forecast.

While we anticipate that certain expenses will be incurred, such expenses are difficult to estimate accurately and may exceed current estimates.

Investments in and changes to our businesses, operating structure, or personnel relating to our ELEVATE strategy, including the implementation of strategic transformations, enhanced business processes, and technology initiatives, may not have the desired effects on our financial condition and results of operations.

We have made significant investments and expect to make additional investments in various initiatives intended to drive long-term profitable growth and increase operational efficiency.

These investments in and changes

to our business systems and processes may not create the growth, operational efficiencies, competitive advantage, or cost benefits that we expect and could result in unanticipated consequences, including disruptions to our back-office operations and service delivery.

Moreover, the execution and/or benefits of our ELEVATE strategy may not be realized on the expected timeline and/or may result in expenses in excess of what is currently forecast, which could negatively affect our financial condition.

Our ability to preserve long-term client relationships is essential to our continued success.

We depend to a large extent on our relationships with clients and our reputation for quality integrated facility solutions.

Maintaining our existing client relationships, particularly with our largest clients, is an important factor contributing to our business success.

We primarily provide services pursuant to agreements that are cancelable by either party upon 30 to 90 days’ notice.

As we generally incur higher initial costs on new contracts until the labor management and facilities operations normalize, our business associated with long-term client relationships is generally more profitable than short-term client relationships.

If we lose a significant number of long-term clients, our profitability could be negatively impacted, even if we gain equivalent revenues from new clients.

We depend to a large extent on our relationships with clients and our reputation for quality integrated facility solutions.

Maintaining our existing client relationships is an important factor contributing to our business success.

Among other things, adverse publicity stemming from an accident or other incident involving our facility operations or employees related to injury, illness, death, or alleged criminal activity could harm our reputation, result in the cancellation of contracts or inability to retain clients, and expose us to significant liability.

If we lose a significant number of long-term clients and/or all or a portion of the services for our larger clients, our financial results could be negatively impacted.

Our use of subcontractors or joint venture partners to perform work under customer contracts exposes us to liability and financial risk.

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Although we have controls and programs in place to monitor the work of our subcontractors and our joint venture partners, there can be no assurance that these controls or programs will have the desired effect, and we may incur significant liability as a result of the actions or inactions of one or more of our subcontractors or joint venture partners.

Our international business involves risks different from those we face in the United States that could have an effect on our results of operations and financial condition.

We have business operations in jurisdictions outside of the United States, most significantly in the UK.

Our international business involves risks different from those we face in the United States that could negatively impact our results of operations and financial condition.

We have business operations in jurisdictions outside of the United States, most significantly in the UK and Ireland.

Our international operations are subject to risks that are different from those we face in the United States and subject us to complex and frequently changing laws and regulations, including differing labor laws and regulations relating to the protection of certain information that we collect and maintain about our employees, clients, and other third parties.

Among these laws is the UK Modern Slavery Act, the UK Bribery Act, and the European Union General Data Protection Regulation (the “GDPR”), which took effect in May 2018.

Among these laws is the UK Modern Slavery Act, the Criminal Law (Human Trafficking) Act 2008 (Ireland), the UK Bribery Act, the Criminal Justice (Corruption Offences) Act 2018 (Ireland), and the UK and European Union General Data Protection Regulations (the “GDPR”).

The failure to comply with these laws or regulations could subject us to significant litigation, monetary damages, regulatory enforcement actions, or fines in one or more jurisdictions.

More generally, the economic, political, monetary, and operational impacts related to Britain’s exit from the European Union, including impacts to the UK real estate market and general economic conditions in the United Kingdom, could negatively impact our UK business, including reducing our margins.

In addition, when we participate in joint ventures that operate outside of the United States where we are not a controlling party, we may have limited control over the joint venture.

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Risks Relating to Market and Economic Conditions

Negative changes in general economic conditions, such as recessionary pressures, durable and non-durable goods pricing, changes in energy prices, or changes in consumer goods pricing, as well as potential declines in our clients’ office spaces, could reduce the demand for facility services and, as a result, reduce our earnings and adversely affect our financial condition.

Slow domestic and international economic activity or other negative changes in global, national, and local economic conditions could have a negative impact on our business.

These adverse economic conditions could cause a decline in our clients’ demand and ability to pay for our services, or attempts by our clients to defer payments owed to us.

Additionally, in certain geographic areas and service lines, our most profitable revenues are related to supplemental services requested by clients outside of the standard service specification (“work orders”).

Potential declines in commercial real estate office space could result in a decline in demand for our services and/or in scope of work, including work orders, and depressed prices for our services, which could affect our financial position.

Our energy efficiency projects are designed to reduce a client’s overall consumption of commodities, such as electricity and natural gas.

Downward fluctuations in commodity prices may reduce client demand for projects that are designed to reduce a client’s overall consumption of commodities, such as electricity and natural gas.

Decreases in commercial office space utilization due to hybrid work models could adversely affect our financial condition.

A key part of our business involves providing janitorial, facilities engineering, and parking services for commercial office building properties.

Across the United States, vacant office spaces have increased and total office space under construction has decreased, compared to pre-pandemic levels.

Driven by lower in-office occupancy,

lessees are projected to continue to decrease their office space requirements as existing leases expire or are renewed and/or renegotiated over the next several years.

As existing clients decrease office space, the areas that we service for those clients decreases as does the demand for our highly profitable supplemental services (“work orders”) requested by our clients outside the scope of our standard service specifications.

As new tenants occupy vacant office spaces, there may be delays and additional expenses incurred in securing client relationships with such new tenants.

These factors could adversely affect our revenues and financial results.

Negative changes in general economic conditions, such as recessionary pressures, high interest rates, durable and non-durable goods pricing, changes in energy prices, or changes in consumer goods pricing could reduce the demand for our services and, as a result, reduce our revenue and earnings and adversely affect our financial condition.

Slowing economic activity or other negative changes in global, national, and local economic conditions could have a negative impact on our business.

These adverse economic conditions could cause a decline in our clients’ demand for our services and/or in scope of work, including work orders and our clients’ ability to pay for such services, or attempts by our clients to defer payments owed to us.

Further, potential declines in economic conditions could result in depressed prices for our services, which could affect our financial condition.

We offer a portfolio of capital projects, which are designed to reduce a client’s overall consumption of commodities, such as electricity and natural gas.

Downward fluctuations in commodity prices, and/or elevated interest rates, may reduce client demand for such projects.

Additionally, we depend, in part, on federal and state legislation and policies that support energy efficiency projects.

If current legislation or policies are amended, eliminated, or not extended beyond their current expiration dates, or if funding for energy incentives is reduced or delayed, it could also adversely affect our ability to obtain new business.

All of these factors could have an adverse effect on our financial position, results of operations, and cash flows.

All of these factors could have an adverse effect on our financial condition, results of operations, and cash flows.

Risks Relating to Acquisitions, Divestitures, or Strategic Transactions

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We may experience breaches of, or disruptions to, our information technology systems or those of our third-party providers or clients, or other compromises of our data that could adversely affect our business.

Our information technology systems and those of our third-party providers or clients could be the target of cyberattacks, ransomware attacks, hacking, unauthorized access, phishing, computer viruses, malware, or other intrusions, which could result in operational disruptions or information misappropriation, such as theft of intellectual property or inappropriate disclosure of confidential, proprietary, or personal information.

We maintain confidential,

proprietary, and personal information in our information technology systems and in systems of third-party providers relating to our current, former, and prospective employees, clients, and other third parties.

intrusions, which could result in operational disruptions or information misappropriation, such as theft of intellectual property or inappropriate disclosure of confidential, proprietary, or personal information.

We maintain confidential, proprietary, and personal information in our information technology systems and in systems of third-party providers relating to our current, former, and prospective employees, clients, and other third parties.

We have experienced certain data and security breaches in the past and could experience future data or security breaches stemming from the intentional or negligent acts of our employees or other third parties.

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This expanding area of law may also lead to potentially significant additional claims, including class action claims, being alleged against us.

Our ongoing implementation of new enterprise resource planning (“ERP”) and related boundary systems could adversely impact our ability to operate our business and report our financial results.

We utilize multiple platforms and ERP systems to record transactions, provide information to management, and prepare our financial statements.

We are in the process of transitioning our ERP and other key boundary systems.

This transition began in the third quarter of 2023 and will continue for the next couple of years.

While we believe our new ERP and boundary systems will enhance and standardize our processes, allow better oversight, and improve our service to our customers, any disruption to this transition could impact our ability to send and track invoices, process vendor payments, pay employees, fulfill contractual obligations, report our financial results, or otherwise operate our business.

Such disruption could adversely affect our profitability and reputation.

Additionally, any disruption could negatively impact the effectiveness of our controls.

Refer to “Risk Relating to Financial Matters” below for further information on the internal controls.

Risks Relating to Insurance and Safety Matters

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Further, to the extent that we self-insure our losses, deterioration in our loss control and/or our continuing claim management efforts could increase the overall cost of claims within our retained limits.

A material change in our insurance costs due to changes in the frequency of claims, the severity of the claims, the costs of excess/umbrella premiums, or regulatory changes could have a material adverse effect on our financial position, results of operations, or cash flows.

A material change in our insurance costs due to changes in the frequency of

claims, the severity of the claims, the costs of excess/umbrella premiums, or regulatory changes could have a material adverse effect on our financial position, results of operations, or cash flows.

In 2015, we formed a wholly owned captive insurance company, IFM Assurance Company (“IFM”), which we believe has provided us with increased flexibility in the end-to-end management of our insurance program.

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We attempt to mitigate risks relating to personal injury or property loss through the implementation of company-wide safety and loss control efforts designed to decrease the frequency of accidents or events that might increase our liability.

It is expected that any such decrease could also have the effect of reducing our insurance costs for our casualty programs.

However, incidents involving personal injury or property loss may be caused by

multiple potential factors, a significant number of which are beyond our control.

However, incidents involving personal injury or property loss may be caused by multiple potential factors, a significant number of which are beyond our control.

Therefore, there can be no assurance that our risk management and safety programs will have the desired effect of controlling costs and liability exposure.

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We are subject to extensive legal and regulatory requirements, which could limit our profitability by increasing the costs of legal and regulatory compliance.

Our business is subject to a complicated set of federal, state, and local laws and regulations addressing, among other things, wage and hour standards, employment and labor relations, leave of absence, data privacy and protection, occupational health and safety, environmental matters, anti-competition, anti-corruption, and government contracting.

Many of these laws and regulations may have differing or conflicting legal standards across jurisdictions, increasing the complexity and cost of compliance.

Our business is subject to a complicated set of federal, state, and local laws and regulations as well as stakeholder views addressing, among other things, wage and hour standards, employment and labor relations, ESG-related practices, leave of absence, cybersecurity, data privacy and protection, occupational health and safety, environmental matters, anti-competition, anti-corruption, and government contracting.

Many of these laws and regulations may have differing or conflicting legal standards or legal interpretations across jurisdictions, increasing the complexity and cost of compliance.

When federal, state, local, or foreign minimum wage rates increase, we may have to increase the wages of both minimum wage employees and employees whose wages are above the minimum wage.

We may also face increased operating costs resulting from changes in federal, state, or local laws and regulations relating to employment matters, including those relating to meal and rest breaks, eligibility for overtime, pay transparency and reporting, sick pay, and predictive scheduling requirements.

Increased costs of legal and regulatory compliance with this constantly evolving legal and regulatory environment could reduce our profitability.

In addition, we expect there will likely be increasing levels of regulation, disclosure-related and otherwise, with respect to ESG matters, and increased regulation will likely lead to increased compliance costs as well as scrutiny that could heighten all of the risks identified in this risk factor.

Increased costs of legal and regulatory compliance with this constantly evolving legal and regulatory environment could reduce our profitability and adversely affect our financial condition.

A significant number of our employees are covered by collective bargaining agreements that could expose us to potential liabilities in relation to our participation in multiemployer pension plans, requirements to make contributions to other benefit plans, and the potential for strikes, work slowdowns or similar activities, and union organizing drives.

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The failure to make timely and accurate contributions as a result of a systems failure could have a negative impact on our financial position.

At October 31, 2022, approximatel y 35% of our employees were subject to various local collective bargaining agreements, some of which will expire or become subject to renegotiation during 2022.

At October 31, 2023, approximately 37% of our employees were subject to various local collective bargaining agreements, some of which will expire or become subject to renegotiation during 2024.

In addition, at any given time we may face union organizing activity.

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Negative or unexpected tax consequences could adversely affect our results of operations.

We are subject to a variety of taxes and tax collection and remittance obligations in the United States and foreign jurisdictions, primarily the UK.

We are subject to a variety of taxes and tax collection and remittance obligations in the United States and foreign jurisdictions, primarily the UK and Ireland.

We compute our income tax provision based on enacted tax rates in the jurisdictions in which we operate.

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We regularly assess the likelihood of adverse outcomes resulting from these audits to determine the adequacy of our income tax related provision.

We may recognize additional tax expense, be subject to additional tax liabilities, or incur losses and penalties due to adverse outcomes in tax audits or changes in laws, regulations, administrative practices, principles, assessments by authorities, and interpretations related to tax laws, including tax rules in various jurisdictions, which could have an adverse effect on our operating results and financial condition.

We may recognize additional tax expense, be subject to additional tax liabilities, or incur losses and penalties due to adverse outcomes in tax audits or changes in laws, regulations, treaties, administrative practices, principles, assessments by authorities, and interpretations related to tax laws, including tax rules in various jurisdictions, which could have an adverse effect on our operating results and financial condition.

Risks Relating to Financial Matters

Future increases in the level of our borrowings or in interest rates could affect our results of operations.

The Federal Reserve Board significantly increased the federal funds rate in 2022 and has indicated that further rate increases may be announced in the short-term to combat rising inflation in the United States.

The Federal Reserve Board increased interest rates in 2022 and 2023, and these increases may continue in 2024 and beyond.

Such rate increases have corresponding impact to our costs of borrowing and may have an adverse impact on our ability to raise funds through the offering of our securities or through the issuance of debt due to higher debt capital costs, diminished credit availability, and less favorable equity markets.

Any significant additional federal fund rate increases may have a material adverse effect on our business, results of operations, and financial condition.

Any significant additional federal fund rate increases may have a material adverse effect on our business, results of operations, and financial condition, and may cause our customers to implement cost saving strategies that could reduce the demand of our services.

Our future ability to make payments on our debt, fund our other liquidity needs, and make planned capital expenditures will depend on our ability to generate cash.

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For example, being highly leveraged could:

require us to dedicate a substantial portion of our cash flows from operations to the payment of debt service, reducing the availability of our cash flow to fund working capital, share repurchases, capital expenditures, acquisitions, and other general corporate purposes;

require us to dedicate a substantial portion of our cash flows from operations to the

payment of debt service, reducing the availability of our cash flow to fund working capital, share repurchases, capital expenditures, acquisitions, and other general corporate purposes;

limit our availability to obtain additional financing in the future to enable us to react to changes in our business;

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We also review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

If the fair value of one of our reporting units is less than its carrying value, or if as a result of a recoverability test we conclude that the projected undiscounted cash flows

are less than the carrying amount, we would record an impairment charge related to goodwill or long-lived assets, respectively.

(For example, during the second quarter of 2020, given the general deterioration in economic and market conditions arising from the Pandemic, we identified a triggering event that resulted in the impairment of goodwill and intangible assets.) The assumptions used to determine impairment require significant judgment, and the amount of the impairment could have a material adverse effect on our reported financial results for the period in which the charge is taken.

If the fair value of one of our reporting units is less than its carrying value, or if as a result of a recoverability test we conclude that the projected undiscounted cash flows are less than the carrying amount, we would record an impairment charge related to goodwill or long-lived assets, respectively.

(For example, during the second quarter of 2020, given the general deterioration in economic and market conditions arising from the COVID-19 pandemic (“the Pandemic”), we identified a triggering event that resulted in the impairment of goodwill and intangible assets.) The assumptions used to determine impairment require significant judgment, and the amount of the impairment could have a material adverse effect on our reported financial results for the period in which the charge is taken.

If we fail to maintain proper and effective internal control over financial reporting in the future, our ability to produce accurate and timely financial statements could be negatively impacted, which could harm our operating results and investor perceptions of our Company and as a result may have a material adverse effect on the value of our common stock.

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In addition, with the increasing frequency of cyber-related frauds perpetrated to obtain inappropriate payments, we need to ensure our internal controls related to authorizing the transfer of funds and changing our vendor master files are adequate.

Furthermore, the introduction of new, and changes to existing, enterprise resource planning (“ERP”) and financial reporting information systems create implementation and change management risks that require effective internal controls to mitigate.

Furthermore, the introduction of new, and changes to existing, ERP and financial reporting information systems create implementation and change management risks that require effective internal controls to mitigate.

Failure to maintain an effective internal control environment could have a material adverse effect on our ability to accurately report our financial results, the market’s perception of our business, and our stock price.

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Within Parking and Aviation services and portions of our Technical Solutions business, adverse weather conditions can lead to reduced activity, as well as increases in certain costs, both of which negatively affect gross profit.

On the other hand, the absence of snow during the winter could cause us to experience reduced revenues in our B&I segment, as many of our contracts specify additional payments for snow-related services.

On the other hand, the absence of snow during the winter could cause us to

experience reduced revenues in our B&I segment, as many of our contracts specify additional payments for snow-related services.

Catastrophic events, disasters, pandemics, and terrorist attacks could disrupt our services.

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In addition, to the extent centralized administrative locations are disabled for a long period of time, key business processes, such as accounts payable, information technology, payroll, and general management operations, could be interrupted.

Ongoing impacts of the COVID-19 pandemic may adversely affect our liquidity, capital resources, supply chain, operations, and revenue.

The COVID-19 pandemic and the resulting economic downturn have impacted business conditions in the industry in which we operate.

We have taken necessary precautions to safeguard our employees, customers, and other stakeholders from the COVID-19 pandemic, while maintaining business continuity to support our customers and employees.

We are continuing to monitor the impacts of the COVID-19 pandemic on our employees and customers and on the markets in which we operate and will take further actions that we consider prudent to address the COVID-19 pandemic, while ensuring that we can support our customers and continue to provide our services.

The ultimate extent of the impacts of the COVID-19 pandemic continue to be highly uncertain and subject to change.

The extent of resurgences of COVID-19, the efficacy and extent of distribution of vaccines, and the impact of variants of COVID-19 is unpredictable.

These impacts may adversely affect our liquidity, capital resources, supply chain, operations, and revenue and may affect third parties on which we rely and could worsen over time.

Actions of activist investors could disrupt our business.

Public companies have been the target of activist investors.

In the event that a third party, such as an activist investor, proposes to change our governance policies, board of directors, or other aspects of our operations, our review and consideration of such proposals may create a significant distraction for our management and employees.

In the event that a third party, such as an activist investor, proposes to change our governance policies, board of directors, or other aspects of our operations or strategy, our review and consideration of such proposals may create a significant distraction for our management and employees.

This could negatively impact our ability to execute various strategic initiatives and may require management to expend significant time and resources responding to such proposals.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors