What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-12-18 compared with 2022-12-21 · 139 added, 197 removed, 328 unchanged (51% of the section changed)

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• the team member experience, by investing in workforce management, training, developing the next generation of ABM leaders, and building on our inclusive culture;

• our use of technology and data to power client and employee experiences with cutting-edge data and analytics, processes, and tools that will fundamentally change how we operate our business.

• our use of technology and data to power client and employee experiences with cutting-edge data and analytics, processes, and tools that we expect to fundamentally change how we operate our business.

We believe that our technology and data investments will enable:

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Developments and Trends

COVID-19 Pandemic

The COVID-19 Pandemic has led to an increased demand for our services, including higher margin work orders and our EnhancedClean services.

While overall demand for these services has decreased as pandemic-related restrictions continue to loosen, we experienced that ongoing concerns around COVID-19 variants combined with our ELEVATE strategy led to new and incremental opportunities for our services.

Refer to “Consolidated Results of Operations” and “Results of Operations by Segment” for additional information related to the impact of the Pandemic on our financial results.

Macro-Economic Environment in Commercial Real Estate and Other

We actively monitor the economic environment and its potential impact on demand for our services and our financial condition.

Largely driven by the lingering effects of the Pandemic, especially the normalization of hybrid work, the commercial real estate industry, particularly multi-tenant and owner-occupied commercial office buildings, is experiencing an increase in vacancy rates.

Given that Class A and high-quality commercial office buildings are a key end market for the Company, we expect a decline in demand for janitorial services and work orders in these markets near-term.

As a result, we expect our B&I industry to experience muted growth in the near-term.

Longer term, we expect the vacancy rates of Class A and high-quality buildings to gradually decrease and our volume of work to stabilize .

We expect a large client within M&D to rebid and rebalance their work needs in 2024 as part of their procurement process.

While we still expect to retain a large portion of this business, we expect M&D’s financial results to be impacted in the near-term.

Insurance Reserves

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We compare actual trends to expected trends and monitor claims developments.

The specific case reserves estimated by the third-party administrators are provided to an actuary who assists us in projecting an actuarial estimate of the overall ultimate losses for our self-insured or high deductible programs, which includes the case reserves plus an actuarial estimate of reserves required for additional developments, such as IBNR Claims.

The specific case reserves estimated by the third-party administrators are provided to the actuary who assists us in projecting an actuarial estimate of the overall ultimate losses for our self-insured or high deductible programs, which includes the case reserves plus an actuarial estimate of reserves required for additional developments, such as IBNR Claims.

We utilize the results of actuarial studies to estimate our insurance rates and insurance reserves for future periods and to adjust reserves, if appropriate, for prior years.

The actuarial reviews demonstrate that the changes we have made to our risk management program continue to positively impact the frequency and severity of claims.

The claims management strategies and programs that we have implemented have resulted in improvements.

Furthermore, we continue to adjust our reserves consistent with known fact patterns.

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• Revenues increased by $289.8 million, or 3.7%, to $8,096.4 million during 2023, as compared to 2022.

Revenue growth was comprised of acquisition growth of 18.0% and organic growth of 7.3%.

Acquisition growth was primarily driven by an $1,064.4 million revenue increase due to the Able Acquisition, completed in the fourth quarter of 2021.

Organic growth was primarily driven by the recovery in volume of our business as pandemic disruptions eased (primarily in B&I and Aviation) and new business within M&D, Technical Solutions, and Education.

The increase in revenues was partially offset by a decrease in work orders for pandemic-related demands (primarily in M&D and B&I) and the loss of certain accounts within Education in the third quarter of 2021.

Revenue growth was comprised of organic growth of 2.4% and acquisition growth of 1.3%.

Acquisition growth of $104.4 million was driven by the RavenVolt and Momentum acquisitions, completed in the fourth and second quarter of 2022, respectively.

Organic growth was primarily driven by the strong leisure and business travel markets served by Aviation, expansion of new business and growth with current customers in M&D, and net new business wins in Education.

The increase in revenues was partially offset by a decrease in the overall volume of work orders, lower project revenues within Technical Solutions, and soft commercial office market conditions in B&I.

• Operating profit increased by $60.7 million to $409.5 million during 2023, as compared to 2022.

The increase in operating profit was attributable to:

◦ the absence of legal costs and settlements attributed to the legal reserve for the Bucio case;

◦ increase in the volume in our business due to the Able Acquisition and the easing of pandemic disruptions and net new business;

◦ the absence of a non-cash impairment charge for previously capitalized internal-use software related to our ERP system implementation.

The increase in operating profit was attributable to the revenue increase and:

• a decrease in the fair value of the contingent consideration related to the RavenVolt Acquisition;

• an Employee retention credit (“ERC”) refund received.

The increase was partially offset by:

◦ increase in compensation and related expenses primarily attributable to talent acquisition activities and limited labor supply in certain markets;

◦ additional overhead and amortization of intangibles related to the Able Acquisition;

◦ increased expenditures for certain technology projects and other enterprise initiatives (including ELEVATE ).

• Our effective tax rate on income from continuing operations was 25.7% for 2022, as compared to 29.8% during 2021.

• Net cash provided by operating activities of continuing operations was $20.4 million during 2022.

Our total operating cash flows were lower, primarily due to the timing of certain working capital requirements, which included a $143.8 million payment for the Bucio case and a $66 million payment for deferred payroll taxes under the CARES Act in the current fiscal year.

• a decrease in favorable self-insurance adjustments related to prior year claims as a result of actuarial evaluations completed on our workers’ compensation, general liability, automobile liability, and property damage insurance plans;

• a decrease in work orders, which are generally more profitable than contracted service.

• Our effective tax rate on income was 24.1% for 2023, as compared to 25.7% during 2022.

• Net cash provided by operating activities was $243.3 million during 2023.

Our net cash provided by operating cash activities were higher than prior year, primarily due to the timing of certain working capital requirements, which included a $143.8 million payment for the Bucio case in 2022, and the related income tax benefit .

• Dividends of $57.5 million were paid to shareholders, and dividends totaling $0.88 per common share were declared during 2023.

• At October 31, 2022, total outstanding borrowings under our Amended Credit Facility and Receivables Facility were $1,271.3 million, and we had up to $612.9 million of borrowing capacity.

Additionally, we repurchased 3.3 million of shares for $138.1 million, including excise taxes during 2023.

• At October 31, 2023, total outstanding borrowings under our Amended Credit Facility were $1,313.8 million, and we had up to $483.0 million of borrowing capacity.

Results of Operations

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Selling, general and administrative expenses 572.8 628.3 719.2 (55.5) (8.8)%

Restructuring and related expenses — — 7.6 — NM*

Amortization of intangible assets 76.5 72.1 45.0 4.4 6.1%

Impairment loss of goodwill and other intangibles — — 172.8 — NM*

Operating profit 409.5 348.8 206.3 60.7 17.4%

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Interest expense (82.3) (41.1) (28.6) (41.2) (99.9)%

Income from continuing operations before

income taxes 310.0 179.8 53.3 130.2 72.4%

Income before income taxes

331.1 310.0 179.8 21.1 6.8%

Income tax provision (79.7) (79.6) (53.5) (0.1) (0.2)%

Income from continuing operations 230.4 126.3 0.2 104.1 82.4%

Income (loss) from discontinued operations,

net of taxes — — 0.1 — NM*

Net income 251.3 230.4 126.3 20.9 9.1%

Other comprehensive income (loss)

Other comprehensive income

Interest rate swaps (0.5) 36.7 4.5 (37.2) NM*

Foreign currency translation and other 7.3 (19.8) 5.3 27.1 NM*

Income tax (provision) benefit (10.5) (1.5) 2.4 (9.0) NM*

Comprehensive income (loss) $ 236.9 $ 134.5 $ (6.6) $ 102.4 76.1%

Income tax provision 0.1 (10.5) (1.5) 10.6 NM*

Comprehensive income $ 258.1 $ 236.9 $ 134.5 $ 21.2 9.0%

*Not meaningful

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Revenues increased by $289.8 million, or 3.7%, to $8,096.4 million during 2023, as compared to 2022.

Revenue growth was comprised of acquisition growth of 18.0% and organic growth of 7.3%.

Acquisition growth was primarily driven by an $1,064.4 million revenue increase due to the Able Acquisition, completed in the fourth quarter of 2021.

Revenue growth was comprised of organic growth of 2.4% and acquisition growth of 1.3%.

Acquisition growth of $104.4 million was driven by the RavenVolt and Momentum acquisitions, completed in the fourth and second quarter of 2022, respectively.

Operating Expenses

Operating expenses increased by $280.1 million, or 4.1%, to $7,037.6 million during 2023, as compared to 2022.

Gross margin decreased by 214 bps to 13.4% in 2022 from 15.6% in 2021.

The decrease in gross margin was primarily driven by the decrease in cleaning services for pandemic-related demands (primarily in M&D and B&I), which have higher margins, and the changes in contract mix due to the Able Acquisition.

In addition, gross margin was negatively impacted by an increase in direct labor and related costs (primarily in B&I, Aviation, and Education) and the amortization of intangibles acquired as part of the Able Acquisition.

Gross margin decreased by 36 bps to 13.1% in 2023, as compared to 13.4% in 2022.

The decrease in gross margin was primarily driven by the decrease in favorable self-insurance adjustments related to prior year claims as a result of actuarial evaluations completed on our workers’ compensation, general liability, automobile liability, and property damage insurance plans.

In addition, gross margins were impacted by a decrease in work orders, which are generally more profitable than contracted service.

Selling, General and Administrative Expenses

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The decrease in selling, general and administrative expenses was primarily attributable to:

• a $160.1 million decrease in legal costs and settlements, of which $142.9 million was attributed to the accrual of a legal reserve for the Bucio case during 2021;

• the absence of a $9.1 million non-cash impairment charge for previously capitalized internal-use software related to our ERP system implementation as we determined that certain components developed will no longer be incorporated into the new ERP system during 2021;

• a $7.6 million gain recognized on the sale of a group of customer contracts related to healthcare technology management services within Technical Solutions;

• a $9.8 million decrease in bad debt expense;

• a $5.7 million decrease in acquisition and integration costs primarily attributable to the Able acquisition partially offset by an increase due to our Momentum and RavenVolt acquisitions.

• a $45.6 million decrease in the fair value of contingent consideration related to the RavenVolt Acquisition;

• a $24.0 million benefit from ERC refunds received;

• a $6.6 million decrease in certain technology projects primarily attributable to discrete transformational costs under our ELEVATE strategy for developing the new ERP system, client-facing technology, workforce management tools, and data analytics;

This decrease was partially offset by:

• a $46.1 million increase in compensation and related expenses primarily attributable to talent acquisition activities;

• a $31.4 million increase in certain technology projects primarily attributable to discrete transformational costs under our ELEVATE strategy for developing the new ERP system, client-facing technology, workforce management tools, and data analytics;

• a $16.9 million increase related to the Able Acquisition;

• a $6.7 million decrease in favorable self-insurance adjustments related to prior year claims as the result of actuarial evaluations completed on our medical and dental self-insurance plans.

• a $10.8 million increase in bad debt, of which $7.7 million relates to a favorable adjustment in the prior year;

• an absence of a $7.6 million gain on the sale of a group of customer contracts related to healthcare technology management services within Technical Solutions during 2022;

• a $4.6 million increase in unfavorable self-insurance adjustment related to prior year claims as the result of actuarial evaluations completed on our medical and dental self-insurance plans.

Amortization of Intangible Assets

Amortization of intangible assets increased by $4.4 million, or 6.1%, to $76.5 million during 2023, as compared to 2022.

This increase was primarily due to the amortization of intangibles acquired as part of the Able Acquisition.

This increase was primarily due to the amortization of intangibles acquired as part of the RavenVolt and Momentum acquisitions.

Interest Expense

Interest expense increased by $12.5 million, or 43.9%, to $41.1 million during 2022, as compared to 2021, primarily driven by the indebtedness to fund acquisitions and working capital requirements and an increase in the reference rates on our debt borrowings beginning the second quarter of 2022.

This increase was partially offset by more favorable terms in the current year as the result of amending our credit facility in the third quarter of 2021.

Income Taxes from Continuing Operations

Interest expense increased by $41.2 million, or 99.9%, to $82.3 million during 2023, as compared to 2022, primarily driven by higher interest rates on our debt borrowings.

During 2023 and 2022, we had effective tax rates of 24.1% and 25.7%, respectively, resulting in a provision for tax of $79.7 million and $79.6 million, respectively.

Our effective tax rate for 2023 was impacted by a $12.8 million benefit related to the non-taxable change in the fair value of the contingent consideration related to the RavenVolt Acquisition, a $2.2 million benefit for share-based compensation;

and a $1.5 million benefit for return to provision adjustment primarily related to state and local deferred income taxes;

partially offset by a $4.8 million expense related to non-deductible executive compensation.

Our effective tax rate for 2022 was impacted by the following items:

a $8.1 million benefit for expiring statutes of limitations;

an $8.1 million benefit for uncertain tax positions with expiring statutes;

a $1.4 million benefit for share-based compensation;

and a $1.3 million provision for true-ups.

Our effective tax rate for 2021 was also impacted by the following items:

a $3.0 million provision for nondeductible transaction costs;

a $2.6 million provision for change in tax reserves;

a $1.4 million provision for true-ups;

and a $1.2 million benefit for energy efficiency incentives.

and a $1.3 million return to provision adjustments.

Interest Rate Swaps

We had a gain of $36.7 million on interest rate swaps during the year ended October 31, 2022, as compared to a gain of $4.5 million during the year ended October 31, 2021, primarily due to underlying changes in the fair value of our interest rate swaps.

We had a loss of $0.5 million on interest rate swaps during the year ended October 31, 2023, as compared to a gain of $36.7 million during the year ended October 31, 2022, primarily due to underlying changes in the fair value of our interest rate swaps.

Foreign Currency Translation and Other

We had a foreign currency translation loss of $19.8 million during the year ended October 31, 2022, as compared to a foreign currency translation gain of $5.3 million during the year ended October 31, 2021.

We had a foreign currency translation gain of $7.3 million during the year ended October 31, 2023, as compared to a foreign currency translation loss of $19.8 million during the year ended October 31, 2022.

This change was due to fluctuations in the exchange rate between the U.S.

Dollar (“USD”) and the British pound sterling

Dollar (“USD”) and the British pound sterling (“GBP”).

Future gains and losses on foreign currency translation will be dependent upon changes in the relative value of foreign currencies to the USD and the extent of our foreign assets and liabilities.

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Operating profit margin 5.6 % 5.6 % 7.4 % — bps

Aviation 29.3 32.1 (60.1) (2.8) (8.6)%

Aviation 60.0 29.3 32.1 30.7 NM*

Operating profit margin 6.5 % 3.6 % 4.9 % 283 bps

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Operating profit margin 7.9 % 10.2 % 9.3 % (228) bps

Government Services (0.3) (0.2) (0.1) (0.1) (72.4)%

Government Services — (0.3) (0.2) 0.3 NM*

Operating profit margin NM* NM* NM* NM*

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Operating profit margin 7.7 % 8.2 % (46) bps

B&I revenues increased by $1,242.1 million, or 43.5%, to $4,095.9 million during 2022, as compared to 2021.

Revenue growth was comprised of acquisition growth of 38.5% and organic growth of 5.0%.

Acquisition growth was primarily driven by a $1,058.9 million revenue increase due to the Able Acquisition, completed in the fourth quarter of 2021.

Organic growth was primarily driven by the recovery of certain accounts as pandemic-related disruptions continue to ease and targeted expansion of certain key clients, as well as lower sales allowance reserve, while partially offset by decrease in pandemic-related cleaning services.

B&I revenues decreased by $6.5 million, or 0.2%, to $4,089.4 million during 2023, as compared to 2022.

This decrease in revenue was comprised of acquisition growth of 0.8%, offset by organic decrease of 0.9%.

Acquisition growth of $32.1 million was driven by the Momentum Acquisition, completed in the second quarter of 2022.

Organic decrease was primarily driven by decrease in work orders, soft commercial office market conditions, and the expected attrition of certain engineering clients.

Management reimbursement revenues for this segment totaled $270.1 million and $227.8 million during 2023 and 2022, respectively.

Operating profit increased by $49.0 million, or 17.1%, to $334.9 million during 2022, as compared to 2021.

Operating profit decreased by $19.3 million, or 5.7%, to $315.6 million during 2023, as compared to 2022.

Operating profit margin decreased by 46 bps to 7.7% in 2023 from 8.2% in 2022.

The decrease in operating profit margin was primarily driven by an increase in direct labor and related costs due to a limited labor supply in certain non-union markets;

a decrease in pandemic-related cleaning services, which have higher margins;

and changes in contract mix as a result of the Able Acquisition, partially offset by lower bad debt expense.

In addition, operating profit margin was negatively impacted by the amortization of intangibles acquired as part of the Able Acquisition.

The decrease in operating profit margin was primarily driven by a decrease in work orders, which are generally more profitable than contracted service, the change in contract mix, and an increase in direct labor and related costs due to a limited labor supply in certain non-union markets.

The decrease was partially offset by lower amortization of intangible assets.

Manufacturing & Distribution

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M&D revenues increased by $81.5 million, or 5.6%, to $1,526.7 million during 2023, as compared to 2022.

The increase was primarily attributable to the expansion of business with existing customers led by distribution clients, partially offset by a decrease in work orders for pandemic-related demands.

Operating profit increased by $6.3 million, or 4.0%, to $161.8 million during 2022, as compared to 2021.

The increase was primarily attributable to the net new business wins and the expansion of business with existing customers, partially offset by a decrease in work orders.

Operating profit decreased by $0.1 million, to $161.7 million during 2023, as compared to 2022.

Operating profit margin decreased by 60 bps to 10.6% in 2023 from 11.2% in 2022.

The decrease in operating profit margin was primarily attributable to the decrease in pandemic-related work orders, which have higher margins.

The decrease in operating profit margin was primarily attributable to the change in contract mix and decrease in work orders, which are generally more profitable than contracted service.

Years Ended October 31,

($ in millions) 2022 2021 Increase / (Decrease)

($ in millions) 2023 2022 Increase

Revenues $ 880.4 $ 834.7 $ 45.7 5.5%

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Education revenues increased by $45.7 million, or 5.5%, to $880.4 million during 2023, as compared to 2022.

The increase was primarily attributable to new business and recovery in the volume of our business as schools reopened to full capacity.

The increase was partially offset by a loss of certain accounts in the third quarter of 2021.

Operating profit decreased by $14.4 million, or 23.4% to $47.1 million during 2022, as compared to 2021.

Operating margin decreased to 5.6% in 2022 from 7.4% in 2021.

The decrease in operating margin was primarily attributable to an increase in direct labor and related costs due to the return to in-person learning and a limited labor supply in certain geographies.

Operating margin was positively impacted by lower amortization of intangible assets.

The increase was primarily attributable to net new business wins, partially offset by a decrease in work orders.

Operating profit increased by $2.6 million, or 5.5% to $49.7 million during 2023, as compared to 2022.

Operating profit margin of 5.6% in 2023 was consistent with 2022.

The operating profit margin was positively impacted by labor efficiencies and lower amortization of intangible assets, offset by an increase in start-up supplies to support new business growth and the decrease in work orders, which are generally more profitable than contracted service.

Years Ended October 31,

($ in millions) 2022 2021 Increase / (Decrease)

($ in millions) 2023 2022 Increase

Revenues $ 925.7 $ 804.0 $ 121.7 15.1%

Operating profit 29.3 32.1 (2.8) (8.6)%

Operating profit 60.0 29.3 30.7 NM*

Operating profit margin 6.5 % 3.6 % 283 bps

Aviation revenues increased by $121.7 million, or 15.1% to $925.7 million, during 2023, as compared to 2022.

The increase was primarily attributable to a recovery in consumer and business travel (both domestic and international) and new parking-related services.

The increase was primarily attributable to a recovery in leisure and business travel (both domestic and international) and new parking-related services.

In addition, we recognized $11.4 million in revenue from an Aviation parking project, whereby all the direct labor and related costs were recognized in prior periods.

The related revenue was not recognized in the prior periods since the criteria for revenue recognition was not met until February 2023.

Management reimbursement revenues for this segment totaled $31.8 million and $52.6 million during 2023 and 2022, respectively.

Operating profit decreased by $2.8 million, or 8.6%, to $29.3 million during 2022, as compared to 2021.

Operating margin decreased to 3.6% during 2022, from 4.9% during 2021.

The decrease was primarily attributable to delays in work order acceptance from a client related to a parking project, whereby direct labor and related costs were incurred in the current year while related revenue did not meet the criteria for revenue recognition.

It is expected that the revenue that was not recognized in 2022 will be recognized in a future period.

The decrease was partially offset by the contract mix.

Operating profit increased by $30.7 million, to $60.0 million during 2023, as compared to 2022.

Operating profit margin increased to 6.5% during 2023, from 3.6% during 2022.

The increase in operating profit margin was primarily attributable to the $11.4 million in revenue from an Aviation parking project.

Operating profit margin was negatively impacted by an increase in direct labor and related costs due to increased headcounts as travel continues to recover.

Technical Solutions

Years Ended October 31,

($ in millions) 2022 2021 Increase

($ in millions) 2023 2022 Increase / (Decrease)

Revenues $ 674.2 $ 626.8 $ 47.4 7.6%

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Technical Solutions revenues increased by $47.4 million, or 7.6%, to $674.2 million during 2023, as compared to 2022.

Revenue growth was comprised of acquisition growth of 2.8% and organic growth of 15.5%.

The organic revenue growth was primarily driven by the growth in electric vehicle charging station installation sales.

Acquisition growth was primarily driven by a $14.7 million revenue increase due to the RavenVolt Acquisition, completed in the fourth quarter of 2022.

Operating profit increased by $14.4 million, or 29.2%, to $63.8 million during 2022, as compared to 2021.

Operating profit margin increased by 86 bps to 10.2% in 2022 from 9.3% in 2021.

The increase in operating profit margin was primarily attributable to the $7.6 million gain recognized on the sale of a group of customer contracts related to healthcare technology management services and lower bad debt expense partially offset by the contract mix.

Revenue growth included acquisition growth of 11.5%, which was partially offset by an organic decrease of 3.9%.

Acquisition growth of $72.3 million was driven by the RavenVolt Acquisition, which was completed in the fourth quarter of 2022.

The organic revenue decrease was primarily driven by the decline in electric vehicle charging station installation sales and lower project revenues due to the timing of completions of certain bundled energy solutions projects.

Operating profit decreased by $10.6 million, or 16.5%, to $53.2 million during 2023, as compared to 2022.

Operating profit margin decreased by 228 bps to 7.9% in 2023 from 10.2% in 2022.

The decrease in operating profit margin was primarily attributable to a $7.6 million gain recognized on the sale of a group of customer contracts related to healthcare technology management services recognized in the prior year, and amortization of intangible assets related to the RavenVolt Acquisition, partially offset by the contract mix.

Years Ended October 31,

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The decrease in corporate expenses was primarily related to:

• a $158.0 million decrease in legal costs and settlements, of which $142.9 million was attributed to the accrual of a legal reserve for the Bucio case during 2021;

• a $5.7 million decrease in acquisition and integration costs primarily attributable to the Able acquisition partially offset by an increase due to our Momentum and RavenVolt acquisitions.

• a $45.6 million decrease in the fair value of contingent consideration related to the RavenVolt Acquisition;

• a $24.0 million benefit from ERC refunds received;

• a $6.4 million decrease in compensation and related expenses primarily due to lower compensation under certain incentive plans;

• a $2.4 million decrease in acquisition and integration costs primarily attributable to our prior years’ acquisitions.

This decrease was partially offset by:

• a $26.2 million increase in compensation and related expenses primarily attributable to talent acquisition activities;

• a $32.2 million increase in certain technology projects primarily attributable to discrete transformational costs under our ELEVATE strategy for developing the new ERP system, client-facing technology, workforce management tools, and data analytics;

• a $14.9 million increase related to the Able Acquisition;

• a $6.7 million decrease in favorable self-insurance adjustments related to prior year claims as the result of actuarial evaluations completed on our medical and dental self-insurance plans.

• a $22.0 million decrease in favorable self-insurance adjustments related to prior year claims as the result of actuarial evaluations completed on our workers’ compensation, general liability, automobile liability, and property damage insurance plans;

• a $4.6 million increase in unfavorable self-insurance adjustment related to prior year claims as the result of actuarial evaluations completed on our medical and dental self-insurance plans.

The Year Ended October 31, 2022, Compared with the Year Ended October 31, 2021

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On a long-term basis, we will continue to rely on our credit facility for any long-term funding not provided by operating cash flows.

We believe that our operating cash flows and borrowing capacity under our credit facility are sufficient to fund our cash requirements for the next 12 months.

We believe that our operating cash flows and borrowing capacity under our credit facility are sufficient to fund our cash requirements for at least a 12-month period from the issuance of these financial statements.

In the event that our plans change or our cash requirements are greater than we anticipate, we may need to access the capital markets to finance future cash requirements.

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We may repay amounts borrowed under the Amended Credit Facility at any time without penalty.

Under the Amended Credit Facility, the term loan and U.S.-dollar-denominated borrowings under the revolver bear interest at a rate equal to the one-month London Interbank Offered Rate (“LIBOR”) plus a spread based upon our leverage ratio.

Euro- and sterling-denominated borrowings under the revolver bear at the interest rate of the Euro Interbank Offered Rate (EURIBOR) and the daily Sterling Overnight Index Average (SONIA) reference rate, respectively, plus a spread that is based upon our leverage ratio.

The spread ranges from 1.375% to 2.250% for Eurocurrency loans and 0.375% to 1.250% for base rate loans.

At October 31, 2022, the weighted average interest rate on our outstanding borrowings was 4.97%.

We also pay a commitment fee, based on our leverage ratio and payable quarterly in arrears, ranging from 0.20% to 0.40% on the average daily unused portion of the line of credit.

For purposes of this calculation, irrevocable standby letters of credit, which are issued primarily in conjunction with our insurance programs, and cash borrowings are included as outstanding under the line of credit.

At November 1, 2022, we amended our Amended Credit Facility pursuant to the LIBOR Transition Amendment and the Fifth Amendment to replace the benchmark rate at which U.S.-dollar-denominated borrowings bear interest from LIBOR to the forward-looking SOFR term rate administered by CME Group Benchmark Administration Limited.

As a result of these amendments, we can borrow at Term SOFR plus a credit spread adjustment of 0.10% subject to a floor of zero.

The Amended Credit Facility contains certain covenants, including a maximum total net leverage ratio of 5.00 to 1.00, a maximum secured net leverage ratio of 4.00 to 1.00, and a minimum interest coverage ratio of 1.50 to 1.00, as well as other financial and non-financial covenants.

In the event of a material acquisition, as defined in the Amended Credit Facility, we may elect to increase the maximum total net leverage ratio to 5.50 to 1.00 for a total of four fiscal quarters and increase the maximum secured net leverage ratio to 4.50 to 1.00 for a total of four fiscal quarters.

We did not make this election for the Able Acquisition.

Our borrowing capacity is subject to, and limited by, compliance with the covenants described above.

At October 31, 2023, we were in compliance with these covenants and expect to be in compliance in the foreseeable future.

On March 1, 2022, we entered into a new uncommitted receivable repurchase facility (the “Receivables Facility”) of up to $150 million, which expires on February 28, 2023.

The Receivables Facility allows the Company to sell a portfolio of available and eligible outstanding U.S.

trade accounts receivable to a participating institution and simultaneously agree to repurchase them generally on a monthly basis.

Under this arrangement, we make floating

rate interest payments equal to the forward-looking term rate based on Secured Overnight Financing Rate (“SOFR”) plus 1.05%.

These interest payments are payable monthly in arrears.

The repurchase price of the receivables in the facility is the original face value.

Outstanding receivables must be repurchased on a date agreed upon by both the buyer and seller, generally on a monthly basis, and on the termination date of the repurchase facility.

This facility is considered a secured borrowing and provides the buyer with customary rights of termination upon the occurrence of certain events of default.

On March 1, 2022, we entered into a new uncommitted receivable repurchase facility (the “Receivables Facility”) of up to $150 million, which expired on March 30, 2023.

This facility was considered a secured borrowing and provided the buyer with customary rights of termination upon the occurrence of certain events of default.

We have guaranteed all of the sellers’ obligations under the facility.

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At October 31, 2023, we had up to $483.0 million of borrowing capacity.

On March 5, 2021, the United Kingdom’s Financial Conduct Authority, the regulator of LIBOR, announced that the USD LIBOR rates will no longer be published after June 30, 2023.

The Alternative Reference Rates Committee, a group of market participants convened by the U.S.

Federal Reserve Board and the Federal Reserve Bank of New York, has recommended SOFR, a rate calculated based on repurchase agreements backed by treasury securities, as its recommended alternative benchmark rate to replace USD LIBOR.

We transitioned the outstanding debt from a LIBOR-based interest rate to a term SOFR-based interest rate, which is set to take effect on November 1, 2022.

Reinvestment of Foreign Earnings

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Effective December 18, 2019, our Board of Directors replaced our then-existing share repurchase program with a new share repurchase program under which we may repurchase up to $150.0 million of our common stock.

We repurchased shares under the Share Repurchase Program during 2022, as summarized below.

Effective December 9, 2022, and December 13, 2023, our Board of Directors expanded the Share Repurchase Program by $150.0 millionand $150.0 million, respectively.

We repurchased shares under the share repurchase program during the year ended October 31, 2023, as summarized below.

At October 31, 2023, authorization for $60.3 million of repurchases remained under the Share Repurchase Program.

Effective December 9, 2022, our Board of Directors expanded the Share Repurchase Program by an additional $150.0 million.

There were no share repurchases during 2021.

Years Ended October 31,

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Total number of shares purchased 3.3 2.3

Average price paid per share $ 42.15 N/A

Average price paid per share (1)

$ 41.06 $ 42.15

Total cash paid for share repurchases (1)

$ 137.1 $ 97.5

(1) Average price paid per share and total cash paid for share repurchases do not include any excise tax for stock repurchases as part of the Inflation Reduction Act of 2022.

Proceeds from Federal Energy Savings Performance Contracts

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the timing and amount of income tax payments;

and the timing and amount of payments on insurance claims and legal settlements.

and the timing and amount of payments on insurance claims and legal

Years Ended October 31,

(in millions) 2023 2022 2021

Net cash provided by operating activities of continuing operations $ 20.4 $ 314.3 $ 457.4

Net cash provided by operating activities of discontinued operations — — 0.1

Net cash provided by operating activities 243.3 20.4 314.3

Net cash used in investing activities (62.1) (241.5) (740.0)

Net cash provided by (used in) financing activities 235.5 92.4 (94.1)

Operating Activities of Continuing Operations

Net cash (used in) provided by financing activities (186.3) 235.5 92.4

Operating Activities

Net cash provided by operating activities of continuing operations increased by $222.9 million during 2023, as compared to 2022.

The increase was primarily driven by a $143.8 million payments made for the Bucio settlement in 2022, and the related income tax benefit .

Net cash provided by operating activities of continuing operations decreased by $293.9 million during 2022, as compared to 2021.

The decrease was primarily driven by payments made for the Bucio settlement, which was recorded within “Other Accrued Liabilities” in the Consolidated Balance Sheets, and deferred remittance of payroll taxes in the current year and the timing of client receivable collections and vendor payments.

Net cash provided by operating activities of continuing operations decreased by $143.1 million during 2021, as compared to 2020.

The decrease was primarily related to the timing of client receivable collections and deferred remittance of payroll taxes under the CARES Act in 2021, partially offset by the timing of vendor payments.

Investing Activities

Net cash used in investing activities changed by $179.5 million during 2023, as compared to 2022.

The change was primarily related to the Able Acquisition during the fourth quarter of 2021, partially offset by Momentum and RavenVolt acquisitions.

The change was primarily related to the Momentum and RavenVolt acquisitions, completed in 2022.

Net cash used in investing activities changed by $498.5 million during 2022, as compared to 2021.

The change was primarily related to the Able Acquisition during the fourth quarter of 2021.

The change was primarily related to the Able Acquisition during the fourth quarter of 2021, partially offset by Momentum and RavenVolt acquisitions.

Financing Activities

Net cash provided by financing activities was $235.5 million in 2022, as compared to net cash used in financing activities of $92.4 million in 2021.

The change was primarily related to an increase in net borrowings from our Amended Credit Facility and Receivable Facility to fund acquisitions and working capital requirements.

Net cash provided by financing activities was $92.4 million in 2021, as compared to net cash used in financing activities of $94.1 million in 2020, primarily due to higher net borrowings to partially fund the purchase price of the Able Acquisition.

On December 5, 2022, we announced a quarterly cash dividend of $0.22 per share on our common stock, payable on February 6, 2023.

We declared a quarterly cash dividend on our common stock every quarter during

2022, 2021, and 2020.

Net cash used in financing activities was $186.3 million in 2023, as compared to net cash provided by financing activities of $235.5 million in 2022.

The change was primarily related to a decrease in net borrowings from our Amended Credit Facility, as in 2022 we had higher borrowings to fund Momentum and RavenVolt acquisitions, and higher share repurchases in 2023.

Net cash provided by financing activities was $235.5 million in 2022, as compared to $92.4 million in 2021, primarily due to higher net borrowings to fund acquisitions and working capital requirements.

On December 13, 2023, we announced a quarterly cash dividend of $0.225 per share on our common stock, payable on February 5, 2024, to shareholders of record on January 4, 2024.

We declared a quarterly cash dividend on our common stock every quarter during 2023, 2022, and 2021.

We paid total annual dividends of $57.5 million, $51.9 million, and $51.0 million during 2023, 2022, and 2021, respectively.

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• Debt Obligations and Interest Payments – Outstanding payments on our Amended Credit Facility were $1,313.8 million, with $32.5 million payable within 12 months.

In addition, we have $150.0 million payable under our Receivables Facility that allows us to sell a portfolio of available and eligible outstanding U.S.

trade accounts receivable of up to $150.0 million to a participating institution and simultaneously agree to repurchase them generally on a monthly basis.

We had future interest payments based on our hedged borrowings under our Amended Credit Facility of $16.3 million, which is payable within 12 months.

We have future interest payments based on our hedged borrowings under our Amended Credit Facility of $16.8 million, which is payable within 12 months.

The interest payments on our remaining borrowings under the Amended Credit Facility will be determined based upon the average outstanding balance of our borrowings and the prevailing interest rate during that time.

See Note 11, “Credit Facility,” in the Financial Statements for further detail of our debt and the timing of expected future principal and interest payments.

See Note 11, “Debt,” in the Financial Statements for further detail of our debt and the timing of expected future principal and interest payments.

• Operating and Finance Leases – We enter into various noncancelable l ease agreements for office space, parking facilities, warehouses, vehicles, and equipment used in the normal course of business.

Operating and finance lease obligations were $161.1 million, with $38.4 million payable within 12 months.

and finance lease obligations were $168.0 million, with $42.2 million payable within 12 months.

See Note 5, “Leases,” in the Financial Statements for further detail of our obligations and the timing of expected future payments.

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These amounts are based on expected future service and were calculated using the same assumptions used to measure our benefit obligation at October 31, 2023.

• CARES Act Tax Obligations – We deferred approximately $66 million of payroll tax provisions under the CARES Act, which we paid in December 2022.

See Note 16, “Income Taxes,” in the Financial Statements for further details.

In addition, our material cash requirements for other obligations, for which we cannot reasonably estimate future payments, include the following:

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The resolution or settlement of these tax positions with the taxing authorities is subject to significant uncertainty, and therefore we are unable to make a reliable estimate of the amount or timing of cash that may be required to settle these matters.

In addition, certain of these matters may not require cash settlements due to the exercise of credits and net operating loss carryforwards as well as other offsets, including the indirect benefit from other taxing jurisdictions that may be available.

In addition, certain of these matters may not require cash settlements due to the utilization of credits and net operating loss carryforwards as well as other offsets, including the indirect benefit from other taxing jurisdictions that may be available.

• Contingent Consideration Payable in Connection with Our Acquisition of RavenVolt – At October 31, 2023, contingent consideration of up to $280.0 million in cash may be paid in calendar years 2024, 2025, and 2026, if the RavenVolt business achieves certain financial targets, as defined in the merger agreement, in calendar years 2023, 2024, and 2025 .

We do not expect the RavenVolt business to achieve the aforementioned financial targets for calendar year 2023, and as such, we do not expect contingent consideration to be payable in the next 12 months.

Off-Balance Sheet Arrangements

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The surety bonds typically remain in force for one to five years and may include optional renewal periods.

As of October 31, 2022, these letters of credit and surety bonds totaled $158.3 million and $618.6 million, respectively.

As of October 31, 2023, these letters of credit totaled $58.2 million, and surety bonds and surety-backed letters of credit totaled $776.2 million, respectively.

Neither of these arrangements has a material current effect, or is reasonably likely to have a material future effect, on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in accordance with United States generally accepted accounting principles requires our management to make certain estimates that affect the reported amounts.

The preparation of consolidated financial statements in accordance with United States generally accepted accounting principles (“U.S.

GAAP”) requires our management to make certain estimates that affect the reported amounts.

We base our estimates on historical experience, known or expected trends, independent valuations, and various other assumptions that we believe to be reasonable under the circumstances.

As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

As a result of our Acquisition of RavenVolt, we added “Contingent Consideration” to our critical accounting policies and estimates in 2022.

We removed “Customer Relationships” and “Contingencies and Litigation”.

We removed “Contingent Consideration” from our critical accounting policies and estimates in 2023.

There have been no other significant changes to our critical accounting policies and estimates for the year ended October 31, 2023.

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A goodwill impairment analysis was performed for each of our reporting units on August 1, 2023.

Based on these studies, the implied fair value of each of our reporting units was substantially in excess of its carrying value.

Therefore, we concluded there were no indicators of impairment.

Based on these studies, the implied fair value of each of our reporting units was substantially in excess of its carrying value, with the exception of the Education reporting unit, where the excess of the fair value over its carrying value was less than 20%.

A 10% decrease in the estimated fair value of any of our reporting units would not have resulted in a different conclusion.

We concluded there were no indicators of impairment.

During the third quarter of 2021, we recognized a non-cash impairment charge totaling $9.1 million in our Corporate segment for previously capitalized internal-use software related to our ERP system implementation.

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The impairment charge reduced the carrying value to zero for those components.

During the second quarter of 2020, given the general deterioration in economic and market conditions arising from the Pandemic, we identified a triggering event indicating possible impairment of goodwill and intangible assets.

For the three goodwill reporting units tested quantitatively, we estimated the fair value using a weighting of fair values derived from an income approach and a market approach.

Based on the evaluation performed, we determined that goodwill was impaired for each of the three goodwill reporting units evaluated and recognized a non-cash impairment charge totaling $163.8 million ($99.3 million related to Education, $55.5 million related to Aviation, and $9.0 million related to our UK Technical Solutions business).

We also recognized intangible asset impairment charges of $5.6 million related to Aviation and $3.4 million related to our UK Technical Solutions business.

We performed our annual goodwill impairment analysis on August 1, 2020, using a qualitative approach since there were no indicators of impairment subsequent to our quantitative analysis performed in the second quarter of 2020 as discussed above.

As a result of the qualitative analysis, we concluded that there were no further impairments.

Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions

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A 10% change in our projected ultimate losses would have affected net income by approximately $35.1 million for 2023.

Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions

Contingent Consideration

The acquisition of RavenVolt included contingent earn-out arrangement, which is based on the achievement of future income thresholds or other metrics.

The contingent earn-out arrangements are based upon our valuations of the acquired companies and reduce the risk of overpaying for acquisitions if the projected financial results are not achieved.

The fair values of these earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates.

For each transaction, we estimate the fair value of contingent earn-out payments as part of the initial purchase price and record the estimated fair value of contingent consideration as a liability on the Consolidated Balance Sheets.

The fair values of the earn-out arrangements are estimated by discounting the expected future contingent payments to present value using a variation of the Income Approach, known as the Real Option method.

To estimate the fair value of the contingent consideration on the date of acquisition, we used the Real Options method.

The key assumptions used in our valuation were:

i) forecast of revenues and EBITDA margins, ii) the volatility associated with the EBITDA, iii) risk-adjusted discount rate applied to forecasted EBITDA, and (iv) the credit-adjusted discount rate related to the payment of the contingent consideration.

A simulation of one million scenarios was performed with the assistance of a third-party valuation specialist, resulting in a fair value for the cumulative contingent consideration for calendar years 2023 through 2025 totaling $59 million.

These estimates are influenced by many factors, including historical financial information, guideline public company data, and management's expectations for future customer growth as a combined company.

Changes in these inputs could have a significant impact on the initial fair value of the contingent consideration liability.

We review and re-assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could be materially different from the initial estimates or prior quarterly amounts.

Changes in the estimated fair value of our contingent consideration and adjustments to the estimated fair value related to changes in all other unobservable inputs will be recognized within “Operating Expenses” in the Consolidated Statements of Comprehensive Income (Loss).

At October 31, 2022, we recorded $59.0 million of contingent consideration liability related to the RavenVolt acquisition.

The cumulative maximum of the earn-out payments is $280.0 million, if RavenVolt achieves certain EBITDA (as defined in the RavenVolt merger agreement) targets.

Pursuant to the RavenVolt merger agreement, former owners of RavenVolt would be entitled to a payment of up to $75.0 million in calendar year 2024 for achieving certain EBITDA targets in calendar year 2023;

$75.0 million in calendar year 2025 for achieving certain EBITDA targets in calendar year 2024;

and $130.0 million in calendar year 2026 for achieving certain EBITDA targets in calendar year 2025.

If the EBITDA achieved for calendar years 2023 - 2025 cumulatively meets the defined EBITDA targets, the entire $280.0 million would be paid in calendar year 2026, minus any earn-out payments made in 2024 and 2025.

The actual achievement of contingent considerations payments in 2024, 2025, and 2026 could be materially different than the initial fair value of $59 million.

Recent Accounting Pronouncements

Accounting Pronouncements

Accounting Standard Updates Topic Summary Effective Date/

Method of Adoption

2021-01 Reference Rate Reform (Topic 848):

Scope This Accounting Standard Update (“ASU”), issued in January 2021, clarifies that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions under Topic 848.

Effective November 1, 2023, we applied available practical expedients under ASC 848 to account for modifications, changes in critical terms, and updates to the designated hedged risks as qualifying changes have been made to applicable debt and derivative contracts as if they were not substantial.

This update was effective upon issuance and can be applied to hedging relationships retrospectively or prospectively through December 31, 2022.

2020-04 Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting This ASU, issued in March 2020, provides optional expedients to assist with the discontinuance of LIBOR.

The expedients allow companies to ease the potential accounting burden when modifying contracts and hedging relationships that use LIBOR as a reference rate, if certain criteria are met.

This update was effective upon issuance and can be applied prospectively to contract modifications made and hedging relationships entered into or evaluated through December 31, 2022.

Liabilities - Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations This Accounting Standard Update (“ASU”), issued in September 2022, is designed to enhance transparency around supplier finance programs by requiring new disclosures that would allow a user of the financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude.

While we are currently evaluating the impact of implementing this guidance on our financial statements, we do not expect adoption to have a material impact.

This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023.

Early adoption is permitted.

Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures

This ASU, issued in November 2023, improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

This ASU requires disclosure, on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker, and an amount for other segment items by reportable segment, with a description of its composition.

We are currently evaluating the impact of implementing this guidance on our financial statements;

however, we do not expect adoption to have a material impact.

This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

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 7. Management’s Discussion and Analysis