What changed in this filing

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Item 1A. Risk Factors

2024-12-19 compared with 2023-12-18 · 44 added, 47 removed, 174 unchanged (34% of the section changed)

17 unchanged sentences

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 skilled 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.

Meaningful labor shortages, inflationary pressures on wages, and/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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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.

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.

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Risks Relating to Market and Economic Conditions

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

Decreases in commercial office space utilization due to hybrid work models and increases in office vacancy rates 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.

Across the United States, hybrid work models remain prevalent and commercial office vacancy levels remain elevated, compared to pre-pandemic levels.

Reduced office occupancies and any further deterioration in vacancy levels would likely decrease the demand for our facility services as well as

the demand for 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.

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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.

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

Downward fluctuations in energy 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.

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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

Acquisitions, divestitures, and other strategic transactions could fail to achieve financial or strategic objectives, disrupt our ongoing business, and adversely impact our results of operations.

In furtherance of our business strategy, we routinely evaluate opportunities and may enter into agreements for possible acquisitions, divestitures, or other strategic transactions.

A significant portion of our growth has been generated by acquisitions, and we may continue to acquire businesses in the future as part of our growth strategy.

However, we may encounter challenges identifying opportunities in a timely manner or on terms acceptable to us.

Furthermore, there is no assurance that any such transaction will result in synergistic benefits.

A potential acquisition, divestiture, or other strategic transaction may involve a number of risks including, but not limited to:

• the transaction may not effectively advance our business strategy, and its anticipated benefits may never materialize;

• our ongoing operations may be disrupted, and management time and focus may be diverted;

• clients or key employees of an acquired business may not remain, which could negatively impact our ability to grow that acquired business;

• integration of an acquired business’s accounting, information technology, HR, and other administrative systems may fail to permit effective management and expense reduction;

• unforeseen challenges may arise in implementing internal controls, procedures, and policies;

• additional indebtedness incurred as a result of an acquisition may impact our financial position, results of operations, and cash flows;

• unanticipated or unknown liabilities may arise related to an acquired business.

Risks Relating to Information Technology and Cybersecurity

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.

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.

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.

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Furthermore, while we continue to devote significant resources to monitoring and updating our systems and implementing information security measures to protect our systems, there can be no assurance that the controls and procedures we have in place will be sufficient to protect us from future security breaches.

Emerging artificial intelligence technologies may intensify these cybersecurity risks.

As cyber threats are continually evolving, our controls and procedures may become inadequate, and we may be required to devote additional resources to modifying or enhancing our systems in the future.

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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.

This transition began in the third quarter of 2023 and will continue for the next couple of years with a large portion of our business transitioning to the new systems in the first quarter of 2025.

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.

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

Risks Relating to Acquisitions, Divestitures, or Strategic Transactions

Acquisitions, divestitures, and other strategic transactions could fail to achieve financial or strategic objectives, disrupt our ongoing business, and adversely impact our results of operations.

In furtherance of our business strategy, we routinely evaluate opportunities and may enter into agreements for possible acquisitions, divestitures, or other strategic transactions.

A significant portion of our growth has been generated by acquisitions, and we may continue to acquire businesses in the future as part of our growth strategy.

However, we may encounter challenges identifying opportunities in a timely manner or on terms acceptable to us.

Furthermore, there is no assurance that any such transaction will deliver the anticipated results, including expected synergistic benefits.

A potential acquisition, divestiture, or other strategic transaction may involve a number of risks including, but not limited to:

• the transaction may not effectively advance our business strategy, and its anticipated benefits may never materialize;

• our ongoing operations may be disrupted, and management time and focus may be diverted;

• clients or key employees of an acquired business may not remain, which could negatively impact our ability to grow that acquired business;

• integration of an acquired business’s accounting, information technology, cybersecurity, HR, and other administrative systems may fail to permit effective management and expense reduction;

• unforeseen challenges may arise in implementing internal controls, procedures, and policies;

• additional indebtedness incurred as a result of an acquisition may impact our financial position, results of operations, and cash flows;

• unanticipated or unknown liabilities may arise related to an acquired business.

Risks Relating to Insurance and Safety Matters

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Should we be unable to renew our excess, umbrella, or other commercial insurance policies, it could have a material adverse impact on our business, as would the incurrence of catastrophic uninsured claims or the inability or refusal of our insurance carriers to pay otherwise insured claims.

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.

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.

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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Some or all of these claims may lead to litigation, including class action litigation, and these matters may cause us to incur negative publicity with respect to alleged claims.

Additionally, there are risks to all employers in some states, such as California, resulting from new and unanticipated judicial interpretations of existing laws and the application of those new interpretations against employers on a retroactive basis.

Additionally, there are risks to all employers in some states, such as California, resulting from large collective, class, Private Attorneys General Act actions, as well as from new and unanticipated judicial interpretations of existing laws and the application of those new interpretations against employers on a retroactive basis, which could involve substantial claims and significant defense costs.

It is not possible to predict the outcome of these lawsuits or any other proceeding, and our insurance may not cover all claims that may be asserted against us.

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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 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.

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, various Corporate Responsibility-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.

1 unchanged sentence

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.

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.

In addition, we expect there will likely be increasing and evolving levels of regulation, disclosure-related and otherwise, with respect to Corporate Responsibility (including environmental) 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.

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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 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, and may cause our customers to implement cost saving strategies that could reduce the demand of our services.

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

Any future interest rate increases would 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 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.

Our ability to generate cash, to a certain extent, is subject to general economic, financial, competitive, and other factors that are beyond our control.

We cannot guarantee that our business will generate sufficient cash flow from our operations or that future borrowings will be available to us in an amount sufficient to enable us to service our debt, fund other liquidity needs, make planned capital expenditures, or continue our dividend.

We cannot guarantee that our business will generate sufficient cash flow from our operations or that future borrowings will be available to us in

an amount sufficient to enable us to service our debt, fund other liquidity needs, make planned capital expenditures, or continue our dividend.

The degree to which we are leveraged could have important consequences for shareholders.

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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Weather conditions such as snow storms, heavy flooding, hurricanes, and fluctuations in temperatures can negatively impact portions of our business.

Within our Technical Solutions segment, cooler than normal temperatures in the summer could reduce the need for servicing of air conditioning units, resulting in reduced revenues and profitability.

Within our Technical Solutions segment, cooler than normal

temperatures in the summer could reduce the need for servicing of air conditioning units, resulting in reduced revenues and profitability.

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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Such proposals may also create uncertainties with respect to our financial position and operations and may adversely affect our ability to attract and retain key employees.

UNRESOLVED STAFF COMMENTS.

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