Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following MD&A is intended to facilitate an understanding of the results of operations and financial condition of ABM. This MD&A is provided as a supplement to, and should be read in conjunction with, our Financial Statements. This MD&A contains both historical and forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. We make forward-looking statements related to future expectations, estimates, and projections that are uncertain and often contain words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “outlook,” “plan,” “predict,” “should,” “target,” or other similar words or phrases. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and assumptions that are difficult to predict. Factors that might cause such differences include, but are not limited to, those discussed in Part 1. of this Form 10-K under Item 1A. , “Risk Factors,” which are incorporated herein by reference. Our future results and financial condition may be materially different from those we currently anticipate. Throughout the MD&A, amounts and percentages may not recalculate due to rounding. Unless otherwise indicated, all information in the MD&A and references to years are based on our fiscal year, which ends on October 31.
Business Overview
ABM is a leading provider of integrated facility solutions, customized by industry, with a mission to make a difference, every person, every day . Our principal operations are in the United States, and in 2024 our U.S. operations generated approximately 93% of our revenues.
Strategic Growth
We remain focused on long-term, profitable growth by delivering valued service offerings to both new and existing clients within our industry groups and across our many service lines. Our revenue growth strategy is predicated on pursuing new sales and targeting a favorable retention rate among existing contracts. Cross-selling and up-selling projects and services is also an integral part of our strategy. We believe our strategic growth initiatives, coupled with our continued focus on marketing, capital, and sales resources, will increase profitability.
ELEVATE Transformation
Through our ELEVATE strategy, as described in Item 1., “Business.,” we continue to focus our efforts on:
• the client experience, by serving as a trusted advisor who can provide innovative multiservice solutions and consistent service delivery;
• the team member experience, by investing in workforce management, training, developing the next generation of ABM leaders, and building on our inclusive culture; and
• 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: the development and deployment of client-facing technology to improve service delivery to our clients; the use of advanced data analytics for sales targeting, employee retention, and recruiting; and the upgrade of our Enterprise Resource Planning and payroll systems.
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Developments and Trends
Macro-Economic Environment in Commercial Real Estate and Other
On an ongoing basis, we monitor changes to the macro-economic environment and their potential impacts on demand for our services and on our financial condition. One such monitored change is the strength or softness of the commercial real estate industry, especially multi-tenant and owner-occupied commercial office buildings. The recent softness in the market is primarily attributable to the lingering effects of the Pandemic, especially the normalization of hybrid work, which has resulted in higher office vacancy rates. Given that Class A and high-quality commercial office buildings are a key end market for us, we have experienced modest declines in demand for janitorial services and work orders in these markets. We expect the occupancy rates of Class A and high-quality buildings and back-to office trends to improve throughout 2025 .
A large M&D client completed its rebalancing of a portion of its work needs as part of its normal procurement process. We expect M&D’s financial results to be adversely impacted in the near-term.
Insurance Reserves
We use a combination of insured and self-insurance programs to cover workers’ compensation, general liability, automobile liability, property damage, and other insurable risks. Insurance claim liabilities represent our estimate of retained risks without regard to insurance coverage. We retain a substantial portion of the risk related to certain workers’ compensation and medical claims. Liabilities associated with these losses include estimates of both filed claims and incurred but not reported claims (“IBNR Claims”).
With the assistance of third-party actuaries, we review our estimate of ultimate losses for IBNR Claims on a quarterly basis and adjust our required self-insurance reserves as appropriate. As part of this evaluation, we review the status of existing and new claim reserves as established by third-party claims administrators. The third-party claims administrators establish the case reserves based upon known factors related to the type and severity of the claims, demographic factors, legislative matters, and case law, as appropriate. We compare actual trends to expected trends and monitor claims developments. 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.
Based on the results of the actuarial reviews performed during 2024, which included analyzing recent loss development patterns, comparing the loss development against benchmarks, and applying actuarial projection methods to determine the estimate of ultimate losses, we increased our total reserves related to prior years for known claims as well as our estimate of the loss amounts associated with IBNR Claims by $20.3 million in 2024. In 2023, we decreased our total reserves related to prior year claims by $14.8 million.
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Key Financial Highlights
• Revenues increased by $263.0 million, or 3.2%, to $8,359.4 million during 2024, as compared to 2023. Revenue growth was comprised of organic growth of 2.9% and acquisition growth of 0.3%. The organic revenue growth was due to the higher project revenues due to the timing of certain microgrid systems design and installation projects within Technical Solutions, and net new business and expansion of business with existing customers within Aviation, M&D, and Education. The increase in revenues was partially offset by attrition of engineering customers and soft commercial office market conditions within B&I, and the expected rebalancing of the scope of work with an existing customer within M&D. Acquisition growth of $26.3 million was driven by the Quality Uptime Acquisition, completed in the third quarter of 2024.
• Operating profit decreased by $197.5 million to $212.0 million during 2024, as compared to 2023. The decrease in operating profit was attributable to:
• an increase in the fair value of the contingent consideration related to the RavenVolt Acquisition;
• an increase in other Corporate expenses, primarily costs associated with various systems’ go-live and other investments in technology;
• an unfavorable self-insurance reserve adjustment related to prior year claims from actuarial evaluations completed in 2024, as compared to a favorable adjustment in 2023;
• an absence of employee retention credits received as compared to 2023; and
• $11.4 million in revenue recognized for an Aviation parking project during 2023, whereby all the direct labor and related costs for such project were recognized prior to 2023.
The decrease was partially offset by:
• labor efficiencies within B&I, Aviation, and Education, as well as contract mix within Technical Solutions, Aviation, and M&D; and
• a decrease in amortization of intangibles, primarily related to the RavenVolt Acquisition.
• Our effective tax rate on income was 39.1% for 2024, as compared to 24.1% during 2023. Our effective tax rate for 2024 was primarily impacted by a $95.7 million non-taxable expense related to the change in the fair value of the contingent consideration related to the RavenVolt Acquisition. Our effective tax rate for 2023 was primarily impacted by a $45.6 million non-taxable benefit related to the change in the fair value of contingent consideration related to the RavenVolt Acquisition.
• Net cash provided by operating activities was $226.7 million during 2024. Our net cash provided by operating cash activities was lower than prior year, primarily due to the timing of certain working capital requirements.
• Dividends of $56.5 million were paid to shareholders, and dividends totaling $0.90 per common share were declared during 2024. Additionally, we repurchased 1.17 million of shares for $55.8 million, excluding excise taxes during 2024.
• At October 31, 2024, total outstanding borrowings under our Amended Credit Facility were $1,335.3 million, and we had up to $423.6 million of borrowing capacity.
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Results of Operations
Consolidated
Years Ended October 31, 2024 vs. 2023
($ in millions) 2024 2023 2022 Increase/(Decrease)
Revenues $ 8,359.4 $ 8,096.4 $ 7,806.6 $ 263.0 3.2%
Operating expenses 7,325.9 7,037.6 6,757.5 288.3 4.1%
Gross margin 12.4 % 13.1 % 13.4 % (71) bps
Selling, general and administrative expenses 765.3 572.8 628.3 192.5 33.6%
Amortization of intangible assets 56.1 76.5 72.1 (20.4) (26.6)%
Operating profit 212.0 409.5 348.8 (197.5) (48.2)%
Income from unconsolidated affiliates 6.5 3.9 2.4 2.6 69.4%
Interest expense (85.0) (82.3) (41.1) (2.7) (3.3)%
Income before income taxes
133.6 331.1 310.0 (197.5) (59.7)%
Income tax provision (52.2) (79.7) (79.6) 27.5 34.5%
Net income 81.4 251.3 230.4 (169.9) (67.6)%
Other comprehensive (loss)/income
Interest rate swaps (22.9) (0.5) 36.7 (22.4) NM*
Foreign currency translation and other 6.8 7.3 (19.8) (0.5) (6.5)%
Income tax provision 6.3 0.1 (10.5) 6.2 NM*
Comprehensive income $ 71.6 $ 258.1 $ 236.9 $ (186.5) (72.3)%
*Not meaningful
The Year Ended October 31, 2024, Compared with the Year Ended October 31, 2023
Revenues
Revenues increased by $263.0 million, or 3.2%, to $8,359.4 million during 2024, as compared to 2023. Revenue growth was comprised of organic growth of 2.9% and acquisition growth of 0.3%. The organic revenue growth was due to the higher project revenues due to the timing of certain microgrid systems design and installation projects within Technical Solutions, and net new business and expansion of business with existing customers within Aviation, M&D, and Education. The increase in revenues was partially offset by attrition of engineering customers within B&I and the expected rebalancing of the scope of work with an existing customer within M&D. Acquisition growth of $26.3 million was driven by the Quality Uptime Acquisition, completed in the third quarter of 2024.
Operating Expenses
Operating expenses increased by $288.3 million, or 4.1%, to $7,325.9 million during 2024, as compared to 2023. Gross margin decreased by 71 bps to 12.4% in 2024, as compared to 13.1% in 2023. The decrease in gross margin was primarily driven by the increase in 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, the decrease in gross margin was attributable to the $11.4 million in revenue from an Aviation parking project recognized in 2023.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $192.5 million, or 33.6%, to $765.3 million during 2024, as compared to 2023. The increase in selling, general and administrative expenses was primarily attributable to:
• a $95.7 million fair value adjustment to increase the contingent consideration related to the RavenVolt Acquisition recorded during 2024, as compared to a $45.6 million fair value adjustment to decrease the contingent consideration recorded during 2023;
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• a $24.3 million increase in costs associated with various systems’ go-live and other investments in technology;
• an absence of a $24.0 million benefit from employee retention credits received during 2023;
• an $8.8 million increase in accruals for actual and potential legal settlements; and
• a $6.5 million increase in compensation and related expenses primarily due to higher compensation under certain incentive plans.
This increase was partially offset by:
• an $18.6 million decrease in certain discrete transformational costs under our ELEVATE strategy for developing the new ERP system, client-facing technology, workforce management tools, and data analytics.
Amortization of Intangible Assets
Amortization of intangible assets decreased by $20.4 million, or 26.6%, to $56.1 million during 2024, as compared to 2023. This decrease was primarily due to the lower amortization of intangibles, primarily intangibles acquired as part of the RavenVolt Acquisition.
Interest Expense
Interest expense increased by $2.7 million, or 3.3%, to $85.0 million during 2024, as compared to 2023, primarily driven by higher borrowings from our Amended Credit Facility to fund the Quality Uptime Acquisition.
Income Taxes
During 2024 and 2023, we had effective tax rates of 39.1% and 24.1%, respectively, resulting in a provision for tax of $52.2 million and $79.7 million, respectively. Our effective tax rate for 2024 was negatively impacted by a $95.7 million non-taxable expense related to the change in the fair value of the contingent consideration related to the RavenVolt Acquisition. Our effective tax rate for 2023 was favorably impacted by a $45.6 million non-taxable benefit related to the change in the fair value of the contingent consideration related to the RavenVolt Acquisition.
Interest Rate Swaps
We had a loss of $22.9 million on interest rate swaps during the year ended October 31, 2024, as compared to a loss of $0.5 million during the year ended October 31, 2023, 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 gain of $7.5 million during the year ended October 31, 2024, as compared to a foreign currency translation gain of $7.3 million during the year ended October 31, 2023. This change was due to fluctuations in the exchange rate between the U.S. Dollar (“USD”) and the British pound sterling (“GBP”). Future gains and losses on foreign currency translation will be dependent upon changes in the relative value of foreign currencies to the USD and the extent of our foreign assets and liabilities.
The Year Ended October 31, 2023, Compared with the Year Ended October 31, 2022
For a comparison of our Results of Operations for the year ended October 31, 2023, to the year ended October 31, 2022, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended October 31, 2023, filed with the SEC on December 18, 2023.
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Segment Information
Our current reportable segments consist of B&I, M&D, Education, Aviation, and Technical Solutions.
Financial Information for Each Reportable Segment
Year Ended October 31, 2024 vs. 2023
($ in millions) 2024 2023 2022 Increase/(Decrease)
Revenues
Business & Industry $ 4,059.1 $ 4,089.4 $ 4,095.9 $ (30.3) (0.7)%
Manufacturing & Distribution 1,554.3 1,526.7 1,445.2 27.6 1.8%
Aviation 1,032.6 925.7 804.0 106.9 11.5%
Education 904.0 880.4 834.7 23.6 2.7%
Technical Solutions 809.3 674.2 626.8 135.1 20.0%
$ 8,359.4 $ 8,096.4 $ 7,806.6 $ 263.0 3.2%
Operating profit (loss)
Business & Industry $ 307.0 $ 315.6 $ 334.9 $ (8.6) (2.7)%
Operating profit margin 7.6 % 7.7 % 8.2 % (15) bps
Manufacturing & Distribution 166.3 161.7 161.8 4.6 2.8%
Operating profit margin 10.7 % 10.6 % 11.2 % 11 bps
Aviation 59.1 60.0 29.3 (0.9) (1.4)%
Operating profit margin 5.7 % 6.5 % 3.6 % (75) bps
Education 55.3 49.7 47.1 5.6 11.4%
Operating profit margin 6.1 % 5.6 % 5.6 % 48 bps
Technical Solutions 69.4 53.2 63.8 16.2 30.4%
Operating profit margin 8.6 % 7.9 % 10.2 % 68 bps
Government Services — — (0.3) — NM*
Operating profit margin NM* NM* NM* NM*
Corporate (433.1) (226.6) (284.5) 206.5 (91.1)%
Adjustment for income from unconsolidated
affiliates, included in Aviation and Technical Solutions
(6.5) (3.9) (2.4) (2.6) (69.4)%
Adjustment for tax deductions for energy
efficient government buildings, included in
Technical Solutions (5.5) (0.3) (0.9) (5.2) NM*
$ 212.0 $ 409.5 $ 348.8 $ (197.5) (48.2)%
*Not meaningful
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The Year Ended October 31, 2024, Compared with the Year Ended October 31, 2023
Business & Industry
Year Ended October 31,
($ in millions) 2024 2023 Increase
Revenues $ 4,059.1 $ 4,089.4 $ (30.3) (0.7)%
Operating profit 307.0 315.6 (8.6) (2.7)%
Operating profit margin 7.6 % 7.7 % (15) bps
B&I revenues decreased by $30.3 million, or 0.7%, to $4,059.1 million during 2024, as compared to 2023. The revenue decrease was primarily driven by attrition of certain engineering clients and soft commercial office market conditions, partially offset by the new clients and existing client expansions both domestically and internationally. Management reimbursement revenues for this segment totaled $281.4 million and $270.1 million during 2024 and 2023, respectively.
Operating profit decreased by $8.6 million, or 2.7%, to $307.0 million during 2024, as compared to 2023. Operating profit margin decreased by 15 bps to 7.6% in 2024 from 7.7% in 2023. The decrease in operating profit margin was primarily driven by a change in contract mix and higher legal, bad debt, and insurance expense. The decrease was partially offset by labor efficiencies and lower amortization of intangible assets.
Manufacturing & Distribution
Year Ended October 31,
($ in millions) 2024 2023 Increase
Revenues $ 1,554.3 $ 1,526.7 $ 27.6 1.8%
Operating profit 166.3 161.7 4.6 2.8%
Operating profit margin 10.7 % 10.6 % 11 bps
M&D revenues increased by $27.6 million, or 1.8%, to $1,554.3 million during 2024, as compared to 2023. The increase was primarily attributable to the expansion of business with existing customers, partially offset by the expected rebalancing of the scope of work with an existing customer and a loss of a certain customer.
Operating profit increased by $4.6 million, to $166.3 million during 2024, as compared to 2023. Operating profit margin increased by 11 bps to 10.7% in 2024 from 10.6% in 2023. The increase in operating profit margin was primarily attributable to the change in contract mix, partially offset by investments to hire certain technical expertise to support future growth.
Aviation
Year Ended October 31,
($ in millions) 2024 2023 Increase / (Decrease)
Revenues $ 1,032.6 $ 925.7 $ 106.9 11.5%
Operating profit 59.1 60.0 (0.9) (1.4)%
Operating profit margin 5.7 % 6.5 % (75) bps
Aviation revenues increased by $106.9 million, or 11.5% to $1,032.6 million, during 2024, as compared to 2023. The increase was primarily attributable to new business and scope expansions with the existing clients as well as continuing recovery in travel volume. In addition, in 2023, we recognized $11.4 million in revenue from an Aviation parking project, whereby all the direct labor and related costs were recognized prior to 2023. Management reimbursement revenues for this segment totaled $36.3 million and $31.8 million during 2024 and 2023, respectively.
Operating profit decreased by $0.9 million, to $59.1 million during 2024, as compared to 2023. Operating profit margin decreased by 75 bps to 5.7% in 2024, from 6.5% in 2023. The decrease in operating profit margin was primarily attributable to the $11.4 million in revenue from an Aviation parking project recognized in 2023. The decrease in operating profit margin was partially offset by contract mix and labor efficiencies primarily due to increases in travel volume.
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Education
Year Ended October 31,
($ in millions) 2024 2023 Increase
Revenues $ 904.0 $ 880.4 $ 23.6 2.7%
Operating profit 55.3 49.7 5.6 11.4%
Operating profit margin 6.1 % 5.6 % 48 bps
Education revenues increased by $23.6 million, or 2.7%, to $904.0 million during 2024, as compared to 2023. The increase was primarily attributable to net new business wins, partially offset by a decrease in work orders.
Operating profit increased by $5.6 million, or 11.4% to $55.3 million during 2024, as compared to 2023. Operating profit margin increased by 48 bps to 6.1% in 2024 from 5.6% in 2023. The operating profit margin was positively impacted by labor efficiencies and lower amortization of intangibles, partially offset by higher bad debt expense.
Technical Solutions
Year Ended October 31,
($ in millions) 2024 2023 Increase
Revenues $ 809.3 $ 674.2 $ 135.1 20.0%
Operating profit 69.4 53.2 16.2 30.4%
Operating profit margin 8.6 % 7.9 % 68 bps
Technical Solutions revenues increased by $135.1 million, or 20.0%, to $809.3 million during 2024, as compared to 2023. Revenue growth was comprised of organic growth of 16.1% and acquisition growth of 3.9%. The organic revenue increase was primarily driven by higher project revenues due to the timing of completions of microgrid systems and generators installation projects, partially offset by a decrease in electric vehicle charging station sales. Acquisition growth of $26.3 million was driven by the Quality Uptime Acquisition, completed in the third quarter of 2024.
Operating profit increased by $16.2 million, or 30.4%, to $69.4 million during 2024, as compared to 2023. Operating profit margin increased by 68 bps to 8.6% in 2024 from 7.9% in 2023. The increase in operating profit margin was primarily attributable to the contract mix and lower amortization of intangible assets. This increase was partially offset by an expected charge to potentially settle a certain client matter.
Corporate
Year Ended October 31,
($ in millions) 2024 2023 Increase
Corporate expenses $ (433.1) $ (226.6) $ 206.5 (91.1)%
Corporate expenses increased by $206.5 million, or 91.1%, to $433.1 million during 2024, as compared to 2023. The increase in corporate expenses was primarily related to:
• a $95.7 million fair value adjustment to increase the contingent consideration related to the RavenVolt Acquisition recorded during 2024, as compared to a $45.6 million fair value adjustment to decrease the contingent consideration recorded during 2023;
• a $20.3 million unfavorable self-insurance reserve adjustment related to prior year claims from actuarial evaluations completed during 2024, as compared to a favorable $14.8 million adjustment recorded in 2023;
• a $24.3 million increase in costs associated with various systems’ go-live and other investments in technology; and
• an absence of a $24.0 million benefit from employee retention credits received during 2023.
This increase was partially offset by:
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• an $18.6 million decrease in certain discrete transformational costs under our ELEVATE strategy for developing the new ERP system, client-facing technology, workforce management tools, and data analytics.
The Year Ended October 31, 2023, Compared with the Year Ended October 31, 2022
For a comparison of our Segment Information for the year ended October 31, 2023, to the year ended October 31, 2022, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended October 31, 2023, filed with the SEC on December 18, 2023.
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Liquidity and Capital Resources
Our primary sources of liquidity are operating cash flows and borrowing capacity under our credit facility. We assess our liquidity in terms of our ability to generate cash to fund our short- and long-term cash requirements. As such, we project our anticipated cash requirements as well as cash flows generated from operating activities to meet those needs.
In addition to normal working capital requirements, we anticipate that our short- and long-term cash requirements will include funding insurance claims, dividend payments, capital expenditures, share repurchases, mandatory loan repayments, contingent consideration payments from acquisitions, and systems and technology transformation initiatives under our ELEVATE strategy. We anticipate long-term cash uses may also include strategic acquisitions. 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 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. However, there can be no assurance that such financing will be available to us should we need it or, if available, that the terms will be satisfactory to us and not dilutive to existing shareholders.
Credit Facility
On September 1, 2017, we refinanced and replaced our then-existing $800.0 million credit facility with a new senior, secured five-year syndicated credit facility (the “Credit Facility”), consisting of a $900.0 million revolving line of credit and an $800.0 million amortizing term loan. In accordance with the terms of the Credit Facility, the revolving line of credit was reduced to $800.0 million on September 1, 2018.
On June 28, 2021, the Company amended and restated the Credit Facility (the “Second Amendment,” and the Credit Facility as amended, the “Amended Credit Facility”), extending the maturity date to June 28, 2026, and increasing the capacity of the revolving credit facility from $800.0 million to $1.3 billion and the then-remaining term loan outstanding from $620.0 million to $650.0 million. The Amended Credit Facility provides for the issuance of up to $350.0 million for standby letters of credit and the issuance of up to $75.0 million in swingline advances. The obligations under the Amended Credit Facility are secured on a first-priority basis by a lien on substantially all of our assets and properties, subject to certain exceptions. We may repay amounts borrowed under the Amended Credit Facility at any time without penalty.
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. Our borrowing capacity is subject to, and limited by, compliance with the covenants described above. At October 31, 2024, we were in compliance with these covenants and expect to be in compliance in the foreseeable future.
During 2024, we made $32.5 million of principal payments under the term loan. At October 31, 2024, the total outstanding borrowings and standby letters of credit were $1,335.3 million and $57.9 million, respectively. At October 31, 2024, we had up to $423.6 million of borrowing capacity.
Reinvestment of Foreign Earnings
We plan to reinvest our foreign earnings to fund future non-U.S. growth and expansion, and we do not anticipate remitting such earnings to the United States. While U.S. federal tax expense has been recognized as a
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result of the Tax Cuts and Jobs Act of 2017, no deferred tax liabilities with respect to federal and state income taxes or foreign withholding taxes have been recognized. We believe that our cash on hand in the United States, along with our Amended Credit Facility and future domestic cash flows, are sufficient to satisfy our domestic liquidity requirements.
Share Repurchases
Effective December 13, 2023, our Board of Directors expanded our existing share repurchase program by an additional $150.0 million of our common stock. We repurchased shares under the share repurchase program during the year ended October 31, 2024, as summarized below. At October 31, 2024, authorization for $154.5 million of repurchases remained under the Share Repurchase Program.
Years Ended October 31,
(in millions, except per share amounts) 2024 2023
Total number of shares purchased 1.17 3.34
Average price paid per share (1)
$ 47.86 $ 41.06
Total cash paid for share repurchases (1)
$ 55.8 $ 137.1
(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
As part of our Technical Solutions business, we enter into energy savings performance contracts (“ESPC”) with the federal government pursuant to which we agree to develop, design, engineer, and construct a project and guarantee that the project will satisfy agreed-upon performance standards. Proceeds from ESPC projects are generally received in advance of construction through agreements to sell the ESPC receivables to unaffiliated third parties. We use the advances from the third parties under these agreements to finance the projects, which are recorded as cash flows from financing activities. The use of the cash received under these arrangements to pay project costs is classified as operating cash flows.
Effect of Inflation
The rates of inflation experienced in recent years have not had a material impact on our Financial Statements. We attempt to recover increased costs by increasing prices for our services to the extent permitted by contracts and competition.
Regulatory Environment
Our operations are subject to various federal, state, and/or local laws, rules, and regulations regulating among other things, labor, wages, and health and safety matters, as well as laws and regulations relating to the discharge of materials into the environment or otherwise relating to the protection of the environment. Historically, the cost of complying with these laws, rules, and regulations has not had a material adverse effect on our financial position, results of operations, or cash flows.
Cash Flows
In addition to revenues and operating profit, our management views operating cash flows as a good indicator of financial performance, because strong operating cash flows provide opportunities for growth both organically and through acquisitions. Operating cash flows primarily depend on: revenue levels; profitability levels of our jobs; the quality and timing of collections of accounts receivable; the timing of payments to suppliers and other vendors; the timing and amount of income tax payments; the actual payments of contingent consideration made in excess of the acquisition-date fair value; and the timing and amount of payments on insurance claims and legal
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settlements.
Year Ended October 31,
(in millions) 2024 2023 2022
Net cash provided by operating activities 226.7 243.3 20.4
Net cash used in investing activities (171.9) (62.1) (241.5)
Net cash (used in) provided by financing activities (61.5) (186.3) 235.5
Operating Activities
Net cash provided by operating activities decreased by $16.6 million during 2024, as compared to 2023. The decrease was primarily driven by the timing of working capital requirements. The decrease was partially offset by the absence of a $66.0 million payment of deferred payroll taxes done in 2023.
Net cash provided by operating activities increased by $222.9 million during 2023, as compared to 2022. The increase was primarily driven by a $143.8 million payment made for the Bucio settlement in 2022 and the related income tax benefit.
Investing Activities
Net cash used in investing activities changed by $109.8 million during 2024, as compared to 2023. The change was primarily related to the Quality Uptime Acquisition, completed in 2024.
Net cash used in investing activities changed by $179.5 million during 2023, as compared to 2022. The change was primarily related to the Momentum and RavenVolt acquisitions, completed in 2022.
Financing Activities
Net cash used in financing activities was $61.5 million in 2024, as compared to net cash used in financing activities of $186.3 million in 2023. The decrease in net cash used was primarily related to lower share buyback repurchases in 2024 and an increase in our book cash overdrafts.
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 the Momentum and RavenVolt acquisitions and higher share repurchases in 2023.
Dividends
On December 5, 2024, we announced a quarterly cash dividend of $0.265 per share on our common stock, payable on February 3, 2025, to shareholders of record on January 2, 2025. We declared a quarterly cash dividend on our common stock every quarter during 2024, 2023, and 2022. We paid total annual dividends of $56.5 million, $57.5 million, and $51.9 million during 2024, 2023, and 2022, respectively.
Material Cash Requirements from Contractual and Other Obligations
As of October 31, 2024, our material cash requirements for our known contractual and other obligations were as follows:
• Debt Obligations and Interest Payments – Outstanding payments on our Amended Credit Facility were $1,335.3 million, with $32.5 million payable within 12 months. We have future interest payments based on our hedged borrowings under our Amended Credit Facility of $15.7 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.
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• 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 $160.0 million, with $37.4 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.
• Service Concession Arrangements – As defined under ASU No. 2017-10, Service Concession Arrangements (Topic 853) : Determining the Customer of the Operation Services , our leased location parking arrangements are represented as service concession arrangements. We had contractual payments for these arrangements of $71.4 million, with $25.0 million payable within 12 months.
• Information Technology Service Agreement s – Information technology service agreements represent outsourced services and licensing costs pursuant to our information technology agreements. We had contractual payments for these agreements of $117.1 million, with $49.7 million payable within 12 months.
• Benefit Obligations – Expected future payments relating to our defined benefit, postretirement, and deferred compensation plans were $38.1 million, with $3.4 million payable in 12 months. These amounts are based on expected future service and were calculated using the same assumptions used to measure our benefit obligation at October 31, 2024.
• Contingent Consideration Payable Connection with Our Acquisition of RavenVolt – At October 31, 2024, contingent consideration of up to $75.0 million in cash may be paid in calendar year 2025 if the RavenVolt business achieves certain financial targets in calendar year 2024, as defined in the merger agreement . We expect the RavenVolt business to achieve the aforementioned financial targets for calendar year 2024, and as such, we currently expect to make a $75.0 million payment in May 2025 for calendar year 2024.
In addition, our material cash requirements for other obligations, for which we cannot reasonably estimate future payments, include the following:
• Multiemployer Benefit Plans – In addition to our company sponsored benefit plans, we participate in certain multiemployer pension and other postretirement plans. The cost of these plans is equal to the annual required contributions determined in accordance with the provisions of negotiated collective bargaining arrangements. During 2024, 2023, and 2022, contributions made to these plans were $565.9 million, $574.6 million, and $555.1 million, respectively; however, our future contributions to the multiemployer plans are dependent upon a number of factors, including the funded status of the plans, the ability of other participating companies to meet ongoing funding obligations, and the level of our ongoing participation in these plans. Amounts of future contributions that we would be contractually obligated to make pursuant to these plans cannot be reasonably estimated. See Note 12, “Employee Benefit Plans,” in the Financial Statements for more information.
• Self-Insurance Obligations – We may make payments for exposures for which we are self-insured, including workers’ compensation, general liability, automobile liability, property damage, and other insurable risks. At October 31, 2024, our self-insurance reserves, net of recoverables, were $517.3 million. As these obligations do not have scheduled maturities, we are unable to make a reliable estimate of the amount or timing of cash that may be required to settle these matters. See Note 10, “Insurance,” in the Financial Statements for further detail.
• Unrecognized Tax Benefits – At October 31, 2024, our total liability for unrecognized tax benefits was $7.9 million. 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 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, 2024, contingent consideration of up to $205.0 million, of which $34.1 million has been accrued as of October 31, 2024, in cash may be paid in calendar year 2026 if the RavenVolt business achieves certain financial targets in calendar year 2025, as defined in the merger agreement.
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Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements other than unrecorded standby letters of credit and surety bonds. We use letters of credit and surety bonds in the ordinary course of business to ensure the performance of contractual obligations and to collateralize self-insurance obligations in the event we are unable to meet our claim payment obligations. As we already have reserves on our books for the claims costs, these do not represent additional liabilities. The surety bonds typically remain in force for one to five years and may include optional renewal periods. As of October 31, 2024, these letters of credit totaled $57.9 million, and surety bonds and surety-backed letters of credit totaled $854.7 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.
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Critical Accounting Policies and Estimates
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. There have been no significant changes to our critical accounting policies and estimates for the year ended October 31, 2024. We believe the following critical accounting policies govern the more significant judgments and estimates used in the preparation of our Financial Statements.
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Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions
Valuation of Long-Lived Assets
We evaluate our fixed assets and amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. These events and circumstances include, but are not limited to: higher than expected attrition for customer relationships; a current expectation that a long-lived asset will be disposed of significantly before the end of its previously estimated useful life, such as when we classify a business as held for sale; a significant adverse change in the extent or manner in which we use a long-lived asset; or a change in the physical condition of a long-lived asset. Undiscounted cash flow analyses are used to determine if impairment exists; if impairment is determined to exist, the loss is calculated based on estimated fair value. Goodwill is not amortized but rather tested at least annually for impairment or more often if events or changes in circumstances indicate it is more likely than not that the carrying amount of the asset may not be recoverable. Goodwill is tested for impairment at the reporting unit level, which represents an operating segment or a component of an operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative assessment for some or all of our reporting units and instead perform a quantitative impairment test.
Our impairment evaluations require us to apply judgment in determining whether a triggering event has occurred, including the evaluation of whether it is more likely than not that a long-lived asset will be disposed of significantly before the end of its previously estimated useful life. Incorrect estimation of useful lives may result in inaccurate depreciation and amortization charges over future periods leading, to future impairment.
Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows.
We estimate the fair value of each reporting unit using a combination of the income approach and the market approach.
The income approach incorporates the use of a discounted cash flow method in which the estimated future cash flows and terminal value are calculated for each reporting unit and then discounted to present value using an appropriate discount rate.
The valuation of our reporting units requires significant judgment in evaluation of recent indicators of market activity and estimated future cash flows, discount rates, and other factors. Our impairment analyses contain inherent uncertainties due to uncontrollable events that could positively or negatively impact anticipated future economic and operating conditions.
In making these estimates, the weighted-average cost of capital is utilized to calculate the present value of future cash flows and terminal value. Many variables go into estimating future cash flows, including estimates of our future revenue growth and operating results. When estimating our projected revenue growth and future operating results, we consider industry trends, economic data, and our competitive advantage.
The market approach estimates fair value of a reporting unit by using market comparables for reasonably similar public companies.
During the last three years, we have not made any changes in the accounting methodology used to evaluate the impairment of long-lived assets or to estimate the useful lives of our long-lived assets. Additionally, we have not made any changes in the accounting methodology used to evaluate impairment of goodwill during the last three years.
At October 31, 2024, we had $2.6 billion of goodwill. Our goodwill is included in the following segments:
$1.1 billion — B&I
$502.2 million — M&D
$459.3 million — Education
$69.4 million — Aviation
$449.6 million — Technical Solutions
A goodwill impairment analysis was performed for each of our reporting units on August 1, 2024. 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 which had an excess of 25%. Therefore, we concluded there were no indicators of impairment. 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.
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Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions
Insurance Reserves
We use a combination of insured and self-insurance programs to cover workers’ compensation, general liability, automobile liability, property damage, and other insurable risks.
Insurance claim liabilities represent our estimate of retained risks without regard to insurance coverage. We retain a substantial portion of the risk related to certain workers’ compensation and medical claims. Liabilities associated with these losses include estimates of both claims filed and IBNR Claims.
With the assistance of third-party actuaries, we periodically review our estimate of ultimate losses for IBNR Claims and adjust our required self-insurance reserves as appropriate. As part of this evaluation, we review the status of existing and new claim reserves as established by our third-party claims administrators.
The third-party claims administrators establish the case reserves based upon known factors related to the type and severity of the claims, demographic data, legislative matters, and case law, as appropriate.
We compare actual trends to expected trends and monitor claims development.
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. The projection includes the case reserves plus an actuarial estimate of reserves required for additional developments, including 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.
Our self-insurance liabilities contain uncertainties due to assumptions required and judgment used.
Costs to settle our obligations, including legal and healthcare costs, could fluctuate and cause estimates of our self-insurance liabilities to change.
Incident rates, including frequency and severity, could fluctuate and cause the estimates in our self-insurance liabilities to change.
These estimates are subject to: changes in the regulatory environment; fluctuations in projected exposures, including payroll, revenues, and the number of vehicle units; and the frequency, lag, and severity of claims.
The full extent of certain claims, especially workers’ compensation and general liability claims, may not be fully determined for several years.
In addition, if the reserves related to self-insurance or high deductible programs from acquired businesses are not adequate to cover damages resulting from future accidents or other incidents, we may be exposed to substantial losses arising from future claim developments. We have not made any changes in the accounting methodology used to establish our self-insurance liabilities during the past three years.
After analyzing recent loss development patterns, comparing the loss development patterns against benchmarks, and applying actuarial projection methods to estimate the ultimate losses, we increased our total reserves related to prior years for known claims as well as our estimate of the loss amounts associated with IBNR Claims during 2024 by $20.3 million. In 2023, we decreased our total reserves related to prior years claims by $14.8 million.
It is possible that actual results could differ from recorded self-insurance liabilities. Our insurance claims liabilities as of October 31, 2024 amounted to $619.4 million. A 10% change in our projected ultimate losses would have affected net income by approximately $37.2 million for 2024.
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Accounting Pronouncements
Accounting Standard Updates Topic Summary Effective Date/
Method of Adoption
2023-07
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.
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.
2023-09
Income Taxes (Topic 740): Improvements to Income Tax Disclosures
This ASU, issued in December 2023, is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this ASU address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. We are currently evaluating the impact of implementing this guidance on our financial statements.
This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.
2024-03
Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses
This ASU, issued in November 2024, is intended to improve financial reporting by requiring public entities to disclose additional information about specific expense categories in the notes to the financial statements at interim and annual reporting periods. We are currently evaluating the impact of implementing this guidance on our financial statements.
This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted.
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