What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-10-31 compared with 2024-08-01 · 144 added, 136 removed, 391 unchanged (42% of the section changed)

24 unchanged sentences

Customers within this segment vary from private and public utilities, communications, healthcare, education, transportation, manufacturing, industrial plants, and governmental agencies throughout North America.

After reviewing the businesses in our portfolio, we have made the decision to realign our segments beginning in 2025 by moving our HVAC business from Safety Services to Specialty Services.

We focus on growing our recurring revenues and repeat business from our diversified long-standing customers across a variety of end markets, which we believe provides us with stable cash flows and a platform for organic growth.

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Elevated is a premier provider of contractually based services for all major brands of elevator and escalator equipment.

For additional information about our acquisition activity, see Note 3 – “Business Combinations" to our condensed consolidated financial statements included herein.

On October 1, 2024, we completed an acquisition in the Safety Services Segment.

The aggregate consideration paid was approximately $104 million.

For additional information about our acquisition activity, see Note 3 – “Business Combinations" and Note 18 – "Subsequent Events" to our condensed consolidated financial statements included herein.

Restructuring

1 unchanged sentence

The Chubb restructuring program includes expenses related to workforce reductions, lease termination costs, and other facility rationalization costs through fiscal year 2025.

During the six months ended June 30, 2024, we have incurred pre-tax restructuring costs within the Safety Services segment of $5 million in connection with the Chubb restructuring program.

During the nine months ended September 30, 2024, we have incurred pre-tax restructuring costs within the Safety Services segment of $5 million in connection with the Chubb restructuring program.

In total, we estimate that we will recognize approximately $125 million of restructuring and other costs related to the Chubb restructuring program by the end of fiscal year 2025.

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Seasonal variations can be influenced by weather conditions impacting customer spending patterns, contract award seasons, and project schedules, as well as the timing of holidays.

Consequently, net revenues for our businesses are typically lower during the first and second quarters due to the prevalence of unfavorable weather conditions within our North America companies, which can cause project delays and affect productivity.

Consequently, net revenues for our businesses are typically lower

during the first and second quarters due to the prevalence of unfavorable weather conditions within our North America companies, which can cause project delays and affect productivity.

Additionally, the industries we serve can be cyclical.

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Loss on extinguishment of debt, net reflects the difference between the repurchase price and carrying amount of debt at the time of extinguishment.

Investment expense (income) and other, net

Investment expense (income) and other, net includes expense (income) from foreign currency forward contracts that we use to hedge the effect of foreign currency exchange rate fluctuations on forecasted foreign currency transactions, joint ventures, miscellaneous items, and non-service pension cost (benefit).

Non-service pension cost (benefit) reflects the sum of the components of pension expense not related to service cost, i.e.

interest cost, expected return on assets, and amortizations of prior service costs and actuarial gains and losses.

C RITICAL A CCOUNTING P OLICIES A ND E STIMATES

1 unchanged sentence

R ESULTS O F O PERATIONS

The following is a discussion of our financial condition and results of operations during the three and six months ended June 30, 2024 and the three and six months ended June 30, 2023.

Three months ended June 30, 2024 compared to the three months ended June 30, 2023

Three Months Ended June 30, Change

The following is a discussion of our financial condition and results of operations during the three and nine months ended September 30, 2024 and the three and nine months ended September 30, 2023.

Three months ended September 30, 2024 compared to the three months ended September 30, 2023

Three Months Ended September 30, Change

($ in millions) 2024 2023 $ %

10 unchanged sentences

Net income $ 69 $ 54 $ 15 27.8 %

Net revenues for the three months ended June 30, 2024 were $1,730 million compared to $1,771 million for the same period in 2023, a decrease of $41 million or 2.3%.

The decrease in net revenues was primarily driven by disciplined project and customer selection and project delays in the Specialty Services segment and the divestiture of an Infrastructure/Utility operating company in the Specialty Services segment during 2023, partially offset by growth in inspection, service, and monitoring revenue and acquisitions completed within the Safety Services segment.

The following table presents our gross profit (net revenues less cost of revenues) and gross margin (gross profit as a percentage of net revenues) for the three months ended June 30, 2024 and 2023, respectively:

Three Months Ended June 30, Change

Net revenues for the three months ended September 30, 2024 were $1,826 million compared to $1,784 million for the same period in 2023, an increase of $42 million or 2.4%.

The increase in net revenues was primarily driven by revenue from acquisitions completed and growth in inspection, service, and monitoring revenue in the Safety Services segment, partially offset by the divestiture of an Infrastructure/Utility operating company during 2023 and project delays in the Safety Services and Specialty Services segments.

The following table presents our gross profit (net revenues less cost of revenues) and gross margin (gross profit as a percentage of net revenues) for the three months ended September 30, 2024 and 2023, respectively:

Three Months Ended September 30, Change

($ in millions) 2024 2023 $ %

1 unchanged sentence

Gross margin 31.1 % 28.6 %

Our gross profit for the three months ended June 30, 2024 was $544 million compared to $496 million for the same period in 2023, an increase of $48 million or 9.7%.

Gross margin for the three months ended June 30, 2024 was 31.4%, an increase of 340 basis points compared to the prior year period, primarily due to disciplined project and customer selection, pricing improvements in our Safety Services segment, and an improved mix of inspection, service, and monitoring revenue, which generates higher margins.

Our gross profit for the three months ended September 30, 2024 was $567 million compared to $511 million for the same period in 2023, an increase of $56 million or 11.0%.

Gross margin for the three months ended September 30, 2024 was 31.1%, an increase of 250 basis points compared to the prior year period, primarily due to disciplined project and customer selection and an improved mix of inspection, service, and monitoring revenue in the Safety Services segment, which generates higher margins.

The increase in gross margin was also driven by savings in our Safety Services segment related to the Chubb restructuring program.

Operating expenses

The following table presents operating expenses and operating margin (operating income as a percentage of net revenues) for the three months ended June 30, 2024 and 2023, respectively:

Three Months Ended June 30, Change

The following table presents operating expenses and operating margin (operating income as a percentage of net revenues) for the three months ended September 30, 2024 and 2023, respectively:

Three Months Ended September 30, Change

($ in millions) 2024 2023 $ %

5 unchanged sentences

Selling, general, and administrative expenses

Our SG&A expenses for the three months ended June 30, 2024 were $418 million compared to $389 million for the same period in 2023, an increase of $29 million.

SG&A expenses as a percentage of net revenues was 24.2% during the three months ended June 30, 2024 compared to 22.0% for the same period in 2023.

The increase in SG&A expenses was primarily driven by investments to support our Safety Services segment and acquisition costs that are non-recurring in nature in the three months ended June 30, 2024 compared to 2023.

The increase in SG&A expenses was partially offset by savings in our Safety Services segment related to the Chubb restructuring program.

Our SG&A expenses excluding amortization for the three months ended June 30, 2024 were $366 million, or 21.2% of net revenues, compared to $339 million, or 19.1% of net revenues, for the same period of 2023.

Our SG&A expenses for the three months ended September 30, 2024 were $425 million compared to $407 million for the same period in 2023, an increase of $18 million.

SG&A expenses as a percentage of net revenues was 23.3% during the three months ended September 30, 2024 compared to 22.8% for the same period in 2023.

The increase in SG&A expenses was primarily driven by SG&A expenses from acquisitions completed, acquisition costs that are non-recurring in nature, and investments to support our Safety Services segment in the three months ended September 30, 2024 compared to 2023.

Our SG&A expenses excluding amortization for the three months ended September 30, 2024 were $368 million, or 20.2% of net revenues, compared to $345 million, or 19.3% of net revenues, for the same period of 2023.

The increase in SG&A expenses excluding amortization as a percentage of net revenues is primarily due to the factors discussed above.

2 unchanged sentences

Interest expense, net

Interest expense was $35 million and $38 million for the three months ended June 30, 2024 and 2023, respectively.

The decrease in interest expense was primarily due to the investment of the equity and debt cash proceeds prior to the Elevated acquisition.

Interest expense was $41 million and $37 million for the three months ended September 30, 2024 and 2023, respectively.

The increase in interest expense was primarily due to the increase in volume of debt offset by the rate decrease as a result of the repricing of the Term Loans completed in October 2023 and May 2024.

Investment expense (income) and other, net

Investment expense (income) and other, net was expense of $2 million for the three months ended June 30, 2024 compared to income of $6 million for the same period of 2023.

The increase in investment expense and other was primarily due to an increase in non-service pension costs in the current year.

Investment expense (income) and other, net was expense of $1 million for the three months ended September 30, 2024 compared to income of $7 million for the same period of 2023.

The increase in investment expense (income) and other was primarily due to an increase in non-service pension costs in the current year.

Income tax provision

The effective tax rate for the three months ended June 30, 2024 was 22.4% compared to 37.2% in the same period of 2023.

The effective tax rate for the three months ended September 30, 2024 was 30.9% compared to 25.5% in the same period of 2023.

The difference in the effective tax rate was driven by discrete and nondeductible permanent items.

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While it is uncertain whether the U.S.

will enact legislation to adopt Pillar 2, certain countries in which the Company operates have adopted the legislation, and other countries are in the process of introducing legislation to implement Pillar 2.

The Company is continuing to evaluate and monitor but does not expect for Pillar 2 to have a material impact on the effective tax rate or the consolidated financial statements.

will enact legislation to adopt Pillar 2, certain countries in which we operate have adopted the legislation, and other countries are in the process of introducing legislation to implement Pillar 2.

We are continuing to evaluate and monitor but does not expect for Pillar 2 to have a material impact on the effective tax rate or the consolidated financial statements.

Net income and EBITDA

The following table presents net income and EBITDA for the three months ended June 30, 2024 and 2023, respectively:

Three Months Ended June 30, Change

The following table presents net income and EBITDA for the three months ended September 30, 2024 and 2023, respectively:

Three Months Ended September 30, Change

($ in millions) 2024 2023 $ %

3 unchanged sentences

EBITDA as a % of net revenues 11.9 % 10.5 %

Our net income for the three months ended June 30, 2024 was $69 million compared to $48 million for the same period in 2023, an increase of $21 million.

The improvement is attributable to growth in inspection, service, and monitoring revenue and pricing improvements in our Safety Services segment, in addition to improved operating margin due to disciplined project and customer selection in our Safety Services and Specialty Services segments.

Our net income for the three months ended September 30, 2024 was $69 million compared to $54 million for the same period in 2023, an increase of $15 million.

The improvement is attributable to acquisitions completed in our Safety Services segment, and growth in inspection, service, and monitoring revenue, in addition to improved operating margin due to disciplined project and customer selection in our Safety Services segment.

The increase is also attributable to savings in our Safety Services segment related to the Chubb restructuring program.

The net income increase was partially offset by an increase in non-service pension costs of approximately $7 million.

Net income as a percentage of net revenues for the three months ended June 30, 2024 and 2023 was 4.0% and 2.7%, respectively.

EBITDA for the three months ended June 30, 2024 was $199 million compared to $188 million for the same period in 2023, an increase of $11 million.

The increase in net income was partially offset by the increase in SG&A expenses from acquisitions completed.

Net income as a percentage of net revenues for the three months ended September 30, 2024 and 2023 was 3.8% and 3.0%, respectively.

EBITDA for the three months ended September 30, 2024 was $218 million compared to $188 million for the same period in 2023, an increase of $30 million.

The increase in EBITDA was primarily driven by the factors previously discussed.

1 unchanged sentence

GAAP financial measures below.

Operating Segment Results for the three months ended June 30, 2024 compared to the three months ended June 30, 2023

Three Months Ended June 30, Change

Operating Segment Results for the three months ended September 30, 2024 compared to the three months ended September 30, 2023

Three Months Ended September 30, Change

($ in millions) 2024 2023 $ %

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Operating Income (Loss)

Three Months Ended June 30, Change

Three Months Ended September 30, Change

($ in millions) 2024 2023 $ %

5 unchanged sentences

$ 142 $ 104 $ 38 36.5 %

Three Months Ended June 30, Change

Three Months Ended September 30, Change

($ in millions) 2024 2023 $ %

6 unchanged sentences

NM = Not meaningful

The following discussion breaks down the net revenues, operating income (loss), and EBITDA by operating segment for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

The following discussion breaks down the net revenues, operating income (loss), and EBITDA by operating segment for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

Safety Services

Safety Services net revenues for the three months ended June 30, 2024 increased by $54 million or 4.4% compared to the same period in 2023.

The increase was primarily driven by increased inspection, service, and monitoring revenue and revenue from acquisitions completed during the last year.

This increase was also due to continued strength in our end markets and strategic pricing improvements.

Safety Services operating margin for the three months ended June 30, 2024 and 2023 was approximately 10.9% and 8.0%, respectively.

Safety Services net revenues for the three months ended September 30, 2024 increased by $118 million or 9.7% compared to the same period in 2023.

The increase was primarily driven by revenue from acquisitions completed during the last year and increased inspection, service, and monitoring revenue.

Safety Services operating margin for the three months ended September 30, 2024 and 2023 was approximately 11.1% and 8.1%, respectively.

The increase was primarily the result of disciplined project and customer selection, pricing improvements, improved mix of inspection, service and monitoring revenue, which generates higher margins, and savings in our Safety Services segment related to the Chubb restructuring program.

Safety Services EBITDA as a percentage of net revenues for the three months ended June 30, 2024 and 2023 was approximately 14.4% and 12.2%, respectively.

Safety Services EBITDA as a percentage of net revenues for the three months ended September 30, 2024 and 2023 was approximately 14.8% and 12.6%, respectively.

This increase was primarily related to the factors discussed above.

Specialty Services

Specialty Services net revenues for the three months ended June 30, 2024 decreased by $102 or 18.4% compared to the same period in 2023.

The decrease was primarily due to continued disciplined project and customer selection, project delays, and the planned exit of a customer relationship in the Infrastructure/Utility reporting unit.

The decrease is also due to the divestiture of an Infrastructure/Utility operating company during 2023.

Specialty Services operating margin was approximately 7.7% and 7.4% for the three months ended June 30, 2024 and 2023, respectively.

The increase was primarily the result of disciplined project and customer selection.

Specialty Services EBITDA as a percentage of net revenues for the three months ended June 30, 2024 and 2023 was approximately 13.7% and 12.4%, respectively, due to the factors discussed above.

Six months ended June 30, 2024 compared to the six months ended June 30, 2023

Six Months Ended June 30, Change

Specialty Services net revenues for the three months ended September 30, 2024 decreased by $76 or 13.4% compared to the same period in 2023.

The decrease was primarily due to the divestiture of an Infrastructure/Utility operating company during 2023, project timing and delays, and the continued impact of the planned exit of a customer relationship in the Infrastructure/Utility reporting unit.

Specialty Services operating margin was approximately 8.1% and 7.6% for the three months ended September 30, 2024 and 2023, respectively.

The increase was primarily the result of disciplined project and customer selection and the divestiture of an Infrastructure/Utility operating company during 2023.

Specialty Services EBITDA as a percentage of net revenues for the three months ended September 30, 2024 and 2023 was approximately 13.4% and 12.3%, respectively, due to the factors discussed above.

Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

Nine Months Ended September 30, Change

($ in millions) 2024 2023 $ %

11 unchanged sentences

Net income $ 183 $ 128 $ 55 43.0 %

Net revenues for the six months ended June 30, 2024 were $3,331 million compared to $3,385 million for the same period in 2023, a decrease of $54 or 1.6%.

The decrease was primarily driven by disciplined project and customer selection and project delays in the Specialty Services segment and the divestiture of an Infrastructure/Utility operating company in the Specialty Services segment during 2023, partially offset by growth in inspection, service, and monitoring revenue in the Safety Services segment.

The following table presents our gross profit (net revenues less cost of revenues) and gross margin (gross profit as a percentage of net revenues) for the six months ended June 30, 2024 and 2023, respectively:

Six Months Ended June 30, Change

Net revenues for the nine months ended September 30, 2024 were $5,157 million compared to $5,169 million for the same period in 2023, a decrease of $12 or 0.2%.

The decrease was primarily driven by the continued impact of the planned exit of a customer relationship in the Infrastructure/Utility reporting unit and project delays in the Specialty Services segment, partially offset by revenue from acquisitions completed within the Safety Services segment and growth in inspection, service, and monitoring revenue.

The following table presents our gross profit (net revenues less cost of revenues) and gross margin (gross profit as a percentage of net revenues) for the nine months ended September 30, 2024 and 2023, respectively:

Nine Months Ended September 30, Change

($ in millions) 2024 2023 $ %

1 unchanged sentence

Gross margin 31.1 % 27.7 %

Our gross profit for the six months ended June 30, 2024 was $1,036 million compared to $921 million for the same period in 2023, an increase of $115 million, or 12.5%.

Gross margin was 31.1%, an increase of 390 basis points compared to the prior year period, primarily due to disciplined project and customer selection, pricing improvements in our Safety Services segment, and an improved mix of inspection, service, and monitoring revenue, which generates higher margins.

Our gross profit for the nine months ended September 30, 2024 was $1,603 million compared to $1,432 million for the same period in 2023, an increase of $171 million, or 11.9%.

Gross margin was 31.1%, an increase of 340 basis points compared to the prior year period, primarily due to disciplined project and customer selection in our Safety Services and Specialty Services segments, an improved mix of inspection, service, and monitoring revenue, which generates higher margins, and savings in our Safety Services segment related to the Chubb restructuring program.

Operating expenses

The following table presents operating expenses and operating margin (operating income (loss) as a percentage of net revenues) for the six months ended June 30, 2024 and 2023, respectively:

Six Months Ended June 30, Change

The following table presents operating expenses and operating margin (operating income (loss) as a percentage of net revenues) for the nine months ended September 30, 2024 and 2023, respectively:

Nine Months Ended September 30, Change

($ in millions) 2024 2023 $ %

5 unchanged sentences

Selling, general, and administrative expenses

Our SG&A expenses for the six months ended June 30, 2024 were $810 million compared to $741 million for the same period in 2023, an increase of $69 million.

SG&A expenses as a percentage of net revenues was 24.3% during the six months ended June 30, 2024 compared to 21.9% for the same period in 2023.

The increase in SG&A expenses was primarily driven by investments to support our Safety Services and Specialty Services segments in the six months ended June 30, 2024 compared to 2023.

The increase was also due to acquisition costs and third party advisor costs related to the Series B Preferred Stock Conversion that are non-recurring in nature in the six months ended June 30, 2024.

Our SG&A expenses for the nine months ended September 30, 2024 were $1,235 million compared to $1,148 million for the same period in 2023, an increase of $87 million.

SG&A expenses as a percentage of net revenues was 23.9% during the nine months ended September 30, 2024 compared to 22.2% for the same period in 2023.

The increase in SG&A expenses was primarily driven by investments to support our Safety Services segment and SG&A expenses from acquisitions completed.

The increase was also due to acquisition costs that are non-recurring in nature in the nine months ended September 30, 2024.

The increase in SG&A expenses was partially offset by savings in our Safety Services segment related to the Chubb restructuring program.

Our SG&A expenses excluding amortization and impairment for the six months ended June 30, 2024 were $708 million or 21.3% of net revenues, compared to $643 million, or 19.0% of net revenues, for the same period of 2023 primarily due to the factors discussed above.

Our SG&A expenses excluding amortization and impairment for the nine months ended September 30, 2024 were $1,076 million or 20.9% of net revenues, compared to $988 million, or 19.1% of net revenues, for the same period of 2023 primarily due to the factors discussed above.

See the discussion and reconciliation of our non-U.S.

1 unchanged sentence

Interest expense, net

Interest expense was $69 million and $75 million for the six months ended June 30, 2024 and 2023, respectively.

The decrease in interest expense was primarily due to the investment of the equity and debt cash proceeds prior to the Elevated acquisition and lower debt issuance cost amortization.

Interest expense was $110 million and $112 million for the nine months ended September 30, 2024 and 2023, respectively.

The decrease in interest expense was a result of interest income generated by the investment of the equity and debt cash proceeds prior to the Elevated acquisition, and the rate decrease as a result of the repricing of the Term Loans completed in October 2023 and May 2024, offset by the increase in volume of debt.

Loss on extinguishment of debt, net

During the six months ended June 30, 2023, we made aggregate payments of $200 million to pay down outstanding principal amounts of the 2019 Term Loan and 2021 Term Loan.

During the nine months ended September 30, 2023, we made aggregate payments of $200 million to pay down outstanding principal amounts of the 2019 Term Loan and 2021 Term Loan.

In connection with the payments, we recognized a net loss on debt extinguishment of $3 million.

Investment expense (income) and other, net

Investment expense (income) and other, net was expense of $5 million during the six months ended June 30, 2024 compared to income of $11 million for the same period in 2023 The increase in investment expense and other was primarily due to an increase in non-service pension costs in the current year.

Investment expense (income) and other, net was expense of $6 million during the nine months ended September 30, 2024 compared to income of $18 million for the same period in 2023 The increase in investment expense (income) and other was primarily due to an increase in non-service pension costs in the current year and a decrease in earnings from joint ventures.

Income tax provision

The income tax provision for the six months ended June 30, 2024 was $38 million compared to $39 million in the same period of 2023.

This change was driven by increased generated income before taxes in the six months ended June 30, 2024 compared to the same period of the prior year.

The effective tax rate for the six months ended June 30, 2024 was 24.7%, compared to 35.0% in the same period of 2023.

The difference in the effective tax rate was driven by discrete and nondeductible permanent items.

The income tax provision for the nine months ended September 30, 2024 was $69 million compared to $59 million in the same period of 2023.

This change was driven by increased generated income before taxes in the nine months ended September 30, 2024 compared to the same period of the prior year.

The effective tax rate for the nine months ended September 30, 2024 was 27.2%, compared to 31.3% in the same period of 2023.

The difference in the effective tax rate was

driven by discrete and nondeductible permanent items.

The difference between the effective tax rate and the statutory U.S.

federal income tax rate of 21.0% is due to the nondeductible permanent items, taxes on foreign earnings in jurisdictions that have higher tax rates, state taxes, and discrete items.

federal income tax rate of 21.0% is due to nondeductible permanent items, taxes on foreign earnings in jurisdictions that have higher tax rates, state taxes, and discrete items.

Net income and EBITDA

The following table presents net income and EBITDA for the six months ended June 30, 2024 and 2023, respectively:

Six Months Ended June 30, Change

The following table presents net income and EBITDA for the nine months ended September 30, 2024 and 2023, respectively:

Nine Months Ended September 30, Change

($ in millions) 2024 2023 $ %

3 unchanged sentences

EBITDA as a % of net revenues 11.3 % 10.2 %

Our net income for the six months ended June 30, 2024 was $114 million compared to $74 million for the same period in 2023, an increase of $40 million.

The improvement is primarily attributable to growth in inspection, service, and monitoring revenue and pricing improvements in our Safety Services segment, in addition to improved operating margin due to disciplined project and customer selection in our Safety Services and Specialty Services segments.

The increase in is also attributable to savings in our Safety Services segment related to the Chubb restructuring program.

The net income increase was partially offset by an increase in non-service pension costs of approximately $15 million.

Net income as a percentage of net revenues for the six months ended June 30, 2024 and 2023 was 3.4% and 2.2%, respectively.

EBITDA for the six months ended June 30, 2024 was $365 million compared to $337 million for the same period in 2023, an increase of $28 million.

Our net income for the nine months ended September 30, 2024 was $183 million compared to $128 million for the same period in 2023, an increase of $55 million.

The improvement is primarily attributable to growth in inspection, service, and monitoring revenue and disciplined project and customer selection in our Safety Services and Specialty Services segments.

The increase in is also attributable to income from acquisitions completed and savings in our Safety Services segment related to the Chubb restructuring program.

The net income increase was partially offset by SG&A expenses from acquisitions completed.

Net income as a percentage of net revenues for the nine months ended September 30, 2024 and 2023 was 3.5% and 2.5%, respectively.

EBITDA for the nine months ended September 30, 2024 was $583 million compared to $525 million for the same period in 2023, an increase of $58 million.

The increase in EBITDA was primarily driven by the factors previously discussed.

1 unchanged sentence

GAAP financial measures below.

Operating Segment Results for the six months ended June 30, 2024 compared to the six months ended June 30, 2023

Six Months Ended June 30, Change

Operating Segment Results for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

Nine Months Ended September 30, Change

($ in millions) 2024 2023 $ %

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Operating Income (Loss)

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

($ in millions) 2024 2023 $ %

5 unchanged sentences

$ 368 $ 284 $ 84 29.6 %

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

($ in millions) 2024 2023 $ %

6 unchanged sentences

NM = Not meaningful

The following discussion breaks down the net revenues, operating income (loss), and EBITDA by operating segment for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

The following discussion breaks down the net revenues, operating income (loss), and EBITDA by operating segment for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Safety Services

Safety Services net revenues for the six months ended June 30, 2024 increased by $77 or 3.2% compared to the same period in 2023.

Safety Services net revenues for the nine months ended September 30, 2024 increased by $195 or 5.4% compared to the same period in 2023.

The increase was driven by increased inspection, service, and monitoring revenue and revenue from acquisitions completed in the last year.

This increase was also due to continued strength in our end markets and strategic pricing improvements.

Safety Services operating margin for the six months ended June 30, 2024 and 2023 was approximately 10.6% and 8.0%, respectively.

The increase was primarily the result of disciplined project and customer selection, pricing improvements, and improved mix of inspection, service, and monitoring revenue, which generates higher margins, and savings in our Safety Services segment related to the Chubb restructuring program.

Safety Services EBITDA as a percentage of net revenues for the six months ended June 30, 2024 and 2023 was approximately 13.9% and 12.3%, respectively.

Safety Services operating margin for the nine months ended September 30, 2024 and 2023 was approximately 10.8% and 8.0%, respectively.

The increase was primarily the result of disciplined project and customer selection, pricing improvements, improved mix of inspection, service, and monitoring revenue, which generates higher margins, and savings in our Safety Services segment related to the Chubb restructuring program.

Safety Services EBITDA as a percentage of net revenues for the nine months ended September 30, 2024 and 2023 was approximately 14.2% and 12.4%, respectively.

This increase was primarily related to the factors discussed above.

Specialty Services

Specialty Services net revenues for the six months ended June 30, 2024 decreased by $143 million or 14.5% compared to the same period in 2023.

The decrease was primarily due to continued disciplined project and customer selection, project delays, and the planned exit of a customer relationship in the Infrastructure/Utility reporting unit.

The decrease is also due to the divestiture of an Infrastructure/Utility operating company during 2023.

Specialty Services operating margin for the six months ended June 30, 2024 and 2023 was approximately 5.0% and 4.2%, respectively.

The increase was primarily the result of disciplined project and customer selection during the six months ended June 30, 2024.

Specialty Services EBITDA as a percentage of net revenues for the six months ended June 30, 2024 and 2023 was approximately 11.3% and 9.7%, respectively, due to the factors discussed above.

Specialty Services net revenues for the nine months ended September 30, 2024 decreased by $219 million or 14.1% compared to the same period in 2023.

The decrease was primarily due to the continued impact of the planned exit of a customer relationship in the Infrastructure/Utility reporting unit and project delays.

Specialty Services operating margin for the nine months ended September 30, 2024 and 2023 was approximately 6.1% and 5.4%, respectively.

The increase was primarily the result of disciplined project and customer selection during the nine months ended September 30, 2024.

Specialty Services EBITDA as a percentage of net revenues for the nine months ended September 30, 2024 and 2023 was approximately 12.1% and 10.7%, respectively, due to the factors discussed above.

Non-GAAP Financial Measures

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GAAP financial measures.

use these non-U.S.

We use these non-U.S.

GAAP financial measures to evaluate our performance, both internally and as compared with our peers because they exclude certain items that may not be indicative of our core operating results.

Management believes these measures are useful to investors since they (a) permit investors to view our performance using the same tools that management uses to evaluate our past performance, reportable business segments, and prospects for future performance, (b) permit investors to compare us with our peers, and (c) in the case of EBITDA, determines certain elements of management’s incentive compensation.

Management believes these measures are useful to investors since they (a) permit investors to view our performance using the same tools that management uses to evaluate our past performance, reportable business segments, and prospects for future performance, (b) permit investors to compare us with our peers, (c) in the case of EBITDA, determine certain elements of management’s incentive compensation, and (d) provide consistent period-to-period comparisons of the results.

These non-U.S.

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GAAP financial measures.

Investors are encouraged to review the following reconciliations of these non-U.S.

Investors are encouraged to review the following reconciliations of

these non-U.S.

GAAP financial measures to the most comparable U.S.

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The following tables present reconciliations of SG&A expenses to SG&A expenses (excluding amortization) for the periods indicated:

Three Months Ended June 30,

Three Months Ended September 30,

($ in millions) 2024 2023

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SG&A expenses (excluding amortization) $ 368 $ 358

Six Months Ended June 30,

Nine Months Ended September 30,

($ in millions) 2024 2023

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The following table presents a reconciliation of net income to EBITDA for the periods indicated:

Three Months Ended June 30,

Three Months Ended September 30,

($ in millions) 2024 2023

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EBITDA $ 218 $ 188

Six Months Ended June 30,

Nine Months Ended September 30,

($ in millions) 2024 2023

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Although we believe we have sufficient resources to fund our future cash requirements, there are many factors with the potential to influence our cash flow position including weather, seasonality, commodity prices, market conditions, and inflation, over which we have no control.

As of June 30, 2024, we had $820 million of total liquidity, comprising $324 million in cash and cash equivalents and $496 million ($500 million less outstanding letters of credit of approximately $4 million, which reduce availability) of available borrowings under our Revolving Credit Facility.

As of September 30, 2024, we had $982 million of total liquidity, comprising $487 million in cash and cash equivalents and $495 million ($500 million less outstanding letters of credit of approximately $5 million, which reduce availability) of available borrowings under our Revolving Credit Facility.

During 2022, we completed the Second Amendment to our credit agreement.

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We incurred approximately $550 million of incremental principal on our 2021 Term Loan.

The proceeds were used to repay the remaining $330 million of the 2019

Term Loan, repay $100 million of the Revolving Credit Facility outstanding, and for general corporate purposes, including to partially fund the Elevated acquisition.

The proceeds were used to repay the remaining $330 million of the 2019 Term Loan, repay $100 million of the Revolving Credit Facility outstanding, and for general corporate purposes, including to partially fund the Elevated acquisition.

During the second quarter of 2024, we issued 12,650,000 shares of Company common stock in a public underwritten offering.

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This stock repurchase program is indefinite, unless otherwise modified or terminated by our Board of Directors at any time in its sole discretion.

During the six months ended June 30, 2024, we repurchased 16,260,160 shares of common stock for approximately $600 million.

As of June 30, 2024, we had approximately $400 million of authorized repurchases remaining under the SRP.

During the nine months ended September 30, 2024, we repurchased 16,260,160 shares of common stock for approximately $600 million.

As of September 30, 2024, we had approximately $400 million of authorized repurchases remaining under the SRP.

In 2022, our Board of Directors authorized a stock repurchase program ("2022 SRP"), authorizing the purchase of up to an aggregate of $250 million of common stock through February 2024.

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The following table summarizes net cash flows with respect to our operating, investing and financing activities for the periods indicated:

Six Months Ended June 30,

Nine Months Ended September 30,

($ in millions) 2024 2023

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Effect of foreign currency exchange rate change on cash, cash equivalents, and restricted cash 4 (1)

Net decrease in cash, cash equivalents, and restricted cash $ (154) $ (237)

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 9 $ (145)

Cash, cash equivalents, and restricted cash, end of period $ 489 $ 462

Net Cash Provided by Operating Activities

Net cash provided by operating activities was $117 million for the six months ended June 30, 2024 compared to $73 million for the same period in 2023.

Net cash provided by operating activities was $337 million for the nine months ended September 30, 2024 compared to $217 million for the same period in 2023.

The increase in cash provided by operating activities is primarily due to an increase in net income in the period.

This increase in cash provided is also driven by lower working capital needs associated with the various services we provided in the six months ended June 30, 2024 compared to the same period of the prior year.

This increase in cash provided is also driven by lower working capital needs associated with the various services we provided in the nine months ended September 30, 2024 compared to the same period of the prior year.

Cash flow from operations is primarily driven by changes in the mix and timing of demand for our services and working capital needs associated with the various services we provide.

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Net Cash Used in Investing Activities

Net cash used in investing activities was $623 million for the six months ended June 30, 2024 compared to $82 million for the same period in 2023.

During the six months ended June 30, 2024, we completed the Elevated acquisition and several individually immaterial acquisitions, resulting in the use of $606 million for acquisitions during the six months ended June 30, 2024 compared to $45 million for the same period in 2023.

Net cash used in investing activities was $680 million for the nine months ended September 30, 2024 compared to $108 million for the same period in 2023.

During the nine months ended September 30, 2024, we completed the Elevated acquisition and several other acquisitions, resulting in the use of $647 million for acquisitions during the nine months ended September 30, 2024 compared to $57 million for the same period in 2023.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities was $357 million for the six months ended June 30, 2024 compared to $232 million used in financing activities for the same period in 2023.

The increase in cash provided by financing activities was primarily driven by equity and debt issuances in the six months ended June 30, 2024 .

In the six months ended June 30, 2024, cash provided by financing activities was higher due to $850 million of proceeds from the repricing transactions of the 2021 Term Loan, and $458 million of proceeds from the issuance of common shares.

The increase in cash used in financing activities in the six months ended June 30, 2024 was partially offset by $334 million of payments on long-term borrowings and $600 million of payments for conversion of the Series B Preferred Stock.

Net cash provided by financing activities was $348 million for the nine months ended September 30, 2024 compared to $253 million used in financing activities for the same period in 2023.

The increase in cash provided by financing activities was primarily driven by equity and debt issuances in the nine months ended September 30, 2024.

In the nine months ended September 30, 2024, cash provided by financing activities was higher due to $850 million of proceeds from the repricing transactions of the 2021 Term Loan and $458 million of proceeds from the issuance of common shares.

The increase in cash used in financing activities in the nine months ended September 30, 2024 was partially offset by $335 million of payments on long-term borrowings and $600 million of payments for conversion of the Series B Preferred Stock.

Financing Activities

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Furthermore, with respect to the revolving credit facility, we must maintain a first lien net leverage ratio that does not exceed (i) 4.00 to 1.00 for each fiscal quarter ending in 2021, and (ii) 3.75 to 1.00 for each fiscal quarter ending thereafter, if on the last day of any fiscal quarter the outstanding amount of all revolving loans and letter of credit obligations (excluding undrawn letters of credit up to $40 million) under the Credit Agreement is greater than 30% of the total revolving credit commitments thereunder subject to a right of cure.

Our first lien net leverage ratio as of June 30, 2024 was 2.0:1.0.

As of June 30, 2024, the 2019 Term Loan and the 2021 Term Loan have remaining principal amounts of $0 million and $2,257 million, respectively.

Our first lien net leverage ratio as of September 30, 2024 was 1.8:1.0.

As of September 30, 2024, the 2019 Term Loan and the 2021 Term Loan have no remaining principal amount outstanding and $2,257 million, respectively.

We had no amounts outstanding under the Revolving Credit Facility, under which $495 million was available after giving effect to $5 million of outstanding letters of credit, which reduces availability.

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The 4.125% Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by us and certain of our subsidiaries.

The 4.125% Senior Notes will mature on July 15, 2029, unless redeemed earlier, and bear interest at a rate of 4.125% per year until maturity, payable semi-annually in arrears.

The 4.125% Senior Notes will mature on July 15, 2029, unless redeemed earlier, and bear interest at a rate of 4.125% per year

until maturity, payable semi-annually in arrears.

We used the net proceeds from the sale of the 4.125% Senior Notes to repay a previously outstanding term loan, prepay a portion of the 2019 Term Loan and for general corporate purposes.

As of June 30, 2024, we had $337 million aggregate principal amount of 4.125% Senior Notes outstanding.

As of September 30, 2024, we had $337 million aggregate principal amount of 4.125% Senior Notes outstanding.

On October 21, 2021, a wholly-owned subsidiary of the Company, completed a private offering of $300 million aggregate principal amount of 4.750% Senior Notes due 2029 (the “4.750% Senior Notes”) issued under an indenture dated October 21, 2021, as supplemented by a supplemental indenture dated January 3, 2022.

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We used the net proceeds from the sale of the 4.750% Senior Notes to finance a portion of the consideration for the Chubb acquisition.

As of June 30, 2024, we had $277 million aggregate principal amount of 4.750% Senior Notes outstanding.

As of September 30, 2024, we had $277 million aggregate principal amount of 4.750% Senior Notes outstanding.

Debt Covenants

We were in compliance with all covenants contained in the indentures governing the 4.125% Senior Notes and 4.750% Senior Notes and Credit Agreement as of June 30, 2024 and December 31, 2023.

We were in compliance with all covenants contained in the indentures governing the 4.125% Senior Notes and 4.750% Senior Notes and Credit Agreement as of September 30, 2024 and December 31, 2023.

Issuance and Conversion of Series B Preferred Stock

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The transactions contemplated by the agreement (the "Series B Preferred Stock Conversion") were also consummated on February 28, 2024.

Under the terms of the agreement, (i) the Series B Holders each agreed to exercise their respective right to convert all of their Series B Preferred Stock into common stock, resulting in a total of 800,000 shares of Series B Preferred Stock being converted into approximately 32,803,519 shares of common stock (inclusive of approximately 283,196 shares attributable to accrued and unpaid dividends thereon (the "Conversion Shares") and (ii) upon issuance of the Conversion Shares, we agreed to immediately repurchase one-half of the Conversion Shares, on a pro rata basis, from the Series B Holders for an aggregate purchase price of $600.

The repurchase price was financed by (i) an incremental term facility of $300 and (ii) cash and available credit from the balance sheet.

The repurchase price was financed by (i) an incremental term facility of $300 million and (ii) cash and available credit from the balance sheet.

Material Cash Requirements from Known Contractual and Other Obligations

Our material cash requirements from known contractual and other obligations primarily relate to the following, for which information on both a short-term and long-term basis is provided in the indicated notes to the Interim Statements and expected to be satisfied using cash generated from operations:

• Operating and Finance Leases – See Note 12 – "Leases" in the Annual Report on Form 10-K filed on February 28, 2024.

We have not had material changes to our lease obligations during the six months ended June 30, 2024.

• Debt – See Note 10 – "Debt" for future principal payments and interest rates on our debt instruments.

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• Pension obligations – See Note 12 – "Employee Benefit Plans."

• Operating and Finance Leases – See Note 12 – "Leases" in the Annual Report on Form 10-K filed on February 28, 2024.

We have not had material changes to our lease obligations during the nine months ended September 30, 2024.

We make investments in our properties and equipment to enable continued expansion and effective performance of our business.

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Interest rate risk

As of June 30, 2024, our outstanding variable interest rate debt was primarily related to our $2,257 million 2021 Term Loan.

As of September 30, 2024, our outstanding variable interest rate debt was primarily related to our $2,257 million 2021 Term Loan.

To mitigate increases in variable interest rates, we have a $720 million interest rate swap, exchanging one-month SOFR for a rate of 3.59% per annum and a $400 million interest rate swap exchanging one-month SOFR for a rate of 3.41% per annum.

During the three months ended September 30, 2024, we entered into a $720 notional amount forward starting interest rate swap that exchanges a variable rate of interest (SOFR) for an average fixed rate of interest of approximately 3.13% over the term of the agreement, commencing in October 2026 and maturing in January 2029.

In addition, interest expense will be offset by the amortization through October 2024 of the remaining gain of $1 million recognized from the termination of the previously outstanding $720 million notional amount interest rate swap.

The remaining floating rate portfolio will bear interest based on one-month SOFR plus 200 basis points.

As of June 30, 2024, excluding letters of credit outstanding of $4 million, we had no amounts of outstanding revolving loans under our Credit Agreement.

As of September 30, 2024, excluding letters of credit outstanding of $5 million, we had no amounts of outstanding revolving loans under our Credit Agreement.

Foreign currency risk

We have operations in over 20 countries globally.

Revenues generated from foreign operations represented approximately 38% and 39% of our consolidated net revenues for the three and six months ended June 30, 2024.

Revenues generated from foreign operations represented approximately 35% and 38% of our consolidated net revenues for the three and nine months ended September 30, 2024.

Net revenues and expenses related to our foreign operations are, for the most part, denominated in the functional currency of the foreign operation, which minimizes the impact fluctuations in exchange rates would have on net income or loss.

We are subject to fluctuations in foreign currency exchange rates when transactions are denominated in currencies other than the functional currencies.

Such transactions were not material to our operations during the six months ended June 30, 2024.

These foreign currency transaction gains and losses, including hedging impacts, are classified in investment income and other, net, in the condensed consolidated statements of operations and were a (loss) gain of $(1) and $0 million for the three months ended June 30, 2024 and 2023 respectively, and $(2) million and $0 million for the six months ended June 30, 2024 and 2023, respectively.

Such transactions were not material to our operations during the nine months ended September 30, 2024.

These foreign currency transaction gains and losses, including hedging impacts, are classified in investment income and other, net, in the condensed consolidated statements of operations and were a gain (loss) of $1 million and $0 million for the three months ended September 30, 2024 and 2023 respectively, and $(1) million and $0 million for the nine months ended September 30, 2024 and 2023, respectively.

These net foreign currency transaction gains and losses include derivative instruments designed to reduce foreign currency exchange rate risks.

Translation gains or losses, which are recorded in accumulated other comprehensive loss in the condensed consolidated balance sheets, result from translation of the assets and liabilities of our foreign subsidiaries into U.S.

Foreign currency translation (losses) gains totaled approximately $(1) million and $27 million for the three months ended June 30, 2024 and 2023, respectively, and $(43) million and $41 million for the six months ended June 30, 2024 and 2023, respectively.

Foreign currency translation gains (losses) totaled approximately $69 million and $(63) million for the three months ended September 30, 2024 and 2023, respectively, and $26 million and $(22) million for the nine months ended September 30, 2024 and 2023, respectively.

Our exposure to fluctuations in foreign currency exchange rates has increased as a result of our international presence and may continue to increase in the future if we continue to expand our operations outside of the U.S.

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Therefore, management believes it takes appropriate action to manage market and other risks, but there is no assurance management will be able to reasonably identify all risks with respect to the collectability of these assets.

See also “Revenue Recognition from Contracts with Customers” under Critical Accounting Estimates within Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

See also “Revenue Recognition from Contracts with Customers” under Critical Accounting Estimates within Item 7, "Management's

Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

In addition, we are exposed to various supply chain risks, including the market risk of price fluctuations or availability of copper, steel, cable optic fiber, and other materials used as components of supplies or materials utilized in our operations.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis