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abm-20230430

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________

FORM 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-8929

ABM INDUSTRIES INCORPORATED

(Exact name of registrant as specified in its charter)


Delaware						94-1369354
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

__________________________

One Liberty Plaza, 7th Floor

New York, New York 10006

(Address of principal executive offices)

(212) 297-0200

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

__________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.01 par value

ABM

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Number of shares of the registrant’s common stock outstanding as of June 6, 2023: 66,146,035

6ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS


FORWARD-LOOKING STATEMENTS			1
PART I. FINANCIAL INFORMATION			3
Item 1. Consolidated Financial Statements			3




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3. Quantitative and Qualitative Disclosures About Market Risk			41
Item 4. Controls and Procedures			41
PART II. OTHER INFORMATION			41
Item 1. Legal Proceedings			41
Item 1A. Risk Factors			41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			41
Item 3. Defaults Upon Senior Securities			41
Item 4. Mine Safety Disclosures			41
Item 5. Other Information			42
Item 6. Exhibits			43
SIGNATURES			44

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains both historical and forward-looking statements regarding ABM and its subsidiaries (collectively referred to as “ABM,” “we,” “us,” “our,” or the “Company”). 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. Particular risks and uncertainties that could cause our actual results to be materially different from those expressed in our forward-looking statements include those listed below.

•Our success depends on our ability to gain profitable business despite competitive market pressures.

•Our results of operations can be adversely affected by labor shortages, turnover, and labor cost increases.

•We may not be able to attract and retain qualified personnel and senior management we need to support our business.

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

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

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

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

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

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

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

•We manage our insurable risks through a combination of third-party purchased policies and self-insurance, and we retain a substantial portion of the risk associated with expected losses under these programs, which exposes us to volatility associated with those risks, including the possibility that changes in estimates to our ultimate insurance loss reserves could result in material charges against our earnings.

•Our risk management and safety programs may not have the intended effect of reducing our liability for personal injury or property loss.

•Unfavorable developments in our class and representative actions and other lawsuits alleging various claims could cause us to incur substantial liabilities.

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

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

•Our business may be materially affected by changes to fiscal and tax policies. Negative or unexpected tax consequences could adversely affect our results of operations.

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

•Impairment of goodwill and long-lived assets could have a material adverse effect on our financial condition and results of operations.

•If we fail to maintain proper and effective internal control over financial reporting in the future, our ability to produce accurate and timely financial statements could be negatively impacted, which could harm our

operating results and investor perceptions of our Company and as a result may have a material adverse effect on the value of our common stock.

•Our business may be negatively impacted by adverse weather conditions.

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

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

•Actions of activist investors could disrupt our business.

The list of factors above is illustrative and by no means exhaustive. Additional information regarding these and other risks and uncertainties we face is contained in our Annual Report on Form 10-K for the year ended October 31, 2022, and in other reports (including all amendments to those reports) we file from time to time with the Securities and Exchange Commission (“SEC”).

We urge readers to consider these risks and uncertainties in evaluating our forward-looking statements. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(in millions, except share and per share amounts)	April 30, 2023		October 31, 2022
ASSETS
Current assets
Cash and cash equivalents	$	71.2	$	73.0
Trade accounts receivable, net of allowances of $24.2 and $22.6 at April 30, 2023 and October 31, 2022, respectively	1,345.1		1,278.7
Costs incurred in excess of amounts billed	102.8		75.8
Prepaid expenses	110.8		82.1
Other current assets	63.1		51.6
Total current assets	1,693.0		1,561.2
Other investments	14.4		14.5
Property, plant and equipment, net of accumulated depreciation of $314.3 and $296.9 at April 30, 2023 and October 31, 2022, respectively	126.1		125.4
Right-of-use assets	111.7		115.2
Other intangible assets, net of accumulated amortization of $499.6 and $459.8 at April 30, 2023 and October 31, 2022, respectively	340.8		378.5
Goodwill	2,494.3		2,485.6

Other noncurrent assets	152.5		188.5
Total assets	$	4,932.9	$	4,868.9
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of debt, net	$	31.5	$	181.5
Trade accounts payable	263.6		315.5
Accrued compensation	207.7		246.6
Accrued taxes — other than income	50.6		124.7
Insurance claims	182.1		171.4
Income taxes payable	6.7		6.6
Current portion of lease liabilities	32.6		30.3
Other accrued liabilities	334.7		276.5
Total current liabilities	1,109.5		1,353.2
Long-term debt, net	1,352.5		1,086.3
Long-term lease liabilities	98.0		104.5
Deferred income tax liability, net	88.8		89.7
Noncurrent insurance claims	402.7		387.7
Other noncurrent liabilities	94.2		126.0
Noncurrent income taxes payable	4.3		4.2
Total liabilities	3,150.1		3,151.7
Commitments and contingencies
Stockholders’ Equity
Preferred stock, $0.01 par value; 500,000 shares authorized; none issued	—		—
Common stock, $0.01 par value; 100,000,000 shares authorized; 66,139,271 and 65,587,894 shares issued and outstanding at April 30, 2023 and October 31, 2022, respectively	0.7		0.7
Additional paid-in capital	679.2		675.5
Accumulated other comprehensive loss, net of taxes	(14.6)		(16.2)
Retained earnings	1,117.5		1,057.2
Total stockholders’ equity	1,782.8		1,717.2
Total liabilities and stockholders’ equity	$	4,932.9	$	4,868.9

See accompanying notes to unaudited consolidated financial statements.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended April 30,				Six Months Ended April 30,
(in millions, except per share amounts)	2023		2022		2023		2022
Revenues	$	1,984.0	$	1,897.8	$	3,975.3	$	3,834.1
Operating expenses	1,715.2		1,648.3		3,465.0		3,307.9
Selling, general and administrative expenses	156.6		156.8		307.2		309.9
Amortization of intangible assets	19.5		17.6		39.0		35.2

Operating profit	92.7		75.0		164.1		181.0
Income from unconsolidated affiliates	0.6		0.6		1.7		1.0
Interest expense	(21.1)		(7.8)		(40.9)		(14.1)
Income before income taxes	72.3		67.8		125.0		168.0
Income tax provision	(20.4)		(19.0)		(34.5)		(43.2)
Net income	51.9		48.8		90.4		124.8
Other comprehensive income
Interest rate swaps	(2.5)		11.3		(15.6)		11.9
Foreign currency translation and other	2.3		(8.9)		12.8		(11.4)
Income tax benefit (provision)	0.7		(3.0)		4.3		(3.2)
Comprehensive income	$	52.4	$	48.1	$	92.0	$	122.1
Net income per common share
Basic	$	0.78	$	0.73	$	1.36	$	1.85
Diluted	$	0.78	$	0.72	$	1.35	$	1.84
Weighted-average common and common equivalent shares outstanding
Basic	66.4		67.2		66.4		67.5
Diluted	66.7		67.5		66.7		67.9

See accompanying notes to unaudited consolidated financial statements.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)


	Three Months Ended April 30,						Six Months Ended April 30,
	2023			2022			2023			2022
(in millions, except per share amounts)	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Common Stock
Balance, beginning of period	66.1	$	0.7	67.4	$	0.7	65.6	$	0.7	67.3	$	0.7
Stock issued under employee stock purchase and share-based compensation plans	—	—		—	—		0.6	—		0.5	—
Repurchase of common stock	—	—		(0.7)	—		—	—		(1.0)	—
Balance, end of period	66.1	0.7		66.8	0.7		66.1	0.7		66.8	0.7
Additional Paid-in Capital
Balance, beginning of period		670.7			737.0			675.5			750.9
Stock issued (taxes withheld) under employee stock purchase and share-based compensation plans, net		0.8			1.0			(10.9)			(8.1)
Share-based compensation expense		7.7			8.4			14.6			16.8
Repurchase of common stock		—			(30.0)			—			(43.3)
Balance, end of period		679.2			716.4			679.2			716.4
Accumulated Other Comprehensive Loss, Net of Taxes
Balance, beginning of period		(15.1)			(24.6)			(16.2)			(22.5)
Other comprehensive income (loss)		0.5			(0.6)			1.6			(2.6)
Balance, end of period		(14.6)			(25.2)			(14.6)			(25.2)
Retained Earnings
Balance, beginning of period		1,080.3			942.1			1,057.2			880.2
Net income		51.9			48.8			90.4			124.8
Dividends
Common stock ($0.220 and $0.195 per share)		(14.5)			(13.0)			(29.0)			(26.2)
Stock issued under share-based compensation plans		(0.2)			(0.2)			(1.1)			(1.1)
Balance, end of period		1,117.5			977.7			1,117.5			977.7
Total Stockholders’ Equity		$	1,782.8		$	1,669.6		$	1,782.8		$	1,669.6

See accompanying notes to unaudited consolidated financial statements.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Six Months Ended April 30,
(in millions)	2023		2022
Cash flows from operating activities
Net income	$	90.4	$	124.8
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	61.1		55.1


Deferred income taxes	3.3		39.0
Share-based compensation expense	14.6		16.8
Recovery of bad debt	—		(2.9)
Amortization of accumulated other comprehensive gain on interest rate swaps	—		(2.9)
Discount accretion on insurance claims	0.2		—
Loss/(Gain) on sale of assets	0.2		(0.3)
Change in fair value in contingent consideration	(8.4)		—
Income from unconsolidated affiliates	(1.7)		(1.0)
Distributions from unconsolidated affiliates	1.8		—
Changes in operating assets and liabilities
Trade accounts receivable and costs incurred in excess of amounts billed	(93.5)		(93.7)
Prepaid expenses and other current assets	(35.9)		(7.1)
Right-of-use assets	3.5		11.1
Other noncurrent assets	22.9		(7.3)
Trade accounts payable and other accrued liabilities	(118.1)		(163.3)
Long-term lease liabilities	(6.5)		(10.6)
Insurance claims	25.4		(11.5)
Income taxes payable, net	(4.0)		(17.1)
Other noncurrent liabilities	(0.3)		(66.6)
Total adjustments	(135.4)		(262.3)
Net cash used in operating activities	(45.0)		(137.5)
Cash flows from investing activities
Additions to property, plant and equipment	(23.8)		(19.6)
Proceeds from sale of assets	1.6		3.9
Purchase of businesses, net of cash acquired	—		(56.7)
Investments in equity securities	—		(3.0)
Net cash used in investing activities	(22.2)		(75.5)
Cash flows from financing activities
Taxes withheld from issuance of share-based compensation awards, net	(12.0)		(9.2)
Repurchases of common stock	—		(43.3)
Dividends paid	(29.0)		(26.2)

Borrowings from debt	575.5		720.6
Repayment of borrowings from debt	(459.8)		(437.3)
Changes in book cash overdrafts	(11.0)		(9.1)
Financing of energy savings performance contracts	0.5		6.6
Repayment of finance lease obligations	(1.5)		(1.0)
Net cash provided by financing activities	62.8		201.2
Effect of exchange rate changes on cash and cash equivalents	2.6		(2.2)
Net decrease in cash and cash equivalents	(1.8)		(14.0)
Cash and cash equivalents at beginning of year	73.0		62.8
Cash and cash equivalents at end of period	$	71.2	$	48.9

See accompanying notes to unaudited consolidated financial statements.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. THE COMPANY AND NATURE OF OPERATIONS

ABM is a leading provider of integrated facility services with a mission to make a difference, every person, every day. We are organized into four industry groups and one Technical Solutions segment:

https://cdn.kscope.io/272caaa17a1158f26c55e002734c090d-FN1.jpg

Through these groups, we offer janitorial, facilities engineering, parking, and specialized mechanical and electrical technical solutions, on a standalone basis or in combination with other services.

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with (i) United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and (ii) the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of our management, our unaudited consolidated financial statements and accompanying notes (the “Financial Statements”) include all normal recurring adjustments that are necessary for the fair statement of the interim periods presented. Interim results of operations are not necessarily indicative of results for the full year. The Financial Statements should be read in conjunction with our audited consolidated financial statements (and notes thereto) in our Annual Report on Form 10-K for the year ended October 31, 2022. Unless otherwise indicated, all references to years are to our fiscal years, which end on October 31.

Rounding

We round amounts in the Financial Statements to millions and calculate all percentages and per-share data from the underlying whole-dollar amounts. Thus, certain amounts may not foot, crossfoot, or recalculate based on reported numbers due to rounding.

Management Reimbursement Revenue by Segment

We operate certain parking facilities under management reimbursement arrangements. Under these arrangements, we manage the parking facilities for management fees and pass through the revenues and expenses associated with the facilities to the owners. These revenues and expenses are reported in equal amounts as costs reimbursed from our managed locations. Management reimbursement revenue for the three and six months ended April 30, 2023, was $73.5 million and $146.0 million, respectively. Management reimbursement revenue for the three and six months ended April 30, 2022, was $66.4 million and $131.3 million, respectively.

Recently Adopted Accounting Standards

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients to assist with the discontinuance of LIBOR. The expedients allow companies to ease the potential accounting burden when modifying contracts and hedging relationships that use LIBOR as a reference rate, if certain criteria are met. In January 2021, FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. This ASU clarifies that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions under Topic 848. Effective November 1, 2022, we applied available practical

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

3. ACQUISITIONS AND DISPOSITIONS

Acquisition of RavenVolt

On September 1, 2022, we completed the acquisition of all of the equity interests of RavenVolt, Inc. (“RavenVolt”), a nationwide provider of advanced turn-key microgrid systems utilized by diversified commercial and industrial customers, national retailers, utilities, and municipalities. RavenVolt’s operations are included within our Technical Solutions segment. The transaction met the definition of a business combination. We applied the acquisition method of accounting.

The initial purchase price for the acquisition was approximately $170.0 million in cash at closing (subject to customary working capital and net debt adjustments) plus the potential of post-closing contingent consideration of up to $280.0 million. The post closing contingent consideration is payable in cash in calendar years 2024, 2025, and 2026 if RavenVolt’s earnings before interest, taxes, depreciation, and amortization (“EBITDA”), as defined in the RavenVolt merger agreement, meets or exceeds certain defined targets. The maximum contingent consideration that is payable in calendar years 2024, 2025, and 2026 is $75.0 million, $75.0 million, and $130.0 million, respectively. If the EBITDA achieved for calendar years 2023–2025 cumulatively meets the defined EBITDA targets, the entire $280.0 million would be paid in calendar year 2026, minus any earn-out payments made in 2024 and 2025. The estimate of the fair value of the contingent consideration on the date of acquisition, was $59.0 million.

At April 30, 2023, the estimate of the fair value of the contingent consideration was $50.6 million. The change in fair value is recognized within “Selling, general and administrative expenses” of the unaudited Consolidated Statements of Comprehensive Income.

The assets acquired and liabilities assumed were recognized at their acquisition date fair values. The acquisition accounting is subject to change as the Company obtains additional information during the measurement period about the facts and circumstances that existed as of the acquisition date. The final acquisition accounting may include changes to intangible assets, and deferred taxes within the measurement period not to exceed one year from the acquisition date. Goodwill is not deductible for income tax purposes. As of April 30, 2023, we recorded preliminary goodwill and intangibles of $207.4 million and $16.7 million, respectively. The total assets acquired, excluding goodwill and intangibles, and liabilities assumed amounted to $49.3 million and $44.5 million, respectively.

The unaudited Consolidated Statements of Comprehensive Income for the three and six months ended April 30, 2023, include revenues attributable to RavenVolt of $29.8 million and $48.1 million, respectively, and operating profit of $1.3 million and operating loss of $0.8 million, respectively.

Acquisition of Momentum

Effective April 7, 2022, we acquired Maybin Support Services Limited, Momentum Support Limited (UK), and Momentum Property Support Services Limited (collectively “Momentum”), a leading independent provider of facility services, primarily janitorial, across the Republic of Ireland and Northern Ireland, for a purchase price of approximately $54.8 million. As of April 30, 2023, we have completed the acquisition accounting, and recorded goodwill and intangibles of $42.9 million and $10.4 million, respectively. Goodwill is not deductible for income tax purposes. The total assets acquired, excluding goodwill and intangibles, and liabilities assumed amounted to $20.4 million and $18.9 million, respectively. The one-year measurement period in which the purchase price allocation is subject to adjustments expired on April 7, 2023. There were no material changes made to ABM’s preliminary acquisition accounting.

Disposition of Assets

On January 31, 2022, the Company sold a group of customer contracts for healthcare technology management within our Technical Solutions segment for $8.5 million and recognized a gain of $7.7 million during the six months ended April 30, 2022, which is included in “Selling, general and administrative expenses” in the accompanying unaudited Consolidated Statements of Comprehensive Income.

4. REVENUES

Disaggregation of Revenues

We generate revenues under several types of contracts, which are further explained below. Generally, the type of contract is determined by the nature of the services provided by each of our major service lines throughout our reportable segments; therefore, we disaggregate revenues from contracts with customers into major service lines. We have determined that disaggregating revenues into these categories best depicts how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors. Our reportable segments are B&I, M&D, Education, Aviation, and Technical Solutions, as described in Note 12, “Segment Information.”


	Three Months Ended April 30, 2023												Six Months Ended April 30, 2023
(in millions)	B&I		M&D		Education		Aviation		Technical Solutions		Total		B&I		M&D		Education		Aviation		Technical Solutions		Total

Major Service Line
Janitorial(1)	$	673.5	$	325.3	$	188.2	$	36.2	$	—	$	1,223.2	$	1,360.6	$	653.8	$	375.9	$	72.1	$	—	$	2,462.4
Parking(2)	100.3		9.9		0.3		91.7		—		202.1		197.1		21.3		0.5		166.5		—		385.5
Facility Services(3)	224.7		38.0		28.2		8.0		—		298.9		477.3		78.5		55.2		16.8		—		627.8
Building & Energy Solutions(4)	—		—		—		—		168.4		168.4		—		—		—		—		315.5		315.5
Airline Services(5)	—		—		—		91.3		—		91.3		—		—		—		184.1		—		184.1
Total	$	998.5	$	373.2	$	216.7	$	227.2	$	168.4	$	1,984.0	$	2,035.0	$	753.7	$	431.6	$	439.5	$	315.5	$	3,975.3


	Three Months Ended April 30, 2022												Six Months Ended April 30, 2022
(in millions)	B&I		M&D		Education		Aviation		Technical Solutions		Total		B&I		M&D		Education		Aviation		Technical Solutions		Total

Major Service Line
Janitorial(1)	$	676.7	$	307.2	$	177.9	$	26.4	$	—	$	1,188.2	$	1,354.6	$	611.3	$	356.2	$	56.2	$	—	$	2,378.4
Parking(2)	85.1		8.8		0.3		77.1		—		171.2		168.4		19.5		0.5		154.8		—		343.2
Facility Services(3)	241.8		41.0		26.3		6.8		—		315.8		510.2		85.2		53.3		13.3		—		661.9
Building & Energy Solutions(4)	—		—		—		—		147.0		147.0		—		—		—		—		288.8		288.8
Airline Services(5)	—		—		—		75.5		—		75.5		—		—		—		161.8		—		161.8
Total	$	1,003.6	$	356.9	$	204.4	$	185.9	$	147.0	$	1,897.8	$	2,033.1	$	716.0	$	410.1	$	386.1	$	288.8	$	3,834.1

(1) Janitorial arrangements provide a wide range of essential cleaning services for commercial office buildings, airports and other transportation centers, educational institutions, government buildings, health facilities, industrial buildings, retail stores, and stadiums and arenas. These arrangements are often structured as monthly fixed-price, square-foot, cost-plus, and work order contracts.

(2) Parking arrangements provide parking and transportation services for clients at various locations, including airports and other transportation centers, commercial office buildings, educational institutions, health facilities, hotels, and stadiums and arenas. These arrangements are structured as management reimbursement, leased location, and allowance contracts. Certain of these arrangements are considered service concession agreements and are accounted for under the guidance of Topic 853; accordingly, rent expense related to these arrangements is recorded as a reduction of the related parking service revenues.

(3) Facility Services arrangements provide onsite mechanical engineering and technical services and solutions relating to a broad range of facilities and infrastructure systems that are designed to extend the useful life of facility fixed assets, improve equipment operating efficiencies, reduce energy consumption, lower overall operational costs for clients, and enhance the sustainability of client locations. These arrangements are generally structured as monthly fixed-price, cost-plus, and work order contracts.

(4) Building & Energy Solutions arrangements provide custom energy solutions, including microgrid systems installation, electrical, HVAC, lighting, electric vehicle charging station installation, and other general maintenance and repair services for clients in the public and private sectors and are generally structured as energy savings, fixed-price repair, and refurbishment contracts. We also franchise certain operations under franchise agreements relating to our Linc Network and TEGG brands pursuant to franchise contracts.

(5) Airline Services arrangements support airlines and airports with services such as passenger assistance, catering logistics, and airplane cabin maintenance. These arrangements are often structured as monthly fixed-price, cost-plus, transaction price, and hourly contracts.

Contract Types

We have arrangements under various contract types, as described in Note 2, “Basis of Presentation and Significant Accounting Policies,” in our Annual Report on Form 10-K for the year ended October 31, 2022.

Certain arrangements involve variable consideration (primarily per transaction fees, reimbursable expenses, and sales-based royalties). We do not estimate the variable consideration for these arrangements; rather, we recognize these variable fees as they are earned. Some of our contracts, often related to Airline Services, may also include performance incentives based on variable performance measures that are ascertained exclusively by future performance and therefore cannot be estimated at contract inception and are recognized as revenue once known and mutually agreed upon. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current, and forecasted) that is reasonably available to us.

The majority of our contracts include performance obligations that are primarily satisfied over time as we provide the related services. These contract types include: monthly fixed-price; square-foot; cost-plus; work orders; transaction-price; hourly; management reimbursement; leased location; allowance; energy savings contracts; and fixed-price repair and refurbishment contracts, as well as our franchise and royalty fee arrangements. We recognize revenue as the services are performed using a measure of progress that is determined by the contract type. Generally, most of our contracts are cancelable by either party without a substantive penalty, and the majority have a notification period of 30 to 60 days.

We primarily account for our performance obligations under the series guidance, using the as-invoiced practical expedient when applicable. We apply the as-invoiced practical expedient to record revenue as the services are provided, given the nature of the services provided and the frequency of billing under the customer contracts. Under this practical expedient, we recognize revenue in an amount that corresponds directly with the value to the customer of our performance completed to date and for which we have the right to invoice the customer.

Remaining Performance Obligations

At April 30, 2023, performance obligations that were unsatisfied for which we expect to recognize revenue totaled $263.3 million. We expect to recognize revenue on approximately 76% of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter, based on our estimates of project timing.

These amounts exclude variable consideration primarily related to: (i) contracts where we have determined that the contract consists of a series of distinct service periods and revenues are based on future performance that cannot be estimated at contract inception; (ii) parking contracts where we and the customer share the gross revenues or operating profit for the location; and (iii) contracts where transaction prices include performance incentives that are based on future performance and therefore cannot be estimated at contract inception. For these contract types we apply the practical expedient that permits exclusion of information about the remaining performance obligations with original expected durations of one year or less.

Contract Balances

The timing of revenue recognition, billings, and cash collections results in contract assets and contract liabilities, as further explained below. The timing of revenue recognition may differ from the timing of invoicing to customers.

Contract assets primarily consist of billed trade receivables, unbilled trade receivables, and costs incurred in excess of amounts billed. Billed and unbilled trade receivables represent amounts from work completed in which we

have an unconditional right to bill our customer. Costs incurred in excess of amounts billed typically arise when the revenue recognized on projects exceeds the amount billed to the customer. These amounts are transferred to billed trade receivables when the rights become unconditional. Contract assets also include the capitalization of incremental costs of obtaining a contract with a customer, primarily commissions. Commissions expense is recognized on a straight-line basis over a weighted average expected customer relationship period.

Contract liabilities consist of deferred revenue and advance payments and billings in excess of revenue recognized. We generally classify contract liabilities as current since the related contracts are generally for a period of one year or less. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation.

The following tables present the balances in our contract assets and contract liabilities:


(in millions)	April 30, 2023		October 31, 2022
Contract assets
Billed trade receivables(1)	$	1,198.0	$	1,138.8
Unbilled trade receivables(1)	171.3		162.5
Costs incurred in excess of amounts billed(2)	102.8		75.8
Capitalized commissions(3)	30.6		30.9

(1) Included in trade accounts receivable, net, on the unaudited Consolidated Balance Sheets. The fluctuations correlate directly to the execution of new customer contracts and to invoicing and collections from customers in the normal course of business.

(2) Fluctuation is primarily due to the timing of payments on our contracts measured using the cost-to-cost method of revenue recognition.

(3) Included in other current assets and other noncurrent assets on the unaudited Consolidated Balance Sheets. During the six months ended April 30, 2023, we capitalized $7.5 million of new costs and amortized $7.8 million of previously capitalized costs. There was no impairment loss recorded on the costs capitalized.


(in millions)	Six Months Ended April 30, 2023
Contract liabilities(1)
Balance at beginning of period	$	79.6
Additional contract liabilities	144.7
Recognition of deferred revenue	(106.1)
Balance at end of period	$	118.2

(1) Included in other accrued liabilities on the unaudited Consolidated Balance Sheets.

5. NET INCOME PER COMMON SHARE

Basic and Diluted Net Income Per Common Share Calculations


	Three Months Ended April 30,				Six Months Ended April 30,
(in millions, except per share amounts)	2023		2022		2023		2022
Net income	$	51.9	$	48.8	$	90.4	$	124.8

Weighted-average common and common equivalent shares outstanding — Basic	66.4		67.2		66.4		67.5
Effect of dilutive securities(1)
Restricted stock units	0.1		0.2		0.2		0.2

Performance shares	0.1		0.1		0.2		0.1
Weighted-average common and common equivalent shares outstanding — Diluted	66.7		67.5		66.7		67.9

Net income per common share
Basic	$	0.78	$	0.73	$	1.36	$	1.85
Diluted	$	0.78	$	0.72	$	1.35	$	1.84

(1) Excludes the impact of potentially dilutive outstanding share-based securities that are excluded from the calculation of diluted loss per share in periods when we have a loss, as their inclusion would have an anti-dilutive effect. Such impact is included in the table below.

Anti-Dilutive Outstanding Stock Awards Issued Under Share-Based Compensation Plans


	Three Months Ended April 30,		Six Months Ended April 30,
(in millions)	2023	2022	2023	2022
Anti-dilutive	0.3	—	0.2	—

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair Value Hierarchy of Our Financial Instruments

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis


(in millions)	Fair Value Hierarchy	April 30, 2023		October 31, 2022
Cash and cash equivalents(1)	1	$	71.2	$	73.0
Insurance deposits(2)	1	2.3		0.9
Assets held in funded deferred compensation plan(3)	1	4.2		4.1
Debt facilities(4)	2	1,387.0		1,271.3
Interest rate swap assets(5)	2	22.6		36.9
Interest rate swap liabilities(5)	2	1.3		—
Preferred equity investment(6)	3	3.0		3.0
Contingent consideration(7)	3	50.6		59.0

(1) Cash and cash equivalents are stated at nominal value, which equals fair value.

(2) Represents restricted deposits that are used to collateralize our insurance obligations and are stated at nominal value, which equals fair value. These insurance deposits are included in “Other noncurrent assets” on the accompanying unaudited Consolidated Balance Sheets. See Note 7, “Insurance,” for further information.

(3) Represents investments held in a Rabbi trust associated with one of our deferred compensation plans, which we include in “Other noncurrent assets” on the accompanying unaudited Consolidated Balance Sheets. The fair value of the assets held in the funded deferred compensation plan is based on quoted market prices.

(4) Represents gross outstanding borrowings under our Credit and Receivables Facilities. Due to variable interest rates, the carrying value of outstanding borrowings under these facilities approximates the fair value. See Note 8, “Debt,” for further information.

(5) Represents interest rate swap derivatives designated as cash flow hedges. The fair values of the interest rate swaps are estimated based on the present value of the difference between expected cash flows calculated at the contracted interest rates and the expected cash flows at current market interest rates using observable benchmarks for the Secured Overnight Financing Rate (“SOFR”) forward rates at the end of the period. Our interest rate swap assets and liabilities are included in “Other noncurrent assets” and “Other noncurrent liabilities,” respectively, on the accompanying unaudited Consolidated Balance Sheets. See Note 8, “Debt,” for further information.

(6) We purchased $3.0 million in a preferred equity investment of a privately held company during the six months ended April 30, 2022, which we include in “Other investments” on the accompanying unaudited Consolidated Balance Sheet. Our investment does not have a readily determinable fair value; therefore, we account for the investment using the measurement alternative under Topic 321 and measure the investment at initial cost less impairment, if any.

(7) Our contingent consideration payable related to the RavenVolt Acquisition is remeasured at each reporting date, based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. After the acquisition date and until the contingency is resolved, the fair value of contingent consideration payable is adjusted each reporting period based primarily on the expected probability of achievement of the contingency targets, which are subject to our estimate. These changes in fair value are recognized within “Selling, general and administrative expenses” of the unaudited Consolidated Statements of Comprehensive Income.

Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis

In addition to assets and liabilities that are measured at fair value on a recurring basis, we are also required to measure certain items at fair value on a non-recurring basis. These assets can include: goodwill; intangible assets; property, plant and equipment; lease-related ROU assets; and long-lived assets that have been reduced to fair value when they are held for sale. If certain triggering events occur, or if an annual impairment test is required, then we would evaluate these non-financial assets for impairment. If an impairment were to occur, then the asset would be recorded at the estimated fair value, using primarily unobservable Level 3 inputs.

7. INSURANCE

We use a combination of insured and self-insurance programs to cover workers’ compensation, general liability, automobile liability, property damage, and other insurable risks. For the majority of these insurance programs, we retain the initial $1.0 million to $1.5 million of exposure on a per-occurrence basis, either through deductibles or self-insured retentions. Beyond the retained exposures, we have varying primary policy limits ranging between $1.0 million and $5.0 million per occurrence. To cover general liability and automobile liability losses above these primary limits, we maintain commercial umbrella insurance policies that provide aggregate limits of $200.0 million. Our insurance policies generally cover workers’ compensation losses to the full extent of statutory requirements. Additionally, to cover property damage risks above our retained limits, we maintain policies that provide per occurrence limits of $75.0 million. We are also self-insured for certain employee medical and dental plans. We maintain stop-loss insurance for our self-insured medical plan under which we retain up to $0.5 million of exposure on a per-participant, per-year basis with respect to claims.

We maintain our reserves for workers’ compensation, general liability, automobile liability, and property damage insurance claims based upon known trends and events and the actuarial estimates of required reserves considering the most recently completed actuarial reports. We use all available information to develop our best estimate of insurance claims reserves as information is obtained. The results of actuarial reviews are used to estimate our insurance rates and insurance reserves for future periods and to adjust reserves, if appropriate, for prior years.

Actuarial Review and Interim Update Performed During 2023

We review our self-insurance liabilities on a regular basis and adjust our accruals accordingly. Actual claims activity or development may vary from our assumptions and estimates, which may result in material losses or gains. As we obtain additional information that affects the assumptions and estimates used in our reserve liability calculations, we adjust our self-insurance rates and reserves for future periods and, if appropriate, adjust our reserves for claims incurred in prior accounting periods.

During the first quarter of 2023, we performed a comprehensive actuarial review of the majority of our casualty insurance programs to evaluate changes made to claims reserves and claims payment activity for the period of May 1, 2022, through October 31, 2022 (the “Actuarial Review”). The Actuarial Review was comprehensive in nature and was based on loss development patterns, trend assumptions, and underlying expected loss costs during the period analyzed.

During the second quarter of 2023, we performed an interim actuarial update of the majority of our casualty insurance programs that considered changes in claims development and claims payment activity for the period of November 1, 2022, through January 31, 2023 (the “Interim Update”). This Interim Update was abbreviated in nature based on actual versus expected developments during the periods analyzed and relied on the key assumptions in the Actuarial Review (most notably loss development patterns, trend assumptions, and underlying expected loss costs).

Based on the results of the Actuarial Review and Interim Update at April 30, 2023, it was determined that there was no adjustment required for our total reserves related to prior years during the six months ended April 30, 2023. During the six months ended April 30, 2022, we decreased our total reserves related to prior years by $28.7 million. We will continue to assess ongoing developments, which may result in further adjustments to reserves.

Insurance-Related Balances and Activity


(in millions)	April 30, 2023		October 31, 2022
Insurance claim reserves, excluding medical and dental	$	575.5	$	551.1
Medical and dental claim reserves	9.3		8.1
Insurance recoverables	71.0		71.0

At April 30, 2023, and October 31, 2022, insurance recoverables are included in both “Other current assets” and “Other noncurrent assets” on the accompanying unaudited Consolidated Balance Sheets.

Instruments Used to Collateralize Our Insurance Obligations


(in millions)	April 30, 2023		October 31, 2022
Standby letters of credit	$	54.0	$	153.7
Surety bonds and surety-backed letters of credit	174.3		73.2
Restricted insurance deposits	2.3		0.9
Total	$	230.7	$	227.8

8. DEBT

Components of Debt


(in millions)	April 30, 2023		October 31, 2022
Current portion of debt
Gross term loan	$	32.5	$	32.5
Unamortized deferred financing costs	(1.0)		(1.0)
Current portion of term loan	$	31.5	$	31.5
Receivables facility	—		150.0
Current portion of debt	$	31.5	$	181.5

Long-term debt
Gross term loan	$	552.5	$	568.8
Unamortized deferred financing costs	(2.0)		(2.4)
Total noncurrent portion of term loan	550.5		566.3
Revolving line of credit(1)(2)	802.0		520.0
Long-term debt	$	1,352.5	$	1,086.3

(1) Standby letters of credit amounted to $58.6 million at April 30, 2023.

(2) At April 30, 2023, we had borrowing capacity of $432.0 million.

At April 30, 2023, and October 31, 2022, the weighted average interest rate on all outstanding borrowings, not including letters of credit and swaps, was 6.70% and 4.97%, respectively.

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 (the “revolver”) and an $800.0 million amortizing term loan, both of which matured on September 1, 2022. In accordance with terms of the Credit Facility, the revolver was reduced to $800.0 million on September 1, 2018.

On June 28, 2021, the Company amended and restated the Credit Facility (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. Additionally, 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 Secured Overnight Financing Rate (“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 April 30, 2023, we were in compliance with these covenants.

The Amended Credit Facility also includes customary events of default, including: failure to pay principal, interest, or fees when due; failure to comply with covenants; the occurrence of certain material judgments; and a change in control of the Company. If certain events of default occur, including certain cross-defaults, insolvency, change in control, or violation of specific covenants, then the lenders can terminate or suspend our access to the Amended Credit Facility, declare all amounts outstanding (including all accrued interest and unpaid fees) to be immediately due and payable, and require that we cash collateralize the outstanding standby letters of credit.

We incurred deferred financing costs of $6.4 million in conjunction with the execution of the Amended Credit Facility and carried over $6.2 million of unamortized deferred financing from initial execution and previous amendments of the Credit Facility. Total deferred financing costs of $12.6 million, consisting of $4.9 million related to the term loan and $7.7 million related to the revolver, are being amortized to interest expense over the term of the Amended Credit Facility.

On March 1, 2022, we entered into an uncommitted receivable repurchase facility (the “Receivables Facility”) of up to $150 million, which expired on March 30, 2023. The Receivables Facility allowed the Company to sell a portfolio of available and eligible outstanding U.S. trade accounts receivable to a participating institution and simultaneously agree to repurchase them generally on a monthly basis. Under this arrangement, we made floating rate interest payments equal to the forward-looking term rate based on SOFR plus 1.05%. These interest payments were payable monthly in arrears. The repurchase price of the receivables in the facility was the original face value. Outstanding receivables were repurchased on a date agreed upon by both the buyer and seller, generally on a monthly basis, and on the termination date of the repurchase facility. This facility was considered a secured borrowing and provided the buyer with customary rights of termination upon the occurrence of certain events of default. We guaranteed all of the sellers’ obligations under the facility. We accounted for the sale of receivables under the Receivables Facility as short-term debt and carried the receivables on the unaudited Consolidated Balance Sheets, primarily as a result of the requirement to repurchase receivables sold.

Long-Term Debt Maturities

During the three and six months ended April 30, 2023, we made principal payments under the term loan of $8.1 million and $16.3 million, respectively. As of April 30, 2023, the following principal payments are required under the term loan:


(in millions)						2023						2024						2025						2026