ABM Industries Inc: Form 10-Q for the period ended Apr 30, 2024

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to facilitate an understanding of the results of operations and financial condition of ABM. This MD&A is provided as a supplement to, and should be read in conjunction with, our Financial Statements and our Annual Report on Form 10-K for the year ended October 31, 2023, which has been filed with the SEC. This MD&A contains forward-looking statements about our business, operations, and industry that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations, and intentions. Our future results and financial condition may be materially different from those we currently anticipate. See “Forward-Looking Statements” for more information.

Throughout the MD&A, amounts and percentages may not recalculate due to rounding. Unless otherwise indicated, all information in the MD&A and references to years are based on our fiscal years, which end on October 31.

Business Overview

ABM is a leading provider of integrated facility solutions, customized by industry, with a mission to make a difference, every person, every day.

ELEVATE Strategy

In December 2021, we announced our multiyear strategic plan called ELEVATE. The ELEVATE strategy is designed to strengthen our industry leadership position through end-market repositioning and build on our core services, which we expect will drive significant long-term value for our stakeholders.

We will continue to make significant investments over the life of the program, which are expected to total $200 - $215 million, and we will continue to implement various measures with the aim to ELEVATE:

• the client experience, by serving as a trusted advisor who can provide innovative multiservice solutions and consistent service delivery;
• the team member experience, by investing in workforce management, training, developing the next generation of ABM leaders, and building on our inclusive culture; and
• our use of technology and data to power client and employee experiences with cutting-edge data and analytics, processes, and tools that will fundamentally change how we operate our business.

Macro-Economic Environment in Commercial Real Estate and Other

We actively monitor the economic environment and its potential impact on demand for our services and our financial condition. Largely driven by the lingering effects of the Pandemic, especially the normalization of hybrid work, the commercial real estate industry, particularly multi-tenant and owner-occupied commercial office buildings, is experiencing an increase in vacancy rates. Given that Class A and high-quality commercial office buildings are a key end market for the Company, we expect a decline in demand for janitorial services and work orders in these markets near-term. As a result, we expect our B&I industry to experience muted growth in the near-term. Longer term, we expect the vacancy rates of Class A and high-quality buildings to gradually decrease and our volume of work to stabilize.

A large M&D client has completed rebidding and is now rebalancing a portion of its work needs as part of its normal procurement process. We expect M&D’s financial results to be adversely impacted in the near-term.

Insurance

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 second quarter of 2024, 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, 2023, through January 31, 2024 (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, 2024, we increased our total reserves related to prior years for known claims as well as our estimate of the loss amounts associated with IBNR claims by $9.7 million during the six months ended April 30, 2024. During the six months ended April 30, 2023, it was determined that there was no adjustment required for our total reserves related to prior year. We will continue to assess ongoing developments, which may result in further adjustments to reserves.

Segment Reporting

Our current reportable segments consist of B&I, M&D, Education, Aviation, and Technical Solutions, as further described below.

REPORTABLE SEGMENTS AND DESCRIPTIONS

B&I, our largest reportable segment, encompasses janitorial, facilities engineering, and parking services for commercial real estate properties (including corporate offices for high tech clients), sports and entertainment venues, and traditional hospitals and non-acute healthcare facilities. B&I also provides vehicle maintenance and other services to rental car providers. We typically provide these services pursuant to monthly fixed-price, square-foot, cost-plus, and parking arrangements (i.e., management reimbursement, leased location, or allowance) that are obtained through a competitive bid process as well as pursuant to work orders.

M&D provides integrated facility services, engineering, janitorial, and other specialized services to a variety of manufacturing, distribution, and data center facilities. We typically provide these services pursuant to monthly fixed-price, square-foot, and cost-plus, that are obtained through a competitive bid process as well as pursuant to work orders.

Education delivers janitorial, custodial, landscaping and grounds, facilities engineering, and parking services for public school districts, private schools, colleges, and universities. These services are typically provided pursuant to monthly fixed-price, square-foot, and cost-plus arrangements that are obtained through either a competitive bid process or re-bid upon renewal as well as pursuant to work orders.

Aviation supports airlines and airports with services ranging from parking and janitorial to passenger assistance, catering logistics, air cabin maintenance, and transportation. We typically provide services to clients in this segment under master services agreements. These agreements are typically re-bid upon renewal and are generally structured as monthly fixed-price, square-foot, cost-plus, parking, transaction-price, and hourly arrangements.

Technical Solutions specializes in facility infrastructure, mechanical and electrical services, including EV power design, installation and maintenance, as well as microgrid systems design and installation. These services can also be leveraged for cross-selling across all of our industry groups, both domestically and internationally. Contracts for this segment are generally structured as electrical contracting services for energy related products such as the installation of solar solutions, battery storage, distributed generation, and other specialized electric trade.

23

Key Financial Highlights

• Revenues increased by $34.2 million, or 1.7%, to $2,018.2 million during the three months ended April 30, 2024, as compared to the prior year period. The increase was due to the net new business and expansion of business with existing customers within Aviation, M&D, and Education and timing of completions of certain energy solutions projects, including microgrid systems and generator installations within Technical Solutions. The increase in revenues was partially offset by soft commercial office market conditions within B&I.
• We had a decrease in operating profit of $11.4 million, to $81.3 million during the three months ended April 30, 2024, as compared to the prior year period. The decrease was primarily attributed to:
• the $12.6 million in revenue recognized for the Aviation parking project during the three months ended April 30, 2023, whereby all the direct labor and related costs were recognized prior to January 31, 2023;
• an absence of a fair value adjustment to decrease the contingent consideration related to the RavenVolt Acquisition; and
• an unfavorable self-insurance reserve adjustment related to prior year claims from actuarial evaluations completed in the three months ended April 30, 2024.

The decrease was partially offset by:

• labor efficiencies across most of our industry groups, as well as contract mix within M&D and Technical Solutions; and
• a decrease in amortization of intangibles related to the RavenVolt Acquisition.
• Net cash provided by operating activities was $116.9 million during the six months ended April 30, 2024. Our total net cash provided by operating cash flows was higher compared to the prior year period, primarily due to the timing of working capital requirements, including customer payments and absence of a $66.0 million payment of previously deferred payroll taxes made during the three months ended January 31, 2023.
• Dividends of $28.3 million were paid to shareholders, and dividends totaling $0.45 per common share were declared during the six months ended April 30, 2024.
• At April 30, 2024, total outstanding borrowings under our Amended Credit Facility were $1.3 billion. At April 30, 2024, we had up to $501.1 million of borrowing capacity.

Results of Operations

Three Months Ended April 30, 2024, Compared with the Three Months Ended April 30, 2023

Consolidated

(in millions, except per share amounts)

*Not meaningful

Revenues

Revenues increased by $34.2 million, or 1.7%, to $2,018.2 million during the three months ended April 30, 2024, as compared to the prior year period. The increase was due to the net new business and expansion of business with existing customers within Aviation, M&D, and Education and timing of completions of certain energy solutions projects, including microgrid systems and generator installations within Technical Solutions. The increase in revenues was partially offset by soft commercial office market conditions within B&I.

Operating Expenses

Operating expenses increased by $48.3 million, or 2.8%, to $1,763.5 million during the three months ended April 30, 2024, as compared to the prior year period. Gross margin decreased by 93 bps to 12.6% in the three months ended April 30, 2024, from 13.6% in the prior year period. The decrease in gross margin was primarily driven by $12.6 million in revenue recognized for the Aviation parking project during the three months ended April 30, 2023, whereby all the direct labor and related costs were recognized prior to January 31, 2023, and a $4.3 million unfavorable self-insurance reserve adjustment related to prior year claims from actuarial evaluations completed in the three months ended April 30, 2024, partially offset by labor efficiencies across most of our industry groups and the contract mix within M&D and Technical Solutions.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $3.3 million to $159.9 million during the three months ended April 30, 2024, as compared to the prior year period. The increase in selling, general and administrative expenses was primarily attributable to:

• an absence of an $8.4 million fair value adjustment to decrease the contingent consideration related to the RavenVolt Acquisition; and
• a $5.8 million increase in costs associated with the systems’ go-live.

This increase was partially offset by:

• a $3.7 million decrease in certain discrete transformational costs under our ELEVATE strategy for developing the new ERP system, client-facing technology, workforce management tools, and data analytics;
• an absence of a $3.5 million unfavorable medical and dental self-insurance adjustment related to prior year claims as the result of actuarial evaluations completed in the three months ended April 30, 2023; and
• a $2.8 million decrease in compensation and related expenses primarily due to headcount reduction at the end of October 2023, partially offset by an increase in compensation under certain incentive plans.

Amortization of Intangible Assets

Amortization of intangible assets decreased by $5.9 million, or 30.5%, to $13.6 million during the three months ended April 30, 2024, as compared to the prior year period. The decrease was primarily due to the lower amortization of intangibles, primarily intangibles acquired as part of the RavenVolt Acquisition.

Interest Expense

Interest expense decreased by $0.5 million to $20.6 million during the three months ended April 30, 2024, as compared to the prior year period, and was driven by lower borrowings from our Amended Credit Facility.

Income Taxes from Operations

Our effective tax rates from income on operations for the three months ended April 30, 2024, and April 30, 2023, were 29.9% and 28.2%, respectively, resulting in provisions for taxes of $18.7 million and $20.4 million, respectively.

Our effective tax rates for the three months ended April 30, 2024, and April 30, 2023, were not impacted by any significant discrete items.

Interest Rate Swaps

We had a gain of $10.3 million on interest rate swaps during the three months ended April 30, 2024, as compared to a loss of $2.5 million during the three months ended April 30, 2023, primarily due to underlying changes in the fair value of our interest rate swaps.

Foreign Currency Translation

We had a foreign currency translation loss of $1.7 million during the three months ended April 30, 2024, as compared to a foreign currency translation gain of $2.3 million during the three months ended April 30, 2023. This change was due to fluctuations in the exchange rate between the U.S. dollar (“USD”) and the British pound sterling (“GBP”). Future gains and losses on foreign currency translation will be dependent upon changes in the relative value of foreign currencies to the USD and the extent of our foreign assets and liabilities.

Segment Information

Financial Information for Each Reportable Segment

(in millions)

*Not meaningful

($ in millions)

B&I revenues decreased by $8.9 million, or 0.9%, to $989.6 million during the three months ended April 30, 2024, as compared to the prior year period. The revenue decrease was primarily driven by the soft commercial office market conditions and attrition of certain engineering clients, partially offset by client expansions and increases in revenue in the sports sector and parking. Management reimbursement revenues for this segment totaled $68.6 million and $65.7 million for the three months ended April 30, 2024 and 2023, respectively.

Operating profit increased by $1.4 million, or 1.8%, to $77.6 million during the three months ended April 30, 2024, as compared to the prior year period. Operating profit margin increased by 21 bps to 7.8% in the three months ended April 30, 2024, from 7.6% in the prior year period. The increase in operating profit margin was primarily driven by contract and service mix and labor efficiencies.

($ in millions)

M&D revenues increased by $15.4 million, or 4.1%, to $388.6 million during the three months ended April 30, 2024, as compared to the prior year period. The increase was primarily attributable to the expansion of business with existing customers.

Operating profit increased by 6.9% to $43.6 million during the three months ended April 30, 2024, as compared to the prior year period. Operating profit margin increased by 29 bps to 11.2% in the three months ended April 30, 2024, from 10.9% in the prior year period. The increase in operating profit margin was primarily attributable to the contract mix.

($ in millions)

Education revenues increased by $8.9 million, or 4.1%, to $225.6 million during the three months ended April 30, 2024, as compared to the prior year period. The increase was primarily attributable to net new business and expansion of business with existing customers.

Operating profit decreased by $0.3 million, or 1.8%, to $11.5 million for the three months ended April 30, 2024, as compared to the prior year period. Operating profit margin decreased by 31 bps to 5.1% in the three months ended April 30, 2024, from 5.4% in the prior year period. The decrease in operating profit margin was primarily attributable to base wage increases, partially offset by labor efficiencies.

($ in millions)

Aviation revenues increased by $11.0 million, or 4.8%, to $238.2 million during the three months ended April 30, 2024, as compared to the prior year period. The increase was primarily attributable to new business and scope expansions with the existing clients as well as continuing recovery in travel volume. In addition, during the three months ended April 30, 2023, we recognized $12.6 million in revenue from an Aviation parking project, whereby all the direct labor and related costs were recognized prior to January 31, 2023. Management reimbursement revenues for this segment totaled $8.2 million and $7.7 million for the three months ended April 30, 2024 and 2023, respectively.

Operating profit decreased by $10.5 million, or 44.8%, to $13.1 million for the three months ended April 30, 2024, as compared to the prior year period. Operating profit margin decreased by 492 bps to 5.5% in the three months ended April 30, 2024. The operating profit margin decreased primarily due to the revenue recognized for the Aviation parking project during the three months ended April 30, 2023, whereby all the direct labor and related costs were recognized prior to January 31, 2023. This decrease was partially offset by labor efficiencies, primarily due to an increase in travel volume.

($ in millions)

Technical Solutions revenues increased by $7.8 million, or 4.6%, to $176.2 million during the three months ended April 30, 2024, as compared to the prior year period. The increase was primarily driven by higher project revenues due to the timing of certain energy solutions projects, including microgrid systems and generators installation, partially offset by a decrease in electric vehicle charging station installation sales.

Operating profit increased by $6.8 million, or 66.6%, to $17.0 million during the three months ended April 30, 2024, as compared to the prior year period. Operating profit margin increased by 358 bps to 9.6% in the three months ended April 30, 2024, from 6.0% in the prior year period. The increase in operating profit margin was primarily attributable to the contract mix and lower amortization of intangible assets.

($ in millions)

Corporate expenses increased by $10.5 million, or 15.2%, to $79.7 million during the three months ended April 30, 2024, as compared to the prior year period. The increase in corporate expenses was primarily attributable to:

• an absence of an $8.4 million fair value adjustment to decrease the contingent consideration related to the RavenVolt Acquisition;
• a $5.6 million increase in costs associated with the systems’ go-live; and
• a $4.3 million unfavorable self-insurance reserve adjustment related to prior year claims from actuarial evaluations completed in the three months ended April 30, 2024.

The increase was partially offset by:

• a $3.7 million decrease in certain discrete transformational costs under our ELEVATE strategy for developing the new ERP system, client-facing technology, workforce management tools, and data analytics; and
• an absence of a $3.5 million unfavorable medical and dental self-insurance adjustment related to prior year claims as the result of actuarial evaluations completed in the three months ended April 30, 2023.

Results of Operations

Six Months Ended April 30, 2024, Compared with the Six Months Ended April 30, 2023

Consolidated

(in millions)

*Not meaningful

Revenues

Revenues increased by $112.5 million, or 2.8%, to $4,087.8 million during the six months ended April 30, 2024, as compared to the prior year period. Revenue growth was primarily driven by the net new business and expansion of business with existing customers within Aviation, M&D, and Education and timing of completions of certain energy solutions projects, including microgrid systems and generators installation within Technical Solutions. The increase in revenues was partially offset by soft commercial office market conditions within B&I.

Operating Expenses

Operating expenses increased by $124.8 million, or 3.6%, to $3,589.8 million during the six months ended April 30, 2024, as compared to the prior year period. Gross margin decreased by 65 bps to 12.2% in the six months ended April 30, 2024, from 12.8% in the six months ended April 30, 2023. The decrease in gross margin was primarily driven by the $11.4 million in revenue recognized for the Aviation parking project during the six months ended April 30, 2023, whereby all the direct labor and related costs were recognized prior to October 31, 2022, and unfavorable self-insurance reserve adjustment related to prior year claims from actuarial evaluations completed in the six months ended April 30, 2024, partially offset by labor efficiencies across most of our industry groups and the contract mix within M&D and Technical Solutions.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $7.3 million, or 2.4%, to $314.5 million during the six months ended April 30, 2024, as compared to the six months ended April 30, 2023. The increase in selling, general and administrative expenses was primarily attributable to:

• an $11.8 million increase in costs associated with the systems’ go-live;
• an absence of an $8.4 million fair value adjustment to decrease the contingent consideration related to the RavenVolt Acquisition; and
• a $2.2 million increase in bad debt.

This increase was partially offset by:

• a $13.8 million decrease in certain discrete transformational costs under our ELEVATE strategy for developing the new ERP system, client-facing technology, workforce management tools, and data analytics; and
• a $2.0 million decrease in compensation and related expenses primarily due to headcount reduction at the end of October 2023, partially offset by increase in compensation under certain incentive plans.

Amortization of Intangible Assets

Amortization of intangible assets decreased by $10.8 million, or 27.6%, to $28.2 million during the six months ended April 30, 2024, as compared to the six months ended April 30, 2023. This decrease was primarily due to lower amortization of intangibles, primarily intangibles acquired as part of the RavenVolt Acquisition.

Interest Expense

Interest expense increased by $1.0 million, to $41.9 million during the six months ended April 30, 2024, as compared to the six months ended April 30, 2023. The increase was driven by higher interest rates on our Amended Credit Facility.

Income Taxes from Operations

Our effective tax rates on income from operations for the six months ended April 30, 2024, and April 30, 2023, were 24.0% and 27.6%, respectively, resulting in provisions for taxes of $28.0 million and $34.5 million, respectively.

Our effective tax rate for the six months ended April 30, 2024, benefited from discrete items, primarily from $2.4 million for uncertain tax positions, $2.2 million for share-based compensation, and $2.2 million for return to provision adjustments related to our non-U.S. operations. Our effective tax rate for the six months ended April 30, 2023, benefited from discrete items, primarily from $1.4 million for share-based compensation.

Interest Rate Swaps

We had a loss of $5.7 million during the six months ended April 30, 2024, as compared to a loss of $15.6 million during the six months ended April 30, 2023, primarily due to underlying changes in the fair value of our interest rate swaps.

Foreign Currency Translation

We had a foreign currency translation gain of $3.7 million during the six months ended April 30, 2024, as compared to a foreign currency translation gain of $12.8 million during the six months ended April 30, 2023. This change was due to fluctuations in the exchange rate between the USD and the GBP. Future gains and losses on foreign currency translation will be dependent upon changes in the relative value of foreign currencies to the USD and the extent of our foreign assets and liabilities.

Segment Information

Financial Information for Each Reportable Segment

(in millions)

*Not meaningful

($ in millions)

B&I revenues decreased by $12.2 million, or 0.6%, to $2,022.8 million during the six months ended April 30, 2024, as compared to the prior year period. The revenue decrease was primarily driven by the soft commercial office market conditions, and attrition of certain engineering clients, partially offset by client expansions and increases in revenue in the sports sector and parking. Management reimbursement revenues for this segment totaled $139.1 million and $130.1 million for the six months ended April 30, 2024 and 2023, respectively.

Operating profit increased by $5.0 million, or 3.3%, to $157.2 million during the six months ended April 30, 2024, as compared to the prior year period. Operating profit margin increased by 29 bps to 7.8% in the six months ended April 30, 2024, from 7.5% in the six months ended April 30, 2023. The increase in operating profit margin was primarily driven by the contract and service mix and labor efficiencies.

($ in millions)

M&D revenues increased by $35.8 million, or 4.7%, to $789.5 million during the six months ended April 30, 2024, as compared to the prior year period. The increase was primarily attributable to the expansion of business with existing customers.

Operating profit increased by $3.3 million, or 4.0%, to $85.0 million during the six months ended April 30, 2024, as compared to the prior year period. Operating profit margin decreased by 8 bps to 10.8% in the six months ended April 30, 2024, from 10.8% in the six months ended April 30, 2023. The decrease in operating profit margin was primarily attributable to the change in the contract mix.

($ in millions)

Education revenues increased by $14.1 million, or 3.3%, to $445.7 million during the six months ended April 30, 2024, as compared to the prior year period. The increase was primarily attributable to net new business, partially offset by a decrease in work orders.

Operating profit increased by $0.7 million, or 2.9%, during the six months ended April 30, 2024, as compared to the prior year period. Operating profit margin decreased by 2 bps to 5.4% in the six months ended April 30, 2024, from 5.5% in the six months ended April 30, 2023. The decrease in operating profit margin was primarily attributable to the decrease in disinfection-related work orders, which have higher margins. Operating profit margin was positively impacted by labor efficiencies and lower start-up supplies expenses.

($ in millions)

Aviation revenues increased by $48.3 million, or 11.0%, to $487.8 million during the six months ended April 30, 2024, as compared to the prior year period. The increase was primarily attributable to new business and scope expansions with the existing clients as well as continuing recovery in travel volume. In addition, during the six months ended April 30, 2023, we recognized $11.4 million in revenue from an Aviation parking project, whereby all the direct labor and related costs were recognized prior to October 31, 2022. Management reimbursement revenues for this segment totaled $17.7 million and $15.6 million for the six months ended April 30, 2024 and 2023, respectively.

Operating profit decreased by $9.1 million, or 28.6%, to $22.8 million during the six months ended April 30, 2024, as compared to the prior year period. Operating profit margin decreased by 259 bps to 4.7% in the six months ended April 30, 2024, from 7.3% in the six months ended April 30, 2023. The decrease was primarily attributable to $11.4 million in revenue from an Aviation parking project recognized during the six months ended April 30, 2023, whereby all the direct labor and related costs were recognized prior to October 31, 2022. In addition, operating profit margin was negatively impacted by certain costs related to reconciliations of funds due under long-term contracts, partially offset by labor efficiencies primarily due to an increase in travel volume.

($ in millions)

Technical Solutions revenues increased by $26.6 million, or 8.5%, to $342.1 million during the six months ended April 30, 2024, as compared to the prior year period. The increase was primarily driven by higher project revenues due to the timing of completions of certain energy solutions projects, including microgrid systems and generators installation, partially offset by a decrease in electric vehicle charging station installation sales.

Operating profit increased by $6.1 million, or 35.3%, to $23.5 million during the six months ended April 30, 2024, as compared to the prior year period. Operating profit margin increased by 137 bps to 6.9% in the six months ended April 30, 2024, from 5.5% in the six months ended April 30, 2023. The increase in operating profit margin was primarily attributable to the contract mix and lower amortization of intangible assets.

($ in millions)

Corporate expenses increased by $13.6 million, or 9.7%, to $154.4 million during the six months ended April 30, 2024, as compared to the prior year period. The increase in corporate expenses was primarily attributable to:

• an $11.5 million increase in costs associated with the systems’ go-live;
• a $9.7 million unfavorable self-insurance reserve adjustment related to prior year claims from actuarial evaluations completed in the six months ended April 30, 2024; and
• an absence of an $8.4 million fair value adjustment to decrease the contingent consideration related to the RavenVolt Acquisition.

This increase was partially offset by:

• a $13.8 million decrease in certain discrete transformational costs under our ELEVATE strategy for developing the new ERP system, client-facing technology, workforce management tools, and data analytics.

Liquidity and Capital Resources

Our primary sources of liquidity are operating cash flows and borrowing capacity under our Amended Credit Facility. We assess our liquidity in terms of our ability to generate cash to fund our short- and long-term cash requirements. As such, we project our anticipated cash requirements as well as cash flows generated from operating activities to meet those needs.

In addition to normal working capital requirements, we anticipate that our short- and long-term cash requirements will include funding legal settlements, insurance claims, dividend payments, capital expenditures, share repurchases, mandatory loan repayments, and systems and technology transformation initiatives under our ELEVATE strategy. We anticipate long-term cash uses may also include strategic acquisitions. On a long-term basis, we will continue to rely on our Amended Credit Facility for any long-term funding not provided by operating cash flows.

We believe that our operating cash flows and borrowing capacity under our Amended Credit Facility are sufficient to fund our cash requirements for the next 12 months. In the event that our plans change or our cash requirements are greater than we anticipate, we may need to access the capital markets to finance future cash requirements. However, there can be no assurance that such financing will be available to us should we need it or, if available, that the terms will be satisfactory to us and not dilutive to existing shareholders.

Credit Facility

On September 1, 2017, we refinanced and replaced our then-existing $800.0 million credit facility with a new senior, secured five-year syndicated credit facility, consisting of a $900.0 million revolver and an $800.0 million amortizing term loan. 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, 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 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, 2024, we were in compliance with these covenants.

During the six months ended April 30, 2024, we made principal payments of $16.3 million under the term loan. At April 30, 2024, the total outstanding borrowings under our Amended Credit Facility in the form of cash borrowings and standby letters of credit were $1.3 billion and $57.9 million, respectively, and our weighted average interest rate on all outstanding borrowings, excluding letters of credit, was 7.17%. At April 30, 2024, we had up to $501.1 million of borrowing capacity.

Reinvestment of Foreign Earnings

We plan to reinvest our foreign earnings to fund future non-U.S. growth and expansion, and we do not anticipate remitting such earnings to the United States. While U.S. federal tax expense has been recognized as a result of the Tax Cuts and Jobs Act of 2017, no deferred tax liabilities with respect to federal and state income taxes or foreign withholding taxes have been recognized.

IFM Insurance Company

IFM Assurance Company (“IFM”) is a wholly owned captive insurance company that we formed in 2015. IFM is part of our enterprise-wide, multiyear insurance strategy that is intended to better position our risk and safety programs and provide us with increased flexibility in the end-to-end management of our insurance programs. IFM began providing coverage to us as of January 1, 2015.

Share Repurchases

We repurchased shares under the share repurchase program during the three and six months ended April 30, 2024, as summarized below. Share repurchases may take place on the open market or otherwise, and all or part of the repurchases may be made pursuant to Rule 10b5-1 plans or in privately negotiated transactions. The timing of repurchases is at our discretion and will depend upon several factors, including market and business conditions, future cash flows, share price, share availability, and other factors. Repurchased shares are retired and returned to an authorized but unissued status. The share repurchase program may be suspended or discontinued at any time without prior notice. At April 30, 2024, authorization for $186.5 million of repurchases remained under our share repurchase program.

(in millions, except per share amounts)

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

Cash Flows

In addition to revenues and operating profit, our management views operating cash flows as a good indicator of financial performance, because strong operating cash flows provide opportunities for growth both organically and through acquisitions. Operating cash flows primarily depend on: revenue levels; the quality and timing of collections of accounts receivable; the timing of payments to suppliers and other vendors; the timing and amount of income tax payments; and the timing and amount of payments on insurance claims and legal settlements.

(in millions)

Operating Activities

Net cash provided by operating activities was $116.9 million during the six months ended April 30, 2024, as compared to net cash used by operating activities of $45.0 million during the prior year period. The change was primarily driven by the timing of working capital requirements, including customer payments and an absence of a $66.0 million payment for the deferred payroll taxes made during the three months ended January 31, 2023.

Investing Activities

Net cash used in investing activities increased by $6.4 million during the six months ended April 30, 2024, as compared to the prior year period. This quarter’s activity was primarily related to purchases of property, plant and equipment.

Financing Activities

Net cash used in financing activities was $98.0 million during the six months ended April 30, 2024, as compared to net cash provided by financing activities of $62.8 million during the prior year period. The change was primarily related to a decrease in net borrowings from our Amended Credit Facility due to the $116.9 million cash provided by operating activities.

Contingencies

For disclosures on contingencies, see Note 10, “Commitments and Contingencies,” of the Notes to unaudited Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Critical Accounting Policies and Estimates

Our Financial Statements are prepared in accordance with U.S. GAAP, which require us to make certain estimates in the application of our accounting policies based on the best assumptions, judgments, and opinions of our management. There have been no significant changes to our critical accounting policies and estimates. For a description of our critical accounting policies, see Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended October 31, 2023.

Recently Issued Accounting Pronouncements

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There are no material changes related to market risk from the disclosures in our Annual Report on Form 10-K for the year ended October 31, 2023.

a. Disclosure Controls and Procedures.

As of the end of the period covered by this report, our Principal Executive Officer and Principal Financial Officer evaluated our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and (2) accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.

b. Changes in Internal Control Over Financial Reporting.

To support the growth of our financial shared service capabilities and standardize our financial systems, we continue to update several key platforms, including our HR information systems, enterprise resource planning (“ERP”) system, and labor management system. The implementation of several key platforms involves changes in the systems that include internal controls. During the year ended October 31, 2023, we had a change in our internal control over financial reporting as a result of our implementation of a new ERP for the Education industry group that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. The new ERP system for the Education industry group replaced our legacy system in which a significant portion of our business transactions originate, are processed, and recorded. The rest of our industry groups will transition to our new ERP system over the next several years. Our new ERP system is intended to provide us with enhanced transactional processing and management tools, as compared with our legacy system and is intended to enhance internal controls over financial reporting. We believe our new ERP system will facilitate better transactional reporting and oversight, enhance our internal control over financial reporting, and function as an important component of our disclosure controls and procedures. Although some of the transitions have proceeded to date without material adverse effects, the possibility exists that they could adversely affect our internal controls over financial reporting and procedures.

There were no other changes in our internal control over financial reporting during the second quarter of 2024 identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the risk factors identified in our Annual Report on Form 10-K for the year ended October 31, 2023, in response to Item 1A., “Risk Factors,” of Part I of the Annual Report.