Demand Environment - The demand for inspection and monitoring services, particularly in the fire life safety sector, remains strong and unaffected by macroeconomic factors [2] - The statutory nature of fire life safety inspections ensures that commercial office buildings must comply with regulations regardless of external economic conditions [2]

APi Group (APG) 2025 Conference September 03, 2025 08:10 AM ET Company ParticipantsStephanie Moore - SVP - Equity ResearchRussell Becker - CEO, President & DirectorDavid Jackola - EVP & CFOConference Call ParticipantsNone - AnalystStephanie MooreAll right. Good morning, everybody. Thank you all for joining. My name is Stephanie Moore. I'm the Business Services Analyst here at Jefferies. We're very pleased to have APi Group with us again, a couple of years in a row at least. Very pleased to have the team wit ...

Core Viewpoint - Growth investors seek stocks with above-average financial growth, but identifying stocks that can fulfill their potential is challenging due to associated risks and volatility [1] Group 1: Company Overview - APi (APG) is currently recommended as a cutting-edge growth stock by the Zacks Growth Style Score system, which evaluates a company's real growth prospects beyond traditional metrics [2] - The company has a favorable Growth Score and a top Zacks Rank, indicating strong potential for growth investors [2] Group 2: Earnings Growth - Earnings growth is a critical factor for growth investors, with double-digit growth being particularly attractive [4] - APi's historical EPS growth rate is 14.6%, with projected EPS growth of 16.1% this year, surpassing the industry average of 10.9% [5] Group 3: Cash Flow Growth - High cash flow growth is essential for growth-oriented companies, allowing them to fund new projects without external financing [6] - APi's year-over-year cash flow growth is 120.9%, significantly higher than the industry average of 1.7% [6] - The company's annualized cash flow growth rate over the past 3-5 years is 76.5%, compared to the industry average of 7.1% [7] Group 4: Earnings Estimate Revisions - Positive trends in earnings estimate revisions correlate strongly with stock price movements [8] - Current-year earnings estimates for APi have been revised upward, with the Zacks Consensus Estimate increasing by 1.1% over the past month [9] Group 5: Conclusion - APi has achieved a Zacks Rank of 2 and a Growth Score of B, indicating it is a potential outperformer and a solid choice for growth investors [11]

Core Viewpoint - APi (APG) has been upgraded to a Zacks Rank 1 (Strong Buy), indicating a positive outlook on its earnings estimates, which is a significant factor influencing stock prices [1][3]. Earnings Estimates and Stock Price Impact - The Zacks rating system is based on changes in earnings estimates, which are strongly correlated with near-term stock price movements [4][6]. - Rising earnings estimates for APi suggest an improvement in the company's underlying business, likely leading to increased stock prices due to investor interest [5][10]. Zacks Rating System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with Zacks Rank 1 stocks historically generating an average annual return of +25% since 1988 [7][9]. - Only the top 5% of Zacks-covered stocks receive a "Strong Buy" rating, indicating superior earnings estimate revisions and potential for market-beating returns [9][10]. Recent Earnings Estimate Revisions for APi - For the fiscal year ending December 2025, APi is expected to earn $1.42 per share, unchanged from the previous year, but the Zacks Consensus Estimate has increased by 4.4% over the past three months [8].

Core Viewpoint - Growth stocks are appealing due to their potential for above-average financial growth, but identifying stocks that can fulfill their growth potential is challenging due to associated risks and volatility [1] Group 1: Company Overview - APi (APG) is identified as a promising growth stock with a favorable Growth Score and a top Zacks Rank [2] - The company has a historical EPS growth rate of 14.4%, with projected EPS growth of 14.8% this year, surpassing the industry average of 11.9% [4] Group 2: Financial Metrics - APi's year-over-year cash flow growth stands at 120.9%, significantly higher than the industry average of 1.4% [5] - The company's annualized cash flow growth rate over the past 3-5 years is 76.5%, compared to the industry average of 7.1% [6] Group 3: Earnings Estimates - There has been a positive trend in earnings estimate revisions for APi, with the Zacks Consensus Estimate for the current year increasing by 2.8% over the past month [8] - The combination of upward earnings estimate revisions and a Growth Score of B positions APi as a potential outperformer for growth investors [10]

PART I. FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) APi Group's H1 2025 financial statements show total assets at **$8.54 billion**, net revenues of **$3.71 billion**, and operating cash flow of **$145 million**, with a slight net income decrease Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Current Assets** | $2,798 | $2,658 | | Goodwill | $3,126 | $2,894 | | **Total Assets** | **$8,539** | **$8,152** | | Total Current Liabilities | $1,933 | $1,885 | | Long-term Debt | $2,751 | $2,749 | | **Total Liabilities** | **$5,368** | **$5,199** | | **Total Shareholders' Equity** | **$3,171** | **$2,953** | Condensed Consolidated Statement of Operations Highlights (in millions, except EPS) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $1,990 | $1,730 | $3,709 | $3,331 | | Gross Profit | $615 | $544 | $1,157 | $1,036 | | Operating Income | $143 | $126 | $227 | $226 | | Net Income | $77 | $69 | $112 | $114 | | Diluted EPS | $0.16 | $0.15 | $0.24 | $(0.68) | Condensed Consolidated Statement of Cash Flows Highlights (in millions) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $145 | $117 | | Net cash used in investing activities | $(140) | $(623) | | Net cash (used in) provided by financing activities | $(101) | $357 | | Net decrease in cash | $(68) | $(154) | - On June 30, 2025, the Company executed a **three-for-two stock split** via a stock dividend, with all share and per-share amounts restated to reflect this split[19](index=19&type=chunk)[120](index=120&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=43&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) MD&A highlights strong revenue growth to **$1.99 billion** in Q2 and **$3.71 billion** in H1 2025, driven by acquisitions and pricing, alongside a **$1.18 billion** liquidity position [Results of Operations](index=46&type=section&id=Results%20of%20Operations) Q2 2025 net revenues rose **15.0%** to **$1.99 billion**, with H1 revenues up **11.3%** to **$3.71 billion**, though H1 net income slightly declined due to higher SG&A Q2 2025 vs Q2 2024 Performance (in millions) | Metric | Q2 2025 | Q2 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenues | $1,990 | $1,730 | 15.0% | | Gross Profit | $615 | $544 | 13.1% | | Gross Margin | 30.9% | 31.4% | -50 bps | | Operating Income | $143 | $126 | 13.5% | | Net Income | $77 | $69 | 11.6% | | Adjusted EBITDA | $272 | $231 | 17.7% | H1 2025 vs H1 2024 Performance (in millions) | Metric | H1 2025 | H1 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenues | $3,709 | $3,331 | 11.3% | | Gross Profit | $1,157 | $1,036 | 11.7% | | Gross Margin | 31.2% | 31.1% | +10 bps | | Operating Income | $227 | $226 | 0.4% | | Net Income | $112 | $114 | (1.8%) | | Adjusted EBITDA | $465 | $406 | 14.5% | - The Safety Services segment's net revenues grew **15.8%** in Q2 and **14.7%** in H1 2025, with segment earnings margin expanding to **17.0%** in Q2 and **16.4%** in H1, driven by acquisitions, pricing, and disciplined project selection[197](index=197&type=chunk)[198](index=198&type=chunk)[213](index=213&type=chunk) - The Specialty Services segment's net revenues increased **13.3%** in Q2 and **3.9%** in H1 2025, but its segment earnings margin decreased to **11.3%** in Q2 and **9.2%** in H1, attributed to project mix, rising material costs, and weather[199](index=199&type=chunk)[200](index=200&type=chunk)[215](index=215&type=chunk) [Liquidity and Capital Resources](index=56&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2025, the company reported total liquidity of **$1.18 billion**, comprising **$432 million** in cash and **$744 million** available under its revolving credit facility - Total liquidity as of June 30, 2025, was **$1,176 million**, comprising **$432 million** in cash and **$744 million** in available borrowings under the Revolving Credit Facility[223](index=223&type=chunk) Cash Flow Summary - H1 2025 vs H1 2024 (in millions) | Cash Flow Activity | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $145 | $117 | | Net cash used in investing activities | $(140) | $(623) | | Net cash (used in) provided by financing activities | $(101) | $357 | - During H1 2025, the company repurchased **3,095,573 shares** of common stock for approximately **$75 million**, with a new **$1 billion** share repurchase program authorized in April 2025[229](index=229&type=chunk) - In Q2 2025, the company increased its Revolving Credit Facility by **$250 million** to **$750 million** and extended its maturity, while also reducing the applicable margin by **75 basis points**[227](index=227&type=chunk)[235](index=235&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=59&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company manages interest rate risk on its variable-rate debt through swaps and mitigates foreign currency risk from its 35% foreign revenues by transacting in local currencies and using derivatives - The company mitigates interest rate risk on its **$2,157 million** variable-rate 2021 Term Loan using interest rate swaps totaling **$1,120 million** and a forward-starting swap of **$720 million**[250](index=250&type=chunk) - Foreign operations account for approximately **35%** of consolidated net revenues, with currency risk managed by primarily invoicing and paying expenses in local currencies and utilizing derivative instruments like cross-currency swaps and forward contracts[252](index=252&type=chunk)[253](index=253&type=chunk) - The company faces supply chain risks related to price fluctuations and availability of key materials such as copper and steel, as well as increases in energy prices for its vehicle fleet, which could impact profitability on fixed-price contracts[255](index=255&type=chunk) [Controls and Procedures](index=60&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures, as well as internal control over financial reporting, were effective as of June 30, 2025, with no material changes during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[259](index=259&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of June 30, 2025, based on the COSO 2013 framework[261](index=261&type=chunk) - No changes occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[262](index=262&type=chunk) PART II. OTHER INFORMATION [Risk Factors](index=62&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Form 10-K for the year ended December 31, 2024 - The company reports no material changes to its risk factors from those detailed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2024[263](index=263&type=chunk) [Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=62&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company reported no purchases of its equity securities during the three months ended June 30, 2025 - During the three months ended June 30, 2025, the Company did not make any purchases of its own equity securities[264](index=264&type=chunk) [Other Information](index=62&type=section&id=Item%205.%20Other%20Information) During Q2 2025, three company directors adopted Rule 10b5-1 trading plans for the pre-arranged sale of common stock, with no other officers or directors adopting or terminating such plans - In May 2025, three directors adopted Rule 10b5-1 trading plans for selling shares of the company's common stock: **Ian Ashken** (up to 759,000 shares until June 12, 2026), **Sir Martin Franklin** (up to 2,700,000 shares until March 13, 2026), and **Jim Lillie** (up to 1,500,000 shares until September 11, 2026)[266](index=266&type=chunk)[267](index=267&type=chunk)[268](index=268&type=chunk) [Exhibits](index=63&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the quarterly report, including amendments to corporate documents, officer certifications, and Inline XBRL data files

The reported revenue represents a surprise of +4.59% over the Zacks Consensus Estimate of $1.9 billion. With the consensus EPS estimate being $0.37, the EPS surprise was +5.41%. APi (APG) reported $1.99 billion in revenue for the quarter ended June 2025, representing a year-over-year increase of 15%. EPS of $0.39 for the same period compares to $0.33 a year ago. While investors scrutinize revenue and earnings changes year-over-year and how they compare with Wall Street expectations to determine their next m ...

Core Insights - APi (APG) reported quarterly earnings of $0.39 per share, exceeding the Zacks Consensus Estimate of $0.37 per share, and up from $0.33 per share a year ago, representing an earnings surprise of +5.41% [1] - The company achieved revenues of $1.99 billion for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 4.59%, and an increase from $1.73 billion year-over-year [2] - APi shares have increased approximately 43.5% year-to-date, significantly outperforming the S&P 500's gain of 8.2% [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.39 on revenues of $1.92 billion, and for the current fiscal year, it is $1.41 on revenues of $7.51 billion [7] - The estimate revisions trend for APi was favorable ahead of the earnings release, resulting in a Zacks Rank 1 (Strong Buy) for the stock, indicating expected outperformance in the near future [6] Industry Context - The Business - Services industry, to which APi belongs, is currently ranked in the top 39% of over 250 Zacks industries, suggesting a favorable outlook compared to lower-ranked industries [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Financial Data and Key Metrics Changes - Reported revenues for Q2 2025 were $2 billion, a 15% increase compared to $1.73 billion in the prior year period, with organic growth of 8.3% driven by strong project revenue growth and pricing improvements [18] - Adjusted EBITDA increased by 17.7% for Q2, with an adjusted EBITDA margin of 13.7%, representing a 30 basis point increase compared to the prior year [19] - Adjusted diluted earnings per share for Q2 was $0.39, an 18.2% increase compared to the prior year [19] Business Line Data and Key Metrics Changes - Safety Services segment reported revenues of $1.36 billion, a 15.8% increase year-over-year, with organic growth of 5.6% driven by pricing improvements and strong project revenues [20] - Specialty Services segment revenues grew 13.3% to $629 million, with adjusted gross margin at 18.1%, a 350 basis point decrease due to increased project starts and rising material costs [21] Market Data and Key Metrics Changes - The North American Safety business achieved double-digit inspection growth for the twentieth consecutive quarter, indicating strong market performance [13] - The international business showed high single-digit order growth, reflecting continued momentum under API's ownership [14] Company Strategy and Development Direction - The company aims for $10 billion in net revenues by 2028, with a focus on mid-single-digit organic growth and a 16% adjusted EBITDA margin [11] - Key initiatives include pricing strategies, improved revenue mix, disciplined customer selection, and selective business pruning to achieve long-term financial targets [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to execute the strategy and deliver against the 2025 plan, highlighting strong backlog and free cash flow generation [17] - The company remains optimistic about the inspection service and monitoring business, with expectations for continued organic growth [27] Other Important Information - The company completed six acquisitions in Q2, with a total of seven year-to-date, and plans to deploy approximately $250 million in accretive M&A this year [15][16] - The adjusted free cash flow for the first half of the year was $186 million, reflecting a significant improvement [22] Q&A Session Summary Question: What business outperformed expectations in Q2? - Management noted that the inspection service and monitoring businesses performed largely as expected, with strong contract and project activity contributing to revenue exceeding guidance [32] Question: What caused the decline in gross margins in the specialty business? - Rising material costs and increased project starts were identified as key factors impacting margins, with expectations for sequential improvement as the year progresses [36] Question: How does the company view its M&A potential? - Management indicated that there is potential to exceed the $250 million M&A target, emphasizing the importance of disciplined selection in acquisitions [42] Question: What is the outlook for the Safety Services segment? - The company expects mid to upper single-digit revenue growth in the Safety Services segment for the back half of the year [46] Question: How is the international business performing? - The international business has shown consistent organic growth, with high single-digit order growth indicating strong health in the inspection and service business [58] Question: What is the margin profile of recent acquisitions? - All recent acquisitions are expected to be accretive, with a mix of businesses in the North American safety sector and a profitable HVAC service business [51]

Financial Data and Key Metrics Changes - Reported revenues for Q2 2025 were $2 billion, a 15% increase compared to $1.73 billion in the prior year period, with organic growth of 8.3% driven by strong project revenue growth and pricing improvements [15][20] - Adjusted EBITDA increased by 17.7% for Q2, with an adjusted EBITDA margin of 13.7%, representing a 30 basis point increase compared to the prior year [15][20] - Adjusted diluted earnings per share for Q2 was $0.39, an 18.2% increase compared to the prior year [15] Business Line Data and Key Metrics Changes - Safety Services segment revenues increased by 15.8% to $1.36 billion, with organic growth of 5.6% driven by pricing improvements and strong growth in service and project revenues [17] - Specialty Services reported organic revenues grew 13.3% to $629 million, driven by strong project revenue growth [18] - Adjusted gross margin for Safety Services was 37.2%, a 70 basis point increase, while Specialty Services saw a decrease of 350 basis points to 18.1% due to increased project starts and rising material costs [17][18] Market Data and Key Metrics Changes - The North American safety business achieved double-digit inspection growth for the twentieth consecutive quarter, indicating strong market demand [11] - The international business delivered solid organic growth with high single-digit order growth, reflecting continued momentum under API's ownership [12][56] Company Strategy and Development Direction - The company aims to achieve over $10 billion in net revenues by 2028, with a target of 16% plus adjusted EBITDA margin and over $3 billion in cumulative adjusted free cash flow through 2028 [9][10] - Key initiatives include pricing strategies, improved revenue mix, disciplined customer selection, and selective business pruning to meet new financial targets [10][13] - The company is focused on building a strong leadership culture and investing in technology to support growth [6][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to execute the strategy and deliver against the 2025 plan, citing strong backlog and free cash flow generation [14][23] - The company anticipates continued organic growth and margin expansion, particularly in the inspection service and monitoring business [23][78] Other Important Information - The company completed six acquisitions in Q2, with a total of seven year-to-date, and plans to deploy approximately $250 million in accretive M&A this year [13][20] - The company has a strong balance sheet, with a net debt to adjusted EBITDA ratio of approximately 2.2 times [19] Q&A Session Summary Question: What businesses outperformed expectations in Q2? - Management noted that the inspection service and monitoring businesses performed largely as expected, with strong contract and project activity contributing to revenue exceeding guidance [28] Question: What caused the decline in gross margins in the specialty business? - The decline was attributed to increased project starts, rising material costs, and weather impacts, with expectations for sequential improvement in margins as the year progresses [31][32] Question: How does the guidance outlook for the base businesses look? - Management indicated that the guidance raise was driven by strong backlog and improved outlook for the second half of the year, with a third of the increase attributed to M&A [36][105] Question: What is the status of the international business? - The international business showed organic growth and high single-digit order growth, indicating strong performance and ongoing optimization efforts [56] Question: Can you elaborate on the elevator acquisition? - The elevator acquisition is performing as expected, with mid to upper single-digit organic growth, and management remains optimistic about building a billion-dollar elevator platform [46][60] Question: What are the key factors affecting backlog margin realization? - Key factors include material cost escalation, weather impacts, and labor availability, with management emphasizing the importance of execution [106][108]