APi (US:APG)2021-11-09 16:00Acquisitions - The company completed the acquisition of Premier Fire & Security, Inc. for a total purchase consideration of $68 million, including $51 million in cash paid at closing [147]. - APG entered into an agreement to acquire the Chubb Limited fire and security business for an enterprise value of $3,100 million, consisting of $2,900 million in cash and approximately $200 million of assumed liabilities [148]. - The company has incurred significant acquisition-related costs, including fees for financial, legal, and accounting advisors, regardless of whether the acquisition is completed [256]. - The acquisition of Chubb is subject to various closing conditions, including regulatory approvals, which may delay or prevent completion [252]. Financial Performance - Net revenues for the three months ended September 30, 2021 were $1,047 million, an increase of $89 million or 9.3% compared to $958 million in the same period of 2020, driven by acquisitions and market recoveries [169]. - Gross profit for the same period was $252 million, up $30 million or 13.5%, with a gross margin of 24.1%, an increase of 90 basis points from 23.2% in the prior year [171]. - Net income for the three months ended September 30, 2021 was $19 million, a decrease of $8 million or 29.6% from $27 million in the same period of 2020 [177]. - EBITDA for the same period was $96 million, down $24 million or 20.0% from $120 million in 2020, reflecting higher acquisition and transformation project expenses [177]. - Net revenues for the nine months ended September 30, 2021 were $2,828 million, an increase of $123 million or 4.5% compared to $2,705 million in the same period in 2020 [189]. - Net income for the nine months ended September 30, 2021 was $32 million, a significant improvement of $163 million compared to a net loss of $(131) million in the same period in 2020 [198]. - EBITDA for the nine months ended September 30, 2021 was $243 million, representing a 242.3% increase from $71 million in the same period in 2020 [198]. Revenue Segments - Safety Services segment net revenues increased by $129 million or 31.9% to $533 million, driven by acquisitions and market recoveries [181]. - Specialty Services segment revenues rose by $36 million or 9.0% to $436 million, while Industrial Services segment revenues decreased by $55 million or 34.8% to $103 million [179]. - Safety Services net revenues increased by $312 million or 26.0% for the nine months ended September 30, 2021, compared to the same period in 2020 [204]. - Specialty Services net revenues rose by $123 million or 11.7% for the nine months ended September 30, 2021, driven by increased demand for specialty contracting services [206]. - Industrial Services net revenues decreased by $272 million or (58.1)% for the nine months ended September 30, 2021, due to suppressed demand and strategic focus on margin improvement [208]. Operating Expenses and Margins - Operating expenses increased to $211 million from $160 million, representing a 31.9% rise, with operating expenses as a percentage of net revenues at 20.2% compared to 16.7% in 2020 [173]. - Operating expenses decreased to $579 million for the nine months ended September 30, 2021 from $703 million in 2020, with operating expenses as a percentage of net revenues improving to 20.5% from 26.0% [193]. - Safety Services operating margin improved to approximately 10.5% for Q3 2021 from (5.9)% in Q3 2020, driven by the non-recurrence of a $49 million impairment charge [182]. - Specialty Services operating margin increased to 5.1% for the nine months ended September 30, 2021, from (0.9)% in the same period of 2020 [207]. - Industrial Services operating margin was (11.7)% for the nine months ended September 30, 2021, compared to (7.9)% in the prior year [209]. Cash Flow and Liquidity - Total liquidity as of September 30, 2021, was $1,354 million, comprising $1,128 million in cash and cash equivalents [216]. - Net cash provided by operating activities was $68 million for the nine months ended September 30, 2021, down from $329 million in the same period of 2020 [224]. - Net cash used in investing activities was $81 million for the nine months ended September 30, 2021, compared to $17 million for the same period in 2020, with $51 million used for acquisitions in 2021 versus $6 million in 2020 [225]. - Net cash provided by financing activities was $629 million for the nine months ended September 30, 2021, compared to a usage of $101 million for the same period in 2020, driven by $230 million from common shares issuance and $446 million from net proceeds of common stock issuance [226]. Tax and Interest - The effective tax rate for the three months ended September 30, 2021 was 38.5%, down from 50.1% in the same period of 2020, due to lower income before taxes [176]. - The effective tax rate for the nine months ended September 30, 2021 was 31.3%, compared to a benefit in the same period of 2020, driven by a return to profitability [197]. - Interest expense remained relatively flat at $14 million compared to $13 million in the prior year [174]. - Investment income decreased to $3 million from $6 million, primarily due to a decline in income from joint venture investments [175]. Risks and Challenges - The company continues to face challenges from the COVID-19 pandemic, including potential labor shortages and project delays due to vaccination mandates [152]. - The company is exposed to supply chain risks, including price fluctuations of materials like copper and steel, which could impact profitability on fixed price contracts [245]. - The company monitors economic and market conditions that can negatively affect demand for its services, including changes in customers' capital spending plans and regulatory requirements [146]. Internal Controls - Management identified material weaknesses in internal control over financial reporting, including deficiencies in information technology controls and financial statement preparation [248]. - Steps taken to remediate control deficiencies include the development of an Internal Audit team and implementation of a global consolidation and planning system [249]. - The company plans to enhance internal controls by adding qualified resources to the accounting and finance team and providing training for financial personnel [250]. - There were no material changes to internal control over financial reporting during the quarter ended September 30, 2021, that materially affected the controls [251]. - Management does not expect disclosure controls and procedures to prevent or detect all errors and fraud, providing only reasonable assurance [251]. - The company is executing a plan to remediate material weaknesses, including risk assessments and validation of key controls [251].