APi (US:APG)2022-11-02 16:00Financial Performance - Net revenues for Q3 2022 were $1,735 million, a 65.7% increase from $1,047 million in Q3 2021, primarily driven by acquisitions in the Safety Services segment [229]. - Cost of revenues for Q3 2022 was $1,295 million, up 62.9% from $795 million in Q3 2021 [229]. - Gross profit for Q3 2022 increased to $440 million, representing a 74.6% increase from $252 million in Q3 2021 [229]. - Selling, general, and administrative expenses rose to $379 million in Q3 2022, a 79.6% increase from $211 million in Q3 2021 [229]. - Operating income for Q3 2022 was $61 million, up 48.8% from $41 million in Q3 2021 [229]. - Net income for Q3 2022 was $28 million, compared to $19 million in Q3 2021, reflecting a 47.4% increase [229]. - EBITDA for the same period was $152 million, up $56 million or 58.3% from $96 million in 2021 [241]. - Net revenues for the nine months ended September 30, 2022, were $4,855 million, an increase of $2,027 million or 71.7% compared to $2,828 million in 2021, primarily driven by acquisitions and market recoveries [251]. - Gross profit for the same period was $1,251 million, up $586 million or 88.1%, with a gross margin of 25.8%, an increase of 230 basis points from 2021 [252]. - Operating income for the nine months ended September 30, 2022, was $113 million, an increase of $27 million or 31.4% compared to $86 million in 2021 [261]. - Net income for the period was $51 million, an increase of $19 million or 59.4%, with net income as a percentage of net revenues remaining at 1.1% [260]. - EBITDA for the nine months ended September 30, 2022, was $380 million, an increase of $137 million or 56.4% compared to $243 million in 2021 [260]. Segment Performance - Safety Services net revenues increased by $621 million or 116.5% to $1,154 million, primarily due to recent acquisitions [245]. - Specialty Services net revenues rose by $63 million or 12.0% to $590 million, driven by increased activity in infrastructure and utility markets [247]. - Safety Services segment net revenues increased by $1,863 million or 123.3% to $3,374 million, driven by acquisitions and market recoveries [264]. - Specialty Services segment net revenues rose by $173 million or 12.8% to $1,520 million, reflecting growth in service offerings [261]. - Specialty Services operating margin improved to approximately 4.6% for the nine months ended September 30, 2022, compared to 2.7% in the same period of 2021, attributed to higher productivity levels [267]. Expenses and Margins - Gross margin improved to 25.4%, up 130 basis points from 24.1% in the prior year, driven by acquisitions and a better revenue mix [231]. - SG&A expenses rose to $379 million, an increase of $168 million or 79.6% from $211 million in 2021, with SG&A as a percentage of net revenues at 21.8% [234]. - Operating margin decreased to 3.5% for the three months ended September 30, 2022, down from 3.9% in the same period of 2021 [233]. - Selling, general, and administrative (SG&A) expenses rose to $1,138 million, an increase of $559 million or 96.5%, with SG&A as a percentage of net revenues at 23.4% compared to 20.5% in 2021 [255]. Debt and Interest - Interest expense, net, increased to $33 million in Q3 2022, a 135.7% rise from $14 million in Q3 2021 [229]. - Interest expense increased to $88 million from $43 million, primarily due to increased debt from the Chubb Acquisition and higher interest rates [256]. - The first lien net leverage ratio as of September 30, 2022 was 2.72:1.00, below the maximum allowable ratio of 4.00:1.00 for fiscal quarters ending in 2021 [290]. - The company is exposed to a potential increase in interest expense of approximately $11 million for a 100-basis point increase in applicable interest rates [302]. Tax and Effective Rates - The effective tax rate for the three months ended September 30, 2022 was 40.5%, compared to 38.5% in the same period of 2021 [240]. - The effective tax rate for the nine months ended September 30, 2022, was 24.2%, down from 31.3% in the same period of 2021, influenced by discrete and nondeductible permanent items [259]. Cash Flow and Liquidity - Net cash provided by operating activities was $82 million for the nine months ended September 30, 2022, compared to $68 million for the same period in 2021, primarily due to an increase in net income [284]. - Net cash used in investing activities was $(2,931) million for the nine months ended September 30, 2022, significantly higher than $(81) million in the same period of 2021, mainly due to the Chubb Acquisition [285]. - Net cash provided by financing activities was $1,773 million for the nine months ended September 30, 2022, compared to $629 million in the same period of 2021, driven by proceeds from debt issuances [286]. - As of September 30, 2022, total liquidity was $819 million, consisting of $395 million in cash and cash equivalents and $424 million available under the Revolving Credit Facility [278]. Acquisitions and Restructuring - The acquisition of the Chubb fire and security business was completed for $2,893 million, expected to enhance revenue growth opportunities within the Safety Services segment [211]. - The company initiated a multi-year restructuring program in 2022, incurring total restructuring costs of $25 million, primarily related to workforce reductions [209]. - The company issued 800,000 shares of 5.5% Series B Redeemable Convertible Preferred Stock for an aggregate purchase price of $800 million to fund a portion of the Chubb Acquisition [294]. Stock Repurchase and Shareholder Returns - The company authorized a stock repurchase program of up to $250 million, with approximately $217 million remaining for future repurchases as of September 30, 2022 [281]. - During the three months ended September 30, 2022, the company purchased a total of 738,572 shares at an average price of $14.89 per share [321]. - The company has authorized a stock repurchase program to buy up to $250 million of its common stock, set to expire on February 29, 2024 [323]. Internal Controls and Remediation - The company is executing remediation plans to address material weaknesses in internal control over financial reporting, with no material changes reported during the quarter ended September 30, 2022 [317]. - Management has seen improved results in remediation efforts compared to December 31, 2021, but full remediation is expected to take a couple of years [318]. - The company is enhancing its internal control environment by hiring additional qualified personnel and refining existing controls [319]. - The company is implementing additional training programs for personnel responsible for newly implemented processes and controls [319]. - The company is enhancing controls over critical processes, including revenue recognition and financial reporting [318]. - The company is monitoring the effectiveness of its remediation plans and will make necessary adjustments as determined by management [318]. - The company is committed to improving its financial systems and enhancing information and communication controls [319]. Foreign Operations and Currency - Revenues from foreign operations represented approximately 35% and 38% of consolidated net revenues for the three and nine months ended September 30, 2022, respectively [304]. - Foreign currency translation losses totaled approximately $86 million and $311 million for the three and nine months ended September 30, 2022, respectively [304]. Capital Expenditures - The company expects capital expenditures to be approximately 1.5% of annual net revenues [299]. - The company had no amounts outstanding under the Revolving Credit Facility, with $424 million available after accounting for $76 million of outstanding letters of credit [291].