APi (US:APG)2023-05-03 16:00PART I. FINANCIAL INFORMATION Financial Statements The company's Q1 2023 results show a 9.7% revenue increase to $1,614 million and a shift to a $26 million net income from a prior-year loss Condensed Consolidated Balance Sheets Total assets were $7.77 billion as of March 31, 2023, with total liabilities decreasing to $4.80 billion and shareholders' equity slightly increasing to $2.17 billion Condensed Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $2,364 | $2,652 | | Total Assets | $7,766 | $8,091 | | Total Current Liabilities | $1,549 | $1,921 | | Total Liabilities | $4,804 | $5,167 | | Total Shareholders' Equity | $2,165 | $2,127 | Condensed Consolidated Statements of Operations The company achieved a net income of $26 million in Q1 2023, a significant turnaround from a $7 million net loss in Q1 2022, driven by revenue and gross profit growth Statements of Operations Summary (in millions, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Revenues | $1,614 | $1,471 | | Gross Profit | $425 | $376 | | Operating Income (Loss) | $73 | $(7) | | Net Income (Loss) | $26 | $(7) | | Diluted EPS | $0.05 | $(0.08) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities improved significantly to $1 million in Q1 2023 from $118 million in Q1 2022, while financing activities used $216 million for debt and stock repurchases Cash Flow Summary (in millions) | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1) | $(118) | | Net cash used in investing activities | $(27) | $(2,884) | | Net cash (used in) provided by financing activities | $(216) | $1,831 | | Net decrease in cash | $(242) | $(1,173) | Notes to Condensed Consolidated Financial Statements Notes detail the Chubb acquisition, a $105 million restructuring program, revenue disaggregation, and debt structure, with growth shown in both company segments - The company completed its acquisition of the Chubb fire and security business in 2022 for a total net consideration of $2,893 million, resulting in $1,367 million of goodwill2729 - A multi-year Chubb restructuring program is underway, estimated to cost approximately $105 million by fiscal year-end 2024, with $30 million in costs incurred as of March 31, 202334 Net Revenues by Segment (Q1 2023, in millions) | Segment | Net Revenues | | :--- | :--- | | Safety Services | $1,191 | | Specialty Services | $430 | | Corporate and Eliminations | $(7) | | Total | $1,614 | Total Debt Obligations (in millions) | Date | Total Debt Obligations | | :--- | :--- | | March 31, 2023 | $2,632 | | December 31, 2022 | $2,832 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the 9.7% revenue growth, improved gross margin of 26.3%, reduced SG&A expenses, and strong liquidity position of $809 million Results of Operations Q1 2023 net revenues rose 9.7% to $1,614 million, gross margin expanded by 70 basis points, and SG&A expenses fell, reversing a prior-year operating loss Consolidated Results of Operations (in millions) | Metric | Q1 2023 | Q1 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $1,614 | $1,471 | $143 | 9.7% | | Gross Profit | $425 | $376 | $49 | 13.0% | | SG&A Expenses | $352 | $383 | $(31) | (8.1)% | | Operating Income (Loss) | $73 | $(7) | $80 | NM | - The increase in net revenues was primarily driven by growth in inspection, service, and monitoring revenue within both the Safety Services and Specialty Services segments162 - The decrease in SG&A expenses was mainly due to lower acquisition and integration-related expenses incurred in Q1 2023 compared to the same period in the prior year168 Operating Segment Results The Safety Services segment revenue grew 10.9% with higher margins, while the Specialty Services segment revenue increased 4.4% with significantly expanded margins Segment Performance (Q1 2023 vs Q1 2022, in millions) | Segment | Net Revenues (2023) | Net Revenues (2022) | EBITDA (2023) | EBITDA (2022) | | :--- | :--- | :--- | :--- | :--- | | Safety Services | $1,191 | $1,074 | $146 | $123 | | Specialty Services | $430 | $412 | $27 | $20 | - The increase in Safety Services operating margin was primarily the result of disciplined project and customer selection and lower acquisition and integration related expenses181 - The increase in Specialty Services revenue was primarily driven by increased activity in the infrastructure and utility markets for emergency service work182 Liquidity and Capital Resources The company maintained a strong liquidity position of $809 million, significantly improved operating cash flow, and executed debt repayments and stock repurchases - Total liquidity as of March 31, 2023 was $809 million, comprising $363 million in cash and $446 million available under the Revolving Credit Facility193 - Net cash used in operating activities improved to $1 million for Q1 2023 from $118 million in Q1 2022, primarily due to higher net income and lower working capital needs198 - During Q1 2023, the company repaid an aggregate of $200 million on its term loans and repurchased 541,316 shares of common stock for approximately $12 million207194 Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from interest rates, foreign currency, and commodity prices, which it mitigates using various hedging instruments - The company mitigates interest rate risk on its term loans through interest rate swaps; a hypothetical 100-basis point increase in rates would have increased interest expense by approximately $4 million for Q1 2023215216 - Revenues from foreign operations represented approximately 40% of consolidated net revenues for Q1 2023, exposing the company to foreign currency translation risk217 - The company is exposed to supply chain risks, including price fluctuations for materials like copper and steel, and increases in energy prices for its vehicle fleet221 Controls and Procedures Management concluded that disclosure controls were not effective as of March 31, 2023, due to material weaknesses in internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2023, due to existing material weaknesses in internal control over financial reporting224 - The material weaknesses relate to user access controls for an IT system and ineffective process-level controls over revenue recognition stemming from insufficient training227 - Management has made progress on its multi-year remediation plan and believes full remediation of the material weaknesses can be achieved by the end of the year230 PART II. OTHER INFORMATION Risk Factors The company reports no material changes to the risk factors previously disclosed in its 2022 Annual Report on Form 10-K - There have been no material changes to the company's risk factors from those contained in the Form 10-K for the year ended December 31, 2022233 Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2023, the company repurchased 541,316 shares for approximately $12 million, with $195 million remaining under its repurchase authorization Share Repurchases (Q1 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jan 2023 | 32,754 | $18.73 | | Feb 2023 | 0 | N/A | | Mar 2023 | 508,562 | $21.63 | | Total | 541,316 | $21.45 | - As of March 31, 2023, approximately $195 million remained available for repurchase under the company's stock repurchase program, which expires on February 29, 2024235 Mine Safety Disclosures Information regarding mine safety violations and other regulatory matters is provided in Exhibit 95.1 of this report - Disclosures related to mine safety are included in Exhibit 95.1 to this quarterly report236 Exhibits This section lists all exhibits filed with the Form 10-Q, including required Sarbanes-Oxley certifications and Inline XBRL data files - The report includes certifications from the CEO and CFO as required by Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002238239240241