APi (APG) - 2023 Q4 - Annual Results

Financial & Corporate Highlights Overview of 2023 Performance and Key Announcements APi Group reported record financial results for the full year 2023, including net revenues of $6.9 billion and adjusted EBITDA of $782 million, representing growth of 5.6% and 16.2% respectively, alongside a significant agreement to retire Series B Preferred Stock and a new $1 billion share repurchase program Full Year 2023 Key Financial Metrics (in millions/billions) | Metric | Value | Year-over-Year Growth | | :--- | :--- | :--- | | Net Revenues | $6.9 billion | ~6% (5.5% organic) | | Net Income | $153 million | 110% | | Adjusted EBITDA | $782 million | 16.2% | | Net Leverage Ratio | 2.3x | - | | Adjusted Free Cash Flow Conversion | 69% | - | - The company announced an agreement to retire all outstanding Series B Preferred Stock held by Blackstone and Viking[1] - A new $1 billion share repurchase program has been authorized by the Board of Directors[1] Management Commentary Management highlighted 2023 as a year of record financial results achieved in an evolving macroeconomic environment, emphasizing that the Series B Preferred Stock retirement simplifies capital structure and provides immediate shareholder value without hindering M&A strategy, expressing confidence for 2024 with strong organic growth, margin expansion, and improved free cash flow towards long-term "13/60/80" targets - CEO Russ Becker credited the company's 29,000 employees for delivering record net revenues, adjusted EBITDA margins, and adjusted free cash flow in 2023[2] - The Series B transaction is expected to simplify the capital structure, reduce the adjusted diluted share count, and be immediately accretive to adjusted EPS[2] - The company is confident in its 2024 outlook, citing a strong backlog and balance sheet, and will pursue value-enhancing capital allocation, including bolt-on M&A and share repurchases[3] - Co-Chair James E. Lillie reiterated the success of the strategy to focus on service revenue expansion over lower-margin opportunities, leading to margin expansion and stronger free cash flow[17] Financial Performance Consolidated Financial Results For the full year 2023, APi Group's net revenues grew 5.6% to $6.93 billion, with organic growth at 5.4%, while adjusted EBITDA increased 16.2% to $782 million, and the adjusted EBITDA margin expanded by 100 basis points to 11.3%, driven by strong service growth, price increases, and margin expansion in both projects and services, with Q4 2023 net revenues growing 3.3% to $1.76 billion and adjusted EBITDA up 13.7% to $208 million Full Year 2023 vs 2022 Consolidated Results (in millions) | Metric | 2023 | 2022 | Y/Y Change | | :--- | :--- | :--- | :--- | | Net Revenues | $6,928M | $6,558M | +5.6% | | Organic Net Revenue Growth | 5.4% | - | - | | GAAP Gross Margin | 28.0% | 26.1% | +190 bps | | GAAP Net Income | $153M | $73M | +109.6% | | Adjusted EBITDA | $782M | $673M | +16.2% | | Adjusted EBITDA Margin | 11.3% | 10.3% | +100 bps | | Adjusted Diluted EPS | $1.58 | $1.33 | +18.8% | Q4 2023 vs Q4 2022 Consolidated Results (in millions) | Metric | Q4 2023 | Q4 2022 | Y/Y Change | | :--- | :--- | :--- | :--- | | Net Revenues | $1,759M | $1,703M | +3.3% | | Organic Net Revenue Growth | 1.5% | - | - | | GAAP Gross Margin | 28.9% | 27.2% | +170 bps | | Adjusted EBITDA | $208M | $183M | +13.7% | | Adjusted EBITDA Margin | 11.8% | 10.7% | +110 bps | | Adjusted Diluted EPS | $0.44 | $0.36 | +22.2% | - Full-year revenue growth was driven by strong service growth across both segments, though partially offset by disciplined customer and project selection in HVAC and Specialty Services[6] - Q4 revenue growth was driven by service growth, favorable foreign currency rates, and M&A, partially offset by a decline in the projects business due to disciplined customer selection[5] Segment Performance - Safety Services The Safety Services segment reported full-year 2023 revenue growth of 6.5% to $4.87 billion, with adjusted EBITDA increasing 18.8% to $664 million and the adjusted EBITDA margin expanding by 140 basis points to 13.6%, driven by inspection, service, and monitoring, alongside price increases and significant margin expansion in projects, partially offset by planned customer attrition and disciplined project selection in HVAC Full Year 2023 vs 2022 Safety Services Results (in millions) | Metric | 2023 | 2022 | Y/Y Change | | :--- | :--- | :--- | :--- | | Net Revenues | $4,871M | $4,575M | +6.5% | | Organic Net Revenue Growth | 6.0% | - | - | | Adjusted Gross Margin | 33.1% | 31.3% | +180 bps | | Adjusted EBITDA | $664M | $559M | +18.8% | | Adjusted EBITDA Margin | 13.6% | 12.2% | +140 bps | Q4 2023 vs Q4 2022 Safety Services Results (in millions) | Metric | Q4 2023 | Q4 2022 | Y/Y Change | | :--- | :--- | :--- | :--- | | Net Revenues | $1,238M | $1,201M | +3.1% | | Adjusted EBITDA | $189M | $158M | +19.6% | | Adjusted EBITDA Margin | 15.3% | 13.2% | +210 bps | - Full-year performance was driven by strong growth in inspection, service, and monitoring, price increases, and improved business mix, partially offset by planned customer attrition internationally and disciplined selection in the HVAC business[9] Segment Performance - Specialty Services The Specialty Services segment saw full-year 2023 revenue growth of 2.4% to $2.08 billion, with adjusted EBITDA up 13.8% to $239 million and the adjusted EBITDA margin improving by 120 basis points to 11.5%, driven by strong growth in service revenues and significant margin expansion in the projects business, which offset lower project revenues resulting from disciplined customer and project selection Full Year 2023 vs 2022 Specialty Services Results (in millions) | Metric | 2023 | 2022 | Y/Y Change | | :--- | :--- | :--- | :--- | | Net Revenues | $2,079M | $2,030M | +2.4% | | Organic Net Revenue Growth | 2.5% | - | - | | Adjusted Gross Margin | 17.8% | 16.2% | +160 bps | | Adjusted EBITDA | $239M | $210M | +13.8% | | Adjusted EBITDA Margin | 11.5% | 10.3% | +120 bps | Q4 2023 vs Q4 2022 Specialty Services Results (in millions) | Metric | Q4 2023 | Q4 2022 | Y/Y Change | | :--- | :--- | :--- | :--- | | Net Revenues | $525M | $510M | +2.9% | | Adjusted EBITDA | $59M | $53M | +11.3% | | Adjusted EBITDA Margin | 11.2% | 10.4% | +80 bps | - Full-year revenue growth was driven by strong service revenues, which was partially offset by lower project revenues due to disciplined customer and project selection[12] Outlook & Strategic Initiatives 2024 Guidance APi Group has issued its initial guidance for the full year 2024, projecting net revenues between $7.05 billion and $7.25 billion and adjusted EBITDA between $855 million and $905 million, with first-quarter 2024 net revenues anticipated at $1.56 billion to $1.61 billion and adjusted EBITDA at $165 million to $180 million Full Year 2024 Guidance (in millions) | Metric | Guidance Range | | :--- | :--- | | Net Revenues | $7,050M - $7,250M | | Adjusted EBITDA | $855M - $905M | | Adjusted Free Cash Flow Conversion | ~70% | First Quarter 2024 Guidance (in millions) | Metric | Guidance Range | | :--- | :--- | | Net Revenues | $1,560M - $1,610M | | Adjusted EBITDA | $165M - $180M | Series B Preferred Stock Retirement APi has agreed with Blackstone and Viking to retire all outstanding Series B Preferred Stock, involving the conversion of 800,000 preferred shares into approximately 32.5 million common shares, followed by a $600 million repurchase of half these new shares, a move expected to simplify capital structure, be immediately accretive to adjusted EPS, and eliminate $44 million in annual preferred dividend payments - Blackstone and Viking will convert all 800,000 shares of Series B Preferred Stock into approximately 32.5 million shares of common stock[14] - APi will repurchase 16.3 million of the newly converted shares for an aggregate price of $600 million, financed through an incremental term facility and cash on hand[15] - Key benefits of the transaction include simplifying the capital structure, reducing the adjusted diluted share count by 16.3 million, providing immediate accretion to adjusted EPS, and eliminating $44 million in annual preferred dividends[15] Share Repurchase Program The Board of Directors has authorized a new stock repurchase program for up to $1 billion of the company's common stock, with $600 million allocated for the Series B Preferred Stock retirement transaction, and the execution of the remaining program at management's discretion - A new stock repurchase program of up to $1 billion has been authorized[16] - $600 million of the program will be utilized for the Series B Preferred Stock repurchase[16] - The timing and amount of any further repurchases are at the discretion of management and depend on capital availability, alternatives, and market conditions[16] Financial Statements & Reconciliations Consolidated Statements of Operations (GAAP) The GAAP Statement of Operations shows a full-year 2023 net income of $153 million on revenues of $6.928 billion, a significant increase from the $73 million net income on $6.558 billion in revenues in 2022, with a net loss attributable to common shareholders of $(161) million, or $(0.68) per share, primarily due to a $(270) million accrued stock dividend on Series A Preferred Stock Condensed Consolidated Statements of Operations (GAAP, in millions) | | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net revenues | $6,928 | $6,558 | | Gross profit | $1,940 | $1,714 | | Operating income | $359 | $162 | | Net income | $153 | $73 | | Net (loss) income attributable to common shareholders | $(161) | $29 | | Diluted EPS | $(0.68) | $0.10 | Consolidated Balance Sheets (GAAP) As of December 31, 2023, APi Group's balance sheet shows total assets of $7.59 billion, down from $8.09 billion at year-end 2022, with total liabilities decreasing to $4.72 billion from $5.17 billion primarily due to a reduction in long-term debt, and total shareholders' equity standing at $2.07 billion Condensed Consolidated Balance Sheets (GAAP, in millions) | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $479 | $605 | | Total current assets | $2,582 | $2,652 | | Goodwill | $2,471 | $2,382 | | Total assets | $7,590 | $8,091 | | Liabilities & Equity | | | | Total current liabilities | $1,807 | $1,921 | | Long-term debt, less current portion | $2,322 | $2,583 | | Total liabilities | $4,722 | $5,167 | | Total shareholders' equity | $2,071 | $2,127 | | Total liabilities, redeemable convertible preferred stock, and shareholders' equity | $7,590 | $8,091 | Consolidated Statements of Cash Flows (GAAP) For the year ended December 31, 2023, net cash provided by operating activities was $514 million, a substantial improvement from $270 million in 2022, with net cash used in investing activities at $115 million and net cash used in financing activities at $532 million, largely due to payments on long-term borrowings, resulting in a net decrease in cash of $127 million for the year Condensed Consolidated Statements of Cash Flows (GAAP, in millions) | | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $514 | $270 | | Net cash used in investing activities | $(115) | $(2,901) | | Net cash (used in) provided by financing activities | $(532) | $1,756 | | Net decrease in cash | $(127) | $(884) | Non-GAAP Reconciliations This section provides detailed reconciliations of GAAP financial measures to their non-GAAP counterparts, which management believes offer a clearer view of the company's core operational performance, including adjustments for organic net revenue growth, adjusted gross profit, adjusted EBITDA, adjusted net income, adjusted EPS, and adjusted free cash flow, detailing items like amortization, acquisition costs, and restructuring expenses - For the full year 2023, reported net revenue growth of 5.6% is reconciled to an organic growth rate of 5.4% after accounting for acquisitions, divestitures, and foreign currency translation[36] - Full-year 2023 GAAP net income of $153 million is reconciled to adjusted EBITDA of $782 million by adjusting for interest, taxes, D&A, and other items such as restructuring costs and acquisition-related expenses[45] - Full-year 2023 GAAP net income of $153 million is reconciled to adjusted net income of $430 million, resulting in an adjusted diluted EPS of $1.58, compared to a GAAP diluted EPS of $(0.68)[49] - Full-year 2023 net cash from operating activities of $514 million is reconciled to adjusted free cash flow of $537 million, resulting in an adjusted free cash flow conversion rate of 68.7% of adjusted EBITDA[67]