APi (US:APG)2022-11-06 10:35Financial Data and Key Metrics Changes - Net revenues for Q3 2022 increased by 65.7% to $1.7 billion compared to $1 billion in the prior year period, driven by acquisitions and strong organic growth [20] - Adjusted gross margin grew by 208 basis points to 26.3%, despite inflation and supply chain disruptions [21] - Adjusted diluted earnings per share increased by approximately 6% or $0.02, driven by strong operational performance and acquisition accretion [12][22] - Adjusted free cash flow was $166 million, exceeding the guided range and representing a 159% increase compared to the prior year [14][25] Business Line Data and Key Metrics Changes - Safety Services reported net revenues increased by 117% to $1.1 billion, primarily driven by acquisitions, with organic growth of 19.7% [22][23] - Specialty Services net revenues increased by 12% to $590 million, driven by increased service revenue and improved pricing [24] Market Data and Key Metrics Changes - Approximately 2/3 of organic revenue growth was driven by price and pass-through of material and labor costs, with the remaining 1/3 from volume [22] - The backlog stood at approximately $3.6 billion, slightly down from $3.7 billion, which is typical for the season [50] Company Strategy and Development Direction - The company aims for long-term organic growth above industry average, targeting an adjusted EBITDA margin of 13% by 2025 and a net leverage ratio of 2x to 2.5x [32] - The integration of Chubb remains a top priority, with plans to enhance operational efficiencies and drive organic growth [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving 2023 goals, supported by a strong backlog and resilient end markets [36][37] - The company is focused on mitigating margin pressures through high-margin inspection, service, and monitoring revenue [31][32] Other Important Information - The company expects to provide updates on the ongoing integration of Chubb and its strategic plans at the upcoming investor update [19] - Management highlighted the importance of disciplined customer and project selection to enhance margins [58] Q&A Session Summary Question: Visibility on 2023 goals - Management feels confident due to a strong backlog of approximately $3.6 billion and continued growth in inspection revenue [36] Question: Performance of Chubb by region - Chubb's revenue is resilient, with over 60% coming from inspection service and monitoring, providing stability amid potential recessions [39] Question: Cash flow improvement and conversion - The company expects continued improvement in cash flow conversion, aiming to return to traditional levels in 2023 [42] Question: Organic growth performance - Strong performance was noted in data centers, semiconductors, and healthcare, with limited exposure to retail and hospitality [46] Question: Supply chain disruptions - Mixed improvements were observed, with some costs decreasing while others, like semiconductors, remain challenging [48] Question: Backlog trends - The backlog is slightly down but remains strong, with a year-over-year increase of 8% [50][52] Question: Pricing strategies - The company continues to push for price increases and utilize fuel surcharges to manage inflationary pressures [52] Question: Integration costs for Chubb - Integration costs are expected to carry into 2023, but the company aims for a cost-neutral transition [84]