APi (APG) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Reported revenues for Q3 2024 increased by 2.4% to $1.83 billion compared to$1.78 billion in the prior year, driven by strong organic growth in service revenues of 9% in the Safety Services segment [20] - Adjusted EBITDA increased by 9.4% for Q3 2024, with an adjusted EBITDA margin of 13.4%, representing an 80 basis point increase compared to the prior year [21] - Adjusted diluted earnings per share for Q3 was $0.51, a 6.3$1.34 billion, with double-digit organic growth in inspection revenues [22] - Specialty Services reported revenues declined by 13.4% to $493 million, primarily due to divestitures and project delays [25] - Core Life Safety represents over 65$2 billion, up 5% organically versus the prior year [15] Market Data and Key Metrics Changes - The company faced temporary revenue headwinds in Q2 and Q3 2024 due to unexpected project delays, with an estimated total impact of approximately $150 million on 2024 net revenues [13] - The backlog in the North American safety business is at$2 billion, the highest it has ever been, indicating strong visibility into future growth [69] Company Strategy and Development Direction - The company aims for a 13% plus adjusted EBITDA margin target by year-end 2025 as part of its 13/60/80 Shareholder Value Creation Framework [7] - The strategy focuses on disciplined customer and project selection, margin expansion initiatives, and increasing the mix of higher-margin recurring service revenues [11][19] - The company plans to continue executing its strategy, accelerate organic growth, and expand its bolt-on M&A program [10][18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in returning to organic growth in 2025, supported by a healthy backlog and ongoing project activity [42][70] - The company anticipates a normal year in 2025, with project growth expected in the low to mid-single digits and service growth in the mid to high single digits [78] - Management highlighted the importance of maintaining pricing power despite moderating inflation, particularly in the inspection and service segments [60][62] Other Important Information - The company expects full-year reported net revenues of approximately $7 billion, revised down from the previous guidance of$7.15 billion due to project delays [29] - Adjusted free cash flow for Q3 2024 was $227 million, reflecting a conversion rate of 93$1 billion in EBITDA - Management indicated that the 1 billion EBITDA target is a near-term benchmark with no specific date set, but they believe they have the momentum to achieve it [35] Question: M&A environment and pipeline - Management reported a robust pipeline for bolt-on M&A, with a successful track record of approximately 100 million in acquisitions last year and continued momentum into 2024 [36] Question: Confidence in project recovery by year-end - Management expressed confidence that project delays are temporary and that backlog growth supports a return to normal project activity [40][42] Question: Drivers of margin expansion - Management attributed margin expansion to the inspection-first strategy, improved project selection, and the pruning of underperforming contracts [46][48] Question: Customer and employee retention post-acquisition - Management reported high retention rates and positive integration progress with Elevated, with ongoing cross-selling opportunities being explored [52][54] Question: Outlook for adjusted results convergence - Management expects restructuring and business transformation costs to decrease by 2025, leading to a closer alignment between GAAP and adjusted results [58][59] Question: Pricing power in a moderating inflation environment - Management confirmed that they continue to take price increases, particularly in labor-intensive segments, despite moderating inflation [60][62] Question: Backlog growth and market opportunities - Management confirmed that backlog continues to grow and is healthier than in previous years, with strong opportunities in core markets like data centers and healthcare [74][75]