APi Group Corporation (APG) Earnings

Management highlights

- API is celebrating 100-year anniversary with theme of gratitude. - Closed acquisitions of CertiCite in February, and announced agreements to acquire WTEC Fire Group and Onyx Fire Protection Services. Expect Onyx Fire to close in second quarter and WTech Fire in third. Completed four bolt-on acquisitions during quarter, on track to deploy ~$250 million in bolt-on M&A. - Systems and business enablement program advanced with first pilot company going live on new business systems. - Business continues to build momentum with robust top-line growth and expanding margins. Safety services grew organically ~5% with segment earnings margins up 60 basis points. Specialty services had ~25% organic growth with segment earnings margins up 50 basis points. Adjusted EBITDA margins expanded 70 basis points year over year. - Focus on margin expansion initiatives including consistent organic growth, improved revenue mix, discipline in customer and project selection, pricing, branch and field optimization, procurement systems and scale, accretive M&A and selective business pruning.

Guidance

- Expect increased full-year net revenues of 8.475 to 8.675 billion, up from 8.4 to 8.6 billion, representing organic growth and net revenues of 5 to 7% for the year. - Expect increased full-year adjusted EBITDA of $1.15 to $1.21 billion, up from $1.14 to $1.20 billion, representing an adjusted EBITDA margin of 13.8% at the midpoint and adjusted EBITDA growth of 11% to 16% for the year. - For second quarter, expect reported net revenues of $2.175 to $2.225 billion, organic net revenue growth of approximately 7% to 9%. Expect adjusted EBITDA of $300 to $310 million, adjusted EBITDA margin of 13.9% at the midpoint and adjusted EBITDA growth of 10% to 14%.

Segment performance

For the quarter, net revenues increased by 15%, approximately 10% organically. Safety services reported net revenues of $1.42 billion, an 11.7% increase, with organic growth of ~5% and segment earnings margins expanding by 60 basis points. Specialty services reported net revenues of $569 million, an increase of 25.6% or 24.8% organically, with segment earnings increasing 34.5% and segment earnings margin up 50 basis points. Adjusted EBITDA margins expanded 70 basis points year over year.

Risks & headwinds

- Forward-looking statements subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially. - Impact of foreign currency exchange rates. - Integration challenges with acquisitions. - Geopolitical and supply chain challenges affecting international operations.

Analyst Q&A

• Q: Could you give more color on what's seen in specialty services, momentum continuation, and if uptake is broad-based?

  A: Specialty services' backlog is super strong, benefits from data centers but work is more broad-based including industrial maintenance, infrastructure, potable water replacement, telecom work.

• Q: Reason for accelerated acquisitions, uptake, and if uptick of bigger deals will continue?

  A: Opportunities presented at right time, not necessarily purposeful, examples like Onyx and WTech presented themselves at opportune times.

• Q: Input cost inflation and customer pushback on pricing?

  A: Able to get pricing on inspection service and monitoring streams. Seen impact of rising fuel costs and material inflation, teammates and leaders protect at proposal, able to capture dollar impact, no sensitivity from customers.

• Q: How far along recent acquisitions of WTech and ONIX are in inspection first journey?

  A: CertiCite was far along in inspection and service work. Onyx in similar spot as API currently. WTEC more traditional with opportunity to build robust inspection service business.

• Q: Margin potential of European business (WTech) three to five years down the line?

  A: Expect it to be in line with North American safety business, every branch has opportunity to be 20% EBITDA branch.

• Q: Color on improved performance, demand sources?

  A: Combination of demand from data centers, advanced manufacturing, healthcare, critical infrastructure, etc.

• Q: Integration timeline for inspection-first acquired businesses?

  A: All three slightly different, CertiSight's integration different from bolt-on, Onyx to operate as independent portfolio business for now, WTech to be standalone in international business.

• Q: Funnel and pipeline for data centers, 10% of sales from data centers this year?

  A: Funnel of opportunities robust, being selective, expect ~10% to 11% of revenue from data centers by end of year.

• Q: Specialty services organic growth target revisit, color on sub-segments?

  A: Specialty segment performed strongly in Q1, will perform strongly throughout year but growth rate may slow in back half due to harder comps. FAB, infrastructure, specialty contracting performed well in quarter.

• Q: Adaptation of international operations to geopolitical and supply chain challenges, new opportunities?

  A: Backlog of international business on par with previous year, presence in Middle East affected by conflict, but M&A aperture opened, opportunities coming forward.

• Q: Net leverage pro forma for announced acquisitions, competitive environment in safety inspection service and monitoring?

  A: Ended first quarter with net leverage ratio of ~1.8 times, post-announced acquisitions expected to be at or below low end of target net leverage ratio. Competitive environment unchanged, highly fragmented market creates opportunities to take share.

• Q: Mixed factor on gross margins, material purchase pull forward?

  A: Mixed factors are growth in project revenue (lower gross margin than inspection service and monitoring work) and segment mix. No real material pull-forward impact in quarter.

• Q: Trajectory of inspection service and monitoring revenue growth in safety services?

  A: Consistent mid to upper single digit revenue growth, expected to continue in back half of year.