APi Group Q1 2025 Earnings Report

APi Group EPS Results

• Actual EPS: $0.37
• Consensus EPS: $0.35
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $0.34

APi Group Revenue Results

• Actual Revenue: $1.72 billion
• Expected Revenue: $1.66 billion
• Beat/Miss: Beat by +$63.16 million
• YoY Revenue Growth: +7.40%

APi Group Announcement Details

• Quarter: Q1 2025
• Date: 5/1/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 1, 2025
• Conference Call Time: 8:30AM ET

APi Group (NYSE:APG) provides safety and specialty services worldwide. It operates through Safety Services and Specialty Services segments. The Safety Services segment offers solutions focusing on end-to-end integrated occupancy systems, such as fire protection services; heating, ventilation, and air conditioning solutions; and entry systems, which include the design, installation, inspection, and service of these integrated systems. The Specialty Services segment provides various infrastructure and specialized industrial plant services, including maintenance and repair of underground electric, gas, water, sewer, and telecommunications infrastructure. This segment offers engineering and design, fabrication, installation, maintenance service and repair, retrofitting and upgrading services, pipeline infrastructure, access and road construction, supporting facilities, and integrity management and maintenance to the energy industry. It serves customers in the public and private sectors, including commercial, industrial, distribution and fulfillment centers, manufacturing, education, healthcare, telecom, utilities, transmission and integrity, high tech, entertainment, government, and infrastructure markets. The company was formerly known as J2 Acquisition Limited and changed its name to APi Group Corporation in October 2019. APi Group Corporation was founded in 1926 and is headquartered in New Brighton, Minnesota.

APi Group Q1 2025 Earnings Call Transcript

Key Takeaways

• API reported record Q1 results with net revenues of $1.72 B, up 7.4% year-over-year, driven by ~2% organic growth overall, 5.6% growth in safety services and a 7% rise in backlog.
• Adjusted EBITDA grew 10.3%, with margin expanding 30 bps to 11.2%, keeping the company on track to achieve its 13%+ adjusted EBITDA margin goal in 2025.
• Only about 15–20% of revenues (project work) are exposed to tariffs; recurring inspection, service and monitoring revenues remain insulated by statutory demand and pass-through pricing.
• Capital deployment included $75 M of share repurchases in Q1 and a new $1 B buyback program, plus a targeted $250 M of bolt-on M&A in FY25 to bolster life-safety and elevator service platforms.
• Management reaffirmed the “13-60-80” framework—13% EBITDA margin, 60% of revenues from inspection/service/monitoring and 80% free cash flow conversion—backed by a 2.3x net leverage ratio.

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to API Group's First Quarter twenty twenty five Financial Results Conference Call. Please note this call is being recorded. I will be standing by should you need any assistance. I will now turn the call over to Adam Phi, Vice President of Investor Relations at ATI Group. Please go ahead.

[Adam Fee, VP - Investor Relations at APi Group]

Thank you. Good morning, everyone, and thank you for joining our first quarter twenty twenty five earnings conference call. Joining me on the call today are Russ Becker, our President and CEO David Jackula, our Executive Vice President and Chief Financial Officer and Sir Martin Franklin and Jim Lilley, our Board Co Chairs. Before we begin, I would like to remind you that certain statements in the company's earnings press release announcement and on this call are forward looking statements, which are based on expectations, intentions and projections regarding the company's future performance, anticipated events or trends and other matters that are not historical facts. These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward looking statements.

[Adam Fee, VP - Investor Relations at APi Group]

In our press release and filings with the SEC, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, May 1, and we undertake no obligation to update any forward looking statement we may make except as required by law. As a reminder, we have posted a presentation detailing our first quarter financial performance on the Investor Relations page of our website. This presentation includes historical quarterly financial information for our realigned segments on Slide 16. Our comments today will also include non GAAP financial measures and other key operating metrics.

[Adam Fee, VP - Investor Relations at APi Group]

A reconciliation of and other information regarding these items can be found in our press release and our presentation. Now my pleasure to turn the call over to Russ.

[Russ Becker, President & Chief Executive Officer at APi Group]

Thank you, Adam, and good morning, everyone. Thank you for taking the time to join our call this morning. Before discussing our results, I'd like to take a moment to officially congratulate David on being appointed the CFO of API. I'm grateful to have him leading our global finance organization as we celebrate our fifth anniversary being listed on the New York Stock Exchange. The last five years have been both challenging and rewarding, and I'm grateful to each of our 29,000 leaders for their hard work and unwavering commitment to API.

[Russ Becker, President & Chief Executive Officer at APi Group]

Over the last five years, we have made great progress since becoming a public company. We have navigated the impacts of a global pandemic, established our thirteen sixty eighty shareholder value creation framework, completed and integrated over 50 acquisitions, including Chuck, and continue to evolve our business away from lower margin, higher risk opportunities while focusing investments on building our business around statutorily mandated recurring life safety services. While more than doubling our net revenues since becoming public, our leaders have executed our margin expansion strategy, putting us in position to deliver on our 13% or more adjusted EBITDA margin target in 2025. We are excited to host investors and analysts at our Investor Day in New York on May 21, where we look forward to detailing new, meaningfully higher financial targets and updates to our strategic plan. Next next week marks API's tenth straight year of celebrating safety week.

[Russ Becker, President & Chief Executive Officer at APi Group]

As I've said before, the safety, health, and well-being of each of our team members remains our number one value. Our commitment to safety drives industry leading safety outcomes across the organization. At the February, our total recordable incident rate for TRIR was below one point zero. This is significantly below the industry average. While we are proud of this, we continue to strive for zero incidents.

[Russ Becker, President & Chief Executive Officer at APi Group]

We believe our commitment to creating a safer work environment and investing in every leader's development makes API a company where leaders are inspired to build long and fulfilling careers. Turning to the first quarter, I'm again pleased with the record results delivered by our global team as we continue to see robust demand for the services we offer across the businesses in an evolving macro environment. Net revenues grew grew organically by approximately 2% in the quarter, representing positive momentum as we return to more traditional levels for of organic growth. In our safety services segment, organic growth came in at 5.6% with high single digit growth in inspection service and monitoring revenues and low single digit growth in project revenues. Importantly, and in line with our strategic initiatives, we saw a double digit increase in inspection revenue in North America for the nineteenth straight quarter as we march towards our long term goal of 60% of total net revenues from inspection, service, and monitoring.

[Russ Becker, President & Chief Executive Officer at APi Group]

In our specialty services segment, our businesses performed in line with what we outlined last quarter. The decline in net revenues moderated from the fourth quarter despite a headwind from the adverse weather we faced early in the first quarter. Backlog continued to grow, up 7% organically, and we expect this segment to deliver positive organic growth in the second quarter. With another quarter of margin expansion, the team continues to make meaningful progress executing our margin expansion initiatives as we close in on achieving our 13% or more adjusted EBITDA margin target in 2025. As a reminder, these initiatives include improved inspection service and monitoring revenue mix, disciplined customer and project selection, shelf value capture, pricing improvements, procurement systems and scale, accretive m and a, and selected business pruning.

[Russ Becker, President & Chief Executive Officer at APi Group]

And as I like to say, we can always just be better. We believe we are also well positioned to navigate the evolving macro environment, including the impact of tariffs. I truly believe that API is a safe harbor in the tariff storm. Our leaders have been proactive in working to get out in front of the tariff situation and implementing mitigation strategies since late last year. We do not expect any material impact from tariffs on the 54% of our net revenues that comes from highly recurring inspection service and monitoring.

[Russ Becker, President & Chief Executive Officer at APi Group]

These services benefit from statutorily driven demand and have a cost structure comprised predominantly of labor. Any parts and materials are sourced in real time with their cost passed on to the customer. In our projects business, we are currently only seeing impacts from tariffs on the cost of our materials in our North American safety business where pipe prices have increased. Our leaders have done a good job protecting our business from material cost increases through contractual provisions, and we expect to be able to pass along much, if not all, material cost increases that arise from these tariffs. Longer term, we expect increased investment in US infrastructure in the onshoring of advanced manufacturing to be a benefit to the target end markets we serve.

[Russ Becker, President & Chief Executive Officer at APi Group]

As a reminder, shortly after becoming a public company five years ago, the world was in the midst of a global pandemic. While the pandemic posed many challenges, it also highlighted the strength and resiliency of our business model. Exiting the pandemic, we experienced a period of significant increases in pipe prices far greater than we are experiencing today. Our leaders did a solid job protecting our margins and delivering on our commitments while being fair to our customers. We believe our robust backlog, variable cost structure, the statutorily driven demand for our services, and the diversity of the global end markets we serve combined to provide a protective moat around the business.

[Russ Becker, President & Chief Executive Officer at APi Group]

We believe this positions us well to navigate the dynamic tariff variables in the marketplace. As we move through the year, we remain relentlessly focused on our long term thirteen sixty eighty value creation targets, which include the following. Adjusted EBITDA margin of 13% or more in 2025, long term revenues of 60% from inspection, service, and monitoring, and finally, term adjusted free cash flow conversion of 80%. Our strong free cash flow generation and balance sheet strength provide us with the flexibility to pursue value enhancing capital deployment alternatives, such as continuing our track record of disciplined M and A or opportunistic share repurchases. In the first quarter, we repurchased $75,000,000 or 2,100,000.0 shares of our common stock.

[Russ Becker, President & Chief Executive Officer at APi Group]

Additionally, our Board has authorized a new $1,000,000,000 share repurchase program, giving us more flexibility to act as we expect to continue to increase our free cash flow generation in the years to come. I always joke that we don't have to do much diligence, and we really like the API's leadership team, it makes buying APG shares an easy decision. In terms of disciplined m and a, we spent $250,000,000 on bolt on acquisitions at attractive multiples in 02/2024, and we are targeting a similar level in 02/2025. We expect that part of that spend will be on our first elevator service bolt on under our API elevator platform. We are taking a walk before we run approach to our expansion into the $10,000,000,000 plus domestic elevator service market.

[Russ Becker, President & Chief Executive Officer at APi Group]

We expect our ongoing we expect our ongoing expansion into the elevator service market to be accretive to our thirteen sixty eighty value creation framework. And importantly, this represents a continuation of our focus on building a robust line of businesses that provide statutorily mandated recurring life safety services. We remain committed to building a $1,000,000,000 elevator service market leader over the long term as well as continuing to expand our fire protection and electronic security businesses. In summary, we are off to a strong start in 2025, returning to traditional levels of organic growth after our thoughtful and selective pruning of certain low margin customer accounts in 2024. We've also continued to expand margins

[Russ Becker, President & Chief Executive Officer at APi Group]

and deploy capital on M

[Russ Becker, President & Chief Executive Officer at APi Group]

and A and share repurchases to drive shareholder value. We are pleased with our leaders' execution across the business, and I have great confidence in our ability to deliver on our near term commitments while maintaining a focus on the long term opportunities in front of us. I'd like to hand the call over to David to discuss our first quarter financial results and updated guidance in more detail.

[David Jackola, EVP & CFO at APi Group]

David? Thanks, Russ. Reported revenues for the three months ended March 31 increased 7.4% to $1,720,000,000 compared to $1,600,000,000 in the prior year period. Organic growth of approximately 2% was driven by pricing improvements and strong organic growth in safety services led by inspection service and monitoring, partially offset by an anticipated decrease in specialty services revenue. Adjusted gross margin for the three months ended March 31 grew to 31.7%, representing a 100 basis point increase compared to the prior year period and driven by disciplined customer and project selection, pricing improvements, and value capture initiatives in our international business.

[David Jackola, EVP & CFO at APi Group]

Adjusted EBITDA increased by 10.3%, eleven point five % on a fixed currency basis for the three months ended March 31, with adjusted EBITDA margin coming in at 11.2%, representing a 30 basis point increase compared to the prior year period, primarily due to the increase in adjusted gross margin partially offset by lower fixed cost absorption in the Specialty Services segment. I am pleased to report that adjusted diluted earnings per share for the first quarter was $0.37 representing a 3p or 8.8% increase compared to the prior year period. The increase was primarily driven by strong growth in adjusted EBITDA, partially offset by an increase in interest expense and adjusted weighted average shares outstanding. Safety services reported revenues for the three months ended March 31 increased by 13.4% to $1,270,000,000 compared to $1,120,000,000 in the prior year period. Organic growth of 5.6% was driven by double digit inspection revenue growth in our North America safety business and 7% organic growth in inspection service and monitoring revenues for the segment.

[David Jackola, EVP & CFO at APi Group]

Project revenues grew 4% organically in the quarter. Adjusted gross margin for the three months ended March 31 was 37%, representing a 90 basis point increase compared to the prior year period, driven by disciplined customer and project selection, pricing improvements, and value capture initiatives. Segment earnings increased by 20.6%, twenty one point six % when measured on a fixed currency basis for the three months ended March 31, and segment earnings margin was 15.7%, representing a 90 basis point increase compared to the prior year period, primarily due to the increase in adjusted gross margin. Specialty Services reported revenues for the three months ended March 31 decreased by 6.8% to CAD453 million compared to 486,000,000 in the prior year period. Organic revenue declined 6.6% driven by an anticipated decrease in project and service revenues as well as adverse weather impacts.

[David Jackola, EVP & CFO at APi Group]

Adjusted gross margin for the three months ended March 31 was 16.8%, representing a 150 basis point decrease compared to the prior year period, driven primarily by lower fixed cost absorption due to lower net revenues, partially offset by the favorable impact from plan disciplined customer and project selection. Segment earnings decreased by 32.6% for the three months ended March 31, and segment earnings margin was 6.4%, representing a two forty basis point decrease compared to the prior year period, driven primarily by lower fixed cost absorption due to lower net revenues. Turning to cash flow. For the three months ended March 31, adjusted free cash flow was $86,000,000 representing a $74,000,000 improvement compared to the first quarter of twenty twenty four and reflecting an adjusted free cash flow conversion of approximately 45%. Free cash flow generation continues to be a priority across API.

[David Jackola, EVP & CFO at APi Group]

We are pleased that we remain on track to achieve our adjusted free cash flow conversion target of approximately 75% for the year while returning to more traditional levels of organic growth in the business. At the end of the quarter, our net leverage ratio was approximately 2.3 times below our long term net leverage target of 2.5. Our strong balance sheet gives us flexibility to drive our margin accretive bolt on M and A strategy while allowing for opportunistic share purchases like we executed in the first quarter. We expect to continue to grow our free cash flow in 2025, providing us with significant opportunities for continued value enhancing capital deployment. I will now discuss our guidance for the second quarter and full year 2025, which as a reminder is based on current foreign currency exchange rates.

[David Jackola, EVP & CFO at APi Group]

We expect increased full year net revenues of $7,400,000,000 to $7,600,000,000 up from $7,300,000,000 to $7,500,000,000 representing organic growth in net revenues of 2% to 5% for the year. Moving down to p and l, we expect increased full year adjusted EBITDA of $9.85 to 1,035,000,000.000, up from $970,000,000 to 1,020,000,000.00, representing an adjusted EBITDA margin of 13.4% at the midpoint and adjusted EBITDA growth of over 10%. Our increased full year revenue and EBITDA guidance is due to the impact of the weakening U. S. Dollars since our February guidance, and more information on our revised guide can be found on Slide 10 of our earnings presentation on our Investor Relations website.

[David Jackola, EVP & CFO at APi Group]

In terms of the second quarter, we expect reported net revenues of 1,875,000,000.000 to $1,925,000,000 representing accelerating organic net revenue growth of approximately 3% to six percent. We expect adjusted EBITDA of $260,000,000 to $270,000,000 representing an adjusted EBITDA margin of 13.9% at the midpoint and accelerating adjusted EBITDA growth of 13% to 17%. For 2025, we anticipate interest expense to be approximately 145,000,000 depreciation to be approximately $90,000,000 capital expenditures to be approximately $100,000,000 and our adjusted effective tax rate to be approximately 23%. We expect our adjusted diluted weighted average share count for the year to be approximately two eighty two million reflecting our repurchase of 2,100,000.0 shares in the first quarter, but not incorporating any potential future share repurchases. We continue to expect adjusted corporate expenses to be between 30,000,000 and $35,000,000 per quarter with some timing variability throughout the year.

[David Jackola, EVP & CFO at APi Group]

You may also have noticed a new line in our earnings release tables called systems and business enablement. This represents a recently launched three year investment in systems and technology that will equip our branches and field leaders with the data, modern tools, and technology that they need to more efficiently and effectively serve our customers. This is a business led and field leader focused initiative and one that we believe is a key enabler to achieving the long term financial targets that we plan to share at our Investor Day in May. I will now turn the call back over to Russ.

[Russ Becker, President & Chief Executive Officer at APi Group]

Thanks, David. API's record first quarter net revenues and profitability speaks to the effectiveness of our strategy and the alignment in its execution by our global team of leaders. As you've heard from us, we have great confidence in the business and the direction we are heading despite the dynamic macro environment macroeconomic environment. We remain focused on creating sustainable shareholder value by delivering on our thirteen sixty eighty targets with the near term focus on generating adjusted EBITDA margin of 13% or more this year. As a reminder, we will be hosting an Investor Day on May 21 in New York for professional investors.

[Russ Becker, President & Chief Executive Officer at APi Group]

I'm looking forward to seeing many of you there, but also encourage you to reach out to Adam to register if you haven't already done so as space is limited. With that, I would now like to turn the call over to the operator and open the call for q and a.

[Operator]

Thank you. Your first question comes from the line of Andy Kaplowitz by Citigroup. Your line is open.

[Andrew Kaplowitz, Managing Director at Citi]

Good morning everyone. Hey, Andy. Russ, I think you said publicly that combined backlog for APG at the end of last quarter was $3,500,000,000 Can you give more color into what your backlog did in Q1? I think you said it was up 7% year over year in specialty. And then can you talk about the visibility you do have toward growth in both your segments?

[Andrew Kaplowitz, Managing Director at Citi]

Despite the uncertain macro, would you say you still have good visibility toward mid single digit growth in Safety? I think you said Specialty should return to growth in Q2. Is that a function of project delays ending or new wins or both?

[Russ Becker, President & Chief Executive Officer at APi Group]

Well, that was a mouthful, Andy. So that's a you you you had about seven questions in your one.

[Andrew Kaplowitz, Managing Director at Citi]

Only three.

[Andrew Kaplowitz, Managing Director at Citi]

Only three.

[Russ Becker, President & Chief Executive Officer at APi Group]

That's all it's all good. Yeah. I mean, our backlog is sitting right around 3 and a half billion. It's, you know, up on a year over year basis. It continues actually we continue to see momentum building in our backlog, and we expect it to continue to build that actually as we work our way through the, through the, the second quarter.

[Russ Becker, President & Chief Executive Officer at APi Group]

The the end markets that we serve, we don't feel like we're over committed to anyone, end markets such as data centers. You know, even though we're doing, you know, data center work, you know, our focus remains on the you know, ultimately, we wanna be doing the inspection service and monitoring work, for these facilities and the project work to come from the relationships that we've built with those particular, you know, clients. So we feel like, you know, we're in a really good spot. You know, regarding specific to specialty, you know, number one, it was a it was a tough comp compared to q one from last year, as the we didn't really experience any adverse weather conditions like we did this year. You know, this was more of a what I would consider a normalized year, And we expect our specialty services business to see organic growth in the second quarter aided in part by their growing backlog.

[Russ Becker, President & Chief Executive Officer at APi Group]

Their backlog is strong, I think, up 7% organic on an organic basis. And I think that we're really well positioned as we move are moving through the second quarter.

[Andrew Kaplowitz, Managing Director at Citi]

Thanks for that, Russ. And then can you elaborate a little more on the tariff related impacts on the business and what's embedded in the guide? I think you said your people are buying steel pipe upfront. You're not seeing as much in the way of pipe increases versus during the pandemic. But how have you thought about any higher pricing in your unchanged guidance?

[Andrew Kaplowitz, Managing Director at Citi]

Or do you expect to see any impact from tariffs on volume?

[Russ Becker, President & Chief Executive Officer at APi Group]

Well, I mean, you know, I I guess first and foremost, number one, when when president Trump was elected, you know, all the way back in last November, you know, we anticipated, like, I'm sure everybody anticipated that he would use tariffs as as a tool, you know, in in his second term. And so we very proactively got out in front of that, you know, including language in our proposals and ultimately our contracts that should we see rapid escalation due to price escalation due to tariffs, that, you know, we would be be able to recapture, you know, that cost. Now we're only recapturing the cost. We're not recapturing the margin on that. We're just getting we're able to pass the, the cost down, and that's primarily in our in our project work.

[Russ Becker, President & Chief Executive Officer at APi Group]

So I feel like our our leaders did a a fantastic job of of really getting out getting out in front of it, just because, you know, we knew that, that it was potentially going to come. The commodity that we watched the the closest is hot rolled coil, and that's because that's directly affects pipe prices. We've seen pipe prices increase since the, the first of the year, and we've actually seen them moderate and drop a little bit, more more recently. So we feel pretty good about, you know, where we're at. Yes.

[Russ Becker, President & Chief Executive Officer at APi Group]

We did pull some material cost into the first quarter, you know, as the trade as the tariffs, you know, kind of that whole conversation escalated and some of the tariff you know, the size of the tariffs, so to speak, increased so dramatically. We definitely did do some pre purchasing of material and pulled some of that material, cost into the first quarter, which would be at a slightly lower margin than, say, what we're able to get, you know, from the labor that we when we're executing our work, etcetera. So I don't know, David, do you have any extra color on that that you'd like to add?

[David Jackola, EVP & CFO at APi Group]

No.

[David Jackola, EVP & CFO at APi Group]

I think that summarizes it clearly.

[Andrew Kaplowitz, Managing Director at Citi]

Alright. Appreciate all the color, guys.

[Russ Becker, President & Chief Executive Officer at APi Group]

Thanks, Andy.

[Operator]

The next question comes from Tim Mulrooney from William Blair. Your line is open.

[Tim Mulrooney, Group Head–Global Services at William Blair]

Yeah. Russ, David, just good morning.

[Russ Becker, President & Chief Executive Officer at APi Group]

Hey, Ken. How are you?

[Tim Mulrooney, Group Head–Global Services at William Blair]

Doing well. Thanks. So on organic growth, I mean, you were guiding total organic growth to be down, I think, in the low single digit range in the first quarter, and and you ended up at a positive 2%. So just just curious what what was the primary driver of that that variance relative to your your expectations?

[David Jackola, EVP & CFO at APi Group]

Yeah. I I I think Russ probably answered that one in a in a in the last question is is we did pull some materials forward into the first quarter ahead of projected or potential price increases from the tariffs, and that was really the main driver, in our beat to our revenue guide in the first quarter.

[Tim Mulrooney, Group Head–Global Services at William Blair]

Oh, okay. Thanks. Sorry. I I missed that, but but got it. So pulling forward, the the materials boosted your organic growth.

[Tim Mulrooney, Group Head–Global Services at William Blair]

Is that correct, David?

[David Jackola, EVP & CFO at APi Group]

Yeah. You captured that well.

[Tim Mulrooney, Group Head–Global Services at William Blair]

Okay. And then, just on projects. I mean, given the current state of macro uncertainty, what what can you tell us about demand in the projects business? I mean, guidance looks great, but, I mean, as you look into specific projects, are customers holding back at all on pushing forward with new projects, kind of waiting to see what happens with the tariff situation? Curious what you're seeing with regard to proposal activity and and the backlog generally within that that that project's business.

[Tim Mulrooney, Group Head–Global Services at William Blair]

Thank you.

[Russ Becker, President & Chief Executive Officer at APi Group]

Yeah. We we have not seen any delays or any significant delays or or pullbacks due to all the noise associated with with tariffs. I think I alluded it to it in my earlier remarks, you know, we've actually are putting on backlog right now. You know, I mean, it's anybody's crystal ball to you know, what happens, you know, if, you know, kind of

[Russ Becker, President & Chief Executive Officer at APi Group]

the

[Russ Becker, President & Chief Executive Officer at APi Group]

tariff noise continues for six months, nine months, three months, you know, what happens from a demand perspective. But as we sit here right now today, we have not seen delays and our backlog continues to build.

[Tim Mulrooney, Group Head–Global Services at William Blair]

Got it. Thank you.

[Operator]

The next question comes from the line of Jasper Bibb with Truist Securities. Your line is open.

[Jasper Bibb, Equity Research Associate at Truist Securities]

Hey, good morning, guys. Wanted to ask some follow ups on the the tariff comments. I I think you said the only exposure to tariffs is the project revenues and US life safety. So if I do some math, is the rep part of your revenue mix, I guess, directly exposed to tariffs? Call it 15 to 20% of your total.

[Jasper Bibb, Equity Research Associate at Truist Securities]

And I guess separately with where rolled coil futures are now, are you seeing increased materials costs yet, or is that kind of more managing a risk that you would see higher prices in the future?

[David Jackola, EVP & CFO at APi Group]

Yeah. So if I'm if I'm hearing you, Jeff, but you your your comment was do we do we expect that our our revenues exposed to potential tariffs are approximately 15% or so? I think that's a fair estimate.

[Jasper Bibb, Equity Research Associate at Truist Securities]

Got it. And then the the second part of my question was, you have rolled coil futures at least haven't moved all that much. So are you seeing increased costs right now? Or with the materials you pulled forward into the first quarter, is that more managing a risk that, you could see increased prices in the back half of the year or over the next couple quarters rather than today?

[Russ Becker, President & Chief Executive Officer at APi Group]

So so if you look at hot rolled prices, I wanna tell you from the first of the year, it was up roughly it peaked at, like, what, 40%, and, it's dropped, in the over the course of the last, you know, week or week or ten days. I don't have all the figures exact figures in front of me, but it's but it's dropped. So, we've seen it moderate and, which is which is really positive. You know, we stay very close to our vendors, you know, and to make sure that we're doing our best to try to anticipate, you know, what's going to potentially happen. But I would also go back to, an earlier statement that I made that when president Trump was elected, we knew that tariffs were gonna be a tool in his toolbox, and we got out in front of it.

[Russ Becker, President & Chief Executive Officer at APi Group]

And we should you read it. We should have good protection built into our proposals and our contracts that protect us from rapid increases in in any sort of commodity prices.

[Jasper Bibb, Equity Research Associate at Truist Securities]

Yeah. That that's helpful. And then, I was hoping you could update us on your experience with the, rural broadband program and specialty. It seems like maybe there's been some more delays as the states rework their proposals there. Maybe you could just frame for us, how much revenue associated with the broadband program is assumed in your updated guide and, how you see the cadence of that over the next couple of quarters.

[Russ Becker, President & Chief Executive Officer at APi Group]

Yeah. So how we would frame that is it's choppy for sure. And and we feel like we've got it built into, you know, our forecast and our and our guides, and we knew it was gonna be choppy, you know, as we as we, you know, move throughout the year and it's properly reflected in our forecast.

[Jasper Bibb, Equity Research Associate at Truist Securities]

Got it. Thanks, guys.

[Operator]

The next question comes from Andy Wittmann with Baird. Your line is open.

[Andrew Wittmann, Senior Research Analyst at Baird]

Great. Thanks. I just thought so a couple of questions here, guess. On the international, business that's underpinned by the Chubb acquisition, you commented on, North American inspection growth and and talked consistently about what Chubb has been doing. So can you just talk, Russ, a little bit about what you're seeing in terms of the organic growth rates, internationally and and how the uncertainty is affecting, those customers?

[Andrew Wittmann, Senior Research Analyst at Baird]

And then, David, maybe one for you. I know this is impossible, but I'm gonna try anyway. Can you help us understand what the impact from the weather may have been on a year over year basis? You said we heard more normal, so this is that sets the base for next year. But I'm just wondering, I think maybe it helps understand, you know, just just how how good last quarter was and and how variable your business can be with the weather.

[Andrew Wittmann, Senior Research Analyst at Baird]

Thanks.

[Russ Becker, President & Chief Executive Officer at APi Group]

So I'll go first. And, you know, I I would I guess, I would phrase it for you, Andy. Good morning, by the way. Is that we had organic growth in line with expectations again in the first quarter in our international business. And I think the business has grown organically every quarter since we've owned it now for well over three years.

[Russ Becker, President & Chief Executive Officer at APi Group]

And and their their organic growth was in line with our expectations. And if you recall, you know, we have said that they're no different than the rest of our business. We've guided them to high single digit growth in inspection service and monitoring and low single digit growth in the project work, which leads to roughly mid single digit organic growth, and that's right where they were. And, so we're very pleased with the, you know, the trajectory that that business is on. I mean and then just in general, I just I I'm really proud of that team.

[Russ Becker, President & Chief Executive Officer at APi Group]

They've done a great job, and they continue to make make good progress, you know, in their business. Our sales leader, has done a really good job of, I'll just say, realigning, our sales team across the entire international business. And, we're really showing good progress in in the work and, you know, improving the end markets that we're serving, and, everything everything's headed in in the right direction there.

[David Jackola, EVP & CFO at APi Group]

Good. I'll I'll take your second question, Andy, which I believe was on the impact of weather in our specialty business in the first quarter. You know, we look at at weather days, as a as a an indicator of of of weather on a quarter quarter year over year basis. We we think we lost, around five days due to weather in the first quarter of this year versus last, which is approximately a mid single digit impact on organic revenue growth.

[Andrew Wittmann, Senior Research Analyst at Baird]

Okay. Great. And then maybe just for couple quick follow ups here. The the comments on the systems and businesses investments that you're making, the three year program, Ross, I was just wondering if you could just drill in a little bit more to that as to, what, this is going to enable your team to do in the future versus what it can do today. Is this a is this an efficiency initiative for their margin, or is this, more of a customer focus to improve customer satisfaction, which will have benefits to growth?

[Andrew Wittmann, Senior Research Analyst at Baird]

I suspect it's both, but, maybe that would be helpful. And then maybe I think a lot of people this morning were maybe maybe surprised to see that you didn't report segment EBITDA. I was just wondering, David, if you could comment on that as well.

[Russ Becker, President & Chief Executive Officer at APi Group]

Yeah. So David can add whatever color he wants when we talk about the systems enablement and everything else. So we have a we have a I don't know if it's a concept. I don't know if that's the right way to put it, Andy or not, but we we have a belief here. We call it our central premise.

[Russ Becker, President & Chief Executive Officer at APi Group]

And our central premise means that, every decision and every choice and, you know, initiative that that that we bring forward needs to put the men and the women that work in the field first. You know, 65 to 70% of our workforce is is the men and the women that work in the field. And those individuals are, you know, basically they they drive our profitability. And so giving them the tools that that allow them to be more efficient and and productive, you know, in the work that they do, is, you know, one of our key priorities just across the business and everything in in the choices, you know, that that we make. So that is a significant, you know, component of of some of this.

[Russ Becker, President & Chief Executive Officer at APi Group]

And as we'll talk a little bit more about, you know, at the investor day about where we where we think the business can go. You know, if you if you do some simple math and you start thinking about, you know, you know, we finished last year at seven just north of 7,000,000,000 in revenue and you think about mid single digit organic growth and you think about, you know, this $250,000,000 of bolt on m and a and then and then you and then you add in, you know, say one or two larger transactions, you know, over the course of the next two or three years, you can really quickly see where this company can can be $10,000,000,000 plus in revenue. And so some of that is we need to have the foundation to be able to to to do that, to to build systems and scale in that. So it's a really, it's a combination of making sure that, you know, we're establishing a strong base to build on, but it's also to enable the men and the women in the field and make them more productive, efficient, and get our tools, you know, state of the art.

[Russ Becker, President & Chief Executive Officer at APi Group]

So I don't know. David, do you

[Russ Becker, President & Chief Executive Officer at APi Group]

wanna add anything to that?

[David Jackola, EVP & CFO at APi Group]

I don't think there's anything I need to add, Ross. So Alright. Question two then, Andy, was was around segment level adjusted EBITDA, and and I would point you to maybe slide nine in the presentation on our IR website. We've got segment earnings, which is a comparable metric to adjusted EBITDA at the segment level.

[David Jackola, EVP & CFO at APi Group]

And this is consistent with how we reported segment earnings at the end of fiscal twenty twenty four.

[Andrew Wittmann, Senior Research Analyst at Baird]

Okay. Thank you.

[Operator]

Your next question comes from Catherine Thompson with Thompson Research Group. Your line is open.

[Kathryn Thompson, Founding Partner & CEO at Thompson Research Group]

Hi. Thank you for taking my questions today. Know there's a lot of noise around tariffs and changing landscape from a broad government standpoint. But what strikes me about API is that this seems to be your first kind of normal year since going public in 2020. You have digested your Chubb acquisition from three years ago.

[Kathryn Thompson, Founding Partner & CEO at Thompson Research Group]

You've integrated Elevate, your Elevate acquisition, and and you also have your division realignment behind you. As we the the first part of my question, we Could you talk about your focus in terms of capital allocation between bolt on acquisitions and stock buybacks and the color and flavor in terms of how we should think about acquisitions in 2025 in particular? Thank you.

[Russ Becker, President & Chief Executive Officer at APi Group]

So, you know, from a capital allocation perspective, we've always said, first and foremost, you know, we wanna deliver delever the company to, you know, inside our target of two and a half times. So we've done that. So we don't get to use that as a as an option anymore. So second would be m and a. And our our preference would be to utilize and put our cash to work through a creative m and a.

[Russ Becker, President & Chief Executive Officer at APi Group]

And I think we've demonstrated a solid track record on that front, you know, over the you know, not just the five years that we've been public, but, you know, we have a long history of, you know, m and a. And then, you know, share repurchases is our third option. And, you know, we continue to look at, you know, share repurchase as an opportunity for us based on, you know, where the share price, you know, is is at in in in whatever environment that we're that we're in. And and that's, you know, when we bought back the $75,000,000 worth of shares, we felt like our our shares were were undervalued. And as I said in my remarks, you know, we actually like the leadership team of the company and don't have to do a lot of diligence.

[Russ Becker, President & Chief Executive Officer at APi Group]

And so we took advantage of of that opportunity. And as we move forward, you know, and you're right, the cash flow generation, the capability that this company has is really, really strong. And I think you'll see a healthy mix and healthy blend between m and a and returning cash to our shareholders, you know, currently through share repurchases. So from an m and a perspective, you know, we we see our pipeline and our funnel is very strong. We see a, you know, clear path to being able to execute on that, you know, kind of target of $250,000,000, similar to what we did last year.

[Russ Becker, President & Chief Executive Officer at APi Group]

We will be disciplined. We will not buy something just to buy something. We're gonna make sure that we're buying businesses that are accretive to our our long term, you know, financial, objectives. We continue to do some work on, you know you know, opportunities that you consider bigger than our bolt ons. You know, nothing nothing chub ask, if you will.

[Russ Becker, President & Chief Executive Officer at APi Group]

But we continue to do some work on other opportunities as well. So we see opportunities for us to potentially deploy capital, from an m and a perspective on the app. So we feel like we're, you know, kind of a destination of choice for many sellers, and, we wanna make sure that, we're taking advantage of that.

[Kathryn Thompson, Founding Partner & CEO at Thompson Research Group]

K. Perfect. Appreciate the color on that. My second question is, stepping back and just looking at how APG

[Kathryn Thompson, Founding Partner & CEO at Thompson Research Group]

could

[Kathryn Thompson, Founding Partner & CEO at Thompson Research Group]

potentially win with a reindustrialization of The US market. You know? But when we look at your verticals, we we believe around 45% of your end markets benefit from this broad trend. Could you clarify what are different ways, and even if it's just, you know, a little bit of story time, to be able to say how your how APG's services benefit and support a broad reindustrialization of the North American market? Thanks very much and good luck.

[Russ Becker, President & Chief Executive Officer at APi Group]

Thanks, Catherine. I mean, I'm understanding your question right, you know, you're talking about, you know, the potential, you know, re onshoring, I guess, something

[Russ Becker, President & Chief Executive Officer at APi Group]

know, and

[Russ Becker, President & Chief Executive Officer at APi Group]

especially in the life safety and security space is that a lot of these project related opportunities, you know, are massive. And there's limited firms that have the capability to, you know, to properly execute and manage, you know, some of these larger scale, you know, project opportunities. And there's an there's an opportunity, for companies such as ours to to take advantage of that. I would tell you that, we are viewing a lot of these large larger project related opportunities as just that opportunities. And we want that to be complementary to our business and complementary to our strategy of really building a resilient business model around inspection service and monitoring.

[Russ Becker, President & Chief Executive Officer at APi Group]

So we want our project opportunities to come from the relationships we've built from an inspection service monitoring perspective. And and I would tell you that that's the approach, like, we're taking with the really robust data center market is that, you know, we want to we wanna take advantage of the opportunities that are that are there, but we don't wanna over commit to anyone in market or anyone specific, you know, customer. So that, you know, like, you've seen some of the stuff with Microsoft going through, pulling back a little bit on on a large scale data center project that they they had in Ohio as an example. We didn't have any exposure to that, and that's a positive, you know, positive thing for us. And and so we wanna make sure that we're viewing that as kind of gravy, if you will.

[Russ Becker, President & Chief Executive Officer at APi Group]

And we wanna take advantage of it, but we don't wanna be over committed to it. I hope that was helpful.

[Kathryn Thompson, Founding Partner & CEO at Thompson Research Group]

Yes. It was. Thank you very much.

[Russ Becker, President & Chief Executive Officer at APi Group]

Thanks, Catherine.

[Operator]

Your next question comes from Stephanie Moore with Jefferies. Your line is open.

[Stephanie Moore, SVP - Equity Research at Jefferies]

Hi, good morning. Thank you. It would be helpful if you could maybe talk a little bit about your margin expansion opportunities for the year, kind of remind us what buckets are driving some of the improvement? And at the same time, maybe discuss the sensitivities to you achieving, you know, margin expansion and and what is the what could be a weaker demand environment? Thank you.

[Russ Becker, President & Chief Executive Officer at APi Group]

Well, I think, Catherine, I I made a comment in our prepared remarks, and it really it really doesn't or Catherine. Sorry. I'm sorry, Stephanie. Welcome back, by the way. And, but

[Kathryn Thompson, Founding Partner & CEO at Thompson Research Group]

Thank you.

[Russ Becker, President & Chief Executive Officer at APi Group]

I I made this made these remarks, but, really, it's, you know, continuing to improve the mix of from a revenue mix perspective of inspection service and monitoring, continuing to improve that, doing more of inspection service and monitoring versus project work. I can't I can't ever emphasize enough the importance of discipline, customer, and project selection. This will probably be the last time you hear us talking this in this context, but chub value capture, you know, we have three, you know, really significant integration efforts going on right now. One in Benelux, 1 with our global monitoring centers, and another with, our Canadian business that we need to continue to execute on, which is, you know, which our our teams are doing a fantastic job, I mean, on executing on it, but there's still work to do and that that is beneficial to the long term profitability of the company. Price is a big component of it.

[Russ Becker, President & Chief Executive Officer at APi Group]

And, you know, especially in the with the macro environment that we're in right now, we need to make sure we're staying on top of price. Obviously, procurement and and, you know, taking advantage of our scale is a big component of it. And accretive, you know, m and a, all kind of work into it. And when we talk about just being better, we're talking about really improving the performance of our individual branches, you know, across the breadth of our our portfolio. And, you know, if you if you're able to attend the investor day, you know, you will see a very similar message coming from us as it relates to this, you know, what's next from a margin expansion because we do think it's meaningful where we think we can take the company from, you know, 13% where our target is today to, you know, what's next level.

[Russ Becker, President & Chief Executive Officer at APi Group]

I think you'll you'll see on May 21 that that we think it can significantly improve from from where we are today.

[Stephanie Moore, SVP - Equity Research at Jefferies]

Great. And I appreciate the color and and looking forward to to attending. So just one follow-up on maybe some of the m and a questions that have already been asked, today. Could you talk about, you know, your appetite of maybe doing a larger deal, whether it's a platform deal or even, you know, if something even larger on top of that were to emerge, you know, your willingness or what it would take for you to maybe participate in something a little bit larger here? Again, not talking about necessarily this year or anytime soon, but general appetite.

[Stephanie Moore, SVP - Equity Research at Jefferies]

Thank you.

[Russ Becker, President & Chief Executive Officer at APi Group]

Well, I I guess, how I would respond to that is by starting, I we feel like we did a we've demonstrated our capabilities of doing something bigger, you know, since Chubb. And I think if you go back three years ago when we when we first announced the acquisition of Chubb, there were some some folks that really took a, you know, show me show me that you guys can do it. And I feel like we've demonstrated, you know, that we are capable and and able to execute on a larger scale acquisition. So so I feel like we have the the bandwidth to to do it should the right opportunity come along. And that's where that's where I where what I would emphasize.

[Russ Becker, President & Chief Executive Officer at APi Group]

It needs to be the right opportunity, for us, so that, you know, we we are good operators. We have a lot of really good operators in in this business. And if it's the right opportunity and the right fit, I would say and we and the right valuation, I would say that there would be appetite for that. But it has to it has to fit, and it has to be the right fit for us. And I think, you know, if you, you know, you know, look at the cash generation capabilities of the company, we're gonna have a lot of wherewithal and a lot of strength in our balance sheet to be able to do something bigger if it's the right opportunity and if it's the right fit.

[Operator]

Understood. Thank you.

[Russ Becker, President & Chief Executive Officer at APi Group]

Thank you.

[Operator]

Your next question comes from the line of Steve Cusa with JPMorgan. Your line is open.

[Steve Tusa, Managing Director at JP Morgan]

Hi, good morning.

[David Jackola, EVP & CFO at APi Group]

Hey, Steve.

[Steve Tusa, Managing Director at JP Morgan]

Can you I'm not sure if you guys said this before, but what is your price expectation for the year? I know that's kind of tough with the labor dynamic, but any color there?

[David Jackola, EVP & CFO at APi Group]

Yes. Good question, Steve. We didn't comment on it. I would expect our pricing, absent any significant material cost increase, to be consistent with the pricing that we've been able to deliver in previous years.

[Steve Tusa, Managing Director at JP Morgan]

Okay. And did you guys comment at all on the backlog?

[Russ Becker, President & Chief Executive Officer at APi Group]

I don't think we added anything in our prepared remarks, but I think I commented that, generally, that it's that it's sitting roughly at 3 and a half billion, which is up, I don't know, 5% or something organically.

[Steve Tusa, Managing Director at JP Morgan]

Okay. Great. Congrats on the execution in a kind of uncertain environment here. So congratulations. Thanks.

[Russ Becker, President & Chief Executive Officer at APi Group]

Thanks, Steve. Appreciate it.

[Operator]

Your next question comes from the line of Josh Chan with UBS. Your line is open.

[Josh Chan, Executive Director - Equity Research Analyst at UBS Group]

Hi. Good morning, Russ, David. Thanks for taking my questions. I guess, how are you guys thinking about APIs positioning if we were to go into a recession? I I assume that the inspection safety and service and monitoring piece would be quite safe, but just curious how you're thinking about the the project side of the business.

[Josh Chan, Executive Director - Equity Research Analyst at UBS Group]

Thank you.

[Russ Becker, President & Chief Executive Officer at APi Group]

Well, I mean, I guess, thing I would point you I'd point you to two things. Number one is, like, 70%, plus of our cost structure is variable by nature. So if we do see anything that is alarming, we have the ability to to flex very, very quickly. Second thing I'd point you to is our performance in 2020, you know, right after the company went public and, you know, the pandemic landed. And, you know, we proved that we could flex quickly, and we actually expanded margins in a very, you know, tough environment when people didn't know, you know, what the, what the pandemic was was going to bring.

[Russ Becker, President & Chief Executive Officer at APi Group]

Next, I would say is that if we do run into if there is any sort of a, so to speak, you know, macro event that causes a slowdown, this company generates a ton of cash, you know, during the course of any sort of slow slow slower period, and that's a positive for us. 100%, our inspection service and monitoring business will withstand, you know, any sort of a of a a slowdown. And the other part is is that typically, if there is any sort of a slowdown, your projects business is booked backlog, and it typically, you know, it's gonna take some period of time for you to to work through that. So, like, I have just really good confidence in the resiliency, you know, of our of our business and our ability to take actions should should we need to.

[Josh Chan, Executive Director - Equity Research Analyst at UBS Group]

That's great to hear. I appreciate the color, Russ. And then just a quick question on specialty. I guess if if the business returns to organic growth in q two, does it mean margin can can be at the similar level as last year? Is there any reason why margins could contract if if growth is positive?

[David Jackola, EVP & CFO at APi Group]

Yeah. Hey. Thanks for the question, Josh. Yeah. I you know, here here's how how I'm thinking about specialty as it goes through the the year.

[David Jackola, EVP & CFO at APi Group]

Return to organic revenue growth in the second quarter, margins will begin to expand year over year as we get into the back half, but we still still expect them to be modestly down year over year for the full year and returning to accretive in '26.

[Josh Chan, Executive Director - Equity Research Analyst at UBS Group]

Great. Thanks for the color, and thanks for the time.

[Russ Becker, President & Chief Executive Officer at APi Group]

Thanks, Josh.

[Operator]

Your next question comes from the line of Jack Gauchi with Barclays. Your line is open.

[Jack Cauchi, AVP - Equity Research at Barclays Investment Bank]

Hi, good morning. You've previously mentioned that project pruning should be an ongoing process. Where do you see opportunities for further pruning? And at what point are you satisfied with the portfolio?

[Russ Becker, President & Chief Executive Officer at APi Group]

Well, I would say that I would say, like, as I sit here today, I'm not sitting here worried about whether, you know, we've got some massive pruning left to do with with our customers. I think it's, like you started your remarks, it's just kind of an ongoing it's an ongoing. So I feel like we're there, and we will always continue to focus on making sure that we're that we're working with the right customers on the in the, you know, right type of work that we can, you know, that we can win at. But I feel like we're in a good spot right now as as we sit here today.

[Jack Cauchi, AVP - Equity Research at Barclays Investment Bank]

Helpful. And, so just a follow-up. Gross margins are showing a decent increase. How's API coping so well with wage inflation among its service technicians?

[Russ Becker, President & Chief Executive Officer at APi Group]

Well, I'd say in general, it's because, we have pretty good visibility, into, you know, what wage increases are are gonna be. So, you know, especially on the fire side, you know, in in North America, you know, we're primarily a union firm. And so you have pretty good visibility into, you know, what the union agreements are gonna be. And so it gives you a lot of you know, you've got plenty of runway to build the wage increases, you know, into your into your proposals and into your pricing. So I would say just good visibility and and good discipline by, you know, the individual business leaders.

[Jack Cauchi, AVP - Equity Research at Barclays Investment Bank]

Great. Thank you for the color.

[Operator]

At this point, I would now like to hand the call back over to Russ for the closing remarks.

[Russ Becker, President & Chief Executive Officer at APi Group]

Awesome. Thank you. In closing, I would like to thank all of our team members for their continued support and dedication to our business. We believe our people are the foundation on which everything else is built. Without them, we do not exist.

[Russ Becker, President & Chief Executive Officer at APi Group]

I would also like to thank our long term shareholders as well as those that have recently joined us for for their your support. We appreciate your ownership of API and look forward to updating you on our progress throughout the remainder of the year. And hopefully, we see many of you at our investor conference in New York on May 21. Thank you, everybody.

[Operator]

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

Participants

Executives

• Adam Fee, VP - Investor Relations
• Russ Becker, President & Chief Executive Officer
• David Jackola, EVP & CFO

Analysts

• Andrew Kaplowitz, Managing Director at Citi
• Tim Mulrooney, Group Head–Global Services at William Blair
• Jasper Bibb, Equity Research Associate at Truist Securities
• Andrew Wittmann, Senior Research Analyst at Baird
• Kathryn Thompson, Founding Partner & CEO at Thompson Research Group
• Stephanie Moore, SVP - Equity Research at Jefferies
• Steve Tusa, Managing Director at JP Morgan
• Josh Chan, Executive Director - Equity Research Analyst at UBS Group
• Jack Cauchi, AVP - Equity Research at Barclays Investment Bank