APi Group Q2 2025 Earnings Report

APi Group EPS Results

• Actual EPS: $0.39
• Consensus EPS: $0.37
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $0.49

APi Group Revenue Results

• Actual Revenue: $1.99 billion
• Expected Revenue: $1.88 billion
• Beat/Miss: Beat by +$109.88 million
• YoY Revenue Growth: +15.00%

APi Group Announcement Details

• Quarter: Q2 2025
• Date: 7/31/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, July 31, 2025
• Conference Call Time: 8:30AM ET

APi Group (NYSE:APG) Corp. is a global specialty contractor that provides fire protection, security, mechanical insulation and energy services to commercial, industrial and institutional clients. Headquartered in New Brighton, Minnesota, the company designs, installs, inspects, tests, maintains and repairs a wide range of safety and infrastructure systems. Through its network of operating subsidiaries, APi Group delivers end-to-end solutions for new construction, facility renovations and ongoing maintenance requirements.

Its service portfolio spans life safety and industrial services—such as fire suppression systems, fire alarms and emergency lighting—and specialized offerings including technical insulation, access solutions, passive fire protection and energy efficiency upgrades. These capabilities address the needs of sectors ranging from healthcare, education and government to manufacturing, oil and gas and data centers. APi Group’s integrated approach helps clients meet regulatory compliance standards, improve operational reliability and enhance building performance.

Established in 1999, APi Group completed its initial public offering in October 2014 and has since grown organically and through strategic acquisitions. In 2018, a merger with Ardent Services expanded its footprint in industrial and commercial markets, while subsequent acquisitions extended the company’s presence across North America, Europe and Asia. Today, APi Group operates in more than 30 countries through a diversified set of brands and platforms.

Led by a senior management team with extensive experience in construction and services, APi Group continues to pursue growth through innovation, digital transformation and expanded service offerings. The company’s focus on safety, quality and customer service underpins its strategy to create long-term value for clients, employees and stakeholders.

APi Group Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: API delivered a record second quarter with net revenues up 15% year-over-year, organic growth of 8.3%, and adjusted EBITDA margin expanding by 30 basis points to 13.7%.
• Positive Sentiment: Specialty Services returned to growth with 13.3% organic revenue gains and a record backlog exceeding $4 billion, driven by disciplined project selection and cross‐sell efforts.
• Negative Sentiment: Specialty Services saw adjusted gross margin fall by 350 basis points and segment earnings margin drop 190 basis points, impacted by rising material costs and weather delays.
• Positive Sentiment: M&A momentum accelerated with six acquisitions in Q2 (seven YTD) and plans to deploy approximately $250 million in accretive bolt-on deals, enhancing scale and service capabilities.
• Positive Sentiment: Management raised full-year guidance to $7.65 billion–$7.85 billion in revenues and $1.045 billion–$1.050 billion in adjusted EBITDA, reflecting strong performance and closed M&A contributions.

Presentation

[Operator]

Ladies and gentlemen, and welcome to API Group's Second Quarter twenty twenty five Financial Results Conference Call. All participants are now in a listen only mode until the question and answer session. 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 Fee, Vice President of Investor Relations at API Group. Please go ahead.

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

Thank you. Good morning, everyone, and thank you for joining our second quarter twenty twenty five earnings conference call. Joining me on the call today are Russ Becker, our President and CEO David Jackalaugh, 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, July 31, and we undertake no obligation to update any forward looking statements we may make except as required by law. As a reminder, we have posted a presentation detailing our second quarter financial performance on the Investor Relations page on our website. Our comments today will include non GAAP financial measures and other key operating metrics. A reconciliation of and other information regarding these items can be found in our press release and our presentation.

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

It's now my pleasure to turn the call over to Russ.

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

Thank you, Adam. Good morning, everyone. Thank you for taking the time to join our call this morning. Before we get into our record second quarter results, I wanted to thank our 29,000 leaders for their hard work and dedication to API. The safety, health, and well-being of each of our leaders remains our number one value.

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

When I say safety, I don't just mean job site safety. We owe it to every one of our teammates to create an environment that's safe for them to do their job, not just physically, but also mentally and emotionally. At API, we believe that that culture drives results. We include a slide in our earnings presentation that highlights our culture and our investment in people as human beings, a key ingredient in our progress to becoming a $7,000,000,000 13% adjusted EBITDA margin company in 2025. It also includes two opportunities to learn more about our culture, which is centered on our purpose of building great leaders.

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

I encourage you to take advantage of these if you haven't done so already. I also wanted to spend a minute on one of our foundational beliefs, the care factor. To win and achieve our new long term financial targets, we need to care about and invest in our API key needs as human beings. A couple of months ago, at our Investor Day, we announced the start of the CareFactor Fund, an initiative designed to support API team members and their children in offsetting the expense of unexpected mental health treatment. This is something that is important to both me and our Board of Directors.

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

And I'd like to thank our team members for their generosity in contributing to the Fund. I'm happy to share that we have approved the first grant from the Fund to one of our teammates. This is just one small way we show our teammates that the API family cares during an important time of need. Over the last several years, our team has remained relentlessly focused on our long term 13 sixty-eighty value creation targets we created in 2022. With our 13% or more adjusted EBITDA margin target in our sites for 2025, we are shifting our focus to the new ten-sixteen-sixty plus shareholder value creation framework reintroduced in May at our Investor Day.

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

As a reminder, these targets are the following: $10,000,000,000 plus in net revenues by 2028 supported by consistent mid single digit organic growth 16% plus adjusted EBITDA margin by 2028 sixty percent plus of our revenues from inspection, service and monitoring over the long term and $3,000,000,000 plus of cumulative adjusted free cash flow through 2028. Our leaders rallied behind our $13.6.80 targets to deliver on our commitments, and they have done the same with respect to these new targets. We have clear plans for how we intend to deliver on our $10.16.60 plus targets. Fortunately, we don't need to reinvent the wheel. The main initiatives that enabled us to achieve our 13 sixtyeighty targets will also enable us to hit our new 10 sixteensixty plus targets.

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

These initiatives are pricing, improved inspection service and monitoring revenue mix, disciplined customer and project selection, procurement systems and scale, accretive M and A and selective business pruning. And as I like to say, we can always just be better. We will augment these initiatives with our continued focus on building great leaders and the technology necessary to support our growth. Now turning to our record second quarter results. The business continued to accelerate its momentum, delivering strong top line growth while expanding margins.

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

Some highlights include the following: consistent margin expansion in Safety Services a growing Inspection Service and Monitoring business a return to organic growth in Specialty Services record backlog in both segments and finally, an acceleration of accretive bolt on M and A activity, all of which I will detail shortly. For the quarter, net revenues increased by 15%, up over 8% organically with strong growth across both segments. In our Safety Services segment, revenues grew organically in line with expectations by approximately 6% while delivering 80 basis points of segment earnings margin expansion. Within Safety Services, we delivered strong organic growth across the North American Safety business. Importantly, and in line with our strategic initiatives, the North American safety business achieved double digit inspection growth for the twentieth straight quarter.

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

The international business delivered another solid quarter of organic growth, along with single with high single digit order growth as that business continues to build momentum under API's ownership. As expected, Specialty Services returned to growth in the second quarter delivering 13.3% organic growth as steady increases in backlog dating back to 2024 converted to revenue growth. The momentum across the business is significant with our record backlog eclipsing $4,000,000,000 for the first time in API history. Importantly, the double digit organic growth in backlog includes contributions from our cross sell efforts, focuses on our target end markets and is healthy from a disciplined customer and project selection perspective. Our continued focus on our margin improvement initiatives allowed API to deliver year over year improvements adjusted EBITDA margin in the second quarter with a 30 basis point increase versus last year.

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

Our continued strong free cash flow generation and balance sheet provide us with flexibility to pursue value enhancing capital deployment alternatives. In the second quarter, we accelerated our M and A activity completing six acquisitions including our second elevator business. We have now closed seven acquisitions year to date, and we have several more opportunities under letter of intent. We remain on track to deploy approximately $250,000,000 in accretive bolt on M and A at attractive multiples this year. We also undertook some selective pruning of a small business in our specialty segment that was not accretive to our new ten, sixteen, 60 plus financial targets, which is the lens we'll use to continue to evaluate businesses in both segments going forward.

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

In summary, we moved to the 2025 with great momentum. Our inspection, service and monitoring business continues to expand. Our backlog is at a record high. Our balance sheet remains strong, and we are confident in our leaders' ability to execute our strategy and deliver against our 2025 plan. I would now like to hand the call over to David to discuss our financial results and guidance in more detail.

[David Jackola, EVP & CFO at APi Group]

David? Thanks, Russ, and good morning, everyone. Reported revenues for the three months ended June 30 were $2,000,000,000 a 15% increase compared to $1,730,000,000 in the prior year period. Organic growth of 8.3% was driven by strong project revenue growth, pricing improvements and continued growth in inspection service and monitoring revenues. Adjusted gross margin for the three months ended June 30 was 31.2%, representing a 50 basis point decrease compared to the prior year period driven by mix, partially offset by pricing improvements across the business.

[David Jackola, EVP & CFO at APi Group]

Adjusted EBITDA increased by 17.7 for the three months ended June 30, with adjusted EBITDA margin coming in at 13.7%, representing a 30 basis point increase compared to the prior year period. Growth in adjusted EBITDA was driven by an increase in adjusted gross profit. Adjusted diluted earnings per share for the second quarter was $0.39 representing a $06 increase or 18.2% compared to the prior year period, primarily driven by strong adjusted EBITDA growth. I will now discuss our results in more detail for Safety Services. Safety Services reported revenues for the three months ended June 30 increased by 15.8% to GBP 1,360,000,000.00 compared to 1,180,000,000.00 in the prior year period.

[David Jackola, EVP & CFO at APi Group]

Organic growth of 5.6% was driven by pricing improvements and strong growth in both service and project revenues. Our North America safety business continued its momentum with double digit inspection revenue growth. Adjusted gross margin for the three months ended June 30 was 37.2%, representing a 70 basis point increase compared to the prior year period, driven by disciplined customer and project selection and pricing improvements leading to margin expansion in both service and project revenues. Segment earnings increased by 22.1% for the three months ended June 30, and segment earnings margin was 17%, representing an 80 basis point increase compared to the prior year period, primarily to the increase in adjusted gross margin. I will now discuss our results in more detail for Specialty Services.

[David Jackola, EVP & CFO at APi Group]

Specialty Services reported organic revenues for the three months ended June 30 grew 13.3% to $629,000,000 compared to $555,000,000 in the prior year period, driven by strong project revenue growth. Adjusted gross margin for the three months ended June 30 was 18.1%, representing a three fifty basis point decrease compared to the prior year period driven by increased project starts, rising material costs, and weather. Segment earnings decreased 2.7% for the three months ended June 30, and segment earnings margin was 11.3%, representing a 190 basis point decrease compared to the prior year period, primarily due to the decrease in adjusted gross margins, partially offset by favorable fixed cost absorption. Turning to cash flow. For the first six months of the year, adjusted free cash flow was 186,000,000, reflecting an improvement of 52,000,000 versus the prior year period and an adjusted free cash flow conversion of 40%.

[David Jackola, EVP & CFO at APi Group]

Free cash flow generation has been and continues to be a priority across API, and we are pleased with our strong performance in the first half of the year as the business accelerates revenue growth. During the second quarter, we increased our revolving credit facility from GBP 500,000,000 to GBP $750,000,000 and extended its maturity to 02/1930. At the end of the quarter, our net debt to adjusted EBITDA ratio was approximately 2.2 times. As a reminder, the back half of the calendar year is seasonally stronger from a free cash flow generation perspective. We expect that trend to continue this year, providing us with significant opportunities for continued value enhancing capital deployment, leveraging our strong balance sheet.

[David Jackola, EVP & CFO at APi Group]

I will now discuss our guidance for the third quarter and full year 2025, which as a reminder is based on current foreign currency exchange rates. We expect increased full year net revenues of 7,650,000,000.00 to 7,850,000,000.00, up from 7,400,000,000.0 to $7,600,000,000 representing organic growth in net revenues of 4% to 7% for the year. Moving down to P and L, we expect increased full year adjusted EBITDA of $1,050,000,000 to $1,045,000,000 up from $985,000,000 to $1,035,000,000 representing adjusted EBITDA growth of approximately 15% at the midpoint. Our increased full year revenue and EBITDA guidance is driven by updates to our business outlook, including the impact of closed M and A during the quarter, our second quarter over delivery, and our latest outlook for the rest of the year. Based on most recent rates, the impact of foreign currency is immaterial to our change in guidance.

[David Jackola, EVP & CFO at APi Group]

In terms of the third quarter, we expect reported net revenues of GBP 1,985,000,000.000 to GBP 2,035,000,000.000. This guidance represents reported net revenue growth of approximately 9% to 11% and organic revenue growth of 5% to 7%. We expect Q3 adjusted EBITDA of $270,000,000 to $280,000,000 which represents adjusted EBITDA growth of approximately 9% to 13% on a fixed currency basis. 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 $424,000,000 reflecting the completion of our three for two stock split on June 30.

[David Jackola, EVP & CFO at APi Group]

We continue to expect adjusted corporate expenses to be between $30,000,000 to $35,000,000 per quarter with some timing variability throughout the year. Overall, we are pleased with the team's execution of our strategy in an evolving macroeconomic environment during the second quarter and 2025. I look forward to sharing more updates on our progress throughout the year. I will now turn the call back over to Russ.

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

Thanks, David. We entered the 2025 with continued positive momentum across our global business platform. We continue to accelerate organic growth while expanding adjusted EBITDA margins, growing our recurring inspection service and monitoring business, building on our record backlog and improving our free cash flow generation. We believe our proven operating model built on an inspection service first strategy, purpose driven leadership and a disciplined approach to capital allocation positions API for sustained organic growth, margin expansion and value accretive M and A. We are confident in our leaders' ability to execute our strategy and deliver against our new ten sixteen sixty plus long term financial targets, creating value for all our stakeholders.

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

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. We will now begin the question and answer session. And if you would like to withdraw your question, just simply press the star one again. If you are called upon to ask your question and listening via loudspeaker on your device, please pick up your handset And your first question comes from the line of Tim Marouy of William Blair. Please go ahead.

[Tim Mulrooney, Partner & Group Head - Global Services at William Blair]

Russ, David, good morning.

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

Hey, Tim. How are you?

[Tim Mulrooney, Partner & Group Head - Global Services at William Blair]

Doing well. Thank you. So two quick ones for me. On the second quarter, the revenue in your second quarter was well, it was more than $60,000,000 above the high end of the guidance range that you provided for the second quarter. Just curious what business or businesses outperformed your own internal expectations in the quarter.

[David Jackola, EVP & CFO at APi Group]

Hey, Tim. I'm happy to take that one. So you're breaking down the quarter. I'd say our inspection service and monitoring businesses performed largely as expected. We saw really strong contract and project activity across both of the segments during the second quarter.

[David Jackola, EVP & CFO at APi Group]

And we did see a a little bit of an impact from rising material costs in the pull forward of materials in the quarter that took us over the top end of the range.

[Tim Mulrooney, Partner & Group Head - Global Services at William Blair]

Okay. Yeah. Thanks, David. I'm I'm following up on that. You know, in your specialty business, obviously, revenue looks great, but, you know, the gross margins, 350 basis point decline. How much of that was due to rising material costs. I know you have pricing escalators and other things, but curious how much of that was, you know, maybe project specific or or or specifically on the rising raw material costs. And, do you expect that gross margin pressure in specialty to carry into the back half of the year, particularly if some of these tariffs potentially start to hit on things like copper?

[David Jackola, EVP & CFO at APi Group]

Yeah. Great great question again, Tim. So, you know, when I when we think about our our specialty margins in the second quarter, they were down year over year, really driven by increased project starts. And, you know, at the front end of a project, that that that tends to be more material driven, which is lower margin. And as you work your way through a a quarter, either or a project, you you typically start working your margin up.

[David Jackola, EVP & CFO at APi Group]

Rising material costs and the impact of weather did play a role on our margins in the quarter, and and I don't know if we can quantify, you know, the the precise amount. What I would say about margins on the specialty segment is we do expect them to improve sequentially as we work our way throughout the year.

[Tim Mulrooney, Partner & Group Head - Global Services at William Blair]

Got it. Thanks so much.

[Operator]

Next question comes from the line of Andy Wigman of Baird. Please go ahead.

[Andrew Wittmann, Senior Research Analyst at Baird]

Yes, great. Thank you. I think, David, you addressed this question a little bit in your prepared remarks, but I just want to drill into the guidance a little bit more. I'm looking at the increase here. Obviously, the revenue here in the quarter above expectations, very good.

[Andrew Wittmann, Senior Research Analyst at Baird]

A little bit of incremental M and A helps your guidance as well. So I'm just trying to see if the forward outlook for the base businesses is changed or unchanged. I heard pull forward mentioned in the previous answer to the question. So I just want to get my arms around, have things improved from your outlook for the balance of the year or not on an organic basis?

[David Jackola, EVP & CFO at APi Group]

Hey. Good morning, Andy. Thanks for the question. Know, here are big high level round numbers. You know, you can think of our EBITDA raise as as a third of it driven by our q two two over delivery, maybe a third of it due to M and A in the quarter, and maybe a third of it due to an increase or an improvement in our second half business outlook.

[Andrew Wittmann, Senior Research Analyst at Baird]

Okay. That's helpful. And then just as it relates to, I guess, capital deployment, heard kind of the comments about you've got a number of under LOI, still targeting $250,000,000 You're kind of well over $100,000,000 here, so you're doing you're on track at least. Does it feel like the M and A capital deployment, Russ, has the potential to be maybe above that given where you sit today with what's under contract and heading forward?

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

I would say hey, Andy, good morning, by the way, and welcome back. I would say that the potential is there. You know, I you know, m and a is kinda like no different than disciplined project and customer selection. You know, we need to continue to be disciplined, you know, in the companies and the businesses that, you know, we invite to join the API family. So I would say the pipeline is robust.

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

I would say the potential is there for us to over deliver on the $250,000,000, you know, kind of commitment, if you will. But, you know, in the same breath, we're gonna be really disciplined. And so if it's $2.50, it's $2.50. If it's $2.35, it's $2.35. And if it's $2.90, it's $2.90.

[Andrew Wittmann, Senior Research Analyst at Baird]

Yep. Okay. That's all I have for today. Thank you.

[David Jackola, EVP & CFO at APi Group]

Thanks, Andy. Your

[Operator]

next question comes from the line of Julian Mitchell of Barclays. Please go ahead.

[Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank]

Hi, good morning. I think first off, just wanted to try and understand the Safety business. Are we expecting that kind of 6% organic growth in the back half as well, pretty steady sort of run rate now. And maybe flesh out a little bit more how satisfied you are with your Elevator market share and sort of top line push efforts, please.

[David Jackola, EVP & CFO at APi Group]

Sure. Hey, I'll take the first part, Julien, and maybe I'll hand the second part on elevators over to Russ. So I'd say our look for for the Safety Service segment in the back half of the year is is really consistent with with where we've had it for for the year to date. You know, we continue to target mid to upper single digit revenue growth in the service side of the business, low to mid single digit on the project to get to that mid single digit five to 6% revenue growth in in the back half of the year.

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

And, Julian, just to just to add a little bit of color on on the elevator business. I'll talk about the existing business that we acquired, you know, about this time last year, elevated. That business is really performing as expected. They're showing, you know, kind of mid to upper single digit organic growth. Performance of the business is really as expected.

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

The new acquisition that we just made is really what we're calling a tweener. I know that's just a really, really good use of vocabulary, but it's kind of it's not necessarily a bolt on, but it's not the size of elevated either. But it's a really good company and the positions us in, you know, in the Northeast that we think will be super additive to our business. We have a number of additional opportunities that, you know, we're continuing to do some work on from a bolt on perspective. So we remain super optimistic, but we've got a long ways to go to building, you know, to building out this billion dollar elevator platform that, you know, that we stated that we believe we have the potential to do.

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

So we're just we're just getting going, but I'm really I'm really optimistic and really excited about the direction that we're headed and the opportunities that are in front of us.

[Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank]

That's helpful. Thank you. And then, I just wanted to follow-up, on the acquisition front. And clearly, you've made good progress, already this year. Sorry if I missed it, but would you mind sort of fleshing out the profile sort of in aggregate of the acquisitions that have been announced and or closed in terms of sort of aggregate organic growth rate, any sort of margin profile, how much EBITDA dollars are dialed into the guide now from acquisitions that have closed in the last twelve months or expected to close this year?

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

Well, David can talk about the numbers, but I'll talk to you a little bit about the profile of the deals. Obviously, one of them is an elevator company, and that's kind of because we said that. And then five of the seven are in our North American safety business in the fire and security space. And one of the businesses was a very, very profitable HVAC service business that was a bolt on to one of our existing existing companies. And every one of these acquisitions is accretive. They're either at fleet average or better. So they're all accretive to, you know, really our long term results. Regarding what's included in the guide, I think David already said it was about a third of our increased guidance was through through M and A.

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

I don't know if you have any specific numbers you wanna share.

[David Jackola, EVP & CFO at APi Group]

No. That that about does it over the course of the year from q one to the '4. We expect m and a to contribute north of $200,000,000 of revenue to the business.

[Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank]

Great. Thank you.

[David Jackola, EVP & CFO at APi Group]

Thanks, Julien.

[Operator]

Your next question comes from the line of Sabadha of RBC Capital Markets. Please go ahead.

[David Paige, AVP - Equity Research at RBC Capital Markets]

Hi. Good morning. This is David Page on for Ashish. Thanks for taking my questions. I was wondering if you could give an update on the international business, Chubb, just how that performed in the quarter and how you're looking at it for the rest of the year. Thank you.

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

Well, we, like, super fired up about the business and where that business is performing. You know, it showed organic growth again, you know, in the quarter. I think that business is growing now organically every quarter since we've owned it. We shared a data point in, I think, my prepared remarks about we saw high single digit order growth in the business, which really speaks to the health of their inspection and service business. So we continue to see really good momentum in our international business.

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

And we still have some work to do. They're still optimizing. You know, we have an integration going on in Benelux that's, you know, fairly fairly significant that got great leadership handling. We're still continuing to do some work, you know, in our monitoring centers to optimize those. But, like, business as usual there, and I would tell you that they're doing a great job.

[David Paige, AVP - Equity Research at RBC Capital Markets]

Thank you.

[Operator]

Your next question comes from the line of Jonathan Wonton of CJS Securities. Line is now open.

[Jonathan Tanwanteng, Managing Director at CJS Securities]

Good morning guys. Thank you for taking my questions. Nice quarter and nice to see the progress on the M and A front. I was wondering if you could drill down on the Elevator acquisition that you did. If I recall correctly, Elevator itself had a very high EBITDA margin compared to your corporate average.

[Jonathan Tanwanteng, Managing Director at CJS Securities]

And I'm wondering if the business that you acquired was similar to that or if it was more closer to your corporate average and anything maybe get closer to what elevated does over time.

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

I would say, you know, it's kinda funny because we were joking around about this as we were getting prepped, that it's really, really closer to fleet average. We think obviously, we think that the potential for the business to get to, so to speak, the profile where elevated is, is there. But we feel that way with every actually, every one of our businesses. It's no different than how we we're looking at our life safety and security businesses, you know, where the kind of the new normal for from a branch perspective is 20%, and that's where we're pushing, you know, all of our businesses. So but, you know, at the time of the acquisition, it's it's really on par with the fleet average and with the potential to go and improve.

[Jonathan Tanwanteng, Managing Director at CJS Securities]

Okay. Great. Thank you. And then I noticed that the seven acquisitions you did, I I don't believe any one of them was international. I was wondering if could speak to the opportunity there, the opportunity set that you're seeing if any of the LOIs that that you've been, that you mentioned previously are the international space and what we can expect there going forward.

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

So we do have one small business under LOI in our international business as we sit here, and our team is doing diligence on that company as we speak. So there is no question that we've opened the aperture up to the international business. I would say that it's on a country by country basis, just like it is for us, you know, in North America on a company by company basis. On the you know, in the international business, the country has to be able to kind of accept and integrate that business. And not every one of our of our businesses, you know, internationally is progressed to the point where we feel like they're ready for a bolt on, but a number of them are.

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

And and we're certainly doing work and looking at a number of opportunities. But we do have one small business under LOI in the international business.

[Jonathan Tanwanteng, Managing Director at CJS Securities]

Got it. Thanks, Ross.

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

Thank you.

[Operator]

Next question comes from the line of Jasper Bee of Tru Securities. Please go ahead.

[Jasper Bibb, VP - Equity Research at Truist Securities]

Hey, good morning everyone. I wanted to ask a two parter about specialty projects. Just hoping you could provide a bit more detail on the new business pipeline there and then also how your project selection initiatives might impact the margins for that business once you get through the ramp up phase you talked about on some of these new wins.

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

Well, I would say that the new pipeline, you know, backlog is really, really solid. I mean, you know, we don't we we in our prepared remarks, we stated that our backlog eclipsed 4,000,000,000 for the first time, and that's, you know, really kinda distributed across all aspects of our business. And I would say all aspects of our business are, you know, at record levels. So it looks very, very good, and it's and very, very healthy. So we feel good about where we're at.

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

David mentioned that we expect to see sequential growth in gross margins as we work our way through the back half of the year, and that's the expectation that we have on the business, and we think that the margins in our backlog are strong.

[Jasper Bibb, VP - Equity Research at Truist Securities]

Got it. And then specialty really surprised this quarter, but I guess wondering how we should think about the composition of segment organic revenue growth and margins in your third quarter outlook?

[David Jackola, EVP & CFO at APi Group]

Yeah.

[David Jackola, EVP & CFO at APi Group]

I can I can give you some color on that, Jesper? So I expect in the third quarter, I think we asked to answer your question earlier on on the safety business, mid single digit organic revenue growth in the third quarter there. I expect high single digit organic revenue growth in the specialty business in the third quarter.

[Jasper Bibb, VP - Equity Research at Truist Securities]

Okay. Got it. Thank you for taking the questions.

[Operator]

Your next question comes from the line of Andy Kaplowitz of Citi.

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

Andy, are you going to ask us seven questions in one question?

[Andrew Kaplowitz, Managing Director at Citi]

I'll try not to, Russ. I just wanted to ask you about specialty in one sense. You've been focused on sort of higher margin projects, sort of getting rid of the loss leading projects. How would you sort of assess that progress here? Like is any of that impacting the quarter?

[Andrew Kaplowitz, Managing Director at Citi]

Or is it more just as you talked about sort of materials and mix?

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

Yes. I mean, Andy, as you know, business isn't linear, and not everything necessarily flushes itself out in a perfectly straight line. And if you look at, like, our Q2 of last year, we had a number of projects coming to completion, and you typically have gross margin improvement as your projects finish. And we have, so to speak, more project starts going on right now, and typically, that's at a lower gross margin. And so and then you factor in, you have a little bit of cost inflation.

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

We have some weather impacts and all that stuff to kind of put us where we are sitting in in this quarter. And, we think it'll only get better as we work our way through the through the second half of the year.

[Andrew Kaplowitz, Managing Director at Citi]

Appreciate that, Russ. And then, obviously, you know, nonres markets have been kinda all over the place, but your safety business is doing really well. Maybe just talk about sort of what you're seeing out there. Inspection and service, can it continue to grow double digits for the foreseeable future?

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

Well, we we we are really, I guess, pleased with the way our you know, again, our bellwether always is, you know, inspection growth. And, you know, we stated that inspections grew for the twentieth straight quarter at a double digit clip. So we don't see really any let off in that, and that's been really positive, and that's leading to good strong organic growth in in our in our service business. That's primarily in North America. And what we're seeing internationally with, you know, high single digit order growth is, I guess, really sending us a message that the sales transformation that has been initiated by our leadership there is really, you know, taking hold and taking shape.

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

So that's all really focused on the service side of our business in, you know, in safety, and that's really positive. And that gives us good good comfort in direction that we're going. Then you layer in, you know, really the strong project opportunities in the end markets that, you know, we pursue, and that's just a really good combination, and that's what we're seeing. And, you know, data centers, semiconductors, advanced manufacturing, you know, all are really providing robust opportunities for us, and we're just trying to make sure that we're being smart so that we can, you know, get the gross margins on the work that we that we really need to get for that work to be beneficial to, you know, to the company and to ultimately to our shareholders. So there's a lot of opportunity out there and proposal activity, you know, even with all the noise around tariffs still, the proposal activity is very, very robust.

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

And we're just trying to be smart about what work we take and what work we pursue.

[Andrew Kaplowitz, Managing Director at Citi]

Very helpful. Thanks, Seth.

[David Jackola, EVP & CFO at APi Group]

Thank you, Mandy.

[Operator]

Your next question comes from the line of Thomas Sanna of JPMorgan. Please go ahead.

[Tomohiko Sano, Managing Director at JP Morgan]

Hi, good morning everyone. Thank you for taking my question. My first question is, the North America inspection revenues have another twenty consecutive quarters double digit growth. And wanted to get more color on the pricing improvements as well as the your inspection for strategies including technology standpoints, like AI field productivity tools. How you see the improvement of the margins of the in addition to the volume side of this business, please?

[David Jackola, EVP & CFO at APi Group]

Yeah. So so I'm I'm happy to take it and and process any commentary at the end. So we continue to be able to capture low to mid single digit pricing in our inspection service and monitoring revenue streams. And and, you know, your question then on margin and the impact of AI and digital on on margins going forward, I I would say, you know, our expectation on all of our revenue streams is that we're gonna continue to be able to expand margin into '26, '27, and '28 as we pursue our ten, sixteen, 60 strategic goals, and the technology and the use of technology will be a part of that.

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

Yeah. And what I and what I would say, Tomo, is that I think actually the the technology and AI and all that stuff that comes together is probably gonna be more of providing leverage from an s g and a perspective and making us more efficient. And, you know, when you when you think about, you know, the labor market that's out there, you know, we need to you know our efforts around artificial intelligence and technology need to enable us to continue to scale our business because we're gonna have less people to be able to do the work. And so that's really where the focus is. But we're we have a team that is focused, you know, basically on AI on an international basis.

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

And, you know, the the reality of it is is just like most every other company, we're probably in the bottom of the first inning in our in our efforts there. But, you know, we actually are source resourcing and have a kind of an AI task force for lack of better words.

[Tomohiko Sano, Managing Director at JP Morgan]

Thank you. And just one follow-up on innovation side, international business and safety services. Could you talk about leveraging digital with two visions? How actually you see a customer reaction there? And could you talk about the how you're excited about the disc in terms of the the volumes and margin in international business, please?

[David Jackola, EVP & CFO at APi Group]

Tomo, could you repeat your question, please?

[Tomohiko Sano, Managing Director at JP Morgan]

Yes. So I would like to get more color on digital strategies in international business, especially should the visions that you showcased at the IL day. If you see any the customer feedback, in the second quarters and some expectation in the second half, please.

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

Well, I mean, the work with Chubb, you know, Chubb Vision and stuff is really just in its infancy as well and just really getting cranked up. I mean, we see a lot of opportunity with the work that that team is doing. I mean, I think there's there's a lot of really good stuff happening there, but I think we're too early to, you know, like, declare victory or anything like that, Tomo. I think there's tremendous amount of opportunity. I would tell you that in in a lot of ways, our international business is further along, you know, in in that journey.

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

You know, our our leader there, Andrew White, is a bit techy himself, And and I think he, you know, he has, you know, a really broad vision for where that can go, and that's something that we're working on making sure that we can take across the the entire breadth of our portfolio, not just, you know, in the international business, but I'd say it's it's too early to declare victory. I don't know, David. You worked there for you know, so do you have any other color?

[David Jackola, EVP & CFO at APi Group]

No. I mean, the the only thing I it's too early to declare victory, but it's an incredible opportunity. I mean, in our international business, we've got 50,000,000, connected devices. And and the more that we can use technology to serve our customers, the better our business will be.

[Tomohiko Sano, Managing Director at JP Morgan]

Thank you for the color. Looking forward to it. Thank you very much.

[Operator]

Your next question comes from the line of Kathryn Thompson of Thompson Research Group. Please go ahead.

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

Hi. Thank you for taking my question today. Just one observation. Despite all the gloomy headlines, I think it's worth noting that a third of your EBITDA growth is from an improved outlook. So it's definitely separating from a few other companies.

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

The question to you, when you when you look at if I just wanna pull the string a little bit more on how API wins, with AI. You know, you you look at companies like Meta had their guidance for 66 to $72,000,000,000, for this year, and they're they're raising and they're looking at, reaching a 100,000,000,000 next year. And you've you've touched briefly on a few air like, on how API can win. But could you give a few examples in terms of either how you win with new projects or with the ongoing maintenance and and operation of the AI, behemoth network? Thanks very much.

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

Well, when when you're doing the inspection and service work, you know, at whether it's Meta or Microsoft or whoever, but when you're doing the inspection service work at at those facilities and they come along and expand at that existing site, you know, the opportunity for you to to win that expansion, the business associated with that expansion rises, you know, dramatically because of the relationships you have and, you know, the client is, you know, interested in consistency and service and follow through and all of that other stuff. Then when you have other larger opportunities that are, say, more greenfield sites like, say, Meta's 10 x site, you know, in in Louisiana, then then it's really relationship based and your ability to man work in some of these remote locations. And that's, I think, something that we have really a depth skill set and have the capacity and the workforce that that we can bring to bear on those types of project opportunities. And those those opportunities, you know, the selection criteria is usually around your ability to work safely, your ability to to provide, you know, the right, you know, high quality, you know, skilled lead field leaders to actually execute the work, your ability to get the work done on time, I mean, because they're very aggressive schedules.

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

And so there's all these other gates and price is a very small factor that that comes into to the to the equation. I'd also say on the on the fire, life safety, and security side of it, there's only a handful of firms that have the capacity and the skills to tackle projects of both that magnitude. And that's, you know, an element of complexity that's a positive for for a firm like ours. And so but in the same breath, we still have to be selective and be smart about, you know, which projects we pursue so that we don't overextend ourselves and, therefore, you know, don't deliver on the commitments that we make to go to that customer. So I don't know. Does that make sense, Catherine?

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

Yeah. Yeah. No. And and so but it it sounds to me that you can win business both at the the build out, but then on an ongoing basis with ongoing people services that you would do for any complex commercial building and and structure. Is that correct? Am I am I hearing you correctly on that?

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

That's correct. And the more complex the opportunity, the better off we're gonna be. We don't wanna find ourselves in positions for, say, project related work where, let's just say we're not doing the inspection and service work for that customer, we don't wanna be in a position where we're just competing on price. Like, that's just not our model. We don't do well when we just compete on price.

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

And if it's just that that's what it is, if somebody's gonna and especially in today's world, somebody's just gonna treat it as an auction, if you will, we're just we're not gonna do well in in that environment. So it's like, why didn't why didn't waste your time pursuing it? And that's why we have, you know, a fairly robust go, no go kind of checklist that we put our businesses through because we want them to actually, you know, think about should I even pursue this? And in the reality of this, if it's just gonna be a price driven decision, they shouldn't.

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

Yep. Excellent. Thanks so much, and best of luck going forward.

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

Thanks, Catherine.

[Operator]

Your next question comes from the line of Josh Chan of UBS. Please go ahead.

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

Hey. Good morning, Russ, David. Just two quick ones for me. So on the guidance raise that was for the rest of the year, I guess, the one third of the guidance raise, what got better? Was it primarily the specialty side of things?

[David Jackola, EVP & CFO at APi Group]

Josh, I I think I I attribute that to the to the really strong backlog that we were able to to to generate during the quarter, and and the the the strong margin and strength of the backlog gave us comfort in the back half of the year.

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

Okay. Great. Thank you. And then on the backlog margin, it sounds like you're pleased with the backlog margin. I guess when it comes to realizing that backlog margin over time, obviously, you can control your own execution.

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

But can you talk about other factors that you have to think about as that converts, things that may or may not be outside your control and what you could do to kind of ring fence those?

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

Well, obviously, Josh, the material cost escalation is something as prices go up, whether it's because of tariffs or inflation or whatnot or combinations thereof, that's out of our control, but it's in our control. I mean, like, we have been talking very openly since president Trump won the election that he's gonna use tariffs as, you know, a lever for him to, you know, level the playing field from the trade perspective. And so you knew that it was coming, And so we've been working hard to protect ourselves, you know, during the time of our proposals. I'm sure we're not perfect. And and I'm sure there's some gaps and and some places where, you know, we we we didn't do as well as we should.

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

That would be one area. Weather is this, you know, could be a significant, you know, issue and challenge for us because, obviously when you have poor weather conditions, you're not going to be as efficient with the deployment of your field leaders. And so that's another area that could be challenging. So those would probably be the primary two, you know, contributors. Obviously, we have to execute.

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

That's an aspect of it. Availability of labor and and things like that is could be a challenge as well. But the reality is, know, everybody's knowing that there's gonna be, you know, work you know, availability of labor issues and challenges and shortages. And so, you know, as you are making decisions to take on, you know whether it's, you know, master service agreements or other project related opportunities, you know, you should be factoring that into into the equation, and that really should not be an excuse.

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

Great. Thank you for the color, David and Russ, and congrats on quarter.

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

Thanks, Josh. And

[Operator]

we have one more question from Stephanie Moore of Jefferies. Please go ahead.

[Stephanie Moore, SVP - Equity Research at Jefferies]

Hi. Good morning. Thanks, everybody.

[David Jackola, EVP & CFO at APi Group]

Good afternoon.

[Stephanie Moore, SVP - Equity Research at Jefferies]

Maybe just to I wanna go back to the the margin performance in the quarter. It was very good, you know, across both segments, obviously, you've seen or for consolidated level. But if we look at both segments, I was hoping that maybe you could talk a little bit about the puts and takes of the margin performance. I know at your Analyst Day, you walked through several levers to achieve, you know, ultimately, your 16% plus target, you know, pricing, project selection, and the like. So maybe if you could just talk about, you know, the underlying puts and takes and your path to achieve some of those to achieve that target and the levers to get there. Thank you.

[David Jackola, EVP & CFO at APi Group]

Yes. Happy to give you a little bit of color there, Stephanie. Know, puts and takes are on margin in the quarter. So our margin performance on inspection service and monitoring was strong, continues to be we're able to get margin accretive price in that price part of the business. We were able to get good leverage out of our fixed cost base during the quarter, partially due to the strong organic revenue growth.

[David Jackola, EVP & CFO at APi Group]

So that was a positive. We talked a little bit about rising material costs, and and we've we've talked a lot over the last couple of quarters about how our business is able to protect itself at the time of proposal and being able to capture the dollar value of rising material costs, and and and we believe the business did a good job of doing that during the quarter. But that did have a little bit of of margin erosion during the quarter. So I think, you know, when you talk about the service mix, you talk about disciplined project and customer selection, getting leverage, We're seeing progress in all of those areas in our path to 13 and now 16% adjusted EBITDA margin.

[Stephanie Moore, SVP - Equity Research at Jefferies]

Great. Very helpful. And then just one quick follow-up. Can there any chance you can give a bit of an update on the systems investment that you called out at the Analyst Day, how it's progressing thus far, and anything you can you can call out on that? Thank you.

[David Jackola, EVP & CFO at APi Group]

Yeah. Absolutely. You know, I'm sure I'm sure you saw in in the release that the spend on the system and business enablement in the quarter. You know, what I'd say is is those are are difficult, challenging, business led projects, but the team is performing and executing well. And I've been particularly impressed with the way that that team is is working closely to make sure that the voices of our branch company and field leaders is heard each and every step along the way.

[David Jackola, EVP & CFO at APi Group]

So so really good progress on that. The team is committed. They're executing well, and we feel good about where that work is.

[Stephanie Moore, SVP - Equity Research at Jefferies]

Got it. Thank you. Appreciate it.

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

Thanks, Stephanie.

[Operator]

And that concludes our Q and A session. I will now turn the conference back over to Ross Petter, our President and CEO, for closing remarks.

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

Thank you. In closing, I would like to thank all our team members for their continued support and dedication to our business. I'm truly grateful for what each and every one of you do on a daily basis. Would also like to thank our long term shareholders as well as those that have recently joined us for their support. We appreciate your ownership of API and look forward to updating you on our progress throughout the remainder of the year. Thank you, everybody.

[Operator]

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

Participants

Executives

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

Analysts

• Tim Mulrooney, Partner & Group Head - Global Services at William Blair
• Andrew Wittmann, Senior Research Analyst at Baird
• Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank
• David Paige, AVP - Equity Research at RBC Capital Markets
• Jonathan Tanwanteng, Managing Director at CJS Securities
• Jasper Bibb, VP - Equity Research at Truist Securities
• Andrew Kaplowitz, Managing Director at Citi
• Tomohiko Sano, Managing Director at JP Morgan
• Kathryn Thompson, Founding Partner & CEO at Thompson Research Group
• Josh Chan, Executive Director & Equity Research Analyst at UBS Group
• Stephanie Moore, SVP - Equity Research at Jefferies