Q4 2022 APi Group Corp Earnings Call
Speaker 1: The.
Speaker 2: Please stand by. Your program is about to begin. If you need assistance on today's conference, please press star zero. Good morning, ladies and gentlemen, and welcome to the API Group's fourth quarter 2022 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'll be standing by should you need any assistance. I'll now turn the call over to Olivia Walton.
Speaker 3: Vice President of Investor Relations at API Group. Please go ahead. Thank you. Good morning, everyone. And thank you for joining our fourth quarter, 2022 earnings conference call. Joining me on the call today are Russ Becker, our President and CEO , Kevin Crum, our Executive Vice President and Chief Financial Officer, and Sir Martin Franklin and Jim Lilly, 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 applied by such forward-looking statements. In our press release and filings with the FB team, we detail material risks that may cause our future results to differ from our expectations. Our statements are out of today.
Speaker 4: February 28th and we have no obligation to update any forward looking statement we may make. As a reminder, we have posted a presentation detailing our fourth quarter financial performance on the investor relations page of our website. Our comments today will also include non-gavel financial measures and other key operating metrics. The reconciliation of and other information regarding these items can be found in our press release and on our presentation. It is now my pleasure to turn the call over to Martin. Thank you Olivia and good morning everyone. 2022 was another incredible year in the development of API. Following the acquisition of Chubb in January of 2022, we became the world-leading, life-safety and security services provider. We created a business that is focused on statutory and new mandated services that benefits from recurring revenue with 26,000 team members operating in over 20 countries. API has a truly global platform for our customers and is well positioned to continue growth and margin expansion, providing fully integrated seamless service to multinational corporations on a worldwide basis. 2022 months a year of record net revenues, record a adjusted EBITDA and record adjusted deluded earnings per share. We are pleased with the execution and leadership across API to build on our already solid foundation for a very bright future. As many of you know, we held an investor event on November 17th to provide a thorough walkthrough.
Speaker 4: of CHUB as well as our continued path of de-leveraging swiftly to our targeted range of two to 2.5 times met that to adjust in the bidar. And our continued focus on thoughtful incremental M&A. We believe we are well positioned for continued organic growth and margin expansion and that we have the appropriate strategy and action plans in place to achieve our target 2020-25 levels with a healthy runway for continued growth beyond 2025. With that, I will hand the call as it's a rough thank you. Thank you Martin and good morning everyone. Thank you for taking the time to join our call this morning. Before we provide you with a summary of our record results for 2022 in solid outlook for 2023, I would like to start by thanking those of you that joined us for our investor update event in November and last week in Miami at the Parkways and City Council. We have a clear understanding of the strategy we have to make the most of the opportunities in front of us and achieve our goals as we continue to focus on shareholder value creation. As you have heard me say on prior calls, the safety, health and well-being of each of our team members remains our number one priority. We remain grateful for their hard work and effort. This focus and other foundational priorities provide the platform from which we can continue to enhance shareholder value. 2022 was a year of record financial results for API. We delivered strong organic growth, adjusted EPS and free cash flow growth and a challenging macro environment. We believe this once again demonstrates the stability of our recurring revenue services focus business model and the ongoing execution of our strategy and our talented team members. Key specific highlights for the year and the December 31, 2022 include the following.
Speaker 4: First, net revenues increase on an organic basis by 12.2%, driven by a double digit increase in inspection, service, and monitoring revenue in our legacy business. We achieved our goal of growing inspection revenue 10% plus and continued to drive towards our goal of 60% plus of total net revenues coming from inspection, service, and monitoring. As a reminder, on average, inspection and service revenue generates approximately 10% higher gross margins than contract revenue. And monitoring revenue generates approximately 20% higher gross margin than contract revenue. Second, adjusted gross margin grew by 288 basis points to 26.8%. We are pleased that the execution and leadership across our businesses to offset margin revenue pressures through pricing activities, focus growth and inspection, service, and monitoring, strong spin controls, procurement initiatives, and discipline project and customer selection. Third, adjusted deluded earnings for share increased by 29.1% or 30 cents, driven by strong operational performance and accretion from the acquisition of CHOP. Fourth, adjusted pre-cashable of 412 million. Representing an 84.8% increase compared to the prior year period. In summary, the business continues to perform well and delivers on its commitments, driven by strong organic growth and solid operational performance, as well as our ability to mitigate margin pressures that exist on a macro basis. CHOP continues to perform in line with our expectations. We've had more positive than negative surprises. And most importantly, what we have found is only reinforced our excitement about the acquisition. Compared to a five-year keg of 0% before our ownership, CHOP delivered solid organic growth in 2022 despite COVID-19 supply change disruptions, inflation, and a difficult macro environment. As planned, we completed the work of transitioning CHOP funds. We completed the work of transitioning CHOP from services provided by its prior owner by year end 2022. This involved a tremendous amount of work and significant process improvements.
Speaker 4: and we are grateful for the hard work across our teams. The integration is occurring swiftly. Savings are significant again, and we continue to be energized by the opportunities in front of us as the world's leading life safety and security services provider. As outlined at our investor update in November , we see a clear path to a 2025 run rate value capture opportunities of at least $100 million. Our enhanced platform is already driving wallet-shared gains with overlap customers, and we are excited about the opportunities to expand cross-selling of services offers. As we look ahead, we are focused on continuing our efforts to build a global, incordinated inspection sales force to drive our go-to-market strategy of selling inspection work first, which we believe will lead to further service revenue growth and ultimately drive margin expansion. We entered 2023 with positive momentum on many fronts. Our backlog remains strong and was approximately 9% as of December 2022 compared to the end of December 2021. We remain focused on being disciplined on project and customer selection, and we'll continue to focus our efforts on growing the a-ficical recurring service revenue aspects of our portfolio rather than growing for the safe growth in risky profits. We are now at the end of the bill. While some parts of the world are in a recession, and others may enter a recession, we believe that the statutory driven demand for our services and the diversity of the end markets we serve provide predictable, recurring revenue opportunities and help to build a protective moat around the business.
Speaker 4: As part of our annual budgeting process, each of our operating companies presents a long-term strategic plan. In addition, we challenge each of our operating companies to prepare a downturn plan that addresses any potential challenges unique to their market and operations. We are confident that our business leaders are prepared, not only on paper through our downturn plans, but also to take definitive and early action as needed. Whatever the challenge, we intend to build on our successes over the last three years to achieve the goals we have set for ourselves over the next three years. We are confident in the resiliency, growth prospects, and strong free cash flow generation of our business and remain focused on capitalizing on opportunities in front of us while maintaining a conservative balance sheet in liquidity profile. Our balance sheet is strong, which provides us the flexibility to pursue attractive capital allocation, including emanating. We believe that the markets in which we operate are highly fragmented, and we are keeping a close eye on the opportunity set. We have an extensive pipeline of potential full-time opportunities for life-saving and security service services businesses. I would now like to hand the call over to Kevin to discuss our financial results in outlook in more detail. Kevin? Thanks for us. Morning everyone. I'll begin my remarks by reviewing our consolidated results and segment-level operating performance for the fourth and quarter and full year before turning to our outlook.
Speaker 4: reported net revenues for the three months ended December 31, 2020 increase, sorry, 2022 increased by 53.1% to 1.7 billion compared to 1.1 billion in the prior year period. So it's driven by revenue from acquisitions completed in safety services. Net revenues increased on an organic basis by approximately 6% driven by strong organic growth in safety services. Consistent with prior quarters, approximately two thirds of this growth was driven by price and pass through a material and labor cost and one third was driven by volume, which we measured through labor hours. For the year ended December 31, 2020, December 31, 2020, ? 30 with 238 affected by prior23.0, the second day with streamline rates of high poverty and credit by aesthetic trades for scratch. So, I think the third buck to 100, which we're also looking at around 40 to 65 billion despicable groups. The third year, 2021, 2022 was 27.8 representing a 319 basis point increase compared to the prior year period driven by acquisitions and safety services in an improved mix of inspection service and monitoring revenue. For the year ended December 31, 2022, adjusted gross margin was 26.0.0.
Speaker 4: The 1.2 billion compared to 569 million in the prior year period. Driven by revenue from completed acquisitions and strong organic growth. Net revenues increased on an organic basis by 18.1% compared to the prior year period driven by a double-digit increase in inspection service and monitoring revenue. The 1.2 billion compared to the prior year period driven by a double-digit increase in inspection service and monitoring revenue.
Speaker 4: For the year ended December 31, 2022, safety services reported net revenues increased by 120 percent to 4.6 billion compared to 2.1 billion in the prior year period, and net revenues increased on a organic basis by 17.1 percent driven by reasons provided in review of the fourth quarter. Adjusted gross margins for the three months ended December 31, 2022 was 32.4 percent representing a 146 percent increase compared to prior year.
Speaker 4: the impact of completed acquisitions. Adjust the EBITDA margin for the three months ended December 31, 2022 was 13.2 percent compared to prior year adjusted EBITDA margin of 13.5 percent, primarily driven primarily by SGA and AIMIX impacts from completed acquisitions.
Speaker 4: For the year ended December 31, 2022, a just-a-dbta margin was 12.2 percent compared to prior year of just-a-dbta margin of 14 percent driven by FDA-NAMICs impacts from completed acquisitions and the reasons provided in review of gross margins. I will now discuss our results in more detail for specialty services segment. Specialty Services reported net revenues for the three months ended December 31, 2022, decline by 8.9 percent to 510 million compared to 560 million in the prior year period driven by time-in-a-projects at or specialty contracting businesses and a robust sales performance in Q4 2021.
Speaker 4: For the year ended December 31, 2022, specialty services reported net revenues increased by 6.4% to 2 billion compared to 1.9 billion in the prior year period. Driven by an increase in service revenue, increased demand at our infrastructure, utility, and fabrication businesses, and improved capture of inflationary driven price and cost pass through. Adjust the gross margin for the three months ended December 31, 2022 with 16.7% representing an 83 basis point decline compared to the prior year, primarily driven by margin declines, which arose due to inflationary cost pressures and productivity constraints on select jobs. This was offset by an improved mix of service revenue and improved productivity. For the year ended December 31, 2022, adjusted gross margin with 16.2%.
Speaker 4: representing a 100 basis point increase compared to the prior year driven by improved productivity and improved mix of service revenue. These factors were offset by inflation and supply chain disruptions which caused the annual pressure on margins. Adjusted EBITDA margin for the three months in the December 31, 2022 was 10.4 percent representing a 139 basis point client compared to the prior year due to the reasons provided in the review of gross margins. For the year in the December 31, 2022, adjusted EBITDA margin was 10.3 percent representing a 12 basis point increase compared to prior year due to the leverage on higher volumes. Turning cash flow as expected and consistent with historical trends, we saw strong sequential free cash flow performance in Q for relative to Q3 for the three months ended December 31st
Speaker 4: 2022, adjusted free cash flow was 230 million. Above our previously gated range of 190 to 210 and representing an 84 million increase compared to the prior year period. This increase was driven by the positive contributions from acquisitions continued focus on working capital discipline and strong EBITDA growth in our legacy businesses. For the year end of December 31, 2022, adjusted free cash flow was 412 million and our adjusted free cash flow conversion was approximately 61%. As of December 31, 2022, our net debt to adjusted EBITDA ratio was 3.1 times and the weighted average maturity of our debt was over 5 years with the earliest maturity in 2026. As part of our 2023 leveraging plan, we paid down 200 million of long-term debt in January this year. We remain laser focused on cash generation and leveraging that approximately one turn annually as we move towards our stated long-term part of two to two and a half times.
Speaker 4: For 2023, adjusted EBITDA, we expect to deliver 735 to 775 million on strong margin expansion. We remain confident in achieving our goal of 13% plus adjusted EBITDA margin by 2025 to an improved mix of inspection, service, and monitoring revenue.
Speaker 4: curman savings, value capture opportunities, and leverage in our global scale. We expect Q1, adjusted event D8 to be 135 to 145 million, which represents organic growth of 8 to 16 percent on a constant currency basis.
Speaker 4: We estimate that we will recognize between 55 to 65 million of restructuring costs related to the Chubb Restructuring Program in 2023. Not only will these restructuring actions help for bottom line, but they will also significantly reduce organization and complexity, making it easier for the team to service customers and focus on driving organic growth and mix. Depending on how interest rates move through the year, we anticipate interest expense to be approximately 150 million for 2023 and between 35 to 40 million for Q1. We expect depreciation for 2023 to be approximately 85 million in capital expenditures to be approximately 95 million.
Speaker 4: Our adjusted effective tax rate remains approximately 24% and we expect our adjusted diluted weighted average share count for 2023 to be approximately 273 million. We expect to arrive at an adjusted free cash flow conversion for 2023 at our above 65%. For Q1, we expect adjusted free cash flow conversion to be flat, which is consistent with prior years and in line with the seasonality of our cash flows. I'll now turn the call over to Jim. Thanks Kevin. Good morning everybody. API has continued strong performance in the fourth quarter was the culmination of what was another outstanding year for API in 2022. The double digit growth in organic net revenues combined with the acquisition and continued integration of Chubb, the development of a robust multi-year improvement plan for that business and the company's ability to offset macro headwinds allowed API to again produce record earnings and generate substantial free cash flow. As reflected in the guidance we gave last week for 2023.
Speaker 5: We have strong momentum balanced across our global platform. Our leaders continue to build on historically strong execution, continue to mitigate macro challenges, and are staying focused on operational excellence. You have heard all of us, we have great confidence in the business and the direction we're heading. We will continue to remain agile, focused, and adaptive as needed to create sustainable shareholder value by focusing on long-term value creation targets. These include solid organic growth, targeted adjusted free cash flow conversion of 80%, adjusted EBITDA margins of 13% by 2025, and targeted net leverage ratio of 2 to 2.5 times, which as Kevin mentioned, we expect to achieve near year end 2023, supplemented by our recent $200 million reduction in term loan debt. Everyone is excited about the opportunities in the year ahead and our ability to execute on our strategic plan. I'd now like to turn the call back over to Russ and the operator for Q&A.
Speaker 2: At this time, if you would like to ask, at this time, if you would like to ask a question, please press star one on your telephone keypad, that is star one on your telephone keypad. To withdraw yourself from the queue, you may press star two. We'll take a question from Catherine Thompson of Thompson Research Group. Hi, thank you for taking my question today. Just in terms of your outlook, if you could get a little bit more coloring, what pricing is looking like for 2023, given services won't have an obvious material inflation backdrop. And also, you're just seeing some rationalization and certain categories of pricing.
Speaker 4: across the value chain, be whether it's raw materials, or in some cases labor. Really being able to give a little bit more detail of that to their square, for price, and a third from volume or labor hours. Thank you. Morning, Katherine. Thanks for taking the time to join our call this morning. Well, there's quite a bit there in your question. I would start by saying that I feel like the business has done a very good job of taking price through a very difficult inflationary period. We feel that the price that we've been able to take thus far is sticky and insustainable in the business as we march forward into 2023. We're still seeing inflation in the business. I mean, in past calls, we've talked about how we really watch hot-rolled coil.
Speaker 4: closely just because we buy so much pipe and you know we've seen we saw dramatic you know decrease in pricing you know over the say the latter half of 2022 but over the course of the last three months we've seen pipe prices you know tick up again and so we continue to monitor that and we continue to focus you know our businesses on taking price where on taking prices appropriate yet we want to you know make sure that we're fair with our with our customers but we want to make sure we're we continue to take price especially in North America when you think about our labor force being primarily union and there's a number of we feel there's a number of advantages for us to be union one of them is stability and visibility into our labor cost typically are union agreements from the wage escalation perspective reset in such a small short sort of attorney a call tojas home on that like of the
Speaker 6: Great, thanks. And just one follow-up question. Given as the year closed, just a general greater conservatism given concerns about recession and understanding that you are, your business model is.
Speaker 2: Maybe perhaps not recession proof, but recession system, but still in the fringes there could be some indicators of sign of companies changing their behavior in terms of concerns around the economy. What if any changes have you seen behavior wise and any of your businesses that would give any type of indication that there's a more conservative stance given the economic impact on that drop? Thanks very much. Well, I mean, I would tell you that right now, we haven't seen that in our business and that's demonstrated by the strong backlog that we carry into 2023, as well as what we see in the pipeline from an opportunity perspective. I would say tell you that we're naturally a, what I would call a productively paranoid business.
Speaker 4: which means that we're always looking at the business and to make sure that we're in a position to adjust really quickly if we see any sort of downturn in the economy as it affects our business. I would also tell you that end markets matter and the end markets that we serve continue continue to be strong and resilient as they have been over the last number of years. Some of that's fueled by the infrastructure bill, some of it's you know fueled by the chip bill and a number of different things that are potentially additive you know to to the business and then I would say lastly where there's concerns about Western Europe .
Speaker 4: We're already looking at restructuring and optimizing the business and we couldn't be really in its own way doing that at a better time than right now. But we remain optimistic. We've got a 75% of our cost structure is variable by nature. So if we have to adjust, we'll adjust. Thank you very much. Our next question is from Andrew Oben of Bank of America. Hi, this is David Ridley-Layne on for Andrew. How has supply chain performance been for you over the last couple of months? And when you think back about the disruption and cost impact in 2022, how many full-wheel fewer disruptions be in 2023? I know it's tough to quantify, but at least the 10-20 basis points sound reasonable? So hey, David, this is Kevin. So when you talk about supply chain disruption, I'll say first, you know, we're not out of the woods yet. Things still remain on backlog and certain categories. And we still, with our teams, are battling through that. The inflation and supply chain disruption impacted our business in two ways in 2022. On the inflation side, obviously, the price pass through that we've been talking about was a margin drag. We've referenced that.
Speaker 4: We believe that comes down in 2023. We should get some of that margin back. On the supply chain side, you know, just the lack of material and availability caused pretty significant productivity disruptions in our business. Not just for our business, but you can imagine places where we work. There's other companies working there too that may also have had supply chain disruptions, which causes productivity issues for us. So we saw it on the productivity side. I'll say as thanks start to moderate the supply chain, we're seeing productivity improve in the other areas we move into 2023. As the supply chain works through its issues, we would anticipate productivity improvements coming through and margins as well in 2023. Thank you. And as quick follow up just as you mentioned, you know, the end markets that you're serving just could you use to kind of give a view on how strong the demand is among the major end markets like commercial industrial healthcare, etc. I mean, what do you mean, David, when you say, you know, indication of how strong they are? I mean, um,
You know, data centers really strong. Some I conducted, you know, remains, you know, very, very strong. Healthcare remains very strong. You know, depending upon how you look at the infrastructure spending and the infrastructure bill, those dollars are really just starting to flow into the system. You're seeing some things, you know, federal aid blowing into, you know, rural broadband access and things like that that are, you know, having a positive impact on the business. So, you know, I think in general, you know, those end markets are really strong. We don't have a lot of exposure to retail hospitality. We don't do a lot of like developer led project opportunities that, you know, rising interest rates are going to have a negative effect, you know, on whether a developer is going to move forward or some of their project related work. So, I think, you know, that's a plus for us. We have very little exposure, you know, to residential, including multi-family housing, which is a positive for us. So, you know, in general, I think the focus that we've had on the right end markets.
22 as well. We saw approximately $5 to $10 million of savings come through. We anticipate the remainder of that to come through in 2023. With respect to the 2023 actions and initiatives, we expect most of those charges to occur to occur.
later in the year and with that the saving similar to 2022 will start to come in in the back half of 2023. Got it. Thank you. And then I just had one follow up on the backlog. I saw you guys noted that the backlog was up 9%. You know, in 2022, do you expect to burn through a material portion of the backlog at all or do you expect orders to remain steady with sales growth through the year? So typically what we see is we'll see we'll burn through backlog in the fourth quarter.
as we move towards the end of the year, and then we will fill backlog over the course of the first half of the next year. So when you look at our backlog on a year-on-year basis, it's up, but if you look at it sequentially from the end of the Q3 through the end of the year, it's slightly down, which is 100% normal for us. And when we first started talking about backlog, we reminded everybody that that's actually not the greatest metric to measure us by. And because with the processes that we have from a project selection and customer selection, we actually wouldn't mind seeing our backlog shrink a little bit, because it would demonstrate to us that we're being more disciplined with the work that we pursue. And the quality of the backlog is going to have better margins in it, as we work our way. We're going to be able to do that in a way through 2023. So our backlog is in a really good shape. And the funnel that we have with our proposals that we see coming through the system remains very robust. Thank you. Our next question is from Chris Snyder of UBS.
Thank you. I'm so kind of on the top of some of the prior commentary on margins. If I look at 23, it seems like at the midpoint, the guidance puts evid on margin up to 70 or so basis points here on here. And then the 25 target implies up, you know, at least 100 basis points kind of per annum of the year after. I'm curious, maybe provide some color on what is kind of driving that post 23 re-acceleration, whether it's productivity or sounds like, you know, some of the Chub synergies are kind of back half 23 weighted. Thank you.
Yeah, I can take that, Chris. So with respect to 2023, the primary drivers of our margin expansion, and I think your math seems directionally correct when you look at the full year guide at the midpoint, it's going to be continued delivery of our value capture opportunities that we talked about in November . And it's going to be the stickiness of our pricing and our continued focus there that Russ has talked about earlier on the call. And then the last component of it will be, yes, what I referenced earlier on the call, which is the expectation that in 2022, our price pass through was...
While we were able to pass it through, it was a margin drag from the early on projects business. I think in 2023, as pricing comes down, we should get some of that gross margin back. Thank you for that. And then maybe for the follow-up, something more kind of thematic. We're seeing a very high level of investment into the U.S. economy, whether it's reshoring, stimulus, or sorry, infrastructure. It kind of builds on behalf of the government. Can you kind of talk a little about what that means for your business? I think we always kind of think about the drivers here being the install base, but just kind of an influx of capacity expansion. What kind of opportunity does that provide? Thank you. Well, I mean, you kind of two different things. I mean, like...
When I think about, you know, re-suring and things like that, I might bring immediately to the semi-conductor space and the level of activity that you see going on with the intel of the world and micron and some of those other folks. And the capital spending that they have, you know, going on in the United States is very, very robust. And I would say it's so robust that firms like ours have to make sure that we're disciplined, that we don't over extend our resources, actually. And make sure that the, you know, the project related opportunity that we do pursue, you know, we have the capacity to do and do very well. And these are, you know, sophisticated customers and being able to deliver, you know, a high quality end product is something that's very important. So we've been really disciplined in making sure that we don't over extend in those spaces. When I think about that, I think about the infrastructure bill, I think about it more from the whole concept of a rising tide flow itself votes. And a lot of the project related opportunities that will be funded by the infrastructure bill are things that we would not be interested in pursuing. However, our peers in the industry and our competitors in the industry.
are interested in pursuing that. And as they pursue some of those related opportunities, it creates more space for us with our existing customers to take share, to increase pricing, to improve our margins. And that ultimately is a benefit to us. The real broadband spending that the federal government is moving forward with is something that aids our business in specifically a couple of our businesses, but in this scheme of things, it's not a huge driver of revenue in our specialty services segment. Thank you for that. Appreciate it. Our next question is from Andy Kaplowitz of Citibank.
Hey, this is Qshon behalf of Andy. Good morning and thanks for taking my questions. Can you update us on what you're seeing in Europe and China? And as we think of your 2023 guidance, what is your expectation for these regions? Are you baking in a recovery in economic conditions or given the nature of your work? You think you can get to get clear guidance even with our significant step up in economic activities there. Well, obviously we put forth guidance that we have confidence in being able to deliver based on the conditions that we see in both Western Europe as well as in Asia.
Our actual presence in China is small. We have a nice business in Hong Kong that has really seen robust opportunities in front of it. And the team there is performing very well. It's a very good team. I actually had a good fortune of visiting them in mid-January. And it was just super impressed with the quality of our team there. And the level of activity that they're seeing in the marketplace remains very strong.
As it relates to Western Europe , we really have not seen a slowdown. And again, I just point to the end markets that we're focused on. I would say that if Andrew White was on the call, he would be the one place that he would add color, would be pharmaceutical, which is a good base for them. And in addition to the other end markets that I talked about earlier. But I also mentioned that right now we're going through a right-sizing and optimization project as it relates to the business in general. We have some integration activities going on with overlapped between previous acquisition we made with SK Fire. And Chubb specifically related to the Benil Watch area.
2023 should we expect growth in that range and margin to progress towards that 15% plus target.
Well, we don't break out. You know, we share some information about job, you know, at the November investor meeting, but we don't break out their, you know, their results separately. But you should, you can count on 3 to 5% for organic growth in 2023 in the business. And, you know, I just also point you to the fact that...
Some of that is purposeful on our part in trying to hold that back. We have some, I don't know, customer selection opportunities in front of us that we want to make sure that we're taking advantage of as we continue to optimize and right size the business. So, we're confident that we're going to be able to sustain that level of organic growth in that business and achieve our margin expansion goals by 2025. I think we shared that for CHOP specifically.
this is Kevin morning. So when we talk about free cash flow conversion, close as we actually did this year, we'll start this year, actually this year, 2022, and then think about 2023. Just as a reminder, we invested a significant amount in working capital rate in the first half of 2022 as we got out in front of what was strong customer demand and choppy supply chain.
And so our focus in the back half of the years as we discussed was working that, working capital rate investment down. We did, you saw it in our results, especially in the back half of the year, the only other thing I'll point to is in Q4. Traditionally, we're going to have a strong Q4 conversion. And so there is seasonality in our business because of the specialty business and step down there. But as we look forward to 2023, we still have 2022 working capital rate investment that we anticipate getting back. We're going to continue to focus.
We expect to drive further improvements beyond that in 2023. When you think about stepping towards our 2020, sorry, our 2025 goal of 80% free cash conversion, we laid this out November . But the other drivers of that are obviously leveraged in interest associated with it and then continuing focus on our service business and the growth and our service business piece to be our project business. I appreciate all the color thank you, Wes. Our next question is from Andy Whitman of Baird. Your line is open.
Great, good morning guys. Thanks for all the details so far today. I guess I wanted to just dig in a little bit more on the top line guidance here. Herdre commentary for double digit inspection service monitoring growth and the safety segment. Presumably that means the safety segment is up at least high single digits in total if not double digits, which would imply that the specialty business would be.
Closer to flat, maybe low single digits. I guess I wanted to understand if that's the correct assumption for your outlook on specialty. And given that inflation is going to have a revenue effect, at least of low single digits, I would guess. Can you talk about the volumes that should be going to your specialty business compared to last year, and maybe any specific end market comment inside of specialty? I think that would just be helpful context. So, any senate next? So, am you interested?
I'll take a stat of this. So you're right, as we look at 2023 and our full year guidance. Right now, we're underlying what we're expecting in our life safety businesses on the service side as continued double digit growth. You know, the map that you laid out and the implications, especially services, seems directionally correct. And what I would add is, you know, we are going to continue to focus in that business in 2023 on disciplined project customer selection and in market work. We're just talking about it a little bit on the chips side, but it's relevant in those specialty businesses too, as they continue to see increased work opportunity for some of the infrastructure bill and some of the.
it would have talked about, especially in Q4 prior year. Where we had in Q4 current year, we had a difficult count. So if you look at Q4 2021, I think especially put up a growth rate north of 20% organic. And generally what you're going to see is a step down.
I guess that difficult comp in prior year you saw a reduced growth rate, especially in Q4, down a little over 8%. That's not new. I'm sorry, I must have misheard you. When I heard sales, I didn't think revenue. I thought new business sales. So that was the confusion in my part, so I apologize for that. I guess just one other clarification here.
At the analyst day, I think you are restructuring expenses for 2023. We're targeted at 30 to $35 million. I'm hearing $55 to $65 million here. So I'm just was wondering what was the change here that's driving that? Yeah, that's right. I would say in November , so our overall program and how we're thinking about it has not changed when you look through the years. In November , we were still thinking through sort of the actions we wanted to take in 2023 versus 2024. I think what we saw on the guidance today.
is that we have more clarity around the sequencing of that. So again, the overall program is still the same size we talked about in November . But we're anticipating accelerating activity into 2023. Obviously with that, or we're hoping for anticipated accelerated savings in the out years as well. Got it. So the 2024 and 25 number is therefore should be expected to be lower.
Yeah, some of the restructuring stands for that's right. Okay, great. All right, thank you. Our next question is from John Townwantang of CJS Securities. Hi, good morning everyone. Thank you for taking my questions. You covered a lot already. Just wanted to ask my usual questions on M&A. A good pipeline being said and you're seeing out there maybe Martin said that. Just wondering about the expected balance between paying down debt and pursuing tucking M&A in this environment. Especially just what you're seeing in the valuations out there in the pipeline are they new historical. You know four to six times of opportunities bigger, smaller, just any more color would be helpful. Thanks. Yeah, I mean, there's obviously a healthy tension to me.
talking, M&A strategy perspective, we're looking for culture values and fit and the types of companies that we want to acquire, they're actually doing the same. And if they're really truly interested in only maximizing the price that they get for the sale of their business, it's probably not the right fit for us.
And so we continue to focus on what are the right businesses to bring into the API family versus just bringing, you know, anybody in to into the mix. So we see, we still see the lots of opportunity for us there. We have a lot of space that we can continue to expand and are really excited to really get back, you know, on that train and move forward with the right level of M&A in this just a year. Got it. Thanks, Rosetta. And just a quick question on the synergy realization that you from Chauvin. Is there an expected cadence to it or lopping this or is that the most expected to be it?
I thought roughly a straight line improvement through the year. I think on the actions that we've taken today, I would say that we should expect that to be less lumpy. I'm the initiatives that we're going to tackle associated with the 55 to 65 and restructuring charge in 2023. I think that'll be a little more lumpy in 2023 and in early 2024. Okay, great. Thank you guys. And this concludes our question and answer session for today.
I'd be happy to return the calls at Jim Delay for any closing comments. And I'd be happy to then give it over to Russ. So I'd just like to take the opportunity to thank all of our team members for their continued support and dedication to our business. And I'd also like to make sure I take the opportunity to thank our long-term shareholders as well as those of you who have recently joined us for their support. And we appreciate your ownership and API and look forward to updating you on our progress throughout the remainder of the years.
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