Q4 2023 APi Group Corp Earnings Call

Operator: www.api.org Good morning, ladies and gentlemen, and welcome to APi Group's fourth quarter and full year 2023 Financial Results Conference call. All participants are now in a listen mode only until the question and answer session.

Good morning, ladies and gentlemen, and welcome to AP I group's fourth quarter and full year 'twenty 'twenty financial results Conference call. All participants are now in listen mode only until the question and answer session. Please note that this call is being recorded I will be standing.

Operator: Please note that this call is being recorded. I will be standing by should you have any questions or need any assistance. I will now turn the call over to Adam See, Vice President of Investor Relations at APi Group.

Mike should you have any questions you have and yet we needed any assistance I will now turn the call over to Adam <unk>, Vice President of Investor Relations at eight P. I. Please go ahead.

Adam See: Thank you. Good morning, everyone, and thank you for joining our fourth quarter 2023 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, These statements are not guarantees 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.

Thank you good morning, everyone and thank you for joining our fourth quarter 2023 earnings Conference call. Joining me on the call today are <unk>, President and CEO, Kevin Krumm, Our executive Vice President and Chief Financial Officer, and Sir Martin Franklin and Jim Lillie co chairs before we begin I would like to remind you that certain.

Statements in the company's earnings press release announcements and on this call are forward looking statements, which are based on expectations intentions and projections regarding the companys future performance anticipated events or trends and other matters that are not historical facts. These statements are not a guarantee 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 See: 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, February 28th, and we undertake no obligation to update any forward-looking statement we may make, except as required by law. As a reminder, we have posted a presentation detailing our four-quarter financial performance on the investor relations page of our website. Our comments today will also include non-GAAP financial measures and other key operating metrics. The reconciliation of and other information regarding these items can be found in our press release and our presentation. It's now my pleasure to turn the call over to you. Thank you, Adam. And good morning, everyone.

In our press release and filings with the SEC, we detailed material risks that may cause our future results to differ from our expectations. Our statements are as of today February 28, and we undertake no obligation to update any forward looking statement, we may make except as required by law. As a reminder, we have posted a press.

<unk> detailing our fourth quarter financial performance on the Investor Relations page of our website. Our comments today will also 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 now.

Now my pleasure to turn the call over to Jim.

Thank you Adam and good morning, everyone 2023 was another tremendous year for API with record net revenues record adjusted EBITDA record reported and adjusted earnings per share and record adjusted free cash flow.

Jim Lilly: 2023 was another tremendous year for API, with record net revenues, record adjusted EBITDA, record reported and adjusted earnings per share, and record adjusted free cash. As I mentioned on the last call, our strategy of evolving away from lower-margin, higher-risk opportunities while focusing on investments in service revenue expansion continues to yield the desired results, such as margin expansion and stronger free cash flow generation. Under Russ's leadership, APi has successfully acquired and integrated over 100 companies over the last 20 years, helping supplement organic growth as the business scaled from approximately $600 million in revenues 20 years ago to nearly $7 billion globally, with progress made in reducing our net debt to adjusted EBITDA to 2.3. We are excited to build on our track record of disciplined, predictable, and thoughtful decisions regarding capital allocation as we keep our focus on bolt-on M& Creative Multiples, and Marge.

As I mentioned on the last call our strategy of evolving away from lower margin higher risk opportunities while focusing.

Investments on service revenue expansion continues to yield the desired results margin expansion and stronger free cash flow generation.

Under <unk> leadership, API has successfully acquired and integrated over 100 companies over the last 20 years, helping supplement organic growth as the business scale from approximately $600 million in revenues over 20 years ago to nearly $7 billion globally in 2023.

With the progress made in reducing our net debt to adjusted EBITDA to two three times, we're excited to build on our track record of disciplined predictable and thoughtful decisions regarding capital allocation as we keep our focus on bolt on M&A at accretive multiples and margins, we have great confidence in the <unk>.

Jim Lilly: We have great confidence in the business, as demonstrated by our stock buyback. We believe that our laser focus on our longer-term 136080 value creation targets will generate continued exceptional performance through 2025. As a reminder, our financial goals include an adjusted EBITDA margin of 13% or more in 2025. Long-term Organic Revenue Growth Above the Industry Average, long-term revenues of 60% from inspection, service, and monitoring, and Long-Term Adjusted Free Cash Flow Conversion of ADP. Confidence in the leadership team and the foundation for long-term value creation is stronger than ever. And with that, I'll hand the call over to Russ. Russ?

As demonstrated by our stock buyback and.

And we believe that our laser focus on our longer term 13, 60, 80 value accretion targets will generate continued exceptional performance through 2025 and beyond.

As a reminder, our financial goals include adjusted EBITDA margin of 13% or more in 2025.

Long term organic revenue growth above the industry average long term revenues of 60% from inspection service and monitoring and long term adjusted free cash flow conversion of 80%.

Our confidence in the leadership team and the foundation for long term value creation is stronger than ever and with that I'll hand, the call over to Russ Russ.

Russ Becker: Thank you, Jim. Good morning, everyone. Thank you for taking the time to join our call this morning. We remain grateful for the hard work of our 29,000 leaders and their dedication to API. The safety, health, and well-being of each of our teammates is our number one value. I use the word teammates intentionally instead of employees, which, like the word bid, is another one of the words I try not to use.

Thank you Jim good morning, everyone.

Thank you for taking the time to join our call. This morning.

We remain grateful for the hard work of our 29000 leaders and their dedication to epi.

Safety health and wellbeing of each of our teammates is our number one value.

I used the word I used the word teammates intentionally instead of employees, which like the word bid is another one of the words I'm trying not to use I'm proud that API has once again been recognized as a military friendly employer for 2024, we remain committed to providing opportunities for veterans.

Russ Becker: I'm proud that APi has, once again, been recognized as a military-friendly employer for 2024. We remain committed to providing opportunities for veterans and their spouses to build careers and develop as leaders. As many of you know, we have hired thousands of veterans over the years and thank them not only for their service but also for helping to drive API forward. In January, we shared our 2023 sustainability report on our website, a significant milestone in our commitment to building a more sustainable business. Our sustainability report serves as a comprehensive overview of our ESG activities to date, highlighting key strengths, opportunities, and strategic priorities, which include leadership, safety, environment, inclusion, and governance. APi Group's commitment to its values as an organization and its purpose of building great leaders positions us to be successful as we broaden the scope of our opportunities to develop a more sustainable business.

And their spouses to build careers and develop as leaders as.

As many of you know we've hired thousands of veterans over the years and think that not only for their service, but also for helping to drive epi forward.

In January we shared our 2023 sustainability report on our website a significant milestone in our commitment to building a more sustainable business.

Our sustainability report serves as a comprehensive overview of our ESG activities to date, highlighting key strengths opportunities and strategic priorities, which include leadership safety environment inclusion and governance.

API group's commitment to our values as an organization and our purpose of building great leaders positions us to be successful as we broaden the scope of our opportunities to develop a more sustainable business.

Russ Becker: 2023 was a year of record financial results for API. We delivered strong organic growth, record adjusted EBITDA margins, and improved adjusted pre-cash flow generation in an evolving macro environment. Net revenues grew organically by 5.4% in 2023, finishing the year at a record $6.9 billion. This growth was driven by approximately 10% organic growth in service revenues, partially offset by consciously controlling organic growth in project revenues as we continued our disciplined customer and project selection in our HVAC and specialty business. Importantly, we achieved our goal of double-digit growth in inspection revenues as we make progress towards our goal of 60% of our total net revenues coming from inspection, service, and monitoring. U.S. life safety once again posted solid organic growth of approximately 10 percent for the year, following over 20 percent organic growth in 2022.

2023, with a year of record financial results for API.

We delivered strong organic growth record adjusted EBITDA margins and improved adjusted free cash flow generation and in an evolving macro environment.

Net revenues grew organically by five 4% in 2023, finishing the year at a record $6 9 billion.

This growth was driven by approximately 10% organic growth in service revenues, partially offset by consciously controlling organic growth and project revenues as we continued our disciplined customer and project selection and our HVA and specialty businesses.

Importantly, we achieved our goal of double digit growth in inspection revenues as we make progress towards our goal of 60% of our total net revenues coming from inspection service and monitoring.

U S. <unk> once again posted solid organic growth of approximately 10% for the year following over 20% organic growth in 2022.

Russ Becker: In line with our strategic initiatives, we continue to see strong improvements in adjusted gross margin for the year, up 180 basis points. The strong performance in gross margin led to a full year 2023 adjusted EBITDA margin of 11.3%, which represents a margin expansion of 100 basis points.

In line with our strategic initiatives, we continued to see strong improvements in adjusted gross margin for the year up 180 basis points.

The strong performance in gross margin led to full year 2023, adjusted EBITDA margin of 11, 3%.

Represented margin expansion of 100 basis points.

Russ Becker: The team has made strong progress this year executing our margin expansion initiatives and remains committed to building on that execution as we push towards our 13 percent or more adjusted EBITDA margin target in 2025. As a reminder, these initiatives include the following, pricey. Improved Inspection, Service, and Monitoring Revenue Mix. Discipline, Customer, and Project Selection show value capture. Procurement Systems and Scale are creative M&A and selective business pruning. And, as I like to say, we can always just be better.

The team has made strong progress this year executing our margin expansion initiatives and remains committed to building on that execution as we push towards our 13% or more adjusted EBITDA margin target in 2025.

As a reminder, these initiatives include the following.

Pricing.

Improved inspection service and monitoring revenue mix.

Disciplined customer and project selection.

Chuck value capture.

Procurement systems and scale.

Accretive M&A and selective business pruning and as I like to say, we can always just be better.

Russ Becker: In December, we announced an increase in the CHUB value capture target from $100 million to $125 million. Exiting 2023, we have realized approximately $40 million of the $125 million value capture target, and we remain on track to realize the remaining $85 million. 2023 was the first year in API history with adjusted free cash flow over $500 million. We ended the year with a record adjusted free cash flow of $537 million, representing approximately 69% of adjusted EBITDA.

In December we announced an increase in the chump value capture target from $100 million to a $125 million.

Exiting 2023, we have realized approximately $40 million of the $125 million value capture target and we remain on track to realize the remaining $85 million.

2023 was the first year in <unk> history, with adjusted free cash flow over $500 million.

We ended the year with record adjusted free cash flow of $537 million.

Representing approximately 69% conversion of adjusted EBITDA.

Russ Becker: Our strong adjusted free cash flow generation helped us deliver on our commitment of reducing net leverage to under two and a half times by the end of 2023. Moving on to M&A. Over the last 12 months, we returned to accretive bolt-on M&A with approximately $100 million spent on acquisitions in our safety service segment this year, building on our long track record of integrating businesses and supplementing organic growth through acquisitions. As we enter 2024, we are excited to accelerate our M&A activity. And the team continues its hard work prioritizing the most attractive opportunities in our pipeline, which are strong cultural fits. In December, we closed the previously announced sale of a traditional design-bid-build heavy civil contracting company without a complementary service opportunity.

Our strong adjusted free cash flow generation helped us deliver on our commitment of reducing net leverage net leverage to under two five times by the end of 2023.

Moving on to M&A.

Over the last 12 months, we returned two accretive bolt on M&A with approximately $100 million spent on acquisitions in our safety service segment. This year building on our long track record of integrating businesses and supplementing organic growth through acquisition.

As we enter 2024, we are excited to accelerate our M&A activity and the team continues their hard work prioritizing the most attractive opportunities in our pipeline, which are strong cultural fits.

In December we closed the previously announced sale of a traditional design bid build heavy civil contracting company without a complimentary service opportunity. This business generated $73 million of revenue in 2023, while under <unk> ownership.

Russ Becker: This business generated $73 million of revenue in 2023 while under APi's ownership. In summary, while we remain focused on executing our strategy in 2024, I am proud of our team and the record financial results achieved in 2023. Today, we announced we reached an agreement with Blackstone and Viking to retire all of the outstanding shares of their Series B Perpetual Convertible Preferred Stock.

In summary, while we remain focused on executing our strategy in 2024, I am proud of our team and our record financial results achieved in 2023.

Today, we announced we reached an agreement with Blackstone in Viking to retire all the all of the outstanding shares of the series B perpetual convertible preferred stock I'll, let Kevin provide more details related to the transaction. However, I'll highlight that the series B transaction.

Kevin Crum: I'll let Kevin provide more details related to the transaction. However, I'll highlight that the Series B transaction represents another step in our journey to drive value for our investors by simplifying our capital structure, reducing our adjusted diluted share count, and providing immediate accretion to adjusted earnings per share while having no expected impact on our focus on opportunistic M&A. I would now like to hand the call over to Kevin to discuss our fourth quarter financial results and guidance in more detail.

Represents another step in our journey to drive value for our investors by simplifying our capital structure, reducing our adjusted diluted share count and providing immediate accretion to adjusted earnings per share, while having no expected impact on our focus on opportunistic M&A.

I would now like to hand, the call over to Kevin to discuss our fourth quarter financial results and guidance in more and more detail Kevin.

Kevin Crum: Thanks Russ. Good morning, everyone. Reported revenues for the three months ended December 31st, 2023, increased by 3.3% to $1.76 billion compared to $1.7 billion in the prior year period. Organic growth of 1.5% was driven by strong services revenue organic growth of 5%, partially offset by disciplined customer and project selection, and lower material costs, leading to a 3% organic decline in our projects business versus the prior year. Adjusted gross margin for the three months ended December 31, 2023, grew to 30.1%, representing a 230 basis point increase compared to the prior year period, driven by continuous price increases, outsized growth, and higher margin services revenue, as well as the significant margin expansion in our projects business across both segments. Adjusted EBITDA increased by 13% on a fixed currency basis for the three months ended December 31, 2023, with adjusted EBITDA I'm pleased to report that adjusted diluted earnings per share for the fourth quarter was $0.44 per share, representing an $0.08 or 22% increase compared to the prior year period. The increase was driven primarily by strong margin expansion in both safety and specialty services and decreased interest.

Thanks, Ralph good morning, everyone.

Reported revenues for the three months ended December 31, 2023 increased by three 3% to $1 76 billion compared to $1 7 billion in the prior year period organic growth of one 5% was driven by strong services revenue organic growth of 5%, partially offset by disciplined customer.

And project selection and lower material costs, leading to a 3% organic decline in our projects business versus the prior year.

Adjusted gross margin for the three months ended December 31, 2023 grew to 31% representing a 230 basis point increase compared to the prior year period, driven by continuous price increases.

Outsized growth in higher margin services revenue as well as well as the significant margin expansion in our projects business across both segments.

Adjusted EBITDA increased by 13% on a fixed currency basis for the three months ended December 31, 2023, with adjusted EBITDA margin coming in at 11, 8%, representing a 110 basis point increase compared to the prior year period, primarily due to the factors impacting gross margin partially.

Offset by investments to support revenue growth and the investment in building, our global capabilities and infrastructure I'm pleased to report that adjusted diluted earnings per share for the fourth quarter was <unk> 44 per share representing an eight 422% increase compared to the prior year period, the increase was driven.

Primarily by strong margin expansion in both safety and specialty services and decreased interest expense.

Kevin Crum: I will now discuss our results in more detail for safety services. Safety services reported revenues for the three months ended December 31st 2023 increased by 3.1 percent to $1.24 billion, compared to $1.2 billion in the prior year period. Organic growth of 1%, coming off an 18 plus percent growth rate. Comping off 18 plus percent growth in Q4 2022 was in line with expectations and was driven by double-digit core inspection revenue growth in our U.S. life safety business and 5% organic growth in inspection service and monitoring in U.S. life safety. This was partially offset by flat organic growth in the project business driven by planned customer attrition in our international business as well as disciplined customer and project selection and lower revenue from declining material costs through cost, and declining material costs pass-through in our HVAC business.

I will now discuss our results in more detail for safety services.

Safety services reported revenues for the three months ended <unk> <unk>.

<unk> 31, 2023 increased by three 1%.

To 124 billion compared to $1 2 billion in the prior year period organic growth of 1%.

Coming off an 18 plus percent growth.

Comping off of 18 plus percent growth in Q4 2022 was in line with expectations and was driven by double digit core inspection revenue growth in our U S life safety business and 5% organic growth in inspection service and monitoring in U S. Life safety. This was partially offset by flat organic growth in the project business driven.

By planned customer attrition in our international business as well as disciplined customer project selection and lower revenue from declining material costs through.

Cost declining material cost pass through in our HVAC business adjusted gross margin for the three months ended December 31, 2023 was 35, 1%, representing a 270 basis point increase compared to the prior year adjusted gross margin driven by continued price increases improved.

Kevin Crum: Adjusted gross margin for the three months ended December 31st, 2023 was 35.1 percent, representing a 270 basis point increase compared to the prior year adjusted gross margin, driven by continued price increases, an improved business mix of inspection, service, and monitoring revenue, as well as a significant margin expansion in our projects business. Adjusted EBITDA increased by 18.8% on a fixed currency basis for the three months ended December 31st, 2023, and adjusted EBITDA margin was 15.3%, representing a 210 basis point increase compared to the prior year period, primarily due to the factors impacting adjusted gross margin, partially offset by investments made to support revenue growth. I will now discuss our results in more detail for our specialty services segment, www.api.org.au. Specialty services reported revenues for the three months ended December 31st, 2023 increased by 2.9% to 525 million compared to 510 million in the prior year period driven by 12% growth in service revenues, partially offset by 10% decline in project revenues due to disciplined customer and project selection and lower revenue from declining material costs.

Business mix of inspection service and monitoring revenue as well as the significant margin expansion in our projects business.

Adjusted EBITDA increased by 18, 8% on a fixed currency basis for the three months ended December 31, 2023, and adjusted EBITDA margin was 15, 3%, representing a 210 basis point increase compared to the prior year period, primarily due to the factors impacting adjusted gross margin partially offset.

Net by investments made to support revenue growth.

I'll now discuss our results in more detail for our specialty services segment.

Specialty services reported revenues for the three months ended December 31, 2023 increased by two 9% to $525 million compared to $510 million in the prior year period, driven by 12% growth in service.

<unk>, partially offset by a 10% decline in projects revenues due to disciplined customer and project selection and lower revenue from declining material cost pass through adjusted gross margin for the three months ended December 31, 2003 was 18, 1%, representing a 140 basis point increase compared to the.

Kevin Crum: Adjusted gross margin for the three months ending December 31st, 2023 was 18.1%, representing a 140 basis point increase compared to the prior year period, driven primarily by disciplined customer and project selection, driving significant margin expansion in our project business. Adjusted EBITDA increased by 11.3% for the three months ending December 31st, 2023, and adjusted EBITDA margin was 11.2%, representing an 80 basis point increase compared to the prior year period, primarily due to the factors impacting adjusted gross margin, primarily offset by the timing of year-end incentives through it.

Prior year period, driven primarily by disciplined customer and project selection driving significant margin expansion in our projects business adjusted EBITDA increased by 11, 3% for the three months ended December 31, 2023, and adjusted EBITDA margin was 11, 2%, representing an 80 basis.

Increased compared to the prior year period, primarily due to the factors impacting adjusted gross margin.

Primarily offset by timing of year end incentive true ups.

Kevin Crum: Cash Flow. As we have highlighted throughout the year, the fourth quarter is our strongest quarter for free cash flow generation, and 2023 was no different. For the three months ended December 31st, 2023, adjusted free cash flow was $300 million, reflecting an adjusted free cash flow conversion of 144%.

Cash flow as we have highlighted throughout the year. The fourth quarter is our strongest quarter for free cash flow generation in 2023 was no different for the three months ended December 31, 2023, adjusted free cash flow was $300 million.

Reflecting an adjusted free cash flow conversion of 144% for the full year adjusted free cash flow was $537 million with conversion of 69%, representing an improvement of $125 million or approximately 30% when compared to 2022.

Kevin Crum: For the full year, adjusted free cash flow was $537 million, with a conversion rate of 69%, representing an improvement of $125 million, or approximately 30% when compared to 2022. Adjusted free cash flow generation has been and continues to be a priority across API, and we are pleased that we are able to exceed our adjusted free cash flow conversion target of 65% for 2023. On December 19th, we paid down $175 million of our term loan debt, resulting in total repayments in 2023 of $475 million and leaving $330 million outstanding on our term loan due 2026, which leaves our weighted average maturity at approximately five years.

Adjusted free cash flow generation has been and continues to be a priority cross API and we are pleased that we were able to exceed our adjusted free cash flow conversion target of 65% for 2023.

On December 19th we paid down $175 million of our term loan debt, resulting in total repayments in 2023 of $475 million and leaving $330 million outstanding on our term loan due 2026, which leaves our weighted average maturity at approximately five years.

Kevin Crum: At the end of the year, our net leverage ratio was approximately 2.3 times even as we continued to be margin accretive on both M&A. As we look forward to 2024, we expect to grow our adjusted free cash flow as well as improve our adjusted free cash flow conversion, providing us a significant opportunity for value-enhancing capital deployment. As Russ touched on earlier, we have reached an agreement with Blackstone and Viking to retire all the outstanding shares of their Series B Perpetual Convertible Preferred stocks issued at the time of the Chubb transaction. Blackstone and Viking will each exercise their respective right to convert all their Series B preferred stock into common stock, resulting in approximately 32.5 million shares of common stock.

At the end of the year, our net leverage ratio was approximately two three times, even as we continued margin accretive bolt on M&A as.

As we look forward to 2024, we expect to grow our adjusted free cash flow as well as improve our adjusted free cash flow conversion, providing us a significant opportunity for value enhancing capital deployment.

As Rob touched on earlier, we have reached an agreement with Blackstone and Viking to retire all of the outstanding shares of the series B perpetual convertible preferred stock issued at the time of the Chubb transaction.

Blackstone or biking, while each exercised their respective right to convert all of our series B preferred stock into common stock, resulting in approximately 32 5 million shares of common stock upon conversion API will repurchase one half of the converted shares from Blackstone on Viking for an aggregate purchase price of approximately six.

Kevin Crum: Upon conversion, APi will repurchase one-half of the converted shares from Blackstone and Viking for an aggregate purchase price of approximately $600 million. The transaction is expected to be financed by an incremental term loan of $300 million plus cash on hand and available credit. As a part of the agreement, Blackstone and Viking intend to effect a coordinated secondary public offering with the goal of selling approximately 8.1 million shares of APi's common stock. Following the sale, it is expected that any remaining common shares owned by Blackstone and Viking would be subject to a 90-day lockout.

<unk> hundred million dollars.

The transaction is expected to be financed by an incremental term loan of $300 million plus cash on hand and available credit.

As part of the agreement Blackstone and biking intend to effect a coordinated secondary public offering with the goal of selling approximately $8 1 million shares of Apis common stock. Following the sale. It is expected that any remaining common shares owned by Blackstone and Viking would be subject to a 90 day lockup.

Kevin Crum: We are pleased to proactively agree to a holistic approach to retire our Series B preferred stock, with only a modest expected increase in the net leverage ratio to approximately three times, preserving the strength of our balance sheet. Throughout 2024, we'll continue to focus on generating strong free cashflow, allowing us to accelerate M&A spend versus 2023, while reducing our net leverage towards our long-term target of less than 2.5 times. This transaction is collectively expected to provide some substantial benefits to APi and its common stockholders as it simplifies our capital structure, preserves our strong opportunistic balance sheet, reduces our adjusted diluted share count by 16.3 million shares, provides immediate accretion to adjusted earnings per share, eliminates preferred dividend payments of $44 million annually, and has no significant impact on our re-acceleration of Bullton M&A.

We are pleased to proactively agreed to a holistic approach to retire our series B preferred stock with only a modest expected increase in net leverage ratio to approximately three times and preserving the strength of our balance sheet. Throughout 2024 will continue to focus on generating strong free cash flow, allowing us to accelerate.

Great M&A spend versus 2023, while reducing our net leverage towards our long term target of less than two five times. This transaction collectively is expected to provide some substantial benefits to API and it's common stockholders as it simplifies our capital structure preserves our strong opt.

<unk> balance sheet reduces adjusted diluted share count by $16 3 million shares provides immediate accretion to adjusted earnings per share eliminates a preferred dividend payments of $44 million annually and has no significant impact on our reacceleration of bolt on M&A.

Kevin Crum: I will now discuss our guidance for Q1 and full year 2024. Based on current exchange rates, we expect full-year recorded net revenues of $7.05 to $7.25 billion, representing mid-single-digit organic growth and net revenues, driven by expected double-digit core inspection organic growth and high single-digit service growth, mixed with low single-digit project growth, as we remain focused on disciplined customer and project selection in our specialty and HVAC businesses, primarily in the first half of 2024.

I will now discuss our guidance for Q1 and full year of 2024.

Based on current exchange rates, we expect full year reported net revenues of 7.05 to $7 billion to $5 billion, representing mid single digit organic growth in net revenues driven by expected double digit core inspection organic growth and high single digit service growth mixed with low single.

Digital projects growth as we remain focused on disciplined customer and project selection and our specialty and HVAC businesses, primarily in the first half of 2024, we.

Kevin Crum: We expect full-year adjusted EBITDA of $855 million to $905 million, which represents adjusted EBITDA growth of approximately 9 to 15 percent on a fixed currency basis and an adjusted EBITDA margin of 12.3 percent at the midpoint. In 2024, we expect to take another step forward in terms of adjusted free cash flow conversion with a 2024 target of approximately 70% as we move towards our long-term target of 80%. In terms of the first quarter, we expect reported net revenues of $1.56 to $1.61 billion.

We expect full year, adjusted EBIT da of $855 to $905 million, which represents adjusted EBIT da growth of approximately 9% to 15% on a fixed currency basis, and adjusted EBITDA margin of 12, 3% at the midpoint.

In 2024, we expect to take another step forward in terms of adjusted free cash flow conversion with the 2024 target of approximately 70% as we move towards our long term target of 80%.

In terms of the first quarter, we expect our reported net revenues of $1 56 to $1. Six 1 billion. This guidance represents an organic net revenue decline of approximately 4% and 1% as we lap our strong organic growth of 12, 1% in Q1 2023, and as we continue to build a smaller.

Russ Becker: This guidance represents an organic net revenue decline of approximately 4-1%, as we lap our strong organic growth of 12.1% in Q1 2023 and as we continue to build a smaller but healthier backlog in our HVAC and specialty services businesses. We also expect to see a continuation of lower material costs resulting in declining price pass-through versus the first quarter of 2023, which results in lower reported net revenues. However, those impacts, as seen in 2023, will allow us to continue to expand adjusted EBITDA dollars and margin, which is reflected in our first quarter adjusted EBITDA guide of $165 to $180 million. This represents adjusted EBITDA growth of approximately 9-20% on a fixed currency basis and adjusted EBITDA margin expansion of 180 basis points at the midpoint.

But healthier backlog in our HVAC and specialty services businesses. We also expect to see a continuation of lower material costs, resulting in declining price pass through versus the first quarter 2023, which results in lower reported net revenues. However, those impacts as seen in 2023 will allow us.

To continue to expand adjusted EBITDA dollars and margin, which is reflected in our first quarter adjusted EBITDA guide of $165 million to $180 million.

This represents adjusted EBITDA growth of approximately 9% to 20% on a fixed currency basis, and adjusted EBITDA margin expansion of 180 basis points at the midpoint.

For 2024, we anticipate interest expense to be approximately $150 million depreciation to be approximately $80 million.

Russ Becker: For 2024, we anticipate interest expenses to be approximately $150 million, depreciation to be approximately $80 million, capital expenditures to be approximately $95 million, and our adjusted effective cash tax rate to be approximately 23%. We expect corporate expenses to be approximately $30 million per quarter with some timing variability throughout the year. We expect our adjusted diluted weighted average share count for the year to be approximately $270 million, taking into account the Series B transaction announced earlier today. Finally, we expect to end 2024 with our net leverage ratio at approximately 2.5 times. I will now turn the call over to Russ.

Capital expenditures to be approximately $95 million and our adjusted effective cash tax rate to be approximately 23%, we expect corporate expenses to be approximately $30 million per quarter with some timing variability throughout the year. We expect our adjusted we expect our adjusted diluted weighted average share count.

For the year to be approximately 270 million taking into account the series B transaction announced earlier today filing we expect to end 2024 with our net leverage ratio at approximately two five times.

I will now turn the call over to Russ.

Thanks, Kevin as I said on our last call I am confident in our leaders' ability to build an historically strong execution by delivering consistent double digit core inspection organic growth as well as consistently driving margin expansion across the business.

As we look to 2024, we have great confidence in the business, our backlog and our balance sheet. We believe we are well positioned to improve our free cash flow generation, given us significant flexibility to pursue value creating capital allocation.

Operator: Thanks, Kevin. As I said on our last call, I'm confident in our leader's ability to build on historically strong execution by delivering consistent double-digit core inspection organic growth, as well as consistently driving margin expansion across the business. As we look to 2024, we have great confidence in the business, our backlog, and our balance sheet. We believe we are well-positioned to improve our free cash flow generation, giving us significant flexibility to pursue value-creative capital allocation and alternatives, including, but not limited to, accelerating our bolt-on M&A strategy. Longer term, we are focused on creating sustainable shareholder value by delivering on our 1360-80 targets with a near-term focus on generating adjusted EBITDA margins of 13% or more in 2025. With that, I would now like to turn the call back over to the operator and open the call to questions. Opening the session for the question-and-answer portion. If you'd like to ask a question, please press star number one on your telephone keypad. Our first question comes from Julian Mitchell from Barclays. Your line is now open. Hi, good morning.

In alternatives, including but not limited to accelerating our bolt on M&A strategy.

Longer term, we are focused on creating sustainable shareholder value by delivering on our 13 60 80 targets with a near term near term focus on generating adjusted EBITDA margins of 13% or more in 2025.

With that I would now like to turn the call back over to the operator and open the call for Q&A.

Opening the session for question and answers.

<unk>.

Like to ask a question. Please press star and number one on your telephone keypad. Our first question comes from Julian Mitchell from Barclays. Your line is now open.

Hi, good morning.

Good morning, Julien Good morning, maybe just to start with the free cash flow.

Kevin Crum: Well, good morning. Maybe I just want to start with the free cash flow guidance around conversion. So it looks like you're aiming for about 70% conversion, so a fairly steady year-on-year conversion ratio. Maybe help us understand what you're assuming within that for working capital movements, and what's the confidence that perhaps you could approach or move up towards that sort of 80% target in 2025, or is it more of a sort of medium-term aspiration? Hi Julian, yeah.

Guidance around conversion.

So it looks like yet.

Yes.

Aiming for about sort of 70% conversion, so fairly steady year on year.

Conversion ratio, maybe help us understand what you're assuming within that so sort of working capital movements.

And what's the confidence that perhaps you could approach will move up towards that sort of 80% targets.

In 2025 or is it more of a sort of medium term aspiration.

Hi, Julian yet so on free cash flow.

Kevin Crum: So on free cash flow, you're right, our current guide is to be at approximately 70%. The transaction that we announced this morning probably costs us, versus our run rate, somewhere around 3 to 5% in free cash flow conversion, primarily due to the leverage. Adjusting for that, you know, we would have had that more material increase to somewhere closer to 75%, which is the step we've been talking about as we continue to move to 80%. That 75% increase, you know, sort of on a like-for-like basis, would have come and will come from the net working capital rate, which you will see us continue to focus on this year and continue to drive improvements in net working capital as we move through the On 2025, I will only say, you know, in 2024, that's our guide, to step up to 75%. And we believe that positioning ourselves there on that like-for-like basis puts us in a really good position to continue to make improvements into 2025. That's helpful.

Our current guidance to be at approximately 70% of the transaction that we announced this morning.

<unk> costs us versus our run rate somewhere around 3% to 5%.

And free cash flow conversion, primarily due to the leverage.

Adjusting for that we would have we would've had that more material increase to somewhere closer to 75%, which is to step we've been talking about as we continue to move to 80.

That 75% increase.

Sort of on a like for like basis would have come and will come from net working capital rate, which you will see us continue to focus on this year and continue to drive improvements in net working capital rate.

As we move through the year on.

On 2025, I will only say.

In 2024.

That's our guide is to step up to 75% and we believe that positioning ourselves there on that like for like basis puts us in a really good position to continue to make improvements and in 2025.

That's helpful. Thank you Kevin and then maybe just my second question is around.

Russ Becker: Then maybe just my second question is around, you know, the organic sales outlook. So you have that slight decline starting the year with a tough comp and the unwind of some project work. Should we think about the slope of the sales recovery year on year as being fairly sort of gradual as we go through the year? So each quarter with a stronger year-on-year growth rate than the prior quarter. And for 2024 overall, is there any way of quantifying the project unwind headwind or what we should expect project-related revenue to do this year? APi Group Yeah, so I just made a note here. I'll make sure I answer all your questions, Julian.

The organic sales.

Outlook, So you have that.

Slight decline starting the year with a tough comp and the unwind of some project work.

Should we think about the slope of the sales recovery year on year as being fairly sort of gradual as we go through the year, so each quarter with a stronger year on year growth rate than that.

Prior quarter.

And for 2024 overall.

Is there any way of quantifying that.

<unk> project.

Unwind headwind or what we should expect project related revenue to do this year.

Yes, So just made a note here make sure I answer all your questions Julien.

Russ Becker: So on growth rate: Yes, the implied guide there for the first quarter is to be down in the first quarter as we compare it against a strong quarter in prior years. Underlying what you're going to see there is that in the safety services business, we expect to see continued mid to high single-digit growth on the service side of the business, and we expect to see growth probably close to the lower single-digits on the project side of the business in the first quarter. Again, a piece of that is just comparing it against a strong quarter in the prior year.

So on growth rate.

Yes.

The implied guide there for the first quarter is to be down in the first quarter as we comp against.

Against a strong quarter in prior years underlying what youre going to see there is in the safety services business, we expect to see continued.

Mid to high single digit growth on the service side of the business and we expect to see growth probably closer to the lower single digits and the project side of the business in the first quarter.

A piece of that is just comping against a strong quarter and prior year on this on the.

Russ Becker: On the specialty side of the business, while we'll see growth on the service side of the business, as we continue to focus on backlog and getting that portfolio healthier, and to a lesser extent compare it against mid single-digit growth in the prior year, we're going to see a reduction in the project side of the business, especially in the first quarter, which is really a continuation of what we saw in the back half of the year. The underlying drivers in there are in Q1 going to be consistent with what we're seeing in the back half of 2023, which is lower material costs, which results in a revenue drag due to lower material cost pass through, and then a focus on disciplined customer and project selection, which is really right sizing our portfolio.

Specialty side of the business, while we will see growth on the service side of the business.

As we continue to focus on backlog and getting that portfolio healthier.

And to a lesser extent <unk>.

And against a mid single digit growth in the prior year, we're going to see.

A reduction in the project side of the business, especially in the first quarter, which is really a continuation of what we saw in the back half of the year underlying drivers and there is in Q1 is going to be consistent with what we're seeing in the back half of 2023, which is lower material costs, which.

Our results in a revenue drag due to lower material cost pass through and then a focus.

And disciplined customer and project selection, which is really right sizing our portfolio. The thing I will highlight as we talk about organic growth in the first quarter for specialty is that we still expect these efforts to improve EBITDA dollars year on year and EBIT da margin year on year in the first quarter. So.

Russ Becker: The thing I will highlight as we talk about organic growth in the first quarter for specialty is that we still expect these efforts to improve EBITDA dollars year on year and EBITDA margin year on year in the first quarter. The work we're doing there is paying off from a profitability standpoint. Just to conclude, you asked about the growth profile for the first half and the second half.

The work we're doing there is paying off from a profitability standpoint.

Just to conclude you asked about sort of growth profile first half second half.

Russ Becker: On the service side, we expect to see consistent, organic growth in our service businesses throughout the year. On the project side, we just talked about the first quarter; that's really a first half thing we'll be working through as those project businesses sort of annualize against the work we started on disciplined customer project selection and a healthier project backlog. So what you're going to see is subdued growth on the project side of the business, primarily in HVAC in the first half of the year, turn it around to growth as we annualize against that in the back half of the year, resulting in back half growth rates that will be above first half growth rates. That's great.

On the service side.

Expect to see consistent organic growth.

And our service businesses throughout the year.

On the project side, we just talked about the first quarter. That's really a first half thing we'll be working through as those projects business sort of annualize against the work we started on disciplined customer project selection and a healthier projects backlog.

So what youre going to see is subdued growth on the project side of the business, primarily especially in HVAC and the first half of the year turned it around to growth as we annualize against that in the back half of the year, resulting in back half growth rates that will be above first half growth rates.

Yes.

Operator: Thank you. Our next question comes from John Tanwantang from CJS Securities. Your line is now open. Hi, good morning.

That's great. Thank you.

Our next question comes from John <unk> from CJS Securities. Your line is now open.

Hi, Good morning, Thank you for taking my questions and congrats on the strong quarter and the outlook I was wondering if you could talk about your total capacity for M&A. This year, just given the cash used and leveraged going back up to three times how.

Russ Becker: Thank you for taking my questions and congratulations on the strong quarter and the outlook. I was wondering if you could talk about your total capacity for M&A this year, just given the cash use and the leverage going back up to three times. How far are you willing to lever up? That's my first question. Thank you.

How far are you willing to lever up to my first question. Thank you.

Hi, John.

Thanks for the question.

Russ Becker: Thanks for the question. From an M&A standpoint, the transaction we announced this morning will not impact our planned M&A campaign for 2024, which was really focused on bolt-ons. We've done over $100 million over the last 12 months, and our plan as we went into 2024 was to increase that meaningfully. And this transaction will not impact those plans in 2024. You mentioned that the transaction does move our net leverage up to three times, but we talked about de-levering back inside two and a half by the end of the year.

I would say on from an M&A standpoint.

The transaction, we announced this morning will not impact our planned M&A campaign for 2024, which was really focused on bolt ons, we've done over $100 million over the last 12 months and our plan as we went into 2024 was to increase that meaningfully.

And this transaction will not impact that those plans in 2024, you referenced that the transaction does move our net leverage up to three times.

We talked about de levering back inside two five by the end of the year that is assuming that we continue to do the M&A as we plan and the only thing I'll say is at three times, we still think we have ample balance sheet capacity to stay opportunistic and.

Kevin Crum: That is assuming that we continue to do the M&A as we planned. And the only thing I'll say is that, three times out of four, we still think we have ample balance sheet capacity to stay opportunistic and agile as opportunities present themselves. Got it. And then could you just comment on buying back the shares of the converted shares, you know, at the $36.75 price, just help me understand your thoughts on future prospects and kind of if that's a vote of confidence and performance given you're buying above the market? Yeah, so just to highlight, the price is a mechanism that was in the Series B that allows for us to force conversion at $36.90.

And agile as opportunities present themselves.

Got it and then could you just comment on on buying back the shares of the <unk>.

Converted shares.

At the 36 75 price just to help me understand.

Your thoughts on future prospects and kind of if that's a vote of confidence in performance as Kevin do decline above the market here.

Yes, so just to highlight the price as a mechanism that was in the series B that allows for us to force conversion at $36 90. So that was that was the reason we landed on that price to your question, what I would say on the buyback is.

Kevin Crum: So that was the reason we landed on that price. To your question, you know, what I would say on the buyback is that the transaction was pulled together holistically. And the way we've thought about this is looking at it holistically. So there's one part we like, the value of our shares relative to our long-term prospects, for sure. There's also one part that this overall transaction allows for an orderly transition of the shares, which we think benefits our common shareholders as well. But when you look sort of at our prospects going forward, we're confident that we have a clear path to make the most of the opportunities in front of us focused on $1360.80. We think we took a meaningful step this year.

The transaction was pulled together holistically and the way we've thought about this is looking at it holistically. So there's one part we like the value of our of our shares relative to our long term prospects for sure. There is also one part that this overall transaction allows for orderly transition of the <unk>.

Shares, which we think benefit our common shareholders as well.

But when you look.

Sort of at our prospects going forward, we're confident that we have a clear path to make the most of the opportunities in front of US focused on $13 60, 80, we think we took a meaningful step this year, we're going to take a meaningful step as you can tell in 2024 and so although our shares are trading near all time all time high.

Kevin Crum: We're going to take a meaningful step, as you can see, in 2024. And so, although our shares are trading near all-time highs, our views are that the shares are actively valued with additional upside potential given our long-term growth prospects and margin goals. And we also think that when we look at that, we couple that with leadership's proven track record of execution, which all of that went into sort of the structuring of this transaction.

Our views are that and the shares are attractively valued with additional upside potential given our long term growth prospects and margin goals and we also think that when we look that we couple that with leaderships proven track record of execution, which all of that went into sort of the structuring of this transaction.

<unk>.

Operator: Thank you, guys. Our next question comes from Andy Wittmann from Baird. Your line is now open.

Got it thank you guys.

Our next question comes from Andy Wittmann from Baird. Your line is now open.

Russ Becker: Yeah, great. Thanks for taking my questions. Russ, I thought I'd ask you a little bit about the strategy around customer and project selection. Obviously, this has been a big driver for the second half of last year. It's going to be a factor here in the first half of this year. And you've talked a lot about this since D-SPAC, so this is nothing new.

Okay, great. Thanks for taking my questions.

So I thought I'd ask you a little bit on the.

The strategy around customer and project selection. Obviously this has been a big driver second half of last year, it's going to be a factor here in the first half of this year and you've talked a lot about this.

<unk> this is nothing new but I'm just wondering.

Russ Becker: But I'm just wondering... As you look at the demand environment today for your services, and your project-related services, in particular, it seems pretty robust. As you look at some of the peers out there, even some of the comments that you've made about the project business, it seems like it's there. You're choosing not to do it, so it's allowing you to really drive the margin performance today. But what happens to the strategy if the demand for project services flows down? Can you sustain the high bar that you're setting today in that kind of environment? Or do you have to pivot?

As you look at the demand environment today for your services and your project related services in particular, it seems pretty robust.

As you look at some of the peers out there even some of the comments that you've made about the project business. It seems like its there youre choosing not to do it. So it's allowing you to to really drive the margin performance today, but what happens to the strategy if the demand for project services closed down.

Can you sustain.

The high bar that youre, setting today and that kind of environment or do you have to pivot I guess I'd just like to hear some of your thoughts on that.

Russ Becker: I guess I'd just like to hear some of your thoughts on that. Well, I mean, I guess I'm just going to start by saying that end markets matter, Andy, and that, you know, the end markets that we've chosen to play in, you know, show robust opportunity for an extended period of time. And so we feel confident, you know, that we have the, you know, we have a kind of a runway in front of us that is going to allow us to, you know, remain focused on customer and project selection. There's a few things that I would also say about that, like our diversity in the service offerings that we have, like we're not doing these massive telecom programs and things like that.

Yes.

Well I mean.

I guess I was just going to start by saying that end markets matter Andy and.

That.

The end markets that we've chosen to play in show robust opportunity.

Through for an extended period of time.

And so we feel confident.

That we that we have the.

We have a kind of a runway in front of us that is going to allow us to remain focused on customer and project selection.

There's a few things that I would.

I'd also say to that is that.

Our diversity in the.

The service offerings that we have like we're we're not doing these massive telecom programs and things like that we do get telecom work, but the programs. There are small and they are in different geographic areas and so I think that allows us to be more nimble and also think.

Russ Becker: We do get telecom work, but the programs are small, and they're in different geographic areas, and so I think that allows us to be more nimble. I also think that this remains to be a relationship-based business, and your ability to execute and focus on building relationships matters, and that helps you drive better results for your business in both good times and bad. So I am not worried about it.

That this is a it remains to be relationship based business and your ability to execute and focus on.

Building relationships matters and that helps you.

You drive better results from your business in both good times and in bad.

So.

I am not worried about it.

Russ Becker: I look at it as the right thing for us to do from a business perspective, and I remain very, very impressed with the discipline that our teams are showing and where they're going to continue to allocate their resources. And in an environment where resources and skilled resources, especially, and I'm talking predominantly here about field leaders, are constrained, companies like ours that are making the investments in the men and the women that are actually doing the work in the field, I believe it's going to be a significant difference maker for us in allowing us to continue to attract the right people to our workforce that is going to allow us to continue to provide the services that our customers need.

I look at it as <unk>.

It's the right thing for us to do from a business perspective.

I remain very very impressed with the discipline that our teams are showing.

And where they're going to continue to allocate their resources and in an environment, where resources and skilled resources, especially on im talking predominantly about field leaders.

As is constrained companies like ours that are making the investments and the men and women that are actually doing the work in the field.

Believe it's going to be a significant difference maker for us and allowing us to continue to attract the right people to our workforce that is going to allow us to continue to provide the services that our customers need so.

Russ Becker: So I think that there's a lot in that question, but I really believe that our business is positioned better than most to continue to win in the environment that we're in. Okay. That's a helpful perspective. Thanks for that. I guess maybe, Kevin, my follow-up question is probably for you. I just wanted to get kind of an updated view on the Chubb value capture.

Think that Theres a lot in that question, but I really believe that our business is positioned better than most to to continue to win in the environment that we're in.

Okay. That's helpful perspective, thanks for that I guess, maybe Kevin My follow up question is probably for you I just wanted to get kind of the updated view.

On the the Chubb value capture you talked about the.

Kevin Crum: You talked about the... the remaining portion, how much of the $85 million that you expect to get in the future do you think can be realized in 2024? And then, I guess maybe just from a process point of view, I wanted to kind of check in. I know that the last several months as you went through the fourth quarter and maybe into January, I don't know, a lot of actions were taken. I was just wondering how much more... How many more actions need to be taken here in 24 hours to realize that, or has the bulk of it already been done? Thanks, Andy.

The remaining portion how much of the 85.

That you expect to get in the future do you think can be realized in 2024.

And then I guess, maybe just from a process point of view I wanted to kind of check in and I know that the last several months as you went through the fourth quarter and maybe into January I don't know a lot of actions were taken I was just wondering how much more how.

How many more actions need to still be taken here in 2004 to two.

I realize that or has the bulk of it been been done thanks.

Kevin Crum: Yeah, so as we, just to back up, as we announced in Q4, we've increased our overall target to $125 million. We've secured $40 million of that for the P&L. There's another $85 million left to deliver.

Thanks.

Thanks, Andy.

Yes, so as we just to backup as we announced in.

Q4, we increased our overall target to $125 million, we've secured $40 million of that to the P&L, there's another $85 million left.

<unk> left to deliver.

Kevin Crum: So your question on how much of that $85 million should we secure for the P&L in 2024? I'd say approximately half of it, and the actions that we've taken to date have already secured 70 million of the total 125, meaning there's still work left to do to deliver that number in 2024, and there's still work left to do to deliver the number that would roll over so the other half into 2025. I'd say probably half of the 2024 work is behind us, and so there's a little work left to do in 2024, and that work will accrue to 2024 as well as 2025. So Andy, I'm just going to add a little bit of color to Kevin, because the work there's, you know, when you think about the work that needs to be done there, you know, if you remember, we started, you know, by addressing, so to speak, our corporate structure and expenses, and then we moved to kind of a country level, you know, leadership. And Then we said that we were going to move into branch optimization. And we're, we're really in branch optimization mode.

So your question on how much of that 85 should we secured in the P&L in 2024, I'd say approximately half of it.

And the actions.

That we've taken to date.

We have already secured $70 million of the total 125, meaning.

There is still work left to do to deliver that number in 2024 and there is still work left to do to deliver the number that would roll over so the other half into 2025, I'd say probably half of the <unk>.

<unk> 2024 work is behind us and so there's a little work left to do in 2024.

That work will accrue to <unk> 2024, as well as 2025.

So Andy I'm, just going to add a little bit of color too to Kevin because both the work. There is when you think about the work that needs to be done there. If you remember we started by addressing so to speak our corporate <unk>.

Structure and expenses and then we move to <unk>.

Kind of a country level.

Meter ship in and then we said that we were going to move into branch optimization and were really in branch optimization mode and as part of that we have a significant sales force optimization effort going on.

Russ Becker: And as part of that, we have a significant salesforce optimization effort going on where, as part of that work, we need to, I guess, switch or convert to that inspection first mindset. And that's a different, that's a different sales force. So you know, there's a tremendous amount of work that's going to continue to go on through this year and into next year for us to continue to optimize and improve the business and really move in ways that we saw work to move towards that branch-based operating model that we, you know, employed here in North America. So the work, you know, to a certain degree, feels, to a certain degree, like it's never done.

Where as part of that work we need to.

Switch or convert to that inspection first mindset and that's a different that's a different sales force. So there is a tremendous amount of work that's going to continue to go on through this year and into next year.

For us to continue to optimize in.

The business and really move we've been we started work to move towards that branch based operating model that we.

Employee here in North America so.

<unk>.

Sure.

To a certain degree Mike is never done.

Russ Becker: But we're continuing to, I think, see significant improvements in the overarching business. And, to be totally honest with you, I couldn't be more pleased with the leadership of the company. Thanks a lot.

But we are continuing to stay.

<unk> see significant improvements in the overarching business to be totally honest with you couldnt be more pleased with the leadership of the company.

Operator: Have a great day. Thank you. The next question comes from Kathryn Thompson from Thompson Research Group. Your line is now open.

Thanks, a lot have a great day.

Thank you Sandy.

Churn comes from Kathryn Thompson from Thompson Research Group. Your line is now open.

Russ Becker: Hi, thank you for taking my questions and just following on kind of the optimization initiatives you discussed in the previous question, I'm tagging in on that as you are, focused on adding with a creative M&A. On the inverse, are there any portfolio assets that make sense to call to help structurally from a margin standpoint and overall strategy standpoint? Good morning, Kathryn.

Hi, Thank you for taking my questions and just following on kind of the optimization initiatives.

<unk> discussed in the previous question on <unk>.

Tagging in on that.

<unk>.

Our focus on adding with accretive in the mall.

The inverse.

Are there any.

Our portfolio of assets that.

Makes sense to call.

I'll help structurally from a margin standpoint, and overall stat sheet standpoint.

Yes, good morning, Catherine Thank you for joining our call and I appreciate it and yes, we have we're always looking for looking at our businesses and making sure that we're evaluating evaluating the businesses as it relates to being additive to our long term goals we have.

Russ Becker: Thank you for joining our call. I appreciate it. And yeah, we're always looking at our businesses and making sure that we're evaluating the businesses as it relates to being additive to our long-term goals. And we held a very small business for sale in the fourth quarter and expect to, you know, move forward and get that business sold here, hopefully, early in the first part of this year. And, and we continue to evaluate our portfolio every single day, just like we evaluate our branches. And, you know, from a branch perspective, the reality of it is that we really don't need to be anywhere, even though we may want to be somewhere. If we don't have the right leadership and can't solve for that leadership, we're not afraid to close down a branch.

We have a very small business for sale in the fourth quarter.

And expect to move forward and get that business.

Sold here hopefully.

Early in the first part of this year.

And we continue to evaluate our portfolio every single day, just like we evaluate our branches and.

From a from a branch perspective, the reality of it is we really don't need to be anywhere even though we may want to be someplace. If we don't have the right leadership and can't solve for that leadership.

Not afraid to close down our branch and not all of that kind of comes into the calculus as we look across the broader aspects of the entire company.

Russ Becker: And that all of that kind of comes into the calculus as we look across the broader aspects of the entire company. And we'd, from a branch perspective, we'd like to look at our branch performances on a rolling five-year average. And so we can see the trends, you know, which businesses are growing, which ones are flat, which ones are declining. And so we can evaluate leadership and make sure that we have the right business leaders, you know, at each individual branch level. So there's a lot that goes into it when you have as many branches as we do.

We'd like to from a branch perspective, we'd like to look at our branch performances on a rolling five year average and so we can see the trends, which businesses are growing which ones are flat, which ones are declining so.

So we can evaluate leadership to make sure that we have to have the right business leaders at each individual branch level. So there's a lot that goes into it when you have as many branches that we do.

Russ Becker: But, you know, we're not afraid to make changes as necessary, whether that's a branch or whether that's an existing business that's inside the portfolio. Okay, and just to clarify, today's transaction doesn't really change that strategy either for culling, but does it change your overall M&A strategy? Not at all. Not at all.

But.

We're not afraid to make changes as necessary, whether thats, a branch or whether that's in existing businesses inside the portfolio.

Okay, and just to clarify.

Today's transaction doesn't really change that strategy either for calling but also.

Does it change your overall M&A strategy.

Not at all not at all we feel that the transaction gives us the flexibility with our balance sheet to continue to move forward with our bolt on M&A strategy. So.

Russ Becker: We feel that the transaction gives us the flexibility with our balance sheet to continue to move forward with our bolt-on M&A strategy. So nothing changes as it relates to what we're trying to accomplish. Okay, perfect. Thanks so much.

Nothing changes.

As it relates to what we're what we're trying to accomplish there.

Okay perfect. Thanks, so much.

Operator: Thanks, guys. Our next question comes from Andy Kaplowitz from Citi Group. Your line is now open. Good morning, everyone. How are you?

Thanks, Kevin.

Our next question comes from Andy Kaplowitz from Citigroup. Your line is now open.

Good morning, everyone.

Good morning.

Good how are you Russ can you give more color into your verticals and safety is a slowing of growth that you have basically all your own actions comps or lower pass through as you guys said are you seeing any market related delays and then you previously talked about data centers semiconductors, EV and health care markets are you seeing any change in the piecing of.

Russ Becker: Russ, can you give more color to your verticals and safety? Is the slowing of growth basically all your own actions, comps, or lower pass through, as you guys said, or do you see any market related delays? And then you talked about data center, semiconductors, EV, and healthcare markets. Are you seeing any change in the pace of growth in those end markets? Like, for instance, have you seen an uptick in data center demand or a downtick in EV demand? So I would say that we saw more of that pacing in 2023, specifically in the data center space with a couple of the hyperscalers, and now you're seeing that kind of reverse itself in 2024, and with just the opportunities. We have a number of different data center facilities that are under design contracts, and we don't have the, you know, project-related or installation component of it yet.

Growth in those end markets like for instance have you seen an uptick in data center demand <unk> downtick in EV demand.

Yes, so I would say.

I would say that we saw more of that <unk> in 2023.

Specifically in the data center space with a.

A couple of Hyperscale.

And we're now youre seeing that kind of reverse itself in 2024.

And with just the opportunities we have a number of different data center facilities that were under design contract and we don't have the.

Project related or installation component of it yet.

Russ Becker: You know, the semiconductor space continues to provide, you know, robust opportunities. You saw a forward pullback a little bit on the EV space, but in general, the EV space remains very, very strong with demand really outpacing capacity. It's just a matter of being, you know, disciplined with where you're going to potentially put your resources. So we see, I believe that the outlook is really robust, and I think there's going to be plenty of opportunity, you know, as we work through the year. Russ, just to be clear on that commentary, do you want to get the project-related work for the hyperscalers? Like, how do you think about that? Just out of curiosity.

The semiconductor space continues to provide a robust opportunity.

He saw forward pull back a little bit in the EV space, but in general in the EV space remains very very strong with.

Along with demand really outpacing capacity is just a matter of being disciplined with where youre going to potentially put your resources. So.

We see.

I believe that the outlook is really robust.

I think there is theres going to be plenty of opportunity.

Work through the year.

Ross just to be clear does that commentary do you want to get the project related work for the Hyperscale or like how do you think about that just out of curiosity, yes.

Russ Becker: Yeah, for the right ones, you know, and, you know, we have certain customers in that space where we have the inspection and service work; we do the inspection and service work. And, you know, again, knowing our model, Andy, that we want to use inspections first, that's going to drive service work for us, and then building that sticky client relationship through doing a great job executing, which is going to create opportunities for you to position yourself where you're not competing for that business on price. And if you're competing for that business just on price, you know, we're not going to be able to, you know, achieve our margin expansion goals.

Yes for the right ones.

And.

We have we.

We have certain customers in that space, where we have the inspection service, we're doing these fashion and service work.

Again no.

Our modeling indeed that we want to use the <unk>.

Inspections first that's going to drive service work for US and then building that sticky client relationship.

Through through doing a great job of executing.

Which is going to create opportunities for you too.

<unk> yourself, where youre not competing for that business on price.

If you are competing for that business just on price.

We're not going to be able to achieve our margin expansion goals.

Russ Becker: And the best part about, you know, the hyperscalers, if you will, is that, as a general statement, you have a fairly sophisticated owner who is making decisions based on value. Price is obviously always a component of that, but essentially, it's your ability to execute and get the work done. That's all a big part of the calculus that they use when they're selecting their partners to do the work. So I think you have to just have, again, it goes back to customer selection, project selection, and making sure that you're choosing, you know, the right places to work. A lot of the project-related work also goes through the general contractor community. And you know, there is a significant project or customer selection criteria that goes into that as well. That's very helpful.

The best part about the Hyperscale orders, if you will.

As a general statement you have a fairly sophisticated owner.

Who is making decisions based on value.

Price is obviously always a component of that but essentially it's your ability to execute and get the work done we will get to work done safely.

That's all a big part of the calculus that they use when they are selecting their partners to do the work. So I think just again it goes back to this customer selection project selection and making sure that youre choosing the right places to work a lot of the project related work.

<unk> also goes through the general contractor community and.

<unk>.

There is.

These significant.

Projects or customer selection.

The criteria that goes goes into that.

Russ Becker: And then, Russ, maybe kind of a similar question for the specialty markets. As you know, organic growth has been sluggish in that business. You mentioned your diversification. When you look at the organic guide for 24, does specialty grow roughly at the same rate as safety, or, you know, how are you thinking about that when you think about the 2 to 5 percent for both segments? No, I mean, specialty. We expect organic growth and specialty to be lower than we expect it to be in safety. And it's really because of this disciplined customer. It's really in that space. It's really disciplined customer selection, more so than it is even project selection, to be honest with you, Andy. And, you know, even with, you know, some of your telecom customers, there's, you know, you have to be selective by geographic region because they're not all the same. You know, you might have great success with somebody in, say, New Jersey but not in New York.

Well.

Very helpful. And then maybe kind of a similar question for the specialty markets. As you know organic growth has been lumpy in that business. You mentioned your diversification. When you look at the organic guide for 'twenty for the specialty grill roughly at the same rate as safety or how you're thinking about that when you think about the 2% to 5% for both segments.

No I mean specialty.

Expect organic growth in specialty to be lower and we expect it to be and safety and it's really because of this discipline.

Customer, it's really in that space is really disciplined customer selection and assortment. It is even project selection to be honest with you Andy.

<unk>.

Even with.

Like even with some of your telecom.

Customers there is.

You have to be selective.

A geographic region, because theyre not all the same you might have great success with somebody in New Jersey, but not in New York and so.

Russ Becker: And so, you know, making sure that you're evaluating those different master service agreements and work programs that you're taking on really matters. And I would tell you that the segment leadership in specialty has done really quite an amazing job of bringing, you know, customer selection into the mix there. And again, I just go back to the fact that our business is very diverse, not only from a geographic perspective, but it's also very diverse in the service offerings. And different components of that have better, you know, gross margin opportunities than others.

Making sure that you are evaluating those different master service agreements and work programs that youre taking on.

Really really matters.

I would tell you that the segment leadership in specialty has done.

Really quite an amazing job.

With <unk>.

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Customer selection into the into the mix there.

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And again I'll just go back to the fact that our business is very diverse not only from a geographic perspective, but it's also very diverse and the service offerings.

Different components of that have better gross margin opportunities in others, and so understanding your customers understanding the geography, and making sure that you are being thoughtful.

Russ Becker: And so understanding your customers, understanding, you know, the geography and making sure that you're being thoughtful in how you approach it is what really matters at the end of the day. Appreciate all the color. Thanks, Andy. We are now closing the floor for questions and answers. I'd now like to hand back over to Ross Becker, Chief Executive Officer and President. Please go ahead.

And how you approach it is what really matters at the end of the day.

I appreciate all the color.

Thanks, Andy Thanks, Andy.

We are now closing the floor for a question and answer I'd now like to hand back over to Ross Becker, Chief Executive Officer and President. Please go ahead.

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

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

Operator: I'd 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 we look forward to updating you on our progress throughout the remainder of the year. Thank you again for joining the call this morning. Thank you for attending today's conference. Have a wonderful day. You may now disconnect.

I'd 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 we look forward to updating you on our progress throughout the remainder of the year. Thank you again for joining the call. This morning.

Thank you for attending today's conference have a wonderful day you may now disconnect.