Q2 2024 APi Group Corp Earnings Call

Operator: Good morning, ladies and gentlemen, and welcome to the APi Group's second quarter 2024 Financial Results Conference call. All participants are now in the listen-only mode until the question and answer session.

Operator: Good morning, ladies and gentlemen, and welcome to the APi Group's second quarter of 2024 financial results conference call. All participants are now in the lesson-only mode until the question-and-answer session. Please note that this call is being recorded.

Speaker Change: Good morning, ladies and gentlemen, and welcome to the APi Group's 2nd Quarter 2024 Financial Results Conference Call. All participants are now in the listen-only mode until the question-and-answer session.

Operator: I will be standing by should you need any assistance?

Speaker Change: Please note that this call is being recorded. I will be standing by should you need any assistance. I will now turn the call over to Adam Fee, Vice President of Investor Relations at APi Group. Please go ahead.

Adam Fee: I will turn the call over to Adam Fee, Vice President of Investor Relations at APi Group.

Adam Fee: Please go ahead. Thank you.

Operator: Please note that this call is being recorded. I will be standing by should you need any assistance. Thank you. Good morning, everyone. And thank you for joining our second quarter 2024 Earnings Conference Call. Joining me on the call today are Russ Becker, our President and CEO, Kevin Krumm, our Executive Vice President and Chief Financial Officer, and Sir Martin Franklin and Jim Lillie, our Board Co-Chairs. In our press release and filings with the SEC, we detail material risks that may cause our future results to differ from our expectations. Now, it is my pleasure to turn the call over to Russell. Thank you, Adam. Good morning, everyone.

Adam Fee: Good morning, everyone. And thank you for joining our second quarter 2024 earnings conference call. Joining me on the call today are Russ Becker, our President and CEO, Kevin Krumm, our Executive Vice President and Chief Financial Officer, and Sir Martin Franklin and Jim Lilly, our Board Co-Chairs.

Adam Fee: Thank you. Good morning, everyone, and thank you for joining our second quarter 2024 Earnings Conference Call. Joining me on the call today are Russ Becker, our President and CEO , Kevin Krumm, our Executive Vice President and Chief Financial Officer, and Sir Martin Franklin and Jim Lillie, our Board Co-Chairs.

Adam Fee: 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. And dissipated events or trends and other matters that are not historical facts. These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. In our press release and violence with the SEC, we detail material risks that make us our future results differ from our expectations.

Speaker Change: 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.

Speaker Change: These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

Speaker Change: In our press release and filings with the SEC, we detail material risks that may cause our future results to differ from our expectations.

Adam Fee: Our statements are as of today, August 1st, and we undertake no obligation to update any forward-looking statements we may make except as required by law.

Speaker Change: Our statements are as of today, August 1st, and we undertake no obligation to update any forward-looking statements we may make, except as required by law.

Adam Fee: As a reminder, we have posted a presentation detail on our second quarter financial performance on the Investor Relations page of our website. Our comments today will also include non-GAAP financial measures and other operating key metrics. The reconciliation of and other information regarding these items can be found in our press release and our presentation.

Speaker Change: As a reminder, we have posted a presentation detailing our second quarter financial performance on the Investor Relations page of our website. Our comments today will also include non-GAAP financial measures and other operating key metrics.

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

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

Russell Becker: Thank you, Adam.

Russell Becker: Thank you for taking the time to join our call this morning. Before getting into the results, I wanted to thank our 29,000 leaders for their hard work and dedication to API. The safety, health, and well-being of each of our leaders remains our number one value.

Russell Becker: Good morning, everyone. Thank you for taking the time to join our call this morning. Before getting into the results, I wanted to thank our 29,000 leaders for their hard work and dedication to API. The safety, health, and well-being of each of our leaders remains our number one value. We continue to prioritize investing in the men and the women in the field as human beings and aim to provide each of them with training, leadership development, and advancement opportunities. At API, our field leaders have careers, not just a job. We prioritize this investment because we recognize that our success happens only when our branches and field leaders are successful.

Russ: Thank you, Adam. Good morning, everyone. Thank you for taking the time to join our call this morning.

Russ: Before getting into the results, I wanted to thank our 29,000 leaders for their hard work and dedication to API.

Russ: The safety, health, and well-being of each of our leaders remains our number one value. We continue to prioritize investing in the men and the women in the field as human beings and aim to provide each of them with training, leadership development, and advancement opportunities.

Russell Becker: We continue to prioritize investing in the men and the women in the field as human beings and aim to provide each of them with training, leadership development, and advancement opportunities. At API, our field leaders have careers, not just a job. We prioritize this investment because we recognize that our success happens only when our branches and field leaders are successful. This commitment is one of the foundational principles we believe will continue to enhance shareholder value. We remain committed to our long-term 136080 value creation targets, and we believe these will lead to outsized investor returns through 2025 and beyond.

Russ: At APi, our field leaders have careers, not just a job. We prioritize this investment because we recognize that our success happens only when our branches and field leaders are successful.

Russell Becker: This commitment is one of the foundational principles we believe will continue to enhance shareholder value. We remain committed to our long-term 136080 value creation targets. We believe these will lead to outside investor returns through 2025 and beyond.

Russ: This commitment is one of the foundational principles we believe will continue to enhance shareholder value.

Russ: We remain committed to our long-term 1360-80 value creation targets.

Russ: We believe these will lead to outsized investor returns through 2025 and beyond. As a reminder, these include the following. Adjusted EBITDA margin of 13% or more in 2025. Long-term organic revenue growth above the industry average.

Russell Becker: As a reminder, these include the following adjusted EBITDA margin of 13% or more in 2025 and long-term adjusted free cash flow conversion of 80 percent. As I mention often with both investors and our team, we are relentlessly focused on driving this strategy with a specific focus on achieving 13% plus adjusted EBITDA margins by 2025, which we remain confident in achieving. To be clear, we view 13% as our next checkpoint, not the ending destination on a long-term margin expansion journey.

Russell Becker: As a reminder, these include the following. 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. Long-term adjusted free cash flow conversion of 80%. as I mentioned often with both investors and our team, we are relentlessly focused on driving this strategy with a specific focus of achieving 13% plus adjusted EBITDA margins by 2025, which we remain confident in achieving. To be clear, we view 13% as our next checkpoint, not the ending destination in a long-term margin expansion journey.

Russ: long-term revenues of 60% from inspection, service, and monitoring, and long-term adjusted free cash flow conversion of 80%.

Russ: As I mention often with both investors and our team, we are relentlessly focused on driving this strategy with a specific focus of achieving 13% plus adjusted EBITDA margins by 2025, which we remain confident in achieving.

Russell Becker: As we move closer to the achievement of this goal, we expect to plan an investor update on our new targets and opportunities in early 2025. During today's call, I will begin my remarks by briefly commenting on our second quarter results as well as our continued progress towards delivering on our stated strategic goals in a macro environment that continues to be volatile.

Russell Becker: As we move closer to the achievement of this goal, we expect to plan an investor update on our new targets and opportunities in early 2025. I will then touch on our recent M&A activity and our focus on long-term organic growth before turning the call over to Kevin, who will walk through our financial results and guidance in more detail. Turning to the second quarter, APi delivered strong results by executing our strategy focused on margin expansion and free cash flow generation.

Russ: During today's call, I will begin my remarks by briefly commenting on our second quarter results, as well as our continued progress towards delivering on our stated strategic goals in a macro environment that continues to be volatile.

Russell Becker: I will then touch on our recent M&A activity and our focus on long-term organic growth before turning the call over to Kevin, who will walk through our financial results and guidance in more detail. Turning to the second quarter, APi delivered strong results by executing our strategy focused on margin expansion and free cash flow generation. We achieved record second quarter adjusted EBITDA dollars and margin, as well as record adjusted free cash flow dollars and conversion in an evolving macro environment. Net revenues declined by approximately 2% in the quarter compared to 7% plus growth in the prior year period.

Russell Becker: As we have discussed over the past year, we have been strategically slowing revenue growth to focus on more profitable projects. The team has done an excellent job with this initiative, particularly in our international HVSE and specialty services businesses. This quarter, a combination of federal funding, permitting, and some customer delays contributed to the reduction in project revenue. We believe these delays are temporary timing shifts, not cancellations, and we expect the impacted revenue to still contribute to our full year 2024 revenue in a meaningful way. With nearly all of the planned revenues slowing and project delays behind us, our teams are focused on healthy organic growth in the back half of this year and in 2025.

Russell Becker: As we have discussed over the past year, we have been strategically slowing revenue growth to focus on more profitable projects. This quarter, a combination of federal funding, permitting, and some customer delays contributed to the reduction in project revenue.

Russ: As we have discussed over the past year, we have been strategically slowing revenue growth to focus on more profitable projects. The team has done an excellent job with this initiative, particularly in our international HVAC and specialty services businesses.

Russ: We believe these delays are temporary timing shifts, not cancellations, and we expect the impacted revenue to still contribute to our full year 2024 revenue in a meaningful way.

Russ: With nearly all of the planned revenues flowing and project delays behind us, our teams are focused on healthy organic growth in the back half of this year and in 2025.

Russell Becker: I've said before that backlog would not be a great indicator of the momentum in our business while we double down on our disciplined customer and project selection initiative. And while we don't plan to provide backlog commentary on a regular basis, I wanted to share that at the end of the second quarter, our backlog was up $500 million versus the end of the year and much healthier from an expected profitability perspective. The work the team has done in transforming our backlog and re-accelerating its growth gives me confidence in the direction we are heading as a business.

Russ: I've said before that backlog would not be a great indicator of the momentum in our business while we double down on our disciplined customer and project selection initiative.

Russ: And while we don't plan to provide backlog commentary on a regular basis, I wanted to share that at the end of the second quarter, our backlog was up $500 million versus the end of the year, and much healthier from an expected profitability perspective.

Russ: The work the team has done in transforming our backlog and re-accelerating its growth gives me confidence in the direction we are heading as a business.

Russell Becker: I am pleased to report that U.S. Life safety once again led the way from a growth perspective, where we had a record quarter of inspection revenue driven by continued double-digit organic growth, which we have achieved for 16 straight quarters. This is critical as these inspection revenues drive recurring higher margin service revenues and help API make progress towards our 60% target for inspection service and monitoring revenue. In line with our strategic initiatives, we continue to see strong year-over-year improvements in adjusted gross margin and adjusted EBITDA margin in the second quarter, up 340 and 190 basis points, respectively.

Russ: This is critical as these inspection revenues drive recurring higher margin service revenues and help API make progress towards our 60% target for inspection, service, and monitoring revenues.

Russ: In line with our strategic initiatives, we continue to see strong year-over-year improvements in adjusted gross margin and adjusted EBITDA margin in the second quarter, up 340 and 190 basis points respectively.

Russell Becker: I am pleased with the leadership team's ongoing commitment to driving gross margin improvements through the following: pricing, improved inspection, service and monitoring revenue mix, disciplined customer and project selection, job value capture, procurement, systems and scale, a creative M&A, and selective business pruning. And, as I like to say, we can always just be better. The International Life Safety Business continues to show steady progress with another quarter of organic growth, which that business has achieved in each quarter since the acquisition, even as we challenge the team to be intentional about targeting only work that is additive to achieving our 2025 adjusted EBITDA margin targets.

Russell Becker: I am pleased with the leadership team's ongoing commitment to driving gross margin improvements through the following: Disciplined Customer and Project Selection. The international life safety business continues to show steady progress with another quarter of organic growth, which that business has achieved in each quarter since the acquisition, even as we challenge the team to be intentional about targeting only work that is additive to achieving our 2025 adjusted EBITDA margin target. During the second quarter, we crossed the 50% mark in terms of realizing the savings from our $125 million value-captured target and have taken actions associated with approximately $90 million of run rate

Russ: Pricey.

Russ: Disciplined Customer and Project Selection

Speaker Change: Chubb 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: The international life safety business continues to show steady progress with another quarter of organic growth, which that business has achieved in each quarter since the acquisition even as we challenge the team to be intentional about targeting only work that is additive to achieving our 2025 adjusted EBITDA margin targets.

Russell Becker: Additionally, the $125 million value capture plan, which is another key contributor to our 13% or more target, remains on track. During the second quarter, we cross the 50% mark in terms of realizing the savings from a $125 million value captured target and have taken actions associated with approximately $90 million of run rate savings.

Russ: Additionally, the $125 million value capture plan, which is another key contributor to our 13% or more target, remains on track.

Russell Becker: API's consistently strong financial results speak to the direction we are heading in and the strength of the company's recurring revenue services-focused business model, as well as the discipline of the organization and its leadership team. Moving on to M&A. In addition to Elevated, our bolt-on M&A strategy continues to progress. Through the second quarter, we have closed six bolt-on acquisitions with an average EBITDA multiple of approximately five times.

Russell Becker: APIs consistently strong financial results speak to the direction we are heading in and a strength of the company's recurring revenue services focus business model, as well as the discipline of the organization and its leadership team. Moving on to M&A, we closed on the acquisition of Elevated Facility Services in early June, and it has been rewarding welcoming the team to API. We remain excited for the opportunity to build onto the elevated platform and become a leader in the elevator and escalator service market. In addition to elevated, our bolt-on M&A strategy continues to progress. Through the second quarter, we have closed six bolt-on acquisitions with an average EBITDA multiple of approximately five times.

Russ: API's consistently strong financial results speak to the direction we are heading in and the strength of the company's recurring revenue services-focused business model, as well as the discipline of the organization and its leadership team.

Russ: Moving on to M&A.

Russ: In addition to elevated, our bolt-on M&A

Russ: Through the second quarter, we have closed six bolt-on acquisitions with an average EBITDA multiple of approximately five times. The markets we operate in are highly fragmented, and the team remains focused on identifying the most attractive opportunities within our robust M&A pipeline.

Russell Becker: The markets we operate in are highly fragmented, and the team remains focused on identifying the most attractive opportunities within our robust M&A pipeline. Our free cash flow generation in EBITDA growth in the first half of the year gives us confidence in our ability to reduce net leverage below our target of approximately two and a half times by the end of the year, while we continue to execute our M&A strategy.

Russell Becker: The markets we operate in are highly fragmented, and the team remains focused on identifying the most attractive opportunities within our robust M&A pipeline. Our free cash flow generation and EBITDA growth in the first half of the year gives us confidence in our ability to reduce net leverage below our target of approximately two and a half times by the end of the year, while we continue to execute our M&A strategy. With an expected adjusted free cash flow of over $600 million in 2024, we remain committed to our capital allocation priorities, which remain as follows, deleveraging to our net leverage target of 2.5 times adjusted EBITDA.

Russell Becker: With expected adjusted free cash flow of over $600 million in 2024, we remain committed to our capital allocation priorities, which remain as follows. De-leveraging to our net leverage target of 2.5 times adjusted EBITDA. Growing our business through executing our M&A strategy, and finally, repurchasing our shares. As an update and reflective of the share repurchase activity undertaken in the first six months of 2024, API has approximately $400 million remaining under our share repurchase authorization of the 2020-24.

Russell Becker: Growing our business through executing our M&A strategy and finally, repurchasing our shares. As an update and reflective of the share repurchase activity undertaken in the first six months of 2024, API has approximately $400 million remaining under our share repurchase authorization of the billion-dollar authorization from February of 2024.

Russ: As an update and reflective of the share repurchase activity undertaken in the first six months of 2024, API has approximately $400 million remaining under our share repurchase authorization of the billion dollar authorization from February of 2024.

Russell Becker: In summary, while we remain focused on building on the execution of our strategy in the back half of the year, I am proud of our team and how we delivered on our commitments and produced record EBITDAB and free cash flow so far in 2024. A decline of 2.3% from 1.77 billion in the prior year period. Organic decline of 3.1% against a comparison of 7.6% growth in Q2 2023 was driven by discipline customer project selection and project delays in our specially segment. The result of this was a 9% organic decline in project revenues. This was partially offset by organic growth of 2.4% in services revenue.

Kevin Krumm: In summary, while we remain focused on building on the execution of our strategy in the back half of the year, I am proud of our team and how we have delivered on our commitments and produced record EBITDA and free cash flow so far in 2024. I would now like to hand the call over to Kevin to discuss our financial results and guidance in more detail.

Kevin Krumm: Thanks, Russ. Good morning, everyone. Reported revenues for the three months ended June 30, 2024, were $1.73 billion. An organic decline of 2.3% from 1.77 billion in the prior year period. An organic decline of 3.1% against a comparison of 7.6% growth in Q2 2023 was driven by disciplined customer and project selection and project delays in our specialty sales. The result of this was a 9% organic decline in project revenues.

Kevin Krumm: This was partially offset by organic growth of 2.4% in services revenue. Adjusted gross margin for the three months ended June 30, 2024, grew to 31.7%, representing a 340 basis point increase compared to the prior year period, driven by price increases, outsized growth, and higher-margin services revenue, as well as a significant margin expansion in both service and project revenues across both segments. Adjusted EBITDA increased by 13.8% for the three months ended June 30, 2024, with adjusted EBITDA margin coming in at 13.4%, representing a 190 basis point increase compared to the prior year period, primarily due to the increase in adjusted gross margins, partially offset by lower fixed cost absorption driven by lower revenue. Adjusted diluted earnings per share for the second quarter was $0.49 per share, representing an $0.08 per share, or a 20% increase, compared to the prior year period.

Russ: Thanks, Russ. Good morning, everyone.

Speaker Change: Organic decline of 3.1% against a comparison of 7.6% growth in Q2 2023 was driven by disciplined customer and project selection and project delays in our specialty segment.

Russell Becker: Adjusted growth margin for the three months into June 30, 2024 grew to 31.7%, representing a 340 basis point increase compared to the prior year period, driven by price increases, outsized growth and higher margin services revenue, as well as a significant margin expansion in both service and project revenues across both segments. Adjusted EBITDA increase by 13.8% for the three months ended June 30, 2024, with adjusted EBITDA margin coming in at 13.4%, representing a 190 basis point increase compared to the prior year period. Primarily due to the increase in adjusted growth margins, partially offset by lower fixed cost absorption driven by lower revenues.

Russ: Adjusted gross margin for the three months into June 30, 2024, grew to 31.7%.

Russ: representing a 190 basis point increase compared to the prior year period, primarily due to the increase in adjusted gross margins partially offset by lower fixed cost absorption driven by lower revenues.

Russell Becker: Adjusted deluded earnings per share for the second quarter was 49 cents per share, representing an 8 cents per share or 20% increase compared to the prior year period. The increase was driven by strong margin expansion in safety services and decreased interest expense, partially offset by higher adjusted diluted weighted average shares outstanding.

Kevin Krumm: The increase, which was driven by strong margin expansion in safety services and decreased interest rates, was partially offset by higher adjusted diluted weighted average shares outstanding. I will now discuss our results in more detail for safety services. Adjusted gross margins for the three months ended June 30, 2024, were 35.3%, representing a 290 basis point increase compared to the prior year period, driven by price increases, an improved business mix of inspection service and monitoring revenue, as well as significant margin expansion in both service and project revenue. Adjusted EBITDA increased by 26.4% for the three months ended June 30, 2024.

Russ: partially offset by higher adjusted diluted weighted average shares outstanding.

Russell Becker: I will now discuss our results in more detail for safety services. Safety services reported revenues for the three months ended June 30, 2024, increased by 4.4%, to 1.28 billion compared to 1.23 billion in the prior year period. Organic growth of 1.5% compared to organic growth of 7.3% in Q2 2023 was driven by strength in US life safety, where we once again posted double-digit inspection growth and 8% organic growth in inspection service and monitoring revenues. This was partially offset by a double digit decline in age back revenues driven by discipline customer and project selection and by plans customer attrition in our international business.

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

Speaker Change: This was partially offset by a double-digit decline in HVAC revenues driven by disciplined customer and project selection and by planned customer attrition in our international business.

Russell Becker: Adjusted growth margins for the three months ended June 30, 2024, was 35.3%, representing a 290 basis point increase compared to the prior year period, driven by price increases, improved business mix of inspection service and monitoring revenue, as well as significant margin expansion in both service and project revenue. Justice EBITDA increased by 26.4% for the three months into June 30, 2024, and adjusted EBITDA margin was 15.7%, representing a 270 basis point increase compared to the prior year period. This was primarily due to the increase in adjusted gross margins and was partially offset by headlines from operating costs, which grew faster than revenues.

Speaker Change: Adjusted gross margins for the three months ended June 30, 2024, was 35.3%.

Kevin Krumm: And adjusted EBITDA margin was 15.7%, representing a 270 basis point increase compared to the prior year period. This was primarily due to the increase in adjusted gross margins and was partially offset by headwinds from operating costs, which grew faster than revenue. I will now discuss our results in more detail for specialty services. Service revenues were down 10% due to the exited customer relationship discussed last quarter.

Speaker Change: This was primarily due to the increase in adjusted gross margins and was partially offset by headwinds from operating costs, which grew faster in revenues.

Speaker Change: I will now discuss our results in more detail for specialty services.

Russell Becker: Specialty services reported revenues for the three months into June 30, 2024, decreased by 18.4% to 453 million compared to 555 million in the prior year period. Organic revenue declined 15.3% against the comparison of 7% growth in Q2 2023, driven by a 21% decline in project revenues due to our ongoing efforts regarding disciplined project selection, as well as a combination of federal funding delays, permitting delays, and customer delays. Service revenues were down 10% due to the exit of customer relationship discussed last quarter. Adjusted for this, customer service revenues were essentially flat in quarter. Adjusted gross margins for the three months ended June 30, 2024, was 21.4%, representing a 230 basis point increase compared to the prior year period, driven by discipline, customer and project selection driving solid margin expansion in project and service revenues.

Speaker Change: Specialty services reported revenues for the three months ended June 30, 2024 decreased by 18.4% to $453 million compared to $555 million in the prior year period.

Speaker Change: Service revenues were down 10% due to the exited customer relationship discussed last quarter. Adjusted for this customer, service revenues were essentially flat in the quarter.

Kevin Krumm: Adjusted for this customer, service revenues were essentially flat in the quarter. Adjusted gross margins for the three months ended June 30, 2024 were $21.4, representing a 230 basis point increase compared to the prior year period driven by disciplined customer and project selection driving solid margin expansion. Project and Service Revenue. Adjusted EBITDA decreased by 10.1% for the three months ended June 30, 2024, due to lower revenues. The adjusted EBITDA margin was 13.7%, representing a 130 basis point increase compared to the prior year period, primarily due to the increase in adjusted gross margins, partially offset by lower fixed cost absorption.

Speaker Change: Adjusted gross margins for the three months ended June 30, 2024, was 21.4 percent.

Russell Becker: Adjusted EBITDA decreased by 10.1% for the three months ended June 30, 2024, due to lower revenues, and adjusted EBITDA margin was 13.7%, representing a 130 basis point increase compared to the prior year period, primarily due to the increase in adjusted gross margins, partially offset by lower fixed cost absorption.

Speaker Change: primarily due to the increase in adjusted gross margins, partially offset by lower fixed cost absorption.

Russell Becker: I'll now touch on cash flows. We continue to focus on driving free cash flow conversion improvements year over year, and I'm pleased with the progress to date in 2024. For the three months ended June 30, 2024, adjusted free cash flow came in at 122 million, reflecting an improvement of 31 million versus the prior year and adjusted free cash flow conversion of 53%. For the first six months of the year, we increased adjusted free cash flow conversion by 43 million dollars compared to the prior year period. Free cash flow generation has been and continues to be a priority across all of API, and our performance in the first half of the year positions us well to deliver on our 2024 guidance of approximately 70% adjusted free cash flow conversion, representing an adjusted free cash flow delivery of over 600 million.

Kevin Krumm: I'll now touch on cash flows. We continue to focus on driving free cash flow conversion improvements year over year, and I'm pleased with the progress to date in 2024. For the three months ended June 30, 2024, adjusted free cash flow came in at $122 million, reflecting an improvement of $31 million versus the prior year and adjusted free cash flow conversion of 53%. For the first six months of the year, we increased adjusted free cash flow conversion by $43 million compared to the prior year period.

Speaker Change: I'll now touch on cash flows.

Kevin Krumm: Free cash flow generation has been and continues to be a priority across all of API, and our performance in the first half of the year positions us well to deliver on our 2024 guidance of approximately 70% adjusted free cash flow conversion, representing an adjusted free cash flow delivery of over $600 million at the midpoint of our updated adjusted EBITDA. At the end of Q2, our net debt to adjust the EBITDA ratio was approximately 2.7 times, taking into account the elevated acquisition and second quarter financing activities.

Russell Becker: At the midpoint of our updated adjusted EBITDA guide. At the end of Q2, our net debt to adjust the EBITDA ratio was approximately 2.7 times, taken into account the elevated acquisition and second quarter financing activities.

Speaker Change: representing an adjusted free cash flow delivery of over 600 million at the midpoint of our updated adjusted EBITDA guide.

Russell Becker: As a reminder, the back half of the calendar year is seasonally our strongest adjusted free cash flow generation, and we expect that trend to continue this year, with second half free cash flow allowing us to continue de-leveraging to below our stated long-term net leverage target of two and a half times by year.

Kevin Krumm: As a reminder, the back half of the calendar year is seasonally our strongest adjusted free cashflow generation, and we expect that trend to continue this year with second half free cashflow allowing us to continue deleveraging to below our stated long-term net leverage target. I will now discuss our guidance for Q3 and full year 2024. We continue to expect full-year reported net revenues of $7.15 to $7.35 billion at current currency expectations. With the push-out of certain projects driven by funding, permitting, and other related delays as discussed by Russ, our current view is that full-year revenue will be closer to the low end of our guidance.

Kevin Krumm: I will now discuss our guidance for Q3 in full year 2024. We continue to expect full year reported net revenues of 7.15 to 7.35 billion at current currency expectations. With the push out of certain projects driven by funding, permitting, and other related delays, as discussed by Ross, our current view is that the full year revenue will be closer to the low end of our guidance. Having said that, we remain confident in the margin profile and performance of the business, which is why we have brought up the bottom end of our adjusted EBITDA range by $10 million.

Speaker Change: We continue to expect full-year reported net revenues of $7.15 to $7.35 billion at current currency expectations.

Speaker Change: With the push out of certain projects driven by funding, permitting, and other related delays as discussed by Russ, our current view is that the full year revenue will be closer to the low end of our guidance.

Kevin Krumm: Having said that, we remain confident in the margin profile and performance of the business, which is why we have brought up the bottom end of our adjusted EBITDA range by $10 million. This is reflected in our narrowed full year adjusted EBITDA guide of $855 to $915 million and represents adjusted EBITDA growth of approximately 13% to 17% on a fixed currency basis. In terms of Q3, we expect reported net revenues of $1.86 to $1.91 billion.

Russ: Having said that, we remain confident in the margin profile and performance of the business, which is why we have brought up the bottom end of our adjusted EBITDA range by $10 million.

Kevin Krumm: This is reflected in our narrow full year adjusted EBITDA guide of 8.55 to 9.15 million and represents adjusted EBITDA growth of approximately 13 to 17% on a fixed currency basis. In terms of Q3, we expect reported net revenues of 1.5 billion and 1.86 to 1.91 billion. The guidance represents reported net revenue growth of 4% to 7% and organic net revenue growth of 2% to 5%. We expect Q3 adjusted EBITDA of 240 to 250 million, which represents adjusted EBITDA growth of approximately 7% to 12% on a fixed currency basis. For 2024, we anticipate full year interest expense to be approximately 145 million, depreciation to be approximately 80 million, capital expenditures to be approximately 95 million, and our adjusted effective tax rates to be approximately 23%.

Speaker Change: This is reflected in our narrowed, full-year adjusted EBITDA guide of $855 to $915 million and represents adjusted EBITDA growth of approximately 13% to 17% on a fixed currency basis.

Kevin Krumm: The guidance represents reported net revenue growth of 4% to 7% and organic net revenue growth of 2% to 5%. We expect Q3 adjusted EBITDA of $240 to $250 million, which represents adjusted EBITDA growth of approximately 7% to 12% on a fixed currency basis. For 2024, we anticipate full-year interest expense to be approximately $145 million, depreciation to be approximately $80 million, capital expenditures to be approximately $95 million, and our adjusted effective tax rate to be approximately $23 million.

Kevin Krumm: We expect our adjusted diluted average share count for the year to be approximately 279 million.

Speaker Change: We expect our adjusted diluted average share count for the year to be approximately $279 million.

Kevin Krumm: Overall, we are pleased with the team's execution of our strategy in the evolving macro-environment during the second quarter and first half of 2024. I look forward to sharing more updates on our progress as we move throughout the year.

Speaker Change: Overall

Speaker Change: We are pleased with the team's execution of our strategy in an evolving macro environment during the second quarter and first half of 2024.

Russell Becker: I look forward to sharing more updates on our progress as we move throughout the year. I'll now turn the call back over to Russ. The business continues to perform well, with record-adjusted EBITDA margin and free cash flow generation. We believe we can create sustainable shareholder value by focusing on our 1360-80 long-term value creation targets. And we feel confident in our ability to achieve our 13% or more adjusted EBITDA margin target in 2025.

Russell Becker: I'll now turn the call back over to us.

Speaker Change: I look forward to sharing more updates on our progress as we move throughout the year. I'll now turn the call back over to Russ.

Russell Becker: Thanks, Kevin. As you've heard, API delivered strong financial results in the second quarter and first half of the year. The business continues to perform well with record adjusted EBITDA margin and free cash flow generation.

Russ: Thanks, Kevin. As you've heard, API delivered strong financial results in the second quarter and first half of the year.

Russell Becker: I'm confident in our leader's ability to generate continued momentum in the business, build on historically strong execution, consistently drive margin expansion, and return to historical levels of organic growth in the back half of the year and into 2025. We believe we can create sustainable shareholder value by focusing on our 136080 long-term value creation targets, and we feel confident in our ability to achieve our 13% or more adjusted EBITDA margin target in 2025.

Russ: I'm confident in our leaders' ability to generate continued momentum in the business, build on historically strong execution, consistently drive margin expansion, and return to historical levels of organic growth in the back half of the year and into 2025.

Operator: With that, I would now like to turn the call back over to the operator and open the call up for Q&A. Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and listening by a loud speaker on your device, please pick up your handset and ensure that your phone is not on use when asking your question.

Russell Becker: With that, I would now like to turn the call back over to the operator and open the call up for Q&A. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

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

Speaker Change: Thank you. We will now begin the question and answer session.

Speaker Change: If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.

Speaker Change: If you are called upon to ask your question and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, please press star 1 to join the queue.

Operator: Again, please press star one to join the queue.

Operator: Again, please press star 1 to join the queue. Hi, thank you for taking my questions today. Just to get kicked off, you discussed project delays impacting the top line for the quarter. However, feedback from the field from TRG contacts has been that projects are seeing some delays, but not cancellations. Could you give more color on whether these projects are just delays or cancellations? In addition, could you discuss what you're seeing in the back half of the year, essentially what gives you confidence for that full year guidance? Thank you. Thanks, Kathryn, and thank you for your continued support.

Kathryn Thompson: Your first question comes from the line of Kathryn Thompson, of Thompson Research Group. Please go ahead. Hi, thank you for taking my questions today. And just to get kicked off, you have discussed project delays impacting the top line for the quarter. The feedback from the field from CAREG contacts has been that projects are seeing some delays, but not cancellations. Could you give more color on whether these projects are just delays or cancellations? In addition, could you discuss what you're seeing in the back half of the year, essentially what gives you confidence for that full-year guidance?

Speaker Change: Your first question comes from the line of Kathryn Thompson of Thompson Research Group. Please go ahead.

Kathryn Thompson: Hi, thank you for taking my questions today. Just to get kicked off, you had discussed project delays impacting the top line for the quarter. Feedback from the field from TRG contacts has been that projects are seeing some delays but not cancellations.

Kathryn Thompson: Thank you.

Russell Becker: Thanks, Kathryn, and thank you for your continued support. It's a great question, and I just, I want to start by level setting with everyone that we are not a project's first company, and we are focused on growing our services business, and that's why we're comfortable beginning our, we were comfortable with beginning our work on customer and project selection last summer to build a healthier book of business. For some context on the quarter, the delays were a mix of funding, permitting, and scope changes, pushing back the anticipated start times for certain projects across the business, but none of these projects are cancellations.

Russell Becker: I want to start by stating with everyone that we are not a project-first company, and we are focused on growing our services business. That's why we were comfortable with beginning our work on customer and project selection last summer to build a healthier book of business. For some context on the quarter, the delays were a mix of funding, permitting, and scope changes pushing back the anticipated start times for certain projects across the business. But none of these projects are cancellations.

Speaker Change: It's a great question and I just I want to start by level-setting with everyone that we are not a projects first company.

Speaker Change: and we are focused on, you know, growing our services business. And that's why we're comfortable beginning our, we were comfortable with beginning our work on customer and project selection last summer to build a healthier book of business.

Russell Becker: And in most cases, the issues causing the delays have been resolved, but we feel like we're about 90 days behind where we expected to be. And that's why Kevin commented that we were tracking towards the low end of our full-year revenue guidance. Regarding confidence, I mean, we have really good confidence.

Russell Becker: And in most cases, the issues causing the delays have been resolved, but we feel like we're about 90 days behind where we expected to be, and that's why Kevin commented that we were tracking towards the low end of our full-year guide for revenue. Regarding confidence, I mean, we have really good confidence. I feel like the business is in a really good place today, as we move into the back half of the year as we work our way through some of these delays. Our backlog is growing, and I mentioned in my remarks that it's increased by more than $500 million since the start of the year. And the best part about it is it's healthier.

Kathryn Thompson: But none of these projects are cancellations, and in most cases, the issues causing the delays have been resolved, but we feel like we're about 90 days behind where we expected to be, and that's why Kevin commented that we were tracking towards the low end of our full year guide for revenue.

Russell Becker: I feel like the business is in a really good place today. As we move into the back half of the year, as we work our way through some of these delays, our backlog is growing. And I mentioned in my remarks that it's increased by more than $500 million since the start of the year. And the best part about it is that it's healthier.

Speaker Change: Regarding confidence, I mean...

Kevin: We have really good confidence. I feel like the business is in a really good place today as we move into the back half of the year, as we work our way through some of these delays.

Speaker Change: Our backlog is growing.

Speaker Change: And I mentioned in my remarks that it's increased by, you know, more than $500 million since the start of the year.

Russell Becker: And so some of the customer attrition and some of the work that we've had to do to raise prices and make sure that we're working for the right clients, I mean, sometimes that's hard. And some of those changes are hard. But I feel like our team and our business has really, really managed their way through that. And sometimes when you have some of these delays, you end up still trying to manage what you are going to do with the people and the field leaders that you would utilize on those existing projects. And it makes it more challenging to navigate those waters.

Kevin Krumm: And so some of the customer attrition, and some of the work that we've had to do to raise pricing and make sure that we're working for the right clients. I mean, sometimes that's hard, and some of those changes are hard, but I feel like our team and our business has really, really managed their way through that. And sometimes, when you have some of these delays, you end up still trying to manage what are you going to do with the people in the field leaders that you would utilize on those existing projects, and it makes it more challenging to navigate those waters.

Speaker Change: And the best part about it is it's healthier. And so some of the customer attrition and some of the work that we've had to do to raise pricing and make sure that we're working for the right clients, I mean, sometimes that's hard.

Speaker Change: And some of those changes are hard, but I feel like our team and our business has really managed their way through that.

Kevin Krumm: And I feel like I said our team has done a really good job. So I feel like we're growing momentum as we are heading into the quarter and into the back half of the year. We're just sitting a little bit behind where we thought we would be last time we talked. So I don't know, Kevin, would you add anything to that?

Speaker Change: Like, we're growing momentum as we are heading, you know, into the quarter and into the back half of the year. We're just sitting a little bit behind where we thought we would be, you know, last time we talked. So, I don't know. Kevin, would you add anything to that?

Kevin Krumm: Sure, yeah, hey, good morning, Catherine. The first thing I would say is Adam pointed out, I actually misspoke on the call. We brought up the bottom end of our EBITDA range to $885 million. I think I said $85 million on the call. So apologies for that, but our bottom end of our range is $885 million, or current range is $885 to $9.5.

Russell Becker: And I feel like, like I said, our team has done a really good job. So I feel like we're building momentum as we are heading into the quarter and into the back half of the year. We're just sitting a little bit behind where we thought we would be last time we talked. So I don't know, Kevin, would you add anything to that? Sure, yeah. Hey, good morning, Catherine.

Kevin Krumm: First thing I would say, as Adam pointed out, I actually misspoke on the call. We brought up the bottom end of our EBITDA range to $885 million. I think I said $855 million on the call, so apologies for that. But the bottom end of our range is $885 million. So our current range is $885 to $915. Yeah, Russ talked about momentum in our business. I would say even in Q2, as we missed or were off the midpoint of our guide from a revenue standpoint, we over-delivered on margins.

Kevin: Sure, yeah, hey, good morning, Kathryn. First thing I would say, as Adam pointed out, I actually misspoke on the call. We brought up the bottom end of our EBITDA range to 885 million.

Kevin: I think I said 855 million on the call, so apologies for that. But our bottom end of our range is 885 million, so our current range is 885 to 915.

Kevin Krumm: Yeah, we'll talk about the momentum in our business. I would say even in Q2, as we missed, or we're off, or the midpoint of our guide from a revenue standpoint, we over-delivered at margins. Our margins continue to hang in there and perform really well. And that's what gives us confidence even as we move into the third quarter here, that we're going to be able to continue to sort of drive margin expansion year on year, and sort of outsize performance with respect to margins. Some of the elements that helped us in the second quarter cap run were the work we did do, and we closed out; we closed out at higher margins than expectations.

Speaker Change: Yeah, Russ talked about momentum in our business. I would say, even in Q2, as we missed

Kevin Krumm: Our margins continue to hang in there and perform really well. And that's what gives us confidence, even as we move into the third quarter here, that we're going to be able to continue to drive margin expansion year on year and outsize performance with respect to margins. Some of the elements that helped us in the second quarter were the work we did do and the work we closed out.

Kevin Krumm: We closed out at higher margins than expectations. So the teams continue to execute. Even on what we expect to be higher-margin project work, they're executing above expectations. Also, from a cost standpoint, our international team has done a really good job continuing to manage costs and accelerating their value capture as they move through the year. So that's been favorable, and we expect that to continue. And then we did see favorable business mix impacts at margins just due to our service business growing at a higher rate than our projects business.

Kevin Krumm: So the teams continue to execute, even on what we expected to be higher margin project work. They're executing above expectations. Also from a cost standpoint, our international team has done a really good job continuing to manage costs and accelerating their value capture as they've moved through the years, so that's been favorable. We expect that to continue, and then we did see favorable business mix impacts that margins just due to the service growing at a higher rate than our projects business. As our projects business ramps up in the third quarter, we would expect that margin impact to be favorable as well as we move in the back half of the year. So all in, as we said, we feel good about margins and our ability to execute in the back half of the year as well.

Speaker Change: Even on what we expect to be higher margin project work, they're executing above expectations.

Russ: Business mix impacts at margins just due to the our service growing at a higher rate than our projects business and as our projects business ramps up in the third quarter.

Kevin Krumm: And as our projects business ramps up in the third quarter, we would expect that margin impact to be favorable as well as we move it back half the year. So all in, as we said, we feel good about margins and our ability to execute in the back half of the year. Balancing where we are from your net debt level along with M&A, could you give us an update just in terms of your uses of cash as we focus on the back half of the year? Thanks very much.

Speaker Change: So all in, as we said, we feel good about margins and our ability to execute in the back half of the year as well.

Kevin Krumm: My follow-up question is from free cash flow generation and is seeing an acceleration of that in the back half of the year, as you indicated in today's commentary. Balancing where we are from your net debt level along with M&A.

Speaker Change: Okay, great. And my follow-up question is on Free Cash Routes.

Speaker Change: Free Cash Flow Generation, and we're seeing an acceleration of that in the back half of the year, as you indicated in today's commentary.

Speaker Change: Balancing where we are from your net debt level along with M&A, could you give us an update just in terms of your uses of cash as we focus on the back half of the year? Thanks very much.

Kevin Krumm: Could you give us an update just in terms of your uses of cash as we focus on the back half of the year. Thanks very much. The first half, and we're going to deliver 70-80% of our free cash flow in the back half of the year, and that's the expectation this year. As we move through the year, delivering is still a priority, as it has been, and we're going to do that as we continue to reduce our leverage from where it is today at 27 to inside at 25. But after that, M&A remains a priority.

Kevin Krumm: Yeah, so just additional color on free cash flow delivery, just as a reminder, you know, in a normal year, we're going to deliver somewhere between 20 to 30% of our full-year cash flow conversion due to seasonality in the first half, and we're going to deliver 70 to 80% of our free cash flow in the back half of the year. And that's the expectation this year. As we move through the year, de-levering is still a priority, as it has been, and we're going to do that as we continue to reduce our leverage from where it is today at 2.7 to inside of 2.5.

Speaker Change: Yeah, so just additional color on free cash flow delivery. Just as a reminder, in a normal year, we're going to deliver somewhere between 20% to 30% of our full year cash flow conversion due to seasonality in the first half. And we're going to deliver.

Speaker Change: 70 to 80 percent of our free cash flow in the back half of the year and that's the expectation this year.

Kevin Krumm: But after that, M&A remains a priority. We've closed, as Russ said, on six bolt-on transactions in the first half of the year, plus elevated, and spent north of $600 million, and we still have plans, as we've said, to continue to invest in our backlog, or our pipeline, and continue to do bolt-on transactions as we move through the back half. Okay, great. Thanks very much.

Speaker Change: As we move through the year.

Speaker Change: Delevering is still a priority, as it has been, and we're going to do that as we continue to reduce our leverage from where it is today at 2.7 to inside of 2.5. But after that, M&A remains a priority. We've closed, as Russ said, on...

Kevin Krumm: We've closed this rough set on six bolt-on transactions in the first half of the year, plus elevated spent north to $600 million, and we still have plans. As we've said to continue to invest in our pipeline and continue to do bolt-on transactions as we move through the back half of the year.

Russ: Six bolt-on transactions in the first half of the year, plus elevated, spent north of $600 million.

Speaker Change: and we still have plans.

Speaker Change: As we've said, to continue to invest in our pipeline and continue to do bolt-on transactions as we move through the back half of the year.

Kevin Krumm: Great. Thanks very much.

Andy Kaplowitz: Very next question comes from the line of Andy Kaplowitz of Citigroup. Please go ahead. Good morning, everyone.

Speaker Change: Okay, great. Thanks very much.

Operator: Thank you. Your next question comes from the line of Andy Kaplowitz of Citigroup. Please go ahead.

Adam Fee: Thank you, Adam.

Speaker Change: Your next question comes from the line of Andy Kaplowitz of Citigroup. Please go ahead.

Russell Becker: Andy, no worry. Good, are you. Russ, we can talk about the overall macro environment that you see. Obviously, leading indicators are all over the place and non-reconstruction, but your backup, as you said, is growing. So can you talk about the verticals that are driving that growth and update us specifically on what you're seeing in the data center market or how APG is playing in that market? Yeah, so the data center market obviously is an end market that we're very active in. It's screaming every place, every place you look, you hear more and more about the opportunities in data centers.

Andy Kaplowicz: Hey, good morning, everyone.

Speaker Change: Hey Andy, how are ya?

Andy Kaplowicz: Good, how are you? Russ, if you can talk about the overall macro environment that you see. Obviously, leading indicators are all over the place in non-REST construction, but your backlog, as you said, is growing. So, can you talk about the verticals that are driving that growth and update us specifically on what you're seeing in the data center market or how APG is playing in that market?

Russ: Yeah, so the data center market obviously is an end market that we're very active in. It's screaming. Every place you look you hear, you know, more and more about, you know, the opportunities in data centers.

Russell Becker: And, you know, again, our focus is leading on the inspection and service side of data centers, and we want our inspection and service relationships to lead to our project related work. And there's, you know, there's been just countless, you know, it's like opportunity after opportunity, you know, in the space. One thing I would do to just level set a little bit is that when you think about a data center expansion, you know, we're focused on the fire life safety piece of that expansion project opportunity, which is going to be significantly smaller than the same mechanical and electrical packages.

Speaker Change: and there's, you know, there's been just countless, you know, it's like opportunity after opportunity, you know, in the space. One thing I would do to just level set a little bit is that when you think about a data center expansion

Speaker Change: You know, we're focused on the fire life safety.

Speaker Change: This is a piece of that expansion project opportunity, which is going to be significantly smaller than the mechanical and electrical packages.

Russell Becker: And, you know, those data center projects are probably north of 80% mechanical HVAC and electrical in the HVAC or the life safety opportunities are smaller. We're also seeing really robust opportunities in, you know, the semiconductor space, you know, advanced manufacturing, which would include, you know, pharma as well as, you know, the electric vehicle slash battery space. Healthcare remains really robust and in some instances. for specific businesses of ours for seeing opportunities in the aviation space as well as in the sports and entertainment space. So, Andy, it's amazing how you wrap like three or four questions into one.

Speaker Change: data center projects are probably north of 80% mechanical, HVAC, and electrical.

Speaker Change: and the HVAC or the life safety opportunities are smaller.

Speaker Change: We're also seeing really robust opportunities in the semiconductor space, advanced manufacturing, which would include pharma, as well as the electric vehicle slash battery space. Healthcare remains really robust, and in some instances,

Russell Becker: You know, for specific businesses of ours, we're seeing opportunities in the aviation space as well as in the sports and entertainment space. So for Russ, maybe you could talk about the confidence you have, if organic revenue growth does remain a little light, that you continue to offset lower growth with higher margins. I think Kevin talked about it a little bit, but is Shell's value capture actually trending higher than that 125 that you previously gave us?

Speaker Change: You know for specific businesses of ours we're seeing opportunities in the aviation space as well as in the sports and entertainment space.

Speaker Change: So for Russ, maybe you could talk about the confidence you have if organic revenue growth does remain a little light, that you continue to offset

Russ: Lower Growth with Higher Margin. I think Kevin talked about it a little bit.

Speaker Change: Chubb Value Capture actually trending higher than that $125 that you previously gave us. And then maybe the new $500 million of backlog that you mentioned, Russ, is that coming in at a materially higher margin than your current revenue?

Russell Becker: And then maybe the new 500 million in backload that you mentioned, Russ, is that coming in at a materially higher margin than your current revenue? So, Andy, it's amazing how you wrapped, like, three or four questions into one. I'm pretty good at that.

Speaker Change: So, Andy, it's amazing how you wrapped, like, three or four questions into one. I'm pretty good at that.

Russell Becker: Pretty good at that. Yeah, that's good. That's the cage you veteran in you.

Russell Becker: You know, I would say, well, I mean, in my remarks, I talked about margins and I talked about the 13% margin as, you know, as our target for 2025. And that's obviously the goal that we stated. And I also said that we think that we can continue to expand from there. And so, I feel really good about, you know, the opportunities in front of us as we, you know, kind of continue to grind through the course of this year. So, you know, we've shown that we can grow and expand our margins, and we will continue to grow, you know, and expand our margins as we work our way through the back half.

Russ: And so, I feel really good about, you know, the opportunities in front of us as we, you know, kind of...

Speaker Change: continue to grind through the course of this year. So we've shown that we can grow and expand our margins, and we will continue to grow and expand our margins as we work our way through the back half.

Russell Becker: The 500 million of, you know, increased backlog is without question healthier. You know, and when you look at it, you know, it's like hard; it would be hard for me to tell you that there's, you know, 250 basis points of margin improvement in it or whatever. You know, directionally that would probably be somewhat correct. But for us, it varies by business, and so the mix is important in what that backlog looks like. But it's, without question, much healthier. And I feel like I missed one of your three. Good job. Sort of what's going on over there.

Speaker Change: you know increased backlog is without question healthier.

Speaker Change: But it's, without question, it's much healthier, and I feel like I missed one of your three.

Russell Becker: Yeah, well, we're not going to raise the value capture target, you know, the 125. I mean, we're on track with that. And we have plans in place to deliver that. And, you know, we feel good about where we are. I'm, you know, I mean, we track it, and we need to continue to track it. My brain is kind of like, we're more getting to business as usual.

Russell Becker: Yeah.

Russell Becker: Well, we're not going to raise the value capture target, you know, the 125. I mean, we're on track, you know, with that. And we have plans in place to deliver that, and, you know, we feel good about, you know, where we're at. I'm, you know, I mean, we track it and we need to continue to track it. My brain is kind of like we're more getting to business as usual and, you know, mode, you know, in that business and focusing on growth. And, you know, we just had a board meeting, and we had a number of our international leaders here.

Russell Becker: And, you know, mode, you know, in that business, and, you know, focusing on growth. And, you know, we just had a board meeting, and we had a number of our international leaders here. And, you know, with some of the work that our international sales leader has done, you know, kind of transforming his sales team and everything else. He's sitting by me, so I'm just kind of having a little bit of fun with it, too.

Russell Becker: And, you know, with some of the work that our international sales leaders done, you know, kind of transforming his sales team and everything else he's sitting by me. So I'm just kind of having a little bit of fun with it too, but, you know, the work that they're doing to transform, you know, our sales team and starting to lead with, you know, service and inspection work. You know, in the markets that they serve, I mean, we're going to really start to feel the rewards of that work, really as we move into the first parts of next year.

Russell Becker: But, you know, the work that they're doing to transform our sales team and start to lead with, you know, service and inspection work, you know, in the markets that they serve. I mean, we're going to really start to feel the rewards of that work, really, as we move into the first part of next year. So I'm really excited about it, and I feel like we're in a really good place, you know, with Chubb and our international business, just in general, as it relates to integration. I appreciate all the color.

Speaker Change: You know, the work that they're doing to transform, you know, our sales team and starting to lead with.

Russell Becker: So I'm really excited about it, and I feel like we're in a really good place, you know, with Chubb and our international business just in general as relates to integrating.

Russell Becker: Appreciate all the color.

Julian Mitchell: During next question comes from the line of Julian Mitchell of Parklist. Please go ahead. Hi, good morning.

Operator: Your next question comes from the line of Julian Mitchell of Parkless. Please go ahead. Hi, good morning. This is Jack Cauchi on behalf of Julian Mitchell.

Speaker Change: Your next question comes from the line of Julian Mitchell of Parkless. Please go ahead.

Kevin Krumm: The implied Q4 EBITDA is slightly sequentially down versus historically being sequentially down. Can you explain what assumptions macro drivers are driving the difference versus prior seasonality? Yes, sure. Hi, this is Kevin.

Kevin Krumm: This is Jack Cauchian for Julian Mitchell. The implied Q4 EBITDA is a slightly sequentially versus historically being sequentially down. To explain what assumptions macro drivers are driving the difference for prior seasonality. Yes, sure.

Jack Couchion: Hi, good morning. This is Jack Couchion for Julian Mitchell. The implied Q4 EBITDA is slightly sequentially versus historically being sequentially down. Can you explain what assumptions macro drivers are driving the difference versus prior seasonality?

Kevin Krumm: I'll take that. The primary driver of that this year is the fact that we expect our project business to accelerate in the back half of the year, off sort of the numbers that Russ referenced earlier, and so our expectation would be that our growth rate in projects accelerates in the back half of the year. Traditionally, our projects flatten out and are slightly down in Q3 to Q4, but this year, we're expecting our projects business, with the backlog coming on that Russ referenced, to actually sequentially step up. So that's the largest driver for it.

Kevin Krumm: Hi, this is Kevin. I'll take that. The primary driver that this year is the fact that we expect our project business to accelerate in the back half of the year off sort of the numbers that Russ referenced earlier. And so our expectation would be that our growth rate in projects accelerates in the back half of the year. Traditionally, you know, our projects flatten out and are slightly down. Q3 to Q3. But this year, we're expecting our project business with the backlog coming on that Russ referenced to actually sequentially step up. So that's the largest driver in it.

Speaker Change: Our expectation would be that our growth rate in projects accelerates in the back half of the year. Traditionally, our projects flatten out and are slightly down, Q3 to Q4. This year we're expecting our projects business, with the backlog coming on that Russ referenced, to actually sequentially step up.

Kevin Krumm: We also expect margin expansion in the back half of the year, but traditionally, that's going to happen year in and year out. So it's really the acceleration of the project business. Thank you.

Kevin Krumm: We also expect margin expansion in the back half of the year, but that traditionally, you know, that's going to happen year and a year out. So it's really the acceleration of the project business. Thank you.

Russell Becker: And just a quick follow-up, margins are solid in both segments. You mentioned earlier raising the margin targets in early 2025. How should we think about that by segment?

Russell Becker: And just a quick follow-up, you know, margins are solid in both segments. You mentioned earlier raising the margin targets in early 2025.

Russell Becker: How should we think about that by segment? Well, I mean, number one, we're not going to tell you what we're going to raise targets until we, you know, we need to deliver on our 2025 goals first. And then we will, you know, share, you know, kind of where we're going. But directionally, we expect every piece of our business to continue to improve and expand the market. And if you know, nobody, sort of speak, gets a reprieve, and the expectations are that everybody will continue to grow. And we want to make sure that we're taking advantage, you know, of our higher-margin businesses, obviously.

Russell Becker: Well, number one, we're not going to tell you what we're going to raise the targets to until we, you know, we need to deliver on our 2025 goals first. And then we will, you know, share, you know, kind of where we're going. But directionally, we expect every piece of our business to continue to improve and expand its markets. And, you know, nobody, so to speak, gets a reprieve.

Speaker Change: Deliver on our 2025 goals first, and then we will, you know, share, you know, kind of where we're going. But directionally, we expect every piece of our business to continue to improve and expand their markets.

Russell Becker: And the expectations are that everybody will continue to grow. And we want to make sure that we're taking advantage of our higher-margin businesses, obviously. But, you know, if you look across our portfolio of companies, every single one of them has opportunities to improve and to be better. And that's the expectation.

Russell Becker: But, you know, if you look across our portfolio of companies, every single one of them has opportunities to improve and to be better. And that's the expectation.

Russell Becker: And, you know, we'll clearly lay that out early, you know, next year. Understood.

Russell Becker: And, you know, we'll clearly lay that out early next year. Understandable. Thank you for the questions.

Russell Becker: Thank you for the questions.

Heather Balsky: Thank you. Your next question comes from the light of Heather Balski of Back of America. Please go ahead. Hi, that's Emily Margot on for Heather Balski. Good morning.

Speaker Change: Understood. Thank you for the questions.

Operator: Thank you. Your next question comes from the line of Heather Balsky of Bank of America. Please go ahead. Your next question comes from the line of Jon Tanwanteng of CJS Securities. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Heather Balsky of Bank of America.

Emily Margot: I'm wondering if you could give us and call on what you're saying in person. Are you getting any pushback? And how does that factor into your second half, right?

Emily Marzo: Hi, this is Emily Marzo on for Heather Balsky. Good morning. I'm wondering if you could give us some color on what you're seeing in pricing. Are you getting any pushback? And how does that factor into your second half guidance?

Kevin Krumm: Hi, Ellen. This is Kevin. I'll take that. So the short answer is we have continued our pricing focus, especially on the service side of our business. You know, we say you're in and in a year out. We're pushing pricing campaigns that drive margin expansion on the service side of the business. Our teams have done a great job. It looks different as you work around the world. But generally, they've across our service businesses, especially in the life safety. We've faced our teams have continued to push pricing in the way that it drives margin expansion on that side of the business.

Speaker Change: Hi Elaine, this is Kevin. I'll take that. So the short answer is, we have continued our pricing focus, especially on the service side of our business. You know, we say year in and year out.

Speaker Change: especially in the life safety space, our teams have continued to push pricing.

Kevin Krumm: We're always, you know, in dialogue with our customers around that. But I would say at this point, our customers continue to appreciate the value we bring. Our pricing continues to work, and we expect that to continue through the back half of this year.

Jonathan Tanwanteng: Thank you. Your next question comes from the light of Chan Tanwanteng as a CJS security piece. Please go ahead.

Russell Becker: Hi, good morning, and really nice job with the margin, guys. I was wondering if you could talk more about the delays. Was there any specific end market or commonality between them, or was it several independent headwinds that coincidentally hit Q2? And then beyond that, what is the risk of further pushouts at this point? Well, I mean, I would say to answer your question, it's kind of across every aspect of it. I'm just reflecting on your question. We had a permitting delay. It was a large project opportunity with one of our infrastructure customers, kind of in the northeast, that's been resolved.

Russell Becker: Well, I mean, I would say, to answer your question, You know, it's kind of across every aspect of it, you know, like I was, I'm just reflecting on your question, you know, like, we had a permitting delay was a large project opportunity with one of our infrastructure customers, kind of in the northeast, that's been resolved, and we're actually on the site, we had actually a utility client of ours that, you know, had kind of a start and a stop, you know, to one of their, You know, work programs that we have an MSA with, and that, you know, those issues are kind of been resolved, and we expect to have boots on the ground here in the month of August, and so that's been resolved. You know, we have a North American safety client who, you know, on a project opportunity is making some changes with their general contractors, which has slowed down, you know, the forward movement, and that, you know, we had some delays in, you know, our Asian business, you know, which is in the fire and security space, so it's kind of, it's been a little bit of everything.

Speaker Change: Well, I mean, I would say, to answer your question,

Speaker Change: You know, it's kind of across every aspect of it, you know, like I was I'm just reflecting on your question, you know, like we had a Permitting delay was a large project opportunity with one of our infrastructure customers kind of in the Northeast

Russell Becker: And we're actually on the site. We had actually a utility client of ours that had kind of a start and a stop to one of their work programs that we have an MSA with. And those issues are kind of been resolved, and we expect to have boots on the ground here in the month of August. And so that's been resolved. You know, we have a North American safety client who, you know, on a project opportunity, is making some changes with their general contractors, which has slowed down. You know, the forward movement and that, you know, we had some delays in our Asian business, you know, which is in the fire and security space.

Speaker Change: you know, work programs that we have an MSA with.

Speaker Change: and that, you know, those issues are kind of been resolved and we expect to to have boots on the ground here in the month of August and so that's been resolved. You know, we have a North American safety client who, you know, on a project opportunity is...

Speaker Change: General Contractors, which has slowed down, you know, the forward movement in that. You know, we had some...

Russell Becker: So it's kind of, it's been a little bit of everything, John. I don't think any one necessarily one aspect has been 100% immune from it. And, you know, that is just clearly what one of the reasons that we're so focused on, you know, growing our business's business from an inspection service and monitoring first focus so that the lumpiness associated with some of your project work doesn't have an impact on the business and the results of the business. So, I mean, that's the most important thing about our strategy and what differentiates for us from some of our, from some of the folks that we get compared to from time to time.

Russell Becker: Clearly, one of the reasons that we're so focused on growing our business from an inspection service and monitoring first focus so that the lumpiness associated with some of your project work doesn't have an impact on the business and the results of the business. So that's the most important thing about our strategy and what differentiates us from some of our competitors from some of the folks that we get compared to from time to time. Okay, fair enough.

Speaker Change: It's clearly why one of the reasons that we're so focused on you know growing our businesses business from a inspection service and monitoring first

Russell Becker: Okay. Fair enough. Thank you.

Russell Becker: And then just regarding the backlog, and I know that's getting away from your inspection and services focus, but just what end markets drove the backlog increase and how much of that was from the... Not a lot has been driven by the acquisition. And thinking about elevated, I mean, remember that north of 70% of their revenue comes from service inspections, repair, and maintenance. And really, they're not doing, so to speak, new construction.

Russell Becker: And then just regarding the backlog, and I know that's getting away from your inspection services focus, but just what markets drove the backlog increase and how much of that was from the acquisition. Oh, I mean, not a lot has been driven by the acquisition. I don't know, maybe approximately 10% of it. Maybe a little bit more from the acquisition, but not much, not much more than that. And, you know, you know, thinking about elevated, I mean, remember that, you know, north of 70% of their revenue comes from, you know, service inspections, repair, maintenance, and really they're not doing, so to speak, new construction.

Russell Becker: Their project-related work is modernization and upgrades on existing elevators and existing facilities. So one could almost argue that that's service work as well, but that's kind of their version of project work. I would say that it's coming, that increased backlog is coming in the right space. I probably, when I was talking about end markets, one thing that I didn't talk about was the infrastructure space and some of the opportunities that we're seeing coming specifically in the infrastructure space. There's a lot of opportunity there, but we're seeing a tremendous amount of activity in data. We're seeing a tremendous amount of activity in the semiconductor space.

Russell Becker: Their project related work is modernization and update upgrades on existing elevators, you know, an existing facility. So, you know, one could almost argue that that service work as well, but that's kind of their version of project work. I would say that it's coming; that increased backlog is coming in the right, right space. You know, I probably when I was talking about end markets and one thing that I didn't talk about is, you know, the infrastructure space and some of the opportunities that we're seeing coming, you know, specifically in the infrastructure space. You know, there's a lot of opportunity there, you know, but we're seeing a tremendous amount of activity and data.

Speaker Change: You know, there's a lot of opportunity there, you know, but we're seeing a tremendous amount of activity in data, we're seeing a tremendous amount of activity in the semiconductor space.

Russell Becker: We're seeing a tremendous amount of activity activity and semiconductor space. You know, we're starting to see some increase in the, you know, warehouse distribution center space that's been lagging, but you're starting to see some increased activity. I think people are anticipating interest rate cuts, but so you're seeing more activity there, but healthcare remains robust with a lot of opportunities as well. So really the end markets I talked about, the only one I really missed was kind of the infrastructure. from Space.

Russell Becker: We're starting to see some increase in warehouse distribution center space. That's been lagging, but you're starting to see some increased activity there. I think people are anticipating interest rate cuts, so you're seeing more activity there.

Russell Becker: Great. Thank you, guys. Thanks very much, Sean.

Speaker Change: Great, thank you guys.

Russell Becker: But healthcare remains robust with a lot of opportunities as well. So really, the end markets I talked about, the only one I really missed was kind of the infrastructure. Great. Thank you, guys. Thanks, Josh. Your next question comes from the line of Stephanie Moore of Jeffries. Please go ahead.

Stephanie Moore: Your next question comes from the line of Stephanie Moore of Jefferies. Please, get ahead. Hi, good morning. Thank you. I'm doing well. Thank you.

Speaker Change: Your next question comes from the line of Stephanie Moore of Jeffries. Please go ahead.

Operator: Hi, good morning, thank you. Um, maybe we're starting. I'm doing well, thank you. Maybe just starting on the M&A front, you know; kind of a two-part question within that. Could you kind of first talk about your desired source of funding to fund M&A deals going forward? And then also your appetite for doing potentially larger deals, maybe a similar size as the elevated deal, or maybe even larger, especially if the transaction would accelerate your reoccurring revenue targets and or margin profile targets, etc. Thank you.

Stephanie Moore: Hi, good morning. Thank you.

Stephanie Moore: Maybe just starting on the M&A front, you know, kind of a two-part question within that. Could you kind of first talk about your desired source of funding to source to us on M&A deals going forward, and then also your appetite for doing potentially larger deals, maybe a similar size as elevated deal, or maybe even larger, especially if the transaction would accelerate your reoccurring revenue targets, and or margin profile targets, etc. Thank you. I didn't really catch the first part of your question, Stephanie, but the second half of the question regarding, you know, other transactions, the size of elevated.

Speaker Change: The transaction would accelerate your reoccurring revenue targets and or margin profile targets, et cetera.

Russell Becker: I didn't really catch the first part of your question, Stephanie, but the second half of the question regarding, you know, other transactions the size of Elevate, if it was the right fit, I would say, feel like that would be something that would be digestible for us. I think we would have some interest, you know; it's got to fit kind of the profile that we'd be looking for, you know, with a high element of recurring revenue and inspection service and monitoring.

Russell Becker: If it was the right fit, I would say feel like that would be something that would be digestible for us. I think we would have some interest. You know, it's got to fit kind of the profile that we'd be looking for, you know, with a high element of recurring revenue and inspection service and monitoring. The margin profile would have to be a creative, you know, obviously we'd have to be able to, you know, acquire the business at the right price, you know, regarding larger than that. I mean, you can never say no to anything, but I don't know that that's where our attention is sitting right now.

Russell Becker: The margin profile would have to be accretive, you know, obviously, we'd have to be able to, you know, acquire the business at the right price. Regarding anything larger than that, I, you know, I mean, you can never say no to anything, but I don't know that that's where our attention is sitting right now.

Speaker Change: The margin profile would have to be accretive, you know, obviously we'd have to be able to, you know, acquire the business at the right price.

Speaker Change: You know, regarding larger than that, I, you know, I mean, you can never say no to anything, but I don't know that

Russell Becker: You know, the reality of this is we're really focused on integrating Elevate and bringing their team into the API family and making that a, you know, a positive journey for them. We had actually a couple of their key business leaders at our board meeting. They got a chance to present, you know, on their business yesterday, and one of their leaders, you know, called us their forever home. And, you know, that really stuck with me.

Russell Becker: You know, the reality of this is we're really focused on integrating, you know, elevated and bringing their team into the API family and making that a, you know, a positive journey for them. You know, we had actually a couple of their key business leaders at our board meeting. They got a chance to present, you know, on their business yesterday. And one of their leaders, you know, called us their forever home. And, you know, that really stuck with me. And I think that, you know, we owe them, you know, the right level of effort to really truly make this a forever home so that they feel good about where it's at.

Speaker Change: yesterday and one of their leaders, you know, called us their forever home.

Russell Becker: And I think that, you know, we owe them the right level of effort to really, truly make this a forever home so that they feel good about where it's at. And, but, you know, we do have a keen interest in, you know, continuing to expand in that space and understand it, and then maybe just following up on some of the margin questions that have been asked thus far and kind of, Well, I guess that's just like, clearly, I think, margin improvement remains an ongoing priority this year, obviously, and the next year, as you noted.

Stephanie Moore: and you know that really stuck with me and I think that

Stephanie Moore: We owe them the right level of effort to really truly make this a forever home so that they feel good about where it's at. But we do have a keen interest in continuing to expand in that space.

Kevin Krumm: But, you know, we do have a keen interest in, you know, continuing to expand, you know, in that space.

Kevin Krumm: And Kevin, I'll handle the first half of your question. Good luck to hear you. Yeah, Stephanie. Good morning. On funding, are both on campaign; you know, you're in and you're out. Our campaign is going to be aligned with our ability to fund it through free cash flow. That's, you know, that's sort of how we tackled it this year, and that's how to expect us to tackle it in years to come. You know, we produce enough cash flow, and we'll prioritize it to make sure that we're able to do the bolt-on M&A that we plan on in any given year.

Russell Becker: Yeah, I mean, the reality of it is, it's like this tuck-in market. You know, like we spent a hundred million last year, and we've said that we're going to accelerate that in the course of this year. You know, we still have, you know, we still have half a year to go, but, you know, directionally it'll be north, it'll be, you know, in excess of two acts of what we spent, you know, in last year. And, you know, we continue; we plan to continue that drumbeat, and our pipeline of, you know, the right bolt-on opportunities is really robust. We feel really good about the businesses that we're acquiring and the, you know, the teams of people that we're bringing into the API family.

Stephanie Moore: You know in last year and you know we continued we plan to continue that drum beat and our our pipeline of you know the right bolt-on opportunities is really robust and

Kevin Krumm: It's our M&A team doing a great job. Understood.

Kevin Krumm: And then maybe just following up on some of the margin questions that have been asked thus far, and kind of, well, I guess that's just like, you know, clearly, I think you know, margin improvement, it remains an ongoing priority, you know, this year, obviously, in the next year, as you noted. You talk about how much of the margin expansion opportunity is predicated on kind of the rebound and organic growth versus how much can you still achieve just based on kind of self-help initiatives and synergies and the likes of kind of other tailwinds that you have.

Speaker Change: Understood, and then maybe just following up on some of the margin questions that have been asked thus far in kind of.

Speaker Change: Well, I guess that's the point.

Russell Becker: Can you talk about how much of the margin expansion opportunity is predicated on kind of the rebound in organic growth versus how much you can still achieve just based on kind of self-help initiatives and synergies and the likes of other tailwinds that you have? Thank you.

Speaker Change: How much can you still achieve just based on kind of self-help initiatives and synergies and the likes of kind of other tailwinds that you have? Thank you.

Kevin Krumm: Thank you.

Kevin Krumm: Hey, I'll take that stuff, me. So, if you look at just the levels that are the last eight quarters, the back half of last year, we expanded growth margins over 200 basis points. First half of this year, we're over 300 basis points. The levers that we've been pulling on there, we've been talking about its mix, which is driving higher growth and a higher percentage of overall revenues from inspection, service, and monitoring. That's going to be a driver that's going to continue to have an impact for years to come. We talked about pricing on the service side of the business.

Kevin Krumm: So if you look at just the level set over the last eight quarters, the back half of last year, we expanded gross margins by over 200 basis points. The material costs coming down and the impact that's had, both the headwind on the way up and the tailwind on the way down, that will obviously subside. Also, we tackled a lot of this backlog work, and disciplined customer and project selection started last year. So the improvement in the health of the backlog has been significant as we've moved over the last four quarters. We're obviously going to stay focused on the project side of our business and improve margins, but that impact would subside as well. But it's really pricing.

Speaker Change: Hey, I'll take that, Stephanie.

Speaker Change: So, if you look at just the level set over the last eight quarters, the back half of last year, we expanded gross margins over 200 basis points.

Kevin Krumm: That's going to be a driver that has an impact, margin-expansive pricing that's going to have an impact as we move into 2025 and beyond. I'll say some of the impacts that have been driving the significant expansion we've seen over the last eight quarters, like material costs coming down, and the impact that's had both as the headwind on the way up and the tailwind on the way down. That will obviously subside. Also, we tackled a lot of this backlog work and discipline customer projects like it started last year, so the improvement in the health of the backlog has been significant as we've moved over the last four quarters.

Kevin Krumm: We're obviously going to stay focused on the project side of our business and improving margins there, but that impact would subside as well. But it's really pricing continued service mix, and as we move into future years, our ability to continue to scale our operations, to drive productivity, is going to be sort of the new driver we're going to be focused on, and that too will have margin impacts as we move into 2025 beyond.

Speaker Change: Continued Service Mix.

George Chan: Okay, your next question comes from the line of George Chan of UBS. Your line is that open.

Joshua Chan: Hi, good morning and welcome to my question. I was wondering if you could give us the service versus project breakdown within the safety segment, and then kind of focusing on the service side of things, which I think it's probably in a mid-single digit range. Is that the right pace of safety service growth going forward, in your mind? Yeah, hi, Josh. I'll take that. So, in the first half of the year, if you think about it that way, our service business on the safety side continued to perform at mid-single digits. Our international team as well as our North America team have stayed focused on that.

Kevin Krumm: Hi, good morning, Russ and Kevin. Thanks for taking my question. I was wondering if you could give us the service versus project breakdown within the safety segment and then kind of focus on the service side of things, which I think is probably in a mid single-digit range. Is that the right pace of safety, service, and growth going forward in your mind? Yeah, Josh.

Kevin Krumm: I'll take that. So in the first half of the year, if you think about it that way, our service business on the safety side continues to perform at mid-single digits. Our international team, as well as our North America team, have stayed focused on that.

Speaker Change: Yeah, hi Josh, I'll take that. So in the first half of the year, if you think about it that way, our service business on the safety side continued to perform at mid-single digits.

Joshua Chan: We've continued to have good results, and we expect that mid-single digits growth rate to improve as we move into the back half of the year. Project site, on the other hand, we talked about the work the international team's been doing. That was a drag on the safety segment in the first half of the year, but as we move into the back half of the year, we expect that to improve as well and expect to see growth in the project's business on the safety side of our as well.

Speaker Change: Our international team, as well as our North America team, have stayed focused on that. We continue to have.

Kevin Krumm: We continue to have good results, and we expect that mid-single digit growth rate to improve as we move into the back half of the year. On the project side, on the other hand, we talked about the work the international team's been doing. That was a drag on the safety segment in the first half of the year, but as we move into the back half of the year, we expect that to improve as well and expect to see growth in the projects business on the safety side of our business as well. Great, thank you for that, Keller.

Joshua Chan: Great. Thank you for the color. And kind of duck tongue on that. As the project business re-accelerates, how do you think about balancing that and sort of the margin benefit that you've gotten from mix, you know, in the most recent quarters? How should we think about margins? Is that mix maybe benefit maybe potentially lessons? That's a good question. I think it's still going to be a benefit in Q3 and Q4, you know, or in any quarter where our project's business outgrows our service business; it could be a bit of a headwind. But as we look in the back half of the year with the acceleration in our service business or even into Q4, I don't see the mix flipping on us from a project versus service standpoint with respect to our margin expansion efforts.

Kevin Krumm: And kind of dovetailing on that, as the project business reaccelerates, how do you think about balancing that? And there is a margin benefit that you've gotten from MIX, you know, in the most recent quarters? How should we think about margins as that MIX maybe benefit maybe potentially less? That's a good question.

Josh: Great. Thank you for that, Keller. And kind of dovetailing on that, as the project business re-accelerates, how do you think about balancing that

Joshua Chan: Great. Thanks for the time, and good luck in the second half. Thanks, Josh.

Kevin Krumm: Thanks, Josh. Your next question comes from the line of Steve Tusa of J.P. Morgan. Please go ahead.

Steve Tusa: Very next question comes from the line of Steve Tusa, JP Morgan. Please go ahead. Hi, good morning. Hey Steve, how are you? Not too bad. Congrats on the execution. Definitely a choppy environment out there, that's for sure.

Speaker Change: Your next question comes from the line of Steve Tusa of J.P. Morgan. Please go ahead. Hi, good morning.

Operator: Hi, good morning. Hey, Steve, how are you? Not too bad. Congratulations on the execution. Definitely a choppy environment out there, that's for sure. Just the segments, can you just give us some color on how you expect them to, just relative to the 2Q organic growth rates for each, how you expect them to play out for the next couple of quarters? It's obviously, you know, a pretty significant acceleration. Obviously, the $45 million is getting pushed into the second half, so that helps the comps, obviously, but, you know, it's a little lumpy, so maybe just a little bit of help around a framework around the organic for each of the segments in the second half. Yes, Steve. Hey, this is Kevin.

Speaker Change: Hey Steve, how are you?

Steve Tusa: Not too bad. Congrats on the execution. Definitely a choppy environment out there, that's for sure.

Kevin Krumm: Just the segments, can you just give us some color on how you expect them to just relative to the 2Q organic growth rates for each, how you expect them to play out for the next couple of quarters. It's obviously, you know, a pretty significant acceleration; obviously, the 45 million getting pushed into the second half. So that helps the comps, obviously. But, you know, it's a little lumpy, so maybe just a little bit of help around a framework around the organic for each of the segments in the second half.

Speaker Change: Just the segments, can you just give us some color on how you expect them to, just relative to the 2Q organic growth rates for each, how you expect them to play out for the next couple of quarters? It's obviously a pretty significant acceleration, obviously the $45 million is getting pushed.

Speaker Change: into the second half so that helps the comps obviously but you know it's a little lumpy so maybe just a little bit of help around a framework around the organic for each of the segments in the second half.

Kevin Krumm: Yes, Steve Hayes. Just Kevin, I'll take that out. I'll just break it down between safety and then our specialty segment. So safety, again, the first half of the year, we saw a mid-single-digit service growth. We saw a low single-digit decline on the project side of the business, largely driven by the work we're doing in HVAC in the international teams on discipline, customer, and project selection. As we move into the second half of the year, we expect our service to still be in mid-single digits, but to improve sequentially from a growth rate standpoint. And we also expect the project side of the business to move from slightly down to low single-digit up from an organic growth standpoint.

Kevin Krumm: I'll take that. I'll just break it down between safety and then our specialty segment. So safety, again, in the first half of the year, we saw mid-single-digit service growth. We saw... a low single-digit decline on the project side of the business, largely driven by the work we're doing in HVAC and the international teams on disciplined customer and project selection.

Speaker Change: Low single-digit decline on the project side of the business, largely driven by the work we're doing in HVAC and the international teams on disciplined customer and project selection.

Kevin Krumm: As we move into the second half of the year, we expect our service to still be in mid-single digits but to improve sequentially from a growth rate standpoint. And we also expect the project side of the business to move from slightly down to low single-digit growth from an organic standpoint. Drivers of that will be our HVAC business and our international business, which were down in the first half, but we would expect to be up and continue to work through sort of that new backlog that Russ talked about in the back half of the year.

Steve Tusa: As we move into the second half of the year, we expect our service to...

Steve Tusa: still being mid-single digits, but to improve sequentially from a growth rate standpoint. And we also expect the project side of the business to move from slightly down to low single digit up.

Kevin Krumm: Drivers of that will be our HVAC business and our international business, which were down in the first half that we would expect to be up and continue to work through sort of that new backlog that Russ talked about in the back half of the year. On the specialty side of the business, our service there was actually up and showed organic growth in the first half of the year, mid-single digits, and we would expect that to continue in the back half of the year as well. Our project business was down significantly. I think we touched on it on the call, low double-digit teams, and we would expect that to improve in the back half of the year as well.

Steve Tusa: from an organic growth standpoint. Drivers of that will be our HVAC business and our international business, which we're down in the first half that we would expect.

Kevin Krumm: On the specialty side of the business, our service there was actually up and showed organic growth in the first half of the year, mid-single digits, and we would expect that to continue in the back half of the year as well. Our project business was down significantly. I think we touched on that on the call.

Steve Tusa: Mid-single digits and we would expect that to continue in the back half of the year as well Our project business was down significantly. I think we touched on it on the call Low double-digit teams and we would expect that to improve in the back half of the year as well And we actually expect that business

Kevin Krumm: Low double-digit teams, and we would expect that to improve in the back half of the year as well. And we expect that business... or the project on the specialty business to actually get to low single-digit growth as well in the back half of the year. Specialties should be flat to slightly up from an organic growth standpoint in the third quarter. Okay, that's super helpful. And then just lastly, on the acquisition, the 3% contribution for safety services, should that be relatively consistent as we move through the rest of the year? Yeah, as we annualize against the elevated transaction, yeah, you can think of it as about 3%. Hi, this is David Page on behalf of Ashish. I just had a question on the elevated acquisition.

Kevin Krumm: And we expect that business for the project on the specialty business to actually get to low single-digit growth as well in the back half of the year.

Steve Tusa: Or the project on the specialty business to actually get to low single-digit growth as well in the back half of the year

Kevin Krumm: Okay, so like around the, do you expect every segment for every quarter to be positive organic, or will specialty remain negative organic in the third and then flip positive in the fourth. on specialty. Especially should be flat to slightly up from an organic growth standpoint in the third quarter. Okay, that's super helpful.

Speaker Change: okay so so like around the you expect every every segment for every quarter to be positive organic or will specialty remain negative organic in the third and flip positive in the fourth

Kevin Krumm: And then just lastly, on the acquisition, the 3% contribution for safety services should that be relatively consistent as we move through the rest of the year? Yeah, if we analyze against the elevated transaction, yeah, you can think about a 3% impact. Okay, great, thanks a lot for the color. Appreciate it Steve, thanks.

Speaker Change: Yeah, if we annualize against the elevated transaction, yeah, you can think of it about a 3% impact. Okay, great. Thanks a lot for the call.

David Pageon: Your next question comes from the line of Ashish Sabadra of RBC Capital Markets. Please go ahead. Hi, this is David Pageon for Ashish.

Steve Tusa: Appreciate it, Steve. Thanks.

Russell Becker: I just got a question on the elevated acquisition. Can you tell us maybe some early learnings that you have from them, some of the positive surprises, and anything around, and then also anything around how their annual groups are looking? Thank you. Oh, man, I would say that the positives are the quality of the leadership team and maybe the depth of the leadership team. Our North American safety services segment later went on like a one week, you know, kind of tour with their team and just came back, you know, really raving about the quality of the people that he had the opportunity to interact with.

Operator: Can you tell us maybe some early learnings that you have from them, some of the positive surprises, anything around that, and then also anything around how their end markets are looking? But thank you. Oh, man. I would say that the positives are the quality of the leadership team and maybe the depth of the leadership team.

Speaker Change: Oh man, um...

Russell Becker: Our North American Safety Services segment leader went on a one-week, you know, kind of tour with their team and just came back, you know, really raving about the quality of the people that he had the opportunity to interact with. You know, he even commented about how a young apprentice showed up on one of their customer sites and didn't have safety glasses on, and one of their apprentices approached him and, you know, asked him to please put his safety glasses on. And, you know, it spoke a lot to the culture of the company and the investment that they're making in their field leaders.

Speaker Change: Our North American Safety Services segment leader went on like a one-week, you know, kind of tour with their team and just came back, you know, really raving about the quality of the people that he had the opportunity to interact with.

Russell Becker: You know, he even commented about how a young apprentice he showed up on one of their customer sites and didn't have safety glasses on, and one of his apprentices approached him and, you know, asked him to please put his safety glasses on it. You know, so it's just it's both a lot to the culture, you know, of the company and the investment that they're making in their field leaders. So it's a, you know, that's all, you know, really positive. I don't know that I would say that there's anything any necessarily surprises, you know, we bought the business from a private equity firm and I think that some of the things that you would expect when you, when, you know, sponsor, you know, tries to polish up a business and get ready for, get it ready for sale came, came through and you know, that's, you know, I guess nobody's ever surprised by that.

Russell Becker: So I'd say, you know, that's all really positive. I don't know that I would say that there aren't necessarily any surprises, you know. We bought the business from a private equity firm, and I think that some of the things that you would expect when, you know, a sponsor tries to polish up a business and get it ready for sale came through, and, you know, that's, you know, I guess nobody's ever surprised by that. You might be surprised by what closet it's in, but other than that, you're not really surprised.

Speaker Change: I don't know that I would say that there's anything any necessarily...

Speaker Change: Some of the things that you would expect when you, when, you know, a sponsor, you know, tries to polish up a business and get ready for, get it ready for sale came, came through.

Russell Becker: You might be surprised what clotted it's in, but you're, other than that, you're not really surprised. So I'd say it's business as usual and we're really fired up about, about, about the elevated team joining the API family.

Speaker Change: You know, I guess nobody's ever surprised by that. You might be surprised what closet it's in, but other than that, you're not really surprised.

Russell Becker: So I'd say it's business as usual, and we're really fired up about, about, about the elevated team joining the API family. Great, thank you. That concludes our Q&A session. I will now turn the conference back over to Russell Becker for closing remarks. Oh, thank you so much.

Speaker Change: I'd say it's business as usual and we're really fired up about the elevated team joining the API family.

Operator: Great. Thank you.

Russell Becker: That concludes our Q&A session.

Operator: I will now turn the conference back over to Rassel Becker for closing remarks. Oh, thank you so much. And in closing, I would really, again, like to thank all of our team members for their continued support and dedication to our business. I am truly grateful for what each and every one of you do on a daily basis, and your efforts really, truly are amazing. I would also like to thank our long-term shareholders as well as those that have recently joined us for their support. We appreciate your ownership of API and look forward to updating you on our progress throughout the remainder of the year.

Russell Becker: And in closing, I would really, again, like to thank all of our team members for their continued support and dedication to our business. I am truly grateful for what each and every one of you do on a daily basis, and your efforts are really, truly amazing. I would also like to thank our long-term shareholders, as well as those that have recently joined us, for their support. We appreciate your ownership of API and look forward to updating you on our progress throughout the remainder of the year. So, thank you, everybody.

Speaker Change: I would also like to thank our long-term shareholders, as well as those that have recently joined us for their support. We appreciate your ownership of API and look forward to updating you on our progress throughout the remainder of the year. So thank you, everybody.

Operator: So thank you, everybody.

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