Q2 2025 APi Group Corp (DE) Earnings Call
Since the recession.
Please note this call is being recorded.
I will be standing by should you need any assistance I would not try to go over to Adam fee, Vice President of Investor Relations a P. I group. Please go ahead.
Thank you good morning, everyone and thank you for joining our second quarter 2025 earnings Conference call. Joining me on the call today are Russ Becker, our president and CEO, David <unk>, Our executive Vice President and Chief Financial Officer, and certain Martin Franklin and Jim Riley Our board co chairs before we begin I would like to.
To remind you that certain statements in the company's earnings press release announcements and on this call are forward looking statements, which are based on expectations intentions and projections regarding the company's future performance anticipated events or trends and other matters that are not historical facts.
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.
Our press release and filings with the SEC, we detailed material material risks that may cause our future results to differ from our expectations. Our statements are as of today July 31, and we undertake no obligation to update any forward looking statements. We may make except as required by law. As a reminder, we have posted a presentation.
Tailoring, our second quarter financial performance on the Investor Relations page on our website <unk> com.
Today, we will include non-GAAP financial measures and other key operating metrics a reconciliation of and other information regarding these items can be found in our press release and our presentation now my pleasure to turn the call over to Russ.
Thank you Adam Good morning, everyone. Thank you for taking the time to join our call. This morning.
Before we get into our record second quarter results I wanted to thank our 29000 leaders for their hard work and dedication to epi.
The safety health and wellbeing of each of our leaders remains our number one value.
When I say safety I don't just mean job site safety.
We owe it to every one of our key needs to create an environment that's safe for them to do their job not just physically but also mentally and emotionally.
At API, we believe that that culture drives results.
Included a slide in our earnings presentation that highlights our culture and our investment in people as human beings.
A key ingredient in our progress to becoming a 7 billion, 13% adjusted EBITDA The company in 2025.
It also includes two opportunities to learn more about our culture, which is centered on our purpose of building great leaders I encourage you to take advantage of these if you haven't done so already.
I also wanted to spend a minute on one of our foundational beliefs the care factor.
To win and achieve our new long term financial targets, we need to care about and invest in our API needs as human needs. A couple of months ago at our Investor Day, We announced the start of the care factor Funk, an initiative designed to support API team members and their children and offsetting the expense.
Unexpected mental health treatment.
This is something that is important to both me and our board of directors and I'd like to thank our team members for their generosity and contributing to the funnel.
I am happy to share that we have approved the first grant from the fund to one of our teammates. This is just one small way we show our team needs that the API family Care's during an important time of need.
Over the last several years our team has remained relentlessly focused on our long term $13 60, <unk> value creation targets, we created in 2022 with.
With our 13% are more adjusted EBITDA margin target in our sights for 2025, we are shifting our focus to the new 10, 16, 60, plus shareholder value creation framework, we introduced in May at our Investor day.
As a reminder, these targets are the following.
$10 billion plus in net revenues by 2028 supported by consistent mid single digit organic growth.
16% plus adjusted EBITDA margin by 2028.
60% plus of our revenues from inspection service and monetary over the long term.
And $3 billion plus of cumulative adjusted free cash flow through 2028.
Our leaders rallied behind our $13 68 targets to deliver on our commitments and they have done the same with respect to these new targets. We have clear plans for how we to intent how we intend to deliver on our 10 to $16 60 plus targets.
Fortunately, we don't need to reinvent the wheel.
Initiatives that enabled us to achieve our $13 60, 80 targets will also enable us to hit our new 10 to $16 60, plus targets these initiatives or pricing.
Improved inspection service and monitoring revenue mix.
Disciplined customer and project selection.
Procurement systems and scale, our accretive M&A and selective business pruning and as I'd like to say, we can always just be better.
We will augment these initiatives with our continued focus on building great leaders and the technology necessary to support our growth.
Now turning to our record second quarter results.
The business continued to accelerate its momentum delivering strong top line growth while expanding margins.
Some highlights include the following.
Consistent margin expansion and safety services.
And growing inspection service and monitoring business.
It returned to organic growth in specialty services.
Record backlog in both segments.
And finally, an acceleration of accretive bolt on M&A activity.
All of which I will detail shortly.
For the quarter net revenues increased by 15% up over 8% organically with strong growth across both segments.
And our safety services segment.
Revenues grew organically in line with expectations by approximately 6%, while delivering 80 basis points.
While delivering 80 basis points of segment earnings margin expansion.
Within safety services, we delivered strong organic growth across the North American safety business.
Importantly, and in line with our strategic initiatives, the North American safety business achieved double digit inspection growth for the 20th straight quarter.
The international business delivered another solid quarter of organic growth along with single with high single digit order growth as that business continues to build momentum under <unk> ownership.
As expected specialty services returned to growth in the second quarter, delivering 13, 3% organic growth is steady increases in backlog dating back to 2024 converted to revenue growth.
The momentum across the business is significant with a record backlog eclipsing $4 billion for the first time in <unk> history.
Importantly, the double digit organic growth in backlog includes contributions from our cross sell efforts focuses on our target target end markets and is healthy from a disciplined customer and project selection perspective.
Our continued focus on our margin improvement initiatives allowed API to deliver year over year improvements in adjusted EBITDA margin in the second quarter with a 30 basis point increase versus last year.
Our continued strong free cash flow generation and balance sheet provide us with flexibility to pursue value enhancing capital deployment alternatives.
In the second quarter, we accelerated our M&A activity completing six acquisitions, including our second elevator business. We have not closed seven acquisitions year to date and we have several more opportunities under letter of intent we remain on track to deploy approximately $250 million.
And accretive bolt on M&A at attractive multiples this year.
We also wanted took some selective pruning of a small business in our specialty segment that was not accretive to our new 10, 16, 60 plus financial targets.
Which is the lens, we'll use to continue to evaluate businesses in both segments going forward.
In summary, we move to the second half of 2025 with great momentum.
Our inspection service and monitoring business continues to expand our.
Our backlog is at a record high our.
Our balance sheet remains strong and we are confident in our leaders' ability to execute our strategy and deliver against our 2025 plan.
I would now like to hand, the call over to David to discuss our financial results and guidance in more detail David.
Thanks, Russ and good morning, everyone reported revenues for the three months ended June 30 were $2 billion of.
A 15% increase compared to $1 73 billion in the prior year period.
Organic growth of eight 3% was driven by strong project revenue growth pricing.
Okay.
And service and monitoring revenues.
Adjusted gross margin for the three months ended June 30 was 31, 2%, representing a 50 basis point decrease compared to the prior year period, driven by mix, partially offset by pricing improvements across the business.
Adjusted EBITDA increased by 17, 7% for the three months ended June 30th with adjusted EBITDA margin coming in at 13, 7%, representing a 30 basis point increase compared to the prior year period growth in adjusted EBITDA was driven by an increase in adjusted gross profit.
Adjusted diluted earnings per share for the second quarter was 39.
Representing a <unk> <unk> increase or 18, 2% compared to the prior year period, primarily driven by strong adjusted EBITDA growth.
I'll now discuss our results in more detail for safety services.
Safety services reported revenues for the three months ended June 30 increased by 15, 8% to 136 billion compared to $1 $1 8 billion in the prior year period.
Organic growth of five 6% was driven by pricing improvement and strong growth in both service and project revenues are North America safety business continued its momentum with double digit inspection revenue growth.
Adjusted gross margin for the three months ended June 30 was 37, 2%, representing a 70 basis point increase compared to the prior year period, driven by disciplined customer and project selection and pricing improvements leading to margin expansion in both service and project revenues.
<unk> earnings increased by 22, 1% for the three months ended June 30.
And segment earnings margin was 17%, representing an 80 basis point increase compared to the prior year period, primarily to the increase in adjusted gross margin.
I will now discuss our results in more detail for specialty services.
Specialty services reported organic revenues for the three months ended June 30 grew 13, 3% to 629 million.
<unk> to $555 million in the prior year period, driven by strong project revenue growth adjusted gross margin for the three months ended June 30 was 18, 1%, representing a 350 basis point decrease compared to the prior year period, driven by increased project starts rising.
<unk> cost and weather.
Segment earnings decreased two 7% for the three months ended June 30, and segment earnings margin was 11, 3%, representing a 190 basis point decrease compared to the prior year period, primarily due to the decrease in adjusted gross margins, partially offset by favorable fixed cost absorption.
Turning to cash flow for the first six months of the year adjusted free cash flow was $186 million, reflecting an improvement of $52 million versus the prior year period, and adjusted free cash flow conversion of 40%.
Free cash flow generation has been and continues to be a priority across API and we are pleased with our strong performance in the first half of the year as the business accelerate revenue growth.
During the second quarter, we increased our revolving credit facility from $500 million to $750 million and extended its maturity to 2030.
At the end of the quarter, our net debt to adjusted EBITDA ratio was approximately two two times as a reminder, the back half of the calendar year is seasonally stronger from a free cash flow generation perspective, we expect that trend to continue this year, providing us with significant opportunities for continued value enhancing.
<unk> deployment, leveraging our strong balance sheet.
I will now discuss our guidance for the third quarter and full year 2025, which as a reminder is based on current foreign currency exchange rates.
We expect increased full year net revenues of $7 65 to $7 85 billion up from seven 4% to seven 6 billion, representing organic growth in net revenues of 4% to 7% for the year.
Moving down the P&L, we expect increased full year adjusted EBITDA of $1 billion 5 million to $1 billion $45 million up from $985 million to $1 $35 million, representing adjusted EBITDA growth of approximately 15% at the midpoint.
Our increased full year revenue and EBITDA guidance is driven by updates to our business outlook, including the impact of closed M&A during the quarter, our second quarter over delivery and our latest outlook for the rest of the year.
Based on most recent rates the impact of foreign currency is immaterial to our change in guidance.
In terms of the third quarter, we expect reported net revenues of one 985 to $2 35 billion.
This guidance represents reported net revenue growth of approximately 9% to 11% and organic revenue growth of 5% to 7%.
We expect Q3, adjusted EBITDA of $270 million to $280 million, which represents adjusted EBITDA growth of approximately 9% to 13% on a fixed currency basis.
For 2025, we anticipate interest expense to be approximately 145 million depreciation to be approximately $90 million capital expenditures to be approximately $100 million and our adjusted effective tax rate to be approximately 23%.
We expect our adjusted diluted weighted average share count for the year to be approximately $424 million, reflecting the completion of our three for two stock split on June 30.
We continue to expect adjusted corporate expenses to be between 30% to $35 million per quarter with some timing variability throughout the year.
Overall, we are pleased with the team's execution of our strategy and an evolving macroeconomic environment during the second quarter and first half of 2025, and I look forward to sharing more updates on our progress throughout the year.
I'll now turn the call back over to us.
Thanks, David we entered the second half of 2025 with continued positive momentum across our global business platform, we continue to accelerate organic growth, while expanding adjusted EBITDA margins growing our recurring inspection service and monitoring business building on our record backlog.
And improving our free cash flow generation.
We believe our proven operating model built on and inspection and surface first strategy purpose, driven leadership and a disciplined approach to capital allocation.
<unk> API for sustained organic growth margin expansion and value accretive M&A.
Confidence in our leaders' ability to execute our strategy and deliver against our new 10, 16, 60, plus long term financial targets, creating value for all our stakeholders with that I would now like to turn the call over to the operator and open the call for Q&A.
Thank you we will now begin the question and answer session. If you have dialed in and we'd like to ask a question Keith presence star one on your telephone keypad guarantees your hand and joined the queue.
Thank you would like to withdraw your question just simply press the star one again.
Is there any called upfront to ask your questions and listening via loud speakers on your device.
Please speak up your handset and ensure that your phone is not on mute.
Asking your question again, please press star one please join the queue.
And your first question comes from the line of team Margaret <unk> of William Blair.
Please go ahead.
Russ David Good morning.
Hey, Jeff how are you.
Doing well thank you.
So two quick ones from me.
On the second quarter the revenue.
On your second quarter was well it was more than $60 million above the high end of the guidance range that you provided.
For the second quarter, just curious what business or businesses outperformed your own internal expectations in the quarter.
Yes, Hey, Tim.
Happy to take that one so you're breaking down the quarter I would say.
Our inspection service and monitoring businesses performed largely as expected we saw really strong contract and project activity across both of the segments. During the second quarter and we did see a little bit of an impact from rising material cost and the pull forward of materials in the quarter that took us over the top end of the range.
Okay, Yes, thanks, David.
Following up on that.
Specialty business, obviously, the revenue looked great, but the <unk>.
Gross margins.
350 basis point decline, how much of that was due to.
Rising.
Material costs, I know you have pricing escalators and other things, but curious how much of that was maybe project specific or or or specifically on the rising raw material costs and do you expect that gross margin pressure and specialty to carry into the back half of the year.
Particularly as some of these tariffs potentially start to hit on things like copper. Thank you.
Yeah, Great Great question again, Tim So when we think about our specialty margins in the second quarter. They were down year over year really driven by increased project starts and.
Front end of a project.
It tends to be more material, driven which is lower margin and then as you work your way through a quarter.
Or a project you typically start working your margin.
Rising material costs and the impact of weather did play a role.
On our margins in the quarter and I don't know if we can quantify.
Precise amount, but I would say a book margins. So on the specialty segment as we do expect them to improve sequentially as we work our way throughout the year.
Got it thanks, so much.
Next question comes from the line of Andy Wittmann.
Please go ahead.
Yeah, great. Thank you.
I think David addressed this question a little bit in your prepared remarks, but I just wanted to drill into the guidance a little bit more I'm looking at the increase here obviously the.
The revenue here in the quarter above expectations very good a little bit of incremental M&A helps your guidance as well so.
I'm just trying to see if the forward outlook for the base businesses has changed are unchanged.
All forward mentioned in the previous answer the question. So Im just trying to get my arms around if things improve from your outlook for the balance of the year or not on an organic basis.
Yeah, Hey, good morning, Andy Thanks for the question.
Big high level round numbers, you can think of our EBITDA raise is a third of it driven by our Q2 over delivery, maybe a third of it due to M&A in the quarter and maybe a third of it do an increase or an improvement in our second half business outlook.
Okay.
That's helpful.
And then just as it relates to.
Capital deployment I heard kind of the comments about you've got a number of under LOI.
Hi.
We're still targeting $250 million.
You're kind of well over $100 million here's here.
Doing.
Youre on track at least it.
Does it feel like the M&A capital deployment, Russ has a potential to be maybe above that.
Given where you sit today with what's under contract and heading forward.
I wouldn't say Andy good morning by the way.
Welcome back.
I would say that.
<unk> was there.
Aye.
M&A is kind of like no different than disciplined project and customer selection, we need to continue to be disciplined in the companies and the businesses that we invited to join the API family.
I would say the pipeline is robust I would say the potential is there for us to over deliver on the $250 million.
Kind of commitment if you will.
But.
In the same breath, we're going to be really disciplined and so if it's $2 50, it's $2 56 to 35, it's $2 35, and if its 290% to 90.
Yes.
That's all I have for today. Thank you.
Thanks, Andy.
Your next question comes from the line of Julian Mitchell of Barclays.
Please go ahead.
Hi, good morning.
I think first off just wanted to try and understand the safety business.
Are we expecting that kind of 6% ish organic growth in the back half as well pretty steady sort of run rate now that maybe flesh out a little bit more how satisfied you are with your elevator market share in sort of top line push assets. Please.
Sure I'll take the first part Julien and maybe I'll hand, the second part on elevators over to Russ.
So I'd say our outlook for the safety service segment in the back half of the year is really consistent with where we've had it or for the year to date.
To target mid to upper single digit revenue growth in the service side of the business low to mid single digit on the project to get to that mid single digit 5%, 6% revenue growth in the back half of the year.
And Julien just to.
Just to add a little bit of color on on the elevator business.
I'll talk about the existing business that we acquired about this time last year elevated that business is really performing as expected there Sean.
Kind of mid to upper single digit organic growth on the performance of the businesses really as expected.
New acquisition that we just made is really what we're calling a tweener I know that's just a really really good use of vocabulary, but.
It's kind of it's not necessarily to bolt on but it's not the size of elevated either but it's a really good company and it positions us in.
In the northeast that we think will be super additive to our business. We have a number of additional opportunities that we're continuing to do some work on from a bolt on perspective. So we remain super optimistic, but we've got a long ways to go to building to.
Building out this $1 billion elevator and escalator platform that that.
We stated that we believe we have the potential to do so.
We're just getting going but I'm really I'm really optimistic and really excited about the direction that we're headed and the opportunities are in front of us.
That's helpful. Thank you and then I just wanted to follow up.
On the acquisition front and clearly you've made good progress.
Already this year.
Sorry, if I missed it but would you mind sort of fleshing out.
The profile sort of an aggregate of the acquisitions that have been.
Announced.
<unk> closed in terms of sort of aggregate organic growth rate any sort of margin profile.
How much EBITDA dollars dialed into the guide now.
Acquisitions.
That have closed in the last 12 months are expected to close this year.
Yes.
Well, David can talk about the numbers, but I'll talk to you a little bit about the profile of the.
The deal is obviously one of them is in the elevator company.
That's because we said that.
And then five of the seven are in our North American safety business in the fire and security space and one of the businesses was a very very profitable.
<unk> see service business that was a bolt on to one of our existing.
The existing companies and every one of these acquisitions is accretive.
They are either out of fleet average or better.
So they are all accretive to really our long term term results.
Regarding what's included in the guide I think David already said it was about a third of our increased guidance was through through M&A.
I don't know if you have any specific numbers you want to sure.
That are both posted over the course of the year from Q1 to the end of Q4, we expect M&A to contribute $200 million of revenue.
To the business.
Great. Thank you.
Thank you and your next question comes from the line of.
<unk> <unk> of RBC capital markets.
Please go ahead.
Hi, Good morning. This is David page on for Ashish. Thanks for taking my questions. I was wondering if you could give on that.
On the international business Chubb, just how that performed in the quarter in the quarter and how you're looking at for the rest of the year. Thank you.
Well, we like.
Super fired up about the business and we.
Where that business is performing.
It showed organic growth again.
In the quarter I think that business is growing now organically every quarter since since we've owned it we shared.
Data points and I think my prepared remarks about we saw high single digit.
Order growth in.
The business, which really speaks to the health of their inspection and service business.
So we continue to see really good momentum in our international business and we still have some work to do there is still optimizing.
We have an integration going on in Benelux.
Early fairly significant that we've got great leadership handling we're still continuing to do some work.
Monitoring centers to optimize those but like business as usual there and I would tell you that theyre doing a great job.
Thank you.
Your next question comes from the line of Jonathan <unk> of CJS Securities. Your line is now open.
Hi, Good morning, guys. Thank you for taking my questions nice quarter.
Nice to see the progress on the M&A front I was wondering if you could drill down on the elevator acquisition that you did.
If I recall correctly elevated itself had a very high EBIT margin compared to your corporate average and I'm wondering if the business that you acquired was similar to that or if it was more closer to your corporate average and that if you can maybe get close to elevate us overtime.
I would say, it's kind of funny, because we were joking around about this as we were getting dropped.
That.
It's really really closer to the fleet average.
Obviously, we think that the potential for the business to get to sort of speak the profile were elevated as is there.
But we feel that way with every actually every one of our business. It's no different than how we were looking at are.
Life safety and security businesses, where the kind of the new normal for from a branch perspective is 20% and Thats where were pushing all of our businesses. So.
But at the time of the acquisition.
Really on par with the fleet average and with the potential to go.
And improve.
Okay, great. Thank you and then I noticed that the seven acquisitions, we did I don't believe any one of them was the international I was wondering if you could speak to the opportunity there the opportunity set that you're seeing if any of the LOI that you've been that you've mentioned previously are in the international space and what we can expect there going forward.
So we do have one small business under LOI in our international business as.
As we sit here.
Our team is doing diligence on that company.
As we speak so there is no question that we've opened the aperture.
Up to the international business I would say that it's.
It's on a country by country basis.
Just like it is for us in North America on a company by company basis.
Sure.
In the international business, the country has to be able to kind of accept and integrate that business.
And not every one of our of our businesses internationally has progressed to the point, where we feel like they're ready.
Ready for a bolt on.
But a number of them are in.
Certainly.
Doing work and looking at a number of opportunities, but we do have one small business under LOI in the international business.
Got it thanks Ross.
Thank you.
Next question.
<unk> comes from the line of Jasper.
Amy.
Please go ahead.
Hey, good morning, everyone.
Wanted to ask a two parter about specialty projects, just hoping you could provide a bit more detail on the new business pipeline. There and then also how their projects and initiatives might impact the margins for that business. Once you get through the ramp up phase you talked about on some of these new ones.
Well I would say that the new pipeline.
And backlog is really really solid I mean.
We don't we.
In our prepared remarks, we stated that our backlog Eclipse 4 billion for the first time and Thats really kind of distributed across all aspects of our business and I would say all aspects of our business.
Are at record levels.
It's very very good.
It's very very very healthy so we feel good about where we're at David mentioned that we expect to see sequential growth in gross margins as we work our way through the back half of the year and Thats. The expectation that we have on the business and we think that the margins in our backlog are strong.
Got it.
And then specialty really surprise this quarter, but I.
I'm wondering how we should think about the composition.
Segment.
Organic revenue growth and margins in your third quarter outlook.
Yes, I can I can give you some color on that Jesper.
So I expect in the third quarter I think we asked or answered a question earlier on the safety business mid single digit organic revenue growth in the third quarter. There I expect high single digit organic revenue growth in the specialty business in the third quarter.
Okay got it thank you for taking the questions.
Your next question comes from the line of Andy Kaplowitz with Citi. Your line.
Is now opened.
Hey, good morning, everyone.
Are you going to ask a seven questions in one question.
I'll try not to us.
Just wanted to ask you about.
I just wanted to ask you about specialty in one sense you have been focused on sort of higher margin projects.
Getting rid of the low <unk>.
<unk>.
Adding projects, how would you sort of assess that progress here like is any of that impact in the quarter or is it more just as you talked about sort of materials and mix.
Okay.
Yes.
Andy as you know business isn't linear and not everything necessarily flushes itself out in a perfectly straight line.
If you look at like our Q2 of last year, we had.
A number of projects coming to completion and you typically have gross margin improvement.
The projects finish and we have so to speak more projects starts going on right now and typically that settle at a lower gross margin. So when you factor in you have a little bit of cost inflation.
Have some weather impacts and all that stuff's kind of put us where we are.
Sitting in this quarter and we think it will only get better as we work our way through the through the second half of the year.
Got it.
I appreciate that Ross and then obviously non res markets have been kind of all over the place, but the safety business is doing really well, maybe just talk about sort of what youre seeing out there. That's an in service can continue to grow double digits for the foreseeable future.
Alright.
We are really.
Sure.
I guess pleased with the way our again, our bellwether always as inspection growth and.
We stated that inspections grew for the 20th Street quarter double digit clip. So we don't see really any let off in that and that's been really positive and thats, leading to strong organic growth in our in our service business.
That's primarily in North America.
And what we're seeing internationally with high single digit order growth.
I guess really sending us a message that the sales transformation that has been initiated by our leadership. There is really taking hold and taking shape. So that's all really focused on the service side of our business.
Safety and Thats really positive and that gives us good good comfort in direction that we're going then you layer in.
Really the strong project opportunities in the end markets that we pursue.
And that's just a really good combination and that's what we're seeing.
Data Center semiconductors advanced manufacturing.
All are really providing robust opportunities for us and we're just trying to make sure that.
We're being smart so that we can get the gross margins on the work that we did we really need to get for that work to be beneficial to the company into ultimately to our shareholders. So.
There's a lot of opportunity out there and proposal activity, even with all the noise.
Around tariffs still.
Proposal activity has.
Very very robust and we're just trying to be smart about what we take and what work we pursue.
Sure.
Very helpful. Thanks Beth.
Thank you Andy.
Your next question comes from the line of Thomas <unk> of JP.
J P. Morgan. Please go ahead.
Hi, Good morning, everyone and thank you for taking my question.
Jo Malone.
My first question is.
The North America inspection.
Is.
Have another 20 consecutive quarters of double digit growth and wanted to.
Get them all color on the pricing improvements as well as the your inspection for strategies, including technology has done the points the AI field productivity tools, how you see the improvement of the margins of the.
In addition to the volume side of this business place.
Yes, so I'm happy to take it in a Brooks has any commentary at the end.
So we continue to be able to capture low to mid single digit pricing in our inspection service and monitoring revenue streams in your.
Your question, then on margin and the impact of AI in digital on margins going forward I would say our expectation on all of our revenue stream is that we're going to continue to be able to expand margin into 2006, 2007 and 28 as we pursue our 10 to 16 60 strategic goals.
And the technology and the use of technology will be a part of that.
Yes.
I'd say TAMO is that I think actually the technology.
And all of that stuff that comes together.
It's probably going to be more.
Providing leverage from an SG&A perspective.
And making us more efficient.
<unk>.
When you when you think about the labor market that's out there we need to.
Our efforts around artificial intelligence and technology needed to enable us to continue to scale our business.
Because we're going to have less people to be able to do the work and so that's really where the focus is.
But we have a team.
Team that is focused.
Basically on AI.
On an international basis.
<unk>.
The reality of it is just like most every other company, we're probably in the bottom of the first inning.
In our efforts there, but we actually are source resourcing.
And have a kind of an AI task force for lack of better words.
Thank you and just one follow up on innovation side International business and its safety services could you talk about <unk>.
Let's see in digital with its chip visions.
How actually you see customer reactions there.
And could you talk about the how you're excited about that.
In terms of the Diebold in the same margin international business place.
Okay.
Yes.
Total could you repeat your question please.
Yes, so I would like to get them all color on.
Digital strategies international business, especially the patients that you showcased at the IL day.
If you see any customer feedback in the second quarters and some expectation in the second half.
<unk> please.
Well I mean, the work with Chubb Chubb vision and stuff is really just units into C as well and just really.
Getting cranked up I mean, we see.
Out of opportunities with the work that that team is doing.
I mean, I think there is.
A lot of really good stuff happening there, but I think we're too early too.
Declare victory or anything like that Joel I think there is.
Tremendous amount of opportunity I would tell you that.
A lot of ways, our international businesses further along.
In that journey.
Our leader there Andrew White.
As a bit techie himself and.
And I think key.
He has.
Really broad vision for where that can go and that's something that we're working on making sure that we can take.
Take across.
The entire breadth of our portfolio not just in the international business, but I'd say, it's too early to declare victory I.
I don't know if David you worked there for sure.
Do you have any other color.
The only thing it's too early to declare victory, but it's an incredible opportunity I mean in our international business, we've got $50 million.
<unk> devices and the more that we can use technology to serve our customers the better our business will be.
Thank you for the color looking forward to it thank you very much.
Your next question comes from the line.
Arsene Thompson of Thompson Research Group. Please go ahead.
Hi, Thank you for taking my questions today.
Just one observation.
Despite all the cleaning headlines.
I think it's worth noting that third of your EBIT growth is from an outlook.
Yes, definitely separating from I've seen other companies.
Quick question do you think when you look at sort of.
Pull the string a little bit more on how API wins.
With AI you look at companies like meta.
Hi, there guidance for 66% to $72 billion.
So this year in the range, we're looking at.
<unk> $100 billion next year.
And you touched briefly on a few.
And how.
Could you give us your examples in terms of either how you win with projects or with the ongoing maintenance.
And operation team.
Hi.
Thanks very much.
Yes.
When when Youre doing the inspection and service work at whether its meta or Microsoft or wherever but when youre doing the inspection service work at those facilities.
And.
We come along and expand at that existing site.
Opportunity for you to to win that expansion the business associated with that expansion.
<unk> dramatically.
Cause of the relationships you have and.
The client is.
And consistency and service and follow through and all of that other stuff.
Then when you have other larger opportunities that are seeing more greenfield sites like say <unk> 10 X sight.
In Louisiana there.
And then it's really relationship based and your ability to man work in some of these remote locations.
And that's I think something that we have really a depth skillset.
We have the capacity and the workforce that.
That we can bring to bear on those types of project opportunities and those opportunities the selection.
Criteria.
Is usually around your ability to work safely your ability to to provide the right.
High quality.
Skilled.
We field leaders to actually execute the work your ability to get the work done on time.
I mean, because they are very aggressive schedules and so there's all these other gates and price is a very small factor that comes into the equation I would also say on the on the fire life safety and security side of it there is only a handful of firms that have the capacity.
And the skills to tackle projects.
That magnitude and Thats an element of complexity, that's a positive for a firm like ours and so but in the same breath, we still have to be selective and be smart about which projects. We pursue so that we don't overextend ourselves.
Therefore don't deliver on the commitments that we made to that customer so.
I don't know does that makes sense Katherine yes, yes.
But it sounds to me that you can win business does.
At the <unk>.
<unk> out, but then on an ongoing basis with.
Ongoing technical services that you would do for any complex commercial.
Bill.
Structure is that correct and my am I hearing you correctly on that.
That's correct.
The more complex the.
Opportunities are better off we're going to be we don't want to find ourselves in positions for C. Project related were let's just say, we're not doing the inspection and service work for that customer we don't want to be in a position, where we're just competing on price like thats just not our model.
Do well when we just compete on price and if it's just that's what it is if somebody is going to especially in today's world. If somebody is just going to treat it as an auction if you will.
We're not going to do well in that environment. So it's like widened widening waste your time pursuing it and Thats why we have.
It's fairly robust go no go kind of check list that we put our businesses through because we want them to actually.
Think about should I, even pursue this.
And.
And the reality of it is it's just going to be a price driven decision they shouldn't.
Excellent. Thanks, so much and best.
Best of luck going forward.
Thanks Catherine.
Your next question comes from the line of Josh Chan of cubes.
Please go ahead.
Hey, Good morning, Russ David just two quick ones from me on the.
Guidance range that was for the rest of the year I guess, the one third of the guidance raised what got better or was it primarily the specialty side of things.
Yes, I think I would attribute that to the really strong backlog that we were able to generate during the quarter and the strong margin in the strength of the backlog gave us comfort in the back half of the year.
Okay, great. Thank you and then on the on the backlog margin.
It sounds like you are pleased with the backlog margin I guess when it comes to realizing that backlog margin over time, obviously, you can control your own execution, but can you talk about other factors that you have to think about.
Is that converts.
That may or may not be outside your control and what you could do to kind of ring fence those.
Well obvious obviously Josh.
Material cost escalation.
Something as prices go up whether it's because of tariffs or inflation or whatnot.
A combination thereof.
That's out of our control, but it's in our control I mean like we have been talking very openly since president Trump won the election that he is going to use tariffs as a lever for him.
To level, the playing field from a trade perspective, and so you knew that it was coming in.
And so we've been working hard to protect ourselves during the time of our proposals.
I'm sure, we're not perfect and I'm sure there are some gaps in some places where we.
<unk>.
We didn't do as well as we should.
That would be one area whether.
As you know it could be a significant.
Issue and challenge for Us because obviously when you have poor weather conditions, you are not going to be as efficient.
With the deployment of your field leaders and so thats another area that could be could be challenging so.
Those would probably be the primary two contributors obviously, we have to execute.
Aspects of it.
Availability of labor and things like that is.
Would be a challenge as well but.
The reality of it is.
Everybody is knowing that there's going to be.
Availability of labor issues and challenges and shortages and so as you are making decisions to take on.
Whether it's master service agreements or other project related opportunities you should be factoring that into the equation and that really should not be an excuse.
Thank you for the color David Ross.
Congrats on the quarter.
Thanks, Josh.
And we have one more question from Sydney.
Please go ahead.
Hi, good morning, Thanks, everybody.
And I think.
Maybe just I wanted to go back to the margin performance in the quarter was very good.
Hospital segments obviously.
Or.
Consolidated level, but if we look at both segments I was hoping maybe you could talk a little bit about the puts and takes in the margin performance I know at your analyst day, you walked through several levers to achieve ultimately your 16% plus target.
Pricing project selection.
So maybe if you could just talk about the underlying puts and takes and your path to achieve some of those.
To achieve that target of the levers to get there. Thank you.
Yes, happy to give you a little bit of color there Stephanie.
It takes strong margin in the quarter. So our margin performance on inspection service and monitoring was strong.
Continues to be we're able to get margin accretive pricing net pricing part of the business.
We were able to get good leverage out of our fixed cost base during the quarter, partially due to the strong organic revenue growth.
That was a positive we talked a little bit about rising material costs.
And we've talked a lot over the last couple of quarters about how our business is able to protect itself at the time of proposal and being able to capture that dollar value O'brien rising material cost and we believe the business did a good job of doing that during the quarter, but that did have a little bit up.
Margin erosion during the quarter. So I think when you talk about the service mix you talked about disciplined project and customer selection getting leverage.
We're seeing progress in all of those areas and our path to 13% and up 16% adjusted EBITDA margin.
Great very helpful. And then just one quick follow up.
Is there any chance you can give a bit of an update on the specific investments that you called out at the analyst day.
Or anything you can call out on that thank you.
Yes.
Absolutely.
I'm sure I'm sure it's on the in the release the spend on the system and this enablement in the quarter.
What I'd say is those are difficult challenging business led projects.
But the team is performing executing well and I've been particularly.
Impressed with the way that that team is working closely to make sure that the voices of our branch.
Company and field leaders is heard.
Each and every step along the way so so really good progress on that the team is committed they're executing well and we feel good about where that work is.
Got it thank you I appreciate it.
Thanks, Stephanie.
And that concludes our Q&A session.
Conference back with me. Please go ahead.
Okay.
Thanks very much.
Thank you in closing I would like to thank all 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 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.
<unk> API and look forward to updating you on our progress throughout the remainder of the year.
Thank you everybody.
Ladies and gentlemen that concludes today's call. Thank you everyone for joining you may now disconnect.