Q3 2025 APi Group Corp Earnings Call

Speaker #3: Good morning , ladies and gentlemen , and welcome to API Group's third quarter 2020 financial results conference call . All lines have been placed on mute and are in listen only mode until the question answer session begins .

Speaker #3: Please note this call is being recorded . I'll be standing by should you need any assistance . I'll now turn the call over to Adam Fee Vice President of Investor Relations at API Group .

Speaker #3: Please go ahead .

Speaker #4: Thank you . Good morning , everyone , and thank you for joining our third quarter 2020 earnings conference call . Joining me on the call today are Russell Becker .

Speaker #4: Our president and CEO . David Jackola . Our Executive Vice President and Chief Financial Officer . And Sir Martin Franklin and Jim Lilly , our board co-chairs .

Speaker #4: 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 .

Speaker #4: Anticipated events or trends , and other matters that are not historical facts . These statements are not a guarantee of future performance and are subject to known and unknown risks , uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward looking statements .

Speaker #4: In our press release and filings with the SEC , we detail material risks that may cause our future results to differ from our expectations .

Speaker #4: Our statements are , as of today , October 30th , and we undertake no obligation to update any forward looking statements we may make except as required by law .

Speaker #4: As a reminder , we have posted a presentation detailing our third quarter financial performance on the Investor Relations page of our website . Our comments today will also include non-GAAP financial measures and other key operating metrics .

Speaker #4: The reconciliation of and information and other information regarding these items can be found in our press release and our presentation . It is now my pleasure to turn the call over to Russ .

Speaker #5: Thank you . Adam . Good morning everyone . Thank you for taking the time to join our call this morning . Before we get into our record third quarter results , I would like to thank our approximately 29,000l for their dedication to API .

Speaker #5: The safety , health and well-being of each of our teammates is our number one value . Last month , during September , we recognized suicide Prevention Month and Construction Suicide Prevention Week .

Speaker #5: We used this as an opportunity to encourage all of our team members to engage in meaningful conversations about mental health . These conversations are a simple way to embrace the care factor and show our teammates we care about their well-being , including physical and mental health .

Speaker #5: In addition to the care factor . Another one of our foundational beliefs is our central premise , which means that at API , we recognize that our success only happens when our branches and fuel leaders are successful .

Speaker #5: One way we are supporting our branches and field leaders as part of our central premise is through investments in market leading systems and technologies , including artificial intelligence .

Speaker #5: We see market-leading technology not as tools that will replace our field leaders, but rather as a way to empower our branches and field leaders to accelerate their speed of doing business.

Speaker #5: More safely and better serve our customers as we grow into a $10 billion company , a few examples of these investments include the following API echo , which allows our field leaders to record conversations and summarize key notes without having to leave the field or remove their safety gloves .

Speaker #5: One code , which provides quick access to situation relevant fire protection code , fire protection code detail to save time for our estimators field leaders .

Speaker #5: Connected glasses , which allow our remote experts to guide field leaders in real time , resulting , designers and in quicker service to our customers with a higher first time fixed rate and an AI enabled predictive tool which flags customers who have a high attrition risk .

Speaker #5: This tool allows our local teams to take proactive steps to engage customers and focus on strengthening specific customer relationships . Finally , last year , we announced we launched our global Steps Safety platform , which allows our team members to document and manage safety activities in the field from a mobile device , establishes safety standards and strategies , and gives our leaders better data and visibility into safety metrics to better protect our teammates and help us continuously improve .

Speaker #5: We are still in the early innings piloting these technologies , but we believe our business led approach to investing in technology will empower our 29,000 leaders , increased teammates satisfaction and drive growth in margin expansion .

Speaker #5: As we work towards our ten , 16 , 60 plus financial targets . As a reminder , these targets are 10 billion 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 monitoring over the long term , and $3 billion plus of cumulative adjusted free cash flow through 2028 .

Speaker #5: Our leaders have clear plans for how we intend to deliver on our ten , 16 , 60 plus targets , with a continued focus .

Speaker #5: Focus on the main initiatives that are enabling us to achieve our 13 , 60 , 80 targets . Those initiatives are . Consistent organic growth , improved inspection service and monitoring revenue mix , disciplined customer and project selection , pricing , branch and field optimization , procurement systems and scale accretive M&A and selective business pruning .

Speaker #5: And as I like to say , we can always just be better . Now turning to our record third quarter results . The business continued to have strong momentum , delivering robust top line growth while expanding margins .

Speaker #5: Some some highlights include the following . Strong growth in inspection , service and monitoring revenues , led by double digit inspection growth in North America for the 21st straight quarter record backlog in both segments .

Speaker #5: And finally , accretive bolt on M&A activity at attractive multiples . For the quarter , net revenues increased by 14% , approximately 10% organically , with strong growth across both segments .

Speaker #5: In our safety services segment , revenues grew organically by approximately 9% , led by North American Safety , while delivering 40 basis points of segment earnings margin expansion .

Speaker #5: As expected , specialty Services continued its strong growth in the third quarter , delivering approximately 12% organic growth with sequential margin expansion . Our continued focus on our margin improvement initiatives allowed API to deliver year over year improvements in adjusted EBITDA margin in the third quarter , with a ten basis point increase versus last year .

Speaker #5: We continue to see great momentum in our business , particularly on the project side in North America , where we are being opportunistic but not overcommitting in the high tech space .

Speaker #5: These project opportunities are in line with our disciplined customer and project selection . Our primarily sourced from our existing inspection and service relationships , our margin accretive to our overall project book of business due to their complexity and size , and provide a long term recurring inspection and service revenue opportunity for our local branches .

Speaker #5: The third quarter was another strong quarter for free cash flow generation . Our consistent free cash flow generation and strong balance sheet provides us with the flexibility to pursue a range of value enhancing capital deployment alternatives as we head into 2026 , we continue to execute our M&A plan , completing four bolt on acquisitions in the quarter , bringing our total for the year to 11 .

Speaker #5: Completed bolt on acquisitions . We remain on track to deploy approximately $250 million in bolt on M&A at attractive multiples this year . Our pipeline remains robust and continues to grow .

Speaker #5: Now , including fire protection , electronic security and elevator services opportunities globally . Most importantly , our value proposition as a forever home for their team continues to resonate with sellers .

Speaker #5: In summary , we moved through the fourth quarter and into 2026 with great momentum . Our inspection service and monitoring business continues to expand our backlog is at a record high .

Speaker #5: Our balance sheet remains strong and we are confident in our ability to execute our strategy and deliver against our 2025 targets and our ten , 16 , 60 plus shareholder value creation framework .

Speaker #5: I would now like to hand the call over to David to discuss our financial results and guidance in more detail. David.

Speaker #4: Thanks , Russ .

Speaker #6: And good morning , everybody . Reported revenues for the three months ended September 30th were $2.1 billion , a 14.2% increase compared to $1.83 billion in the prior year period .

Speaker #6: Organic growth of approximately 10% was driven by continued growth in inspection , service and monitoring revenues . Strong growth in project revenues and pricing improvements .

Speaker #6: Adjusted gross margin for the three months ended September 30th was 31.5% , representing a 50 basis point increase compared to the prior year period .

Speaker #6: Driven by disciplined customer and project selection and pricing improvements . Partially offset by mix . Adjusted EBITDA increased by 14.7% for the three months ended September 30th , with adjusted EBITDA margin coming in at 13.5% , representing a ten basis point increase compared to the prior year period .

Speaker #6: Growth in adjusted EBITDA was driven by strong revenue growth and adjusted gross margin expansion , partially offset by investments to support growth . Adjusted diluted earnings per share for the third quarter was $0.41 , representing a seven cent , or 20.6% increase compared to the prior year period .

Speaker #6: The increase was driven primarily by growth in adjusted EBITDA and a decrease in interest expense . I will now discuss our results in more detail .

Speaker #6: For safety services, safety services reported revenues for the three months ended September 30th of $1.4 billion, a 15.4% increase compared to $1.2 billion in the prior year.

Speaker #6: Organic growth of 8.7% was driven by continued growth in inspection , service and monitoring revenues . Strong growth in project revenues and pricing improvements .

Speaker #6: Our North America safety business continued its momentum with double digit inspection revenue growth , adjusted gross margin for the three months ended September 30th was 37.3% , representing an 80 basis point increase compared to the prior year period , driven by disciplined customer and project selection and pricing improvements leading to margin inspection .

Speaker #6: Expansion in inspection service and monitoring revenues and project revenues . Segment earnings increased by 18.6% for the three months ended September 30th , and segment earnings margin was 16.8% , representing a 40 basis point increase compared to the prior year period , primarily due to the increase in adjusted gross margin , partially offset by investments to support growth .

Speaker #6: I will now discuss our results in more detail . For our Specialty Services segment , Specialty services reported organic revenues for the three months ended September 30th were 683 million , an increase of 11.6% compared to 612 million in the prior year period , driven by strong growth in project revenues .

Speaker #6: Adjusted gross margin for the three months ended September 30th was 19.3% , representing a 60 basis point decrease compared to the prior year period , driven primarily by increased project starts .

Speaker #6: Mix and increased material costs . Segment earnings increased 3.8% for the three months ended September 30th , and segment earnings margin was 11.9% , representing an 80 basis point decrease compared to the prior year period , primarily due to the decrease in adjusted gross margin .

Speaker #6: Turning to cash flow , we continue to focus on driving strong free cash flow conversion and improvements year over year . For the three months ended September 30th , adjusted free cash flow came in at 248 million , up $21 million versus last year , representing an adjusted free cash flow conversion of 88% .

Speaker #6: The strong free cash flow in the third quarter drove adjusted free cash flow of $434 million year to date , up $73 million versus last year , and representing a conversion rate of 58% .

Speaker #6: Free cash flow generation has been and continues to be a priority across API , and we are pleased with our performance year to date as the business accelerates revenue growth .

Speaker #6: We expect to finish the year at approximately 75% . Adjusted free cash flow conversion in line with our prior guidance as a reminder , the fourth quarter is traditionally our strongest for free cash flow conversion due to seasonality .

Speaker #6: At the end of the third quarter , our net debt to adjusted EBITDA ratio was approximately 2.0 times below our long term target , allowing us to flexibility to pursue value enhancing capital deployment opportunities in the remainder of the year and into 2026 .

Speaker #6: As a reminder , our long term capital deployment priorities remain one . Maintaining net leverage at stated long term targets two strategic M&A at attractive multiples and three opportunistic share repurchase .

Speaker #6: I will now discuss our guidance for the fourth quarter and full year 2025 , which , as a reminder , is based on current foreign currency exchange rates .

Speaker #6: We expect increased full year net revenues of 7.825 to 7.925 billion , up from 7.65 to 7.85 billion , representing reported revenue growth of 12 to 13% and organic growth in net revenues of 7 to 8% for the year .

Speaker #6: Moving down the PNL , we expect full year adjusted EBITDA of 1.015 to 1.045 billion , compared to our previous guidance of 1.05 to 1.045 billion , representing adjusted EBITDA growth of approximately 15% at the midpoint and adjusted EBITDA margin above our previously stated 2025 goal of 13% .

Speaker #6: Our increased full year revenue and adjusted EBITDA guidance is driven by updates to our business outlook , including our third quarter over delivery , our latest outlook for the remainder of the year , and the impact of closed M&A during the quarter .

Speaker #6: Based on most recent rates , the impact of foreign currency is immaterial to our change in guide for 2025 . We anticipate interest expense to be approximately 145 million , depreciation to be approximately 85 million .

Speaker #6: 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 .

Speaker #6: We continue to expect adjusted corporate expenses to be approximately $35 million per quarter , with some timing variability throughout the year . As expected .

Speaker #6: Our EBITDA adjustments for restructuring were zero in the third quarter as we brought those programs to the conclusion at the end of the second quarter .

Speaker #6: Overall , we are pleased with the team's execution of our strategy in an evolving macroeconomic environment . During the year . I look forward to sharing more updates on our progress next quarter .

Speaker #6: I will now turn the call over to Russ.

Speaker #5: Thanks , David . We approached 2026 with strong momentum across our global platform . We continue to accelerate organic growth while expanding adjusted EBITDA margins , growing our recurring inspection service , and monitoring business .

Speaker #5: Building on our record backlog and improving our free cash flow generation , we believe our proven operating model built on our inspection and service first strategy , purpose driven leadership , and a disciplined approach to capital allocation positions .

Speaker #5: API for sustained organic growth margin expansion and value accretive M&A . We are confident in our abilities or we are confident in our leaders ability to execute our strategy and deliver against our new ten 1660 plus financial targets , creating value for all of our stakeholders .

Speaker #5: With that , I would now like to turn the call over to the operator and open the call for Q&A .

Speaker #3: Just as a reminder , in order to ask a question , simply press star , followed by one on the telephone keypad . Our first question comes from the line of Andy Kaplowitz from Citigroup .

Speaker #3: Your line is live .

Speaker #7: Good morning everyone .

Speaker #5: Good morning .

Speaker #6: Good morning .

Speaker #7: Russ . As organic growth as you know , has been accelerating in safety services . Could you give us more color on how that broke down ?

Speaker #7: For instance , are you seeing a boost in your project business given a bigger data center tailwind ? Or would you say it's more broad based growth given your comment in the prepared remarks on not overcommitting to high tech ?

Speaker #5: So I would say that we're seeing very robust activity in the data center space across really both of our segments . Andy , I mean , I don't think I think , you know , going into the year , data centers probably accounted for someplace around 7 to 8% of our total total revenue .

Speaker #5: And maybe that's going to push to 9 or 10% based on the tailwinds that we're seeing in the space . So it's not a significant component of our of our revenue .

Speaker #5: We continue to see really good activity in the semiconductor space and advanced manufacturing. We're seeing some activity in aviation that's creating opportunities for the U.S.

Speaker #5: Healthcare continues to be be strong , as does critical infrastructure . So we feel we've always felt strongly about the end markets . We've chosen to play in .

Speaker #5: And I feel like we're just seeing good , robust activity . So I would say that the one thing that might be different today than what was different , you know , a year or two years ago , is size and complexity of some of these , these projects which limits , you know , the , you know , limits the players that are able to really participate and deliver on some of the schedules , which creates opportunity for folks like us .

Speaker #5: .

Speaker #7: Very helpful . And then you mentioned sort of 11 bolt now still reiterating 250 million plus this year , but it almost seems like you're ahead of plan on M&A .

Speaker #7: So maybe you can give us a little more color around the progress you're making . Obviously , you've been adding to your elevator platform .

Speaker #7: You mentioned multiple other platforms . So just update us on sort of where you are . Is that the right observation that maybe you're a little ahead ?

Speaker #7: How do you think about it ?

Speaker #5: I think about it more like we're right on track , to be honest with you . I mean , we we have , you know , we have anticipated , you know , activity here in the fourth quarter that , you know , we still need to to execute on .

Speaker #5: But I feel like we're , you know , right on track . Whether it ends up being , you know , 275 you know , I don't know that will all depend on , you know , our ability to execute on the on the deals that we have in the pipeline right now .

Speaker #5: But , you know , this idea of us being a forever home for sellers , as we mentioned in our remarks , you know , continues to to resonate .

Speaker #5: And we are seeing a lot of activity . And that is really , really been positive for us . So most the focus has remained primarily in North America .

Speaker #5: And the fire and security space , you know , we are continuing to do work on elevator . We got one deal done this year .

Speaker #5: We have a number of deals that are in the in the pipeline that we're continuing to to push forward on . And we are seeing more activity in the international business .

Speaker #5: But that still remains on a country by country basis , based on the ability of that country , so to speak . To digest a potential bolt on .

Speaker #5: But we are seeing more activity in our international business as well .

Speaker #7: Appreciate all the color .

Speaker #5: Thanks , Andy .

Speaker #3: Your next question comes from the line of Catherine Thompson from Thompson Research Group . Your line is live .

Speaker #8: Hi . Thank you for taking my questions today . And tagging along . Just in balancing priorities for growth with M&A , about 45% of of your end markets today by our calculation , benefits from Reindustrialisation .

Speaker #8: And granted , as you noted , there's ample opportunity to grow smaller segments like elevator segment . But when you think about balancing your priorities by either industry vertical or broad , US trends , how do you how do you balance those two ?

Speaker #8: So , for instance , you know , based on our work and being able to see data center construction site , the amount of support is going to benefit companies of scale like API .

Speaker #8: So do you see a greater balance of your revenues coming from that Reindustrialisation see a greater mix or and how do you balance that against just consolidating a vertical like the elevator and escalator segment ?

Speaker #5: Thank you . Well , I mean , thanks , Catherine , and good morning . And we appreciate you and you being here with us .

Speaker #5: Well , for sure , the size of some of these projects , you know , in the complexity of these projects creates opportunity for for folks like , like us because just there's only a handful of , you know , national players that can handle the fire , life , safety on , say , a large , you know , data center project .

Speaker #5: And so that's an advantage . And for us , as we as we look at , how do we balance that , you know , for us , you know , our geographic footprint is an advantage for us .

Speaker #5: And , you know , the the data center market continues to follow power availability . And so there there's , you know , areas where there is some concentration of data centers .

Speaker #5: But you're starting to see these data centers move to different locations . And a lot of it is remote locations . So you have to have people that are willing to travel to these to these locations .

Speaker #5: And that's an advantage for us . So as an example , one of our clients is going to build a large , extensive data center in El Paso , Texas .

Speaker #5: We have a very , very strong fire life safety business in El Paso , Texas . That's positioned to to support that . And that's an advantage that that we have .

Speaker #5: And so as we think about the balance of , you know , like , you know , investing , you know , continuing to invest in our inspection service and monitoring business , you know , or , you know , say , you know , continuing to try to consolidate in the elevator space .

Speaker #5: We're doing both . And we feel like we've got the bandwidth to do both . You know , with the way the way our business is , is really structured .

Speaker #5: So , you know , we've got the right resources in the elevator space to focus on , you know , not only growing the elevator business , but also executing on the on the , on the , on the elevator business that we currently have .

Speaker #5: And and so we balance that , you know , these large project opportunities flow continue to flow through me . So I can see , you know , how much activity is going there .

Speaker #5: And so we're able to ask questions to make sure that we've got the right resources to be able to execute on the on the work .

Speaker #5: And , you know , one of the things that I talk about all the time that , you know , I think sometimes people don't really have a real understanding or maybe even respect for is that in our industry , having too much work is worse than having not enough .

Speaker #5: And so we we watch that very , very closely to make sure that we're taking advantage of the right project related opportunities so that we , you know , get paid the right , price for the work that we do .

Speaker #5: And the services that we provide . So so we talk about it all the time . And I feel like we're doing a really good job of doing both .

Speaker #8: It very helpful with that . And following on that comment of too much work . Are there any markets that are generally better margin as you go towards your margin profile ?

Speaker #8: Are there markets now that you would like to grow that you see as better margin markets as you focus on growth going forward ?

Speaker #8: Thanks so much . And I'll jump back in the queue .

Speaker #5: Well , I think that I think the markets that we're playing in right now , today provide the best margin opportunity for for the company .

Speaker #5: And it's because because of what I've mentioned , you know , it's based on size , based on complexity . And it's more around your ability to to deliver .

Speaker #5: And the schedules for these data centers , as you're aware , are really aggressive . And so , like you have to have you have to have the people and you know , if you're going to , you know , deploy your people to some of these project opportunities , the margin opportunity needs to be there .

Speaker #5: And so , so it's it's the size . It's the scale . It's the complexity and it's the schedule and your ability to deliver .

Speaker #5: And and you should get paid for that . And and we're seeing that .

Speaker #8: Excellent .

Speaker #3: Your next question comes from the line of Andy Whitman from Baird . Your line is live .

Speaker #9: Great . Good morning and thanks for taking my questions , everyone . I guess I want to kind of build on the margin questions here a little bit .

Speaker #9: And just kind of get your assessment , rest on on the margin performance in the quarter ten basis points . You got a lofty 2028 goal .

Speaker #9: I know one quarter does not make the trend , but you mentioned some things like I don't know , materials costs and talking about some investments for growth .

Speaker #9: And there's that inherent you know , growth margin trade off that is such a focus for your company . Obviously you look back at last year you got big margin gains as a result of kind of slowing down some of the projects that you took on .

Speaker #9: I guess I wanted to ask you kind of , are you at the right balance of growth ? It's much better here , but you're not getting quite as much margin .

Speaker #9: So what's your assessment of your balance between those things and and as you head into 26 , you need to maybe throttle down the growth to make some progress towards that .

Speaker #9: That big 28 margin guidance . Thanks .

Speaker #5: Well good morning Andy . Thanks for thanks for being here . And well , number one , we're not going to we're not going to tell you we can do something that we can't do .

Speaker #5: And I mean , we're competitive a competitive group . And I feel like the margin expansion goal and objective we put out there is realistic .

Speaker #5: And we will we will deliver on that . And I feel like we're doing a good job of balancing , you know , organic growth with , you know , inside our , our existing portfolio today and , and as you , as you said , it really even as you framed your question , you know , the reality of it is is business really isn't linear .

Speaker #5: And you know , we will continue to see our margins , you know , expand as we move , you know , through the through the remainder of the year and into next year .

Speaker #5: And so I remain optimistic about how we're balancing it . I don't know , David , if you have any color you'd like to add .

Speaker #6: Yeah , I'll add a few points . Russ . Thanks for the time . Andy . Thanks for the question . You know , underlying , we've seen , really good margin expansion in our inspection service .

Speaker #6: And monitoring work . And we're able to continue to get margin accretive pricing . And we expect that to continue into the future .

Speaker #6: And I'd say we're still in the early phases of a lot of this this contract work that is driving organic revenue growth , particularly this comment is in the specialty services segment .

Speaker #6: And we'll see margins expand sequentially again in Q4 and into 2026 as those projects move deeper into completion . We tend to move margins up on our projects as we get closer to completion , and we're still still in early days .

Uh, looking at uh, the m&a pipeline, you guys had uh, 4 bolt on Acquisitions, in the quarter and a strong track record of value, accretive m&a, uh, what's kind of the current status of that M&I m&a, Pipeline? And are there any particular G Geographics, or service lines that you're prioritizing for future bold on acquisitions?

The pipeline, um, I mean, I think you can expect more of the same. You know what I mean? It's kind of just, uh,

regular Cadence for us, you know, at this stage of the game, we just keep, you know, plugging away and making sure that we're, we're making good choices, you know, for the, for the businesses that we, you know, choose to um, to bring into the API family.

Um, culture values and fit being, you know, the number 1, um, you know, gate, if you will that, uh, that, you know, we need to, uh, to solve for. So, I think you'll you're going to continue to see a very similar Cadence. As you've seen, you know, really over the course of the last couple of years. Um, so, um, that that part of it is good in the, in the opportunities that are in front of us are really are really positive. Um, you know, as it relates to focus, it, it seems like just based on Readiness and capability. Um, our we've, the majority of our transactions have happened in our North American Safety business. Um, primarily in the fires probably Fire Protection.

First um, electronic security second um and you know elevators you know I'd say are on equal footing and that's just the way that's just kind of the way it's happened. Um, and a lot of that is based on Readiness. Um, so but I would say fire suppression. Um, you know, fire just in general electronic security and elevators are kind of

All the same as it relates to our priorities. Um, and you're going to see us continue to to do more transactions in North America until the international business is, you know, in a kind of an overarching way more ready and capable of handling. Um, both on m&a activity, we are all that. Being said, we continue to do work on opportunities that we see in our International base, um, business. And that's based on Country Readiness, you know. So we have certain countries that are in a much better place as it relates to being ready, um, to take a bolt on, um, versus other countries. And, um, you know, that's a gate that we use actually in in North America as well. So, um, but you should expect a very, very similar Cadence, um, of activity. We also continue to look at, you know, slightly larger opportunities that are out there in the market and we continue to do work on those. Um, so, um, lots of lots of good things happening, you know?

it from an m&a perspective, right now, today

Thank you for providing a little bit of color, um, on your investments in the sales team. Are you guys seeing how is the labor availability and technician retention? And are you guys experiencing any wage pressures or, uh, capacity constraints?

so I would tell you that well, number 1 um as it relates to, you know, people in general not just like sales people, you know, like we talked about the investment in our inspection service and monitoring business really as as a whole

And um, you know the the first the first tenant of people and talent management is retention. And you, you have to keep the people that you have and our retention is very, very strong, I think north of 90% And um I would tell you that that's driven by the company's purpose of building, great leaders in the Investments that we continue to to make in every single person that's on our team. Um, and that includes the men and the women in the field and I think that's something that differentiates us. So, um, first we have to keep the people, you know that we have second, you know, you have to you know really be looking for people in non-traditional places in today's world and I feel like our team is doing a better and better job. Like I don't think we're perfect at it but I think we're doing a better.

Companies. And and so, you know, we recognize the the fact that if we if we want to achieve, you know, our goals, 10, 10 1660 plus, it's going to take more people in our organization and so we have to be thinking differently about that and I feel like our team is is you know, really doing a good job. I think we have some more work to do there but I feel like we're doing a good job and understanding what the what what the people needs are. I look at people, um, if you, if you, if if our Business Leaders use people, um, as the reason that they can't grow their business, then that's an excuse. And the reality of it is, is that everybody that's in, in the industry knows that, you know, Finding really good people that have the skills to do the work that that we need to to do for our customers. It's, it's been tight like this for 10 years. And so, you know, saying that you can't find the people.

That's an excuse like you have to think differently about it and um and how you're going to how you're going to build your business and and I feel like our our our group is doing a nice job there and um, and that's it takes leadership to do that.

Thank you for taking the question and good luck with the rest of the year.

Thank you. Thank you.

Your next question comes from the line of Stephanie Moore from Jeffrey's your line is live.

Hello. This is Harold Anton for Stephanie Moore. Um, just wanted to um get an update on um elevated you know I think you guys are on the acquisition for a little bit over a year now. So just I guess what's the organic growth running in that business? Um a harsh across selling running, how many cities have you um been in listening conversations about how um that integration is going on?

I think elevated is doing really well and um they they're um you know, High single digits, pushing double digit, but High single digit organic growth. So we feel good about, you know, where that business is at um,

You know, it's it's really doing well. I the cross-selling again is just, you know, we're in maybe the top of the second inning as it relates to cross-selling, as, as those folks, you know, um, get to know their their long-term Epi teammates they're that's going to only accelerate. Um, but it's happening, you know, more in more. Um, I view that as being, you know, being very, very positive. Um, you know, as we mentioned earlier, we made 1

Acquisition in the elevator space. It's really not a bolt-on to, uh, to elevated. Um, it's kind of what we termed a tweener. Um, you know, it's, uh, it's a really it's a nice nice sized business and, uh, and we're operating it, you know, independently of of elevated. Uh, but, um, I, I, we couldn't be happier with where we're at, um, with our with the elevator business as it sits today.

Great, thank you for the caller and then I guess, um, just double click on that specialty. You know, another solid quarter of, um, strong performance? Um, I guess, you know what's the size of the pipeline today? Uh, versus, you know, I guess the the, the last time we spoke and I and I know you're not giving formal 2026 guy, but I guess, you know, as we think about the double digit, you know, we'll mention but we It prepares me to be active in, in 2025, you know, what would I, I guess? Do you think that sets up for, you know, 2026 to run slightly ahead of that, you know, make single digit? Um, um, organic growth performance or just any comments? That would be very helpful. Thank you.

I don't know David, you had anything? Yeah, and maybe the only thing I'd add is is, you know, on the momentum question if you pull apart our guide for the full year, um, you know, it's just really a strong fourth quarter guide too. It'll be you know, mid top or single digit organic Revenue growth um and our highest margin expansion quarter of the year. So you feel like we're exiting 2025 with, really good momentum. Um, we've got that project backlog behind us and mo. Most importantly, um, is Russ mentioned earlier in that Carl uh, that project work will lead to grow, great inspection, service and monitoring opportunities for our teammates which will fuel growth um throughout the 2028 Strat period.

Thank you guys.

Your next question comes from the line of Julian Mitchell from Barclays. Your line is live.

Good morning. Uh made my first question would just be around the acquisition um sort of contribution, not so much the pipeline of unannounced deals and all that. But just if if I look at the announced you know, and closed transactions and and so forth, you know, I think m&a contributions to revenue this year is sort of mid single digits.

When you look at the acquisitions that have closed or are expected to close by year-end, how should we think about the M&A sales contribution for next year? As it looks today, again just based on the announced closed and about to close deals.

Um and any color on the sort of profitability for those newer Acquisitions in aggregate.

Ooh, you're asking a 2026, um, budget budget question Julian. Uh, you know, announced sort of closed deals. Nothing, you know, perspective or

you know, the best year I

Is that about a dollar of of, of purchase price? It is about a dollar maybe a little bit less in Revenue over a 12-month period. And so if you shape that out uh and you'll get a pretty good sense. I think of what that had contribute next year and we expect our deals to be accretive to Fleet average from a margin perspective.

That's helpful. Thank you. And then um, maybe just circling back to the operating. Leverage question, that's come up a handful of times on on this call. Um, so is is the core assumption, you know, leaving aside any outsized Acquisitions. That might have a different margin profile, but if we just look at the business as it is today

Um, you know, should we assume that that sort of mid High Teens, you know, operating leverage that, that you've delivered year to date. That that's a good sort of run rate for the year ahead. Just looking at the

the shape of of end market growth rates and the attendant kind of mixed differences and all that.

When you say operating leverage or you? Are you talking about evitar growth or maybe just can you help? Clarify? Yeah. So it it, sorry. Just um, sure Adam. So it's sort of incremental, ebit, da margin.

you know, I think that number, for example, on sort of, you know, incremental ebit da margin in the

The third quarter just delivered was you know mid teens and and it was mid teens in the first half as well. So you're sort of you know your your headline margin was, you know, 135 your sort of incremental are bit down margin just changing a bit over changing sales was more like mid teens. Is is is that a good kind of run rate when you're looking at the End Market mix today? Yeah, I think is your modeling out into 2026 and Beyond. I i i model as as as somewhat higher um, incremental going into the future.

Okay, perfect. Thanks very much.

Your next question comes from the line of Jasper bib from truist Securities. Your line is live.

Hey, Helen guys uh following up on the data center comments. Uh, based on what you're seeing in the backlog trend for that sector. Should we expect the revenue contribution from data center to continue to build over the next few quarters? Maybe to a particularly higher number than the 9 to 10%. You said it earlier on the call.

1 of the things to remember is that, um, you know, the difference between say us and some of the other players that are really, you know, taking advantage of the data center space is

The fire Life Safety. Um,

the that component of these jobs is like significantly smaller, you know, so like, uh, the HVAC mechanical work on a large data center, might be $500 million from a contract value perspective and like, I'm kind of making you. I'm just trying to give you directional guidance on the numbers here, the fire, the fire Life. Safety, might be 10 to 15 million dollars on on that same Data Center job. Now, we're seeing some of these large large, very, very large projects where the fire Life Safety is, is higher than that. Um, but then the mechanical is probably, you know,

still 10x of that. And, uh, and so the contracts, the sizes are different. And so, that's the reason that you won't see it. Um, incrementally affect us as much as it say might affect, um, 1 of our peers in the space.

And then hoping you could maybe update us on early progress on your Tech Investments. And any key Milestones with thinking about the Erp, for example, we should keep in mind as we think about 26.

Yeah, absolutely. Thanks for the question. Um, our our our Tech investment. This is our Erp investment in our in our safety Services segment. I I'd say is progressing largely as as we expected. Um, these are difficult projects but I'm I'm I'm really pleased that the team is is progressing and they're progressing doing it, lock step with our business and making sure that this is a business-led project that's meeting the the business needs of our Branch leaders, our field leaders, and our company leaders. So so that is moving forward. We're out of the Blueprinting phase and we are currently deploying in our pilot company. Um, so so really moving forward. As we expected is you think into, um, 2026 from a cost perspective. Um, you know, 2025 is going to be the high water, mark for spend on that system deployment project. It'll step down a bit as we go into 2026 and then step down further in 2027 as we get near and, um, and approach conclusion.

Any questions, guys.

Our final question comes from the line of John Tom 1 Tang from CJs Securities. Your line is live.

Hi. Thank you for taking my question. A lot of them have been answered already. Um, I guess the 1 thing that I have is uh you know based on and following up on on the the prior question on the incremental margin expectation going forward uh to be you know, higher than it has been. Should we take that to mean that there's no, you know, very large projects, start quarters. And and then in the schedule for the upcoming, you know, several quarters. Um,

And you know I I understand that that's Obviously good for growth but impacts the the margins in the quarter is that that's to take away. We should be going.

Yeah. You you know, I I wouldn't, you know, I view this whole project start topic, that's impacted our, our year-over-year margins for the past. Couple of quarters is something that happens in an inflection point. Um, and you know, as we went from being down, year-over-year to significantly up your year from a revenue perspective in, in, in Q2 it impacted, um, we were up above 50 to 60 million dollars in in Revenue, quarter over quarter in the specialy segment, in the third quarter. So that impacted. But now as we get into the fourth quarter, and I'd expect our margins in the specialty segment, to be, um, year-over-year, creative, and then into q1 and Q2 of next year, it's just going to be part of the absence flows of our margin and not a major issue.

Got it. Thank you very much.

This concludes the Q&A session portion of today's meeting. I'd now like to turn the call over to Russ. Becker for closing remarks.

Thank you.

I'm truly grateful for what each and every 1 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 API and look forward to updating you on our progress, throughout the remainder of the Year. Thank you, everybody, for joining the call this morning.

this concludes today's meeting, you may now disconnect