APi Group Corporation (APG) Earnings Call Transcript & Summary

Good morning, everyone. My name is Olivia Walton, and I'm the Vice President of Investor Relations at APi Group. It's my pleasure to welcome you to the 2022 APi investor update event. Thank you to those of you who could join us in person in New York City today and also to the many of you listening in on the webcast. We're excited to be here with you today. Over the next couple of hours, you will hear from Sir Martin Franklin and Jim Lillie, our Board Co-Chairs; Russ Becker, our CEO and President; Kevin Krumm, our Executive Vice President and Chief Financial Officer; Andrew White, our CEO of Chubb; and David Jackola, the newly appointed CFO at Chubb. For those joining via webcast, please feel free to submit your questions online through the webcast portal at any time throughout today's presentation, and we will get to as many as we can at the end. During the presentation, we'll be discussing various topics, which should be considered forward-looking for the purpose of the Private Securities Litigation Reform Act of 1995. You can refer to our 2021 10-K for additional details regarding risks and uncertainties. Our statements are as of today, November 17, and we have no obligation to update any forward-looking statement we may make. Our comments today will also include non-GAAP financial measures and other key operating metrics. The reconciliation of and other information regarding these items can be found in the presentation which will be posted to the Investor Relations page of our website following the event. It is now my pleasure to introduce Sir Martin Franklin and Jim Lillie, our Board co-chairs for opening remarks.

Thanks, Olivia. Can everybody hear me? Because -- the AV guy says yes. So welcome. Thank you, guys, for joining us today. The presentation after talking to a bunch of you at breakfast is actually going to be a little bit shorter. We're going to wipe out the whole cash flow presentation because apparently, nobody cares about that [ and ] pick up some extra time today. So look, we're really happy to have this day. It's something that we've talked about for a long time. It's great to see 90 or so people turn up in the room and how are many on the web. As you guys know, APi has had a strong year-to-date performance and we expect to finish the year strong. Our continued execution of our plan and our focus on driving shareholder value continues to demonstrate that the business model, which services growth, which is increasingly a function of controllable initiatives is offsetting macro headwinds such as COVID, inflation, FX and the like. Today, the team is going to discuss Chubb in great detail as that's the primary reason for meeting but, however, we also appreciate that based on where the market is today, where the world is today, you guys also want insight and comfort on our strong backlog across the installed base of our business. Importantly, cash flow, which we will spend a great amount of time on talking about. Our continued path of deleveraging swiftly to our targeted range of 2 to 2.5x net debt to adjusted EBITDA and our continued focus on thoughtful M&A of scale and of tuck-in. You'll see here today how the business continues to perform well and deliver on its commitments driven by strong organic growth across the board, solid operational performance as well as our ability to mitigate margin pressures that exist on a macro basis through increasing high-margin inspection, service and monitoring revenue, our pricing initiatives, our disciplined cost controls and operational improvements in our legacy business as well as at Chubb. As I said on our most recent earnings call, with the continued [ forward ] progress made in 2022 across all aspects of the business, we believe that we're well positioned and well capitalized to continue to execute on our plan throughout today, the rest of this year, beyond -- next year and the years to come. The leadership team will be presenting their budget and strategic plan to the Board in early December, and we will, like in prior years, detail to all of you that outlook in Q1 next year. Russ will discuss what we'd like you to take away from today, but Martin and I want to assure you that we are very much focused on being adaptive and responsive to the needs and continuing to focus on creating sustainable shareholder value across the platform. As you know, our long-term targets are based on delivering long-term organic revenue growth above industry average across the platform, leveraging SG&A and COGS, expanding adjusted EBITDA margin to 13% by year-end 2025, targeting adjusted free cash flow conversion of approximately 80% on average, generating high single-digit average earnings growth, delevering down to that 2, 2.5x that I talked about earlier and executing on an accretive M&A strategy. So there's a lot of great information both on Chubb, on the macro platform and initiatives that are important, but also, as I said at the beginning, we respect everybody's desire to understand cash flow and deleveraging and how we're going to look at incremental M&A, and so you'll see great detail on that. So with that, I'll turn it over to Martin to make some opening comments and then come back towards the end. But thank you for being here. I think you'll enjoy today.

Thanks, Jim. Good morning, everybody. It's a pleasure to be with you this morning, along with my colleagues leading APi Group today. These are exciting times. I'm excited for us to share the progression of the business, and in particular, a walk -- thorough walk-through of Chubb and its importance to APi's world presence. When we acquired APi about 3 years ago, we believed that the leadership team and core business had all the components required to transition from a high-quality private company to the one that would be a truly global company. We're extremely gratified with the evolution of this business and how it's gone so far. And we have all the pieces in place to achieve our 2025 targets with a healthy runway above and beyond that. We've always looked to invest in market leaders with defensible moats, strong management teams with great culture and that have a long history of free cash flow generation. Not only has APi ticked all of these boxes, but has navigated all of the macro challenges Jim mentioned a few moments ago, in a way that underscores the strength and resilience of our business model. We know that building a world-class organization is a marathon, not a sprint. Rest assured that we are investing in this business as owners, not as renters. And putting all the building blocks in place to scale this business far beyond the relatively modest goals we've stated publicly. For what it's worth, this is my largest public investment and is the focus you might expect as a result. I believe this business has only just begun its journey, but Jim and I know that -- from our past endeavors that there are no shortcuts, but discipline, blocking and tackling every day. This is a very driven organization, and I'm very proud to be a part of it. So with that, I'm going to hand over to Russ, the leader of our company of leaders. Here you go.

I was a little bit disappointed that yesterday, when we were -- we got here early and we did a little dry run and Martin and Jim did their initial remarks and were practicing and they said back in their Jarden days after they made their opening remarks, they hugged and there was no hug today. And Kevin looked at me and said there's no chance I'm hugging you tomorrow. So anyways, thanks, Martin. Thanks, Jim. And thank you, everybody, for taking the time to join us today. And we really do appreciate you being here with us, and including those that have joined us on the phone. It's like really awesome to be together in person. Starting with our agenda today. For those of you that may be new to the APi story, I will begin today's remarks by providing a brief overview of APi's evolution to a recurring revenue services-focused business. As many of you know, we are here today to focus on the acquisition of Chubb which closed at the beginning of this year. You will hear more about the significant growth and margin expansion opportunities from Andrew and David. After that, I will highlight opportunities, including our path forward as the world's leading life safety services provider. Before we turn to Q&A, following today's prepared remarks, Kevin will review our strong free cash flow generation, our deleveraging plans, what we believe is the attractive investment opportunity in APi relative to peers and conclude by summarizing our margin expansion opportunities as we focus on APi achieving 13% plus adjusted EBITDA margin by 2025. This slide highlights our leaders speaking today during our presentation. We are confident that you will share our excitement about the future prospects for APi after seeing the enthusiasm and energy they bring to driving growth, margin improvement and delivering shareholder value. I was talking to a number of folks before the meeting started today and people were complementary of our third quarter and our year-to-date results. And my comment was it's really about our people and about our team and the quality of the people and the individuals and the leadership that they bring to our organization. We really are fortunate and we have a lot of really, really good people. There are 5 points of focus that we'd like to highlight today. First, Chubb is highly accretive and creates significant opportunities. We are the right owner of this business. The integration is occurring swiftly and the savings are significant. Chubb supports our overall 2025 targets. Our balance sheet is strong. And strong free cash flow allows swift deleveraging. I will now provide a brief overview of APi for those that may be new to the story. We are a global market-leading business services provider of life safety, security and specialty services focused on the statutorily mandated recurring revenue. Our largest segment, representing 70% of total net revenues, is Safety Services. The statutorily driven demand for our services provides predictable higher-margin recurring revenue opportunities. We liken this to a protective moat around APi. Our go-to-market strategy in Safety Services is to sell inspection work first because we estimate that for every dollar sold, we know that we're going to get $3 to $4 of follow-on subsequent service work. This strategy differentiates us from our peers and ultimately creates a stickier client relationship that we believe positions us as a preferred life safety and security services provider in the facilities where we perform the inspections. In our Specialty Services segment, which represents approximately 30% of total net revenues, we are focused on growing service revenue through multiyear [ master ] service agreements, which provides us with a high degree of visibility and we believe helps to build a more protective moat around the business. Our strong culture is defined by our commitment to leadership development and the investment we make in our people. This investment is unique in our industry, and we believe that it is a competitive advantage. Our employees, technicians and engineers have careers, not jobs. And we believe this investment reduces turnover, aligns communications and drives performance and productivity. This is a competitive advantage for APi, particularly when many companies see team members opt for new opportunities. I'm not going to go through every point on this slide, as many will be covered in detail later in the presentation. To summarize, our ability to execute against our strategic plan and deliver results for our shareholders amidst COVID-19 related disruptions, supply chain disruptions, inflation, FX headwinds is a testament to the benefits of our relentless focus on growing high-margin inspection, service and monitoring, our revenue diversification, the asset-light, low CapEx nature of our business and the relative variability of our cost structure to allow us to quickly flex with the changing market. We are confident in the resiliency, growth prospects and strong free cash flow generation of our business and remain focused on capitalizing on opportunities in front of us, while maintaining a conservative balance sheet and liquidity profile. We are proud of what we've accomplished in our first 3 years as a public company and are excited by the opportunities that we believe lie ahead for the business, both organically and through disciplined and accretive M&A. In addition to organic revenue growth and margin expansion opportunities, we believe there are also valuation multiple expansion opportunities. When I first met Martin and Jim in the spring of 2019, and that seems like a hell of a long time ago, inspection, service and monitoring revenue represented approximately 40% of net revenues. We discussed the potential upside for the company if we continued and accelerated our focus on growing the service and recurring revenue aspects of the business. We also discussed the advantage of transitioning APi from a private company to being a public company, of having a permanent capital structure and how that structure would allow APi to consider opportunities for growth and expansion that historically had been out of reach. We believe that the company has shown the strength of its protective moat and its resiliency despite a challenging macro environment over the past few years. The organization of APi continues to evolve and grow as we build strength as a public company. We've made significant progress in building out the depth of our bench to ensure that we are well positioned to integrate and manage our ever-expanding global footprint, including adding several leaders with significant international and integration experience across all disciplines of our organization. It has not always been easy, but the change we have experienced has made us better equipped to continue forward on our journey. As we look ahead to 2025, we will remain focused on driving towards our goal of inspection, service and monitoring revenue, representing 60% plus of total net revenues and achieving our targets of adjusted EBITDA margin of 13% plus, adjusted free cash flow conversion of approximately 80% and net debt to adjusted EBITDA of less than 2.5x. APi has proven its resiliency in managing the macro challenges presented over the past decade or so with strong organic growth of approximately 7%, augmented by cash flow funded acquisitions. Our business model has changed during that period of time, and we believe that we continue to be better positioned each year to manage volatility in the macro environment. You can see how the business has performed over the prior downturns. There are 2 points to note when comparing the business today to 2008-2010 time frame. We have significantly greater revenue diversification, adding to the stability of our platform. A higher proportion of revenue coming from higher-margin inspection, service and monitoring. There has been an intentional evolution of the company from 2008 until now to drive towards a recurring revenue services-focused business. In 2008, inspection, service and monitoring represented approximately 15% of total net revenues. As I mentioned earlier, in 2019, it was approximately 40%, and we had a goal of 50% plus. Following the acquisition of Chubb, we achieved our goal of 50%, moved the goalpost to the right and established a new goal of 60% plus. As a reminder, on average, inspection and service revenue generates approximately 10% higher gross margins than contract revenue. And our monitoring revenue generates approximately 20% higher gross margin than contract revenue. We remain focused on being disciplined on project and customer selection, and we'll continue to focus our efforts on growing the acyclical recurring service revenue aspects of our portfolio than -- rather than growing for the sake of growth and risking profitability. We are not afraid to prune where needed, as we have demonstrated most recently in 2020 with the divestiture of 2 underperforming industrial services businesses. We will continue to be opportunistic and won't hesitate if something isn't working. This goes for both of our segments. I won't read through all of these as they should be familiar to many of you, and Jim really covered them in his opening remarks. We are focused on making the right choices for the long-term health of the business, being opportunistic on M&A and remaining focused on creating sustainable shareholder value by focusing on our long-term value creation targets. Now that I've provided you with a brief overview of our company and history, I'd like to shift gears to focusing on our transformational acquisition of Chubb. The acquisition significantly expanded our geographical reach from 200-plus locations to approximately 500-plus locations and strengthened our protective moat through greater statutorily required recurring revenue. Our global footprint in approximately 20 countries allows us to maintain relationships with local decision-makers while also having the ability to execute multi-site services for national and international customers. The strategic rationale here is fairly straight forward. Chubb truly is a center-of-the-fairway transaction for us. We provide many of the same services for the same types of customers in complementary geographies. We acquired an internationally recognized brand that has achieved success over a long period of time. We enhanced our service business mix while capitalizing on cross-selling opportunities and synergies. In our diligence, we recognized the attractive opportunity to amplify our organic growth and achieve meaningful margin expansion over the long term. This transaction is highly accretive and a unique opportunity to combine our independent successful businesses into the world's leading life safety services provider. Now it's my opportunity to introduce Andrew White to you, the CEO of Chubb. And Andrew is going to take some time to talk a little bit about his background on itself. But what I'd like to share with you is that he is as advertised. He shares our values. He sees the business and he sees the opportunities in the business in a very, very similar fashion. And we're super fortunate that David Jackola is going to take the opportunity to move to London and take on the CFO leadership role [ and be ] a good business partner to Andrew. And I really believe that this is a very, very strong leadership team that we're building there that's led by Andrew White. Andrew?

Thank you, Russ.

Now he's going to make fun of me being a hockey player, just for everybody, so.

Many of you know that Russ is an ex hockey player. I'm an ex rugby player. So that could have went either way. We both got sport injuries. Firstly, thank you for being here. It's a real pleasure and it's an honor to stand here to talk about Chubb business. I'm going to apologize now. I don't speak as well as Martin. I do come from the Northeast of the U.K., and there's no subtitles. We discussed subtitles, but we kind of decided we all speak a common language, that's numbers and value creation. So I've been with Chubb a little bit over 6 months, and it's been a real whirlwind. It's been fantastic to engage with the business. Prior to joining Chubb, I spent over a decade-plus with a company called Emerson Electric. Andrew, that's Emerson, not Amazon. Got it? And Julian, good to see you. Julian covered us at Emerson Electric when I was there. So for the past 10 years, I've been on the road. I've been working in Europe, Middle East, Africa, Asia and over the last 3-plus years in the U.S. running the systems and the software PSS business, working on a lot of things around leveraging acquisitions, bringing in technologies really around service-based businesses. And I really think that's a lot of value that we kind of come together with Chubb business. Okay. So turning to Chart 6. 2022 priorities really has been focused around getting in there, really creating business-focused targets. Separation has been a huge momentous effort. All the teams have been involved with separating that business out of our former owners, really truly creating a global leading edge-based, cloud-based enterprise for the next generation of the Chubb business. We've had significant change in our leadership teams with the best of the best approach. So what we did is we've taken leadership from within the Chubb business and elevated it and created real strong, robust regional structures. We've leveraged APi and brought on senior leadership within our business as well as some of our country leadership. And again, we brought out some outside talent, real robust outside leadership from global service leader businesses. Priority isn't just about cutting costs and isn't just about driving value. It's also about creating a team, creating a culture and creating the belief that we can execute on this plan. Chubb is a world-leading business that I really believe has been a detached asset in its former ownership for over a decade. Turn to Chart 17, please -- in fact, let me just go back. I want to draw your attention to the bottom chart of the chart, the 5,000-plus Chubb employees that have willingly engaged with the APi ethos of [ I am a leader ] and Building Great Leaders. I won't want to be competitive with Russ, but I believe it took them many years to get to that number, and it took the Chubb business around 7, 8 months to get to that level. So 5,000 people out of that 12,000 is truly phenomenal. This is a submersive experience where people deal around their leadership development and attributes. So real good. Next chart, please. Some fun facts about Chubb. We got 200 branches worldwide, 22 monitoring centers. That's significant, and we'll come back to that as we get through the deck. Over 10 countries, strategically located to best serve our customers. We have over 8,000 vehicles on the road every day, 12,000 employees. We have around $8 billion of active installed base. This is equipment that we've sold, we've installed and we serviced with our customers today, hard wired by nature generally and really gives us a protective moat around our business across those [ 7, 8 ] countries. Next chart. Chubb really is a truly market-leading business. As I said, we are over 17 countries, 100 -- sorry, 1.5 million customers. 90% of our revenue comes from our top 6 markets. We have over 200 years of experience in our markets. You can see we are a service-led business. So 60-plus percent is by service, by nature, which is repetitive recurring revenues which generally comes through [ multi-interval ] year agreements. You can see our offering, and I'll go through that in a little bit more detail as we get through the deck around our fire-detection alarms through to our portable business. And then you can see the regional structure that's out there as we create the regional business and structure and cadence. Next chart. So the Chubb business, as we look at it by revenue stream, as we look at it by business group, and I'm going to try and walk through this as you would all see them in action today. Fire-detection alarms. So this is fire detection. Hopefully, we won't hear it today during today's session. But how do we detect fire, how do we create an alarm, how do we then potentially suppress that fire. Electronic security. A lot going on in this space. This is a really, really neat area. Technology, AI, intelligence. So this is CCTV, remote monitoring, integrated security solutions with some real end market specifics and access control. And then we've got remote monitoring. This could be things about how do we access buildings, how do we egress buildings, how do we protect them as well. And then we've got our portables and fire distinguishers business, which we've amplified out across emergency [indiscernible] and many of us. Turn to the next chart, please. So if you look at our revenue mix, we have a healthy split across diverse end markets. We have low customer concentration. We've got no customer that it's over 2% of our revenue. The average size of our project is around about $5,000, which helps us limit our exposure to economic headwinds in terms of price/cost mix. We service customers typically [ have ] 1 to 5 years, high proportion of renewals, Chubb's strong customer loyalty and high quality of technicians and entrenched branch position and a trusted provider has resulted in a retention rate over 90% in our service contracts. This gives us great stability in our business. We see resilience in our served target markets. Those markets are robust and have significant spending plans, and have unique drivers that we serve by nature. We will continue to outline these markets in further detail as we go through our revenue walk later in the deck. Fire and security are large, resilient markets serve an entrenched customer needs fueled by extensive [ regular ] requirements, whilst addressing severe continuing business risks. The top right of the page depicts our performance through the 2007-2009 recession, and we saw similar resilience as we walk through the COVID periods with some of our markets outperform [ and relevant ] to their end customers. This speaks to the strength of Chubb's recurring revenue services-focused model, and the business provides stability through economic cycles. We have improved backlog from both a volume and a qualitative standpoint, which serves our profit and revenue and going forward in good stead. We have high variable costs, which allow us to flex as we need to and as big business cycles [ dictate ]. Chart 22 really looks at our historical net revenues. You can see we've got our arms around the business in the first half of '21, Q1. We've really seen the fruits of our focus, of the team's focus as we've kind of drove that positive momentum. We see that continuing as you go forward. Next chart, please. And looking at the 5-year CAGR of the business, you can see revenue was flat under prior ownership, and we think there's a potential to grow the level -- the top line levels beyond and above to where the APi's is a traditional 7%. However, from planning, infrastructure and a G&A discipline standpoint, we're modeling net organic growth in the range of 3% to 5% through our cycle '21 to '25. We want to budget for what we think is meaningful, thoughtful growth. It's important to note it's not all about top line growth. We want to give you the ability to understand what the business would look like if we just target the top line growth. We have a traditional selling focus, which we talk about, and then we have a service-led selling focus we'll walk through in a bit more detail. We will leverage APi's proven track record around customer selection and prioritization. Each pillar of this work has executive leadership that are focused on delivering and beyond. And we have witnessed the initial effects of that as we went through the back end of '22 and the robust outlook as we're going to propose for '23. Slide 24. Firstly, I would want to look at price. The business under prior ownership didn't really pan out their cadence around price, and you can see how we performed in '21. '22, we set a target at 3%, we're really tracking that, and we're driving hard as we get through the back of '22 around price. And we've got very much robustness around '23 in our outlook as we look at dilutive contracts, supporting the teams with robust pricing management, we've got global price leadership now, and this is a top priority for the business. We've seen some double-digit growth in price in some of our key markets. This provides us confidence with our robust outlook for '23. We are laser focused on pricing, it's top of mind, and it's that's called out in each and everyone's business plans as we go forward. Next, I would like to discuss salesforce optimization. This is the passion of mine. We have now got focused global sales leadership and brought in outside talent to drive that. This continues to enable us to drive SG&A reduction, optimize sales structure, segment our customers, which is hugely important because we can then segment our [ selling ] resources to optimize output and optimize outcome. The last column is around high-growth verticals. We mentioned earlier, namely data center infrastructure, pharmaceutical, critical national infrastructure, power, those sorts of projects, where we have end market solutions, we've got global vertical sales leadership around those spaces now, that talk to industry acumen and fluency as they address in end market solutions. We believe that we can drive double-digit growth as we go forward through the cycle in these key growth markets. Connected services. Again, I am a technologist by background, I'm electronic engineer. Connected services at a digital ecosystem that supports our customers' aspirations around that current and future digital transformation journey. We do live in an ever more digital world. And Chubb [ vision ] enhances our position and platform that takes relevance. It looks at data, technology and translates in a meaningful information, actionable for businesses to succeed. They incorporate alarm management, they incorporate visual and audio monitoring enhanced through artificial intelligence. This platform supports safety applications and many more that we build out as we go forward, such as remote monitoring, again, another lever for efficiency in the field. We expect approximately 3% to 4% growth in this area in '22. And as we plan to build out the platform and the applications to support it, we drive for double-digit growth through the cycle of 2025. We have an established cloud-based platform that is native to Chubb. This significantly enhances our extraction rate and gives us the unique ability to look and map our installed base as we go forward. Next, I would like to discuss inspection-led service selling, which significantly expands our addressable market by nature. We are really excited to leverage APi's proven model around selling inspections first. We have already established robust programs, sales cadence from a global nature and a coordinated inspections-led salesforce. We believe that inspection-led salesforce drives enhanced margins. We believe that [ will ] further service revenue growth and ultimately inspection provides a stable, high-performing margins and recurring revenue streams. We believe this strategy positions us well as a preferred fire and safety service provider, not just a vendor. This is in the buildings that we protect and the life safety applications that we perform. We believe this is truly a key differentiator. The third column is around disciplined project selection and customer selection. We have been driving price proactively, and we've looked at underperforming contracts, and we encourage the attrition of dilutive contracts. We have been very proactive [ at June '22 ] to address that, and we will be going forward. We'll focus on around 5% deselection or optimization around diluted contracts. We are assessing customers not only from a price standpoint but also from a digital maturity and aspirations as well going forward. With that, all the good work that the team is doing, I want to hand it over to David Jackola. David will update everybody on how that translates to our value capture and how that translates [ to our only ] EBITDA walk. So with that, David.

All right. Thank you, Andrew. Thank you, everybody, for being here today. It's my pleasure to be with you, and I'm excited to be joining the Chubb business. A couple of different pronunciations of my last name. It's the one that Russ said earlier. It's Jackola. That is the accent. And Andrew and I hope we'll work through that. All right. In terms of background, I've been with APi Group now for a little bit more than a year. I'll be transitioning into the Chubb role over the next couple of months. Prior to joining Chubb, I spent about 12 years at Ecolab and was fortunate to lead finance teams in North America, in Asia, in Latin America and in Europe. I spent a little bit of time about a year at James Hardie building products, where I was a finance leader for their North America business. And I'm excited to join the team on the ground and to move to London with my wife at the beginning of the year. So with that, we can go forward. We now see a clear path to value capture opportunities of approximately $100 million in run rate benefits that we expect to realize over the next 3 years. And when we think about that $100 million value capture opportunity, it really falls into 4 main buckets. The initial area of our focus has been on restructuring, which is really about removing a significant amount of G&A cost that exists above the branches of our business. Already through Q3 of this year, we have taken more than $20 million of cost out of the business, and we have identified another $10 million to $15 million of costs that we expect to action in the fourth quarter. On top of that, we have line of sight to an additional $30 million to $35 million of cost reductions that will action in 2023. Not only will these restructuring actions help the bottom line, they will significantly reduce the organizational complexity in our business and make it easier for the teams in the field to service customers and focus on driving organic growth and mix. The second bucket of value capture opportunity is around branch and footprint optimization. By the end of 2022, we will have exited or downsized 10 facilities across the Chubb network. We also have a robust facility rationalization program in place that will deliver further savings in 2023 and beyond. Whether that's through continued exiting or downsizing of facilities, co-sharing sites with other APi businesses or selling facilities when it makes sense to do so. The third value capture area is around improving our employee retention rates. Chubb has approximately 12,000 employees worldwide and the cost to identify, hire, onboard and retain is worth approximately $40 million in 2021. So reducing our attrition rate by 2 percentage points, which is our goal, has the potential to really move the needle and drive significant savings in the business. The final bucket I will talk about is country and branch optimization. And when we talk about value capture, we really talk about cost out. And this is really about value creation and how we look at the bottom to top quartile of our operating model and how do we move [ about ] $500 million of business and improve it. We have key actions to drive it. We know where the businesses sit in terms of profit and maturity, and we understand where we need to be focused and concentrate on driving value creation on the top line. We have increased our estimate of savings from $20 million pre-close to $40 million in May to our current estimate of approximately $100 million of value capture opportunities. We haven't presented Chubb's 2023 budget to the Board. We're not going to present it to you guys first. However, we are confident in our ability to go from $12 million of savings in 2022 to $100 million of annualized run rate savings in 2025. And our goal is to do it on a one-to-one basis, which we've been able to accomplish so far. Next slide. The Chubb business ended 2021 with a baseline EBITDA margin of approximately 9%, and we expect about 100 basis points of margin improvement in 2022. And our goal by the end of 2025 is 15% plus adjusted EBITDA margin. Andrew discussed earlier, accelerating organic growth and some of the key end markets that will be driving that for us, including data centers, pharma and C&I. And we will continue to focus on driving improved mix in the business through service growth led via inspections. And we expect that this will drive 200 basis points of margin expansion between now and 2025. And the value capture opportunities that I shared earlier, reduction in above the branch costs, footprint optimizations, reduced complexity, better retention rates and improved productivity will drive an additional 400 basis points of margin towards our goal of 15% plus by the end of 2025. And so with that, I'll turn it back to Andrew, who will discuss opportunities relating to our branch profitability.

Thanks, David. The path to 15% EBITDA growth -- 15% plus in margins by 2025 starts and ends at the branches. When we -- when APi acquired the business in January, Chubb had 55 nonperforming branches represent around 25% of the total, generating a loss of around $36 million EBITDA. By the end of the year, we should have 85% of our branches in a profitable position, and we should reduce that EBITDA headwind by about half. This is a tremendous effort by our teams and continue to be worked in [ gusto ]. The plans are in place to shut down and consolidate approximately 10% of our locations and are well underway. And these plans are expected to be [ action in June '22 to '23 ]. And as we get through into '23 and beyond, 95% of our branches in '24 -- sorry, as we exit '23, will be profitable and 0 branches will be negligible or negative in '24 as we get through into that lens. I'm confident with the team's ability to execute on this and the robust plans around it. Driving branch profitability is not just about nonperforming branches. As David articulated, it's about taking that large part of our business and driving incremental value creation to some of the higher performing branches as well. We've got robust plans around that and diligent approaches. Next chart, please. Before I turn it back to Russ, I just want to articulate some key takeaways. Integration is occurring swiftly and our savings are significant. Value capture opportunities will be $100 million plus, and we will not stop at that. The shift move from integration to harmonization, and we really are excited about being our own company and detachment from our prior owners. We're on track for our '25 targets. Net organic growth of 3% to 5% and adjusted EBITDA margins of 15% plus. Chubb really does meet all of the targeted M&A criteria for APi. With that, I'll turn it back over to coach Becker to finish up.

No hug the second time.

I'm waiting for the right time.

Thanks, Andrew. Thanks, David. Great job. While today is focused on organic growth, cash flow generation and deleveraging plans, as many of you know, we view M&A as an important complementary tool to increase and accelerate shareholder value over time. In addition to M&A, we believe there is a tremendous amount of organic growth opportunities between the 2 companies. These include expansion into new markets and channels with complementary service offerings and APi Group companies have an ability to cross-sell products and services among sister companies. We are truly just scratching the surface as we get -- as we continue to move the business forward together as 1 company. We believe that the markets in which we operate are highly fragmented, and we are keeping a close eye on the opportunity set, which Chubb has significantly expanded. We have an extensive pipeline of potential bolt-on opportunities across our global markets. If you look at the mid-single-digit multiples APi is able to pay for the smaller bolt-on opportunities, we are essentially self-funding in perpetuity as we continue to grow. As the opportunities become larger, multiples tend to increase. While more established businesses may require a higher multiple, if you look at the weighted average multiple of our acquisitions over the past few years, including J2's acquisition of APi, it is less than 10x. We expect to stay in the high single-digit range on a consolidated basis as we continue to grow the business. It creates an arbitrage opportunity given where we are trading today and the discount compared to our peers. The bottom half of the page shows you an illustrative example that highlights the value creation for a typical APi bolt-on. If we buy a business for 4 to 7x EBITDA at $10 million, running at approximately 7% margin today. Over the next 2 years, we believe that improving mix from contract focus to service focus can add 300 basis points of margin improvement. In addition, we would expect 150 basis points of margin improvement via purchasing power, 150 basis points via shared services consolidation and 200 basis points via strategic pricing increases. Combined, you'll see that margin is expected to get to 15%. We have a proven track record on this front. APi is now a truly global platform, providing fully integrated seamless service to multinational corporations on a worldwide basis. Our enhanced platform is already driving wallet share gains with APi/Chubb overlap customers, and we are excited about the opportunity to expand cross-selling of services offerings. Anecdotally, one of Chubb's 25-year plus customers with over 400 locations in Europe is starting to open locations in the U.S. and has recently started dialogue with our legacy APi business regarding potential security opportunities. Services that will be needed include intrusion detection, access controls, CCTV and monitoring. One other representative example would be the global data center opportunities with Meta. Even though they're pulling back on capital spending to a small degree and headcount, the work we do for them is statutorily required inspection and service. We've already started dialogue in sharing leads across the ocean with the Chubb team. The focus today has been on our core segment of Safety Services. However, we thought it was important to briefly touch on our Specialty Services segment since it represents approximately 30% of our total net revenues. In our Specialty Services segment, we are focused on growing service revenue through multiyear master service agreements which provides us with a high degree of visibility and we believe helps to build a more protective moat around the business. We are focused on partnering with well-capitalized customers who have projects that are more macro economically resilient on services that are aimed cyclical in nature. Our largest end market is telecom and utilities, which you'll see on the next slide, represented nearly 40% of the segment's revenue in 2021. An example of the work in this category is our work with private and public utility customers with large committed capital programs for the replacement of existing natural gas and potable water distribution systems. We are excited about the opportunities associated with the Infrastructure Investment and Jobs Act in areas such as rural broadband, roads, electrical grid and drinking water infrastructure. We will remain focused on disciplined project and customer selection and higher-margin opportunities. End markets matter. We believe that the diversity of the end markets we serve and the regulatory-driven demand for our services provides predictable recurring revenue opportunities and helps to build a protective moat around the business. We are focused on the already built environment such as [ hi-tech ] where we do sustainable work on a daily basis. We are focused on partnering with well-capitalized customers who have projects that are more macro economically resilient. Our largest end market is telecom and utilities, which represented approximately 20% of our total net revenues in 2021. Now that we've covered the evolution of APi towards a recurring revenue services-focused business, provided an overview of Chubb and the exciting opportunities ahead, we will now move into the financial perspectives and highlights section. We are confident that our relentless focus on growing statutorily required high-margin inspection, service and monitoring revenue, combined with our robust backlog and variable cost structure, positions us well to prosper even if the macro environment continues to be volatile. Approximately 75% of costs are variable, which Kevin will get into more detail on, on the next slide. As many of you have heard us say previously, while our business is not immune to macro marketplace [ disruptions ] related to supply chain disruptions and inflationary cost pressures, we believe we have more tools to mitigate these issues than our competitors. The acquisition of Chubb has enhanced our overall competitive position and our protective moat around the business. Our average project size in our largest segment, Safety Services, is now approximately $5,000. In Specialty Services, it's $70,000. And the average duration of our projects is very short, which we believe will allow us to reasonably control inflationary variables and reasonably manage our supply chain. We believe these are competitive advantages as they allow us to stay focused on real-time pricing and operational efficiency to ensure true costs are reflected in the services we provide. Another competitive advantage for us is that over 50% of our field workforce is covered by collective bargaining agreements. These agreements provide up to 5 years of visibility and predictability, which allows us to be able to offset increases with price and productivity. While we do not know if we are headed into a recession or not, we remain disciplined, proactive and preemptive in how we operate our business. As many of you know, as part of our annual budgeting process, we challenged each of our operating companies to develop a long-term plan that addresses the opportunities as well as a downturn plan that addresses any potential challenges unique to their market and operation. We believe preparation is critical, not only on paper through our downturn plans but also in preparing our business leaders to take definitive and early action if needed. Whatever the challenge, we intend to build on our successes over the last 3 years to achieve the goals that we have set for ourselves over the next 3 years. We continue to benefit from the accretive acquisition of Chubb and believe that it will continue to enhance APi by strengthening our resiliency in the protective moat around our business. I'll now turn the presentation over to Kevin. He already told me he wasn't hugging me, so.

Thanks, Russ. Good morning, everyone. Yes, it's nothing personal with Russ. I'm just not a hugger. But after the last couple of days, I think it's something I'm going to have to get used to around here maybe. It's good to see some familiar faces this morning after 14 months. I can comfortably say that. For those of you I have not yet, I look forward to meeting you at some point yet this morning. So as Russ highlighted earlier, APi has built a very resilient operating model that has historically demonstrated the ability to preserve profits and cash flow through various business cycles. This resiliency is aided by our variable cost structure, which we've outlined here in the center of the slide. Also, it's aided by our small project size and our high-conversion, low-CapEx cash flow profile. As many of you know, in March 2020, following the onset of the pandemic, APi initiated a cost reduction plan to counteract potential negative impact of the COVID pandemic. This included reducing labor costs, eliminating discretionary spend, freezing the company's nonessential capital spending and working with our vendors to improve pricing. While the pandemic did have a negative impact on our net revenues as expected, our proactive approach to managing risk across our platform and the strength of our business model yielded results which you see on the right side of the slide here. Q2 2020 adjusted EBITDA actually expanded 190 basis points in the face of 14% revenue declines due to COVID shutdowns. Our business also delivered strong free cash flow during this period of time and free cash flow conversion. You can also see on the far right that how APi performed for the year, which is a year where we delivered solid EBITDA and strong free cash flow. So I'm going to transition and talk a little more about cash flow now. So as many of you know, one of APi's historical strengths is our strong free cash flow. Creates opportunities to drive organic and inorganic growth as well as flexibility to make the best capital allocation decisions possible, whether that be debt repayment, share repurchase, M&A or otherwise. We are committed to driving strong free cash flow and have an adjusted free cash flow conversion target of approximately 80%, which I'm going to cover here in an upcoming slide. On the far right of this page, you'll see that our average adjusted free cash flow conversion over the last 3 years is approximately 86%. We saw an increase in cash flow driven by changes in working capital levels -- sorry, in 2020, as you see on here, we saw an increase in cash flow driven by changes in working capital levels due to the decline in net revenues I referenced earlier. This resulted in related working capital reductions as well. In 2021, as we got back on growth, you can see organic revenues required an increase in working capital investment, as we ended Q4 2020 with fairly suppressed levels. So in 2022, we started the year with a significant investment from a working capital standpoint, both in terms of dollars and rate, as we are focused on securing product in front of what was very robust demand and a very choppy supply environment. We've continued to make significant improvements in our working capital rate throughout the year and expect cash flow conversion to improve sequentially in Q4, off of what was a strong delivery in Q3. This trend, the Q3 to Q4 trend, is very consistent with our historical trends. While we're not ready to give 2023 guidance today, as a general comment, I'd note that as we go into next year, we expect to continue to harvest the working capital investment we made in the first half of this year and return to more traditional free cash flow levels as we continue to walk towards our long-term target of approximately 80%. The matrix on the left-hand side of this chart helps illustrate the point I made earlier in my remarks regarding growth or contraction and its impact on free cash flow. Our target of 80% assumes growth in organic net revenues around our historical average of 5% to 7%. If we were to grow at approximately 10%, what you see in the bottom right side of that left chart, we would expect adjusted free cash flow conversion to be somewhere around 65%. And if organic revenues were flat, we would expect adjusted free cash flow conversion to be, as you see there in the middle of the page, around 80% to 85%. And on the far left, you see extraordinary sales reductions, which could potentially show up in a recession, but as we saw in COVID, and you see an environment like that, our business model is going to generate a pretty significant cash flow growth, most likely north of 90% from a conversion standpoint. We have built a strong balance sheet that provides us the flexibility to pursue attractive capital allocation. During Q2 2022, we entered into a [ forward starting ] swap, effective January 2023 that will shift our fixed versus floating mix to approximately 70% fixed and approximately 30% floating. Our weighted average maturity of debt as of the end of September sits around 5 years with our earliest maturity being in 2026. And our average cost of debt is estimated to be approximately 5.5% as of January 2023. On the right side of the page, you'll see that our net debt to adjusted EBITDA ratio was approximately 3.9x at the completion of the acquisition of Chubb. And we anticipate being below 3.5x by year-end 2022. As we look ahead, we will plan to delever around onetime annually towards our target leverage ratio of 2 to 2.5x. We think this level of leverage positions us extremely well to capitalize on any growth opportunities that will present themselves. I'll now walk you through our path from our current sort of free cash flow conversion baseline to our adjusted free cash flow conversion target of approximately 80%. There are 4 key drivers that are fundamental to our improved free cash flow conversion. The first driver, as we talked about earlier, is working capital normalization. We expect this to contribute somewhere between 6% and 8% from a conversion standpoint. Approximately 2/3 of that is going to come through a continued focus on operational excellence which will result in working capital rates more in line with our historical levels. And about another 1/3 of this gain is expected to come through a normalized organic growth rate as we exit out of this period of robust growth. And again, we've assumed 5% to 7% for that normalized growth rate. The second driver is going to be deleveraging to our target net leverage ratio of 2 to 2.5x. The third driver is business mix, which we expect to contribute around 4% to 6%. This assumes outsized growth in Safety Services, which is less capital intensive in nature. And it also includes the impact of continued growth in inspection, service and monitoring revenue, as Russ and Andrew highlighted earlier, that gets us towards our goal of 60-plus percent of net revenues on the service side of the business. The fourth and final bucket is M&A, which we expect to contribute as well. This includes deploying capital towards our life safety service businesses, which have traditionally been accretive to APi's overall free cash flow profile. We are at an investor conference. So next, it's important to highlight to everyone that we believe APi is a very attractive investment opportunity. We believe we have both earnings opportunities and margin expansion opportunities, as we've highlighted today, which will bring and generate multiple expansion. As many of you know, we trade at a significant discount relative to our peers across various measures, which we've highlighted on this slide. And we think this makes APi a compelling investment opportunity. Not only are we a compelling investment opportunity today, but we've been one. As you can see how our performance has shown up since our listing on the NYSE on April 29, 2020. Our stock has outperformed relative to the S&P 500, relative to Russell 3000 and the Bloomberg [ DSP ] indexes, all by a considerable margin. So before we recap and move into Q&A, I'd like to discuss why we are confident in achieving our goal of 13% plus EBITDA margins by 2025. As we've said previously, it is a combination of singles and doubles that are going to get us there. This slide highlights 4 main categories. The first is improved mix of service revenue, which we expect to contribute approximately 50 basis points. We are laser-focused on growing higher-margin inspection, service and monitoring and driving towards our goal of 60-plus percent of total net revenues. Russ mentioned this earlier, but on average, inspection, service revenue generates approximately 10% higher gross margins than our contracts business, and monitoring revenue generates approximately 20% higher gross margins in our contract business. The second category is procurement savings and inflation offset where we expect to contribute approximately 100 basis points. This includes developing procurement capabilities across our global platform to leverage our aggregated spend at a greater level. As it relates to inflation reduction, as we've noted throughout the year, the significant step-up in revenue related to pass-through pricing on the project side of our business has compressed margins this year in the short term. As we come out of this period of heightened material inflation, we expect that compression that has occurred over the last 12 months to flip. The third category is the impact of the value capture opportunities of approximately $100 million that were highlighted by Andrew and David earlier in this discussion. We expect this to contribute approximately 100 basis points to our margin walk. And the fourth and final bucket, I'll discuss the system scale and leverage. This includes capitalizing on our global economies of scale and driving a shared services platform across some of our similar business models. [ Our power ] by APi structure provides us with an excellent ability to leverage our scale while also being nimble and opportunistic at the local level and reducing bureaucracy and overhead at the branch level. Our acquired businesses benefit from the resources of direct access to the APi network, which facilitates organizational sharing of knowledge and best practices. It also increases our collaboration across our businesses which ultimately drives excellent cross-selling opportunities. So I'm going to turn it back over to Russ to summarize some of the key takeaways from today's discussion.

Thank you, Kevin. I'd like to once again thank all of you for participating in today's event. We appreciate your interest in the company. Before I turn it over to Martin and Jim for closing remarks, followed by Q&A, I'd like to summarize key points of focus discussed today relating to Chubb and also for APi overall. First, Chubb is highly accretive and creates significant opportunities. We expect Chubb to be approximately $0.20 accretive to 2022 estimated APi adjusted diluted earnings per share based on a share count, including the [ Blackstone, Viking ] converts. Second, the integration is occurring swiftly and savings are significant. As you heard from Andrew and David, we see a clear path to 2025 run rate value capture opportunities of at least $100 million, which I'll cover momentarily. We have a goal of 1:1 ratio for spend versus savings, which we've been able to achieve thus far. When David mentioned $100 million, I saw a lot of people writing stuff down and hitting the keyboards on their laptops. Third, as I mentioned, value capture opportunities of at least $100 million. As a reminder, our initial assessment prior to closing of the acquisition was that we believed we could capture $20 million in savings in a business that had been historically underinvested in. After having our team on the ground for 90 days and working with local leadership, we increased our target to $40 million in May. We expect this figure to continue to grow and to evolve. Fourth, as we look ahead, the shift moves more from integration to harmonization coupled with focused organic growth. The business is performing in line with our expectations. We've had no negative surprises and more importantly, what we have found has only reinforced our excitement about the acquisition. Chubb delivered 3% 2022 year-to-date organic growth during COVID-19, supply chain disruptions, inflation, potential recession environment compared to a 5-year CAGR of 0% pre-COVID. Fifth, Chubb is on track to deliver its 2025 targets. As you heard Andrew discuss earlier, Chubb is on track to achieve a 2021 to 2025 target net organic revenue CAGR of 3% to 5% and adjusted EBITDA margin of 15%. We really haven't talked about our focus to a branch-led operating model. And we are well on our way to bringing the much similar approach to how we've built our core APi business to the Chubb business as well. The final point I'll note on this slide is that Chubb meets all of APi's targeted M&A criteria. Chubb strengthens the resiliency and protective moat around our business and supports APi's 2025 targets, which I'll remind you of on the next slide. Next, I'd like to summarize key points of focus for APi overall. First, our recent full year 2022 guidance absorbs FX headwinds and delivers. In spite of FX, we were able to hold the top end of our range and bring up the lower end of our range on our Q3 call, which means our updated full year guidance reflects improved constant currency performance across our businesses. Second is that the overall business is performing in line with expectations. Our backlog remains at record levels and is up approximately 8% year-over-year. Third, as I covered on the prior slide, Chubb is highly accretive and creates significant opportunities. Chubb supports our overall 2025 targets. These include 80% -- approximately 80% targeted adjusted free cash flow conversion, 13% plus adjusted EBITDA margin and less than 2.5x net debt to adjusted EBITDA. Fifth, our balance sheet is strong, which provides us with flexibility to pursue attractive capital allocation. And six, strong free cash flow allows swift deleveraging. As you heard from Kevin, we expect to be below 3.5x by year-end 2022 and remain laser-focused on cash generation and deleveraging at approximately 1 turn annually as we move towards our stated targeted net leverage ratio of 2 to 2.5x. We hope that following today's event, you better understand the clear path we have to make the most of the opportunities in front of us and achieve our 2025 goals as we continue to focus on shareholder value creation. With that, I'll turn it over to probably Jim -- Martin and Jim for closing remarks before we move to Q&A.

I just noticed this morning that we're all wearing the same vest. I ran out of my house, I grabbed something because it was chilly and then I show up and everybody's got the same vest on. So I apologize for that. For those of you who don't know or don't remember, you have to think about the M&A process. When we first found Chubb, it was during the middle of COVID, we weren't able to travel to London to meet with people. When Russ did travel to meet with people in Spain because that was a country we could get into, he tested positive once he landed. And so he ended up doing a Zoom call the Madrid across the street from where the actual meeting was occurring. And then we had to [ Air Evac ] him out of the country to get them back to Minnesota. But when we approached the closing in January, I just want to remind everybody that we didn't have the opportunity to go in and build a robust plan. Carrier wasn't overly interested in us spending a lot of time trying to design a budget for 2022. They kind of pushed us off. That was part of the process. And so when January 4 occurred or whenever the actual closing was, was really the first opportunity we had to get our boots on the ground, get in the door, have honest, thoughtful conversations with people about what are the issues in the business, start beginning to evaluate the leadership team. So we hit a little bit of an anchor going at it. And if you recall, we said, look, we're going to take 90, 100 days, figure out where the bathrooms are, figure out where the opportunities are, figure out who the leaders are and aren't and begin planning a change. We hired a headhunting firm. We attracted Andrew. We were able to get Emerson to let them out of his European contract and start a little bit earlier than perhaps they wanted him to. He started on the ground May 1. And so that really was kind of the solidification of building a leadership team. And so really, since Andrew joined really 5 months ago, we've accelerated these plans. I think that they have a thoughtful, robust plan. They have the right leaders in place. Changes will always continue. Evolution will always occur. But the nice thing is that there really haven't been negative surprises that we found at Chubb. We see a lot of opportunity. It's all about prioritizing those opportunities, keeping the team focused on 4 or 5 things rather than 50 things, making sure we do the 4 or 5 things meaningfully and thoughtfully and that we execute on those and that our plan together -- AV guy, he's waving you off for some reason -- that we're doing something that is meaningful. Martin and I are dedicated. As Martin said, this is both of our largest public company investment. And we see lots of opportunities. We're committed to this process, but we're committed to doing it in the right way. As Martin said, it's a marathon, not a sprint. And we want to make sure that we're doing the right thing, not only for the culture and the population, but also you as shareholders. But we feel that we're off to a great start. And Martin, do you want to add incremental comments?

As usual, Jim, you say it all, so I don't have to add much. The -- I'd take a couple of -- I'd say a couple of things. First of all, our first follow-up meeting when we actually did met Andrew in London at Chubb's facilities, that was actually when -- that's actually when I first got COVID. So yes, we've made our commitments for the cause. I'd say a couple of things. First of all, we're 3 years into this journey from our perspective, and you've heard a lot about the progress, and I hope you really do get the impression that this is a very, very solid bench with a very thoughtful plan. But more than that, in terms of convincing investors and the analyst community, and I look at some of the research that's done, we still have a lot of work to do, and it's on us, not on you. It's on us to really convince the analyst community that this is a business that is worthy of, if you like, a loftier opinion than I think some of the opinions that have been out there. But it's early. We went through this with Jarden. When we were building Jarden over the years, if I told you some of the [indiscernible] that was written about the company would blow your mind. And we just kept our heads down and said, look, at the end of the day, the business is going to do the talking. And we're going to let the business give people the comfort to actually raise their head above the parapet and be supportive of what we were doing. And obviously, that all paid off. I'm probably 50% more comfortable than I probably was in the Jarden days. I was younger, we were younger, less experienced. We've been through this dance before. And so I'm very comfortable, we're very comfortable that this is the right kind of business. If I was ever going to be in a business at this stage of my life and this phase of the economy, being in businesses that are mandatorily required services, it's a great place to be. And so I feel very privileged to be part of the group. We're very happy to be able to present the business to you today. And we're happy to answer any questions that you have.

And I think there's some people with microphones to the guys online. So just raise your hand and we'll get a microphone to you. We'll do this from sitting down.

Thank you for the presentation. So I just wanted to ask, maybe for Andrew, like the risks to the 15% EBITDA Chubb, like you talked about, for instance, country and branch optimization, transition of $500 million of lower quartile stuff. I mean you working in the European business, you know it's somewhat difficult sometimes to close things. So how did you sort of factor that in? And then the pricing aspect of it going to 5% next year from 3%, I think, this year. Chubb, I would guess, not really part of their DNA to sort of focus on price and it's still competitive market. So how do you get there, to that higher pricing?

Go ahead, Andrew.

Okay. I'll start in a few different parts. I'll take the price part first. I guess as I alluded to on the charts, price focus was something that was really new to the business. 2021, cannot recall [ with ] a lot of businesses, how I think about price and how do we kind of get back our margins. When I came to the business, we had very little focus around leadership and price fluency, how do you sit and talk to customers about outcome base rather than cost plus pricing. So we see a very robust pricing plan. We were already in discussions for next year's pricing with a lot of our customers, a multiyear agreements. So I'm pretty robust around the price. In terms of the value creation plans that we've got lined out in Europe and the rest of the business, we don't need certain growth in some of our markets. When I look at the internal [indiscernible] we've got to move the needle, David articulated about $0.5 billion where we plotted our businesses across maturity and margin accretiveness. It's in our destiny. We've got to do the right building blocks that we've multiplied and we've done in other areas and drive it in that fashion. So in terms of risk, every plan has got risk. Every number that we put up there, there's a variance on that. But I'm pretty robust with the team to execute on that. And I always said plus after the 15%.

Andy, I would add to that, like Chubb has -- over the course of 2022, Chubb has done a really good job of taking price. I mean some of it has to do when you've got poor performing customers, it's pretty easy to be aggressive and go take price. And if they don't like it, they don't like it. And I would actually say that compared to, say, our core business, Chubb has been maybe out in front of our core business as it relates to taking price. When you travel around this business, like you talked about the 15% margin, like you can see it, like you can see it, like we're going to be over in London next week. And like every time we are there, you can see it. And it's just -- it's a matter of us executing. We know what a really good branch-led business model looks like. We started to benchmark their branches. They never did any benchmarking of their branches. So we're benchmarking branches. We're making comparisons. So if you're sitting in the bottom of the heap, we color code them. If you are meeting our goals, you're in green. If you're kind of generally kind of trending in the right direction, you're in yellow. And if you're not meeting expectations, you're in pink. The only reason you're in pink because if we put it in red, you couldn't see the numbers. And so that healthy competition is positive. And Andrew and the team, they've already -- we've started to do that inside Chubb. And like it's there.

I would just add to that. Martin and I have a lot of experience in restructuring European operations over the last 30 years or so. And so the plan looks at both timing and certainty relative to -- certain countries take longer, other countries take less amount of time, certain countries push back harder. And so that's all built into the equation as opposed to, oh, you're just going to make it happen.

Got it. Just a quick follow-up that's kind of related. Like I think we noticed the 10% backlog growth year-over-year at Chubb, growth has been accelerating here. So when you think about your forward forecast, how do you factor in market volatility into sort of that 3% to 5%? Do we expect -- I mean, the backlog growth is pretty good. So do we expect continued acceleration? I mean we saw the 8% to 9% that you've built in, but sort of near to medium term, is Chubb actually accelerating based on sort of what you guys are doing?

Yes, we're accelerating. I think as you look at the 3% growth that we drove this year, there's an element of price as an element of deselection as well, and we've got some dilutive contracts. I think going forward, the markets for us are there. And it's -- the buildup plans are robust. And I see a clear line to it.

You got to remember, like we don't necessarily want to grow contract backlog, all right? So I mean, like that is -- I mean we share that probably to a certain degree because you guys care more about it, all right? And you want to know what the stability of our revenue stream is and everything. Like we want to continue -- we want to be growing like inspection and service by 10%, 15%, and we want to be growing our contract business 2% to 3%. And -- I mean, obviously, when the contract opportunities are there, we want to make sure that we're capturing it and -- but we want to make sure we're capturing it at a really good margin. And so I just -- I want to make sure we stay centered on where we really want to focus our growth and accelerate our growth.

I would also just supplement that. If you look at the 7% growth they had this past quarter, we -- by saying 3% to 5%, we want to make sure our G&A cost structure is in line with thoughtful growth to the extent that we have 7% opportunities. Let's not budget that spending today. Let's wait until those opportunities come and then we can spend a [indiscernible]. But we don't want to create a cost structure that assumes 7% growth. It's -- and I think with Europe in a recession, that just doesn't make sense, but we do see kind of those robust opportunities, but we're going to be very conservative on spending to make sure the growth actually comes before the spending goes.

I guess I'll add to that point as well. I said quite clearly, from a quantitative standpoint and a quality standpoint, we've been very robust in our backlog, how are we looking at margin accretion, how we're looking at the content of that backlog as well. It's been a key focus.

Chris Snyder, UBS. I just want to follow up quickly on the financials, and I had another higher level question. So the financial one for Andrew as well. On that Chubb 3% to 5% organic growth, when I looked at the quarterly chart of the organic growth, it didn't seem like it came above that level until Q3. So I'm assuming like '21, '22 are below the 3% to 5%. And I think you guided '23, I didn't get jotted down. But if so, could you remind us what the Chubb guidance for '23 was? And is that like more of the go-forward rate in '21, '22 as kind of like bringing that average down?

I think Kevin should start and then Andrew can add color to it.

Yes. We -- there was no guidance for 2023 in those numbers. Go ahead.

Sorry, I thought -- I'm trying to write it down.

There was no guidance.

Okay. Sorry, I thought I saw something. And then on the follow-up, I want to ask about labor. The service business is obviously very labor intensive. We're in a very tight labor market. Can you just maybe talk a little bit about what that means for the business? Obviously, you guys are highly unionized. The competitors are generally very small. I would imagine that they're having more trouble with that. And maybe just talk about what that means for your level of share gains. And then even just kind of longer term, if the macro goes a different way, how should we think about the labor component here?

I think that's an advantage that we have. Like we -- our purpose as a company is building great leaders, and we strive to provide the opportunity for every single one of our teammates to grow and develop as a leader. Andrew alluded to it a little bit and -- when he was talking about this online learning opportunity that we call "I am a leader." And in like 12 weeks, from the time we rolled it out, like we had to translate it into 6 different languages after the transaction closed. And so we got through that work, and then they rolled it out. And in 12 weeks, they had 5,000 of the Chubb teammates participate in this learning opportunity. That's men and women that work in the field, just like men and women that work in the office, just like in our business. And -- so like this investment in people that we're making is a differentiator. We treat the men and the women that are working in the field like they're part of our family. And the industry, as sad as it is for me to say, has traditionally not done that. The industry has, in its own way, created this divide between the field and the office. And like every day I go to work, I'm trying to break down that wall because the men and the women in the field, I mean, that's how -- they are everything -- that's how we generate margin. I mean if they -- they're warriors. Like they showed up for work every day during COVID. And every decision that we make as a leadership team needs to be with them in mind. How do we make their job more efficient? How do we make their job more productive? How do we create an environment that they want to be with us? And I think -- I truly think that, that is a competitive advantage for us. We started to roll out our learning and development tools in the Chubb organization and bringing leadership development to them. This is a business that's been stocked underneath Carrier and United Technologies for years as people have not been invested in. And like we actually care. Like we show up, we care, and we shake hands and we spend time with those people, and it's a difference maker in that business. So is it a challenge? 100%, it's a challenge. Do I like our odds? 100%, I like our odds.

So Chris, I would just add quantitatively, you really have to think about 50% plus of our employees are in a union. And let's just say we work in Chicago. If you're working in a union shop, there's no motivation to go across the street for more wages because that union shop is paying the same wage. And so you have to think about the low probability of somebody leaving a union shop, their pension, their health care, all the benefits that come with that and the job security and the [indiscernible] costs, et cetera. And I'm going to go walk across the street to a nonunion shop and give up my pension rights and my vesting and all of that, you really have to be treated poorly. So our technicians make around $100,000 including overtime. These aren't $15 an hour jobs. These are kind of 40 -- 2,080 hours in a work year, $40 an hour. These are people with boats in their driveways. And -- so how we treat them is really the differentiator and the opportunity we give them to grow is the differentiator, but we're not going to lose somebody walking across the street unless we're quite the non-employer of choice.

Chris, I guess I'll build on the 2 comments. From a Chubb perspective, we've heavily invested in apprenticeships across the whole of Europe and further field. I mentioned earlier the Chubb connected services model, which allows us to have remote services, which allows us to support our technicians in the field to a great extent, which allows multiskilling. And we're seeing that in Australia. We're seeing that in Europe where technicians can now go and address a multitude of tasks. That's how we're addressing the [ whole 1 of ] the workforce with the technology as well.

I had 2 questions. The first is, when you look at the Chubb business you acquired from a market [ and ] structure, the end market and the economic model of the business, how similar and different is it to your U.S. safety business in terms of how you see it? That's my first question. And the second question is, I think you said that about 35% of the safety business is in electronic security and alarms. And I want to understand, is there a large overlap with the safety business in terms of customers? Or is it really a separate business? And then in the [ Qs ], you call out the HVAC business. So it seems like you have an HVAC business, an electronic business and a safety business. And I don't know where the HVAC business fits into that. So those are my 2 questions.

Well, I'll let -- I'm going to let Andrew ultimately talk about the percentage of the business that's security because that's primarily from Chubb. So if you look at, say, our core business versus Chubb's business, all right, they were built, they're this branch-led model, it works. It's like it doesn't matter. It's agnostic about the services that are being provided. But our core North American business was originally built around sprinkler as part of the life safety solutions and then we added fire alarm, we've added monitoring and, to a much lesser degree, we've added security, all right? So we've -- there's an opportunity for us now to learn from Chubb and bring their expertise from a security perspective for us to really scale that and add that to our offerings and our branches. If you look at Chubb, Chubb started off in the early 1800s as really a security company when the Chubb Brothers invented a lock. And then their business grew, they added fire alarm, they've added the PFX business, which is fire extinguishers, hose drills, et cetera, monitoring, and they've broadened their experience. They do some sprinkler work, but they do much less sprinkler work than, say, our core APi business. So there's opportunities for us to really cross-pollinate knowledge across each business and learn from each other and ultimately expand our offerings. Most -- all of our customers, if you have a fire alarm system or a fire suppression system in your facility today, have security systems as well. Now inside a Chubb, just with the way they've structured their branch model, there hasn't been a tremendous amount of, so to speak, cross-selling, even between individual departments. So when Chubb talks about a branch, they talk about a branch. They might it be in the same city. They might have 3 branches. One branch might be doing PFX, one branch might be doing fire alarm, one branch might be doing security. And they don't necessarily talk to each other. And that's a change that needs to be made. And that's something that Andrew and the team have already started to break down these barriers between countries, these barriers between branches so that we can really function more as 1 entity and 1 organization. And [ Glenn ], from my perspective, like I've seen this movie before. Like when I started at APi Group, we were a siloed organization as well. And we had to go about breaking down those walls so that we could share those best practices and that knowledge and really start to create a much more collaborative environment, and that's what we have. And we're starting to bring that same mindset and that same mentality to Chubb, and Andrew's leadership is a big part of that. So Andrew, I'll let you add some color to that.

You put a lot of context into that, Russ. What I would say is Chubb was part of a global conglomerate. Very country-led, country-focused. I've had the pleasure of getting around all the countries, and I'm a technologist and I talk about technology and how their solutions work. And I was mind blown to think we had software solutions that we derived and built out in Asia that was unbeknown in Europe. So back to your point, yes, we're agnostic by nature of our business, but what we do bring is the value of putting a layer over the top of that to allow all those platforms to come together to give us a value differentiator in the marketplace. So hope that will give you a little bit more...

And 1 more thing, [ Glenn ], you had talked about the HVAC services component of Safety Services. That's a relatively small piece of the overarching segment. And what our focus there, even though HVAC service isn't naturally statutory by nature, if your air conditioning goes out and it's 90 degrees out, you're going to have somebody come in and provide that service work associated with it. So we like the service component of the HVAC business. And we're migrating those businesses towards this 60% plus of revenue goal just like our life safety businesses and trying to get away from, say, the larger contract installation work as we continue to evolve the business.

To go back to your question at the very beginning, which was the margin profile Europe versus the United States. If you look inside components of Chubb, the businesses already make over 15% EBITDA margins. So it's the same in the U.S. There's no difference in the overall margin profile that those -- both those businesses can operate at. And as you know, the business in the U.S. already operates at that level.

Andy Wittmann from Baird. I guess my first question is on profit margins with some of the information that you've disclosed today. I guess you said that your top 6 countries represent 90% of the Chubb revenue, but you're in 17. So it just feels like in an industry and services business, an addition by subtraction has historically proven to be a pretty powerful value driver. Is it possible that just exiting some of these countries that have usually overhead is part of the margin driving strategy? And then related to that, you also disclosed today that 20% of your revenue is paid to subcontractor. And I was just wondering if part of the longer-term strategy as you grow and scale and do bolt-ons and other things would be to in-source more of some of that outsourced work and how much that could add to your potential margin over time.

I guess I'll take the first part. You're going to take the second part. So I'll take the first part around the 90% in 6 of our major countries. I think that gives us a lot of opportunity to expand in other markets. You mentioned will we exit some? We look at every business opportunity and we'll act accordingly. I'm not going to sit here today and tell you what that may look like. We've got firm plans in place. If you look at the brand position of where we are across fire, security and the other areas, we're #1 or 2 in every 1 of our markets we operate in the big 6. And I think there's a lot of headroom to grow in those remaining countries as well. So we've got some key growth plans. We mentioned cross-pollination of different business units. We're standing up [ a ] center of excellence approach. So that will be data centers that will globally go and drive common practices as we kind of go across borders with our global clients. And again, that will build out some of those markets we've just touched on, the balance of the remainder.

I think, Andy, just to add a little bit more color to it. I mean, the -- this whole concept of pruning, right, is we get questions all the time about how are you viewing the Specialty Services segment of the business and everything else. And it's no different than many of the investors that are sitting in this room today, right? They own x amount of stocks. They're constantly evaluating their portfolio, looking at which stock should we sell, where should we reinvest, that's no different than us. Like we look at every component of our business and evaluate, does it make sense for us to be here? Does it make sense? Should we look at potentially selling this piece of the business? Everything is open for conversation. We have a lot of robust dialogue around should we prune this? Should we sell this? Should we close this? And we make decisions that are based in the long-term best interest of the business. And so there are things that we are actively looking at other markets we should exit. We are 100% in that same mindset, okay? The 20% subcontract component of it, that is a way for them to give them flexibility to flex their labor force up and down, right? It's easy -- like in the -- in North America, as an example, U.K. is pretty similar. But in North America, as an example, if like we run out of work, so to speak, on Friday for one of our technicians, we essentially can send that individual back to the union hall. We don't have severance expenses. We don't have any trailing costs along those lines. Obviously, you get into certain European markets and you -- it's not as easy to say I don't have work for you on Monday without having extensive severance requirements. And so by having some element of your workforce that's subcontracted and a lot of that's like almost like independent contractors, if you will, it gives you flexibility to say, I don't have any work for you, Mr. Subcontractor, because you're -- but you're on your own. And so it gives them more flexibility to flex their workforce up and down. And that's something that's super important, and you've seen that resiliency in our business, especially like if you look at the slides we had during COVID, like our business continued to perform during a very, very difficult period of time when nobody knew what the hell was going on in the world. And -- I mean I attribute a lot of that to our individual business leaders. I mean the challenges that we put in front of them to flex their workforce and they delivered. And that's one of the beauties of our model.

That makes sense.

I guess I'll add just a little bit to that as well. We can all sit here and talk about what markets are we exiting. There's also what markets are we entering as well. So the key markets that we'll look at. In terms of Russ' view on the subcontract world as well, it's critical that you -- in certain contracts, you've got a fixed noncost around some of that variable, and that's how we manage that as well.

Okay. That's helpful perspective. Just a quick clean-up question maybe for Kevin. You guys talked a lot about free cash flow today. You've significantly increased the cost synergy outlook that you have on for Chubb. But I was just wondering if you could help us at all with what the cash costs might be with that. I think you guys -- I mean in 2022, the costs that you've had for various transition restructuring have been relatively material. Do you expect those to be kind of running at the rates we've seen this year? Increase, decrease? I'm not expecting a number, but directional guidance, I think, would be helpful at this point.

Yes. So on that chart, actually, at the bottom, we highlighted 2 categories of costs, Andrew. There was -- the first was just the cost that we're incurring to stand up. The Chubb infrastructure [indiscernible] outside of Carrier, that was about $100 million that we had for 2020 and we showed on there that there's probably going to be about $10 million of that spill over into the first quarter of 2023. So call that $110 million plus or minus. That's done as of the end of the first quarter. Then we talked about the $100 million value capture opportunity. And David highlighted on that slide that there's going to be approximately that amount of cost associated with delivering it. That number is a 2025 run rate number, and we would expect to incur those cash costs. We actually had it broken out on that slide to between now and largely 2023 with maybe a little spillover into 2024.

Yes. Before we take another question, Olivia, if you want to -- if there are any questions online, you can pull from that, too. Are there any online, Olivia?

Yes, there's some.

Just ask it, I can repeat it.

Okay. Congrats on the integration upside. Can price accelerate for Chubb as inflation cools? Separately, will acquisitions be focused on the core safety market? Or are there opportunities for another leg?

So the question was around price at Chubb and Chubb's ability to take price during more of a recessionary, economically challenged time. And then the second part of the question is around M&A and around will M&A focus on the Safety Services segment. So Andrew, why don't you take the first one and then I'll take the M&A question.

I think we articulated earlier, price is something that is kind of as a new concept in this business. As we are more focused on end markets, taking contact to [ our solutions ], that allows us to drive price more of an outcome base rather than a product discussion. We're seeing that across our key end markets and really robust. We've already had discussions with some of our key clients and set the price boundaries there. And they have been reasonably well received as far as price conversations can go. So yes, for me, I think the 5% is there. In certain markets, I actually said that we've actually had double-digit price increment in '22. That tells you that price was not a topic of debate in this company and the prior leadership.

I have to say, as most of you know, we're involved in other businesses that are in Europe, where price is a big factor. And the whole conversation in terms of understanding the price is something that's going to go up, is a totally different dialogue in every country in Europe than it was probably 2 years ago. So I think in a way, shifting culture into focusing on price in an environment where people know that price increases are coming actually makes that transition easier.

Yes. We mean across the organization, we pound price all the time. Like tomorrow, we have a leadership call, we'll have 200 plus -- about 200 of our key business leaders across the globe now with Chubb. And we talk about price all the time, we talk about fuel surcharges. We talk about what can we do to mitigate some of the inflationary effects. So -- and again, I think Andrew, Chubb -- Andrew and the Chubb team have done a really nice job. Regarding M&A, number one, we have stayed super focused on Chubb during the course of the year with very, very little of our incremental bolt-on M&A, which I know is something that is attractive to many of the folks in this room. And as we continue to move forward, we're excited to kind of turn that engine back on in 2023 as we potentially look at what opportunities are in our pipeline. Our focus will be 100% on Safety Services, specifically the life safety and the security market. If we did something else, it would have to be something that's super intriguing and would really add intrinsic value to the organization. Western Europe, specifically, is as -- provides as fragmented of M&A opportunity as really North America does. So we -- there will be no shortage of opportunities for us as we continue to move into 2023. But our focus needed to and needs to be focused on Chubb getting separated, making sure that we're positioning the business so that it can continue its path in evolution and really have a bright future as part of the APi family, and that's where the focus has been.

So this is a question for Andrew first. And I think I have a question for Russ and Martin. You said you think you can get to 15% and then you sort of [indiscernible] said plus. And when you look at like Chubb's gross margin structure, it's materially higher than the U.S.-based business because it's route-based because you have fire alarm and monitoring. And I guess my question to you is like -- I would think that there are stations within that organization that are very well run, that are running at 25%. I mean what do you think a really, really optimized sort of Chubb network looks like in 2035 or something? What do you think the mature margin of this business is fully optimized?

So [ Adam ], I appreciate your proactive nature in trying to get us to go some place. Like we need to get to 15% first. And when we execute and we get to 15%, then we'll share with you what the next bogey is. No different than when we said we're going to -- our goal is 50% of net revenues comes from inspection, service and monitoring. As soon as we got there, we shared the next bogey. And we will do the same. Once Chubb achieves 15%, once APi achieves 13%, there is no question that we think that we can be better, all right? In his business, in our business. The gross margins aren't wildly better in Chubb's business than they are in our core life safety business. They aren't. They're almost the same, aren't they, Kevin? And -- so -- I mean, there's opportunity -- there's tremendous amount of opportunity to improve. Martin said it earlier, like there's businesses in Chubb's portfolio that's at 20%, which means there's businesses [ at 6% ]. No different than our core APi business. We know what we need to do to fix them. Now we will bring the fleet average for APi up to the 13% goal and, ultimately, Chubb to get to the 15% goal.

All right. This is a second question, I guess it's for Russ or Martin or Jim. In sort of the end of '21, there was a flurry of platform activity. You had [indiscernible] sold to Carlyle. You had Leonard Green sell half of their business to Altas Partners for 23x. Everyone is saying that multiples are coming down for platforms. I'm just curious, like, obviously, you see the [ bucks ] for the large platforms and you don't really participate in auctions, but I think it might be informative for other people around here to sort of hear your thoughts around platform multiples and sort of how the market has changed in the last 6 months, if it is at all?

Well, it's obviously -- the capital markets activity, particularly on the debt side, isn't really there in any real sense today. So I think that the kinds of transactions that you've seen, it's not a question of whether the multiples gone up or down, there's just no activity at that level. I think that there's no question that the private market, and we've talked about this before, for the fire safety businesses, the multiples are significantly higher than the public multiples have been, maybe with the exception of Cintas, they're probably an example I can think of where -- but the reality is, I think -- I'm a value guy. So I think of reality always being somewhere in between. I think that we're probably lower than we're going to be as a multiple as we continue our progression. I talked about that before as sort of part of the maturation of our business, which is relatively young in the public space. And I think that the sustainability of businesses being bought at 23x is probably in a lower, more of a free money and kind of environment. The truth is somewhere in between. And that leaves an enormous amount of opportunity for us. That's what I was working for. So I'm not aspirational to find the greater [indiscernible] and really we found -- and I go back to Jarden history because there's so many similarities in the journey. We always felt that we knew where our appropriate multiple would be for our business at some point in its development. And it took us a number of years to get that, but we -- and I don't think the story is -- it's going to be much different here. The multiple trends in this business for our kind of business are higher than where we trade today and over the long term.

I think the other part of it, too, [ Adam ], is that some of these businesses, we know them, like, I mean, we know them, we know most of the management teams in those businesses. And the -- from a culture, values and fit perspective, there needs to be alignment there on top of it. And -- we've seen every single one of those transactions and have elected for various reasons to not participate in. And we're very disciplined. We think there's other opportunities for us to pursue.

I want to say one other thing because I've never really said this before. As somebody said it in the room earlier, we don't participate in auctions. And I will tell you why we don't, we're not very good at it. I mean we don't have the resource to waste time chasing things that don't happen. So picking spots where we can actually get something is very important to us. Having said all of that, Chubb was a competitive auction. There was 3 people at the finishing line at the very, very end, and we weren't the top bid. And that's important for people to understand. It became down to a relationship that got developed with Dave Gitlin at Carrier as a level of trust. Carve-outs require partnerships and goodwill. We were chosen because we were seen as being the right people with the right culture and approach to dealing with the issues that will inevitably come up in that. And we bought a significant fire safety business with all the opportunity sets that one would hope for, for materially less than some of those private transactions that you mentioned for as a multiple. So we're very happy with what we paid. We're very happy with the process of how it came out. I would also say I'm very grateful to the finance teams at Blackstone and Viking, quite frankly, who moved at lightning speed to help us bridge the financing -- have the financing in place for a process that required absolute committed financing at the finishing line. If I told you the stories of what happened from Saturday morning when we got the phone call saying you need to be fully funded and in place by Monday at noon and what happened in those 3 days, I don't even want to -- the dedication and work that took place by an army of people was -- there were a lot of all-nighters that took place to get from where we were to that. Then obviously, it's all history from here, but we're very happy that, that took place.

That was all while I had COVID by the way. We have probably one -- time for 1 more question. I don't know, Julian, why don't -- front and center.

There's a couple. So why don't we do Julian. Go ahead, Julian. And then we'll do Jon and then...

My first question is just around your [ booking ] medium-term targets. I think 4 points of free cash margin expansion, 5 points at the Chubb EBITDA margin, 2 or 3 points at the firm-wide EBITDA margin. Any sense of linearity, the sort of pace how back-end loaded those targets are? Because I imagine they must be quite granular. Any weighting on any of those 3 or all of those would be helpful. And then Andrew, good to see you again. Maybe a question for you around Chubb and the sales kind of headcount element I found interesting, because I think it's a source of savings for you, but also a source of kind of revenue upside from changing around some things in the salesforce. So maybe help us understand the 2 sides of that. You've got the sort of the headcount coming down, but it's, I think, a 2 or 3-point sales uplift from the salesforce being rejigged as well.

I'll take the first one. So you're talking about the EBITDA block, is that right, Julian?

Yes. We're just saying that I think this year is 10.5% and you're going to 13%. The free cash flow margin this year is 6.5%, going to 10.5%. And the Chubb EBITDA margin is going from 10% to 15%. So just trying to understand over those -- any of those 3, what the pace is like '23, '24, '25? Is it front loaded or back loaded?

On that chart where we talked about the big drivers that are going to get us to 13% plus. We had value creation on there. We had sort of what I'll call inflation offset procurement and then we had the continued mix of service revenue. The practical thought is that I think they're going to -- it's going to play out sequentially. It's not like we're going to have this all show up in 2025. Our -- even our value capture for Chubb, the $100 million we said, we're going to -- we're starting to execute on that right now, and we're going to see the benefit start to drop through in 2023 and 2024. So it will be sequential. I don't -- it's definitely not going to be back-half loaded, and we should start to -- we should show that improvement next year and in 2024 as well.

So what I would just add to that, Julian, because if you just think about the countries involved and notifications and theoretical, the European equivalent of a [indiscernible] notification and -- so that process will begin in the beginning of the year, so you'll see the effect more towards the back half of the year and then kind of the full run rate of that in '24 and '25. But I think it's balanced pacing post notification.

Yes, around the sales discussion. Coming to this business was very interesting. My prior organization, we were very much order focused, driving in from orders funnel pipeline management. Chubb has been a company that really reaped their backlog, their installed base. Looking at how we've drove our headcount cadence, CRM, right data in the right people's hands, allowing them to go to customers with the right toolboxes around sales. If you think about end-market solutions, industry fluency, that's really allowed us to drive a higher performance sales organization. It's still in the infancy. There's a long way to go, which tells you there's a lot of upside as well. I think I mentioned this company as being a detached asset for a number of years. And to them, sales leadership and sales management has been every customer looks the same. Every dollar is the same. And we all know that's not right in terms of the approach.

This has been a great presentation. I was wondering about the 13% plus margin target. You've had that for a while now, and you're uncovering more value creation at Chubb. I'm just wondering why that isn't -- that plus is not more emphasized. Is it more conservative now maybe? I'm wondering maybe is there a bigger revenue component in the denominator? Or just an admission maybe there's more inflation and macro headwinds in your outlook? Just a little more color there if you could.

Yes. So the drivers that are in there are things that we're working on as we speak, Jon. So do we think there's upside to the 13%, which is why we put the plus on there? Maybe. If you look at the buckets and look at what we think would be sort of probable and likely, you can maybe get to a higher number. All that said, we didn't anticipate the inflation we saw this year, right, which has been a significant headwind. So because we don't exactly know what that -- what the next 3 years are going to look like, we know the drivers that are going to get us there. We [ know to ] keep our head down and keep delivering against those. We'll get there. It's kind of why we're at 13%. As Russ said earlier, as soon as we think that we made it or we're going to make it, we're going to move it again.

We have high expectations of our organization. Like I think it's a strength and weakness all in the same [ breath ], right, where I think -- when I think about myself, even like I don't spend enough time celebrating the successes that our organization has because I just -- like I'm never satisfied. And that's like -- that's not -- it's a strength and a weakness. And we have high expectations in our organization. And if you look at the 20-year history of APi, going back to when I first came to the parent company, we were a $600 million, 3% business. And the company has evolved and changed a lot over that period of time. And we will continue to improve and be better and better and better. When we get to 13%, we'll move the goalpost.

Great. And second, I was just wondering.

Let me just add in. Remember, Chubb had lower margins. So Chubb pulled us back to go forward, which is fine. But -- and we may do incremental M&A that may get us there faster or we may do incremental M&A that's opportunistic at maybe a lower margin profile, but more savings opportunities. So we haven't looked at M&A as we go forward in any of our planning or relative to these numbers, but it may influence the number at some point.

So -- we just want to reiterate our thanks for each of you coming today, for those of you that are online for participating and listening to our story. We're grateful for your interest in the company. We will be kind of hanging around here for a little bit. So if you have any incremental questions, we'd be happy to answer those for you. But again, thank you for joining us here today. We appreciate it.