APi Group Corporation (APG) Earnings Call Transcript & Summary

Okay. We're going to get started again. We are very excited to have APi Group with us here today. We've got Kevin Krumm, who is APi's Chief Financial Officer; and then Adam Fee, who is the Vice President of Investor Relations.

Kevin, as I walk over to you, you joined APi from Ecolab 2.5 years ago now goes by fast, right? And so I think you had a couple of very important goals for improving APi when you came to the company, improving cash conversion, I think, was high on your list. Maybe you could talk about the progress you've made, what you've been focused on? And then what's the left to be done at the company to get it to where you think it should be?

Okay. Thanks for the question. Yes, I remember it was a little after I started that I sat down with you and we were talking about where the business was headed and my role in that. I'll say at the time, top of mind was we were just closing the Chubb transaction. We were levering up. And so making sure that we were focused on free cash flow. Free cash flow conversion and delevering was a big element of that. We were also at the same time thinking through the actual Chubb platform and what our objectives and targets were with that. So the value capture initiative was critical on top of mind then. And all that kind of -- or that element led to -- we were bringing the Chubb business into our portfolio at a dilutive margin at the time. But we were staying to our 2025 target of 13% plus EBITDA margin. And so those things are all top of mind. I would say that cash flow for sure, was a big piece of it, especially early 2022 as volumes snap back. Supply was difficult. We needed to invest both from a volume standpoint and from a rate standpoint. But the businesses did a good job of getting after opportunity within working capital rate. And as we move through 2022, especially in the back half, kind of got that figured out. And as we moved into 2023 and volume growth subsided year-on-year, still good, but really allowed us to get back to some more normalized free cash flow conversion has allowed us to delever. So as of yesterday, we sent out a note that I talked to getting back inside of our target leverage ratio. So it's been good. On the Chubb value capture side, we were able to continue to increase our target. So our target now is pretty well set at $125 million. I think back then, we were still early days and closer to $40 million, but the team there, we brought in a new leadership team that has given us the opportunity to go in and identify and conclude on those programs that are going to be able to deliver that. So it's been good. We've shown performance as we move through. Free cash flow conversion has stepped up and our EBITDA margin has sequentially improved accordingly.

So Kevin, I have a question here on your markets and telling me more about your markets, but you did "preannounced" last night. Thank you, makes it easier on me. So maybe just talk about -- you mentioned yesterday that you were going to come in higher than the midpoint of your range, both for revenue and EBITDA, correct me if I'm wrong in any of this stuff. And then you mentioned you gave us the guidance for '24 in revenue and in EBITDA. So what's driving the strength in your business to get to mid-single-digit growth for this year? And why are you coming in at the higher than the midpoint of your range for Q4?

The largest driver there from a top line standpoint continues to be the service side of our business. Our inspections continue to grow at a double-digit clip. The pull-through revenue we see accordingly. And so on the service side, consistent with the third quarter has continued to be strong. On the project side of the business, our teams have done -- continue to do a really good job of being judicious as to how we spend those hours and making sure we're doing it with the right customers in the right end markets and the right programs, we call that disciplined customer and project selection. But the 2 of those things together with service being the primary organic engine has allowed us to continue with those growth rates that you saw us put up in 2023. And I have informed our guide for...

Sure. So Kevin, the mid-single-digit growth for this year, maybe we could break it down a little bit more. Like you talked already around service and inspection double digits, so projects, obviously, are going to grow slower. But what in projects is good versus maybe not so good? Like you had told us last quarter, for instance, data centers, semiconductor, health care, EV markets were strong. Those were your highlights. You had a delay in a fulfillment center, I guess, warehousing was a little bit not strong. So maybe talk about if anything's changed in core sort of end markets that you follow, good or bad?

So I would say they have not. On the project side of the business and the safety side, business growth rates continue to perform well. End markets that we're positioned against continue to do well. On the HVAC and the specialty side of the business, we continue to focus on -- even in our target end markets, really disciplined customer and project selection. So we're seeing those growth rates subdued and/or go down on the -- be below 0 on the project side of the business. But the result of that continues to be really good margin expansion.

And then just maybe a little bit more color on the specialty side, and then we'll move on, like, can you grow that business in '24?

Yes. Really what we started in earnest last year with disciplined customer and project selection, whereby we were burning through backlog and replacing it slower, but with more healthy backlog. We're going to annualize through that period on both specialty projects and HVAC projects in the first half of this year. So I would expect to see in those businesses sort of a step up sequentially in growth rate first half 2024 to second half 2024.

Second half stronger than first half. Okay. Got it. So maybe we'll come back to some detail later. But when you think about your 13%, 60%, 80% framework, which mean target would you say is most difficult and easiest to achieve? And when you think about any of these goals, once you hit these goals, like, let's say, you hit 13% in '25 as you're talking about, are you already thinking of a higher margin goal now because you know we always want more.

Yes. Yes. I'll answer that last one first. The answer is yes. As we get to 2025 and get to that 13% EBITDA margin target, we absolutely will raise the benchmark there as we go forward. We haven't completed our work on that. I can only tell you our new target is going to go up because our businesses are able to perform at a higher level as we go forward as we continue to execute against the programs that we have. Your question on which is the hardest just as a reminder, the 13% plus EBITDA margin was a 2025 target. The 60% of our revenue in service and the 80% free cash flow conversion, those are longer-term targets that we didn't necessarily commit to delivering against by 2025. Which is most difficult, I would say, the 60% service as a percent of our total revenue will most likely take us longer to get there, just because a lot of that is sort of dependent on underlying growth rates on the service side of the business versus the project side of the business. But since we came out with that metric, we've continued to improve that too with the service growth that we're seeing vis-a-vis the project's growth.

Got it. And then I have a question here on backlog. Is backlog still the right way to look at your company? Maybe...

I'm glad you asked it that way because I would say we've cautioned -- so you said still the right way. We've cautioned to say, we don't mind disclosing backlog from time to time, but we don't believe it to be the right way to look at our business because if you take sort of the dynamic that we saw as we closed out 2023, backlog on the safety side of our business is up, and it's healthier than it was a year before. Backlog on the HVAC side of our business and on the specialty side of our business is going to be -- or was down slightly, but also healthier, right? And so really as a business that is laser-focused on EBITDA margins and cash flow, backlog is not something that's going to -- is the only metric that's going to drive that. It's going to be an element of it. But really, the profitability inside backlog is where our team is focused which is why we shrunk it in a few areas of our business. But in doing so, drove higher margin performance.

Got it. And then when I think about your longer-term growth, right, you've been operating in this mid-single digits for a long time, but maybe it's been a little bit more lumpy at times, especially in something like specialty, and that's why I kind of asked you the question I asked you. Like once you comp this sort of [ kind ] of higher project selectivity, like in the second half of the year, do you get to more consistent quarter-to-quarter growth, like where you're doing sort of mid-single digits again on average? Is that why it's been a little bit more lumpy lately, would you say in growth?

Yes, I would agree with that. I would say that mid-single digits organic growth rate that we put up historically is still what we think we can do. Inside of that, our service business is going to outgrow the projects business. We've seen that over the last couple of years. But as you said, the projects business was a little lumpy as we were focusing on slowing down some of the project work that we're doing. But as we go forward here, in 2025 and beyond, I would expect it to be more normalized in that mid-single digits, again, with service being growing in that high single digits and projects growing somewhat less than that.

Got it. And then I want to talk about margins again. You actually have had several ongoing initiatives to hit that 13%. It sounds like from your guidance, nice margin expansion in '24. So maybe talk about the biggest drivers are driving the '24 margin expansion that you've now given us. I mean you talked about Chubb value capture. I'm sure that has a lot to do with it and the project selection. Like -- but what is sort of most integral to the goals? How much is dependent on that mid-single-digit growth that you guarantee for '24. It seems like there's a lot of self-help.

Yes. So you talked about the Chubb value capture initiative. That's going to continue to contribute in '24 as it did in 2023. We've talked about disciplined customer and project selection. That was a big driver in 2023, and we expect it to continue in 2024. The other elements are going to be margin expansive pricing that we do year in and year out on the service side of our business. We have every intention to continue that as we have over the last couple of years is in 2024 and 2025. We're also continuing to see a margin benefit from the mix shift of our revenue. So as we continue to grow service as a reminder, it accrues to us at 10 percentage points higher than the projects business. That's going to continue to be an uplift on the margin side of the business. And then the last thing that we're working on that sort of is going to build as we go forward would be platform optimization work that we're doing. Now with Chubb, we have a global safety platform. We're really able to look across our operating companies and the countries that we work in and start to pull process out of there and start to support those businesses across the platform or multiple businesses. And so procurement -- global procurement initiative is an example of that and other shared initiatives that are going to drive savings in 2024 and into 2025.

Let me just start with that last one. Is that a relatively new initiative, Kevin? Like how do I think about the platform?

I would say we were focused on it pre-Chubb. Once we did the Chubb transaction, so that was -- would have been largely North America in our like businesses. It was an initiative that was underway. We largely -- when Chubb hit, we focused on the Chubb work that we need to do, carving it out of carrier as well as getting after some of the value capture that we've identified. And where we're at now is we have those platforms. So we're going back to it now with really a view across both the international safety and the North America safety platforms. We've got more scale, and therefore, there's more opportunity to do some things and the things you do will have a larger benefit. And so we've reengaged in that now as well.

Try to give us a number.

Not today.

And [ $125 million ] is Chubb value, Kevin? This is something...

Not today.

Got it. And I want to ask you because like when APi went public, a few years ago, I thought Russ had already talked about sort of increased project selection. But it seems like in '23, something changed maybe and you really sort of went after it more because, obviously, you're saying you're comping in the first half. So what changed? Like was there an initiative in the company, it's like we just -- we got to really tamp down on this more like what happened?

I would say it was always a discipline and a focus. As we went sort of pandemic to 2021, and then into 2022, we were focused on really getting the work done that we had in our backlog. And in 2022, the supply chain disruptions and some of those other things, sort of required a different focus for us to get work done for our customers. But as we exited 2022 and saw the run-up in material costs and frankly, we talked a lot in 2022 about the pricing pass-through we're doing and the dilutive impact it had on our gross margins, we really got the team, our leadership team rallied around, okay, the best time to really, really lean into an initiative like this is when demand is robust. And as we exited 2022 in those businesses, we had really robust demand. And so our teams rallied around it and used it as an opportunity to really be disciplined. And it's hard to say no to some customers that you said yes to in the past, but that's the work we've taken on, and we've seen great benefit from it.

So what happens in the middle of this year then? Is it basically you're done with that customer work, and that's what that is or...?

Yes. I mean, so in the first half of last year, like I said, we were burning through some of that backlog. We've replaced it with higher margin work, sort of focused on the type of work we want to be doing with the customers what we want to be doing. And so it's -- in specialty and HVAC, we've shrunk a little bit project side of those businesses. But as we exit through that, it will -- in the first half of 2024, it will be more normalized from a sizing standpoint. And then from there, we can sort of organically grow off it with those growth expectations that we talked about 15 minutes ago...

And then like with the understanding that what I'm about to say probably never goes completely away, would it be true then by the middle of this year that you really won't have many loss-making projects if any, like...

Yes. I mean -- so I won't say that we won't have loss-making projects.

You have to say that.

And really, what we've been focused on is less about loss-making. We've generally done a good job of managing that metric, which is a critical metric. It's called contract loss rate. But outside of that, you can still do work that isn't at the margins that you'd want it to be. And so it's less around those sort of trying to correct our contract loss rate, we'll always improve it. It's more around trying to make sure that the underlying broader portfolio or backlog is being built with quality margin business.

Got it. And then back to Chubb value capture for a second, like up to [ $125 million ]. But you updated your synergies intra quarter, basically. So that seems like a pretty strong conviction and do that. I noticed today you kind of said, well, now you're probably pretty set on [ $125 million ], at least that's how you said it. Like so you guys tell me like is that kind of what it's going to be? Or like is there still more opportunity? Like -- and why did you feel the conviction to do it intra-quarter because that, again, I think, says something.

Well, I would say we felt good at that time, coming out of some of our planning processes that we do sort of Q3 to Q4. Our teams came forward with what I'll say is the next wave of plans, which was really focused on -- our first initiatives, I think, have widely been discussed, but it was focused on field productivity, loss-making branches and really more of the in-country operations. This next wave, our leadership team had been in place for a year. They had a lap around the track. We were in the planning phase and they'd identified some new broader initiatives that we felt were things that we needed to take on, and we knew we'd have restructuring associated. So we want to sort of match up restructuring expectations with savings. And that was what we call above the branch work where we're really looking across the countries or the operating companies and figuring out ways to standardize and reduce costs. So it was really part of our planning process. We felt like we had concluded on that work and wanted to get the revised number out there. You said we could be largely done. I would say, at this point, our plans are largely baked through 2025, especially the plans that need restructuring. We talked about Chubb in November of 2022, when we said, "Hey, it's about a 9% margin business, and we're going to get it to 15% by 2025." This works a part of it. We're not going to be done though. As we move past 2025, that leadership team is going to continue to work on elements of the business that -- and pull the levers that we always do to continue to drive that margin north. I will say it's just not work that's going to need restructuring dollars associated with it.

And Kevin, if I could, could I peak under the hood of Chubb a little more and just to that point of going to 15% margin, like how close are you? Are you on track for that? And then when you bought it, it wasn't growing, as you know. The last time you updated us, it was growing, but you kind of talked about, I think, after you take out some "bad branches", it was 3% to 5% growth, I think, was your guide. Is that sort of still where it's growing? Like where is Chubb these days?

So -- Adam might have to help me on remembering the first part of your question. But on the organic growth rate, I'll say that yes, that business, it's growing. It grew again in 2023 on an organic basis, and it's growing in spite of continuing to exit certain customer relationships and certain types of work in certain markets. So we're still pruning inside the portfolio, both on the project and the service side of the business. But through pricing and organic growth, that business has continued to put up good organic growth rates in the first...

Margin was...

From a margin perspective. So when we bought Chubb, it was at 9%. We put 15% as the target about a 4-year span. So 150 basis points a year. We're generally on that track, give or take, a little bit of timing differential. So we feel good about where we're at and then combined with the fact that we have more than half of the value capture plan out in front of us in terms of future cost savings.

Again, and just for the sake of trying to see under the hood a little bit like big Europe, obviously, some Asia, like any difference in performance you're seeing by region in the Chubb business?

I would say largely no. The work we're doing, pricing, organic growth, cooling and pruning certain elements. It's happening in both regions and the organic growth rate that we're seeing is not too different between those regions right now.

And Chubb was also big in services. It was actually a higher percentage, I think, than you guys. So like is there any lessons learned from Chubb that you took back to APi and sort of helping you with your service and/or inspection business?

I would say we continue to look at opportunities both ways. And it happens organically as we continue to cross -- move our leaders across both businesses. So we now have leaders that grew up in the North America business that are over in the Chubb business and doing great work, and we have international leaders, one of them is with us today that we're in the Chubb business that have come over and are helping our teams here better understand how that businesses run. An example of that might be security and monitoring in the Chubb business where we're taking some of the -- our new understanding of those businesses and applying some of those elements inside our North America business.

I should open up to the audience. Any questions from the audience? Anything? We'll get some coffee and then we'll have some questions. So let me follow up. I asked you about your longer-term targets, the 13%, 60%, 80%. Like -- so if I focus on the 60% for a second, you said like there's no time frame, maybe it takes a little longer to get to 60%. But at the same time, I mean that's what Russ talks about like every quarter, right, leading with inspection and focusing on service. So have you continue to really ratchet up the focus there? Could you hit 60% actually faster than we think? Because again, I love Russ, but that's all he talks about, right?

Yes. Faster than we think, I don't know. We don't really have a timeframe out there. We've made progress and most likely, we'll be updating sort of where we are in terms of our percent of revenue that's service versus projects. I can only tell you it's improved at this point. And it improves because the underlying math says that the service business is growing faster than the projects business. I would say, in some of those longer-term sort of steady state projects at mid-single-digit service at high single digit, it's going to take a while. M&A can help. But at times, M&A is a headwind. We might buy some of our bolt-on businesses. They may look like traditional life safety businesses where they actually have built their business through projects. And so we'll buy a business that will be more projects in service. Now that's the value we bring to it where we're going to bring our inspection and service model into that business. And over time, we're going to convert it to 70-30 from 30-70. So there's some of those headwinds in there as we go forward, too, that are, frankly, opportunities but slow down sort of that overall conversion. So it's a long way of saying, I don't know if we're going to accelerate it. But it's certainly a metric that we're comfortable with and comfortable in our ability to get to it.

And just going back to life safety for a second, other than HVAC services, which you're kind of getting out of like -- I often get the question around you guys. Well, you chose the nonres, all that kind of stuff. But it doesn't seem like it's really impacting higher rates not really impacting you because you're able to be pretty nimble to go where the work is. Is that kind of what you'd answer the question. It's like you're just -- you can flex to wherever the work is on the nonres side? And there's enough work for data centers or high tech or medical that it's keeping you busy in '24?

Yes. I'll take that one. Yes. So our branch network is spread across the country. We do work in a diverse set of end markets. So to your point, we have a lot of opportunity to sense which end markets have more strength and which ones have weaknesses and kind of reallocate our field leaders to those opportunities. We have continued to see strength in the markets that we had talked about last year in terms of the data centers, the onshoring of the semiconductor manufacturing, medical has been strong. Food and beverage has been strong. And I mean, you've heard Russ say it, how we don't do well on kind of developer-led price-based work, and that's a lot of the reason why you didn't see some of the interest rate and regional bank kind of disruptions happening in the first half of last year really flow through to our results. And I think the focus on the right end markets when you're doing the project work really matters a lot more than it does necessarily on the inspection and service side where that works required every year.

Got it. And a similar question on the specialty side. Again, the question I get sometimes is you're pretty big in telecom, for instance. So do we need to worry about that? And Russ is in my head saying, "Oh, we're really diversified. So don't worry about it." Like is that still the same answer on the specialty side? There's enough good things happening to offset the not-so-good things or like how would you...

Yes, I think that's the right way to think about it still. Like when you hear about the telecom projects that are being slowed, it's the $300 million, $400 million, $500 million big projects. The smaller projects, which is where we play, those are still happening and those are still being worked through with our businesses. So -- and then broadly, on the specialty side, we have exposure to a lot of the critical infrastructure markets that have some funding allocated in the upcoming IIJA, whether it's water and wastewater, electrical grid build-out, continued build-out of the fiber optics and EV infrastructure. Those are areas where whether we propose on those exact projects or there's just an increase in supply of projects into the market that it will open up opportunities for our business to continue to find work with the customers that we have built relationships with.

Adam, you mentioned the word upcoming. So do you see bids and proposals going up when it comes to that sort of fiscal stimulus? Is that what you're seeing real time?

What we've been hearing from our businesses is that they're expecting more proposal activity in kind of the second half of this year, but they don't expect to really see it hit the financials until 2025 or beyond. That funding tends to just move slower than people expect for these type of things is what we've been hearing.

Got it. And so when you're looking at the mid-single-digit growth that you've had, it's not really coming from these fiscal tailwinds yet?

Yes, that's correct.

That's right.

Okay. And then just moving over to free cash flow, Kevin. So you're 65% free cash conversion for '23. I don't think you put out any target for '24?

Not yet.

Okay. You can put out a target now if you'd like. But should it continue to get better in '24 on your way, that 80% target. And you're quite a bit better, as you know, because you and I talked about it when APG went public a few years ago. So what does the company have to do to get to that 80% target consistently?

Yes. So first, we will increase our target off of where we ended in 2023, and we'll talk about that in our guidance as we guide in our upcoming call. The 2020 -- as we went public, 2020 was a year where our revenue went down and we saw an extraordinary increase in free cash flow because we were basically harvesting working capital from the subdued revenue numbers in 2020. Our business is going -- it's going to require working capital when we have extraordinary growth, which is what we saw in 2022 because of inflation on supply chain impacts and it's going to kick off extraordinary cash flow in periods where you have a dynamic reduction in revenue, okay? It's just kind of the way it works. And so as we came out of that 2020 -- I got to get my years right, that 2021 period where we started off of the COVID year to really start to grow again, we invested, and that's what delivered mid-50s free cash flow number. And then in the first half of 2022, we saw significant supply chain disruption, and our teams were just focused on getting work done for our customers. And so we invested again in working capital, really secure product. And the focus was on getting work done not so much as maybe as it should have been, frankly, in collecting and doing some of the other things. So as we exited the first half of 2022, our focus has been our working capital rate. As we went into 2023, there's still opportunity there, and we got after it this year. But this disciplined customer and project selection, we talk about it internally, applies to cash flow as well and making sure that we got the right terms and conditions and we're doing work with customers that appreciate sort of our need to have the sort of -- put a premium on this cash flow metric as well. And so the last thing I'll say on that is continued shift of our business to service, which is -- requires less assets and less working capital is going to drive an improvement in free cash flow. So as we exited 2023, and we look forward into 2024, we're going to pull the service lever. We're going to pull the working capital lever, and we're going to pull the disciplined sort of project and contracting approach with our customers. That's going to continue to drive an improvement in our free cash flow, and we think we continue to pull those levers, especially as we've delevered to get to that 80% number. That's a longer-term target out there.

That all sounds good, Kevin. Like just maybe one follow-up on that, like compared to your last company, it is relatively mature, a little bit larger. Like how does cash conversion like where are you on the spectrum here if I use the U.S. baseball analogy or something like that in terms of making it sort of a really good high operating cash conversion company.

I would say we've made significant progress since 2020. Our teams are focused on it now. It's a live conversation inside the businesses. Our teams are -- again, I'll go back to this as we think about the type of work we want to be doing, cash flow is top of mind, especially on the project side of the business. And so I think as we get through this 2025 period, we're going to be in a position as a company where we can say we are best-in-class in our space with respect to focus on free cash flow and delivering free cash flow.

Got it. And then obviously, there is what do we do with the cash, right? So I think you mentioned last quarter, you executed 5 bolt-on acquisitions in the first 3 quarters of '23. You just updated us you're at 2.3x, I think, right, pretty good. But then -- so what do you do with the cash now on the balance sheet? You're getting through the Chubb integration. So does that mean you're going to start focusing on larger deals? Are you going to continue to do bolt-ons? Like how are you going to think about it?

Well, that for sure is the exciting thing about getting delevered and getting our free cash flow conversion closer to where we want it to be because it's -- we can get back on offense a little bit. We took a better part of a couple of years off from a bolt-on M&A. Our sort of growth algorithm has always been organic. As you and I have been talking about today at mid-single digits, but we've always stacked a good amount of bolt-on tuck-in M&A on top of that, which has allowed us on a reported basis to grow double digits. And so as we go forward here, that's our expectation. Our priority, there is still a lot of ground to plow, if you will, on bolt-on M&A in North America. And as we get the Chubb platform and the work in that Chubb platform done internationally in Western Europe, we see that as a platform and an opportunity to put our inorganic growth algorithm in that, too. And both of them have a ton of opportunity in just that small tuck-in, bolt-on space. These businesses come to us at low multiples. We're able to drive margin performance immediately through our procurement programs and over time, through our go-to-market strategy of inspections and service. And so we're excited about that. We think it's the way to continue to compound value for the shareholder. And so that's our priority. We're the largest player sort of in the markets we're in. And so bigger deals come to us from time to time just because of the nature of where we are. But we really think that the best value right now is sort of sticking to our knitting in those spaces.

Remind us what would be the ideal deal for you these days, maybe in terms of North -- is it still more North America bolt-on than European or international?

It is, and it will be for the next year or so as we continue to just conclude that work. We're not looking -- we have, I'd say, this quite a bit. We have 125 million reasons to get that Chubb work done.

Right. Don't want to be distracted?

Right. And there's a world of opportunity in the North America market to go do what we've been doing. But we're not too far away from starting to really focus internationally and deploy that inorganic growth model internationally.

Are there any particular types of small bolt-ons in North America you're looking at?

We have markets that we think are underserved. And so one lens we look at is markets that we want to be in, where we know they're growing, where we know there is investment coming that we don't have the largest -- the presence that we want in that market. So our corporate development team has one lens that looks at those markets. They have another lens that says, end markets where we're at, and we have a great position, how do we feel about our fire alarm offering. We may have a great sprinkler offering, but we don't think we have enough fire alarm offering in that space. And so that's something that we may couple with our existing offerings in that market. Security is another one. So those are kind of the way we look at adding M&A into our business in North America.

So I'm sure you get this question sometimes, but maybe you could just tell us your current thinking on why safety and specialty belong together?

So there's -- there are synergies between those businesses. There's cost synergies. There's some revenue synergies. They actually show up in our financial statements. So you can see the revenue synergies are not significant by any means, but there's -- they're additive for sure. When we look at the specialty businesses, in particular, the work we're doing in those businesses is still accretive, or sorry, the work we're doing in those businesses is driving performance that's still accretive to our objectives. And we say this all the time. We have specialty businesses that we're doing work on -- or sorry, safety businesses that we're doing work on that need to continue to show an improvement to be accretive to our objectives as well. But the businesses that we have in our portfolio, our businesses that if you look at our near-term objective of 13% by 2025, we think can be accretive. As we move sort of the goalpost, 2025 and beyond, we're going to reassess our portfolio of businesses against those new targets as well and continue to work on them to get there in the businesses that we don't think can get there, we'll make that decision at that time.

Got it. And then I asked this question of every company I think I've asked you guys this last year. What are the top 2 or 3 innovations and structural changes affecting your company over the next 5 years? And are there any emerging industry trends that are perhaps being overlooked in the current discourse?

I'll answer this, and I'll let Adam add to it. I would say, innovation-wise, we have a couple of ways that we innovate at APi. One is central innovation. I'll talk about it. The other is just our branch operations, our branch leaders, our operating companies are innovating in the markets. They are in all the time, whether it's how to get product, how -- or whether it's how to do a certain service at a certain customer, they're highly innovative branch operations. Central innovation, I'd say, is something we take on centrally on behalf of our operating companies. When you look at that, we're starting to look at and think through things like remote monitoring -- or sorry, remote inspections. What does that look like? There's technologies and capabilities out there that we think we can bring into our business that will drive productivity on that side of the business. There's also in the monitoring space, there's a lot of things happening there. There's AI that we're bringing in, in terms of -- there's little things we're doing right now that are driving productivity in that space. But those would be the areas I think where our team right now is focused. I don't know if I missed anything.

No, I'd say you covered the main ones. I'd say from an industry perspective, there is a growing trend of just enhanced transparency on the deficiencies. So there's a thing called compliance engine that more and more jurisdictions are taking up. So when we do an inspection report and file the deficiency -- filed an efficiency report from an inspection with the fire marshal, they're now being kind of loaded electronically and there's more transparency in making sure those deficiencies are taken care of to get back in compliance within the calendar year.

Well, Kevin, Adam, I think we're out of time. Very much appreciate your time. Thank you.

Appreciate it. Thank, Andy. Bye.