APi Group Corporation (APG) Earnings Call Transcript & Summary

Well, I know it's a very early start. So I appreciate everyone who set their alarm clocks on time this morning. It's my pleasure to open the second day here with APi Group. Russ Becker, long-standing CEO and President; and David Jackola, CFO.

Maybe Russ and David, obviously, you gave a brief sort of update on things yesterday morning. Any initial comments sort of fleshing that out and how you see kind of the cadence of the year, if anything to add on that?

Well, I'll -- David can speak more to the numbers. But what I would tell you is that we feel really good about where our business is positioned as we start working our way through '26. We finished the 2025 with really strong results. As we continue to build backlog, we continue to see good organic growth in our inspection and service business, which was positive. And as we move -- start moving through the first quarter of 2026, we feel like we're in a great spot and kind of like where the company is sitting. And I mean, we're like everybody else, we still have challenges and issues and things that we need to deal with, and the work that's really never done, Julian. But I like our team and feel good about where we're at.

Good. I'd just add a couple of things. First, we ended 2025 above our 13% adjusted EBITDA margin goal, which is a really great accomplishment by the team. Second, we did end the year with momentum. The fourth quarter was, as we said in the press release, delivered comfortably above the midpoint of our guide for revenue and adjusted EBITDA. I think really importantly, we ended the year with really good margin momentum. The fourth quarter was our strongest quarter from a year-over-year margin perspective. And that sets us up really strong for Q1 and 2026. We guided $8.4 billion to $8.6 billion of revenue, $1.14 billion to $1.2 billion of adjusted EBITDA, 13.8% at the midpoint of the margin. And I wouldn't say anything out of the usual in terms of how that will play out from a cyclicality or a quarterly perspective.

How should we think about that mix of activity sort of inspection and service on the one hand, project on the other? Because in the last couple of years, the project piece just by nature is more lumpy, swings around easy comps, tough comps and so forth. How is that mix expected to improve this year?

So I would tell you, we continue to see high single-digit growth in our inspection service and monitoring business, which is kind of where we've been guiding people to, and that should be their expectation with low single-digit growth in our projects business. We are seeing a little bit of a tailwind, driven primarily from the data center space, I'd say, not just data centers, but that's been strong. Advanced manufacturing, including pharma and things, semiconductor remains strong for us as well. So we're seeing a bit of from our project business, which is helping to drive that. But from a planning purpose and everything else, we've remained disciplined in customer and project selection. We don't intend to over-index in any one end market, but we're going to take advantage of the opportunities that are there. Do you want to add any color to that, David?

No, I think that's good.

And so the project side of things, kind of how is the visibility there in terms of how much is in backlog? And is projects one of these things where you start the year with high growth and then it sort of slows down just in the back half because of the backlog shape of comps?

I think that it's possible that you can see some of that where you're burning through your backlog, especially through the third quarter. But our backlog as we move into the new year continued to grow on a sequential basis. Our backlog is really strong and in a great place. And I guess, more important than anything, we're seeing improved margin in our backlog as well. So backlogs are at all-time highs and just in a great spot.

And you mentioned Russ a little bit the -- some of the end markets and what's driving demand there. I think a lot of -- a big focus for investors here is around the green shoots in U.S. industrial activity. And you mentioned advanced manufacturing as a vertical have been relatively strong. How have you seen domestic industrial activity the last 6 months? Have you seen an improvement? Or it's pretty steady at a high level in things like semis or health care?

I would say that I would put it more as steady. I mean, where you're clearly seeing all the activities in data center space, where you could argue that you're seeing increased activity in the data center space and not only in the number of projects, but the size of the projects. And the project sizes have increased dramatically, which is actually a positive thing for a firm like APi. There's not many firms that have the capability to tackle some of these large installation opportunities in the data center space. And so that creates really good opportunities for our businesses and our team.

And I suppose with data centers, you have the ancillary kind of tailwinds boosting the power market as well, whether it's generation or transmission, in particular. Maybe remind us kind of this year, let's say, or exiting 2025, what the revenue exposure is of APi to data center and power markets?

Oh, man. I don't know what power is right off the top of my head. Data centers is a little bit more at the forefront of our brains because it seems like everybody wants to talk about it. But I think our revenue in 2025 total revenue was 8% was in data centers. We expect it to be closer to 10%. I said earlier in our program, Julian that we have no intent to over-index in any one particular end market. We are, however, going to take advantage of the opportunities. I don't know, David, do you have any idea what we do in utility work?

Probably a couple of points on top of that 8.

Yes.

Okay. So combined, those are probably like low mid-teens this year or...

I think directionally, that's fair.

And I suppose within data center, I feel like the tone from APi is a little bit different to maybe 12 or 18 months ago. I think the profitability maybe of data center project is more appealing now. Does that go back to that point on the size of them gets larger, and so you've just got better economics for APi?

Well, I mean, we've always done well on the installation side of data centers. We've -- our focus has always been on our clients where we're actually doing the inspection service and monitoring at their existing facilities. I think one of the things that has changed in the data center space is a lot more new greenfield sites so that one of your hyperscaler customers that you might be working on 7 or 8 of their different sites doing their inspection and service work, and also, they're building a new greenfield facility in -- like, as an example, we have a customer that's got a large, large, large project in Northern Louisiana, and no existing facility there. The reason that they're citing the project there is because of access to power. And -- but it's a very, very large project. And again, the remote location adds another element of complexity to it. So you have to have the ability to travel the people into that location. We actually happen to have an office in Monroe, Louisiana. I think our large branch network that we have is actually -- it's crucial for our inspection service and monitoring business for us to be able to provide great service to our clients, but it's actually proving to be an advantage in the large project environment right now and having access to people and to resources that are close by our branch network. So it's a positive thing. We have a branch office in El Paso, Texas. We have another hyperscaler customer that's building a data center in El Paso. And so -- and our El Paso office is fantastic. We have great people there. Not that we don't have great people in Monroe either. So in case anybody is tuning into, Julian, I want to make sure I...

You need to qualify that.

Well, we do. We have good people there, too.

Good. That's good to hear. And on that point on kind of labor, I think a lot of people ask questions around the ability to execute large projects on schedule without cost overruns in the context of kind of high inflation for all kinds of things, metals prices more recently and sort of labor scarcity. So maybe I guess there are 2 different things. Maybe help us understand on the labor side, how are you finding it to sort of train service technicians, train the people who can help with the greenfield project activity. Start with that, please?

So I view -- so we've had a tight labor market for many years. Like I don't view the labor market is actually being a new phenomenon. I view it as being something that we've actually been dealing with for many years. And so when I think about labor and I view that more as an excuse than and say, I can't find the right people or whatever. Like there's people there. You just have to have -- you just have to be thinking differently about it. APi's purpose is building great leaders. And one of our core beliefs is that every one of our 29,000 teammates is a leader. Their role is just different. And that includes the men and the women in the field, and we're investing in the men and the women in the field as leaders and as human beings just like we're investing in myself and David and Adam and Adam and Kim, who are with us from our APi team. We're investing in those folks just the same as we're investing in everybody else. So to me, the first place to start is to keep your people and to retain the people that you have and to create a positive work environment because they're your best recruiting mechanism. You also have to be willing and think differently about where you're going to recruit people. So we have -- as a really good example, we have a gentleman that works in one of our businesses in the Northeast, who went through the state of New York and basically got an apprenticeship program accredited through the state for fire alarm technicians. So fire alarm technicians are one of our bottlenecks, if you will. And the United States Army has a program where essentially, as men and women are exiting the service, you can basically hire them for 6 months. And as like an internship, the Army actually pays them their wages. And you get to try them on and they get to try you on. So we're taking these people as they come out of Fort Drum, putting them in the apprenticeship program, and from a fire alarm technician. And these people want to go home when they're done. And so then that person might be from Austin, Texas or Dallas, Texas. Well, we have branches in all those locations. So we're able to help dispersed folks that are trained and able to actually go to work in the field when they leave this apprenticeship program. So you have to have different things like that. We have -- one of our businesses developed a program to basically train inspectors. So you can hire and recruit inspectors from alternative sources. So you just -- you have to take the responsibility on yourself and to hire people from different places, get them the training that they need and then be able to put them the work productively in your business. So we continue to work at it. Yes. I mean, is it -- is there pockets where you're going to have really tight situation from a labor perspective? Yes. But you have to think out of the box. You have to be willing to move people in between branches and in between businesses, and you can solve for all that.

Got it. And if we think about the kind of cost side, whether wage inflation or broader cost of materials and so forth, kind of how easy is it for APi to deal with those and still get decent operating leverage?

We have pretty good visibility into our labor cost, especially on the fire side, more than 50% of our team members are in the union. So we have really good visibility into their wages and what they look like for the next 3, 4, 5 years in some cases. And then things like materials, we watch -- watch it every single week. We actually have a summary that comes out on what commodity prices look like. We feel like we got out in front of like the tariffs from the current administration. We kind of knew that he was going to -- President Trump was going to use tariffs as a hammer as part of his tactics. And so if you -- in my opinion, if you didn't get out in front of it, it's kind of your own fault. And so we feel like we did a pretty good job of getting out in front of it and been able to manage that and make sure that we're working escalation into our proposals and into our contracts in our different agreements. So I feel like that we're positioned really well there.

Great. And if we talk about some of the other verticals, parts of, I guess, broader buildings activity has been quite mixed the last couple of years, like office, for example, or education. It seems like K-12 is tough, higher ed is very good. Anything you're seeing movement wise in some of those end markets beyond data center and industrial that you already touched on?

I mean -- so if you look at in our -- in some of our materials, you'll see the vertical or -- when you look at that, you see like commercial office space and things like that. Most of that business is inspection service and monitoring for us. So we're not doing a lot of project-related work in commercial office space because there's not a lot of project work to do because it's still at the bottom of the trough. Now depending upon who you talk to, I was with a real estate colleague of mine. He's a real estate developer a couple of weeks ago. In Minneapolis, they feel like the real estate market is at the bottom and actually starting to trend up, from a commercial real estate perspective. So most of that type of project-related work, we don't participate in any ways because that's low price. And if we're only going to compete on price, it's not -- that doesn't work for us.

And if you look at the HVAC business within APi, it's been some time now since it was sort of resegmented. How satisfied are you with where the HVAC business is right now? Is it back on sort of growth mode?

I would say very satisfied. I feel like moving it into the Specialty Services segment was good for that team. The leadership in the Specialty Services segment has been additive to our HVAC business. I would also tell you that our HVAC team has really done a good job of stepping up and kind of stepping up their game, and they're doing a really good job. I mean there's just -- that's probably just the best way to put it. They've been much more selective on the project opportunity that they're taking. Their service business is growing. We've taken the same inspection-first mindset from a sales perspective, and we're executing that inside the HVAC business. So I feel like our team is doing a really good job there.

Great. And then elevators, you've been in that market now a couple of years. How does the M&A pipeline look there? And are you kind of pleased with how that business, that rollout is going in terms of market share?

Well, as far as market share, I think we have a lot of work to do and a lot of opportunity in front of us. And I mean, I would really phrase it as opportunity. We've really only done one acquisition in the space after the original kind of platform investment that we made in elevated 18 months ago. And that business really wasn't a bolt-on. It was more of a tweener. It operates under APi elevator. So I think last year, we finished at $240 million or $250 million in total revenue in the elevator and escalator space, which is on its way to -- we've said publicly that we feel that we can build a $1 billion-plus platform in the elevator space. We have some -- we have -- from an M&A perspective, we have some really good opportunities in the pipeline that we're actually working on now. We're taking a walk before you run approach. The business hasn't done any M&A. So we want to get one across the finish line, work with the team to get it properly integrated into their business, make sure that we take lessons learned from that integration process and then apply it to the next one and be very purposeful about how we do it. But -- and then we can pick up momentum and pick up some steam. But we see a lot of opportunity in the elevator space, and we're excited about what the future holds there.

Great. And if we think about kind of operating margins, you've got those goals out 2028. Do we think about the path to get there to be sort of fairly linear? And is within this current year, is the framework kind of steady margin expansion each quarter?

Yes. Absolutely, Julian. And you saw the midpoint of our guide, which is at 13.8%. That's going to be a pretty good first step towards getting to 10/16/60. And getting there is really going to be a lot of what got us to 13% adjusted EBITDA margin in 2025. So really focusing on the inspection-first model and using inspections to drive service work and then the relationship from service work is going to allow you to have great project opportunities, but more importantly, project opportunities that you're able to execute at really high margins. And so it's really just continuing to grow and mature into the playbook, and those margins will come pretty even throughout the next 3 years.

And on the project side of things, you mentioned there is a lot of activity sort of in areas like data center and industrial. I guess, shouldn't we expect the project side could grow faster than low single digits the next year or 2, particularly if the profitability is looking brighter.

Well, I guess I thought I said that, but...

I think said single-digit project...

I said that's what the algorithm is, and that's what our long-term objective is. We will see a tailwind, and we do expect our project revenue to grow organically higher than that. So...

Fair enough.

I guess I was speaking in code or something.

No, no, no. That's -- you clarified it. The...

I'm just happy that there's people here. David and I were in the car and a ride over here this morning, we thought maybe we'd have Adam, Adam and Kim here since it was at 7:30 so...

For about 9. Yes.

So thank you for coming.

Yes. No, it's a good turnout. The switch maybe to inorganic opportunities. There's always companies at this conference looking to sort of divest assets and so forth. And there's 1 or 2 kind of larger things out there that may get peeled off some of your bigger competitors. Maybe help us understand kind of the appetite to do a larger deal. The Chubb integration, I think it's been what, 4 years now, played out very successfully. So what's the kind of appetite to do a larger deal again in sort of fire and security field space?

Well, we feel like we did what we said we would do as it relates to Chubb. And so we feel like we've proved the capability to take a larger acquisition and help improve the business. And I think that's the most important aspect of it. It's -- the business has improved steadily since we've owned it. And I think a lot of that has to do with the investment in the people that we are making. And to a certain degree, they found their forever home. So I think our appetite, if it's the right fit and the right opportunity would be there. But it has to be the right fit and the right opportunity. I mean, we're -- we'll always have something kind of that we're doing a little bit of work on and peaking underneath the covers and looking at. We haven't found that right opportunity. But if we do, you'll see us move forward and act on it.

And what are sort of some of the -- remind us of some of those main kind of framing factors for M&A around kind of leverage that you'd be comfortable going up to at least initially after a transaction and then it would come down.

Well, I mean, we did Chubb. We levered up to roughly 4x. I think actually 4.1x. And very quickly have taken our leverage down. And if you look where our leverage ended up at the end of the year, we're well below 2. And so we've demonstrated, the company generates a ton of cash. I don't know that we would lever up to 4x. It had to be a really special opportunity, I suppose, and we would have to see a clear path to delevering again to our stated goals of below 2.5x -- 2.5x to 3x. So we feel the company does generate a ton of cash. So when you think about the different gates and everything else that we look at, we look at geography and this geography -- is it geographically complementary to our portfolio and our current offerings. We look at the services that the business offers. If you think about it, and we have a significant security business, but it's primarily in the international operations. So there will be an opportunity for us to add security services to, say, our United States business today. That would be something that would be interesting to us. So the services that the business offers. Financial profile matters. It doesn't necessarily have to be day 1 accretive to the 16% long-term target, but we have to see a path to being able to do that. And that was one of the things with the Chubb acquisition. When we bought that business, you could argue that, that business was a 8% or 9% EBITDA margin business. And -- but we saw a clear path to getting it to our fleet average and the expectations that we've set forth for our business. And then for us, the culture and the values and the fifth component of it matter. Some of these larger transactions, it's harder to vet that because they're process-driven in their bid. Like I hate that word bid. Everybody should know I hate that word bid. But you used the word asset, too, and I don't like that word. But Casey thought I missed that. And -- but...

No, you're sharp this morning.

So I was in the gym at 5:00. So I mean -- but that's important to us. And culture and alignment of values matters to us. And so as we look at any large-scale acquisition, we're going to do our best to vet that.

That's great. And with that, we'll switch to the audience response questions, please. So the first question is just sort of current ownership of APi. So generally overweight. Second question is around kind of general attitude to the name at the moment.

This is the weirdest thing to sit up here and watching people like grade us.

It's short. Okay. So generally very positive. Third question is around EPS growth profile, and this is sort of versus the multi-industry average that's here. So generally, very high earnings growth. Fourth question is around capital deployment, and we were just talking about that. So bolt-on M&A, vast majority. Fifth question is on valuation, kind of the appropriate PE multiple. So around sort of 20x. And then last question is on why isn't the valuation warranted to be higher? What's kind of the main anchor on it right now? So organic growth and execution. I don't know. We'll see. Great. Well, with that, thanks very much, Russ and David, lovely to see you again.

Thank you.

Thank you. Thanks a lot.