APi Group Corporation (APG) Earnings Call Transcript & Summary

All right. Well, good morning, everybody. Welcome to Jefferies 2026 Industrials Conference. We are actually, for those who may not know me, my name is Stephanie Moore. I'm Jefferies Transportation and Business Services analyst. We're very pleased today to have the team from API Group. We have CEO, Russ Becker; and then Adam Walters, who leads their Investor Relations effort. So -- the format is just fireside chat, but again, we really appreciate you both being here today.

Thanks for having us.

Okay. So to kick things off, I want to touch on the specialty segment, which is maybe where we probably wouldn't have started last year if we were covering this company long enough, but there's been a lot of excitement, quite frankly, on the specialty side of the business, and it's delivered some really strong organic growth year-to-date. So could you remind us maybe just high level, what's driving the demand in the segment? How much of this is efforts that are more so your own efforts and concerted effort to go after this business? And then how much of this is just maybe some end market dynamics that have been particularly healthy or beneficial for you guys?

Yes. So that's -- that business, if you go back to 2024 for those of you that follow the company for multiple years. That business went through some kind of disciplined customer and project selection and make sure the work they're going after was in good end markets with good customers at good margins. And they've really come out of that disciplined custom project selection with a lot of strength, and we kind of saw it back even in 2025 as we kind of got halfway through the year last year. They really started to see some strength. And I would say it's not specific pockets. It's really broad-based across that the businesses within specialty, but also across various end markets. Data center has obviously been a point of strength in that the specialty business is seeing a lot of good opportunities on the data center build-out. -- as well as kind of the service from data centers as well. Critical national infrastructure has been a point of strength as well for specialty, whether it's water treatment plant work or even just fiber optic cable, and we're starting to see some of the bad funding flow through to our customers, which has been good work on the fiber side. Advanced manufacturing be good semiconductor work continues to be good. So is that business going to grow at 20% every single quarter? No, obviously, but they're seeing a lot of strength across the business and across a lot of different and diverse end markets. And so we're really pleased with how that business has been growing in the last year plus.

SP1 And then maybe, Russ, I'd love your perspective. Given the strength that you're seeing, particularly in specialty ever seen from an end market standpoint, maybe the robust growth that we have seen before? Or is this just kind of a function of you do see these kind of cyclical patterns where you see some of this growth kind of come through, whether it is because of infrastructure CapEx spends, legislation? Or is this truly an unprecedented time?

Well, I noticed that she asked me that question because I'm probably almost 2x as old as him, and I've been through it 3 times as long as him. I would say that what you're seeing specific to the data center market is unprecedented. I haven't seen anything like it in my career in the industry. I mean, if you look at the industry, if you take data centers out and you look at the industry in general, as kind of on a macro basis, the industry was flat to declining. And data centers basically has buoyed the the entire sector. So -- and I think the biggest difference is maybe not necessarily the quantity, but the size. And the size of the data center projects are they're big. And that's probably just the best way to put it. But there's other end markets that are really robust. Adam touched on it, but certain aspects of advanced manufacturing -- like if you look at like Eli Lilly, as an example, what their -- the investment they're making, primarily in GLP-1s, whether that's in their home state of Indiana or what they're doing in Milwaukee, we happen to be involved with the Milwaukee opportunity. You've seen that be really robust. Semiconductor continues to be robust. I don't know if that's I don't know that I would credit that necessarily to reshoring and some of the policies or not. I'll leave that up to each individual of the site. But you are seeing critical infrastructure and a number of opportunities there continue to provide a lot of opportunity. So -- but I would say that the data center component of it is the part that I'm going to put in the unprecedented bucket.

And then just for those that might fear the data center build out as a bubble or it's the longevity of it? Or were we start to be concerned that maybe we're going to get kind of a little too much exuberance -- and how would you kind of just walk through the life cycle and which API can participate in just this data center build-out?

Well, at the end of our last call, I tried to make sure I took the opportunity remind everybody that this is API as a services company first that is going to take advantage of the robust project environment. And that has not changed since our last call. It will not change in advance of our next call and then won't change a year from now. Our focus is going to be on continuing to build out the inspection and service component of our business, but we want to take advantage of the data center market I would tell you that the way we're looking at the data center project opportunity is that we're putting our people to work on projects that are committed. And we're being prudent about how we're allocating our people. I mean, our people are precious gems -- and we need to make sure that we're protecting them and we're putting them to work on our good customer, with our good customers on good customer sites in places where people are going to value their expertise in -- and so we are being very, I think, being very prudent in how we're looking at customer selection and project construction and where we're going to continue to put our people to work. So -- and like we talked about our backlog being at a record level of over $5 billion. If we don't have a signed contract, it's not in our backlog. So when we talk about that, we're actually managing that quite well. And I think we've got the company really -- in a really good position. Also, we are spending the time to do our own work and not just speculate on what does the data center opportunity and use continue to look like. If you look at the projected demand curve that's going to come with AI as companies start to ramp up and utilize AI more, like the data center build-out is not going to keep up to the demand. And so unless you're going to stop using this, then the opportunity is going to continue to come. And it's just got to make sure you're putting your people to work in the right places. Power is the next the next opportunity that's going to come right behind it because there's not enough power to support the build-out and the capacity requirements that are coming from data centers. So have I answered your question.

You did. Maybe switching here to safety because I think we've maybe exhausted data centers because I do think you're right, the services side of the business and particularly what we're seeing in safety, I think, is still a really important aspect here. And I think a question that I've certainly been receiving in the last couple of months has been maybe on the differentiation in growth between North America, international. So maybe talk a little bit about organic growth performance, North America and international and maybe what actions are being done behind the scenes in international?

Well, I mean, I'm going to start answering your question by saying business isn't linear. And I think sometimes people think that business just automatically goes in a straight line like this, and that's just not the reality of where it's at. Our North American business continues to see really strong organic growth in our inspection and service business, which is, again, the bellwether we want you to measure us by. We're obviously seeing good organic growth on the project side of the business as well. But we are going to continue to focus on double-digit growth in inspections and continuing to build out our inspection sales force to support that work. And we continue to make really good progress there. So we continue to have really feel really good about -- in the international business, we went through a concerted effort to improve our discipline as it relates to project selection and customer selection. And so over the course of the end of 2025, you saw kind of flattish growth like in backlog, not growth, but flattish kind of it stayed static. And we're starting to see, as we got more focused on making sure we're selecting the right projects. We also had some project work slide out to the right on us, which is not necessarily the best combination when you're trying to be more disciplined from a project selection selection perspective. We've seen increases in our backlog here over the last couple of months. We've seen an increase in orders, which is early on the service side. So we have a new business leader over there that came from the U.S. He will double down on the service first mindset and I said service first mindset purposely because the inspection environment and the statutory nature of both the European market and the agent Asia Pacific market are different than what they are in North America, but he will bring double down that effort from a service perspective in selling service work first. So we're really optimistic about the long-term growth algorithm for the international business. And we have expectations that there will be no different than what we're seeing in North America. Do you add anything to that?

Yes, I would just add that like we tried to hit on it on the last call, but the North American business is just seeing so much strength. I mean they've been growing above algorithm for a year plus. And Russ mentioned it about the inspection service and monitoring. That business is just super steady, continues to grow in that mid- to upper single digits, like we would expect each and every quarter. And the project environment is just super robust, and we're taking advantage of that right now. But it's going to convert to a lot of good long-term recurring revenue on the inspection and service side.

Appreciate that. I do want to follow up on the inspection and services side of North America because as you noted, you have been outperforming what I think would be the overall market growth rate, whatever that might be. But it's quite robust, what you've seen on the ISM side. So -- what is the primary factors that have enabled you to gain share? If you could kind of list or bucket what are the major contributors to this?

Yes. I mean if you would just think of just the industry in general and how they go-to-market and what their strategy is. Most of the industry is going to be project focused, right? And so they have 20 technicians, and there's not inspection and service and project technicians, there's just 20 technicians. And so when they're focused on project work, if you have a $500,000 project opportunity, they're certainly going to be focusing there and saying their technicians to that work versus the $1,000 inspection. . Our business is the exact opposite where we have dedicated inspection sales leaders. We have dedicated inspectors that are not going to be pulled off of their inspections to go to project work. and same thing on the service side. You have dedicated service technicians. And so the way we are going to market is our inspection sales leaders. They're out there actively knocking on the already built environment. trying to take share from our competitors who, again, are focused on project work. And what you typically see is these businesses that are focused on project work, there may be -- maybe they keep delaying the inspection a week or they don't show up on time at 6:00 a.m. when you need to be running water into the parking lot to make sure you got enough pressure. You got to coin off an area of the parking lot. And so it causes disruption and it's like really an inconvenience to the facility manager, if you're not doing the simple stuff right, like showing up on time, showing up the day you're supposed to. And so our focus on it, where we have people selling it, and we have technicians that are dedicated to it. really helps us take share because that quality of service is going to be much higher when you have a heightened focus on it. And so like when I just think about our growth ahead of market, I mean, obviously, you have price which is going to be 3%, 4%, 5% each year, which is going to be baked into your inspection contracts. You're going to have some growth just from market growth in new facilities being built. And then the rest of the growth is going to be from our inspection sales leaders taking share. And so that focus on it and our go-to-market strategy being inspection first and inspection focused is what allows us to continue to grow ahead of just general market growth in the industry.

And the only thing I would add to that, Stephanie, is the infrastructure required like the back office infrastructure that's required to support a really robust inspection and service business. is significantly different than what's required to support our project business. And so just reminding everybody that the industry remains highly fragmented. While there are some -- we have some public company peers, specifically EMCOR that's in this space. But EMCOR's business is project based. They're not as interested in doing the inspections work. Most of our competitors are still small family-run businesses and to make the investment in people and personnel that it takes to manage a robust inspection and service department, like the average inspection ticket is $1,000. Like, yes, when we do the inspection for Meta, it might be $200,000. But your average ticket is $1,000. And so you need somebody to sell that, then when you sell it, you need somebody to dispatch the inspector. And then once you do the work, -- you obviously have a deficiency report that you have to process and then you have an invoice that you have to generate. You have to collect that collecting $1,000 receivable is like a pain in the a**. And so like you have to have the infrastructure that's built to support that. And a small family run business that's doing $15 million or $20 million in revenue, they're typically not interested in willing to make the investment that they need to make to really have a robust Inspection and Service business.

I have a list of follow-ups to both your answers. But I think the first follow-up that I would maybe start with would be I think it's an area that you talk about quite a bit, and that -- this is a people business, and you mentioned it earlier and culture does matter. So maybe you could talk a little bit about how you kind of make sure that culture and then obviously translates into service every day consistently outperforms your peers.

Well, culture trumps everything. And our culture is centered on our purpose of building great leaders and we have 32,000, 33,000 teammates across the globe now. We endeavor to invest in each and every 1 of them as a leader and as a human being. And I think that our culture differentiates us from our peers. And it's something that -- like we actually walk the walk as it relates to investing in our -- and when you're in an environment where people talk about the tightness of the labor market and everything else, the #1 most important thing you can do is keep the people that you have -- and if you're not investing in those people, you're not going to keep them not in today's world, and especially the men and the women that are working in the field. Like there's nobody in our industry that's making the same investment in their field leaders like EPI is. And I think that, that is something that takes a tremendous amount of pride in. And like not uncommon at a conference like this for somebody like yourself to say, what keeps you awake at night? And most people would say, labor and can't find skilled labor and all this other stuff. I would tell you, culture. -- for us as we continue to grow API towards our goal of $10 billion in revenue by 2028, which is clearly in sight, investing in our culture and strengthening our culture our #1 mandate. And we do a lot of bolt-on M&A. And the most important -- you can talk about the financial profile of the business, you can talk about all of the other stuff. But at the end of the day, culture values and fit and finding people that align with your values is the most important aspect of what we do from an M&A perspective. And obviously, as the company has gotten bigger, it's much more difficult for me to touch every one of our acquisitions. But like trust me, I try to spend time with every potential acquisition that we're going to make. And I hope I don't find anybody by my next comment, but like at API, I have a no a** h*** rule. And I have no interest at this stage of my career, much less 10 years ago, but I have no interest in working with a** h***. And that's like you want to screw up your culture, hire an a** h** or acquire an a** h*** and -- excuse me. But sorry about that. And our Chief People Officer, is joining us with us today, and we were having a meeting with somebody and I said I have a no as rule and she said, there's a book call the no as rule and I said, "No, I actually don't. So she bought it for me. And so I thought I wrote it.

No. But I think it is an important point, and it's actually -- I did want to touch on this as well because Adam, you talked about maybe some of the efforts that have been driving your your outperformance from an organic growth standpoint and one of which is some of the efforts from your sales leaders are taking share. So at your Analyst Day, you did talk about maybe increasing the number of sales people that you have. So maybe just remind us where you are in the terms of kind of taking some of those concerted efforts to ramp up those dedicated inspections, ISM salespeople?