APi Group Reports Fourth Quarter and Full Year 2023 Financial Results and Announces Agreement to Retire All Outstanding Series B Preferred Stock from Blackstone and Viking

-Record full year net revenues of $6.9 billion, representing approximately 6% and 5.5% reported and organic growth, respectively, with continued double-digit organic core inspection revenue growth-

-Record reported net income of $153 million and adjusted EBITDA of $782 million for the full year, representing year-over-year net income growth of 110% and adjusted EBITDA growth of 16.2%-

-Full year adjusted free cash flow conversion of 69%, with year-end net leverage ratio of 2.3x-

-Announces $1 Billion Share Repurchase Program-

APi Group Corporation (NYSE: APG) (“APi” or the “Company”) today reported its financial results for the three months and full year ended December 31, 2023.

Russ Becker, APi’s President and Chief Executive Officer stated: “2023 was a year of record financial results for APi. Our global team of 29,000 leaders delivered record net revenues, record adjusted EBITDA margins, and record adjusted free cash flow in an evolving macro environment.”

Becker continued, “The Series B transaction represents another step in our journey to drive value for our investors by simplifying our capital structure, reducing our adjusted diluted share count, and providing immediate accretion to adjusted earnings per share, while having no impact on our focus on opportunistic M&A. We appreciate everything Blackstone and Viking have done to bring this transaction to fruition and look forward to their continued support.

As we look to 2024, we have great confidence in the business, our backlog, and our balance sheet. We believe we are well positioned to deliver strong organic growth, drive margin expansion and improve our free cash flow generation. We have significant flexibility to pursue value-enhancing capital allocation alternatives including, but not limited to, an acceleration of our bolt-on M&A strategy and share repurchases. Longer term, we remain focused on creating sustainable shareholder value by delivering on our “13/60/80” targets, with a near-term focus on generating adjusted EBITDA margins of 13% or more in 2025.”

Fourth Quarter 2023 Highlights

• Reported net revenue growth of 3.3% (1.5% organic) driven by service growth across both segments, as well as modest benefits from favorable foreign currency exchange rates and M&A, partially offset by disciplined customer and project selection leading to a decline in our projects business.
• Reported and adjusted gross margin increased 170 and 230 basis points, respectively, compared to prior year period due to continued price increases, outsized growth in higher margin service revenue as well as significant margin expansion in our projects business across both segments.
• Reported net income was $25 million and diluted EPS was $(1.08). Adjusted net income was $120 million and adjusted diluted EPS was $0.44, representing a 22.2% increase from prior year period driven by significant adjusted gross margin expansion, and decreased interest expense.
• Adjusted EBITDA increased by 13.7% compared to the prior year period and adjusted EBITDA margin increased 110 basis points to 11.8%, primarily due to the factors impacting gross margin, partially offset by investments to support profitable growth and the investment in building our global capabilities and infrastructure.

2023 Highlights

• Reported net revenue growth of 5.6% (5.4% organic) driven by strong service growth across both segments, partially offset by disciplined customer and project selection in our HVAC and Specialty Services businesses.
• Reported and adjusted gross margin increased 190 and 180 basis points, respectively, compared to prior year period due to continued price increases, outsized growth in higher margin service revenue as well as margin expansion in both our projects and services businesses across both segments.
• Reported net income was $153 million and diluted EPS was $(0.68). Adjusted net income was $430 million and adjusted diluted EPS was $1.58, representing a 18.8% increase from prior year period driven by significant adjusted gross margin expansion in both Safety and Specialty Services, resulting from the factors mentioned above, partially offset by increased interest expense.
• Adjusted EBITDA increased by 16.2% compared to the prior year period and adjusted EBITDA margin increased 100 basis points to 11.3%, primarily due to the factors impacting gross margin, partially offset by investments to support profitable growth and the investment in building our global capabilities and infrastructure.

Fourth Quarter 2023 Safety Services Highlights

• Reported net revenue growth of 3.1% (1.0% organic) driven by growth in inspection, service and monitoring and the projects business, as well as modest benefits from favorable foreign currency exchange rates and M&A. This was partially offset by planned customer attrition in our international business, and planned disciplined customer and project selection in our HVAC business.
• Reported and adjusted gross margin increased 190 and 270 basis points, respectively, compared to prior year period due to continued price increases, improved business mix of inspection, services and monitoring revenue as well as significant margin expansion in our projects business.
• Operating income increased by 48.6% compared to the prior year period. Operating margin was 8.4%, representing a 260 basis point increase compared to the prior year period.
• Adjusted EBITDA increased by 19.6% compared to the prior year period. Adjusted EBITDA margin was 15.3%, representing a 210 basis point increase compared to prior year period, primarily due to the factors impacting adjusted gross margin, partially offset by investments made to support profitable growth.

2023 Safety Services Highlights

• Reported net revenue growth of 6.5% (6.0% organic) driven by strong growth in inspection, service and monitoring and the projects business, as well as modest benefits from favorable foreign currency exchange rates and M&A. This was partially offset by planned customer attrition in our international business, and planned disciplined customer and project selection in our HVAC business.
• Reported and adjusted gross margin increased 180 basis points, compared to prior year period due to continued price increases, improved business mix of inspection, services and monitoring revenue as well as significant margin expansion in our projects business.
• Operating income increased by 54.7% compared to the prior year period. Operating margin was 8.1%, representing a 250 basis point increase compared to the prior year period.
• Adjusted EBITDA increased by 18.8% compared to the prior year period. Adjusted EBITDA margin was 13.6%, representing a 140 basis point increase compared to prior year period, primarily due to the factors impacting adjusted gross margin, partially offset by investments made to support profitable growth.

Fourth Quarter 2023 Specialty Services Highlights

• Reported net revenue growth of 2.9% (1.8% organic) driven by strong growth in service revenues, partially offset by disciplined customer and project selection.
• Reported and adjusted gross margin increased 140 basis points, compared to prior year period due to strong organic growth in services revenues as well as significant margin expansion in our projects business.
• Operating income decreased by 11.1% compared to the prior year period. Operating margin was 4.6%, representing a 70 basis point decrease compared to the prior year period.
• Adjusted EBITDA increased by 11.3% compared to the prior year period. Adjusted EBITDA margin was 11.2%, representing a 80 basis point increase compared to prior year period, primarily due to the factors impacting gross margins, partially offset by timing of year end incentive true-ups.

2023 Specialty Services Highlights

• Reported net revenue growth of 2.4% (2.5% organic) driven by strong growth in service revenues, partially offset by disciplined customer and project selection resulting in lower project revenues.
• Reported and adjusted gross margin increased 180 and 160 basis points, respectively, compared to prior year period due to strong organic growth in services revenues as well as significant margin expansion in our projects business.
• Operating income increased by 11.3% compared to the prior year period. Operating margin was 5.2%, representing a 40 basis point increase compared to the prior year period.
• Adjusted EBITDA increased by 13.8% compared to the prior year period. Adjusted EBITDA margin was 11.5%, representing a 120 basis point increase compared to prior year period, primarily due to the factors impacting gross margins, partially offset by increases in profit based incentives.

Guidance

APi Group announces initial full year 2024 guidance for net revenue, adjusted EBITDA, and free cash flow conversion.

• Net Revenues of $7,050 to $7,250 million
• Adjusted EBITDA of $855 to $905 million
• Adjusted Free Cash Flow Conversion of approximately 70%

APi Group announces guidance for the first quarter of 2024.

• Net Revenues of $1,560 to $1,610 million
• Adjusted EBITDA of $165 to $180 million

Series B Preferred Stock Retirement Transaction

APi has reached an agreement with shareholders affiliated with Blackstone Tactical Opportunities Fund (“Blackstone”) and Viking Global Equities (“Viking”) to retire all of the outstanding shares of their Series B Perpetual Convertible Preferred Stock (the “Series B Preferred Stock”). Under the terms of the agreement, Blackstone and Viking will each exercise their respective right to convert all of their Series B Preferred Stock into common stock of APi, resulting in a total of 800,000 shares of Series B Preferred Stock being converted into approximately 32.5 million shares of common stock of APi (the “Conversion Shares”).

Upon issuance of the Conversion Shares, APi will repurchase 16.3 million, or one-half, of the Conversion Shares (on a pro rata basis) from Blackstone and Viking for an aggregate purchase price of $600 million. The transaction is expected to be financed by (i) an incremental term facility of $300 million issued at par; (ii) cash on hand and available credit.

As a part of the agreement, Blackstone and Viking intend to effect a coordinated secondary public offering with the goal of selling approximately 8.1 million shares of APi’s common stock. Following the sale, it is expected that any remaining common shares owned by Blackstone and Viking would be subject to a 90-day lockup.

The transaction is expected to provide substantial benefits to APi and its common stockholders:

• Simplifies APi Group’s capital structure
• Preserves our strong, opportunistic balance sheet
• Reduces adjusted diluted share count by 16.3 million shares
• Provides immediate accretion to adjusted earnings per share
• Eliminates preferred dividend payments of $44 million annually
• Not expected to impact reacceleration of bolt-on M&A strategy
• Opportunity to attract new long-term investors to diversify the Company’s investor base

New Share Repurchase Authorization

The Company announced that its Board of Directors has authorized a stock repurchase program to purchase up to an aggregate of $1 billion of shares of the Company’s common stock, of which $600 million will be utilized in the Series B Preferred Stock repurchase. The timing, amount and manner of any repurchases under the new repurchase program will be determined at the discretion of the Company's management based on a number of factors, including the availability of capital, capital allocation alternatives, and market conditions for the Company's Class A common stock. The share repurchase program does not require the Company to acquire any specific number of shares. It may be modified, suspended, extended, or terminated by the Company at any time without prior notice and may be executed through open market purchases, privately negotiated transactions or otherwise, and we may enter into Rule 10b5-1 trading plans in connection with such repurchases.

Conclusion

APi Co-Chair James E. Lillie concluded: “2023 was another tremendous year in APi’s development with record net revenues, record adjusted EBITDA, record reported and adjusted earnings per share and record adjusted free cash flow. Our strategy of evolving away from lower margin, higher risk opportunities while focusing investments on service revenue expansion continues to yield the desired results – margin expansion and stronger free cash flow generation. With the progress made throughout the year reducing our net leverage ratio to 2.3x, we are excited to build on our track record of disciplined, predictable, and thoughtful decisions regarding capital allocation, with a primary focus on continuing bolt-on M&A at accretive multiples to supplement organic growth. We are committed to being thoughtful allocators of capital to drive shareholder value creation and to ensuring that the company is in the best possible position to leverage opportunities before it.”

Conference Call

APi will hold a webcast/dial-in conference call to discuss its financial results at 8:30 a.m. (Eastern Time) on Wednesday, February 28, 2024. Participants on the call will include Russell A. Becker, President and Chief Executive Officer; Kevin S. Krumm, Executive Vice President and Chief Financial Officer; and Sir Martin E. Franklin and James E. Lillie, Co-Chairs.

To listen to the call by telephone, please dial 888-330-3428 or 646-960-0679 and provide Conference ID 2352966. You may also attend and view the presentation (live or by replay) via webcast by accessing the following URL:

https://events.q4inc.com/attendee/201211385

A replay of the call will be available shortly after completion of the live call/webcast via the webcast link above.

About APi:

APi is a global, market-leading business services provider of life safety, security and specialty services with a substantial recurring revenue base and over 500 locations worldwide. APi provides statutorily mandated and other contracted services to a strong base of long-standing customers across industries. We have a winning leadership culture driven by entrepreneurial business leaders to deliver innovative solutions for our customers. More information can be found at www.apigroupcorp.com.

Forward-Looking Statements and Disclaimers

Please note that in this press release the Company may discuss events or results that have not yet occurred or been realized, commonly referred to as forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of APi Group Corporation (“APi” or the “Company”). Such discussion and statements may contain words such as “expect,” “anticipate,” “will,” “should,” “believe,” “intend,” “plan,” “estimate,” “predict,” “seek,” “continue,” “pro forma” “outlook,” “may,” “might,” “should,” “can have,” “have,” “likely,” “potential,” “target,” “indicative,” “illustrative,” and variations of such words and similar expressions, and relate in this press release, without limitation, to statements, beliefs, projections and expectations about future events. Such statements are based on the Company’s expectations, intentions and projections regarding the Company’s future performance, anticipated events or trends and other matters that are not historical facts.

These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including: (i) economic conditions, competition, political risks, and other risks that may affect the Company’s future performance, including the impacts of inflationary pressures and other macroeconomic factors on the Company’s business, markets, supply chain, customers and workforce, on the credit and financial markets, on the alignment of expenses and revenues and on the global economy generally; (ii) supply chain constraints and interruptions, and the resulting increases in the cost, or reductions in the supply, of the materials and commodities the Company uses in its business and for which the Company bears the risk of such increases; (iii) risks associated with the Company’s expanded international operations; (iv) failure to realize the anticipated benefits of the acquisition of the Chubb fire and security business and our ability to successfully execute the Company’s bolt-on acquisition strategy to acquire other businesses and successfully integrate them into its operations; (v) failure to fully execute the Company’s inspection first strategy or to realize the expected service revenue from such inspections; (vi) risks associated with the Company’s decentralized business model and participation in joint ventures; (vii) improperly managed projects or project delays; (viii) adverse developments in the credit markets which could impact the Company’s ability to secure financing in the future; (ix) the Company’s substantial level of indebtedness; (x) risks associated with the Company’s contract portfolio; (xi) changes in applicable laws or regulations; (xii) the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors; (xiii) the impact of the conflict between Russia and Ukraine; (xiv) the trading price of the Company’s common stock, which may be positively or negatively impacted by market and economic conditions, the availability of the Company’s common stock, the Company’s financial performance or determinations following the date of this press release to use the Company’s funds for other purposes; and (xv) other risks and uncertainties, including those discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 under the heading “Risk Factors.” Given these risks and uncertainties, you are cautioned not to place undue reliance on forward-looking statements. Additional information concerning these risks, uncertainties and other factors that could cause actual results to vary is, or will be, included in the periodic and other reports filed by the Company with the Securities and Exchange Commission. Forward-looking statements included in this press release speak only as of the date hereof and, except as required by applicable law, the Company does not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or circumstances after the date of this press release.

Non-GAAP Financial Measures

This press release contains non-U.S. GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. The Company uses certain non-U.S. GAAP financial measures that are included in this press release and the additional financial information both in explaining its results to shareholders and the investment community and in its internal evaluation and management of its businesses. The Company’s management believes that these non-U.S. GAAP financial measures and the information they provide are useful to investors since these measures (a) permit investors to view the Company’s performance using the same tools that management uses to evaluate the Company’s past performance, reportable business segments and prospects for future performance, (b) permit investors to compare the Company with its peers and (c) determine certain elements of management’s incentive compensation (d) provide consistent period-to-period comparisons of the results. Specifically:

• The Company’s management believes that adjusted gross profit, adjusted selling, general and administrative (“SG&A”) expenses, adjusted net income, and adjusted earnings per share, which are non-GAAP financial measures that exclude business transformation and other expenses for the integration of acquired businesses, and one-time and other events such as impairment charges, restructuring costs, transaction and other costs related to acquisitions, amortization of intangible assets, net COVID-19 relief, non-service pension benefit, severance related costs related to corporate leadership changes and certain tax benefits from the acquisition of APi Group, Inc. (the “APi Acquisition”) are useful because they provide investors with a meaningful perspective on the current underlying performance of the Company’s core ongoing operations.
• The Company discloses fixed currency net revenues and adjusted EBITDA (“FFX”) on a consolidated basis or segment specific basis to provide a more complete understanding of underlying revenue and adjusted EBITDA trends by providing net revenues and adjusted EBITDA on a consistent basis. Under U.S. GAAP, income statement results are translated in U.S. Dollars at the average exchange rates for the period presented. Management believes that the fixed currency non-GAAP measures are useful in providing period-to-period comparisons of the results of the Company’s operational performance, as it excludes the translation impact of exchange rate fluctuations on our international results. Fixed currency amounts included in this release are based on translation into U.S. dollars at the fixed foreign currency exchange rates established by management at the beginning of 2023.
• The Company also presents organic changes in net revenues on a consolidated basis or segment specific basis to provide a more complete understanding of underlying revenue trends by providing net revenues on a consistent basis as it excludes the impacts of material acquisitions, completed divestitures, and changes in foreign currency from year-over-year comparisons on reported net revenues, calculated as the difference between the reported net revenues for the current period and reported net revenues for the current period converted at fixed foreign currency exchange rates (excluding material acquisitions and divestitures). The remainder is divided by prior year fixed currency net revenues, excluding the impacts of completed divestitures.
• Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is the measure of profitability used by management to manage its segments and, accordingly, in its segment reporting. The Company supplements the reporting of its consolidated financial information with certain non-U.S. GAAP financial measures, including EBITDA and adjusted EBITDA, which is defined as EBITDA excluding the impact of certain non-cash and other specifically identified items (“adjusted EBITDA”). Adjusted EBITDA margin is calculated as adjusted EBITDA divided by net revenues. The Company believes these non-U.S. GAAP measures provide meaningful information and help investors understand the Company’s financial results and assess its prospects for future performance. The Company uses EBITDA and adjusted EBITDA to evaluate its performance, both internally and as compared with its peers, because it excludes certain items that may not be indicative of the Company’s core operating results. Consolidated EBITDA is calculated in a manner consistent with segment EBITDA, which is a measure of segment profitability.
• The Company presents free cash flow, adjusted free cash flow and adjusted free cash flow conversion, which are liquidity measures used by management as factors in determining the amount of cash that is available for working capital needs or other uses of cash, however, it does not represent residual cash flows available for discretionary expenditures. Free cash flow is defined as cash provided by (used in) operating activities less capital expenditures. Adjusted free cash flow is defined as cash provided by (used in) operating activities plus or minus events including, but not limited to, transaction and other costs related to acquisitions, business transformation and other expenses for the integration of acquired businesses, payments on acquired liabilities, payments made for restructuring programs, and one-time and other events such as post-measurement period purchase accounting adjustments for acquisitions, COVID-19 related payroll tax deferral and relief items. Adjusted free cash flow conversion is defined as adjusted free cash flow as a percentage of adjusted EBITDA.
• The Company calculates its leverage ratio in accordance with its debt agreements which include different adjustments to EBITDA from those included in the adjusted EBITDA numbers reported externally.

While the Company believes these non-U.S. GAAP measures are useful in evaluating the Company’s performance, this information should be considered as supplemental in nature and not as a substitute for or superior to the related financial information prepared in accordance with U.S. GAAP. Additionally, these non-U.S. GAAP financial measures may differ from similar measures presented by other companies. A reconciliation of these non-U.S. GAAP financial measures is included later in this press release.

Beginning with the first quarter of 2023, the Company simplified the presentation of the non-GAAP reconciliations, by combining certain adjustment line items. Certain prior year amounts have been reclassified to conform to this presentation and the information in the tables below has been retroactively adjusted to reflect these changes in adjustment categories. Specifically, amounts previously classified as “integration and reorganization” have been reclassified and included with “business process transformation,” and prior period amounts classified as “acquisition expenses” and “recent acquisition transition expenses” have been combined and categorized as “acquisition related expenses.”

The Company does not provide reconciliations of forward-looking non-U.S. GAAP adjusted EBITDA and growth in organic net revenues to GAAP due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including adjustments that could be made for acquisitions and divestitures, business transformation and other expenses for the integration of acquired businesses, one-time and other events such as impairment charges, transaction and other costs related to acquisitions, restructuring costs, amortization of intangible assets, net COVID-19 relief, and certain tax benefits from the APi Acquisition, and other charges reflected in the Company’s reconciliation of historic numbers, the amount of which, based on historical experience, could be significant.