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APi Group Reports Third Quarter and Nine Month 2021 Financial Results

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  • APG

Net revenues increased on an organic basis by 13% in the third quarter, excluding Industrial Services

Reported and adjusted gross margin expansion of 90 and 34 basis points, respectively, for the third quarter

Acquisition of Chubb fire and security business on track to close around year-end 2021

NEW BRIGHTON, Minn., November 10, 2021--(BUSINESS WIRE)--APi Group Corporation (NYSE: APG) ("APG", "APi" or the "Company") today reported its financial results for the three and nine months ended September 30, 2021.

Third Quarter 2021 Highlights:

  • Reported net revenues increased by 9.3% or $89 million to $1.0 billion compared to $958 million in the prior year period, driven by strong growth in Safety and Specialty Services and revenue from acquisitions completed in the prior twelve months in Safety Services, partially offset by the anticipated decline in Industrial Services

  • Adjusted net revenues increased by 9.9% or $94 million to $1.0 billion, compared to $953 million in the prior year period, driven by strong growth in Safety and Specialty Services, partially offset by the anticipated decline in Industrial Services

  • Net revenues increased on an organic basis by 13.4% compared to the prior year period, excluding Industrial Services

  • Reported gross margin was 24.1%, representing a 90 basis point increase compared to prior year period gross margin of 23.2%, driven by a decrease in amortization expense, outsized growth in the higher margin Safety Services segment and an improved mix of inspection and service revenue, partially offset by expected supply chain disruptions and modest inflation causing downward pressure on margins

  • Adjusted gross margin was 24.3%, representing a 34 basis point increase compared to prior year period adjusted gross margin of 23.9%, driven by outsized growth in the higher margin Safety Services segment and an improved mix of inspection and service revenue, partially offset by expected supply chain disruptions and modest inflation causing downward pressure on margins

  • Reported net income was $19 million, representing a decline of $8 million from prior year period net income of $27 million. Reported net income was $0.08 per diluted share

  • Adjusted net income was $72 million and adjusted diluted EPS was $0.35, representing a $0.01 decline from prior year period primarily due to the increased number of shares to 210 million from 178 million in the prior year period

  • Reported EBITDA was $96 million, a decline of $24 million from prior year period EBITDA of $120 million primarily due to an increase in acquisition related expenses, costs related to business process transformation and a favorable adjustment related to impairment expense that was recorded in the prior year period, partially offset by an improved mix of inspection and service revenue

  • Adjusted EBITDA was $125 million with an adjusted EBITDA margin of 11.9%, relatively consistent with prior year period adjusted EBITDA margin of 12.1%, driven by outsized growth in the higher margin Safety Services segment and an improved mix of inspection and service revenue, more than offset by expected supply chain disruptions and modest inflation causing downward pressure on margins and less contribution from joint ventures in Specialty Services than the prior year period

Nine Months 2021 Highlights:

  • Reported net revenues increased by 4.5% or $123 million to $2.8 billion compared to $2.7 billion in the prior year period, primarily driven by general market recoveries in Safety and Specialty Services and revenue from acquisitions completed in the prior twelve months in Safety Services, partially offset by the divestiture of two businesses in Industrial Services and the delay and suspension of certain projects in Industrial Services

  • Adjusted net revenues increased by 7.9% or $206 million to $2.8 billion, compared to $2.6 billion in the prior year period, primarily driven by general market recoveries in Safety and Specialty Services, partially offset by the delay and suspension of certain projects in Industrial Services

  • Net revenues increased on an organic basis by 12.0% compared to the prior year period, excluding Industrial Services

  • Reported gross margin was 23.5%, representing a 289 basis point increase compared to prior year period gross margin of 20.6%, driven by a decrease in amortization expense, outsized growth in the higher margin Safety Services segment, improved mix of inspection and service revenue and the divestiture of two businesses in Industrial Services, partially offset by expected supply chain disruptions and modest inflation causing downward pressure on margins

  • Adjusted gross margin was 23.7%, representing a 50 basis point increase compared to prior year period adjusted gross margin of 23.2%, driven by outsized growth in the higher margin Safety Services segment and an improved mix of inspection and service revenue, partially offset by expected supply chain disruptions and modest inflation causing downward pressure on margins

  • Reported net income was $32 million, representing a $163 million increase from prior year period net loss of $131 million, primarily due to the impairment charge of $197 million recorded in the prior year period. Reported net income was $0.14 per diluted share

  • Adjusted net income was $152 million and adjusted diluted EPS was $0.74, representing a $0.05 decline from prior year period primarily due to the increased number of shares to 205 million from 176 million in the prior year period

  • Reported EBITDA was $243 million, a $172 million increase from prior year period EBITDA of $71 million, primarily due to the impairment charge of $197 recorded in the prior year period and an improved mix of inspection and service revenue, partially offset by an increase in acquisition related expenses and costs related to business process transformation

  • Adjusted EBITDA was $292 million with an adjusted EBITDA margin of 10.3%, representing a 28 basis point decline compared to prior year period adjusted EBITDA margin of 10.6%, driven by outsized growth in the higher margin Safety Services segment and an improved mix of inspection and service revenue, more than offset by expected supply chain disruptions and modest inflation causing downward pressure on margins and less contribution from joint ventures in Specialty Services than the prior year period

Russ Becker, APi’s President and Chief Executive Officer stated: "I am pleased with our continued ability to execute this year and in the third quarter. Net revenues increased on an organic basis by 13.4% in the third quarter compared to the prior year period, excluding Industrial Services, led by strong growth in our core Safety and Specialty Services segments. While supply chain disruptions and modest inflation caused some downward pressure on margins as expected, our proactive approach to mitigating the impact through measures such as pricing, combined with our disciplined approach to project and customer selection and the strength of our recurring revenue, services-focused business model yielded results.

As we look to the future, we believe the company is well-positioned to achieve our long-term goals. Our backlog is at an all-time high and we have seen increases across all three of our segments relative to prior year levels. Backlog is up more than 20% for our Safety and Specialty Services segments. We continue to see strong demand across our key end markets such as data centers, fulfillment and distribution centers, healthcare and high-tech.

We remain focused on achieving continued success within our existing core businesses and are also spending a considerable amount of time planning for the opportunities 2022 and beyond will bring. Since announcing the acquisition of the Chubb fire and security business on July 27th, which remains on track to close around year-end, the level of excitement from our international customers and our teams about the long-term opportunities the combined platform will bring has continued to validate our belief in the combination. We intend to leverage the best practices of both organizations across all aspects of the business and look forward to creating an environment in which the combined 26,000 team members can continue to grow and flourish."

APi Co-Chair James E. Lillie added: "We believe that the Company is operating well in this environment despite situational supply chain disruptions and sporadic inflationary cost pressure on materials. Our cost focused culture continues to concentrate on minimizing the effects of these disruptions while delivering desired outcomes for our diversified customer base. We believe these disruptions may continue into next year but the short-term nature and small average size of less than $100,000 of our projects are competitive advantages which allow us to stay focused on real-time pricing and operational efficiency to ensure true costs are reflected in projects we take on.

It is very gratifying to see strong underlying demand for our services as reflected in our organic revenue growth in our core business segments and the elevated year-over-year backlog across our segments. We believe this has given us healthy momentum in the third quarter and provides us continued momentum as we move into the fourth quarter and plan for 2022 and the acquisition and integration of the Chubb fire and security business."

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, November 10, 2021. Participants on the call will include Russ Becker, President and Chief Executive Officer; Kevin Krumm, Executive Vice President and Chief Financial Officer; and James E. Lillie and Sir Martin E. Franklin, Co-Chairs.

To listen to the call by telephone, please dial 877-876-9173 or 785-424-1667 and provide Conference ID 8464719. You may also attend and view the presentation (live or by replay) via webcast by accessing the following URL:

https://event.on24.com/wcc/r/3470149/364668B15CBB5E2E951B2CEBECD607EF

A replay of the call will be available shortly after completion of the live call/webcast via telephone at 800-938-0997 or 402-220-1541 or via the webcast link above.

About APi:

APi is a market-leading business services provider of safety, specialty and industrial services in over 200 locations in North America and Europe. 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

Certain statements in this announcement are forward-looking statements which 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, including expectations regarding: (i) the Company’s long-term targets, goals and strategies; (ii) the impact of the Company’s backlog and continued demand on future results; (iii) the expected benefits of the acquisition of the Chubb fire and security business, including the global expansion of the Company’s business, the long-term opportunities for and anticipated synergies of the combined platform, and the anticipated timing for closing of the acquisition; (iv) the Company’s ability to successfully manage supply chain disruptions and inflationary cost pressures through its cost focused culture and business strategies; and (v) the impacts of the COVID-19 pandemic on the future operating and financial performance of the Company and its customers, the Company’s plans and strategies to adapt and respond to the pandemic and the expected impact of those plans and strategies. 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 and other risks that may affect the Company’s future performance, including the impacts of the COVID-19 pandemic 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) the inability of the Company to successfully or timely consummate the acquisition of the Chubb fire and security business; (iii) failure to realize the anticipated benefits of the acquisition of the Chubb fire and security business; (iv) changes in applicable laws or regulations; (v) the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors; and (vi) other risks and uncertainties. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of such statements 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 otherwise.

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. Specifically:

The Company’s management believes that adjusted net revenues, 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, the impact and results of businesses classified as assets held-for-sale and businesses divested, and one-time and other events such as impairment charges, share-based compensation, transaction and other costs related to acquisitions, amortization of intangible assets, net COVID-19 relief, 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 no longer adjusts gross profit, selling, general, and administrative expense and net income for depreciation remeasurements associated with acquisitions. The prior comparative periods have been recast to reflect the updated presentation.

Adjusted net revenues is defined as net revenues excluding the impact and results of businesses classified as assets held-for-sale and businesses divested. The Company’s management believes that this measure is useful as a supplement to enable investors to compare period-over-period results on a more consistent basis without the effects of businesses classified as assets held-for-sale and businesses divested, which more meaningfully reflects the Company’s core ongoing operations and performance. The Company uses adjusted net revenues 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.

The Company also presents organic changes in net revenues on a consolidated basis, segment specific basis, or on a consolidated basis excluding certain segments, 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 the prior year average monthly exchange rates (excluding acquisitions and divestitures). The remainder is divided by the prior year net revenues, excluding the impacts of material acquisitions and completed divestitures. This press release also includes net revenues excluding Industrial Services on an organic basis in order to provide a more complete understanding for investors of the financial results of our two most significant segments for which organic growth is a key metric.

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 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 adjusted 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, impacts of businesses classified as assets held-for-sale and businesses divested, and one-time and other events such as 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 does not provide reconciliations of forward-looking non-U.S. GAAP adjusted net revenues and adjusted EBITDA guidance 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, amortization of intangible assets, net COVID-19 relief, and certain tax benefits from the APi Acquisition, and other charges reflected in our reconciliation of historic numbers, the amount of which, based on historical experience, could be significant.

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.

APi Group Corporation

Condensed Consolidated Statements of Operations (GAAP)

(Amounts in millions, except per share data)

(Unaudited)

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2021

2020

2021

2020

Net revenues

$

1,047

$

958

$

2,828

$

2,705

Cost of revenues

795

736

2,163

2,147

Gross profit

252

222

665

558

Selling, general and administrative expenses

211

171

579

506

Impairment of goodwill and intangible assets

-

(11

)

-

197

Operating income (loss)

41

62

86

(145

)

Interest expense, net

14

13

43

41

Loss on extinguishment of debt

-

-

9

-

Investment income and other, net

(3

)

(6

)

(12

)

(20

)

Other expense, net

11

7

40

21

Income (loss) before income taxes

30

55

46

(166

)

Income tax provision (benefit)

11

28

14

(35

)

Net income (loss)

$

19

$

27

$

32

$

(131

)

Net income (loss) per common share

Basic

$

0.08

$

0.14

$

0.14

$

(0.77

)

Diluted

0.08

0.13

0.14

(0.77

)

Weighted average shares outstanding

Basic

205

169

199

170

Diluted

209

182

205

170

APi Group Corporation

Condensed Consolidated Balance Sheets (GAAP)

(Amounts in millions)

(Unaudited)

September 30, 2021

December 31, 2020

Assets

Current assets:

Cash and cash equivalents

$

1,128

$

515

Accounts receivable, net

723

639

Inventories

71

64

Contract assets

224

142

Prepaid expenses and other current assets

93

77

Total current assets

2,239

1,437

Property and equipment, net

337

355

Operating lease right of use assets

102

107

Goodwill

1,099

1,082

Intangible assets, net

897

965

Deferred tax assets

86

89

Other assets

23

30

Total assets

$

4,783

$

4,065

Liabilities and Shareholders' Equity

Current liabilities:

Short-term and current portion of long-term debt

$

1

$

18

Accounts payable

205

150

Accrued liabilities

320

356

Deferred consideration

-

67

Contract liabilities

238

219

Operating and finance leases

28

31

Total current liabilities

792

841

Long-term debt, less current portion

1,469

1,397

Deferred tax liabilities

45

45

Operating and finance leases

79

96

Other noncurrent liabilities

101

128

Total liabilities

2,486

2,507

Total shareholders' equity

2,297

1,558

Total liabilities and shareholders' equity

$

4,783

$

4,065

APi Group Corporation

Condensed Consolidated Statements of Cash Flows (GAAP)

(Amounts in millions)

(Unaudited)

For the Nine Months Ended September 30,

2021

2020

Cash flows from operating activities:

Net income (loss)

$

32

$

(131

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

154

196

Impairment of goodwill and intangible assets

-

197

Deferred taxes

(1

)

(49

)

Share-based compensation expense

8

4

Profit-sharing expense

11

6

Non-cash lease expense

24

22

Loss on extinguishment of debt

9

-

Other, net

5

3

Changes in operating assets and liabilities, net of effects of business acquisitions

(174

)

81

Net cash provided by operating activities

68

329

Cash flows from investing activities:

Acquisitions, net of cash acquired

(51

)

(6

)

Purchases of property and equipment

(43

)

(24

)

Proceeds from disposals of property, equipment and held for sale assets and businesses

13

13

Net cash used in investing activities

(81

)

(17

)

Cash flows from financing activities:

Proceeds from long-term borrowings

350

2

Payments on long-term borrowings

(320

)

(16

)

Payments of debt issuance costs

(4

)

-

Proceeds from share issuance and warrant exercises

676

3

Payments of acquisition-related consideration

(72

)

(90

)

Restricted shares tendered for taxes

(1

)

-

Net cash provided by (used in) financing activities

629

(101

)

Effect of foreign currency exchange rate on cash and cash equivalents

(1

)

-

Net increase in cash and cash equivalents

615

211

Cash, cash equivalents, and restricted cash, beginning of period

515

256

Cash, cash equivalents, and restricted cash, end of period

$

1,130

$

467

APi Group Corporation

Reconciliations of GAAP to Non-GAAP Financial Measures

Net revenues and adjusted net revenues (non-GAAP)

Organic change in net revenues (non-GAAP)

(Amounts in millions)

(Unaudited)

Adjusted net revenues

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2021

2020

2021

2020

Net revenues (as reported)

$

1,047

$

958

$

2,828

$

2,705

Adjustments to reconcile net revenues to adjusted net revenues:

Divested businesses

(a)

-

(5

)

-

(83

)

Adjusted net revenues

$

1,047

$

953

$

2,828

$

2,622

Organic change in net revenues

For the Three Months Ended September 30, 2021

Net revenues

change

Acquisitions and

Foreign currency

Organic change in

(as reported)

divestitures, net (b)

translation (c)

net revenues (d)

Safety Services

31.9 %

7.6 %

1.5 %

22.8 %

Specialty Services

9.0 %

-

-

9.0 %

Industrial Services

(34.8) %

(2.2) %

0.7 %

(33.3) %

Consolidated

9.3 %

2.7 %

0.7 %

5.9 %

Consolidated, excluding Industrial Services

18.0 %

3.8 %

0.8 %

13.4 %

For the Nine Months Ended September 30, 2021

Net revenues

change

Acquisitions and

Foreign currency

Organic change in

(as reported)

divestitures, net (b)

translation (c)

net revenues (d)

Safety Services

26.0 %

9.5 %

1.0 %

15.5 %

Specialty Services

11.7 %

-

-

11.7 %

Industrial Services

(58.1) %

(9.0) %

0.5 %

(49.6) %

Consolidated

4.5 %

1.0 %

0.5 %

3.0 %

Consolidated, excluding Industrial Services

17.7 %

5.2 %

0.5 %

12.0 %

Notes:

(a)

Adjustment to reflect the elimination of amounts related to businesses divested and classified as held-for-sale.

(b)

Adjustments to exclude net revenues from material acquisitions from their respective dates of acquisition until the first year anniversary from date of acquisition and net revenues from divestitures for all periods for businesses divested as of September 30, 2021.

(c)

Represents the effect of foreign currency 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 the prior year average monthly exchange rates (excluding acquisitions and divestitures).

(d)

Organic change in net revenues provides a consistent basis for a year-over-year comparison in net revenues as it excludes the impacts of material acquisitions, divestitures, and the impact of changes due to foreign currency translation.

APi Group Corporation

Reconciliations of GAAP to Non-GAAP Financial Measures

Gross profit and adjusted gross profit (non-GAAP)

SG&A and adjusted SG&A (non-GAAP)

(Amounts in millions)

(Unaudited)

Adjusted gross profit

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2021

2020

2021

2020

Gross profit (as reported)

$

252

$

...

$

665

$

558

Adjustments to reconcile gross profit to adjusted gross profit:

Divested businesses

(a)

-

-

-

(1

)

Backlog amortization

(b)

2

...