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Edited Transcript of APG.N earnings conference call or presentation 8-Apr-20 7:30am GMT

Full Year 2019 APi Group Corp Earnings Call

May 18, 2020 (Thomson StreetEvents) -- Edited Transcript of APi Group Corp earnings conference call or presentation Wednesday, April 8, 2020 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* James E. Lillie

APi Group Corporation - Independent Co-Chairman

* Martin Ellis Franklin

APi Group Corporation - Co-Chairman

* Olivia Walton

APi Group Corporation - VP of IR

* Russell E. Becker

APi Group Corporation - CEO, President & Director

* Thomas A. Lydon

APi Group Corporation - CFO

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Conference Call Participants

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* Adam D. Wyden

ADW Capital Management LLC - Founder and Managing Partner

* Jonathan E. Tanwanteng

CJS Securities, Inc. - MD

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the APi Group Fiscal Year 2019 Earnings Conference Call. (Operator Instructions). I will now turn the call over to Olivia Walton from APi Group to kick things off.

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Olivia Walton, APi Group Corporation - VP of IR [2]

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Thanks, Maria. Good morning, everyone. My name is Olivia Walton, and I am the Vice President of Investor Relations at APi Group.

As we start our call, I want to remind you that certain statements in the company's earnings press release announcement and on this call 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. 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.

In our press release, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, April 8, and we have no obligation to update any forward-looking statement we may make.

As a reminder, we have posted a presentation of our 2019 financial performance on our website. Our comments today will also include non-GAAP financial measures and other key operating metrics. The reconciliation of and other information regarding these items can be found in our press release and on our presentation.

With that, I am pleased to turn the call over to Sir Martin Franklin, Co-Chairman of APi Group.

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Martin Ellis Franklin, APi Group Corporation - Co-Chairman [3]

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Good morning, everyone, and thank you for joining our conference call for APi Group. Jim Lillie, my Co-Chairman, and I are here with APi Group President and CEO, Russ Becker; and Tom Lydon, APi's CFO.

Before we get started, we want to join the chorus of voices to thank health care workers, all first responders, hospital staffs and all the individuals working in essential jobs that are helping our employees and all of us move through this unprecedented time. Your efforts are beyond appreciated, and on behalf of APi, we thank you.

Since joining forces with the APi leadership team, we have made progress as planned on all of the short-term milestones and objectives for the company. Facing the worldwide shock wave of the novel coronavirus has brought out the best at APi's culture and our leadership organization. As a result of proactive thinking and leadership by the senior team, APi is as well positioned in this environment as one could hope for.

With that, I will hand the call over to Russ for details on our performance and the steps he and the leadership team have taken to protect the business as well as our various stakeholders. Russ?

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Russell E. Becker, APi Group Corporation - CEO, President & Director [4]

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Thank you, Martin, and thank you all for joining us.

I will start by reviewing some of the financial highlights from our year-end results, followed by an overview of the measures we are taking to help protect our business and all of our employees, shareholders and communities in which we operate in today's COVID-19 environment.

Earlier this morning, we reported the financial results of APi Group Corporation for the 3 months and year ended December 31, 2019. We are pleased with our performance, which was in line with expectations we made available to investors. We achieved combined net revenues of $4.1 billion, an increase of $364 million or 9.8% over the prior year.

Before I review additional key financial highlights, I would like to note there are 2 subsidiaries in our Industrial Services segment we have classified as held for sale as of December 31, 2019. These businesses represented approximately $300 million and $230 million of combined net revenues in 2019 and 2018, respectively. We've excluded these businesses in our as-adjusted results. In addition, all of our full year 2019 financial results combine the results of APi Group for the period prior to October 1, 2019, closing of the acquisition, and the results of the company following the acquisition.

Key financial highlights from our year-end performance, excluding the impact of assets held for sale, include the following: 2019 combined adjusted net revenues of $3.8 billion, an increase of $303 million or 8.7% over prior year, inclusive of organic net revenue growth of [$267] million or 7.6% over prior year; adjusted EBITDA of $393 million or 10.3%, an increase of 51 basis points over prior year; and adjusted diluted earnings per share of $1.22, a 16.2% increase over prior year.

I am pleased with our year-over-year performance. The back half of 2019 was a difficult comp year versus 2018. As you will recall, we had a relatively slow first half of 2018 and a strong growth in the back half of the year. Additionally, as you all know, we completed the transaction with J2, which was a positive change for the company but one that took a lot of management time and energy away from the business in 2019.

For the year ended December 31, 2019, in our largest and most profitable segment, Safety Services, net revenues on a combined basis grew organically by $72 million or 4.2% from $1.7 billion to $1.8 billion; and adjusted EBITDA margin was 13.1%, an improvement of 126 basis points over prior year. The increase in net revenues was primarily driven by increased customer demand and improved pricing. The year-over-year adjusted EBITDA margin improvement is largely a result of better project management, appropriate price increases, disciplined customer selection that helps avoid lower profit margin projects and our continued focus on growing recurring inspection and service revenue. We believe the continued focus on inspection and service helps us build a more protective moat around the business due to the statutory nature of the work. These inspections are required by law in already-built facilities and are required regardless of whether the facility is filled to capacity or empty. Approximately 45% of our revenue in Safety Services is related to inspection and service, and those activities are at a higher margin. Our #1 priority in this segment is to grow the recurring inspection and service aspects of the business.

In our Specialty Services segment, 2019 net revenues grew $134 million or 9.9% from $1.4 billion to $1.5 billion. Net revenues grew organically by $98 million or 7.1%; and adjusted EBITDA margin was 11.7%, an improvement of 91 basis points over prior year. The operating companies in our Specialty Services segment maintained strong direct customer relationships, primarily with private and public utilities, often through master service agreements. Our work with these private and public utility customers with large committed capital programs contributes to the economic resiliency of our business. Discussions with our utility customers continue to remain positive, and we are anticipating increasing opportunities with national telecom providers relating to the race to 5G. We expect the rollout of 5G to accelerate, as we know that millions of people are currently on some form of lockdown, which is presumably leading to a greater need for faster connection speeds and network capacity. Our continuing goal in this segment is to partner with well-capitalized customers who have projects that continue to progress despite volatility in the macroeconomic wins.

In Industrial Services, our smallest segment, excluding assets classified as held for sale, net revenues grew organically by $53 million or 10.7% from $494 million to $547 million. And adjusted EBITDA margin was 6.6%, a decline of 111 basis points over prior year. The increase in net revenues is primarily attributable to increased project volume as a result of expansion in our customers' capital spending programs. As we have discussed over the last several months with the investment community, our goal with this segment is to focus our top line on higher-margin opportunities. This will slow the historical growth of this segment going forward but will still have a positive impact on overall margins.

As previously disclosed, the divestiture of 2 held-for-sale businesses and other related contracts will be accretive to overall margins and reduce annual revenues by approximately $300 million as we enter 2020.

I will now provide an update related to COVID-19. As you may have read in our press release last week, APi has seen a relatively minor impact to its business from COVID-19 during the first 3 months of 2020. The safety, health and well-being of all of our employees remains paramount, and we are taking measures that we expect to help protect our businesses and all of our constituencies. We believe that due to the statutory nature of much of our work and the long-term investments being made across the public and private utilities sector, that while we may experience delays in certain projects, we do not expect significant cancellation of many of our planned projects. We have implemented a preemptive cost reduction plan in advance of any impact that may occur in the coming months, including but not limited to, in this plan, are the following.

Reducing labor costs. At the group level, every member of the senior leadership team has reduced their pay by at least 20%. Others reduced their compensation between 30% to 50%. And still others, including myself and Tom, are essentially at 100% reduction. Every member of the APi group team has sacrificed. Our total payroll reduction is just north of 25%. This has happened through job sharing, furloughs and, unfortunately, layoffs. We have also challenged each of our operating companies to reduce their expenses by 20% to 25%. Each and every one of our company leaders, their key lieutenants and branch leaders has voluntarily reduced their pay.

As you may know, the variable cost nature of our business allows us to expand and contract our workforce as market conditions dictate without incurring trailing costs or severance. The variable cost structure is another aspect of a protective moat around our business.

Also included in this plan is the elimination of nonessential discretionary spending, freezing the company's nonessential capital spending, suspending employer matched 401(k) contributions and reviewing our leases to see where we have opportunities to renegotiate lease terms and where we have opportunities to potentially consolidate businesses into common facilities. We expect these actions will save both expense and cash of approximately $50 million in 2020, if market conditions require us to maintain them throughout the rest of the year. As always, we will continue to be proactive in our approach to managing costs. Before addressing COVID-19, I want to pause to thank each of our employees for their sacrifices. They have put APi first.

I have included, along with other information on our website, a heat map that shows where our operations are based and where the COVID-19 virus is most impactful at this time according to the CDC. In Seattle, where we have meaningful operations and where COVID-19 first appeared significantly in the U.S., our teams rallied around the challenge and continuing to serve customers despite the headwinds they were facing. In New York, we are based in Buffalo and have very little business in New York City metro area. Our crews in North Jersey are considered essential and continuing to serve our clients' needs. My hope is that by providing you with this map that you see, as we do, the benefit of having a geographically diverse business model.

Looking forward, we are actively quoting new opportunities and have seen an unusual volume increase in proposal activity in most of our businesses. We believe that there are opportunities in this environment and believe that our blue-chip customers may be seeking to extend their relationship with partners like us, as we are well capitalized and have a strong balance sheet.

As we described last week, we are seeking to accelerate certain inspection and service projects for customers such as schools, universities, hotels, casinos and other clients that may be temporarily operating at less than capacity or close. As states and municipalities enact shelter in place and stay-at-home policies, to date, the services we provide have been deemed to be essential in most instances. Our leadership is focused on working with government officials to continue to be considered an essential service as localities respond to COVID-19.

While our business is generally acyclical in nature, it is not immune to the macroeconomic pressures from the impact of COVID-19. Our heads are not down. In fact, we are looking to leverage this unique period of time to reach out to new and prospective customers to offer our assistance and to develop new or expanded relationships where possible. Clearly, we do expect some negative impact like all businesses, yet we believe that we are well positioned and well capitalized to continue with our business plans for 2020 and beyond. As we have discussed with investors over the last few months, we are focused on driving margin improvement throughout our business.

As we look at our long-term road map for sustainable shareholder value creation, we will strive to create value by focusing on the following: organic growth in core business through expanded services and pricing; margin expansion with the goal of an adjusted EBITDA margin of 12% plus by fiscal year 2023. This is driven by the following: continued expansion of the company's service revenue base as we believe it is the best defense for the country -- or for the company in the event of any macroeconomic downturn; investments in our back-office infrastructure and leveraging our scale; improved project and customer selection, which we track using a metric called contract loss rate; critical focus on cash flow conversion to enable us to reduce our leverage profile with a target long-term leverage ratio of 2 to 2.5x; pursuing strategic M&A. APi has had success in achieving organic growth complemented by small add-on acquisitions, which we intend to continue to pursue. We will also work with Martin and Jim to opportunistically pursue larger acquisitions in our core segments and evaluate strategic adjacencies that we may enter through M&A. While M&A is paused for the moment, we do view this as an important tool to increase and accelerate shareholder value over time.

I would now like to hand the call over to Tom Lydon to discuss our financial results in more detail. Tom?

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Thomas A. Lydon, APi Group Corporation - CFO [5]

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Thanks, Russ, and good morning to all on the call.

Before I go through our financial results, I'd like to provide an update on our progress towards listing on the New York Stock Exchange. On April 2, we publicly filed our amended registration statement on Form S-4, including our completed 2019 audited financial statements. We are hopeful that the registration statement will be declared effective by the SEC before the end of April, assuming no COVID-19-related delays. We expect our domestication from the British Virgin Islands to the state of Delaware and our listing on the New York Stock Exchange under the symbol APG will both occur shortly after the registration statement is declared effective.

I will now review our financial results for the year ended December 31, 2019. Total combined revenues were $4.1 billion, an increase of $364 million or 9.8% over prior year's revenue of $3.7 billion. Excluding businesses held for sale, adjusted net revenues increased $303 million or 8.7% to $3.8 billion compared to $3.5 billion in the prior year period with segment growth of 4.2% in Safety Services, 9.9% in Specialty Services and 10.7% in Industrial Services.

Adjusted net revenues grew organically 7.7% or $272 million to $3.8 billion compared to $3.5 billion in the prior year period with organic growth of 4.5% in Safety Services, 7.0% in Specialty Services and 10.9% in Industrial Services. The increase in net revenues was primarily attributable to organic growth driven by higher customer demand, selective pricing moves and volume increases across all of our segments.

Our combined gross profit margin for the year ended December 31, 2019, was 19.6%, 150 basis point decline compared to the prior year gross margin of 21.1% primarily due to less favorable contract mix with a greater percentage of our sales in '19 coming from our lowest margin segment, Industrial Services, and an additional $22 million in cost of revenues from the amortization of backlog intangible assets recorded in the purchase accounting as a result of the APi acquisition. On an adjusted basis, 2019 gross margin was 21.5%, representing a 50% -- a 50 basis point decline relative to the prior year adjusted gross margin of 22%. The decline in overall adjusted gross margin was primarily due to Industrial Services segment, which had outsized organic revenue growth and is our lowest margin segment.

Our combined operating expenses for the year ended December 31, 2019, were $861 million, a $236 million or 37.8% increase compared to operating expenses of $625 million for the year ended December 31, 2018. Combined operating expenses as a percent of net revenue were 21% for 2019 compared to 16.8% of net revenues for 2018. The increase in combined selling, general and administrative expenses is primarily attributable to APi's acquisition, which resulted in nonrecurring expenses comprised of share-based compensation costs primarily including $155 million for the founder preferred share dividend rights, $25 million of nonrecurring expenses related to potential and completed acquisitions and the $17 million for other related to the public company registration, listing and compliance transformation costs. Amortization expense in 2019 has also increased $28 million over the prior year, as a result of the APi acquisition and the step-up of the fair values for intangible assets as a result of the purchase accounting. On an adjusted basis, our operating expense for 2019 was $509 million or 13.4% of net revenues compared to $489 million or 14% of net revenues in 2018.

Full year capital expenditures decreased from $74 million in 2018 to $64 million in 2019, representing approximately 2% of combined net revenues for both periods. Our business operates at an asset-light model, which allows us to increase our project volume without the need for significant additional capital expenditures. Our 2019 combined operating cash flow was $295 million. Capital expenditures, as I mentioned before, were $64 million, and we had $121 million of nonrecurring cost resulting in adjusted free cash flow of $352 million. Based on 2019 adjusted EBITDA of $393 million, this implies an adjusted free cash flow conversion rate of approximately 90%, exceeding our goal of approximately 80%.

As many other companies have done and out of an abundance of caution, we recently drew down $200 million under our revolving credit facility. We continued to maintain a conservative balance sheet and had total cash on hand of approximately $404 million at March 31, 2020, including the drawdown on the revolver. Our net debt to adjusted EBITDA ratio, calculated in accordance with our credit facility, was 2.4x as of December 31, 2019, compared to 3.1x as of the APi acquisition close on October 1, 2019. Collections of accounts receivable was strong in the fourth quarter and demonstrative of the cash-generating ability of our company.

Normally, at this point in the call, we would be discussing full year 2020 guidance. Prior to COVID-19, we had publicly discussed that we expected our baseline revenue entering 2020 to be $3.7 billion, which reflects the year-over-year impact of certain businesses held for sale and other related contracts. As other companies are pulling their 2020 guidance due to these uncertain times, we don't believe that now is the time to provide meaningful guidance for the year. I can help give some insight for modeling purposes. We expect capital spending for the year to be approximately $30 million to $35 million. We expect annual future depreciation of approximately $70 million. Our cost of capital is approximately 5%, and our adjusted effective tax rate should be approximately 21%. And our fully diluted share count, assuming the conversion of all 64.5 million warrants outstanding, is approximately 195.1 million shares.

We will continue to evaluate our ability to give guidance in revenue and earnings as we move through the months ahead. And as our view of 2020 solidifies, we will share this all with you.

I will now turn the call over to Jim.

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James E. Lillie, APi Group Corporation - Independent Co-Chairman [6]

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Thank you, Tom. Good morning, everyone.

We continued to be encouraged by the long-term opportunities that lie ahead for the business. The financial results for 2019 speak to the strength of APi's operating model and the team's focus on driving higher-margin growth as well as our ability to generate cash and run the business with a strong balance sheet.

As we look at our long-term road map for sustainable shareholder value creation, we believe that through industry-leading margin-accretive organic revenue growth, leveraging our SG&A, along with a critical focus on cash flow conversion to enable us to reduce our leverage profile and fund future acquisitions, APi can realize outsized investment returns in the years ahead. We are in a unique and unprecedented period of time in history. We believe that the company is taking all of the appropriate steps to help ensure the path forward. When we emerge from the impact of COVID-19, we believe that there will be opportunities, as less well capitalized and focused competitors may unfortunately not be in business. We believe we are prepared to seize opportunities as we move through 2020 and continue to execute on our long-term goals for the business.

I echo Martin's and Russ's comments about the team at APi and thank everyone for the leadership demonstrated across the entire organization. We appreciate the efforts of everyone and the tough decisions being made to help the business through the coming months.

We look forward to keeping you updated on our progress as we work with APi's leadership team to prepare for the company's next stage of development as a public company on the New York Stock Exchange. We remain hopeful that our registration statement will be declared effective by the SEC before the end of April, assuming no COVID-19-related delays.

And with that, operator, we'll turn the call over to you and open up the call for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Jon Tanwanteng of CJS.

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Jonathan E. Tanwanteng, CJS Securities, Inc. - MD [2]

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I was wondering if you could talk about the strong cash flow performance and the improvement in the balance sheet. Since the closing of the deal, I think you had mentioned you expected to close with $1.2 billion in net debt. You're considerably below that now. Tom, you mentioned strong collections on receivables. Is that a timing thing that reverses out? Or do you get to keep all of that?

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Thomas A. Lydon, APi Group Corporation - CFO [3]

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Yes. So our fourth quarter, we generally are taking down receivables through the quarter, and our strongest cash position usually is December, January and February, and then we'll ramp back up as the seasonality of the business drives working capital needs.

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Jonathan E. Tanwanteng, CJS Securities, Inc. - MD [4]

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Okay. Got it. And given the strength of the balance sheet, where you are, the drawdowns you did on the credit agreement, are there plans for excess cash flow from here? Is the priority to preserve liquidity? Or will you be using it to fund buybacks or M&A or internal investments if you see an opportunity? Just what's your priorities at this moment in time?

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James E. Lillie, APi Group Corporation - Independent Co-Chairman [5]

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Russ, why don't you take that?

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Russell E. Becker, APi Group Corporation - CEO, President & Director [6]

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Yes. I was going to say -- Jon, this is Russ. I would say that our first priority is just to protect our balance sheet and to be prudent. As we look forward, I mean I think everything is conceivably on the table. But right now, we're focused on really just making sure that we set the company up for the future and that we're in a position to take more proactive action when we get on the backside of the pandemic.

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Jonathan E. Tanwanteng, CJS Securities, Inc. - MD [7]

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Okay. Great. And then you're taking some pretty big actions in terms of compensation, discretionary spend. I think I'm hearing 20% to 25% on OpEx is your targeted reduction. Is that in line with what you expect in terms of revenue headwinds and drags going forward and kind of the scale of the shutdowns you may be seeing in your end markets? And given that information, what are your incremental/decremental margins, especially in the more vulnerable portions of your business?

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Russell E. Becker, APi Group Corporation - CEO, President & Director [8]

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Well, number one, I don't think we're in a position where we can forecast the total impact of what's going to happen because of the pandemic. We took a view that swift and swift action is much more important than being slow to respond and to react. And we feel that it's much easier for us to undo any sort of the changes that we potentially made in the business. And I don't know that anybody has a realistic or an accurate projection on whether this is going to be a V or it's going to be a U or it's going to be an L. And so we are just taking much more proactive actions to make sure that we're managing the business.

We've talked a lot about the elastic nature of our business and our ability to expand and contract our workforce as needed. Our field forces are primarily union. That's, we feel, is an advantage for us, and it allows us greater opportunity to not only contract when things are a little bit tighter but also to expand when things -- when the opportunities present themselves. And so that's just the approach that we've taken. I've led the business through 3, I'll just say, downward cycles. And I know from my experience that taking swift, proactive action is the right approach.

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Jonathan E. Tanwanteng, CJS Securities, Inc. - MD [9]

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Got it. And how do you balance those reductions that you're talking about with the increased volume of new proposals and your efforts to, I guess, bid on more of the empty buildings that are out there that might be ripe for a service while this lockdown is being maintained?

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Russell E. Becker, APi Group Corporation - CEO, President & Director [10]

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Well, number one, it means those -- the proposal activity has to convert to revenue and to real live opportunities. And so we're actively managing and watching that activity to make sure that it's the right activity. And then I think as it relates to trying to pull business forward, that's a credit to our business leaders and their being proactive in going to their clients and saying, "Hey, this is an opportunity. Let's -- like there's nobody in the building. What a better time to test the fire alarm system and all that stuff." And that's really to their credit for really being proactive in looking at how are they going to manage their business and take advantage of the resources that they have.

The -- we have not -- as I said in my remarks, we have not seen any true cancellations and -- which means that some of the opportunities that we have in front of us are going to get pushed out to the right, and we potentially could have a busier second half of the year as we get on the backside of the pandemic.

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Jonathan E. Tanwanteng, CJS Securities, Inc. - MD [11]

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Okay. Great. And then just on the businesses and assets you have held for sale. Could you discuss the ability to sell or wind those down given markets and just the general environment?

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Russell E. Becker, APi Group Corporation - CEO, President & Director [12]

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Well, I guess the good news is, is that we closed on the sale of one of those businesses last week. Kudos to Mark Polovitz, our Controller; and Gene Postma, one of our segment leaders, for helping push that over the finish line. And so we're making progress even though there's some headwinds in the marketplace today. We feel like the opportunity for us to sell the second business is in front of us, and we're making -- that's a priority for us right now. We're making progress as we move forward with that.

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Jonathan E. Tanwanteng, CJS Securities, Inc. - MD [13]

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Okay. Great. How big was the business that was sold?

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James E. Lillie, APi Group Corporation - Independent Co-Chairman [14]

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It's part of the $300 million, Jon. Jon, it's part of the $300 million that we -- that were held for sale. We're not..

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Jonathan E. Tanwanteng, CJS Securities, Inc. - MD [15]

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Okay. And it's only through them, right?

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James E. Lillie, APi Group Corporation - Independent Co-Chairman [16]

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Just because there's a confidentiality agreement, so we're not reviewing individual revenue for individual businesses.

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Jonathan E. Tanwanteng, CJS Securities, Inc. - MD [17]

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Understood. Okay. Last question from me. I'll jump back in the queue. Can you talk about Q1 and how that's progressed in terms of your end markets and what you're hearing from customers now that it's essentially close?

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Russell E. Becker, APi Group Corporation - CEO, President & Director [18]

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Yes. I mean, it's been positive. I mean, we have not seen a tremendous amount of impact. We've seen the volatility kind of crank up mostly as the pandemic has stretched from coast to coast and it starts to work its way towards the interior portion of the country. But we haven't felt tremendous amount of impact from the virus yet.

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Operator [19]

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(Operator Instructions) Our next question comes from the line of Adam Wyden of ADW Capital.

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Adam D. Wyden, ADW Capital Management LLC - Founder and Managing Partner [20]

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I just have a couple of questions here. So I think a lot of people -- you mentioned the V versus the U versus the L. I think it might be helpful to kind of discuss how you think the business performs in the event that on the other side of the pandemic or in a recession of some sort. I think you guys have mentioned that construction is lower margin than service and inspection. I mean, what do you think the effects on revenue and EBITDA would be in kind of a modest downturn in the economy? And how do you think about kind of EBITDA and free cash flow in the downturn?

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Russell E. Becker, APi Group Corporation - CEO, President & Director [21]

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Well, again, Adam, I'm not going to speculate on revenue and what potentially could happen to revenue because we just don't have enough information. Our -- the best part about our business is the acyclical nature of our business. So if you look at the Specialty Services segment and the public-private utilities, the race to 5G, the capital spending programs in front of our businesses, we're very, very optimistic that those businesses will continue to chug forward as planned. And then if you move to Safety Services, the continued focus and growth on inspection and services is what -- is our #1 priority as well as what is going to help the business. If you go back to the Great Recession of 2009, probably 15% of our revenue in that segment would have been service and inspection, and in today, it's 40%, 45%. So we've really, I think, had our focus in the right areas as we've continued to drive and protect, build the business for that it would be in a better shape in its sort of down cycle.

The -- regarding cash flows, our business, if there is any sort of a slowdown, our business generates a ton of cash. And receivables are our largest asset on our balance sheet. And if there's any sort of a slowdown, we will generate positive cash flow as we move forward.

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Adam D. Wyden, ADW Capital Management LLC - Founder and Managing Partner [22]

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Got it. And just to clarify, I mean, your lowest margin work is your new construction work because it serves as lead generation for service and inspection. So I mean, intuitively, if we went into a downturn, there'd probably be less new construction work, and you'd be losing that, not your service, not your inspection, because that's government mandated. And the specialty work is generally on kind of long-term capital program. So is it fair to say that in the event we go into a downturn, that revenue -- like if revenues were to go down, EBITDA could go down less just as a function of mix? Just as -- you're probably going to be taking out your lowest margin stuff in the downturn. Does that seem reasonable?

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Russell E. Becker, APi Group Corporation - CEO, President & Director [23]

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Well, again, you're asking me to speculate, and I'm not going to speculate. I mean, obviously, we don't approach like -- we don't use new construction as the lead generator for our inspection and our service work. If you recall, one of the things that makes us unique is the fact that we are proactively selling inspections because we know inspections lead to service. And we believe that by doing a great job on that inspection and service work, that, that leads to a stickier client relationship, which allows us to have a better look at the new construction needs of our clients, which allows us to generate higher gross margins. So conceivably, our margins should continue to be strong as we move into any sort of a cycle. So...

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Adam D. Wyden, ADW Capital Management LLC - Founder and Managing Partner [24]

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Okay. That's great. Last question, and this is probably for Martin and Russell. So when you just look at your financial results, roughly 60% of your EBITDA is coming from life safety, which, as you said, is heavy in recurring services, there's a lot of break-fix work. I guess before COVID, you had comps like Wrench Group and [Time Marker] and [Marlowe] trading in the range of 16x EBITDA. Your second primary division, specialty is -- as you said, operates on long-term contracts that are usually repeat and don't follow traditional business cycles. And if we do kind of a sum of the parts valuation on your assets, APi is trading at a fraction of its intrinsic value per share. So if I were just to kind of apply comp multiples on your assets, it would yield a price kind of well into the 20s. And you're seeing Jacobs Engineering trading at kind of a huge multiple here. I mean, how do you guys think about narrowing the valuation gap and getting the right cost of capital to do the big deals you guys kind of talked about in the past? I mean, how do you see that kind of evolving?

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Martin Ellis Franklin, APi Group Corporation - Co-Chairman [25]

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Russ, can you make a comment on that first?

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Russell E. Becker, APi Group Corporation - CEO, President & Director [26]

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Go ahead, Martin. I can -- I'll provide color after you respond.

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Martin Ellis Franklin, APi Group Corporation - Co-Chairman [27]

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Sure. I mean, look, first of all, I would tell you that we're just finishing the first inning. We haven't even finished the first inning in this game. So we're not even on the New York Stock Exchange yet. We've been going through the process of becoming a regularly traded company on a full exchange. So the disparity, I think, in valuation and comparables comes from a few things: first of all, becoming a listed company and being on -- being indexed and the things that come along with that; the second is research. Obviously, early days with -- to get the bulge bracket research that we expect to get, and we've been obviously engaged with those bulge bracket firms. You won't get until you are -- you won't have the research out until you're listed.

I think the next thing is investor -- doing the rounds with investors and broadening the base of investors that we have. I mean, the reality is until this turn of events happen with COVID-19, we were getting pretty good momentum. And that was before we'd even put out -- I think the stock was 12 and change, maybe higher. The reality is we've started to gain momentum at a time before we'd even put out year-end earnings, before people saw the free cash flows, before we had -- it's the time -- going to be in a position to really give guidance for 2020. Obviously, all of that has changed, and we're going through the process again. But I think in general, I would tell you that I'm -- as you know, I'm involved in probably 5 equities in a large way. And in terms of its dislocation from its comparative value, I would say this is the most undervalued. But that -- again, it's a very straightforward reasons, and I think that will rectify itself when people understand what this business is, and it has a wider following.

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Adam D. Wyden, ADW Capital Management LLC - Founder and Managing Partner [28]

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Great. Well, look, the results were great, and look forward to the wider following. That's it for me.

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Russell E. Becker, APi Group Corporation - CEO, President & Director [29]

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Thanks, Adam, very much.

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Operator [30]

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Ladies and gentlemen, we do have time for one more question. Our next question comes from the line of Jon Tanwanteng of CJS.

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Jonathan E. Tanwanteng, CJS Securities, Inc. - MD [31]

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Just wanted to get your take on when the listing may yet occur. And I understand the SEC is working from home, so it may be delayed, but what's your expectation at this point?

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Thomas A. Lydon, APi Group Corporation - CFO [32]

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Yes. As we said, we're hopeful that it will occur before the end of April. You're right, they are working from home, so in their court, and then we'll respond. So again, our hope is the end of April.

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Jonathan E. Tanwanteng, CJS Securities, Inc. - MD [33]

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Okay. Great. If I could get another one, I was wondering what your exposure is to the kinds of businesses that might have balance sheet and cash flow issues, restaurants, lodging, airports, the guys that might be under pressure or maybe large projects that have been halted due to the state and city shutdown.

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James E. Lillie, APi Group Corporation - Independent Co-Chairman [34]

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Russ will take that, and then we'll wrap it up after that.

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Russell E. Becker, APi Group Corporation - CEO, President & Director [35]

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Sounds good, Jim. Thanks. I would say that our exposure to the hospitality industry, retail, which are some of the, I guess, business end markets on our watch list, is relatively low. And so it's just -- we've never played well in those markets anyways because it's such a cost-driven. There's just so -- it's just cheap. And so we just haven't spent a lot of time in those end markets anyways. We have a small exposure to the energy sector that we're obviously watching closely, but it's a small -- it's a -- we're not concerned about it, and it's a relative -- it's small compared to the overarching APi business.

Thank you, everybody, for joining the call. And we very much appreciate your interest in APi, and we look forward to continuing to share our story with you and to educate you on the company. Thank you. Be safe.

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James E. Lillie, APi Group Corporation - Independent Co-Chairman [36]

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Thanks, Russ. Thanks, everybody. Bye.

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Russell E. Becker, APi Group Corporation - CEO, President & Director [37]

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Thank you, everyone.

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Operator [38]

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Thank you, ladies and gentlemen.