APi Group Corporation Aktie

Well, good morning, everyone, and thanks for joining. I'm the analyst, Tim Mulrooney that covers APi Group here at William Blair. I'm re ration inform you that for a complete list of research disclosures and conflicts of interest to visit our website at williamblair.com.

And we're very pleased to have with us this morning APi Group, CEO, Russ Becker; and Adam Walters, Senior Director of IR. We picked up APi Group 2, maybe 3 years ago, still relatively early in the story and got very excited about the opportunity. I think you all were trading at about 12x EBITDA at that time.

So you're taking credit?

Yes. Full credit. But we were excited because what we saw in this business was, yes, you had the specialty business, which is -- can be, I think, potentially more cyclical and maybe more of a construction type business, but then you have this fire and life safety business, which we viewed as a real gem and very similar to many of these other types of high-quality services businesses that get very high multiples.

Well, the secrets out because now you've re-rated, and I think everyone -- the market is valuing that business more like how they value many of these other high-quality services businesses that are out there today. And I'm really excited to dig in with you on both sides, the safety and the specialty side.

But before we do that, this is a generalist conference. We're going to do this as a fireside chat, and then we have a breakout session, by the way, after this at the Burnham A room, where we can dig in more detail. We're going to do this as a fireside chat.

But maybe if you don't mind, just spending a couple of minutes to give an overview on the business just in case there's anyone out here that's not so familiar with APi Group.

Sure. Happy to do that. Thanks for having us, Tim, as well, and thank you for everybody for coming and showing interest in the company. My name is Russ Becker, and I'm the President and CEO of APi. I have actually been with this company for over 30 years. I started in one of our operating businesses and have really been serving the company in a similar capacity that I am today since 2002.

So I've seen the company through a tremendous amount of change during that period of time. When I think when I started with APi, we were about a $600 million, 3% business. And last year, we finished at like $7.9 billion in revenue and a 13.2% EBITDA margin.

So I attribute a lot of that growth and improvement in business performance to our company's enduring purpose, which is building great leaders and the investment that we make in our people as human beings and as leaders. And leadership development has been a huge part of our company since I started at the parent company in 2002.

And I would tell you that it defines our culture and who we are. And our culture is something that we take great pride in and continuing to grow and strengthen as we continue to grow as a company. Our business is really organized into 2 different groups, if you will, or segments.

We have our Safety Services segment, which is our fire protection, fire life safety and security business. That accounts for about 70% of our total revenue. The other piece of our business is specialty services, which is where our infrastructure business lies, our HVAC business lies.

We do HVAC work. We do natural gas distribution replacement and retrofit work, potable water system upgrades, fiber optics, telecommunication. We have a business that's in manufacturing, structural steel manufacturing as well.

Last year, 54% of our revenue came from inspection, service and monitoring. Our goal and priority is to build a very robust inspection service and monitoring business across our entire portfolio. We have established a -- our 2028 shareholder value creation targets are what we call 10/16/60+. The 10 stands for $10 billion in revenue with a 16% EBITDA margin with our long-term target of 60% of our revenue coming from inspection service and monitoring.

And the company operates in over 20 countries today that will expand more with the Wtech acquisition that was announced just a few weeks back. We are -- our company traditionally grows organically in the mid-single-digit range. We also grow inorganically through M&A. We have a long track record of winning in the M&A space. We've probably done well over 200 acquisitions since I've been the CEO of the company.

And that's something that we see a lot of opportunity for continued growth for our business. And probably the last thing that I'll leave you with is that we have what we call an inspection-first mindset at APi. And what that means is these hotels are just terrible examples because the fire systems are different in here.

But like if you took a 50,000 square foot medical office building, the fire life safety system in that building is required by law to be inspected for functionality and operability at least once a year and most likely certain components of it like the fire alarm system twice a year.

And we are trying to sell inspections, those inspections to the already built environment as our lead into that client relationship versus the other way around. And traditionally, in the industry, most people try to go out and bid and win. I hate the word bid, and we can talk about that, Tim.

But bid and win new construction work, when they get done with executing the new construction work, they try to sell that end user and client an inspection and service contract. We're doing it just the opposite way. We're trying to win the inspections with that existing building owner and developing a relationship because we know for every dollar of inspection revenue we generate, we're going to generate some place between $3 and $4 worth of service work as a pull-through.

And if we do a really good job with that client, we're going to develop a sticky relationship with them. So when they do have new expansion needs or retrofit needs, we're going to be in a position based on our relationship to negotiate the work versus compete for the work on low price. And that is a significant difference in our business and in our business model. So it's a great company.

Yes. No, that's a really good overview. Thank you. And actually do have a whole -- so on the quarterly conference calls, I have a list in my notes that says, don't say these words on the conference call or Russ will yell at you publicly on the conference call.

I don't like yell.

Bid as well.

I may knock, but I don't yell.

Bid is one of them.

I hate the word.

Yes, you don't like the word bid. They're not employees. They're teammates. They're leaders.

Teammates or leaders. I may not use the word employee.

And I've actually heard that leadership training is -- I've spoken to someone that's gone through it, and it sounds like it's quite the experience, something I'd love to do someday actually. But...

I need you to come to work for us first.

I can't just do it.

No.

Okay. Well, I put that in my back pocket. But yes, why don't you use the word bid and why do you think it's better to go to market with an inspection-first mindset? And when did you decide to do that? I mean, have you always done that? Is that something that you've done more recently? I'd love to hear a little bit about that journey.

So on the word bid to start is like that means that you're going to buy our services because we have the cheapest price. And like we have no interest in that.

You associate that with low-price work?

Yes. And so we want our clients to choose to buy our services because we present the best value. And there's a lot that comes with that. It could be safely delivering the work. It could be your speed to execute the work and timing and I'm sure at some point, somebody is going to want to talk about data centers and -- but like it's your ability to execute is more important than what your cost is for most of the providers, our end users.

But bid is just like it's actually forbidden to be used at API. And so like if I will correct somebody if they use the word bid and because there's something -- your words matter and just this whole idea of we're proposing and we're going to sell our services based on the value and what we bring to that particular client. Inspections first.

The reality of it is I think we first set a goal in 2006 that we wanted 50% of our revenue to come from what we call service work at the time. So we didn't even differentiate at that time between inspection and service work. And I think our mindset around like doing the inspections and stuff like that was more like we need to do the inspections to get the service work, and we didn't look at and view winning the inspections that we could actually generate like a really good gross margin and a really, really good profitable component of our business.

And that changed and evolved over time. Where it really got a tremendous amount of energy is when the woman who leads our national inspection sales team now came to work for the company. And like I'd love to tell everybody in this room that I'm super -- I'm just like the most strategic guy, like this whole idea of inspections first was our sales leaders, not mine.

And it was because she's so damn good at it. And it started -- literally started in one of our branches where she showed up as an inspection sales leader, and she did such a good job selling inspections and then that morphed into she's the inspection sales leader for that branch.

And then the guy that was actually running that business was like, hey, you're doing a kickass job. How about you take that idea to this branch and this branch. And so it blossomed. And then it's like, hey, you're doing a great job. How about we take it to these next 3 branches?

Well, then that happened to be the guy who's running our Safety Services segment was actually running Las Vegas at the time. And we promoted him to lead one of our operating units, our businesses out in the Northeast. So he moved with his wife to New York. And he's like, hey, how about you come out here and you bring this to our business? And so it blossom there. And then we promoted the guy that was running that company to run the segment.

And he's like, well, how about if we make this a national role? And it just -- it's taken on a life of its own. And so it's just -- it's really just evolved over time. And I would say that it got going with earnest in trying to think maybe 2016.

So you've been doing this for 10 years has been this slow transition to an inspection-first mindset and now you have x percent of branches that you'd consider what's the term you use, bulletproof, where your gross margin -- gross profit dollars from inspection and sales exceed the SG&A of the branch.

100%. That's -- we don't talk about this enough when we talk about our company and our business, but like a branch literally becomes bulletproof when the inspection servicing and monitoring business, when those departments, if you will, generate enough gross margin to cover the SG&A of the entire branch. It becomes bulletproof because then the project work and the project opportunities that, that branch has, they can be even more selective.

And then the gross margins on that project work when they're being more selective, expand and they get better. And so then the profitability of the branch, overarching profitability of the branch expands.

It gets even better.

It gets even better. And if you look at Adam's slide deck, it's there's a slide in there that shows the evolution of a branch, and it has kind of those points earmarked along that time line that shows -- but like this particular case, the gross margins on the project work grew by 10 percentage points.

See, that's the thing about the story that I think is maybe a little bit underappreciated. Everyone understands inherently that the service work is 10 percentage points margin -- gross margin higher than the project work. And so as your service work is growing high single digit and your project work is growing low single digit, there's going to be some natural margin accretion from that.

But I think the part that's maybe less well appreciated is how much the being more disciplined on the projects once these branches become bulletproof, how much that's contributing to the margin as well. You gave me a statistic one time.

Maybe you can share it here. What did your average project margin look like when you took over as CEO relative to today?

Well, I can't imagine that it was me that gave you that statistic because I don't know. But I mean -- so...

I think it was a dramatic number, like mid-single digit or maybe it was average branch profitability or something like that, but it sounded like it was very low and the thought being like what people thought it would be so hard to just get to 10% over time. And now here you are sitting at 30%.

Well, that was like the company was a 3% business when we started in 2002, and I think I shared that in my opening remarks. But yes, it's funny, and I know exactly what you're talking about because like when I first came to APi Group, like this is going to maybe shock you, maybe it won't shock you. But like our financial goals as a company was 5%.

And I was -- at the time we were privately held and the majority shareholder of the business was a gentleman by name of Lee Anderson. And I was up at his summer home with him, and we've spent some time. He never has come into the office since I've been with the company. And so I was up at the summer home, we had some stuff work stuff to talk about.

And traditionally, I would go and we'd spend a couple of hours talking about work stuff and then I'd stay and have drinks and dinner overnight and I get up early in the morning and drive back to Minneapolis. And we were probably finishing up a scotch or something. And I looked at them and I said, where did 5% come from?

And he looks at me and the gentleman that had my job before me his name was Jeff, and he goes, I don't know, Jeff. And I'm like, I don't know. I'm like, seems pretty low. And I said, for how much risk we take every day, I said, 5% seems pretty low.

And like this is a true story. And he looks at me, well, what do you think it should be? And I said, I don't know. Let's start with 10. He goes, okay. So I literally like literally go back to the office. I'm looking at this guy right here is pretty young. And so like he doesn't even know what a fax machine is, I'm guessing.

But some of the [ KD ] veterans I see over here, so write up a memo, send my memo out via fax. There was like really e-mail was like in its infancy, and I sent out a fax or a memo to everybody saying our new financial target is 10%. Everybody b******. Like I'm not kidding you. Everybody can't be done. Industry average is 3%.

And then all of a sudden, one of our businesses, climbs, climbs, climbs, climbs gets to 10%. And this guy is still running this business to this day. And -- but the best part about it was he didn't stop at 10%. He just kept on going and his business got to 20% and it's just like at APi, we publish our financial results. So every one of our business leaders can see exactly how their company stacks up against their peers.

They can see exactly how every branch stacks up with every other branch. We stack rank them, highest performance to lowest performance. We actually color code it. If you're meeting our goals, you're in green. If you're trending in the right direction, you're in yellow. And if you're missing the target, you're in pink. And the only reason you're in pink is that if you put it in red, you can't see the numbers.

And so you can see -- and like if you have a competitive bone in your body, like you don't want to be in the bottom third, right? And so you create this kind of natural draft that pulls people along. And our business has just continued to grow as we continue to increase the expectations.

And we believe and we know that -- and our goal is that every one of our branches will operate at 20%. Now we're not there. I mean clearly, you know what I mean? And I suspect we'll always have a challenge or something like that where maybe you don't have the right leader and you have to make some changes and somebody does a poor job on customer selection and gets us in trouble and we have to work our way through that. But like it's real.

And this is a people-centered business. And when you show people, show them kind of the path and share best practices and create an environment of collaboration, like there's a lot of opportunity and a lot of opportunities. It's a great company and with a lot of continued upside.

I think that that's part of the story that investors like so much is watching this march towards profitability when you came out with your 2025 targets for 13%. Was that 2025? Yes, 13% in '25.

Yes. Yes. 13/60/80, we called it. Came out with that in like '22.

And there were a lot of skeptics. How are they going to get to 13%? And yet you did it. Now the target is 16% by 2028. And I don't have 16% in my model. I don't know how you're going to do it. But I don't have any doubt that you are.

What's up with this?

I'm going to say it like you guys keep beating the expectation and delivering. And I think a lot of it goes back to this conversation about it's a people business and it's about culture and leadership and driving this competitive spirit in the business.

And I have no doubt that you will hit the 16% number. However, I will note that, that would be upside to my model and to consensus if you do it. So that's the opportunity.

It sounds like a little bit of a throw down.

I'm Russell on stage.

I like my chances. So...

Yes, I don't want to do that. So all right. Maybe we should get some actual numbers here because we got 8 minutes left. high single digit in services. So if we're looking at the U.S. Fire and Life Safety business, you got high single-digit growth in services that you're expecting and low single-digit growth in the projects business. Is that correct?

That's correct. That's what we -- that's the guidance we give our businesses.

That's the guidance you give your businesses. So that kind of equates to a mid-single-digit growth for the full year, though I will note that the comps get tougher in the second half of the year for that business.

So can you just help bridge that gap for us between the fact that the comps are getting difficult -- more difficult, but you still expect that mid-single-digit growth for the full year?

Yes. So I mean, if you break it out into the 2 parts that you talked about, the inspection and service business, like that just continues to -- like it's steady eddie. I mean like we continue to grow that in the high single-digit range. It starts with the -- we talked about the inspection first flywheel.

It starts with that and our inspection sales leaders continue to knock on the already built environment, take share. It's continue to push price, and that business continues to just be super steady and grow at that high single-digit clip.

Talked about the comps get tougher, obviously. I would say the project environment right now, I would say, is more robust than normal. And so there's a lot of good work out there, and we talk about end markets all the time and focusing on the right end markets definitely matters. And the end markets we're focusing on are very robust right now.

So that -- the project business is growing -- more than low single digits like the long-term algorithm would suggest. And so we see in the work we're doing right now. We see it in the backlog. There's just a lot of good work out there, whether it's data center, advanced manufacturing, aviation, there's just a lot of good project work out there, and we're taking advantage of that, and that's where you kind of -- even though it is tougher comps, we're still projected to continue with the mid-single-digit growth throughout the year.

Yes. That makes sense. Maybe you could talk a little bit about those end markets. I mean your data center business. I can't remember. I think you said it was 5% of revenue a few years ago and then 7%, and now it's going to be closer to 10% this year. I don't know how that splits between your specialty business and your safety business. But presumably, some of that is in safety. Is that helping there on the project side?

Yes, for sure. I mean our best guess, like you mentioned, is 10% is where we'll land for the year in terms of percentage of revenue coming from data center, and it's good work for both segments. I mean like if you -- I would say specialty is probably a little bit higher than 10%, maybe they're 11%, 12% of their work is coming from data center and safety is a touch lower, maybe 8%, 9% of their work is coming from data center.

But it's really good opportunities for both businesses. I mean every data center needs a fire life safety system, right? So they have sprinkler systems, fire alarm detection systems, and we're doing the installation of that. We've also been doing the inspection service for a lot of these hyperscalers for a long time. So it's good existing customer relationships that we already have.

And so when these new data centers are being built, we already have a relationship with the customers who are coming in and doing the installation. And then on the specialty side, a lot of good work there as well. There's fiber optic cabling that goes into these data centers around the rain into the server rack that we're doing.

We have an HVAC business that will do a little bit of data center work every year. Our steel fabrication business does data center work. So good opportunities across both segments. And I would also just add, we have a business development leader who -- he's got a lot of good relationships with like these hyperscalers with general contractors, and he's been kind of coordinating our sister companies in terms of -- we have a data center opportunity in Monroe, Louisiana, who should we be getting involved?

Like maybe one of the fire life safety companies has a relationship there, but there's opportunities for our specialty businesses to get involved as well. So he's been doing an awesome job kind of coordinating across our -- all of our companies and making sure we're kind of attacking these opportunities as a kind of a coordinated group.

Okay. All right. That's helpful. Maybe in the last couple of minutes here, I know M&A is a big topic of conversation and an important component to your $10 billion target by 2028. Certainly, on your way there, I mean, you've announced a few large acquisitions this year so far. Usually, when I see a company announce this much, it's not even a balance sheet conversation. It's like a cultural and an integration conversation. Is it fair to assume that we're hitting the pause button here for a while you work on those? Or do you have more appetite for M&A this year?

We have more appetite. And I mean I don't -- do you want me to hesitate?

No.

And I would tell you like the 3 transactions that we announced that are somewhat larger, like I don't even -- like they're not that big. I mean as it relates to -- they're not like Chubb. I mean they're not like Chubb -- at the time we bought Chubb, it was a $2 billion company that operated in 20 different countries.

And you could argue that there's an element of complexity there that I feel like we've done a really nice job of navigating. And I'm really pleased with where that's at. Like the Wtech acquisition is a fire suppression business that's based in Mullingar, Ireland, which is just north of Dublin.

And Ted, I met Ted Wright, their CEO. His family founded the company. So it's actually got family origins even though we bought the firm from a private equity firm. And Ted has been with it. Ted and his brother actually bought his parents out and then Ted brought his brother out.

And it does a few things for us. It brings fire suppression, i.e., sprinkler capabilities to our business in Western Europe that we don't have that level of expertise that we need. Actually, Ted is like an entrepreneur through and through, like -- so he's going to bring that mindset to our business, which I think will be really, really healthy for us. Like I don't -- that business had been publicly traded, sat underneath United Technologies and Carrier and became pretty corporate-y, to be honest with you. And so he's going to bring a little bit of that entrepreneurship to the company and to that culture, which is needed.

But it's not that big a business. And like Ted fits our culture like through and through, he's already participated in our leader labs and things like that. So -- and I was there at their -- they had a planning session in Portugal back a month or so ago, and I flew over to Portugal for the meeting, like his people are like they're just cut from the same cloth, like just wonderful, wonderful people.

And then Onyx, which is a Canadian-based firm, I've known Brian Chu, their CEO since probably 2017 when he was actually with Brookfield. And so we've known that firm and stayed in touch with that firm for many, many years. And when it actually sold the first -- it was recently sold and then we bought it 18 months after.

We passed on it at the time because we were busy integrating our existing business in Canada, and we just didn't feel like we had the bandwidth to stomach it. So we I feel like we showed good discipline in saying we couldn't. We had a relationship with Blackstone that goes back to the Chubb acquisition, and that presented itself. And so we were able to buy that business like when we did based on that relationship.

And then CertaSite, which was announced at the end of the year and closed here, what was it, February 1. And that business is like inspection first. That's the beauty of that business. It's like a center of the fairway transaction for us. It's not -- and again, it's not that big.

It's geographically complementary to our existing portfolio. So minimal overlap. It's a nonunion business. It's strong in extinguishers and portables, which is an add for us. So there's a lot to it, but it's just -- it's like that one is already rocking and rolling. And one of the things that we have to sell, so to speak, to these owners is really centered on our leadership development efforts.

And the fact that we have a deep bench in succession planning and all that stuff that comes with it is attractive to these folks. And not everybody wants to be in this world called private equity forever. And I think one of the things that you'll hear us -- the words that you hear us use all the time when we're pitching why should you sell to us is that we're a forever home.

And I actually stole that from one of the guys from the elevator business. We had them in actually presenting to our Board shortly after the acquisition of Elevated back a couple of years ago. And his words to our Board was we found our forever home. And thought it was pretty good. So I grabbed it.

Complementary. It feels like they found their spot.

So we have a lot of bandwidth. And we've got a lot of dry powder. Our balance sheet is in a great place. And for us, it's like our #1 priority from -- when you think about how we're going to use our capital is -- would be M&A. But we've been active in the market buying back some shares as well.

Okay. All right. That's good color. I know we're out of time, but thank you very much, Russ. Appreciate it.

Good morning, ladies and gentlemen. Welcome to APi Group's First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note this call is being recorded. I will be standing by should you need any assistance. I will now turn the call over to Adam Walters, Senior Director of Investor Relations at APi Group. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining our first quarter 2026 earnings conference call. Joining me on the call today are Russ Becker, our President and CEO; and David Jackla, our Executive Vice President and CFO. Before we begin, I would like to remind you that certain statements in the company's earnings press release and on this call are forward-looking statements, which are based on 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 a guarantee 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 and filings with the SEC, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, April 30, and we undertake no obligation to update any forward-looking statement we may make, except as required by law.

As a reminder, we have posted a presentation detailing our first quarter financial performance on the Investor Relations page of 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 our presentation.

It is now my pleasure to turn the call over to Russ.

Thank you, Adam. Good morning, everyone. Thank you for taking the time to join our call this morning. I want to start by thanking our 29,000 teammates for their dedication to API. The safety, health and well-being of each of our leaders is our #1 value. We remain deeply committed to investing in their growth and development. This is at the heart of our purpose, building great leaders. Our people are what set this company apart and I'm truly grateful for everything they do. .

In 2026, APi is celebrating its 100-year anniversary by embracing the theme of gratitude. APi was founded in 1926 as a small plumbing business in St. Paul, Minnesota. Today, we are a global market-leading business services company with more than 500 locations around the world. When I think about that journey, where we started and where we are today, I am truly humbled. We have so much to be grateful for.

We are honoring this milestone by giving back to the communities that we serve and by celebrating with our teammates, customers and communities that helped us along this journey. We are off to a strong start in 2026. Before we get into the financial results, I wanted to touch on a few first quarter highlights. From an M&A perspective, we closed the acquisition of Certicite in February, an inspection first provider of comprehensive fire and life safety services across the Midwest.

Earlier this month, we announced an agreement to acquire Ireland-based W Tech Fire Group, which adds to our fire sprinkler and suppression capabilities across Europe, a key strategic growth area for our international business. And just last week, we announced an agreement to acquire Onex Fire Protection Services a leading provider of fire and life safety services in Canada with an inspection first mindset and a strong recurring revenue base.

This acquisition positions us well in Canada, which we view as an attractive fire and life safety and electronic security market. We expect Onex Fire to close in the second quarter and Tech Fire to close in the third quarter of this year. We will update our full year guidance on future earnings calls after these transactions close. In total, these 3 acquisitions represent an investment of more than $1 billion to further build out our Safety Services segment across the U.S., Europe and Canada.

Each of these acquisitions is accretive to our 10, 16, 60-plus financial targets. And equally important, these businesses are all excellent cultural fits and we are excited to welcome our new teammates to the API family. We also completed 4 bolt-on acquisitions during the quarter and we remain on track to deploy approximately $250 million in bolt-on M&A at attractive multiples this year, including opportunities within the international business and the elevator and escalator services businesses.

Our systems and business enablement program continues to advance well. Earlier this month, our first pilot company went live on our new business systems. Our teams have done a tremendous amount of work to get to this point. And while there is still work ahead of us, we are tracking in line with our expectations.

Now turning to our strong first quarter results. The business continues to build momentum, delivering robust top line growth while expanding margins. We continue to deliver solid growth in inspection, service and monitoring revenues while capitalizing on the robust project environment. We expanded our adjusted EBITDA margins and as I mentioned earlier, we continue to drive our M&A strategy to further strengthen and expand our global platform.

For the quarter, net revenues increased by 15%, and approximately 10% organically, with strong growth across both segments. In our Safety Services segment, revenues grew organically by approximately 5%, while expanding segment earnings margins by 60 basis points. Our Specialty Services segment continued its momentum, delivering approximately 25% organic growth while expanding segment earnings margins by 50 basis points.

Importantly, we continue to see solid growth in inspection revenues, and we remain confident in our ability to sustain that momentum. Our team continued to focus on margin expansion with adjusted EBITDA margins expanding 70 basis points year-over-year. We expect to see continued margin expansion for the year, largely driven by the same initiatives that we have been executing. These include the following: first, consistent organic growth, improved inspection service and monitoring revenue mix, disciplined customer and project selection, pricing branch and field optimization, procurement, systems and scale, accretive M&A and selective business pruning. And as I always like to say, we can always just be better.

The first quarter was another strong quarter for cash flow as the business generated $125 million in adjusted free cash flow. In addition, we ended the quarter with a net leverage ratio of approximately 1.8x, well below our long-term target. Our consistent free cash flow generation and strong balance sheet continue to provide us flexibility to pursue a range of value-enhancing capital deployment opportunities to support our 10/16/60+ financial targets.

As a reminder, these targets are the following: $10 billion in net revenues by 2028, supported by consistent mid-single-digit organic growth and accretive M&A. 16% plus adjusted EBITDA margin by 2028. 60% plus of our revenues from inspection, service and monitoring over the long term and $3 billion of cumulative adjusted free cash flow through 2028.

I am proud of our team for the strong momentum we have built to start the year. Our inspection service and monitoring business continues to expand. Our backlog is robust and healthy, and our balance sheet provides us with the flexibility to continue executing on our capital deployment priorities.

I would now like to hand the call over to David to discuss our first quarter financial results and guidance in more detail. David?

Thanks, Russ, and good morning, everyone. Reported net revenues for the 3 months ended March 31 were $1.98 billion, a 15.3% increase compared to $1.72 billion in the prior year period. Organic revenue growth of 10.4% was driven by solid growth in inspection service and monitoring revenues, growth in project revenues and pricing improvements. Adjusted gross margin for the 3 months ended March 31 was 31.3%, representing a 40 basis point decrease compared to the prior year period, primarily driven by business mix partially offset by disciplined customer and project selection and pricing improvements.

Adjusted EBITDA increased by 21.8% for the 3 months ended March 31 and 18.1% on a fixed currency basis with adjusted EBITDA margin coming in at 11.9%, representing a 70 basis point increase compared to the prior year period. Growth in adjusted EBITDA was driven by strong revenue growth and favorable SG&A leverage. Adjusted diluted earnings per share for the 3 months ended March 31 was $0.32, representing a $0.07 or 28% increase compared to the prior year period. The increase was driven by strong revenue growth, adjusted EBITDA margin expansion and a decrease in interest expense partially offset by an increase in the share count. I will now discuss our results in more detail for the Safety Services segment.

Safety Services reported net revenues for the 3 months ended March 31 were $1.42 billion, an 11.7% increase compared to $1.27 billion in the prior year period. Organic growth of 5.4% was driven by solid growth in inspection service and monitoring revenues, growth in project revenues and pricing improvements. Adjusted gross margin for the 3 months ended March 31 was 37.2%, representing a 20 basis point increase compared to the prior year period driven by disciplined customer and project selection and pricing improvements, resulting in margin expansion in inspection services and monitoring revenues and project revenues, partially offset by mix.

Segment earnings increased by 15.6% for the 3 months ended March 31 or 11.7% on a fixed currency basis. Segment earnings margin was 16.3%, representing a 60 basis point increase compared to the prior year period, primarily driven by adjusted gross margin expansion and favorable SG&A leverage. I will now discuss our results in more detail for the Specialty Services segment.

Specialty Services reported net revenues for the 3 months ended March 31 were $569 million, an increase of 25.6% or 24.8% organically compared to $453 million in the prior year period, driven by growth in both projects and service revenues. Adjusted gross margin for the 3 months ended March 31 was 16.3%, representing a 50 basis point decrease compared to the prior year period, primarily driven by mix.

Segment earnings increased 34.5% for the 3 months ended March 31, and segment earnings margin was 6.9%, representing a 50 basis point increase compared to the prior year period primarily due to favorable fixed cost absorption, partially offset by mix. As Russ mentioned in his remarks, Q1 was another strong quarter for adjusted free cash flow. For the 3 months ended March 31, adjusted free cash flow was $125 million, up $39 million versus last year, representing an adjusted free cash flow conversion of 88% on adjusted net income.

Free cash flow generation has been and continues to be a priority across API. We are pleased with our first quarter adjusted free cash flow while continuing to drive strong, consistent revenue growth. We remain on track to achieve our adjusted free cash flow conversion target of approximately 115% for the year, in line with prior guidance.

At the end of the first quarter, our net debt to adjusted EBITDA ratio was approximately 1.8x, significantly below our long-term target of 2.5 to 3x. Our consistent free cash flow generation and strong balance sheet position us well as we evaluate financing options for the previously announced W Tech and Onex acquisitions, which we plan to fund with a combination of cash on hand, cash flow from operations and incremental debt.

As a reminder, our long-term capital deployment priorities remain unchanged, maintaining net leverage and stated long-term goals, strategic M&A at attractive multiples and opportunistic share repurchase. I will now discuss our guidance for the second quarter and full year 2026, which, as a reminder, is based on current foreign currency exchange rates and acquisitions closed to date.

We expect increased full year net revenues of $8.475 billion to $8.675 billion, up from $8.4 billion to $8.6 billion, representing organic growth in net revenues of 5% to 7% for the year. Moving down to P&L. We expect increased full year adjusted EBITDA of $1.15 billion to $1.21 billion, up from $1.14 billion to $1.20 billion representing an adjusted EBITDA margin of 13.8% at the midpoint and adjusted EBITDA growth of 11% to 16% for the year.

As a reminder, the impact of the Certicide acquisition, which closed on February 2 was fully reflected in our prior guidance and we will update our guidance for the WTech and Onyx acquisitions after those transactions have closed. Our increased full year revenue and EBITDA guidance is due to the strong business performance to start the year offset by the headwind of the strengthening U.S. dollar since our February guidance. More information on our revised guide can be found on our earnings presentation that is posted on our Investor Relations website.

In terms of the second quarter, we expect reported net revenues of $2.175 billion to $2.225 billion, representing organic net revenue growth of approximately 7% to 9%. We expect adjusted EBITDA of $300 million to $310 million. representing an adjusted EBITDA margin of 13.9% at the midpoint and adjusted EBITDA growth of 10% to 14%. For 2026, we continue to anticipate interest expense to be $130 million, depreciation to be $90 million capital expenditures to be $105 million and our adjusted effective tax rate to be 23%. We expect corporate expenses to be approximately $35 million per quarter with some timing variability throughout the year, and our adjusted diluted weighted average share count to be $441 million for the year.

With that, I will now turn the call back over to Russ.

Thanks, David. We began the second quarter with positive momentum and strong demand for our services. We continue to deliver robust organic growth expand adjusted EBITDA margins and build on the strength of our backlog, that and the continued strength of our M&A execution and pipeline position us well for the remainder of the year. .

We remain focused on creating sustainable shareholder value by delivering on our 10/16/60+ targets. With that, I'd like to turn the call over to the operator and open the call for Q&A.

[Operator Instructions] Your first question comes from the line of Andrew Kaplowitz with Citi.

Russ, could you give us a little more color on what you're seeing in Specialty Services, obviously continues to be very strong, a different level of strength, I think, over the last few quarters. I know you've got tougher comps moving forward, but do you see the momentum continuing as the majority of the uptick coming from data centers? Or is it more broad-based, would you say?

Thanks, Andy, and I hope you're well. The -- I would say that their backlog is super strong. And they are seeing some benefits from data centers, but I would classify the work in their portfolio to be more broad-based than just data centers. As a reminder, we're doing industrial maintenance and service work in our Specialty Services segment. We're doing -- we're doing infrastructure work. We do potable water replacement work -- and so the telecom work. And so they're definitely benefiting from data center and the opportunities that are presented with the data center expansions in the -- in North America. But I would also just classify their backlog as being really diverse just with their service offerings as well as from a geographic standpoint.

Very helpful. And then it seems like you've accelerated acquisitions quite a bit this year with the $1 billion you mentioned and continued optimism to get to the $250 million per year bolt-on M&A activity. Is there any reason for the uptick maybe valuations better, just more companies willing to sell, just more color on what you're seeing, do you expect this uptick of modestly bigger deals to continue?

Well, you broke the rule already with -- but with multiple questions -- but I expected that from you, Andy. And so you know what, to be honest with you, Andy, I would just say it's the opportunities presented themselves at the right time. So I don't know that it was anything that was necessarily purposeful. It's just that sometimes things have to present themselves at the right time. As an example, Onex presented itself 18 months to 2 years ago, we've known the business for for a long time. I've known their CEO for probably 10 years plus. And -- but when it presented itself the first time around, we were in the middle of an integration, a lot of integration work with our existing business in Canada alongside the Chubb Canada business, and we didn't feel like we had the bandwidth to do it. And so we remain disciplined and basically stayed on the sideline and this opportunity presented itself. And so we're able to capture it and take advantage of it. .

W Tech is another example. I think I first met Ted Wright, their CEO, who's a great leader, just like the Onyx CEO is a great leader. I think I met Ted, a couple of years ago, and we've just stayed in touch and got to know his business. And I think our culture and everything, the investment we make in people really lined up with what he was looking for as it relates to the people on his team. and the opportunity presented itself. And so again, we took advantage of it.

And so the Certicide acquisition came along, that was more of a process-driven transaction. But I think it's more just the opportunities came right time, great fit for us. We have a great team here that was able to jump in and execute. And super excited about these businesses. I mean they -- not only are they center the fairway for us as it relates to like the services that we want to offer our customers, but very strategic for us, but great leadership, great people in those businesses and just can't be more excited to have them joining the API family. And I was -- you didn't ask me this, but I actually got a chance to be in Portugal last week with the W Tech team and they kind of did their annual planning process. And like I came out of that just like even more excited about the fit. So just right opportunities, [indiscernible] time. Probably the best way to put it.

Your next question comes from the line of John Tanwanteng with CGS Securities.

I was wondering if you -- if you could talk about input cost inflation and what you're seeing there, number one. And if you're seeing any pushback from customers or any sensitivity or pricing as you put those pricing increases through to them?

Yes. Good question. Thanks, John. So on the pricing side, we continue to be able to get pricing on the inspection service and monitoring streams in our business. That hasn't changed over the last couple of quarters. In terms of input costs, so we've seen the impact of rising fuel costs and some material inflation in our business as a result of tariffs and the conflict in Iran. Our teammates and our leaders have done a really great job of protecting themselves at the time of proposal, which means that we're able to capture the dollar impact of rising fuel costs and material costs as they come through.

As a reminder, about 53% of our revenue comes from inspection service and monitoring and we're able to price that revenue on nearly in real time, so material cost increase we're able to price for that almost in real time. We've done a great job of being able to protect ourselves and capture the dollar value. It may have had a slight NIC on the margin, but we've been able to protect ourselves from a dollar basis.

And are you seeing any sensitivity from customers?

No, we've been able to continue to capture price.

Your next question comes from the line of Tim Mulrooney with William Blair.

Russ and David. Back to the acquisitions. Curious how far along are your recent acquisitions of WTech and Onyx down this inspection first journey, we think of API as being very forward leaning on focusing on inspections and service versus the installed gas, but I'm clear how many other companies out there have a similar go-to-market strategy or at least how we'll develop their systems and protocols are, I guess, as it relates to being aligned with your strategy?

Yes. Tim, thank you. And what I would tell you is like I'm going to include Certacite into the mix here. I would tell you, Certicite was like way down fine. And like 95% of their revenue came from inspection and service work. And so I would put them like even ahead of API, and that goes back to when Jeff had founded the business, he founded the business with this inspection first mindset.

I would say Onyx is kind of in a similar spot that API is at currently today. And so they are super focused on building a really robust inspection service and monitoring business, but I put them in a similar spot that we are -- and I would say that WTech is probably what I would consider more traditional where there probably a little bit heavier on the project side today, and there's opportunity for us to really build a robust inspection service business inside that current business. So they're all 3 in kind of different phases of the revolution. And -- but -- so it's -- they're in a good spot, and I think they're all going to be really accretive to what we're trying to accomplish as a company.

That's really good color. And then if I just tick in kind of along those lines, if I'm looking at W Tech in particular. Just curious how you think about the margin potential of that European business in totality. So you take hub WTech, I think what you had originally SK Fire, you put all this together, you streamline the operations. But obviously, the mix is a little bit different. The markets are a little bit different than the U.S., but you take all of this into account -- what does that look like 3 to 5 years down the line relative to your U.S. Fire and Life Safety business

Well, I got to give you a little bit of hard time to everybody's breaking the rules. So gave Andy Kap what's a little bit of a hard time. So I got to make sure I give John from CGS and I'm going to give you Tim hard time bought it, but Anyways, Yes, it's all good. You get a little bit of fun with this stuff, too. And the expectation is that it will be in line with our North American Safety business, and there's no reason that from a margin perspective, that they won't be.

And -- it's just -- it's -- a big part of it is setting expectations and creating the right belief that it's achievable, but that's the expectation. We believe that every one of our branches has the opportunity to be a 20% EBITDA branch. And that's the goal, and that's the target. And we feel the same way about Wtech. We feel the same way about Chubb that's integrated with SK as we do about our business in Paducah, Kentucky.

Your next question comes from the line of Katherine Thompson with TRG.

Good to see that guidance was raised, seeing good underlying business performance, but if you could just give a little bit more color on that in terms of what you're seeing. Is it -- just to clarify, is it increased demand or pricing or just timing -- and has there been any change in the variety of work? You noted earlier in your -- in the Q&A that it's not just data centers, but it's other projects, too. So just maybe setting out a little bit more the color on that improved performance.

Well, I would say, yes. And what I mean by that is that it's a combination of everything. It's -- there's demand in, obviously, the the conversation everybody is talking about is around data centers, right? And data centers is really the primary pusher of demand. So there's demand opportunity. But there's other end markets that continue to create robust opportunities as well like advanced manufacturing, we're seeing some really great opportunities in the health care space. Even higher education, there's opportunity there. Critical infrastructure continues to create opportunities for us.

So there's demand, there's playing in the right end markets contributes to it. price contributes to it. So it's a combination of everything. And we've been very consistent in our messaging that we are not over-indexing on the data center space. We want to make sure that we're taking advantage of the opportunities that are presented, but we're not pushing all the chips on to the comp line as it relates to data centers. And we'll take advantage of it, but we need to continue to keep our keep our customers that we have in the health care space and advanced manufacturing, et cetera. So it's a combination of everything that you mentioned. .

Great. And the follow-up question relates to the inspection first businesses that you acquired. Does the integration time line differ between kind of your 2 [indiscernible] of inspection or inspection and servicing businesses. And just is it easier ramp? Just any other color on the ramp up of this type of business.

Yes. I mean all 3 of them are like slightly different, if you will, like certicite is kind of its own business. It will continue to operate as an independent business inside our North American safety business. Their service offerings are a little bit different. It's a business that does a lot of extinguish your work. And so the integration will look different for that business than it would, say, look for like a more traditional bolt-on. .

Our Canadian Onyx acquisition, we're going to operate that business as an independent portfolio business for the time being until we can figure out the exact -- where there's -- we know where their strengths are, where their weaknesses are, and how that's complementary to our existing footprint in the Canadian operations. and we'll kind of address that market by market as we continue to go forward after we get through the different regulatory filings and everything that we need to get done to close on the acquisition. And then WTech is will be a stand-alone business inside our international business. And I think most folks have heard me talk about the difference between, say, North America and our international business. And -- what WTech brings to our international business is strong strength and capability in the suppression side of the fire life safety space, which hasn't been a significant strength for us. And so we plan to operate that as an independent business inside our international operations. And so the integration will look different there as well. So they all will have their own variation and levels of like integration as you would potentially define it.

Your next question comes from the line of Julian Mitchell with Barclays.

[indiscernible] from the Barclays team on for Julian. I understand that growth is quite broad-based across your markets, but specifically on data centers, could you provide a bit more color on the funnel and pipeline over the next few quarters? And if the company is still on track to reach around 10% of sales from data centers this year.

Well, you're choppy. And I -- so I think I heard your question. and it was around data centers and above -- around the funnel and around the opportunities that are -- that we're seeing. And if we think that approximately 10% of our revenue will come from the data center space at the end of the, so to speak, year. And I would say, yes. And I would say that the funnel of opportunities continues to be robust and we're being selective about which opportunities that we pursue and that we want to deploy our teammates too.

I tell our business leaders that like the men and the women that do the work in the field, we need to treat them like they're like precious gems and making sure that we put them on the right opportunities where we can maximize maximize the opportunity that's in front of us. And so we're trying to be really selective. There's a lot of partnering opportunities that have presented themselves because of the demand in the data center space. So we're being very selective with who we work with and the clients that we choose to align ourselves with. We also want to make sure that we're super focused on the project side with companies and businesses that we have the opportunity to do the inspection service and monitoring after that project opportunity is completed.

And do believe that approximately 10% to 11% of our revenue will come from data centers by the end of the year. I think that's fair isn't it, David?

Absolutely. Absolutely. And that was the result in the first quarter and the evolution of the backlog as we went through the quarter as well.

Perfect. And a quick one on Safety Services. Is the 5.4% organic sales growth rate, relatively good run rate for the year.

Yes. So a little toppy again. But I think the question was, was the mid-single-digit organic revenue growth, a pretty good run rate for the year in the Safety segment, and the answer is yes.

Your next question comes from the line of Ashish Sabadra with RBC.

This is David Paige on for Ashish. Just following up on the last question, Specialty Services seems to be also tracking above your midterm organic growth target. So I was wondering how should we think about that in the back half of the year or even just given demand and project strength, does that organic growth target need to be revisited? And then as a follow-up within specialty, some of the subsegments infrastructure, fab and specialty contracting. Can you just give some color on how those performed in the quarter?

Yes. I'll take the first half of the question, which is around the progression of the specialty segment. So really strong first quarter. I expect that business to perform at a strong level throughout the year. As we get deeper into the year, as you know, we'll be coming up against more difficult comps, so I would expect that there will be strength in that business. But as you start comping against more difficult comparisons, the revenue growth rate will slow in the back half but still be a really strong performance. And then a little bit of color around fab and infrastructure. Is that the second part of your question?

Yes. Yes. And just some of those yes, fab infrastructure and then specialty contract with, I think, grew around 45% in 4Q. So I was curious what was the -- how those businesses perform in the quarter?

Yes. I mean really pleased with the performance fall-through of those. Our our growth in the Specialty segment was really diverse and well spread across all of the reportable segments with strengthen a variety of end markets, including data centers, and as Russ mentioned, critical national infrastructure and others. So really pleased with the performance of all 3 of those in the backlog of all 3 of those reporting segments is strong and robust as well. .

Your next question comes from the line of Tomo Sano with JPMorgan.

Regarding your international business, I think if you mentioned that backlog remains strong overall. But in today's volatile market, competitive dynamics can present both risks and opportunities given ongoing geopolitical and supply chain challenges, how have you adapted your international operations over the past couple of months? And do you see any new opportunities in margin globally?

Well, I think that when I look at the international business, like our backlog is basically on par with where it was previous year. So like we feel good about the opportunities that we see. Our presence in the Middle East is pretty small. And I think that they're seeing -- definitely seeing more impacts from the conflict in the Middle East, just I think just general temperature and proximity is going to have some level of impact on that. But we feel good about our international business and the leadership inside the international business and the opportunities that are coming forward.

And -- from an M&A perspective, we've said that we have opened up the aperture and we think there's opportunities for us to continue to expand our business internationally. And we're seeing the opportunities come forward. So it's a good -- it's -- we're in a good place there. But they're definitely they definitely feel the impacts of the conflict more so than we do here. There's no question about that.

Your next question comes from the line of Andrew Wittmann with Baird.

Most of my questions have been asked and answered, but just a couple here. Maybe one for David. Would just be with these larger acquisitions still you have to close. Could you just give us a a view of where the net leverage stands kind of pro forma for those after those close, just so we can kind of gauge where the balance sheet is and how much more dry powder you have? And then Russ, just kind of a question for you just on the safety inspection service and monitoring environment right now. There's been -- I don't think it's just API that's been more focused on the inspection service and monitoring portion of this market. I'm just wondering, obviously, you're still getting pricing. I feel like the industry is getting pricing, but is the competitive environment both for customers in that segment of the market as well as for acquisitions noticeably different than what you would have seen 2 or 3 years ago? Or would you say it's unchanged?

I'll go first and just because I can remember the second half of your question, and David is younger than me, and hopefully, he can remember -- and I go back to like for the most part, like our -- we continue to see organic growth in our inspection business on par with previous quarters. And you're really taking share there. And I think that, that's really primarily driven by the highly fragmented market that we operate in. And like I've commented to this in the past that if you really go in and analyze the major metropolitan markets across the United States, there's not one firm that has a 10% market share in that market.

And we even -- I don't think most companies don't have more than 5% like the largest players, and that includes us. And so to me, like the highly fragmented nature of the markets that we serve continues to create opportunities for us to take share as it relates to growing our inspection and service business.

From an M&A perspective, Andy, we continue to see really -- our funnel and our pipeline are really robust even including these -- the bolt-on M&As opportunities that we're seeing. I would just tell you that we're looking for sellers who are really interested in finding the forever home for their people. And if all they're interested in is finding the highest price, then they should sell their business to a private equity-backed firm.

And what we can offer these companies is forever home for their people, we can respect the legacy that they've created. Most of these businesses are family-owned, family-run businesses and we have something different that we can offer these people, and that creates a unique opportunity for us.

And even WTech, which was a private equity-backed business, number one, it is probably one of the best private equity firms that I've been associated with like just they actually care a lot about their people. But in a conversation that I had with Ted their CEO in front of his key business leaders, the conversation was around people and finding the right spot and he actually turned and looked at his group and he said, "We found our forever home. And I think that, that's something that's unique and a unique provides us with a unique opportunity as we continue to look to to build out our portfolio and to build out our business.

And so I would say it's really the same, Andy. That's maybe a little bit more than what you were looking for. But I would just tell you it's the same, and I think it just creates opportunity and the more momentum we get on the more opportunity that it will create for us. And we get a lot of really good things happening in that front, and we'll have -- as we work our way through this year, we're going to have lot more to share. And that will take you into -- David can answer your question about our balance sheet and and the dry powder we have because we have a lot of flexibility.

Yes, I appreciate you reminding me the question too Russ. So as we mentioned in this grip, we ended the first quarter with a net leverage ratio of about 1.8x. By the time we finance and close on the 2 announced acquisitions will be at or below the low end of our target net leverage ratio, and I expect that we'll work that down to kind of the ballpark of where we are today by the end of the year. Does that help?

Yes, we can do the math on that. Good enough.

Your next question comes from the line of [indiscernible] Securities. .

I'll keep it along. Really nice organic this quarter. Obviously, you mentioned a mix impact on gross margins for both segments. Can you just provide a bit more detail on the mix factor this quarter and clear up if there was any like material purchase pull forward due to the uncertainty from the war or maybe to support the upcoming project in the next 3 quarters to sort of, I guess, boosted revenue a bit and diluted margins.

Yes, I can cover that one. I think about mix as kind of 2 factors, and they're both really mass-driven First is the growth in project revenue in the quarter, which, on average, comes at about 10 percentage points lower gross margin than our inspection service and monitoring work. And then second is the growth in the Specialty Services segment vis-a-vis the safety segment and the impact that had on margin in the quarter as well. So those are really the 2 mix factors just the ratio of service and project work in the quarter and the segment mix. And to answer your other question, no real material pull-forward impact in the quarter. .

Your next question comes from Curtis Nagle with Bank of America.

Great. Just I wanted to go back to the point you made on that 4% run rate or that being a good run rate for the year. Just wanted to confirm that given the 2H compares are obviously higher. So if that's the case, I mean, that's obviously a pretty positive statement. So just wanted to confirm that that's what you said.

Yes. I think I'm following your question. This is around the anticipated growth rates in the safety segment for the full year in the back half. I continue to refer back to our long-term organic revenue growth algorithm in that segment. We expect our service revenue to grow mid- to upper single digits, each and every quarter, each and every year, and we expect our project work to grow low to mid-single digits, which gets to a mid-single-digit organic revenue growth that was really the playbook that we saw in the first quarter, a little heavier maybe on the project revenue, but we expect that to play out through the course of the year. .

Okay. And then just 1 quick 1 on gross margins, should mix continue to be a headwind? How should we think about gross margins for the back half of the year?

I continue to expect to see our gross margins and our adjusted EBITDA margins expanding year-over-year as we target 60 to 70 basis points of margin improvement in the year. .

Your next question comes from the line of Josh Chan with UBS. .

Russ and David, on that safety services growth point, I guess you grew 5.5% in Q1, and it was a little heavier on project. Could you just talk about the trajectory the inspection service and monitoring and whether there's any change there or more of a timing in the quarter?

No, I think there really hasn't been any change in the trajectory of our inspection service and monitoring revenue growth, Josh. That business consistently grows mid- to upper single digits across the business. And there might be quarters where it ends up a little closer in. There might be quarters where it ends up a little closer to upper but that has been a consistent mid- to upper single-digit revenue growth stream for the safety segment. It was in the first quarter, and we expect that it will continue to be in the back half of the year.

There are no further questions at this time. I would now like to turn the call back to Russ Becker, President and CEO, for closing remarks.

Thank you. In closing, I'd like to thank all our teammates for their continued support and dedication to our business. We believe our people are the foundation on which everything else is built. Without them, we do not exist. I would also like to thank our long-term shareholders as well as those that have recently joined us for their support. We appreciate your ownership of API and look forward to updating you on our progress throughout the remainder of the year. Thank you again, everybody, for joining the call.

Okay. Good morning, everyone. Welcome to JPMorgan Industrial Conference Day 2. This is Tomo Sano, SMID Cap Industrial analyst, and I'm pleased to open the day with APi Group. David Jackola, Executive Vice President, Chief Financial Officer; Adam Walters, Senior Director, Investor Relations. Thank you, David, and Adam.

Good morning.

Good morning.

So before we dive in, I'd like to share why APi Group is such a compelling addition to this year's our conference. APi stands out as a leader in safety and specialty services with a resilient regulatory-driven business model and a clear road map to $10 billion plus revenue, 60% recurring revenue and 16% plus EBITDA margin by 2028. Their 10/16/60+ strategies and strong free cash flow make them a model of both stabilities and growth in the industrial sector. So to kick things off, I think it would be helpful to start with the introduction to APi Group, who the company is, what you do and also your stories. So David, could you kick off?

All right. All right. Good morning. Before I get started, I just wanted to take a minute to thank everybody for showing up bright and early and for your interest in APi Group. So APi Group is a global marketing -- market-leading business service provider of fire and life safety, security, elevator and escalator and specialty services. We did about $8 billion of revenue in 2025 and about 54% of that revenue comes from highly recurring inspection service and monitoring revenue. We really go to market in 2 segments. The largest, which is about 75% of our revenue is Safety Services. And that part of the business provides statutorily mandated and other contracted services to a large installed base of diverse customers across a wider variety of end markets.

The revenue, particularly the recurring inspection service and monitoring revenue is highly resilient because it's nondiscretionary, regulatory-driven and comes at high margins. One of the things that differentiates our fire and life safety business in the market is our unique lead with inspection model. And so we've got a dedicated sales organization that each and every day is knocking on the door of the ready-built environment, selling inspections. And inspection is a $1,000 to $1,500 service that we provide is statutorily required where we go in and we would inspect the fire and life safety system in the building for operability. We believe that, that inspection then leads to, on average, $3 to $4 of recurring follow-on service work and builds a really tight, sticky relationship that allows us to propose on projects at great margins and use the power of our customer relationship built through the inspection and service to build our business as well through project work.

The other part of our business is specialty services. That's about 1/4 of the business. It offers a diverse offering across largely countercyclical markets, telecom, utilities, some data center work across the business. And really, I think what differentiates as well as the inspection-first model is also our company's culture and our focus on leadership. So at APi Group, we believe that each and every one of our leaders is just that a leader, and we talk about that every day. And leadership at our company means that every single one of our teammates has the opportunity to positively influence not just themselves, but also the people around them in everything that they do. And that allows us to operate and lead in a highly decentralized model where our field leaders, our branch leaders and our company leaders are highly entrepreneurial, have a lot of autonomy to make really good decisions and to grow their business each and every day.

Thank you, David. So you talk about company culture and leadership. So APi Group has evolved from the past chip integration story to a streamlined operator with 2 focus platforms, safety services and specialty services. What have you been the most important cultural or organizational changes driving this transformation?

It's a great question. And I think it's been as much an evolution as it's been a transformation. So in the international business, we bought Chubb about 4 years ago. It's largely business as usual at Chubb now. We had a significant $125 million cost savings initiative that we drove in that business. We closed that work in June of last year. And now it's really focused on growing that business organically, improving margins each and every year, largely through the same levers that we've used to grow margins in the North American Safety business. So we believe that in the international business, it's business as usual today, and it's really about taking now and continuing to embed our culture of leadership and our culture of autonomy and accountability into the branches and into the companies and our international business.

Across North America, it's largely continuing to do more of the same. So one of the things as we're moving towards 2028, and I appreciate Tomo mentioning our 10/16/60 goals for 2028 is we're making a concerted effort on doubling down on leadership and development in our field leaders. And so L&D has been a part of APi Group's journey for the last 20-some years, and it's something that we're fiercely committed to. And just 2 weeks ago, we had about 100 of our leaders from all across the business together in Minnesota where we took a time out from the day-to-day of running our businesses, and we focused solely on our own personnel and leadership development. And that's really -- that's unique and it's something special. And we're making a really concerted effort to provide many of those same leadership opportunities to every single one of our field leaders.

And I'd be naive to think that all 29,500 of our teammates today actually do view themselves as leaders. But if they did and they felt empowered to make great quick decisions at the customer site that were good for business, good for API and good for our customers, really, the sky is the limit for where our company can go.

Thank you, David. And you're becoming larger and larger. And could you talk about how do you ensure the operational discipline, safety and local leadership remain embedded across such a large decentralized branch network?

Yes, absolutely. It's a complicated question that really boils down to kind of a somewhat simple answer and making sure that, that discipline rolls its way down to the branch level is you got to make sure that you've got the right branch leader in each and every one of your branches. And Russ talks about this all the time, and I do, too. If you've got the right playbook, use a football analogy, if you've got a great playbook and a bad quarterback, you're not going to have an awesome outcome. And if you've got a bad playbook and you got a great quarterback, you're probably going to have a great outcome. And if you got a great quarterback and a great playbook, that's really where the magic happens. And so really, the biggest and most important business decision that we have in driving accountability and excellence down to our branch level is to make sure that we have the right branch leader leading that operation. And if we don't, making sure that we've got a plan to find it.

And then talking about the field first, the cultures, how do you maintain consistency and accountability across the over 500-plus locations?

That's another great question. And you almost answered it for me at the beginning of the fireside when you talked about a 10/16/60 goal. And I think one of the most important things in keeping consistency and accountability is making sure that everybody is aligned on what your goals and what your objectives are and when we went through our 13/60/80, which we walked out of at the end of 2025, that really served as our organization's North Star. So each and every one of our teammates knew and understand -- understood 13/60/80 and had a good picture of what their role was in helping our business to achieve those goals. And as we move into 10/16/60, which is $10 billion of revenue, 16% adjusted EBITDA margin and 60% of our revenue coming from recurring inspection sales and monitoring, that's really serving as a North Star for our team, too. And so the first is making sure then that we've all aligned up on the right goals.

And then the second is making sure you've got the right leader. And then I think the third piece is providing transparency. So one of the things that we do across our business is each and every month, we calculate through and my finance guys across the world do this work. We go and calculate the profitability of each and every one of our branches. And then we put them into a report and we stack rank them from most profitable to least profitable. And if you're above the fleet average, you get a green. If you're around the fleet average, you're a yellow and if you're below, you get a pink and nobody wants to be red. And so that just drives a certain amount of competitiveness across our branch network. Nobody wants to be at the bottom and when they see that they might not be performing at the same level as their peers, they get on the phone and they ask for help, they step up their game, they lean in a little bit more, and that's really positive.

The other thing that [indiscernible] branch financials does is it gives people an understanding of the art of the possible. And remember when I spent time in the international business, we'd have branches around that thought they were crushing it, that they were doing great, just an example, a branch in Germany that was doing 12%, they thought they were killing it each and every day. And then they see branch rankings, and they never saw branch rankings underneath prior ownership, and they see that they've got branches across the international network that are north of 20% and 25%. And all of a sudden, they look in the mirror and they're not crushing it. They've got a ton of opportunity to get better, and that really drives this culture of continuous improvement.

And then the last thing I think I'd say about the field first culture is we talk all the time at our company about this thing called our central premise. And the central premise is really a statement of kind of recognizing that as leaders, we are all part of the success. But really, the success at APi Group happens when our branches and our field leaders are successful. And like I don't have a job if it isn't for the work that our field leaders are doing, and Adam doesn't have a job if it isn't for the work that they're doing, providing great service to our customers every single day of the year.

By the way, I like your podcast focusing spotlight on those kind of leaders talk about their stories on a podcast. So thank you. Shifting gear to growth strategies, end markets, recurring revenues. So you talk about the 10, 60 and 16 (sic) [ 10/16/60 ] by 2028. What are the major levers to further increase recurring revenue and margin expansion, especially as you scale inspection and service?

Yes. Great question again. The levers in our business continue to be the levers that have gotten us to where we are today. And so driving mid- to high single-digit growth in our inspection service and monitoring revenue streams is really about continuing to invest in the inspection sales organization. That's kind of the tip of the spear in the inspection first flywheel model that we run our business off of. And so we've got pretty ambitious goals of the number of inspection sales leaders. That network and the infrastructure that you need to drive a pure inspection-first business is really difficult to replicate. It requires not just a great inspection service team. But for every -- just to give you an example, if we hire an inspection sales leader, when that inspection sales leader is ramped up and has a full book, that person is going to require 4 inspectors in order to satisfy all of the needs that, that one sales leader is generating.

And each one of those inspectors is going to -- then -- those inspections are going to drive $3 to $4 of follow-on service work every single year per dollar of inspection. So if you think about it that way, one inspector needs -- one inspection sales leader needs 4 inspectors and each one of those inspectors is going to require 3 or 4 service technicians in order to keep that flywheel going. And then you've got the transactional back office part. Like I said earlier, inspection is $1,000 to $1,500 piece of work. So you got to be able to invoice it quickly. You've got to quickly turn around the deficiency report from the inspection into a service proposal. And then once you complete the work and you invoice for the work, you've got to out there and quickly collecting too.

So it takes a back office to do this that's difficult to replicate. So we believe that we've got a long runway. And we've got parts of our business where a story that we like to share one of our branches in upstate New York, they thought they were crushing the market. They thought that they had it. And so we did a little work and we did a market study and they had 7% or 8% of the share in their market. And so these are highly fragmented markets with ample opportunity for us to go out and win new customers each and every day. And that actually is taking customers from our competitor as well as growing our business through price.

And then talking about the -- you outlined mid-single-digit organic growth. And what are the most important end markets or verticals such as data centers, health care, elevator security for the future growth?

Yes. Great question. So we talk all the time with our leadership team around how the markets that we do work in matters. And it's absolutely true. Obviously, we've gotten a lot of questions following our end of year release around data centers and the role that data centers are playing in our business. And when we exited 2024, data centers were 5%, 6% of our total revenue. When we exited 2025, it was about 8%. And I think that we'll exit 2026 with data centers being around 10%. So that's obviously an important end market. And it's a market that we're taking advantage of because it provides a great opportunity with long-standing customers at a really attractive margin profile.

But one of the things that we will not do is we will not become overcommitted in any one end market, and that includes data centers. And so our business is going to continue to be diversified across a variety of end markets, and we're seeing strength right now, not only in data centers, but in advanced manufacturing and pharmaceuticals, health care, the warehouse space, critical national infrastructure, among others. So our backlog is -- we ended the year with a strong robust backlog spread across a variety of end markets, all of which are performing at a high level.

And then could you talk about how do you balance the growth in project-based work such as like large data center you talk about or infrastructure projects with a focus on higher margin and also recurring service revenue?

Yes, absolutely. And it's a delicate balance because one of the things I think that people don't completely understand about our business is there is such a thing as having too much project work and a great project requires a really good customer, a really good piece of work, a great project manager on the API side, a great project manager on the customer side and then really good teams who are supporting those leaders in the work that they're doing. And as you get more and more project work in your portfolio, each of those becomes a little bit more difficult to find. And when you hit this point where you've got too much project work, then you end up chasing it and you end up putting your really great teams on fixing a problem. And you just -- the art of it is coming up to the line, but not going over the line.

So how do we balance it? A couple of ways is, one, not being overly committed in any one end market. I think that's really important and critical, knowing when enough is enough, but also taking advantage of the opportunity that we have in front of us. We've gotten a ton of questions, like I mentioned earlier about data centers. Largely the work that we're doing in the data center space is built upon the strength of the relationships that we've developed through our recurring inspection service and monitoring work that we do with the hyperscalers and the general contractors in those areas. And I think lastly, and this is really important and one of the things that differentiates us from competitors as well, is we have a separate and unique inspection service and monitoring department aside from our project work.

So when project opportunities come, it goes into the project department of our branches. And that allows us to keep the inspection service and monitoring departments within our branch network, laser-focused on going out and taking share, capturing price and providing a really high-quality inspection, getting that deficiency report converted into a service proposal quickly and then following up and continuing that flywheel. So I think that having both 2 of those departments working side by side and not sharing resources allows us to have the focus on continuing to drive the inspection service and monitoring work while taking advantage of the robust project environment that we're in right now.

Thank you. Moving to execution, operational excellence and technology investment standpoint. So when I visited you in Minnesota last year, we observed a strong sense of operational discipline, safety and empowerment at the branch levels. What are the key drivers behind this on-the-ground cultures? And how do you maintain it as the company grows? And also congrats on a 100 years anniversary you have.

Yes, I can take this one, Tomo. So it's a good question. I mean I would say part of the on-the-ground culture is like we talk about how important leadership and development is for us at APi. And that's not just like a corporate thing, like a majority of our kind of leaders and teammates are not corporate teammates, back-office teammates, like it's people in the field doing the work, making money for us. So when we talk about leadership and development, that has to be at kind of all levels of the organization. So we have a lot of like leaders or field leader development days where it's -- and this is not like technical training for our field leaders. This is the same type of learning development that we're getting at corporate that they're getting in the field. So -- that's a key focus area for us is like making sure they're getting development, getting chances to learn and grow and develop as a human being, as a leader and not -- again, not like from a technical side.

So we have a great focus on that and a lot of good opportunities for all of our field leaders to get those, whether it's in-person courses, online trainings. There's a lot of different variety of opportunities for them to kind of continue to grow and develop, and that obviously helps with the culture. And then the other thing I would just call out is kind of the same thing David mentioned before is on a kind of branch-by-branch basis, we have like the stacked ranked report that comes out every month, and you can kind of see how you're doing that helps you see how you're doing compared to the rest of the other 500 branches. And like when we talk about M&A a lot, when we acquire businesses, that's where it's really eye-opening to people as they think they're doing awesome. They think like I can't make that much higher margins and then they get stacked up against 500 branches and like, oh, holy cow, I can -- I have a lot of room to kind of grow and improve.

And we'll do what we call kind of home and home visits. So if somebody in a branch that isn't maybe performing as well as they could be, can go visit another branch and see how they're running their business, what are they doing to perform at such a high level. And that just kind of helps share ideas and knowledge and helps everybody grow.

And then could you talk about how technology investments such as AI tools and connected field solutions empowering your field leaders and supporting both growth and margin expansion?

Yes. So this topic, I would say, in general, has gotten a lot of traction in the last couple of months, like it seemed like 4 or 5 months ago, we weren't getting many questions on AI and technology. And now it's definitely a hot topic that people are asking about. So we're definitely focusing on it. We see it as a good opportunity for us. We actually stood up kind of an AI team last year, and their mandate is basically go work with our field and figure out what are your pain points throughout the day? What is kind of manually intensive that's taking a lot of time? How can we kind of make your life easier on a day-to-day basis with AI or other technology tools. So that's what they're doing. They're working with the teams and kind of coming up with ideas of this is a pain point, this is a pain point, okay, what can we kind of -- how can we use AI to kind of help you make that process more efficient.

So I would say we're in the early innings, but a couple of examples of technology we've kind of rolled out like on a branch-by-branch basis. One is a customer attrition tool. So they basically put the customer data into this AI tool, and it will spit out based on all the different data points. These customers are at risk for attrition and then you can go basically spend time with those customers, make sure you're connecting with them, making sure they're happy with the service they're getting. Is there anything we can do to improve what we're doing. So like that's a good tool. That's, I would say, again, in kind of the early innings.

Another tool we rolled out is called APi Echo. And that tool basically is -- it basically records and takes notes for the field leaders. So when they're in the customer, they're not taking their gloves off to kind of jot stuff down when they're talking to them. They can just have this tool recording the conversation, recording notes and that can help them be more efficient and focus on interaction with the customer and then that -- those recorded notes can help them like with their inspection and deficiency reports later on.

And then maybe the last one I would call out is kind of similar tool. within our kind of APi Echo tool, we've put in like product manual. So if you're working -- if there's a technician working on a fire alarm panel and there's code 54 -- pops up error code 54, and they don't know what that is, instead of flipping through a product manual trying to figure out what's going on, they basically can ask what does error code 54 mean and how do I resolve it? And it makes it much more efficient for what they're doing. So we're kind of just -- that team is basically working on just I wouldn't say small, but like very targeted initiatives to help those -- to help our field leaders kind of become more efficient in what they're doing, and that will kind of continue to evolve over the next couple of years. And I'm excited to kind of see in a couple of years, what are all the tools that we've kind of put in their hands to make them more efficient and help them spend more time with the customer and less time kind of doing those manually intensive tasks.

Yes. The only thing I think I'd add from my perspective is I'm really excited about AI because, one, I can't envision a world where AI replaces the work that our field leaders do. So then this is an area where I think our scale in the marketplace serves as a real advantage, and it strengthens the competitive moat around our business because we're able to invest in the type of technology that Adam describes in a way that a lot of our competitors can't. And that's not only going to help our field leaders to be more efficient. It's going to give them the tools that they need to want to work at an APi company when they're going out and looking for work and applying their trade. And that net-net helps us to grow our business in the future too.

Thank you. And what are the most important KPIs or milestones you track to measure progress in safety, service, quality and operational efficiency?

Yes. Great question. So we've got an operational dashboard that we use with our businesses that captures about 18 or 19 different KPIs across a number of different metrics. And none of it is like rocket science per se. But when you talk about safety, the first thing that we do, which is, I think, really, really important is we start just about every meeting at API with acknowledgment that the safety and well-being of our leaders is our #1 value. And that provides a foundation and a benchmark that really -- the most important thing that we do each and every day is making sure that our leaders go home in the same condition that they came to work, and that's really, really important. But when it comes to metrics, it's metrics like TRIR and TVAR.

We take a look at the number of claims and the dollar value of those claims. But we also have some leading indicators that we look at through our [ STEPS ] platform, and that's a tool that we use to drive our safety culture across our business. And that would be metrics like safe starts. So do you have a safety moment before the meeting where you're setting the team up to understand the environment in which they're working so that they can be as safe as possible when they're doing that. And then near misses and near misses are events that just as easily could have been a safety incident, but not for a little bit of good luck in the grace of God. But you learn from each and every one of those about something that you did wrong that you can take a lesson of to make sure that it doesn't happen again. And so those are some of the leading indicators that we look at as well.

When it comes to service quality, I don't think there's any better metric to assess the quality of the service that you're providing than your customer attrition or how many of your customers you're retaining, particularly across the inspection service and monitoring part of our business, and we feel really good about that area. We're north of 90% across our business. But I think that's the best metric that you've got there if your customers are happy with the value that they're receiving the services that we're providing. We're going to keep them. And then when it comes to operational efficiency, we've got a number of different metrics. The one that I think is probably underappreciated and maybe one that we don't talk about enough is in each of our branch network, there's this point where they're covering the entirety of their branch overhead from the gross margin from the inspection service and monitoring work.

And that really means that they've invested in that inspection first mindset. They've built out the inspection department. They're performing inspections and the follow-on work at a really high level, and they're covering their expenses through the year from the gross margin from that work. And what that allows then is for these branches to be highly, highly selective in the type of project work that they do because they don't have to do project work to cover their overhead. So each and every one of those projects is kind of gravy on the top. And when they hit that certain level of operational efficiency, that's when you really start to see the profitability levels of branches off.

Thank you, David. And moving to our capital allocations and open up to questions. So capital allocations, with net leverage below your long-term target now and strong free cash flow, how do you prioritize between organic investment, bolt-on platform M&A and potential share repurchases, please?

Yes. So our capital allocation priorities are going to remain largely the same, maintaining our net leverage at or below our stated targets, accretive M&A and then lastly, share repurchase. We feel really, really good about the M&A pipeline ahead of us. We feel like we've got a long runway in the $250 million a year of bolt-on M&A. And there's plenty of opportunities that are larger than what we would call typical bolt-on M&A as well. So I would say we don't have any plans currently for share repurchases. We'll remain opportunistic like we were a year ago around share repurchase. But really, we're focused on growing the business organically and feel good about the M&A pipeline in front of us.

And then talking about the M&A opportunities, is there any specific geographies or service lines, fire protection, security, elevator, you're prioritizing?

Yes. I think you nailed it. And I'll start with Elevator Services. So we've got a commitment out there to grow a $1 billion elevator services platform. We've got a long way to go to reach that goal, but that business now is at a point where they're ready to be acquirers of bolt-on M&A. We did a deal last year. It wasn't quite a bolt-on, but wasn't quite a platform either, but we've got a pipeline in the elevator services industry. And so I think that we'll be doing an elevator acquisition, at least one in the next 12 months. Our international business is also at a point now where they're ready to be going out and delivering on the bolt-on M&A strategy. And so we've got a really robust pipeline of opportunities outside of the U.S. We've got teams that are ready to integrate businesses into their companies, and we're ready to go there.

And I think then largely, it's going to continue to be deploying capital against the fire and life safety side of the business, and we've got opportunities to grow our alarm and our security business in North America. I think we've got opportunities to grow our fire suppression business outside of the U.S. I don't think we need another leg on the stool per se, but I think that there's ample opportunities to continue to grow our business through M&A and the work that we're doing currently.

Thank you, David. And I would pause here and see if anybody has any questions from the audience. All right. Okay. Please go ahead.

Any logical new legislation, either domestic or international that allows you to sell further in? And how do you use price as a leverage on your annual renewals?

Good question. So any new legislate in the future? Not that I'm aware of. I mean, unfortunately, like in our industry, when there's incidents involving death, and there was one around New Year's in Switzerland, that's typically when coding regulations become a little bit tighter, and that generally helps our business, but nothing on the legislative front that I'm aware of anywhere. But how do we use price? So you think about the inspection, and I mentioned earlier probably twice actually, that it's about $1,000 piece of work. And so if you think about $1,000 within the context of the cost that it takes to run and operate a commercial building, maybe not all that dissimilar to a hotel like this, it really is a relatively small piece of the overall budget of running a facility, but it's also like servicing a high cost of sales system. And so -- and the inspection itself requires a high degree of coordination and really strong execution both on the customer side and on API side.

And so if you take all of that into account, as long as we're going in and doing a really great job on our inspection, nobody is going to bat their eye to a 5%, 6% price increase because the cost of going out and bringing in a potential new competitor in to do the inspection. They may not understand your facility. They don't have the relationships with the facility managers. It brings up this like question of can they do the work at the same high quality and inspection really is a coordination between the customer and API. And if you get one part of those right, you've created a wrong, you've created a real disturbance with your customer. This going to cost them a whole lot more than the $60 or $70 a year that, that price increase is.

So we believe that as long as we go in and continue to do a really great job on the inspection, we continue to quote the follow-on service work quickly. We do a high-quality job on the follow-on service. We're there for that customer if they're ever expanding or need retrofit or new project work that there's an opportunity to capture price that reflects the value of the service that we provide, and that opportunity will be there for a long, long time.

Right. Thank you for your questions. And last 2 questions from my side, David. Are there any aspects of APi business such as your field first culture, technology investments or international platform that you believe are underappreciated by investors?

Great question. I think the first thing I'd say is the importance of our culture. Culture, I think, in a service company is everything. And culture like people ask all the time at these conferences like around tight labor market. Well, labor market in our industry has been tight for the last 10 years, and it's not an excuse not to grow our business. And when you have a really great culture that people want to be a part of, like that gives you a real advantage in the marketplace because you know that you've got a great place to work and that you're working in a company that's going to invest in you not just as a professional in the trade that you're performing, but also as a human being.

And so I think the strength of our culture not only allows us to bring great people into our organization, it allows us to keep great people in our organization. And I also think it allows our leaders, whether they're in the field, in the branch in the company, in the segment or at APi Group to perform at the very best of their abilities because they truly view themselves as leaders. They feel empowered to make decisions and to do the right thing in the company. So that's the first.

And then I think the second is the amount of runway that's still left in front of us in our bolt-on M&A strategy. And we continue to -- we're in highly fragmented markets, both in the U.S. and internationally. The elevator services market is a lot the same. And I think we're going to have years and years and years ahead of us of being able to deploy capital at a really high rate of return to continue to grow our branch network and to make our business better.

All right. With that, thank you very much, David. Adam, thank you, everyone, to join. This is the end. Thank you.

Good afternoon, everyone. I'm Curt Nagle, the Senior business and information services analyst here at BofA. This session is APi Group. Very pleased to welcome Adam and Adam who work on the IR team. We'll structure this as a basic fireside Q&A. But if time permits, we can certainly open up to questions from the audience. So gentlemen, welcome. Thank you for coming. Appreciate it.

Thanks, Curt. Thanks for having us.

So yes, first question, maybe starting with one on what I'll call the operational DNA of APi. Inspection first, that's the playbook. Maybe I'll walk through the history of the strategy, how it's driven growth and how you've matured the model over the past, let's call it, 10, 20 years.

Yes. Happy to do that. And first, thanks, everyone, for joining us today and for listening in to learn more about APi. In terms of the Inspection First strategy, that is really part of our DNA. It's a strategy that started in one of our branches. Somewhere between 10 and 15 years ago just by an individual in that branch being entrepreneurial and thinking of a better way to run their branch. And we saw that it had really driven some great results in that branch and created a much more recurring sustainable business model and it's spread to that operating company and then that operating company President joined another operating company and its spread to that operating company.

And it just kind of slowly spread. And then I would say there's probably two other inflection points. Becoming a public company actually has helped us as a business have more unified strategy and more alignment in terms of what we're doing. So since we've been public, there's been more adoption into the Inspection First strategy really across our full branch network and in North America. We do feel that, that is a mature strategy. We'll continue to execute it. And as we add new businesses to the portfolio through M&A, they become part of the next group of businesses that are putting that strategy into place. So we're really excited about it and still in the early innings of implementing that strategy internationally as well.

Mature in strategy, not mature in opportunity, right?

100%.

Yes.

Correct.

Yes. So on paper, at least conceptually, it seems kind of simple, right? You're targeting what are, in many cases, mandated services, it's a recurring model, hard to execute, right, hard to build. So number one, I mean, are you seeing competitors trying to copy or emulate the strategy? And then, I guess, what is it inherently within the culture, within the executional framework of the company that makes it so difficult for your competitors to [ log ] against you?

Yes. So we -- from time to time, we will see some competitors try to kind of copy the strategy. But largely, we actually don't as much as you might think. The reason being, if you think about the market we participate in, it's a highly fragmented market with a lot of mom-and-pop family businesses, and they have essentially run their business usually project first because they're focused on larger ticket size, larger dollar amounts, despite it being lower margin.

And there's really not a catalyst for those businesses to wake up one day and flip their business model. This Inspection First strategy requires a long-term investment in dollars and time. You first need to sell the inspection. So we built the sales force, you need to dispatch the inspector, execute the inspection, create the efficiency report, turn that into a service proposal, execute the service and all. The faster you can do that to get your customer back in compliance with the fire marshal and their insurance provider, the more you become the easy button for your customer.

And we find that unless you're really committed to the strategy, and we've got a separate inspection department to be fully committed to inspections. The competitors who try to dip their toes into the strategy oftentimes have some footfalls or stumble because they're getting pulled back to those higher sized project opportunities.

So they don't have -- I guess, the specialization for one, right? They don't have the scale and then obviously, building the, I guess, call the muscle memory. It seems like a pretty good moat?

100%. And like it all kind of comes from the foundation of our culture too. Having a business with a culture and our purpose of building great leaders, we have a really good alignment throughout our organization and what we're trying to do and what it takes from each individual and their respective roles to lead in those roles and to help us get there. And it's no different in the inspection for our strategy and putting that into work.

Okay. Fair enough. Let me quickly touch on market trends. We don't have to talk about data centers, right? I think we have a pretty clear idea of what's going on there and kind of where that could go, at least in the near term as a percentage of revenue. But in some of your other bigger verticals where are you seeing the most strength, what's contributing to your, I guess, the highest revenue generation right now? Where are you seeing any weakness?

Yes. So our business, as we're kind of about halfway through the first quarter or getting towards the end of the first quarter, we are seeing a lot of consistency in our inspection service and monitoring business as we have over the past few years and that business really is pretty consistent year in and year out, where we've seen a lot more strength in 2025 and so far this year is our project business, which has been out delivering our long-term organic growth algorithm.

And you mentioned data centers, that is an area that's been strong, but really kind of -- end markets matter is what we believe at APi, and it's not just data centers, advanced manufacturing, warehouse and distribution space, pharmaceuticals and health care have all been markets that have shown resilience and growth this year and last year. And we've seen our backlog continue to build, and we view the backlog today as kind of healthier than -- we kind of view health as the expected margin we'd get out of it than it was a year ago or two years ago. So we feel good about where the business sits, the kind of robust activity on the project environment and the consistency we have on the inspection service and monitoring side.

Yes. Bigger and healthier margins, maybe more importantly.

Yeah. For sure.

Okay. And so a pretty decent recurring revenue stream. But just given that it's topical in terms of sensitivity to either economic downturns and inflation, what's going on with fuel, stuff like that, how insulated is the business from macro gyrations?

We believe it's very insulated. We've seen fuel spikes in the past, and we've been able to neutralize that with fuel surcharges and kind of help pass those costs through to our customers. And I kind of mentioned it, but the consistency of our ISM work and the recurring nature there and then the end markets mattering on the project side. We feel like we've already been -- if you -- depending on where you're looking, office buildings, high-rise condos and apartment buildings have been in a tough spot for a couple of years now.

And we've been kind of successfully navigating that as we're focused on more owner-direct opportunities in those target end markets that we talked about.

Okay. Fair enough. So I guess sitting on the topic of recurring revenues, getting closer or fairly close to the target of 60% or so right from inspections from the servicing, right from monitoring. I think you were at 54% last year. I know what the opportunity set is, I think that's fairly clear. But in terms of hurdles to getting there, what could they be?

Yes, I can take that one. So you mentioned that we've ended at 54% this year from inspection services and monitoring, that's continued to kind of tick up year-over-year as we continue to focus our long-term algorithm on the kind of high single digits on the inspection service and monitoring and more low single digits on the project revenue side of the business. Obviously, if the project revenue side of the business is robust, that can be one of the headwinds like we saw in 2025. Just a lot of good project opportunity out there, and like we're going to obviously take advantage of that even if we're kind of growing that part of the business.

A little bit more than our long-term algorithm, like it's still a great opportunity, great work for us at healthy margins. So the robust project environment can definitely be a little bit of a headwind to get into that 60% target. The other, I would say, kind of hurdle or headwind would be a lot of the bolt-on M&A, like we talk about the competitive landscape is a ton of small family-owned businesses. And like they're not worried about their gross margins or their EBITDA margins, like they're focused on chasing kind of the bigger ticket project opportunities because that helps them get their $10 million revenue for the year. So a lot of these businesses when we buy them, they're much more project-heavy focused and less inspection service and monitoring focused.

With that being said, like that's part of the diligence for us is what is their mindset? Are they open minded to starting to kind of shift their strategy to align with the APi strategy of leading with inspections and driving that revenue. And if they're not, then it might not be a good fit. But yes, that can definitely be a headwind for us. So you're kind of taking -- you can take two steps forward, one step back with some of the M&A.

Right. But just a rate of growth of project business. Maybe stick on that for a second. And correct me if I'm wrong on the stats, I think historically, it's about a -- for every buck of project, you get $3 to $4 in recurring lead on revenue. For the -- I guess, the book in the new project revenue are coming on, are you still kind of holding at those rates? Or where does that stand?

So the -- I think the ratio is actually a pull through from our inspection dollar. So it's like if every dollar of inspection work we do, we typically get $3 to $4 of service revenue from those inspections. But there is -- we would expect as we have a more robust project environment now to be -- have that ultimately be a tailwind to our inspection and service work on the back end. Particularly the data center world, where we're building these data centers. We're putting in the fire protection in these data centers in rural remote locations where we happen to have branches nearby very often, and we're best positioned to be doing the inspection and service work on the back end.

So the stats were a different thing, but you're not -- you're correct in the fact in the thought that those inspection opportunities that come from our inspection and service work, will then provide new inspection and service opportunities in the future as well.

Yes. Okay. Fair enough. And so, thinking about the margin profile and specifically customer selection, project selection has been a big focus. I think part of that is just you can be selective in a market like this. We talked about the higher margins. But aside from just inherent profitability, what are the other criteria that go into selections? Maybe put another way, for every project you're turning down or you're accepting, how many turn it down and why?

Yes. So like when we talk about disciplined customer project selection, I mean, there's, I would say, a couple of different kind of buckets there. One is like in this inspection for strategy, you're building good customer, good sticky customer relationships through that. Like -- those are probably the customers that you want to do project work with because you have the relationship, they're going to pay their bills, they care about the life safety systems, protecting the people and the assets in the building. It's like that's a good customer to do work with. And like that work, you're going to be winning the work based on your relationship, not based on who has the lowest price.

And so you want to kind of -- you want to go after that work and like stuff that's developer-led, for example, like that's going to be the lowest price wins, and that's -- we're not interested in that. Like we want to be getting good healthy margins on the project opportunities we're pursuing. So that matters. And then I would just say like when you're -- like when you're putting together your proposal on a job like you want to make sure you're proposing it correctly, so you're not getting bad margins.

You're getting good margins that you're allocating your people to work that is going to be worthwhile and not lower margin work because that's -- if you think about just one like branch leader, like that's one of the bigger strategic decisions they're going to make is how are they using their people and making sure you're using them on good opportunities and not kind of wasting their time on bad work.

I guess it's kind of a side question, how are you using technology for better project selection? Is that a focus, right, particularly if it's on the branch level, I'd imagine a lot of sort of human decision-making, but in terms of maybe adding new tools or analytics or maybe that's an opportunity that could be coming down the pipe.

I mean like just in general, technology we see, especially in next 5 years is like a really good opportunity for us. Going back to our competitive landscape like small family-owned businesses are probably not going to be investing a lot of money in technology to kind of help their teams where we have -- like we've stood up an AI team that basically their mandate is, go work with the field and figure out what's the pain point in their day-to-day and like help them get tools, whether it's AI or other technology like in their hands to kind of eliminate pain points, manually intensive stuff.

So yes, there's like -- we're definitely starting to use technology for our field leaders to help them become more efficient with what they're doing. But we're definitely in the earlier innings, and there's a lot of -- yes, it's a big opportunity for us.

Could we expand on that a little bit more? I think you've given a handful of specific examples, albeit it's pretty early. But whether it's reducing error rates, whether it's cycle time, whether -- getting better route density, I mean, take your pick of operating metrics maybe unpack that a little bit in terms of general efficiency and maybe margin uplift you could see.

Yes. I can give you a couple of examples that the team is kind of working on right now. One is -- it's called APi Echo. So it's a tool that -- basically it's an app on your phone that allows our field technicians, like they don't have to take their gloves off or their -- stop what they're doing and take notes and stuff, it's recording what they're doing and then they can kind of use that to help like put together a deficiency report because it's got all the notes in the audio and everything.

So like that's an easy example for them to just save a little bit of time here and there when they're interacting with customers. Another tool that we've started to roll out is a customer attrition tool. So it basically takes all this customer data and it can kind of predict when a customer could be at risk for attrition. So then you can try to make sure you spend enough time or at least thinking about, am I spending time with this customer to make sure they're happy, satisfied with the quality of service we're providing. So that's a good tool.

Another tool is kind of putting in product manuals into that APi Echo tool. So if a technician is working on a fire alarm panel and there's error code 222 and they don't know what error code 222 is, they can ask it, what is error code 222 on this, whatever Honeywell fire panel, and it can tell them how -- what that means, how to resolve it. So, there is a bunch of different little opportunities like that, that are rolling out, I would say, in small pockets of the business. Seeing how it works, seeing what -- maybe there's things to kind of fix to make it better and then continue to roll it out to more parts of the business.

Okay. So an opportunity to be capitalized on. Okay. Right. So maybe just going back a bit to end markets. So advanced manufacturing, semiconductors, data centers and pharma, all markets that I think you're pretty excited about. Within these, are there any end markets that are, I guess, more accretive or margin enhancing than others?

I think within those type of target markets, they're all generally -- what we look for is the greater the complexity or -- and the complexity can come in a variety of ways, like the actual fire protection system itself. But also the location we need to do the work in, the amount of people we need to get in there and the time constraints required. All those things create a more narrow competitive set where we can make sure we're charging the price that is commensurate with the value we're bringing to the table.

So all of those end markets, we are finding the ability to price our work in accordance with kind of the margin expectations we're looking for. And it's because of that complexity and some of those issues if you're looking at like a high-rise condo building or every floor is kind of a cookie cutter or the same floor, that's less complexity, less ability to differentiate yourself and more price wins those. So all -- that's why end markets do matter for us and the markets you mentioned, I think, are all markets where we're seeing those stronger margins.

Okay. So maybe just kind of sticking on that. And I think there's also been a desire to not over-index and again, not to belabor a point. Data centers would be one of them. But I guess at what point would you consider yourself over indexed to a particular market and maybe pull back because either it's drawing too many resources? Even if the margins are good, how do you think through that?

Yes. So we don't have like a hard and fast rule on, "Hey, this -- once you get to this percentage of revenue, we're not going to do projects there." We've kind of consistently said we are going to be opportunistic but not overcommitted to the data center space, and that really goes for any end market that's experiencing robust growth. With the thought being, we want to continue to operate within the framework of that Inspection First flywheel. So a lot of these data center opportunities or opportunities in those end markets we just talked about are coming from existing customers that we have relationships with on the inspection and service side, and we're having those discussions on an owner-direct basis.

And that's the exact type of project opportunities that we're looking to do. And if we happen to have a year where there's an abundance of those like 2025, we're happy to be opportunistic in those years. But yes, we're -- we've gone from, I think, 6% of data center or high tech exposure, which includes data center in 2024 to 8% in 2025. So we've made a step change in terms of increased exposure there, but a small step. And I don't think you'll see us in any of the areas of some of the other competitors that have kind of putting all the eggs in that basket.

Sure. Okay. Fair enough. Shifting to elevator business, right? So I think that's what I'll call maybe a newer greenfield opportunity. You made a relatively large acquisition through Elevated a couple of years ago. $10 billion market, I think it's fairly similar in terms of the dynamics of all the attractive recurring revenue streams and things like that and mandated work. A couple of questions. One, just how does the competitive set look compared to other markets? What gives APi the right to win and then just the balance of organic versus inorganic growth?

Yes. So we became interested in the elevator market years ago for a lot of the same reasons we love the fire market. There's nonrecurring demand for services that are regulatory mandated and elevators are of highly important mechanical system that when they go down, the customers want them fix right away. So there's really great demand dynamics and recurring revenue dynamics in that space. And we found -- we thought that Elevated was the right business to kind of put our foot into that space.

And since then, we've -- nothing has really changed in our long-term thesis. We really believe that, that's a place we'll continue to invest behind. And we've said in the past, we want to have a $1 billion elevator platform. In terms of like the competitive dynamic, there's the OEMs that are manufacturing and they also have a service arm and then there's independent service providers. And we're one of the larger independent service providers with ambitions to be the largest. And the right to win is really quite simple. There is an opportunity to just be a local service provider that builds relationships, is attentive and responsive to these customers.

If you kind of look around or ask around in a lot of different cities, you'll find that there's just an appetite for more responsive elevator service. And it's -- there's an opportunity to be that local provider that partners and provides excellent service. And we're nonunion, so we're also able to kind of go to market with a bit lower price than the competition. But really, what our right to win is providing that excellent service day in, day out. And then retaining those customers by being their partner. And we don't have like a 1-800 number that they need to call and wait on hold to kind of get to their local provider. They're going to call someone that they know by name who's going to pick up the phone and be ready to provide service for them.

Is that a friction being nonunion in, I don't know, a city like New York City or Chicago or there are others that you probably put in that bucket?

Yes. There's certain cities that have more union and nonunion dynamics, where we've -- being nonunion, we'll -- there's plenty of areas to grow in that space, where we'll -- like you probably won't see us trying to open up a greenfield elevator shop in the middle of downtown Chicago in the next few months, but there's tons of cities that we feel like are underserved and that fit what we're looking to do really, really well. And there's a big market out there that's nonunion that we're ready to kind of go after.

Okay. I mean just again, thinking about the inspection versus playbook. Any verticals where you feel you're -- maybe put elevator side because we've talked about that where either you're just kind of not a participant or underscaled and look attractive?

In terms of like a new leg on the school type of thing, there's nothing really -- like elevator was something we had looked at for years before we really pulled the trigger on something. Right now, there's not anything kind of in the [ on deck ] circle, if you will. We're always evaluating opportunities really along those same lines of recurring demand nondiscretionary services. But we actually feel like there's a long runway of opportunity within the lanes we're in right now with fire, electronic security, elevator escalator. So more focused on and continuing to grow there right now.

Okay. And then maybe turning to capital allocation. One, just a basic question of just how the M&A pipeline is looking that's been a pretty important part of the growth strategy, and it's been accretive. And then number two, in terms of thinking about -- I guess, the playbook internationally, that business is, I guess, you could say it's gone through a bit of a restructuring, it's on a sounder operating sort of footprint right now. How should we think about international as a lever of growth?

Yes, so the M&A team is certainly busy. The pipeline there is super robust. They did a great job in 2025. And then even in 2026 here, they closed the CertaSite deal, which we announced in February, and then they've closed four additional bolt-ons kind of to date, and they have several other deals that they have under LOI that they're actively looking at. So pipeline is super robust. There's a ton of opportunity there, like we've talked about, super fragmented markets.

So there's just a ton of opportunities that bubble up from our existing businesses. On the international front, we've kind of opened the aperture there to start doing deals internationally like that business is in a good spot. It's not every single branch or country, just like in North America, if the branches that are performing at a high level, like they're ready to do M&A, add branches that may have some integration or just not performing as high, then like we're not going to distract them with M&A. So it's more like a branch-by-branch, country-by-country basis. But like they have a pipeline and they're actually looking at a few deals right now.

And I would suspect we see them do at least kind of one deal in 2026. And I would say kind of the same thing on the elevator side of the business like that business is in a good spot, and they kind of did one cleaner deal in 2025 and like their pipeline is being built out, and I would kind of suspect the same thing. Like they're actively looking at some deals right now, and I would think they would get at least one done in 2026. So as those parts of the business start to kind of flex the M&A muscle, that helps, obviously, with the robustness of the pipeline.

Okay. Fair enough. And then just looking on capital allocation leverage. I think you're below two now, approaching one maybe by the end of the year, maybe by '27. Appetite for repurchases?

Yes, nothing planned right now. We think there's enough opportunities on the M&A front to kind of...

Keep that dry powder?

Yes. But obviously, like you never know. There is a war in Iran going on right now. You never know what's going to happen, but nothing planned for 2026 as of right now.

Okay. Fair enough. And then maybe I'll open it up to questions, if anyone would like to ask any, and then I'll have one more. Cool. Rapid fire. Word association. Inspection First?

Core to our strategy.

Elevated?

Big opportunity.

Data center?

Opportunistic but not overcommitted.

Good answer. Gross margins?

Continuing to grow.

And bolt-on M&A? Which we touched on.

Part of our DNA. Yes.

Okay.

Yes. That's an interesting -- I like that. It keeps me on my toes for the end of this. Yes.

Keep it interesting. All right. Well, I think we'll wrap it there. I really appreciate the conversation. Thanks so much for your time.

Thanks for having us.

Thanks for joining us.

Good morning, ladies and gentlemen, and welcome to APi Group's Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions]

I will now turn the call over to Adam Fee, Vice President of Investor Relations at APi Group. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining our fourth quarter 2025 earnings conference call.

Joining me on the call today is Russ Becker, our President and CEO; and David Jackola, our Executive Vice President and Chief Financial Officer.

Before we begin, I'd like to remind you that certain statements in the company's earnings press release and on this call are forward-looking statements, which are based on expectations, intentions, projections, regarding the company's future performance, anticipated events or trends and other matters that are not historical facts. These statements are not a guarantee 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 and filings with the SEC, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, February 25, and we undertake no obligation to update any forward-looking statements we may make except as required by law.

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

It is now my pleasure to turn the call over to Russ.

Thank you, Adam. Good morning, everyone. Thank you for taking the time to join our call this morning. I want to start by thanking Adam Fee for his leadership of our Investor Relations function over the last 3 years. Adam has done an excellent job building trust with the investment community, and we are excited to announce his transition into a finance leadership role within our elevator business. With this transition, Adam Walters who previously served on our corporate development team will take over leadership responsibilities of Investor Relations.

We remain grateful for the hard work of our 29,000 leaders and their dedication to APi. The safety, health and well-being of each of our leaders is our #1 value. We continue to prioritize investing in the men and the women in the field as human beings and aim to provide each of them with training advancement opportunities and leadership development. I'm proud to announce that APi has once again been recognized as a military-friendly employer for 2026. We remain committed to providing opportunities for veterans and their spouses to build careers and develop as leaders.

Back in 2021, we introduced our long-term 13/60/80 shareholder value creation framework. Since then, 13/60/80 has been our North Star, and I'm proud of our team's relentless focus and dedication to delivering on these commitments. Over the last several years, our journey has been marked by meaningful progress. We grew revenues from $3.9 billion in 2021 to $7.9 billion in 2025. We increased our percentage of revenue coming from inspection, service and monitoring from 40% in 2021 to 54% in 2025. We established a new adjacent vertical in the highly attractive elevator and escalator service market with the acquisition of Elevated. And we accelerated our bolt-on M&A strategy by deploying approximately $580 million across 33 bolt-on acquisitions from 2023 through 2025.

Notably, as it relates to our 13/60/80 targets, we ended the year with adjusted EBITDA margins at 13.2%, above our 13% target and significantly above our 2021 adjusted EBITDA margin of 10.3%. Additionally, we ended 2025 with adjusted free cash flow conversion of 80%, right in line with our stated target of 80% and well above our 2021 adjusted free cash flow conversion of 55%.

Thank you to all of our teammates for helping us win and for their focus, discipline and commitment that made these results possible. In 2021, we set ambitious financial targets and through our collective teamwork and belief, we achieved these targets. This allowed us to set our new, ambitious but achievable 3-year long-term financial targets of 10/16/60+ plus. I am grateful.

Now I will dive into our record 2025 full year results. The business continues to build momentum, delivering robust top line growth while expanding margins. We continue to have strong growth in inspection, service and monitoring revenues. We capitalized on a robust project environment. And finally, we continue to execute accretive bolt-on M&A at attractive multiples.

For the year, net revenues increased by 13%, approximately 8% organically, with strong growth across both segments. In our Safety Services segment, revenues grew organically by approximately 7%, led by growth in inspection, service and monitoring revenues. As expected, Specialty Services maintained the momentum and closed the year with strong growth, delivering 10% organic growth for the year.

In line with our strategic initiatives, we continue to drive improvements in adjusted gross margin, which expanded 50 basis points for the year. The strong performance in gross margin led to our record full year 2025 adjusted EBITDA margin, representing margin expansion of 50 basis points.

We expect to see continued margin expansion in 2026 and beyond, largely driven by the same initiatives that we have been executing for the past several years, which include the following: consistent organic growth, improved inspection, service and monitoring revenue mix, disciplined customer and project selection, pricing, branch and field optimization, procurement, systems and scale, accretive M&A and selective business pruning. And as I like to say, we can always just be better.

2025 was another year of strong free cash flow with record adjusted free cash flow of $836 million, representing 80% conversion on adjusted EBITDA. Our consistent free cash flow growth and the strength of our balance sheet provides flexibility to pursue value-enhancing capital deployment alternatives, including accretive M&A and opportunistic share repurchases.

In 2025, we continued to execute our M&A plan, completing 14 acquisitions and building on our long track record of integrating businesses and supplementing growth through M&A at attractive multiples. In addition, on February 2, 2026, we closed on the previously announced acquisition of CertaSite, an inspection-first provider of comprehensive fire and life safety services in the Midwest. We're already pursuing the additional opportunities created by this acquisition and welcome our new CertaSite team members to the APi family.

Looking ahead, we are excited about the pipeline of M&A opportunities we see across fire, life safety, electronic security, elevator and escalator and niche specialty services. Our team remains hard at work, prioritizing the most attractive opportunities. We will continue to focus on the quality of the business and importantly, on the culture, value and fit. Our value proposition as a forever home continues to resonate with sellers.

I want to take a moment to recognize a significant milestone for our company. In 2026, APi Group will celebrate its 100-year anniversary, marking a century of commitment to our customers and an unwavering focus on the safety, health and well-being of each of our leaders. As we reflect on our legacy and begin the next century of growth, we have much to be grateful for. A central part of our 100-year anniversary will be gratitude and giving back to the communities that have supported us along the way and contributed meaningfully to our ability to win. I look forward to celebrating with our 29,000 leaders around the world.

Entering 2026, we remain laser-focused on our new North Star, the 10/16/60+ plus financial targets we introduced in May at our Investor Day. As a reminder, these targets are $10 billion in net revenues by 2028, supported by consistent mid-single-digit organic growth; 16% plus adjusted EBITDA margin by 2028; 60% plus of our revenues from inspection, service and monitoring over the long term; and $3 billion of cumulative adjusted free cash flow through 2028.

I am proud of our team and the record financial results achieved in 2025. As we begin 2026, I have great confidence in our ability to continue to deliver strong organic growth, expand margins and grow free cash flow by staying focused on investing in and caring about our people on a daily basis.

I would now like to hand the call over to David to discuss our fourth quarter financial results and 2026 guidance in more detail. David?

Thanks, Russ, and good morning, everyone.

Reported net revenues for the 3 months ended December 31 were $2.12 billion, a 13.8% increase compared to $1.86 billion in the prior year period. Organic growth of 11.1% was driven by continued growth in inspection, service and monitoring revenues strong growth in project revenues and pricing improvements. Adjusted gross margin for the 3 months ended December 31 was 32.2%, representing a 110 basis point increase compared to the prior year period, driven by disciplined customer and project selection and pricing improvements, partially offset by project revenue mix.

Adjusted EBITDA increased by 21.9% for the 3 months ended December 31, with adjusted EBITDA margin coming in at 13.9%, representing a 90 basis point increase compared to the prior year period. Growth in adjusted EBITDA was driven by strong revenue growth and adjusted gross margin expansion.

Adjusted diluted earnings per share for the 3 months ended December 31 was $0.44, representing a $0.10 or 29.4% increase compared to the prior year period. The increase was driven by strong revenue growth, adjusted gross margin expansion and a decrease in interest expense, partially offset by an increase in the share count.

I will now discuss our results in more detail for the Safety Services segment. Safety Services reported net revenues for the 3 months ended December 31 of $1.42 billion, a 10.6% increase compared to $1.29 billion in the prior year period. Organic growth of 6.6% was driven by continued growth in inspection, service and monitoring revenues strong growth in project revenues and pricing improvements.

Adjusted gross margin for the 3 months ended December 31 was 37.7%, and representing a 110 basis point increase compared to the prior year period, driven by disciplined customer and project selection as well as pricing improvements leading to margin expansion in inspection, service and monitoring revenues as well as project revenues.

Segment earnings increased by 18% for the 3 months ended December 31, and segment earnings margin was 17.5%, representing a 110 basis point increase compared to the prior year period primarily due to adjusted gross margin expansion.

I will now discuss our results in more detail for the Specialty Services segment. Specialty Services reported net revenues for the 3 months ended December 31 were $695 million, an increase of 20.7% compared to $576 million in the prior year period, driven by strong growth in project revenues. Adjusted gross margin for the 3 months ended December 31 was 20.7%, representing a 190 basis point increase compared to the prior year period driven by an increase in project opportunities that align with our disciplined customer and project selection criteria and improved leverage of fixed overhead costs.

Segment earnings increased 40.7% for the 3 months ended December 31, and segment earnings margin was 11.9%, representing a 170 basis point increase compared to the prior year period primarily due to adjusted gross margin expansion.

Turning to cash flow. We continue to focus on driving strong free cash flow conversion. For the 3 months ended December 31, adjusted free cash flow came in at $402 million, up $95 million versus last year and representing an adjusted free cash flow conversion of 136%. The strong free cash flow in the fourth quarter drove adjusted free cash flow of $836 million for the full year 2025, up $168 million versus last year and representing a conversion rate of 80%.

I want to reiterate what Russ said earlier and express my gratitude to all our leaders and teammates for their role in helping us execute and achieve our 80% free cash flow conversion target in 2025. Our teams understand the importance of free cash flow generation and our performance and progress reflect that focus.

At the end of the fourth quarter, our net debt to adjusted EBITDA ratio was approximately 1.6x, significantly below our long-term target of 2.5 to 3x, allowing us the flexibility to pursue value-enhancing capital deployment opportunities in 2026. And as a reminder, our long-term capital deployment priorities are: maintaining net leverage at stated long-term targets, strategic M&A at attractive multiples and opportunistic share repurchases.

Turning to 2026 guidance. Based on current foreign exchange rates and acquisitions closed to date, we expect full year reported net revenues of $8.4 billion to $8.6 billion, representing organic growth of 5% at the midpoint. We expect our organic revenue growth for the year to align with our long-term growth algorithm, which, as a reminder, is mid- to high single-digit growth in inspection, service and monitoring revenues and low to mid-single-digit growth in project revenues.

We expect full year adjusted EBITDA of $1.14 billion to $1.20 billion, which represents adjusted EBITDA growth of approximately 8% to 13% on a fixed currency basis. And adjusted EBITDA margin of 13.8% at the midpoint, up 60 basis points versus 2025.

In 2026, we expect to maintain momentum in terms of delivering free cash flow growth, with 2026 adjusted free cash flow conversion expected to be at or above 115% of adjusted net income, which is equivalent to approximately 75% of adjusted EBITDA. As a reminder, the first quarter is traditionally our weakest quarter for free cash flow conversion due to seasonality.

Turning to the first quarter. We expect reported net revenues of $1.875 billion to $1.975 billion, representing organic revenue growth of 4% to 10%. We expect first quarter adjusted EBITDA of $225 million to $235 million, which represents adjusted EBITDA growth of approximately 12% to 17% on a fixed currency basis. And adjusted EBITDA margin of 11.9% at the midpoint, which is up 70 basis points versus last year.

For 2026, we anticipate interest expense to be approximately $130 million, depreciation to be approximately $90 million, capital expenditures to be approximately $105 million and our adjusted effective tax rate to be approximately 23%. We expect corporate expenses to be approximately $35 million per quarter with some timing variability throughout the year. And our adjusted diluted weighted average share count to be approximately [ 441 ] for the year. Lastly, we anticipate systems and business enablement expense for 2026, which we adjust out of our financial results to be consistent with 2025.

I will now turn the call back over to Russ.

Thanks, David. Our record results in 2025 once again demonstrate the strength of our recurring revenue services-focused business model and the ongoing execution of our strategy by our teammates. We began 2026 with positive momentum and strong demand for our services across our global platform.

We remain relentlessly focused on growing inspection, service and monitoring revenues. That combined with the accelerating growth in our backlog and robust M&A pipeline provides a solid foundation for strong organic and inorganic growth in 2026, while continuing to expand our margins. We remain focused on creating sustainable shareholder value by delivering on our 10/16/60+ plus targets.

With that, I would now like to turn the call back over to the operator and open the call up for Q&A.

[Operator Instructions] Your first question comes from the line of Tim Mulrooney with William Blair.

I just want to say congrats to Adam to -- on the -- moving on to the next chapter. That was great to hear, all deserved.

My question is just a really high-level one. Your revenue guidance, it's [ calling ] for 6% growth at the low end of the range and 9% growth at the high end. Can you just talk about what kind of market condition assumptions that you're embedding in that low end versus that high end or various swing factors that you're embedding to achieving the different ends of that range, please?

Yes. So I can start and David can add any color if he would like to, Tim. So we continue to communicate, I guess, a message to the -- to our businesses that we want to see high single-digit growth in the inspection, service and monitoring component of their business and low single-digit growth in the project piece of their business. We do happen to have a tailwind, certain end markets are providing excellent project opportunities, which is evidenced by our backlog, which is north of $4 billion, and continues to be very strong, robust and healthy. Probably the most important aspect of it is that it's very, very healthy.

And so we are seeing a tailwind that's coming from it. And not all end markets are the same. I talked about end markets a lot, and I talked about end markets a lot with our business leaders. But obviously, the talk of the town is data centers, and we're reaping some of the benefit of the robust data center market, both on the inspection and service side, but also on the project side. Advanced manufacturing continues to be robust, semiconductors providing some opportunities, health care, critical infrastructure. So we are seeing some strong tailwinds in certain end markets on the project side of our business that we're taking advantage of.

The only thing I would add to that, Tim, and I'll reiterate a point that maybe I made during my comments was the 54% of our revenue that comes from recurring inspection, service and monitoring. That we expect to grow in our long-term organic growth algorithm of mid- to mid upper single digits. And then it's going to be the project environment that could be from the low end to the high end of the range.

Your next question comes from the line of David Paige with RBC Capital Markets.

Congrats to Adam. Well deserved. I was wondering maybe you could do the same for adjusted EBITDA margins. Is there anything that would push you? I know the range [ isn't ] that wide, but anything that would push you to the upper end or maybe even beat. And then if you could also maybe -- I know it's early days, but lay in how you're thinking about the recent changes to tariffs, if any?

Well, I would start by saying we don't expect to see any change in tariffs materially impacting our business, good or bad. And so we just continue to lead our business regardless of kind of what's happening external of all things and focusing on the things that we can control.

Obviously, we need to make sure that we're pricing our work appropriately on all aspects of our business, not just the project side of our business, but the inspection, service and monitoring component of our business. we do expect to see enhanced gross margins on some of our project-related work just because of the demands and the technical difficulty associated with some of this, especially data center work that's happening in remote locations, the size of the projects and the fact that you have to move people around in an effort to be able to execute on this work.

We think that, that's going to provide us with opportunities to expand our gross margins on that type of work. But we just need to continue to pull on the same levers that we've been pulling since -- well, since for a long time. I mean this goes back even before 13/60/80. We just need to continue to pull on the same levers and execute and pound on the same drug, and we will continue to expand our margins as we continue to grow.

Your next question comes from the line of Jon Tanwanteng with CJS Securities.

Congrats to Adam also. I was wondering if you could expand on the data center opportunity. How much is that contributing to your growth in 2026? And can you also talk about the incremental margin there is higher than the corporate average, Russ, you mentioned more technical expertise there. I'm just wondering if that also corresponds to the margin uplift.

Yes. I'll be happy to start that and let Russ comment if you'd like at the end. So data centers are an area that's contributing to our growth in 2025 and 2026. It's an opportunity that we're taking advantage of, but we're not overcommitting to. I'd say in 2024, data centers represented approximately 5% of our overall revenue. When we ended 2025, it was approximately 8% of our overall revenue, and we expect data centers to comprise about 10% of our total revenue in 2026.

So it's contributing a couple of percentage points of growth in both 2025 and 2026, but we still got plenty of really good organic growth momentum in other parts of the business as well. So it's a contributor, but it is not the primary driver of our growth in 2025 and 2026. And I'd say the margin profile of the data center work is really, really strong. There's not many players in the market that can do the work that we're doing in data centers, and that's allowing us to leverage our relationships, [ propose ] strong gross margin and execute against that.

I don't know if there's anything else you'd like to add, Russ?

No, I think you hit it.

Okay. Great. And then I was wondering if you could just talk about the M&A pipeline going forward. I see that you closed 4 in Q1. So how does that pipeline look going forward just from a tuck-in perspective and then also the opportunity for larger deals?

Well, you beat the -- you made the under. We're wondering who's going to be the first person to ask more than one question, Jon. So -- but anyways, the M&A pipeline remains robust. And we continue to see a lot of really good opportunities in the space, especially in North America. In fire, life safety, security space, we've really got some nice opportunities in the elevator and escalator space that we plan to execute on here in the second quarter.

The good part is that we really have opened up the aperture to the international business. and have some fantastic businesses that we're doing work on right now with the idea that we're going to be able to get these businesses closed in the second and third quarter and bring some of those folks into the APi family. So there's just a tremendous amount of opportunities. And I think in my remarks, I talked about the idea of APi being a forever home for the sellers of these business. It continues to resonate with people. And it allows us to buy these businesses at the right price and -- which is a really good thing. So -- but yes, we're really excited about our pipeline for 2026 and beyond.

Your next question comes from the line of Julian Mitchell with Barclays.

Just to circle back on the top line. If there was any color you could give us on how remaining performance obligations or backlog growth? How has that been developing? And I suppose allied to that, looking at the guide, there's a very, very wide range on the organic sales growth. Maybe help us understand kind of how you see the 2 segments growth in the first quarter, please?

Sure. So I think you snuck in a 2-part question as well, maybe -- on the backlog, I'd say the backlog as we exited 2025 and into 2026 is healthy. It's up across both 2 segments across a variety of end markets. And as Russ said in his comments, it's healthy, which means it's at a good margin and work that we feel really good about.

In terms of Q1 and how that plays out across the segment, so I'd say the safety segment is going to be a lot of the same. And so I'll refer back to our organic growth algorithm. On the service side, we target mid- to upper single-digit growth in that segment in service. And our Q1 outlook reflects that. On the project side, we reflect low to mid. Our outlook reflects that as well, but it's probably closer to the mid. And in the Specialty Services segment, we're comparing against a down Q1 of 2025. So I'd expect growth to be in the double-digit revenue growth in the first quarter of 2026.

Does that help?

That's perfect.

Your next question comes from the line of Curtis Nagle with BofA Securities.

Great. Maybe if you can just quickly go back to some of the trends in data center services revenue. How much of a pickup are you hopefully starting to see in -- from project [ work ] converting to service and hopefully, that's turning into a long-standing durable base of high-margin [ press ]?

Well, for sure, Will. I mean, really the reality of it is the project-related work that we're doing in the data center space is because of the relationships that have been established on the existing campuses of a lot of these hyperscalers where we're already doing the inspection, service and monitoring. The data center, the project side of it, the size of these projects is significantly higher than what you -- what we've seen in the past, and you're not going to see -- we're going to win the inspection, service and monitoring. There's no -- I don't have any question about that as we continue to move forward on some of this project work. But the size of the inspection service and monitoring count is significantly lower than the size of the project-related work. And so you just need to continue to chip away and build your inspection, service and monitoring business, which we continue to do.

We continue to see really, really good growth on the inspection side of our business. And if you recall, we generate some place between $3 and $4 worth of service work for every dollar of inspection revenue that we generate. And that continues to grow at that high single-digit clip. So the playbook is working, and we continue to execute on it, and we continue to see really good results. And it's no different than in the data center space as the rest of our business.

Your next question comes from the line of Andrew Kaplowitz with Citi.

Adam, congratulations.

Thank you.

This is a going away party for Adam Fee.

There you go. This might be a bit nitpicky, but maybe you already said it. So like on inspection, like I think you last quarter had over 20 quarters in a row double digits. Did it still grow double digits this quarter? And if not, is it just kind of the law of large numbers starting to get to that segment is still going to grow high single digits plus. How is [ corn ]?

Yes. So we knew somebody was going to pick up on that. And -- but so it did grow double digit. But it is -- we are moving to the point where it's going to be the large -- it will be the law of large numbers, and it will be tougher and tougher to comp against that. But we continue to see really good growth in our inspection business. So yes, it did grow double digits. You're just going to hear us -- we're not going to talk about it as previdently.

Your next question comes from the line of Tomohiko Sano with JPMorgan.

First of all, congratulations on your 100th anniversary.

Thanks, Tomo.

And so your 2026 guidance implies about 60 bps improvement in adjusted EBITDA margin at the midpoint. So what are the major drivers behind this margin expansion as you walk towards to 16% plus margin target for 2028, which initiatives do you plan to further strength or newly implement, please?

Good question, Tomo. Thanks for being on this morning. So yes, you're right about 60 basis points at the midpoint. And really, the initiatives that are going to get us to 16% by the end of 2028 are the initiatives that got us to 13% by 2025. And I'd say, as we get deeper into the 2028 period, we're going to start to see increased benefits from our investments that we're making as an organization and procurement as well as some of the benefits from the system and technology investment that we're currently undergoing in our North America business. And accretive M&A will play a part in that as well.

Your next question comes from the line of Jasper Bibb with Truth Securities.

Just wanted to ask about the assumption for project demand in your guidance. I think you're projecting low to mid-singles growth for the year, but quite a lot of strength in projects pipeline, data center, et cetera. I guess, just how would you frame the assumption of low to mid-single digit versus a strong pipeline there? Is that conservatism because it's earlier in the year? Or is it harder comps? Just any detail there would be helpful.

I think you nailed all 3 of the reasons around that as the midpoint of our guide. I mean we got to guide in a range for a reason, and those are 3 very good reasons to start where we did for the year.

Your next question comes from the line of Andrew Wittmann with Baird.

A lot of my questions have been asked and answered. But I guess maybe, Russ, if you had to use the crystal ball a little bit with the balance sheet here, you're pretty significantly below your ranges. That's a pretty big change. So like if you think about capital deployment in 2026, if you had to split up how it's going to go out and get invested do you think that M&A is bigger than buyback? Or the other way around? I guess I want to just try to understand how much you think you can get done this year, given that you got a lot of capital here.

And do you think that maybe as a sub question to that 1-part question. Is there something chunkier in here? I mean you guys have had the history of doing some larger deals. You haven't had a gigantic one for a year, but is this the year that comes back?

So I mean, we will -- I guess -- thanks, Andy. I appreciate the thoughtfulness of your questions. The -- we're always looking from an M&A perspective and doing work on what I guess you classified as chunkier transactions. We see some opportunity for sure in the life safety and security space as well as the elevator and escalator space. And so we're doing work all the time. So I would say, yes, you could expect to see us do something chunkier, will it be Chubb-esque? I don't know. We really haven't found anything that necessarily fits exactly what we're looking for. that would be of that size and scale.

But if you're -- when you describe chunky, if you're thinking about things like the size of, say Elevated or even CertaSite, yes, I think you're going to see us do be active in that space. And I would suggest that the priority would be M&A in front of share repurchases, especially with the performance of our stock over the last period of time. And so -- but we, for sure, see opportunity in the M&A space that we're going to continue to dig in on and do some work.

Your next question comes from the line of Josh Chan with UBS.

Congratulations, Adam. I just wanted to ask about how firm do you see the project environment currently? Because I think the low end of your guide may assume somewhat of a changing environment, I guess, as you go through the year. So I just want to make sure that that's not what you're signaling or seeing and just kind of ask about the firmness of the environment.

Yes. Well, I mean, I saw your print that hit earlier this morning, Josh, and talking about organic growth in our safety business. Like it's really good. I mean, so both on the inspection and service side and on the project side. And we expect it to remain positive and strong as we work our way through the year. There's -- we don't see anything that suggests that it's not going to continue to be strong and robust.

Your next question comes from the line of Stephanie Moore with Jefferies.

I wanted to ask maybe a bigger picture question here. especially based on what I think were very strong 2025 results across the board, but especially on the top line. So I wanted to ask maybe this question in a different way. I think given that the underlying industrial economy based on most macro indicators that have suggested that 2025 was not a very great industrial year, but we are seeing some green shoots possibly to start 2026, [ so hopefully we're just given the PMI price ] for January and the like.

So I wanted you to maybe touch a little bit on kind of one how much exposure you think you have to kind of the near-term macro in the industrial economy? And then maybe asked another way, how insulated are you to that as well? So kind of a big picture question and trying to get a sense of if the industrial economy does ultimately improve how are you guys positioned?

Well, I think -- I'm not an economist by any stretch of the mean, Stephanie. I think we hopefully, we've demonstrated to the investment community, the resilience in our business. 54% of our revenue comes from inspection, service and monitoring. That's going to be there regardless of what's going on in the macro. And I feel like we've done a nice job of leading the business through what you could argue is kind of a herky-jerky economic environment over the last period of time. So I guess I'm maybe using too many words to get to the point where I feel like we're very well insulated from any noise that may come in the macros. And I also think that this is a business that's if things do improve, this business should see the benefits of that and be able to take advantage of that.

And I think about -- I was joking around with our -- with a handful of our Board members about this maybe 3 or 4, maybe even 6 months ago, I don't remember, but the reality of it is that since the company has gone public, we really haven't been in an economic environment where we've just had tailwinds behind us. It seems like we go public and we get hammered with COVID. And as soon as COVID goes, so to speak, goes away, we get hammered with inflationary times and then it's tariffs.

And it seems like there's always been some headwind that's been in front of this business and yet we've continued to show really good resilience as we've grown the top line, both inorganically and organically and expanded our margins through those headwinds. So I feel like this is just a really strong resilient business that has that 54% of our revenue kind of backbone from inspection, service and monitoring that kind of creates a protective moat around the company. So I feel really good about how we're positioned and how -- if we do see tailwinds in the economy, we should be able to take advantage of that.

Your next question comes from the line of Kathryn Thompson with Thompson Research Group.

And I promise I will ask just one. And once again, it is stepping back and look at the [ force for the tree. ] So the cat's out of the bag with AI broadly in the U.S. market and the global market. but put more simply with the reindustrialization of the U.S. market, which is a bigger trend that includes AI, but it's a bigger trend.

When you look at your APi end market of, say, light non-res versus more of that heavy or industrial. So [ another slide ] I would put like the Boston field trip that we did a few years ago to a commercial building versus the heavier, which would be a data center build-out or energy supporting data buildout. Where do you see that end market breakout today versus that light versus kind of heavy? And where do you see it 5 years from now based on what you're seeing in your crystal ball? And what does that mean for your margin goals?

Wow, you did a great job of adding like 3 questions in 1 question, Kathryn.

It was heavy versus light. How about you just ponder on that a little bit?

Yes. Well, no. I mean, it's a thought provoking. It's obviously a thought provoking question. If you look at Specialty Services, a significant component of their revenue mix, a very significant component of the revenue mix comes in what you would consider that heavy industrial based on your description of what's considered heavy industrial, including data centers and things like that. And you can see where that's going to continue to have good strong organic growth, and that's evidenced right now in our backlog.

I don't know that any one of us can sit here and tell you that we're going to have 60-40 heavy versus late in 5 years. What I can tell you is that the that our company is better situated for the more complex types of end markets. So whether that's advanced manufacturing, data centers, semiconductors, utilities, like that's more complicated. Those are complicated facilities that require a different level of expertise, not only on the inspection service and monitoring side, but also on the project side. side. And so we have always done well in there.

If you go back and look at some of our end market data that's included in either Adam or the other Adam, the spreadsheets that they have on our Investors site, when you look at like how much of our business comes from commercial, I would tell you that most of that is on the inspection and service side and not necessarily on the project side. And so we will continue to build our inspection and service business more so on the light side. Now I don't know that -- I mean, that's what you put office space in the light side. We'll continue to do that.

So as it relates to artificial intelligence, we're embracing it. We actually think that artificial intelligence is going to be an enabler for our business and not a job displacement tool, if you will, we actually have stood up an AI team that's being led by a very smart individuals in our company. The mandate that they've been given is to really focus our early efforts on enabling our field leaders and making the work of our field leaders, making it more enjoyable, more efficient hopefully freeing up more time so that they can spend more time on our customer sites. That's what they like to do. And that's the mandate that, that team has been given.

And we think that as we continue to adopt artificial intelligence in our business, that it's going to free up people from doing, I'll just say, more mundane tasks and we can deploy -- redeploy them into activities that are going to ultimately help us grow our inspection, service and monitoring business. And you've heard us talk about that piece of our business. It takes more infrastructure to run that part of our business and [ say ] the project side of our business. And we see artificial intelligence really enabling that aspect of our business, which is going to free up more people to help it grow. So it's a really good thing. So but a very -- you have a very thought-provoking question, Kathryn.

There are no further questions at this time. I will now turn the call back to Russ Becker, President and CEO, for closing remarks.

Thank you. In closing, I would like to thank all of our teammates for their continued support and dedication to our business. We believe our people are the foundation on which everything else is built. Without them, we do not exist.

I would also like to thank our long-term shareholders as well as those that have recently joined us for their support. We appreciate your ownership of APi and look forward to updating you on our progress throughout the remainder of the year. Thank you again. And Adam, thank you for everything that you've done for us. We're very grateful.

Thank you.

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

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

Well, I'll -- David can speak more to the numbers. But what I would tell you is that we feel really good about where our business is positioned as we start working our way through '26. We finished the 2025 with really strong results. As we continue to build backlog, we continue to see good organic growth in our inspection and service business, which was positive. And as we move -- start moving through the first quarter of 2026, we feel like we're in a great spot and kind of like where the company is sitting.

And I mean, we're like everybody else, we still have challenges and issues and things that we need to deal with, and the work that's really never done, Julian. But I like our team and feel good about where we're at.

Good. I'd just add a couple of things. First, we ended 2025 above our 13% adjusted EBITDA margin goal, which is a really great accomplishment by the team. Second, we did end the year with momentum. The fourth quarter was, as we said in the press release, delivered comfortably above the midpoint of our guide for revenue and adjusted EBITDA.

I think really importantly, we ended the year with really good margin momentum. The fourth quarter was our strongest quarter from a year-over-year margin perspective. And that sets us up really strong for Q1 and 2026. We guided $8.4 billion to $8.6 billion of revenue, $1.14 billion to $1.2 billion of adjusted EBITDA, 13.8% at the midpoint of the margin. And I wouldn't say anything out of the usual in terms of how that will play out from a cyclicality or a quarterly perspective.

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

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

We don't intend to over-index in any one end market, but we're going to take advantage of the opportunities that are there. Do you want to add any color to that, David?

No, I think that's good.

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

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

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

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

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

Oh, man. I don't know what power is right off the top of my head. Data centers is a little bit more at the forefront of our brains because it seems like everybody wants to talk about it. But I think our revenue in 2025 total revenue was 8% was in data centers. We expect it to be closer to 10%.

I said earlier in our program, Julian that we have no intent to over-index in any one particular end market. We are, however, going to take advantage of the opportunities. I don't know, David, do you have any idea what we do in utility work?

Probably a couple of points on top of that 8.

Yes.

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

I think directionally, that's fair.

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

Well, I mean, we've always done well on the installation side of data centers. We've -- our focus has always been on our clients where we're actually doing the inspection service and monitoring at their existing facilities. I think one of the things that has changed in the data center space is a lot more new greenfield sites so that one of your hyperscaler customers that you might be working on 7 or 8 of their different sites doing their inspection and service work, and also, they're building a new greenfield facility in -- like, as an example, we have a customer that's got a large, large, large project in Northern Louisiana, and no existing facility there.

The reason that they're citing the project there is because of access to power. And -- but it's a very, very large project. And again, the remote location adds another element of complexity to it. So you have to have the ability to travel the people into that location. We actually happen to have an office in Monroe, Louisiana.

I think our large branch network that we have is actually -- it's crucial for our inspection service and monitoring business for us to be able to provide great service to our clients, but it's actually proving to be an advantage in the large project environment right now and having access to people and to resources that are close by our branch network. So it's a positive thing. We have a branch office in El Paso, Texas. We have another hyperscaler customer that's building a data center in El Paso. And so -- and our El Paso office is fantastic. We have great people there. Not that we don't have great people in Monroe either. So in case anybody is tuning into, Julian, I want to make sure I...

You need to qualify that.

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

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

So I view -- so we've had a tight labor market for many years. Like I don't view the labor market is actually being a new phenomenon. I view it as being something that we've actually been dealing with for many years. And so when I think about labor and I view that more as an excuse than and say, I can't find the right people or whatever. Like there's people there. You just have to have -- you just have to be thinking differently about it.

APi's purpose is building great leaders. And one of our core beliefs is that every one of our 29,000 teammates is a leader. Their role is just different. And that includes the men and the women in the field, and we're investing in the men and the women in the field as leaders and as human beings just like we're investing in myself and David and Adam and Adam and Kim, who are with us from our APi team. We're investing in those folks just the same as we're investing in everybody else.

So to me, the first place to start is to keep your people and to retain the people that you have and to create a positive work environment because they're your best recruiting mechanism. You also have to be willing and think differently about where you're going to recruit people. So we have -- as a really good example, we have a gentleman that works in one of our businesses in the Northeast, who went through the state of New York and basically got an apprenticeship program accredited through the state for fire alarm technicians. So fire alarm technicians are one of our bottlenecks, if you will. And the United States Army has a program where essentially, as men and women are exiting the service, you can basically hire them for 6 months. And as like an internship, the Army actually pays them their wages. And you get to try them on and they get to try you on.

So we're taking these people as they come out of Fort Drum, putting them in the apprenticeship program, and from a fire alarm technician. And these people want to go home when they're done. And so then that person might be from Austin, Texas or Dallas, Texas. Well, we have branches in all those locations.

So we're able to help dispersed folks that are trained and able to actually go to work in the field when they leave this apprenticeship program. So you have to have different things like that. We have -- one of our businesses developed a program to basically train inspectors. So you can hire and recruit inspectors from alternative sources. So you just -- you have to take the responsibility on yourself and to hire people from different places, get them the training that they need and then be able to put them the work productively in your business. So we continue to work at it.

Yes. I mean, is it -- is there pockets where you're going to have really tight situation from a labor perspective? Yes. But you have to think out of the box. You have to be willing to move people in between branches and in between businesses, and you can solve for all that.

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

We have pretty good visibility into our labor cost, especially on the fire side, more than 50% of our team members are in the union. So we have really good visibility into their wages and what they look like for the next 3, 4, 5 years in some cases.

And then things like materials, we watch -- watch it every single week. We actually have a summary that comes out on what commodity prices look like. We feel like we got out in front of like the tariffs from the current administration. We kind of knew that he was going to -- President Trump was going to use tariffs as a hammer as part of his tactics. And so if you -- in my opinion, if you didn't get out in front of it, it's kind of your own fault. And so we feel like we did a pretty good job of getting out in front of it and been able to manage that and make sure that we're working escalation into our proposals and into our contracts in our different agreements. So I feel like that we're positioned really well there.

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

I mean -- so if you look at in our -- in some of our materials, you'll see the vertical or -- when you look at that, you see like commercial office space and things like that. Most of that business is inspection service and monitoring for us. So we're not doing a lot of project-related work in commercial office space because there's not a lot of project work to do because it's still at the bottom of the trough.

Now depending upon who you talk to, I was with a real estate colleague of mine. He's a real estate developer a couple of weeks ago. In Minneapolis, they feel like the real estate market is at the bottom and actually starting to trend up, from a commercial real estate perspective. So most of that type of project-related work, we don't participate in any ways because that's low price. And if we're only going to compete on price, it's not -- that doesn't work for us.

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

I would say very satisfied. I feel like moving it into the Specialty Services segment was good for that team. The leadership in the Specialty Services segment has been additive to our HVAC business. I would also tell you that our HVAC team has really done a good job of stepping up and kind of stepping up their game, and they're doing a really good job. I mean there's just -- that's probably just the best way to put it.

They've been much more selective on the project opportunity that they're taking. Their service business is growing. We've taken the same inspection-first mindset from a sales perspective, and we're executing that inside the HVAC business. So I feel like our team is doing a really good job there.

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

Well, as far as market share, I think we have a lot of work to do and a lot of opportunity in front of us. And I mean, I would really phrase it as opportunity. We've really only done one acquisition in the space after the original kind of platform investment that we made in elevated 18 months ago. And that business really wasn't a bolt-on. It was more of a tweener. It operates under APi elevator. So I think last year, we finished at $240 million or $250 million in total revenue in the elevator and escalator space, which is on its way to -- we've said publicly that we feel that we can build a $1 billion-plus platform in the elevator space.

We have some -- we have -- from an M&A perspective, we have some really good opportunities in the pipeline that we're actually working on now. We're taking a walk before you run approach. The business hasn't done any M&A. So we want to get one across the finish line, work with the team to get it properly integrated into their business, make sure that we take lessons learned from that integration process and then apply it to the next one and be very purposeful about how we do it. But -- and then we can pick up momentum and pick up some steam. But we see a lot of opportunity in the elevator space, and we're excited about what the future holds there.

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

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

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

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

I think said single-digit project...

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

Fair enough.

I guess I was speaking in code or something.

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

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

For about 9. Yes.

So thank you for coming.

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

Well, we feel like we did what we said we would do as it relates to Chubb. And so we feel like we've proved the capability to take a larger acquisition and help improve the business. And I think that's the most important aspect of it. It's -- the business has improved steadily since we've owned it. And I think a lot of that has to do with the investment in the people that we are making. And to a certain degree, they found their forever home.

So I think our appetite, if it's the right fit and the right opportunity would be there. But it has to be the right fit and the right opportunity. I mean, we're -- we'll always have something kind of that we're doing a little bit of work on and peaking underneath the covers and looking at. We haven't found that right opportunity. But if we do, you'll see us move forward and act on it.

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

Well, I mean, we did Chubb. We levered up to roughly 4x. I think actually 4.1x. And very quickly have taken our leverage down. And if you look where our leverage ended up at the end of the year, we're well below 2. And so we've demonstrated, the company generates a ton of cash. I don't know that we would lever up to 4x. It had to be a really special opportunity, I suppose, and we would have to see a clear path to delevering again to our stated goals of below 2.5x -- 2.5x to 3x. So we feel the company does generate a ton of cash.

So when you think about the different gates and everything else that we look at, we look at geography and this geography -- is it geographically complementary to our portfolio and our current offerings. We look at the services that the business offers. If you think about it, and we have a significant security business, but it's primarily in the international operations. So there will be an opportunity for us to add security services to, say, our United States business today. That would be something that would be interesting to us. So the services that the business offers.

Financial profile matters. It doesn't necessarily have to be day 1 accretive to the 16% long-term target, but we have to see a path to being able to do that. And that was one of the things with the Chubb acquisition. When we bought that business, you could argue that, that business was a 8% or 9% EBITDA margin business. And -- but we saw a clear path to getting it to our fleet average and the expectations that we've set forth for our business.

And then for us, the culture and the values and the fifth component of it matter. Some of these larger transactions, it's harder to vet that because they're process-driven in their bid. Like I hate that word bid. Everybody should know I hate that word bid. But you used the word asset, too, and I don't like that word. But Casey thought I missed that. And -- but...

No, you're sharp this morning.

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

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

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

It's short. Okay. So generally very positive. Third question is around EPS growth profile, and this is sort of versus the multi-industry average that's here. So generally, very high earnings growth.

Fourth question is around capital deployment, and we were just talking about that. So bolt-on M&A, vast majority. Fifth question is on valuation, kind of the appropriate PE multiple. So around sort of 20x.

And then last question is on why isn't the valuation warranted to be higher? What's kind of the main anchor on it right now? So organic growth and execution. I don't know. We'll see. Great. Well, with that, thanks very much, Russ and David, lovely to see you again.

Thank you.

Thank you. Thanks a lot.

I know we'll have a few stragglers coming in, but let's get started. Again, we're very excited to have APi Group with us today.

We've got Russ Becker, who is the CEO, President of APi Group; and David Jaco, who is the CFO. Russ, as I sort of make my way to you. Let me ask you kind of a softball question, like you've been CEO of a public company now for about 5 years, right? Like maybe biggest challenges and what you're most proud of so far? And then maybe it's a very unique business model, as you and I have talked about many times. So what keeps you ahead of the crowd. What keeps you differentiated?

What am I most proud of survival.

That's why I won't ask you a question because I knew I get a colorful answer.

It's funny. We just were having a conversation like when we were privately held everybody talks about, I never want to be a public company CEO. I never want to be a public company CEO. I never want to be a public company CEO. And I've actually been having a lot of fun as a public company CEO. I think it's actually made me better at my job, and I feel like I'm a better CEO today than I was 5 or 6 years ago. And one of the biggest challenges this is really not the answer to your question, but one of the biggest challenges is how do you balance delivering a quarterly result, delivering a yearly result yet also having the ability to take a longer view.

Like -- so like last May, we launched our 10/16/ 60+ kind of the next 3 years of our where we're going to take the business. And like you have to be able to look out that far and to make good decisions and choices, yet deliver on a quarterly and yearly result. And that's not always as easy as certain folks in this room might think and the pressure that you have to deliver that quarter the result can be tough.

I would say that one of the biggest challenges was just around this whole idea of SOX and compliance. And probably the biggest surprise was actually the lack of SOX compliance inside the international business. And Chubb was a public company for many years going back to United Technologies and Carrier. And yet they were a long ways away from actually being compliant.

And so even -- so there was that aspect of it. And then -- but as the private company, there was -- that's just that whole regulatory environment and all the stuff that comes with that was a big lift for our business. But like what am I most proud of, like -- the fact that we've been able to basically grow the company from $4 billion to pushing $8 billion and yet continue to enhance our culture and our culture is centered on our purpose of building great leaders.

And I think that's like something that is unique to APi. And I think probably one of the least talked about aspects of APi is the strength of our culture and the quality of our people, and it's because of this investment we make in them as human beings and as leaders.

That's a good answer. And then maybe just a follow-up on that, Russ like, so again, the competitive advantage of the company, like you leave with inspection goes to service. Why do you think competitors haven't been more aggressive or can they copy you and it seems like you can grow your itself mid- to high single digits in that world, inspection service for the foreseeable future. But do you worry about capacity constraints at some point or other market headwinds?

You're like the master of...

I ask 5 questions in one. But you're used to that. You call me out all the time.

It's like trying to keep track of all the questions that you do.

Differentiation.

Well, I mean, the biggest differentiation, you answered the question for me is this idea of inspections first, and then it's like, why don't people copy you?" and I think that -- if you really take a step back, yes, there's been private equity enter into our space.

But the reality of it is the majority of our competitors remain small family-owned businesses. And for those small family-owned businesses, it's much easier for them to grab a new installation project, say, $1 million installation project versus building up a really robust inspection department, $1,000 at a time. And so we've been at it for an extended period of time now. We've built up the infrastructure that it takes to support building a robust inspection service and monitoring business. And I think that's something that's played to our advantage. And we've built out a really, really robust branch network, and that's supportive to having a robust inspection service and monitoring business.

So even if you look at one of our largest competitors in the space, they don't have the same branch footprint that we do. So they're booming around the country doing large installed jobs and that works for them, that's where their interest lies. But that's not how we're trying to build our business. We're trying to build our business with the inspection first mindset. And I think that's one of the biggest differentiators. And it takes effort to build that out. And we feel like we have the scale to continue to grow it. I don't know if -- I think one of your questions in there was around like will we run out of runway. The answer is no. If you look -- like if you just take the largest metropolitan areas in the United States of America, I don't think there's a market that we have more than 5% market share. And so for us, and our ability to continue to drive inspection growth, which leads to pull-through service work, the opportunity is boundless.

I knew you can keep track of my questions.

I try.

You're pretty good. So this one might be for you, Russ or for David, like you came out today, you serve my next question, which is about update on the quarter you kind of gave us that. So like any sort of highlights that you want to talk about? I think you guided within your algorithm sort of mid-single-digit plus organic. Margins look pretty good, I think, versus -- the Street. Any sort of highlights you talk about as you left Q4, I think you said you'd be better than the midpoint of your guide for Q4.

So any highlights you want to talk about what drove the business, any highlights about the guide. Obviously, we'll find out more when you report next week, but we kind of force you into this every year. So sorry about that.

Sure. I'll give it a go. The fourth quarter was, as we described it in the press release that came out earlier this morning. A lot like Q3, there's a lot of great momentum in the business, both on the service inspection and monitoring revenue streams. As well as on the project work in our business is being propelled by a really strong project environment right now.

Fourth quarter was our best quarter of the year from a year-over-year margin expansion perspective. We felt confident that our margins were going to improve in the second quarter into third, third into the fourth. And they did that. And so as we exit 2025, we're going into Q1 a really good position. The backlog is strong. There's a lot of momentum and nothing really that looks to knock it off the momentum in the business right now.

Got it. And just -- you cannot answer this question, Dave, but just seasonality in '26, normal?

Normal.

Okay. Thank you.

He gets the softball.

I'll give you more softball. So -- but to that point, David, and maybe this is for us, like you talked about general strength across Safety Services, but maybe what's driving the organic growth as you transition to '26. Like I know we don't like to talk about specific projects, but is it all the same areas, data center, advanced manufacturing, semiconductor, any others that I'm not mentioning and generally the same thing as '25?

Well, I mean, I think for us, critical infrastructure continues to provide opportunities more in the specialty services space. Health care continues to be robust. You hear more and more people talking about life sciences, which creates opportunities, especially in certain pockets in the country.

So it's there's a lot of opportunity out there if you're in the right end markets.

And I often think to myself, like I shouldn't ask Russ the question of TAM because each project is different. At the same time, the more complex the project, the more there's a need for inspection and service, right? Like so these big data centers have more TAM for you guys as an example.

Well, for sure, I mean, a new data center that comes on, like I've shared in the different investor meetings that we've had this morning, one of the biggest things that's changed, like with the new build size of -- or new build component of data centers is just the size of the projects. And just because the data center installation work is worth $50 million, doesn't mean you're going to have $5 million a year of inspection service and monitoring It's going to be significantly less than that, especially in new facilities. Because you're not going to generate the same pull-through service in a brand-new facility that you would in an older facility, and that goes for data centers, just like it goes for warehouses just like a medical office building.

And so for us, like we want to make sure that we're taking good care of our data center customers that were doing their inspection service and monitoring today that leads to a different environment when you're proposing on the work because they're more interested in you because of your ability to get the work done safely with a high degree of quality in the schedule and the time frames that they've laid out.

And that's what's important for us. But we clearly, our priority as a company is to grow the inspection service and monitoring of our business, first and foremost, and the project work is gravy.

Just is the project work like because maybe 2 years ago, we started asking about data centers, right? And to your point, you want to leave with inspections. But given how much demand is there out there, can you find projects that are better than you thought in terms of pricing or install margin or whatever you want to talk about.

Well, the short answer to that is yes. All right? Now in the same breath, you are committing resources to these large data center projects. So you're taking resources from some place. So like for us, because we have separate departments for inspections, separate departments for service, we're not taking resources from there.

We're taking resources from different project opportunities and putting them on data centers. And so if you're going to sacrifice other project opportunities, need to make sure that you're getting a higher margin on the work that you're doing. And you should. These data centers, the size and the complexity of them, they're not super complex, but the size makes it complex and they're in remote locations. More and more often, they're in remote locations because they're being cited next to available power. And like one of our clients has a project in Northern Louisiana. And not everybody can man a project in Northern Louisiana. We can. And because of our ability to do that, you should be able to price that in.

I agree. Is data center 10% of the business, something like that?

What's that?

Is data centers, 10% of sales, something like that?

Well, actually, I thought it was about 10% of sales, but apparently, that was corrected this morning is 8% revenue in 2025, probably headed towards 10% in 2026.

Okay. Helpful. So maybe an update, you mentioned your branches. And so one of the big sort of things that you're doing is branch optimization, as you've talked about many times. And so at your last Investor Day, you said a little less than 10% of your brands in North America were not very profitable. That means under 10% margin. While you had 40% of your brands internationally that were under 10% margin. Maybe you could update us on the progress of getting these kinds of branches up? Like I assume you're making progress, but you tell me.

So at our Investor Day last May, we reported that our North American Safety branches, median margin was 17%. And internationally, I think we said 13%. And we will improve on that over the course of this year. I would guess that there will be some place around 100 basis points will be able to move that median into the right.

We have an established goal that we want every one of our branches to perform at a minimum of 20%. And so obviously, there's opportunity there for us to continue to work on it. You're always going to have a straggler or two that you're dealing with for a myriad of different reasons, and that's kind of the nature of it when you have as many branches as we do. But that median will continue to move to the right. And I've got a lot of confidence that we'll be able to do that.

Russ, I mean, I think you've done a good job, especially internationally versus what most people thought Chubb could do way back when. So to that point, like when I see still 40% that are relatively low margin, how hard is it to get those branches to back to, like, I think your rate that you want to be at international is 18%, right? So how difficult is it -- because it seems like that would be the low-hanging fruit, right, to go after the least profitable branches, but it's easy for me to say as I just sit here. It's a lot harder to do it.

Yes. I mean I think the thing that people have to understand is that a really high-performing branch. It's got nothing to do with the playbook. It's got everything to do with the branch leader. It's got everything to do with the branch leader. And so we -- like we've been on this journey of leadership development since 2003. And so we have a 20-year jump in North America on the international business as it relates to what does that look like? And in one of our meetings this morning, we actually -- somebody asked about like where do your branch leaders come from?

And almost every one of them is promoted from within which means that we're growing and developing and bringing the right people into our branches that ultimately can take on a branch leadership role. I mean that's been a 20-year -- 20-plus-year journey and our international business, we're 4 years into it. And so they're just -- they're behind. And it's like it never moves as fast as you want it to, but until you can really ascertain and determine like, do I have the right leader at this branch? You'll never get there. It's like I joke around all the time. It's my favorite time of year because I get my favorite report of the year, and that's my rolling 5-year branch history report.

So it's revenue and EBITDA, every branch in the company. And so I can see it's going like this over 5 years, this if it's going like this.

You know what to do.

Well, you have to start asking yourself, the first question you ask yourself is, do I have the right leader and then you have to be able to -- if you can ask yourself that, then you have to be able to answer yourself objectively -- yes or no. And if the answer is yes, then you're going to take a different path. If your answer is no, you're going to take a different path. And sometimes answering that question objectively is harder than you think it is.

Interesting. That's good color. So Specialty Services, the growth over the last several quarters has inflected. I think you're waiting for some bigger government projects to start up, but maybe what changed in your business to allow that inflection. I'll keep it to one question for now and then keep going.

So can you say that again? I didn't...

The Specialty Services is inflected. And I think you're waiting for some bigger government projects start, but what else happen in the business, like you're obviously exposed to telecom utilities. So where is the growth inflection coming from in specialty?

Well, I think you got to take even a step further back. If you -- and I'm sure you remember this, but like some of that was purposeful on our part.

Of course.

Where we were -- had an increased focus on project and customer selection and very specifically in purposely pruned some of the project work that we were doing in the segment. And it took a little longer, so to speak, for that to kind of turn and get headed back in the right direction. And we feel really good about the end markets that we're in, in specialty as well. And so -- so leadership matters. I think one of the things that we did, we realigned the HVAC piece of our business in specialty.

We feel like the leadership there is better -- in a better position to help that piece of the business. I'd also tell you that the leadership inside the HVAC businesses stepped up their game and are delivering a much better result on top of it. So I think there's a combination of things that have happened there that have allowed that business to really get going in a really, really solid direction.

Got it. So Russ, just like -- so was it more that you cleared out the lower margin projects, whatever in '23, '24, and then you kind of allow the business to grow again in '25? Or did something else happen in the market? So is it more -- because you had -- to your point, you would controlled projects for a couple of years.

So was it more you got everything out and then you allow specialty to grow or did something else improve like one of the main markets or maybe...

Well, I mean there's an element there to any like we learned as we went through this, you kind of alluded to it, but like we took on a government program that as we built into kind of our projections and our forecast, government were ramping like scale like this -- like that's a mistake. I think government related, you know what I mean, like -- and so our people learned a hard lesson on top of it.

So in the project side of your business, and this is one of the reasons that we're building our business to be inspections first and service first, is that when you dedicate resources to a project and a project slips, you still have those resources. So what are you going to do with those resources? So like in this government program that I alluded to, it slipped dramatically out to the right, and you still have those resources and it has -- it's going to have an impact on your business. So you have to plan accordingly. And I think that was a valuable lesson that our business leaders learned.

It's like plan accordingly and budget and forecast accordingly.

And discount when you need to.

Discount where you need to and the reality is we could have taken other programs because we had available resources, but we didn't think we had available resources.

Got it. That's helpful. I'm going to open it up to the audience in a second, but let me ask you one more question about Specialty here around margins. So like margins may be a little more sluggish to turn than growth? I mean it does seem like margins turned positively recently. But do you see sort of more consistent positive inflection now? And I think you've talked about a lot of initiatives, right? You've talked about project execution, fleet optimization, G&A efficiency. Do they begin to kick in now more significantly?

Yes. We expect -- going all the way back, I think, to the second quarter of last year, we said that we would see sequential margin improvement across specialty as we worked our way through the year, and you saw that. Well, you'll see that, I guess, when we release next week, maybe I'm giving you some more shadowing.

You already reported this morning, so you're fine.

But I'm not worried about it actually. And -- but so that we expect to see margin improvement in that business as we continue throughout 2026 as well. And we have the same high expectations from margin in Specialty as we do in Safety. Maybe they'll never quite get there or there will always be chasing it, but the expectations for margin improvement are there.

Any questions from the audience? anyone to ask a question? I'm going to get a question from the audience one of these days. Okay. So price versus cost. I think you've said many times that margin-accretive pricing is very important to the business. So maybe has that evolved as you've been a public company like you changed at all how you price projects or...

Project specific or just...

Inspection and service pricing in general, I shouldn't have said projects. I should have said pricing in general.

Well, I mean, actually, there are kind of 2 different animals. You know what I mean, because your project work, you're pricing it in real time and you have to make a decision as you price to work on what your margin expectations are. And so but you should be taking that price and you should be, so to speak, maximizing the pricing opportunity in every one of your projects.

I think inspection and service and monitoring, you have to be more disciplined in how you look at price on a year in and year out basis and making sure that you have escalators built into your agreements if you're taking on say, 5-year inspection contracts, you need to make sure you have adequate price built into those agreements.

I would say that we have for sure gotten better and more sophisticated at how we look at price. I don't know I'm even going to say since we become a public company, but since we acquired Chubb. And David can speak to this because he lived it for the 2.5 years, he was over there. But like they did a leading up to our acquisition. They did a poor job of taking price on a regular basis, if at all. And so we inherited a number of poorly priced contracts that we had to be very aggressive on. And I think that provided actually a wake-up call to the North American safety business saying, "Oh, maybe we need to be thinking about price a little bit about a little bit differently. And I think we've gotten better because of that. And I think really it's more because of how poorly Chubb had done it, has been a lesson learned for the entire organization. I don't know.

No, I think that's spot on. And like delivering price year-over-year is really about having a mindset that the services that you're providing in the marketplace command value and that we owe it to our shareholders, to our teammates and to our field leaders to be getting that value for every work that we do and just getting that mindset into our teammates is really the discipline that it took.

I mean the reality of it is, Andy, when you think about like an inspection, your average inspection is $1,000. So when you think about whatever facility it is, the budget -- annual budget for that facility, if it's $1,000 or $2,000 it's like really nothing -- and so...

It's really important.

So like if you're doing a kick-ass job of taking care of that facility and that property manager and that building owner whether you're priced at $1,000 or $1,100 or $1,200 doesn't matter. Because their time is worth the $200. And I think sometimes folks lose track of this idea that like how much of a team sport, the inspections are because you're going into these facilities and you're interacting with the property manager or the building owner, you're tripping fire alarms.

You might be running water, which means you're flowing water out into the parking lot, which means you have to maybe cordon off part of the parking lot, so people's cars aren't in a way and all of that stuff, like these property managers, they -- I shouldn't say they don't care about $200 because I'm sure they do care about $200 but they also recognize the fact that their time is worth $200.

So I don't worry about price versus cost for you guys really, but commodities are volatile. Sometimes you have exposure to metal piping, things like that. You guys feel good about price versus cost right now?

100%. I mean we watch it. Every Monday, we get kind of an update on like what's happening in certain commodity prices. The one that I focus -- I suppose I focus on to. But I primarily focus on hot rolled coil because that's an indicator of what's going to happen with pipe prices. And we've seen I would say, a slow increase like which I'm going to say I'm going to put in the manageable category. I also watch copper, too. But but primarily a watch hot-rolled coil. We talked about it all the time. We have what we call monthly leaders calls where we probably have, I don't know, David, 250 people from around the country -- around the world participate in these leaders calls probably every other month, we'll have a procurement update.

You know what I mean, where they're providing updates on what's going on inside procurement, but also what's happening with commodity prices. If we start to witness any sort of, say, rapid escalation in commodity prices, we're talking about like protect yourself at the time of your proposals, when your proposals are going in. So like even before President Trump won the election, in his previous administration, he used tariffs as a hammer you ran on tariffs, like so if you didn't know he was going to use tariffs as a hammer, then shame on you. And so we feel like we have been out in front of that wave since day one in protecting ourselves and everything else.

So I feel like we've done a pretty good job on that front.

That's helpful. And then, obviously, M&A is an important part of your overall strategy. I know you committed to $250 million of bolt-on M&A per year. I think you've talked about taking a step forward, adding to elevated service platform to get closer to that $1 billion in revenue and then adding maybe to international business this year. So can you give us more color on your M&A pipeline? Can you find deals at reasonably attractive valuations?

Yes. So like we've been sharing through the course of this morning, the pipeline remains really robust for bolt-on M&A. And I would tell you that pipeline is maybe opening a little bit because we've opened up the aperture to the international business. And so we've got some really good stuff going on in the international business for really the first time since we've owned Chubb, which is exciting for us.

So I feel like we're still able to buy bolt-ons for 5x, 6x, maybe 7x but what you'd consider reasonable multiples to acquire these companies. Companies that are in that $20 million to $30 million or maybe $40 million of EBITDA especially in the fire and security space, continue to attract a lot of PE interest and they drive up the multiples. And they're paying very, very high multiples for these businesses.

We recently announced the acquisition of Certisite. We're really excited about this business. It's not a huge company. It's plus or minus $90 million in revenue. We paid a healthier margin for this -- or multiple for this business, but 90% plus of their revenue is inspection and service works.

That's what you like.

And so it's like straight down the fairway. So from a strategic fit, it's not like we just bought more and paid and overpaid for it. This is a great strategic play for us. So we're excited, and we're really excited to welcome the Certisite team into the APi family.

But you're still seeing a lot of pressure in that $20 million to $30 million EBITDA kind of range from private equity. As it relates to the elevator space, like we're really, really excited. We did one deal last year. It was more of a tweener. So it's a stand-alone business that sits next to elevated underneath APi elevator.

We have a number of real live bolt-ons that we're working on right now in the elevator space that I suspect that will get done in a relatively short order. We're taking a walk before you run approach in the elevator space. Let's get one done, get it integrated, see how it goes, learn our lessons and then we'll go do another one. But we want 100% see the opportunity to take that business to $1 billion plus in revenue.

It's good to hear. And Russ, I mean, you did, as you know, because you showed a scribble on a napkin, the 1 to 2 deals to get to $10 billion. So we're expecting that at some point over the next few years. I think David, you were at a competitor conference talking about fire alarms, electronic security, fire suppression, elevated services, all areas where you already had a leg but you could add to it with a larger deal.

So it seems like from what you're saying, Russ, on the $20 million to $40 million that it's harder to do larger deals right now, but you tell me, I don't want to put words in your mouth. So a bigger transformational deal when?

It's probably not if. It's probably when.

I would say that when the time is right. Okay. How is that?

I mean -- it's succinct.

I mean -- well, I mean, I think the beautiful thing about where we're at today is we don't have to do anything. And that's a great place.

You shouldn't let me push you into something.

Not going to. So that's one thing I -- nobody here has to worry about it. So -- and -- but we don't have to do anything. And we constantly look and take a peek under the covers at larger transactions and it's got to be the right fit. And I feel like we've demonstrated our capability of doing larger transactions with Chubb.

But we still have to be disciplined in how we look at these larger deals and make sure that it's the right fit for the business. And I mean, everybody, you have our word on that, that we're going to be disciplined that way.

And then I have to ask you the obligatory Safety and Specialty together question. So any changes in the thought process? I mean, you obviously have a good strategy to make them both better. But maybe you can talk about are there synergies these days between the two businesses? Like how do you feel about them? And if someone came and offered you a bag, would you take it?

Well, the old adage that everything is for sale, everything technically is for sale. So nothing changes on that front. There's more synergies there than I think most people think about. When we talk about data centers, I think most people actually think that we're talking 100% only fire life safety and security and that's not true. We actually -- as a percentage of total revenues, I think our specialty business had more data center work as a percentage of their overarching revenues than our safety business did. And so like leveraging customer relationships with some of these hyperscalers, like it's happening every single day and we're taking advantage of those relationships that are swinging both ways.

Interesting. And then I think at the Investor Day, you talked about a need to build systems and applications to make that $10 billion sales platform. So maybe just an update on how you're going -- how you're doing with these systems application. And are you using AI at all to help you to build a stronger APi?

I'll talk a little bit about AI and then I'll turn it over to David to talk about the system stuff. So at APi, we view AI as an opportunity, not as a threat. And we've actually stood up an AI team inside the organization. And we took a really, really smart leader of ours and he's got 5 people on his team and his mandate is to focus kind of his early work on the -- our field leaders, the men and the women that work in the field and how can we develop some tools that will make their jobs easier, make their jobs more efficient, more productive, they can see more of our customers. But like just to give you a simple example, like you can see a day where AI designs the fire alarm system for a new improvement project. And you're not in your designer is -- AI is taking it, say, from 0 to 85% and our designer is taking it from 85% to 100%. Like you can see that day coming.

Same thing on the suppression side, same thing on the security side. And so we're investing the resources to make sure that we're I don't want to say we're on the front end of it, but we're out in front of it, and we're taking advantage of some of the -- some of the capabilities and tools that are already present today.

Got it.

The system project. So the system project has won a lot of hard work, but we're where we want to be on that project. So we've done the data cleansing work that you need to make a successful system implementation. The system itself is designed and built. Our teams are actively testing the system as it is, and we'll roll it out or deploy it in our pilot company sometime in the first half of this year.

So a lot of hard work where we want it to be. But the added benefit, I think, is to really maximize your AI investment as well as to get a new system, a new business system working as it should. It really does require putting a lot of time, energy and attention on your data. And so the clean data that we're getting as a result of the system work, I think, is really going to enable us to do a lot more with AI once that system is providing the solid foundation for our business.

Got it. So running out of time. So let me ask you this last question, Russ. So what are the top 2 or 3 innovations and structural changes affecting your company over the next 5 years? Are there any emerging industry trends that are perhaps being overlooked in the current discourse?

Well, you talk so fast. I don't know if I really caught the first part of your question.

Top 2 or 3 innovations that you're focused on or structural changes.

Well, I think one of the things that is a little bit unique about us, I mean, probably AI and technology enablement would be the way I'd answer those questions. But I think that if you go back to the Investor Day and you go back to 10/16/ 60+, we've said that basically, the drums that we need to beat to achieve those goals aren't changing and I think if you think about organizational discipline and about really good companies, there's no flavor of the day. They don't feel -- they don't like we don't need technology to necessarily enable us to achieve our goals. Technology will help us achieve our goals, but it's not an excuse to not achieve our goals. Does that make sense?

Totally does.

And so we just wanted to help us be more efficient. It's going to help us grow our business because it's going to free up people. And to me, like what we're doing and being consistent in our behaviors and our ability to execute is what's going to deliver 10/16/ 60+, and that's exciting to me.

Awesome. Thank you very much, Russ and David. Thank you. Appreciate it.

Thank you, everybody. Appreciate you being here.

All right. I think we're live. Good morning, everybody. I'm Josh Chan, business services analyst here at UBS. We're pleased today to have APi Group join us. They inspect, service and install billing systems such as fire, security, elevators and HVAC. They also provide infrastructure services to utility and telecom markets.

With us from the company today are David Jackola, CFO; and Adam Fee, IR. So we're going to do a fireside chat. So feel free to raise your hand, or you can find a way to enter your questions, and I'll get it in the iPad here as well. So feel free to let us know if there are any questions. But with that, David, Adam, great to have both of you here.

Great. Thanks for having us, Josh. Thank you, everybody, for coming.

Yes. Thanks for being here. So I guess, overall, maybe to level set the audience here, could you start by giving a brief overview about APi Group and some recent developments and then we can get into some of the other topics?

Yes, of course. And thanks again for spending some time with us today in person or virtually, learn more about APi and our company.

So APi went public back in 2019. At that time, we had about $4 billion in sales, or in revenue. And today, we are about $8 billion in revenue, and we're a global market-leading business services provider of fire and life safety systems, electronic security and elevator and escalator systems predominantly. And we're focused on statutorily mandated recurring revenue opportunities with our inspection-first strategy.

We operate in highly fragmented markets, both the fire protection, the electronic security and the elevator escalator market, and we have a track record of growing our business organically and through a bolt-on M&A strategy. We've done about 200 acquisitions since Russ Becker's been our CEO since 2002. So that's the muscle that we've built and the capability that we've built and it's helped grow our business.

Sitting here today, two of our big kind of advantages are our inspection-first strategy, which we'll talk more about later and our core purpose of building great leaders, and are investing in people and particularly our field leaders as human beings. And we feel like that differentiates us in a people-first industry like we're in. So again, a lot of momentum in the business. Thanks for having us today and looking forward to kind of chatting more.

Yes. Thanks for that overview. So maybe I'll turn it to David here. So it's been about a year since you've become CFO, but you've been obviously with the company for longer than that. So any observations from the CCFO seat? And then how is your philosophy as a CFO kind of developed over the past year?

Yes, absolutely. Thank you for that question, by the way, Josh. First and foremost, it's just an incredible privilege to be a leader at APi Group and to work with such a talented team and 29,000 phenomenal leaders all around the world. And so more than anything, it's something that I'm incredibly grateful to be a part of.

Second is the opportunity in this business is just extraordinary, and we were all privileged to be in New York in May for our Investor Day where we laid out our 10/16/60 2028 financial goals, 10/16/60+. And the most -- I think the most powerful thing about our 13% goal at the end of 2025 was how firmly the organization was lined up in delivering that goal. And so over the last year, Russ and I and all of the leaders at APi have been really purposeful in aligning the organization around our 10/16/60 objectives to make that be our true North Star, and investing time to make sure that we've got alignment up and down the organization so that each and every one of our 29,000 people knows the role that they're going to play in making 10/16/60+ a reality. I think that's really important.

The third observation, and part of this comes from my time spent in our international business is how powerful and how important culture is. Culture is truly what differentiates APi from our competitors in our marketplace and what makes us a special organization, the way that we invest in our leaders is human beings as well as professionals, and the way that we truly and fundamentally care about our people, our teammates, our customers and our community. That's just something that we will continue to invest in and be a part. And I view my role as a senior leader at APi. The most important role I play is making sure that, that culture is strengthened and perpetuated every quarter and every single year.

Yes. Great. Thank you. So the inspection-led model is obviously really important to you guys. So could you talk about what benefit that brings you? And where do you see the inspection service monitoring business trending over time?

Yes. So we're really intentional in focusing on leading with inspections, and that's part of our go-to-market strategy that differentiates us in the marketplace. Generally, the companies that we compete against lead with a project. So they'll bid on a project, secure a project and hope that, that project will lead to follow-on service work. And we really flip the model on the head.

So we've invested in an inspection sales organization that's going out and knocking on the door of the already built environment, and selling inspections each and every day. And so you go in and you do a great job on that inspection. That inspection is going to generate a deficiency report that's shared with the authority and shared with the customer, and which generally leads to follow-on service work. And we believe that for every dollar of inspection revenue that, that deficiency report is going to generate $3 to $4 of follow-on service work during the course of the year.

So in terms of like where we see this going, approximately 54%, 55% of our revenue today comes from inspection service and monitoring work. We're going to make progress each and every year towards our long-term goal of 60% or more of our revenue coming from inspection service and monitoring. And that's going to have a powerful impact on our margins. Generally, our inspection service and monitoring work comes in at 10 basis points -- 10 percentage points higher of gross margin than our contract work. It tends to be incredibly sticky. It generates that follow-on service work. And most importantly, it leads to great relationship-based follow-on contract opportunities.

Okay. And how competitive is the inspection business, I guess, in a given geography, are there lots of other providers that can provide inspection capabilities to the market?

Yes. So it's a really fragmented industry, Josh. And any of our markets, we'll have multiple companies that are playing. But generally, these competitors are smaller family-owned businesses. And if you think about the economics of an inspection versus a project, an inspection is generally a small ticket value, small invoice piece of work, maybe $1,000, $1,500 for an inspection, whereas project could be $0.5 million to $1 million or even more.

And so if you're a small family-owned business who's going out and figuring out how they're going to plan their year, they're going to find the 6 or 7 project-based opportunities that they can have to generate their revenue and go forward if they capture some service work on the backside of that project work, that's great. And if they do some inspections, that's great, too. And so they'll make an attempt to move into the service and the inspection space. But then when a project opportunity comes along, they'll divert their team and their resources over the inspection.

And we've built the discipline as well as the back-office structure to be able to focus on this each and every day, and that's really created a protective moat around the inspection part of our business. It's made it incredibly sticky, has led to that consistent and reliable follow-on service work, and allows us to propose on project work based on the strength of our relationship rather than bidding down to the lowest possible margin dollars.

So it's a really powerful strategy and one that our focus and commitment and dedication to executing it day in and day out gives a pretty strong and powerful protective moat around that chunk of the business.

Sure. So clearly, the focus kind of makes the business more sticky. Is there any structural benefits to scale in that inspection business where you can do just a better job than a small competitor?

Yes. So a number of different reasons. First, going in and knocking on the doors of the already built environment requires a dedicated sales organization. And over the past years, our North American sales leader has done an absolutely phenomenal job of building a world-class sales organization around North America that goes in and just crushes it year in and year out, delivering new work and inspections.

We talked on our calls that for 20-plus quarters, we've achieved double-digit organic revenue growth on inspections in our North America sales business. And that's just a testament to the great work that, that team is doing. But then you've also got to be able to dispatch inspectors, so making sure that they're being productive in their time, and that they know where they're going, when they're going so that they can meet the customer there and provide a really high-quality inspection.

And then you've got to bill, and you've got to collect, and you've got to follow up and follow up and follow up as well as get the deficiency reports out in the follow-on service proposal. So it does take an infrastructure that you've got to invest in and it takes time to build, that makes it really difficult for a competitor to come in and do what we do at the scale that we do.

The only thing I'd add to that is we're in the very early innings of it today. But if you think about 29,000 teammates, most of them are out in the field every day, layering technology over that group of people when those are investments that we can uniquely make with our scale is going to benefit them in the future.

We've got some early things in pilot like APi chat that has the code book and some product manuals uploaded. So our field leaders can voice query if they see an air code on a fire alarm panel and get an answer right away, instead of having to call the branch and have someone look up what's going on and give them kind of feedback and delay their time and the job. And it's the technology side there, and it's also as simple as just the best mechanical tools out there from -- so there's something called the Hose Monster that allows the annual fire pump test to be done with 1 person instead of 2 people and be done more efficiently. And all of our branches have that type of technology where that's not a standard at every company to have like the latest and greatest technology for our field leaders.

Yes. No, thanks for the color that you can afford to give your branches more productivity tools to drive that. Okay. Could you talk about the presence of private equity in this space? Do the PE-owned entities behave, compete any differently than other private competitors?

Yes. So we have seen PE enter into our space. I'll answer this in a couple of different ways. One of the important parts of APi's growth and our strategy is our bolt-on M&A strategy. And we target each and every year to do around $250 million of bolt-on M&A at really attractive 5, 6, 7x multiples. And largely in that area, we bump into PE, but there's plenty of opportunities for us to go out and to acquire great businesses at 5x, 6x, bring them into the APi family.

The value proposition that we offer to Target is different than what a PE company would offer. We offer a forever home in a place where we value people. We'll invest in the people on these teams. We'll allow them to keep their legacy in the business. And oftentimes, most of the time, they end up staying with APi after acquisition, which is very different than a PE multiple, or a PE acquisition.

On the larger, more platform size, we do see them in the M&A space, and they're driving up multiples for larger fire safety type platforms. But generally, when we see them in the marketplace, like if you're paying 16, 17, 18x for a fire business, you're not going to be cutting price. And so in a lot of ways, they've kind of helped to drive price into the industry, which I think has helped everybody.

That's interesting. Okay. Okay. And then I guess when you talk about the growth profile of mid- to high single digits for inspection service and monitoring, I guess, what does it take to grow that business at that rate? And how much is pricing a part of that? And how much is sort of organizational build-out part of that?

Yes. So we laid out our organic revenue growth algorithm at our Investor Day in May. And so on the inspection service and monitoring revenue streams of our business, which is about 54%, 55% of our total revenue, we expect that part of our business to grow mid- to upper single digits year in and year out. And that's a part of our business that's statutorily or code-driven, highly recurring. You've got to have your fire suppression and detection system tested for operability 1, 2, 4 times a year depending on the code. So that part is highly repeatable, highly recurring.

And that mid- to upper single digits is going to largely come half from price and half from share gain, as our inspection sales organization goes out and beats on the doors of the already built environment. And then you think about like we will need to then invest in inspection sales leaders in order to continue to improve that growth.

And you think about when you get to an end state or mature state like one, IMA, which is an inspection sales leader, when they're ramped up and fully running, they're going to generate enough business to keep 4 inspectors occupied. And those inspectors are going to create enough follow-on business because $1 of inspection creates $3 to $4 of follow-on service work to keep 3 or 4 service technicians occupied. So if you think about growing this out, it's going to require consistent focus on price, investments in our inspection sales organization, bringing inspectors into the organization, and then service technicians to do the follow-on work, which takes the infrastructure that we talked about earlier around the protective moat to be able to do it.

Okay. So I guess given the regulatory support around the demand of the business, would you say that demand is pretty much a known entity going from year-to-year? Would that be a fair characterization?

So I think it'd be fair to say that the inspection service and monitoring revenue streams in our business are absolutely easier to forecast, are more predictable and repeatable in nature maybe than contract work. I wouldn't say that it's like easy to forecast. It's not. But we like those revenue streams because they're predictable and they're repeatable and they create the sticky customer relationship that allows us to go after the right type of contract work, with the right customers, in the right end markets, at the right gross margin for APi Group.

So if you wanted to, could you just rapidly scale up the organization, absorb some costs temporarily to grow that inspection business even faster than mid- to high single digits if you wanted to?

Well, it doesn't happen overnight. And this is the analogy that I was sharing just a few minutes ago about you could go out and you could hire 10 inspection sales leaders and have them go at it, and they could go out and generate work. And if they do, you're going to need to find 40 inspectors. And it's not the easiest thing to find 10 inspection sales leaders. They got to have the right DNA. They've got to be a great culture fit with our organization. They've got to blend well with the branch. There's a lot of criteria that come into making sure that you've got the right fit in this really important role.

And once you found that, you've got to go through the same process to find the right inspector who's going to be a good fit with our culture, who's going to invest in themselves as a leader and try to make the teammates better. And so it's not something that you can just hit a switch and go from 10 to 20 overnight. It's a consistent process, and a consistent discipline, and a consistent build that allows us to grow that business at double digit year-over-year and quarter-over-quarter.

Sure. Any questions from the audience? Okay. Maybe switching over to the project side of the business. It's been a very strong year in 2025. So what's driven the growth this year in projects that wasn't there in the prior year?

Yes. So it's a strong and robust project environment right now. And we talk a lot in our business around how end markets matter. And our business leaders are really intentional about focusing our field leaders on project opportunities in end markets that have the margin profile that we look for, as well as some secular growth drivers behind it.

And so the strength that we've seen really in the project environment in 2025 has been across a variety of end markets, including data centers, of course, advanced manufacturing, warehousing, semiconductors, critical national infrastructure, health care. So the growth is really across a robust set of end markets. And as we've been coming out of 2024 was a year in which we were intentionally very focused and disciplined on project and customer selection, partially in our specialty business. And so we were really careful about the type of work that we were doing and the margin that we were doing.

And so we're coming off a year in which we contracted revenue in the contract side of that business, and now we're starting to grow off of that base. And we've got a really strong backlog against a diverse set of end markets, really healthy gross margins. So we feel good about that space.

You mentioned data center is clearly an area of strength. How big would you say your data center business is, how fast is it growing? And then maybe you can talk about sort of what capabilities you have to do work for the data centers just as a big picture?

Yes. So we go out and kind of measure the amount of work that we do in various end markets once a year. And we operate in a somewhat decentralized model with different systems. And so finding this data at the tip of the finger point isn't easy. But at the end of the year, we estimate between 5% and 6% of our revenue, give or take, came from the data center space.

Data centers have absolutely been a part of our project revenue -- contract revenue growth in 2025. And I suspect that we'll end 2025 at -- if we were at 5%, 6% at the end of 2024, maybe 7% or 8% at the end of 2025. It's one of those things. It's an opportunity that's in the market and that we're absolutely taking advantage of. But we want to be very, very focused and disciplined about not overextending ourselves in the data center space, or in any end market for that matter. And so we're really intentional about the jobs that we do and the type of work that we do in the data center space. And most of the contract work that we're doing in data centers is really coming on the back of already in place inspection and service relationships. So it really is a terrific example of our inspection-first flywheel strategy in action.

Okay. How do your operating companies kind of prioritize data center versus other verticals? Is the margin profile of these projects better than the rest?

Yes. So these jobs are -- that data center projects are generally, what I'd say is, they've got a technical element to it that not every competitor in the marketplace can deliver against. They've got a size element that not every competitor in the market can deliver against, and they're in geographic locations like the Meta 10x project is in the middle of Louisiana and not a lot of competitors have a branch in the middle of Louisiana, but we do. So we're able to go out and deliver and execute against that work.

So those 3 things put you in a position where we may be competing against 1 or 2 other competitors on a national scale who could do that work. And because of the technical nature of it and what it requires, we're able to do that, work at gross margins that are above our fleet average for project work.

Okay. Is it too early to think about the data centers that are newly built now being a source of inspection, service monitoring, your revenue stream?

No, I don't think it is. And a lot of the contract work that we're doing in the data center space today is, like I mentioned earlier, on the back of the already in place inspection and service relationships that we have. And so it really just is a great example of how that inspection and service work is tightening the customer relationship. And that tight customer relationship then opens the doors for high-quality, high-margin contract opportunity, which is then going to allow for follow-on inspection and service work.

Okay. So then I guess, stepping away from data centers, as you look into 2026, what kind of verticals do you see strength or weaknesses in terms of kind of end market demand from a project perspective?

Yes. Great question. I commented a few minutes ago on our backlog, and our backlog has been growing each and every quarter this year. We entered the third quarter with backlog at record level at really great margins. And as important as the size of the backlog is the quality of the backlog. And the quality of the backlog is the type of projects, the customers that you're doing work with in the end markets in which you're doing work in. And our backlog as we exit 2025 is a good margin. It's at a high level. But most importantly, it is across a diverse set of end markets.

So one of the things that we talk about with our business leaders month after month, quarter after quarter is not overinvesting, or over-indexing on any one given end market. Because at some point, like there may be a slowdown in data centers, and we don't want to be left holding the bag with the revenue hole to fill. So we're really careful and selective in making sure that we've got a robust backlog against critical national infrastructure, health care, semiconductors, advanced manufacturing, warehousing and distribution as well as data centers.

You're not seeing any slowing in data centers at this moment, though?

Not at this moment. Not at this moment.

That's good. I guess the project strength has obviously been very positive for the top line, but there's been some margin impact in the recent quarters. And so could you talk about kind of the drivers of that margin effect and then how that's expected to kind of flow through as these projects progress?

Yes. So as we exited the second quarter, and I guess, a little bit in the third quarter is what we -- our Specialty Contracting segment kind of had a point of inflection where they went from a decline year-over-year into some pretty significant organic revenue growth in the second and third quarter, largely on the back of a robust project environment. And just kind of the nature of projects is at the early stage of a project, you generally are conservative in where you mark a project in percent of completion accounting.

And as you go through a project and you become more comfortable with your estimates, the work that you have in front of you and things like that, you're able to release some of that cautiousness and you kind of move your margin up through the course of a project. And we just ended up in a position in Q2 where we had a lot of new projects that were coming on board. We are annualizing against a time in 2024 where we are being really disciplined about project and customer selection, and we were actually closing out projects at higher margin. And so it just created a year-over-year drag on gross margin on the project side of the business.

So now as you get into Q4, our margins on contract work improved Q2 to Q3. They'll improve again Q3 and Q4 because you got more and more of these projects going from early to middle and middle to end stage, and you're in more of a natural project cycle rather than at a point of inflection. So it's something that we'll see margin expansion in our projects as we end 2025 and move into 2026.

Okay. It sounds like Q3 was just kind of like a timing pinch point.

More of a timing compare year-over-year point than anything else.

Okay. Okay. And then in terms of the total company organic growth, so we talked about both services projects. I guess on a blended basis, what's the right total company growth going forward?

Yes. I'll keep going back to our organic revenue growth algorithm that we shared at our Investor Day in May, and we're going to consistently drive mid- to upper single-digit revenue growth in the inspection service and monitoring part of our business. That's what we do day in and day out, and half of that growth is going to come from price. Half of it is going to come from our inspection sales leaders knocking on the door in the already built environment, we'll be able to continue to move that.

We targeted our businesses to go after low to mid-single-digit growth in the contract part of the business. Now that's a little less predictable and, I guess, forecastable as we talked about earlier than maybe the ISM stream. So there'll be some variation around that, and we're at a point in the cycle where you target 2% to 5% and you end up getting upper single digits. and there may be a point where it's a little bit low. But over time, you'd expect to see low to mid-single digit on the contract, mid- to upper on the service. That's going to continue to push our service mix to 60% or higher, and it's going to continue to be margin accretive in our goals and our path to our 16% goal in 2028.

Okay. So I guess projects growth are clearly running ahead of that long-term algorithm. So how important is it for you to manage the rate of project growth now in a strong environment so that there won't be like a tough comp, or some disruption in that line kind of in future years?

Yes. I mean it's -- there is such a thing as too much project work. And we talked a little bit -- the only thing worse than being not busy is being too busy. And to deliver a great project means you've got to have a great piece of work in front of you in a great end market, with a great customer, and that customer has got to have a great project manager on the job, and we've got to have a great project on the job. And then you got to have a great team around. And there's finite level of resources.

And if you get to a point where you don't have a great project manager on the job, that's probably where you got to put the brakes on contract work and focus on the stuff that you know you can deliver with a high amount of quality, at a high margin, for customers that you have relationships with through inspection and service work and is going to lead to more follow-on inspection and service work.

Okay. Okay. Cool. Any questions from the audience? All right. Maybe just talking about margins here. I guess you talked about the phasing of the projects impacting kind of the incrementals this year. I guess looking past this year, what's the right range on incrementals going forward? And then how does mix factor into that?

Yes. That's a great question. And if you look forward to our 2028 goals, we'll grow revenue organically at the mid-single-digit rate. We're going to have to capture 300 basis points, give or take, of margin expansion over a 3-year period. And just the math of that suggests that you're in the 25% to 30% incremental margins as you go forward into '26, '27 and 2028. And so I would expect that 2026 is going to be a more traditional in-line algorithm incremental margin year than 2025 was.

Okay. I guess outside of organic growth and leverage from that, what levers do you have to drive that 300 basis points of improvement over 3 years?

Yes. The beauty about our 10/16/60 goals is that the same levers that got us to 13% adjusted EBITDA margin, are going to be the levers that get us to 16% adjusted EBITDA margin. And you kind of walk across, and we'll continue to emphasize inspection service and monitoring work. I think we've mentioned a couple of times that work tends to come in at 10 percentage point higher gross margin than our contractor project work. And so that mix effect is going to contribute to our 16% goal. We'll continue to get margin accretive pricing on the inspection and service and monitoring revenue streams, which will help us towards our 16% goal.

We're at the early stage of our procurement journey. And we've got a real opportunity over the next couple of years to do a lot better at leveraging the size of our organization and the buying power that comes with that size, to drive down cost and to improve margin in our business. Over the last 3 years, we've been kind of building the infrastructure needed to be an $8 billion public company. And now that's at a point where we'll be able to leverage our SG&A costs as we grow organic revenue, and that's going to contribute to the 16%.

And then the most important lever that we've got in that business in that is really what we call branch and field optimization. And that's just the opportunity that we have in each and every one of our branches to be better in 2028 than they were at the end of 2025. And if you think across our North America business, where our fleet average is around 17% or 18% EBITDA margin for a branch, we've got branches that are below that, and we've got branches that are bumping up or bumping over 30%. And there's the same type of profile in our international business. And there's really no structural reason why any of our branches in North America or international can't be performing at a really high adjusted EBITDA margin.

And so part of the path to getting to 16% is each and every one of those branches, taking advantage of the inspection-first mindset and going forward, and leading with inspections and getting that service and then allowing that to flow through to high-margin contract work. The more we do that, the more we're going to move on to 60% adjusted EBITDA margin.

And then one of the things I love about APi is we've got this friendly level of competition in our business. And so we're all kind of competing with each other to get a little bit better each and every year. And so every month, we stack rank the performance of our companies and our branches. And so we know who is at 30%. We know who's at 20%. We know who's at 7% and 8% at the bottom of the list. And if you got a competitive bone in your body, you're not going to want to be at the bottom of the list.

And so you're going to push your business harder. You're going to call the guys whose branches are at the top of the list and you're going to learn what you can do to make your business better so that you're moving on up. And I think that type of visibility and transparency, as well as the friendly competition that it inspires, is something that's going to continue to propel our businesses to get better each and every year.

Sure. Okay. So you talked about going from 10% to 13% and then 13% to 16%. I guess when you got from 10% to 13%, you did have help from a really large acquisition where you were kind of taking out costs. And so I guess, going forward, you don't necessarily have as big of a lever perhaps. So do you feel confident that you can still achieve the same cadence of margins without a big cost takeout from like the Chubb acquisition?

Yes. And I think it comes down to the levers that we just talked about. I mean our margin expansion journey in the international business, even as we're coming out of the Chubb value capture program is far from over. And we had a slide in our Investor Day presentation where we shared the median branch performance in international, and we shared the median branch performance in North America. And like I said it earlier, and I'll say it again, there's no structural reason why our business in the international market can't perform at the same level as our business in North America.

It just takes time and commitment to the inspection-first mindset and the inspection-first model to get there. And so just because we're out of the Chubb value capture range doesn't mean that there's not an outsized opportunity in our international business to continue growing the top line, to continue growing EBITDA dollars and to continue to move our margins upward in a meaningful way.

Okay. Okay. And how does pricing work in the business? Can you usually price at or above wage inflation? Or how does that equation typically work?

Yes. I mean margin accretive pricing is part of our path and our algorithm to 16% adjusted EBITDA margin. And if you think about an inspection, I think I mentioned earlier, an inspection is a relatively small dollar invoice piece of work. It could be $1,000, it could be $1,500. And if you think about that within like the cost to operate a building like the hotel that we're in today, that's a very small part of the overall cost of operation.

But if we were to commit to being here at 6:00 p.m. on a Monday morning to do an inspection, and the parking lot is empty, and the building is empty, and like our customer is ready to go and we're not, like that's a real problem, and we've disrupted their operation. And so you come in and you do a great job in the inspection, you know that you're going to be there and be reliable and do it each and every time you come in. The customer is not going to take a risk to trying to save $10, $15 on an inspection and take on that kind of business disruption.

So you've got a relatively small invoice ticket. You've got a high cost of sales system, and then you've got the stress on the operation if you don't deliver what you say you're going to deliver. And so those dynamics put you in a place where you can go out and you can get pricing each and every year, so long as you're delivering on your commitments, delivering a great inspection and then delivering great follow-on service work afterwards.

Okay. Maybe switching to M&A here since that's an important part of the story. So how does the pipeline look currently? What types of assets are attractive to you at this juncture?

Yes. Our pipeline continues to be really, really strong. We'll end 2025 right around our $250 million bolt-on M&A target. Our pipeline going into 2026 is strong and robust, and there's still ample opportunity for the foreseeable future to go out and to be able to bolt on small fire and life safety companies at really attractive multiples into APi Group. So the pipeline in that area is really, really strong.

As we get into 2026, you talked about kind of entering the -- exiting the Chubb value capture phase and moving more into business as usual in the international business. And part of business as usual as a life safety company at APi is going out and applying that bolt-on M&A strategy. And so as we go into 2026, we'll be more intentional and more focused on executing bolt-on M&A transactions in the international part of our business.

We've also committed to building a $1 billion elevator services platform, and we've got a long way to go to get to $1 billion in bolt-on M&A in that space, is something that we'll be taking a step forward on in 2026 as well. So I think generally, if you look across the portfolio, it's continuing what we do well in North America and starting to really roll that bolt-on M&A strategy in international and in the elevator space.

Sure. And the Analyst Day also kind of contemplated the possibility of having some platform deals, as you call them. And so what does that entail? And how do you decide when, or what is the right platform deal for you?

Yes. Great question. So first and foremost, we're going to be disciplined in our platform M&A. That's part of the core and part of the DNA of APi's M&A strategy, and that's first and foremost.

When you think about platform, it's got to be a good geographic fit. It's got to be a good strategic fit. It's got to be consistent with our long-term financial goals or accretive to it. And most importantly, it's got to be a great culture fit. And you think about those criteria, it's a pretty high bar and a pretty high standard. So we'll continue to be really disciplined and intentional about platform opportunities. And when the opportunities come along that fit those criteria, we'll be in a position.

We've got flexibility in our balance sheet to be able to do platform-type M&A. It's just about being disciplined and finding the right structure and fit. And then you think about the makeup of the business. I think we've got the legs of the stool, so to speak, is we've got a really strong fire alarm and electronic security business in our international business, and we've got an opportunity to do more of that in North America. We've got a really strong fire suppression sprinkler business in North America. We've got an opportunity to do more of that internationally. And then you've got the elevator space, too.

Okay. And then maybe lastly, for the businesses that are in your portfolio, do they have to meet certain criteria to kind of remain in the portfolio? And any businesses that could become less core over time?

Yes. So we've been pruning our portfolio, so to speak, for the last couple of years. And our 10/16/60 framework that we laid out in May really caused, I think, all of us to look in the mirror and to assess all of our businesses and all of our branches against that framework. And it isn't to say that every business in APi needs to be a 16% adjusted EBITDA margin business. That's not the right standard, but every business within APi has to be accretive to that 10/16/60 framework somehow. And if a business isn't, we've got to look in the mirror and think can we make it accretive? And if the answer to that is no, then we've got to think about different portfolio type decisions.

Sure. Okay. With that, I think we're out of time. So thanks, David and Adam, for being here. Great to have you both at the conference. Please join me in thanking the team.

Thank you.

Thank you Josh.

Good morning, ladies and gentlemen, and welcome to API Group's Third Quarter 2020 Financial Results Conference Call. [Operator Instructions] Please note this call is being recorded. I'll be standing by should you need any assistance. I'll now turn the call over to Adam Fee, Vice President of Investor Relations at API Group. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining our third quarter 2025 earnings conference call. Joining me on the call today are Russ Becker, our President and CEO; David Jackola, our Executive Vice President and Chief Financial Officer; and Sir Martin Franklin and Jim Lillie, our Board co-chairs.

Before we begin, I would like 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 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 a guarantee 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 and filings with the SEC, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, October 30, and we undertake no obligation to update any forward-looking statements we may make except as required by law.

As a reminder, we have posted a presentation detailing our third quarter financial performance on the Investor Relations page of our website. Our comments today will also include non-GAAP financial measures and other key operating metrics. The reconciliation of and information and other information regarding these items can be found in our press release and our presentation. It is now my pleasure to turn the call over to Russ.

Thank you, Adam. Good morning, everyone. Thank you for taking the time to join our call this morning. Before we get into our record third quarter results, I would like to thank our approximately 29,000 leaders for their dedication to API. The safety, health and well-being of each of our teammates is our #1 value.

Last month, during September, we recognized Suicide Prevention Month and construction Suicide Prevention week. We use this as an opportunity to encourage all of our team members to engage in meaningful conversations about mental health. These conversations are a simple way to embrace the care factor and show our teammates we care about their well-being, including physical and mental health.

In addition to the care factor, another one of our foundational beliefs is our central premise, which means that at API, we recognize that our success only happens when our branches and fuel leaders are successful. One way we are supporting our branches and field leaders as part of our central premise is through investments in market-leading systems and technologies, including artificial intelligence.

We see market-leading technology, not as tools that will replace our field leaders, but rather as a way to empower our branches and field leaders to accelerate their speed of doing business. Work more safely and better serve our customers as we grow into a $10 billion company. A few examples of these investments include the following: API Echo, which allows our field leaders to record conversations and summarize key notes without having to leave the field or remove their safety gloves.

One code, which provides quick access to situation-relevant fire protection code, fire protection code detail to save time for our estimators, designers and field leaders. Connected glasses, which allow our remote experts to guide field leaders in real time. resulting in quicker service to our customers with a higher first-time fixed rate and an AI-enabled predictive tool, which flags customers who have a high attrition risk -- this tool allows our local teams to take proactive steps to engage customers and focus on strengthening specific customer relationships.

Finally, last year, we launched our global step safety platform, which allows our team members to document and manage safety activities in the field from a mobile device. Establish the safety standards and strategies and gives our leaders better data and visibility into safety metrics to better protect our teammates and help us continuously improve.

We are still in the early innings piloting these technologies, but we believe our business-led approach to investing in technology will empower our 29,000 liters, increased teammate satisfaction and drive growth and margin expansion as we work towards our 10, 16 60-plus financial targets. As a reminder, these targets are $10 billion in net revenues by 2028, supported by consistent mid-single-digit organic growth, 16% plus adjusted EBITDA margin by 2028. 60% plus of our revenues from inspection, service and monitoring over the long term and $3 billion plus of cumulative adjusted free cash flow through 2028.

Our leaders have clear plans for how we intend to deliver on our 10 16, 60-plus targets with a continued focus on the main initiatives that are enabling us to achieve our 1,300 targets. Those initiatives are consistent organic growth, improved inspection service and monitoring revenue mix, disciplined customer and project selection, pricing branch and field optimization, procurement, systems and scale accretive M&A and selective business pruning. And as I like to say, we can always just be better.

Now turning to our record third quarter results. The business continues to have strong momentum, delivering robust top line growth while expanding margins. Some highlights include the following: Strong growth in inspection service and monitoring revenues led by double-digit inspection growth in North America for the 21st straight quarter, record backlog in both segments. And finally, accretive bolt-on M&A activity at attractive multiples. For the quarter, net revenues increased by 14%, approximately 10% organically, with strong growth across both segments.

In our Safety Services segment, revenues grew organically by approximately 9%, led by North American safety while delivering 40 basis points of segment earnings margin expansion. As expected, Specialty Services continued its strong growth in the third quarter, delivering approximately 12% organic growth with sequential margin expansion.

Our continued focus on our margin improvement initiatives allowed API to deliver year-over-year improvements in adjusted EBITDA margin in the third quarter, with a 10 basis point increase versus last year. We continue to see great momentum in our business, particularly on the project side in North America, where we are being opportunistic but not overcommitting in the high-tech space. These project opportunities are in line with our disciplined customer and project selection are primarily sourced from our existing inspection and service relationships, our margin accretive to our overall project book of business due to their complexity and size and provide a long-term recurring inspection and service revenue opportunity for our local branches.

The third quarter was another strong quarter for free cash flow generation. Our consistent free cash flow generation and strong balance sheet provides us with the flexibility to pursue a range of value-enhancing capital deployment alternatives as we head into 2026. We continue to execute our M&A plan, completing 4 bolt-on acquisitions in the quarter, bringing our total for the year to 11 completed bolt-on acquisitions.

We remain on track to deploy approximately $250 million in bolt-on M&A at attractive multiples this year. Our pipeline remains robust and continues to grow. Now including fire protection, electronic security and elevator services opportunities globally. Most importantly, our value proposition as a forever home for their team continues to resonate with sellers.

In summary, we moved through the fourth quarter and into 2026 with great momentum. Our inspection service and monitoring business continues to expand. Our backlog is at a record high. Our balance sheet remains strong, and we are confident in our leaders' ability to execute our strategy and deliver against our 2025 targets and our 10, 16, 60-plus shareholder value creation framework.

I would now like to hand the call over to David to discuss our financial results and guidance in more detail. David?

Thanks, Russ, and good morning, everybody. Reported revenues for the 3 months ended September 30 were $2.1 billion, a 14.2% increase compared to $1.83 billion in the prior year period.

Organic growth of approximately 10% was driven by continued growth in inspection, service and monitoring revenues, strong growth in project revenues and pricing improvements. Adjusted gross margin for the 3 months ended September 30 was 31.5%, representing a 50 basis point increase compared to the prior year period, driven by disciplined customer and project selection and pricing improvements, partially offset by mix.

Adjusted EBITDA increased by 14.7% for the 3 months ended September 30, with adjusted EBITDA margin coming in at 13.5% representing a 10 basis point increase compared to the prior year period. Growth in adjusted EBITDA was driven by strong revenue growth and adjusted gross margin expansion, partially offset by investments to support growth.

Adjusted diluted earnings per share for the third quarter was $0.41, representing a $0.07 or 20.6% increase compared to the prior year period. The increase was driven primarily by growth in adjusted EBITDA and a decrease in interest expense.

I will now discuss our results in more detail for safety services. Safety Services reported revenues for the 3 months ended September 30 was $1.4 billion, a 15.4% increase compared to $1.2 billion in the prior year. Organic growth of 8.7% was driven by continued growth in inspection service and monitoring revenues, strong growth in project revenues and pricing improvements.

Our North America Safety business continued its momentum with double-digit inspection revenue growth. Adjusted gross margin for the 3 months ended September 30 was 37.3%, representing an 80 basis point increase compared to the prior year period, driven by disciplined customer and project selection and pricing improvements leading to margin expansion in inspection service and monitoring revenues and project revenues.

Segment earnings increased by 18.6% for the 3 months ended September 30, and segment earnings margin was 16.8%, representing a 40 basis point increase compared to the prior year period primarily due to the increase in adjusted gross margin, partially offset by investments to support growth.

I will now discuss our results in more detail for our Specialty Services segment. Specialty Services reported organic revenues for the 3 months ended September 30 were $683 million, an increase of 11.6% compared to $612 million in the prior year period, driven by strong growth in project revenues. Adjusted gross margin for the 3 months ended September 30 was 19.3%, representing a 60 basis point decrease compared to the prior year period, driven primarily by increased project starts mix and increased material costs.

Segment earnings increased 3.8% for the 3 months ended September 30, and segment earnings margin was 11.9%, representing an 80 basis point decrease compared to the prior year period, primarily due to the decrease in adjusted gross margin.

Turning to cash flow. We continue to focus on driving strong free cash flow conversion improvements year-over-year. For the 3 months ended September 30, adjusted free cash flow came in at $248 million, up $21 million versus last year, representing an adjusted free cash flow conversion of 88%. The strong free cash flow in the third quarter drove adjusted free cash flow of $434 million year-to-date, up $73 million versus last year and representing a conversion rate of 58%.

Free cash flow generation has been and continues to be a priority across API and we are pleased with our performance year-to-date as the business accelerates revenue growth. We expect to finish the year at approximately 75% adjusted free cash flow conversion in line with our prior guidance. As a reminder, the fourth quarter is traditionally our strongest for free cash flow conversion due to seasonality.

At the end of the third quarter, our net debt to adjusted EBITDA ratio was approximately 2.0x below our long-term target, allowing us the flexibility to pursue value-enhancing capital deployment opportunities in the remainder of the year and into 2026. As a reminder, our long-term capital deployment priorities remain: one, maintaining net leverage as stated long-term targets. Two, strategic M&A at attractive multiples and three, opportunistic share repurchase.

I will now discuss our guidance for the fourth quarter and full year 2025 which, as a reminder, is based on current foreign currency exchange rates. We expect increased full year net revenues of $7.825 billion to $7.925 billion up from $7.65 billion to $7.85 billion, representing reported revenue growth of 12% to 13% and organic growth in net revenues of 7% to 8% for the year.

Moving down the P&L. We expect full year adjusted EBITDA of $1.015 billion to $1.045 billion, compared to our previous guidance of $1.05 billion to $1.045 billion, representing adjusted EBITDA growth of approximately 15% at the midpoint and adjusted EBITDA margin above our previously stated 2025 goal of 13%.

Our increased full year revenue and adjusted EBITDA guidance is driven by updates to our business outlook, including our third quarter over delivery, our latest outlook for the remainder of the year, and the impact of closed M&A during the quarter. Based on most recent rates, the impact of foreign currency is immaterial to our change in guide.

For 2025, we anticipate interest expense to be approximately $145 million, depreciation to be approximately $85 million. Capital expenditures to be approximately $100 million and our adjusted effective tax rate to be approximately 23%. We expect our adjusted diluted weighted average share count for the year to be approximately $424 million. We continue to expect adjusted corporate expenses to be approximately $35 million per quarter with some timing variability throughout the year.

As expected, our EBITDA adjustments for restructuring were 0 in the third quarter as we brought those programs to the conclusion at the end of the second quarter. Overall, we are pleased with the team's execution of our strategy in an evolving macroeconomic environment during the year. I look forward to sharing more updates on our progress next quarter.

I will now turn the call over to Russ.

Thanks, David. We approached 2026 with strong momentum across our global platform. We continue to accelerate organic growth while expanding adjusted EBITDA margins, growing our recurring inspection service and monitoring business, building on our record backlog and improving our free cash flow generation. We believe our proven operating model built on our inspection and service first strategy, purpose-driven leadership and a disciplined approach to capital allocation positions API for sustained organic growth, margin expansion and value-accretive M&A.

We are confident in our abilities -- we are confident in our leaders' ability to execute our strategy and deliver against our new 10, 16, 60-plus financial targets creating value for all of our stakeholders.

With that, I would now like to turn the call over to the operator and open the call for Q&A.

[Operator Instructions]

Our first question comes from the line of Andy Kaplowitz from Citigroup.

Russ, as organic growth, as you know, has been accelerating in Safety Services, could you give us some more color on how that broke down. For instance, are you seeing a boost your project business given a bigger data center tailwind? Or would you say it's more broad-based growth, given your comment in the prepared remarks, I'm not overcommitting to high tech?

So I would say that we're seeing very robust activity in the data center space across really both of our segments. Andy, I mean, I don't think, I think going into the year, data centers probably accounted for some place around 7% to 8% of our total revenue, and maybe that's going to push to 9% or 10% based on the tailwinds that we're seeing in the space. So it's not a significant component of our revenue.

We continue to see really good activity in the semiconductor space, advanced manufacturing. We're seeing some activity in aviation that's creating opportunities for us. Health care continues to be strong as does critical infrastructure. So we feel -- we've always felt strongly about the end markets we've chosen to play in, and I feel like we're just seeing good robust activity.

So I would say that one thing that might be different today than what was different a year or 2 years ago is size and complexity of some of these projects, which limits the limits to players that are able to really participate and deliver on some of the schedules, which creates opportunity for folks like us.

Very helpful. And then you mentioned sort of 11 bolt-ons now, still reiterating $250 million plus this year, but it almost seems like you're ahead of plan on M&A. So maybe you can give us a little more color around the progress you're making. Obviously, you've been adding to your elevator platform, you mentioned multiple other platforms. So just update us on sort of where you are. Is that the right observation and may be a little ahead. How do you think about it?

I think about it more like we're right on track, to be honest with you. I mean we have we have anticipated activity here in the fourth quarter that we still need to execute on. But I feel like we're right on track, whether it ends up being $275 million, I don't know. That will all depend on our ability to execute on the deals that we have in the pipeline right now. But this idea of us being a forever home for sellers, as we mentioned in our remarks, continues to resonate.

And we are seeing a lot of activity, and that has really been positive for us. So most -- the focus has remained primarily in North America in the fire and security space. We are continuing to do work on Elevator. We got one deal done -- this year, we have a number of deals that are in the pipeline that we're continuing to push forward on.

And we are seeing more activity in the international business, but that still remains on a country-by-country basis based on the ability of that country, so to speak, to digest a potential bolt-on. But we are seeing more activity in our international business as well.

Appreciate all the color.

Thanks, Andy.

Your next question comes from the line of Kathryn Thompson from Thompson Research Group.

And tagging along just and balancing priorities for growth with M&A. So about 45% of of fewer end markets today by our calculation benefits from reindustrialization. And granted, as you noted, there's ample opportunity to grow smaller segments like elevator segment. But when you think about balancing your priorities by either industry verticals or broad U.S. trends, how do you balance those 2? So -- for instance, based on our work and being able to see data center construction side, the amount of support is going to benefit companies of scale like API. So do you see a greater balance of your revenues coming from that reindustrialization, so you greater mix? Or -- and how do you balance that against just consolidating a vertical like the elevator and escalator segment?

Well, I mean thanks, Kathryn, and we appreciate you and you being here with us. Well, for sure, the size of some of these projects and the complexity of these projects creates opportunity for folks like us because there's only a handful of national players that can handle the Fire life safety on, say, a large data center project. And so that's an advantage.

And for us, as we look at how do we balance that, for us, our geographic footprint is an advantage for us. And the data center market continues to follow power availability -- and so there's areas where there is some concentration of data centers, but you're starting to see these data centers move to different locations. And a lot of it is remote locations. So you have to have people that are willing to travel to these to these locations, and that's an advantage for us.

So as an example, one of our clients is going to build on large extensive data center in El Paso, Texas. We have a very, very strong fire, life safety business in El Paso, Texas, that's positioned to support that, and that's an advantage that we have. And so as we think about the balance of like investing -- continuing to invest in our inspection service and monitoring business, or say, continue to try to consolidate in the elevator space, we're doing both, and we feel like we've got the bandwidth to do both with the way our business is really structured.

So we've got the right resources in the elevator space to focus on not only growing the elevator business, but also executing on the on the elevator business that we currently have. And so we balance that. These large project opportunities flow -- continue to flow through me. So I can see how much activity is going there. And so we're able to ask questions to make sure that we've got the right resources to be able to execute on the work.

And one of the things that I talk about all the time that I think sometimes people don't really have a real understanding or maybe even respect for is that in our industry, having too much work is worse than having not enough. And so we watch that very, very closely to make sure that we're taking advantage of the right project-related opportunities so that we get paid the right price for the work that we do and the services that we provide. So we talk about it all the time, and I feel like we're doing a really good job of doing both.

Very helpful with that. And following on that comment of too much work, are there in markets that are generally better margin as you go towards your margin profile, are there markets now that you would like to grow that you see as better margin markets as you focus on growth going forward?

Well, I think the end markets that we're playing in right now today provide the best margin opportunity for the company. And it's because of what I've mentioned, it's based on size, based on complexity. And it's more around your ability to deliver. And the schedules for these data centers as you're aware, are really aggressive.

And so like you have to have you have to have the people. And if you're going to deploy your people to some of these project opportunities the margin opportunity needs to be there. And so -- so it's the size, it's the scale, it's the complexity and it's the schedule and your ability to deliver. And you should get paid for that, and we're seeing that.

Excellent.

Your next question comes from the line of Andy Wittmann from Baird.

I guess I want to kind of build on the margin questions here a little bit and just kind of get your assessment, Russ, on the margin performance in the quarter. 10 basis points. You got a lofty 2028 goal. I know one quarter does not make the trend. But just you mentioned some things like, I don't know, materials costs and talk about some investments for growth. And there's that inherent growth margin trade-off that is such a focus for your company.

Obviously, you look back at last year, you got big margin gains as a result of kind of slowing down some of the projects that you took on I guess I wanted to ask you kind of are you at the right balance of growth, it's much better here, but you're not getting quite as much margin. So what's your assessment of kind of your balance between those things? And -- and as you head into 26, you need to maybe throttle down the growth to make some progress towards that big 28% margin guidance?

Well, Andy, thanks for being here. And well, number one, we're not going to tell you we can do something that we can't do. And I mean, we're competitive competitive group. And I feel like the margin expansion goal and objective we put out there is realistic, and we will deliver on that. And I feel like we're doing a good job of balancing organic growth with -- inside our existing portfolio today. And -- and as you said, really, even as you framed your question, the reality of this business really isn't linear. And we will continue to see our margins expand as we move through the remainder of the year and into next year. So I remain optimistic about how we're balancing it. I don't know, David, if you have any color you'd like to add?

Yes, I'll add a few points. Russ. Thanks for the time, Andy. Thanks for the question. Underlying, we've seen really good margin expansion in our inspection service and monitoring work. And we're able to continue to get margin-accretive pricing, and we expect that to continue into the future. United Say, we're still in the early phases of a lot of this contract work that is driving organic revenue growth, particularly -- this comment is in the Specialty Services segment, and we'll see margins expand sequentially again in Q4 and into 2026.

As those projects move deeper into completion, we tend to move margins up on our projects as we get closer to completion, and we're still in early days in many of those projects. I think there's a lot of opportunity to grow margin. Last thing I'd say is we did deliver a strong quarter and raised our guide for the year. And with that comes some increase in corporate costs and variable compensation that impacted margin in the quarter as well.

Okay. That's a specific comment on maybe elaboration on the materials and the investments.

Well, we can -- the primary area that when David was talking about investments is continuing to invest in our sales team, primarily in the inspection service and monitoring space. We have really ambitious goals in -- with our -- where we want to take the inspection service and monitoring component of our of our business when you think about our 2028 objectives, which means in a lot of ways, we need to more than double our sales team and the folks that are doing that work, which means we need to bring more inspectors into to the business.

So it's primarily when we talk about investment, it's primarily in that piece of our business. So that's a primary when we talk about investment, it's really in building out our sales team and our sales leadership.

Your next question comes from the line of Josh Chan from UBS Financial.

David I think in terms of organic growth, certainly a really strong year, and it seems like it's just getting stronger. I guess you are tracking ahead of your mid-single-digit kind of long-term growth rate. So maybe could you comment on sort of the sustainability to grow mid-single digits on top of the very strong growth this year? Or how are you thinking about kind of the cadence, whether this pulls anything forward or whether you can kind of grow on top of this?

Yes, great question. Thanks for being with us, too, Josh. I'll take you back to the organic growth algorithm that we shared at our Investor Day in late May. And when you think about our safety services side of the business, we expect mid- to upper single-digit growth. That's kind of mid- to upper single-digit growth in the service side of the business, driven by both price and share gain and then low to mid-single-digit growth on the project side.

Then likewise, we expect mid-single-digit growth over the long term in our specialty business, and we believe that, that algorithm is is sustainable over the long run. And to a point that Russ made earlier, when we put out frameworks and expectations we deliver against them.

As we've gone deeper into the year where you've seen that outside revenue growth is really in the in the project part of the business, where we've got an expectation over the long term of that being in the low to mid-single digits. And that was more in the mid- to upper single digits, double digits in places in the third quarter. So do I believe it's sustainable?

Yes, and we'll continue to deliver against that growth algorithm?

Great Thanks, David, here. And then I guess in terms of the guidance, you moved up the revenue guidance nicely, I think, over $100 million at the midpoint. And then you kind of nudged up the EBITDA guidance at midpoint. So could you talk about the translation there in terms of the much higher revenue and then kind of the slightly higher EBITDA?

Yes. I'd be happy to, Josh. When you think about what's moving up our revenue guide for the year, it's the same answer that I gave you on the last question. which is increased or continued strong strength in the project environment. And we've talked publicly for the last couple of years on how the project side of our business on average is at a lower gross margin than the inspection service and monitoring stream and so that mix impact influences, and we've talked over the last couple of quarters how as we're ramping up projects. They tend to come in at a lower margin both through at the early part of the project and get marked up as we go through the work and you see that dynamic in the fourth quarter as well.

Your next question comes from the line of Tomo Sano from JPMorgan.

This is Ethan on for Tomo. Looking at the M&A pipeline, you guys had 4 bolt-on acquisitions in the quarter and a strong track record of value accretive M&A. What's kind of the current status of that M&A pipeline? And are there any particular geographic or service lines that you're prioritizing for future bolt-on acquisitions?

Well, I mean, the pipeline, I mean, I think you can expect more of the same. You know what I mean. It's kind of just regular cadence for us at this stage of the game. We just keep plugging away and making sure that we're making good choices for the businesses that we choose to bring into the API family. Culture values and fit being the #1 gate, if you will, that we need to solve for.

I think you're going to continue to see a very similar cadence as you've seen really over the course of the last couple of years. So that part of it is good and the opportunities that are in front of us are really positive. As it relates to focus, it seems like just based on readiness and capability are we -- the majority of our transactions have happened in our North American safety business, primarily in the probably fire protection first, electronic security second and elevators, I would say, are on equal footing, and that's just the way -- that's just kind of the way it's happened. -- and a lot of that is based on readiness.

So -- but I would say fire suppression, fire just in general electronic security and elevators are kind of all the same as it relates to our priorities. And you're going to see us continue to do more transactions in North America until the international business is in kind of an overarching way, more ready and capable of handling bolt-on M&A activity. We -- all that being said, we continue to do work on opportunities that we see in our international base business, and that's based on country readiness.

So we have certain countries that are in a much better place as it relates to being ready to take a bolt-on versus other countries. And that's a gate that we use actually in North America as well. So -- but you should expect a very, very similar cadence of activity. We also continue to look at slightly larger opportunities that are out there in the market, and we continue to do work on those. So lots of good things happening from an M&A perspective right now today.

Thank you for providing a little bit of color. On your investments in the sales team. Are you guys seeing -- how is the labor availability and technician retention? And are you guys experiencing any wage pressures or capacity constraints?

So I would tell you that -- well, number one, as it relates to people in general, not just like sales people. Like we talked about the investment in our inspection service and monitoring business really as a whole. And the first tenet of people and talent management is retention and you have to keep the people that you have.

And our retention is very, very strong, I think, north of 90% and I would tell you that, that's driven by the company's purpose of building great leaders in the investments that we continue to to make in every single person that's on our team. And that includes the men and the women in the field. And I think that's something that differentiates us.

So first, we have to keep the people that we have. Second, you have to really be looking for people in nontraditional places in today's world. And I feel like our team is doing a better and better job like I don't think we're perfect at it, but I think we're doing a better and better job of bringing people in from nontraditional places. And then you have to have the capabilities to train.

And we have these I don't know if I'd call them a center of excellence, but pockets of brilliance anyways, where we've developed training programs and where we can send inspectors and we can send fire alarm technicians. And folks like that. We have a design training center inside one of our businesses that's being utilized by all of their sister companies. And so we recognize the fact that if we want to achieve our goals, 10, 16, 60 plus. It's going to take more people in our organization. And so we have to be thinking differently about that. And I feel like our team is really doing a good job.

I think we have some more work to do there, but I feel like we're doing a good job in understanding what the people needs are. I look at people. If you if our business leaders use people as the reason that they can't grow their business, then that's an excuse. And the reality of it is, is that everybody that's in the industry knows that finding really good people that have the skills to do the work that we need to do for our customers. It's been tight like this for 10 years.

And so saying that you can't find the people, that's an excuse. Like you have to think differently about it. And how you're going to build your business. And I feel like our group is doing a nice job there. And that -- it takes leadership to do that.

Good luck with the rest of the year.

Thank you.

Your next question comes from the line of Stephanie Moore from Jefferies.

This is Harold Antor on for Stefan. Just wanted to get an update on elevated. I think you guys have owned the acquisition a little bit over a year now. So just I guess, what's the organic growth running in that business. How is the cross-selling running? How many cities have you been in teen conversations about how that integration has been on?

I think Elevated is doing really well. And they're high single-digit, pushing double-digit but high single-digit organic growth. So we feel good about where that business is at. it's really doing well. The cross-selling, again, is just -- we're in maybe the top of the second inning as it relates to cross-selling as as those folks get to know their long-term API teammates, that's going to only accelerate but it's happening more and more. I view that as being very, very positive.

As we mentioned earlier, we made one acquisition in the elevator space. It's really not a bolt-on to elevated. It's kind of what we turned a tweener. It's a really -- it's a nice-sized business and we're operating it independently of elevated -- but I -- we couldn't be happier with where we're at with our -- with the elevator business as it sits today.

Great. And then I guess, just double-clicking on Specialty, another solid quarter of strong performance. I guess what's the size of the pipeline today versus, I guess, the last time you spoke. And I know given formal 2026 guide, but I guess as we think about the double digit, we mentioned that we prepared to be exiting in 2025. What -- I guess, -- do you think that set up for 2026 to run slightly ahead of that mid-single-digit organic growth performance? Or just any comments there would be very helpful.

Well, I think -- I mean we don't break out backlog by segment, but our backlog remains at record highs across really both segments. And so we feel really, really good about where we're going as we work our way through the fourth quarter into 2026. We still -- our target is David mentioned this earlier in his remarks, and I'll let him make some additional comments about it. But our targeted growth rate is mid-single digit organic. And we'll take advantage of the opportunities that are continue to be presented to us. And if there's an opportunity that we feel like we can execute on, and it's going to be accretive to our margin goals, we're going to grab it and go. But right now, as we move into 2026, the expectation is mid-single digit organic growth. I don't know, David, do you add anything?

Yes. I think maybe the only thing I'd add is on the momentum question, if you pull apart our guide for the full year, it's really a strong fourth quarter guide to, it will be a mid- to upper single-digit organic revenue growth and our highest margin expansion quarter of the year. So feel like we're exiting 2025 with really good momentum. We've got that project backlog behind us. And most importantly, as Russ mentioned earlier, in that-- that project work will lead to great inspection service and monitoring opportunities for our team at special fuel growth throughout the 2028 strat period.

Your next question comes from the line of Julian Mitchell from Barclays.

Maybe my first question would just be around the acquisition sort of contribution. That's so much the pipeline of unannounced deals and all that. But just if I look at the announced closed transactions and so forth. I think M&A contribution to revenue this year is sort of mid-single digits. When you look at the acquisitions that have closed or expected to close by year-end, how should we think about the M&A sales contribution for next year? As it looks today, again, just based on the announced closed and about to close deals. And any color on the sort of profitability for those newer acquisitions in aggregate?

You're asking a 2026 budget question, Julian.

Have announced sort of closed deals nothing perspective or what have...

The best year I can give you on that is that about $1 of purchase price it is about $1, maybe a little bit less in revenue over a 12-month period. And so if you shape that out, you'll get a pretty good sense, I think, of what that would contribute next year, and we expect our deals to be accretive to fleet average from a margin perspective.

That's helpful. And then -- maybe just circling back to the operating leverage question that's come off a handful of times on this call. So is the core assumption leaving aside any outsized acquisitions that might have a different margin profile. But if we just look at the business as it is today, should we assume that, that sort of mid-high teens operating leverage that you've delivered year-to-date, that's a good sort of run rate for the year ahead, just looking at the shape of end market growth rates and the attendant kind of mix differences and all that.

Julian, when you say operating leverage, are you -- are you talking about EBITDA growth?

Or maybe just can you help clarify -- so sorry, just sure, Adam. So it's sort of incremental EBITDA margin I think that number, for example, on sort of incremental EBITDA margin in the third quarter just delivered was mid-teens, and it was mid-teens in the first half as well. So your sort of -- your headline EBITDA margin was 13.5%, sort of incremental EBITDA margin just change in EBIT over change in sales was more like mid-teens. Is that a good kind of run rate when you're looking at the end market mix today?

Yes. I think as you're modeling out into 2026 and beyond, I'd model a somewhat higher incremental going into the future.

Your next question comes from the line of Jasper Bibb from Truist Securities.

Following up on the data center comments. Based on what you're seeing in the backlog trend for that sector, should we expect the revenue contribution from data centers to continue to build over the next few quarters, maybe to materially higher number than the 9% to 10% you cited earlier on the call?

I don't think it will be material higher materially higher. I can't even say it. I think it might creep to 10%, 11% or something like that as a percent of our revenue, I mean, I'd be surprised if I get 12. And one of the things to remember is that the difference between, say, us and some of the other players that are really taking advantage of the data center space is the fire life safety that component of these jobs is like significantly smaller.

So like the HVAC/mechanical work on a large data center might be $500 million from a contract value perspective. And like I'm kind of making -- I'm just trying to give you directional guidance on the numbers here. the fire, life safety might be $10 million to $15 million on that same data center job. Now we're seeing some of these large, large -- very, very large projects where the fire life safety is higher than that. But then the mechanical is probably still 10x of that. And so the contracts, the sizes are different. And so that's the reason that you won't see it incrementally affect us as much as it say might affect of one our peers in the space.

A context. And then hoping you could maybe update us on early progress on your tech investments and any key milestones thinking about the ERP, for example, we should keep in mind as we think about '26.

es, absolutely. Thanks for the question. Our tech investment, this is our ERP investment in our Safety Services segment. I'd say is progressing largely as we expected. These are difficult projects, but I'm really pleased that the team is progressing and they're progressing, doing it a lockstep with our business. and making sure that this is a business-led project that's meeting the business needs of our branch leaders, our field leaders and our company leaders.

So that is moving forward. We're out of the blueprinting phase and we are currently deploying in our pilot company. So really moving forward as we expected. As you think into 2026 from a cost perspective. 2025 is going to be the high watermark for spend on that system deployment project. It will step down a bit as we go into 2026 and then step down further in 2027 as we get near and approach conclusion.

Our final question comes from the line of John Tanwanteng from CJS Securities.

A lot of them have been answered already. I guess the 1 thing that I have is based on -- and following up on the prior question on the incremental margin expectation going forward to be higher than it has been. Should we take that to mean that there's no very large project start quarters in the schedule for the upcoming several quarters. And I understand that's obviously good for growth, but impacts the margin in the quarter. Is that the takeaway we should be on?

Yes. I wouldn't -- I view this whole project start topic that's impacted our year-over-year margins for the past couple of quarters is something that happens at an inflection point. And as we went from being down year-over-year to significantly up year-over-year from a revenue perspective in Q2, it impacted -- we were up about $50 million to $60 million in revenue quarter-over-quarter in the Specialty segment in the third quarter. So that impacted.

But now as we get into the fourth quarter, and I'd expect our margins in the Specialty segment to be year-over-year accretive and then into Q1 and Q2 of next year, it's just going to be part of the ebbs and flows of our margin and not a major issue.

This concludes the Q&A portion of today's meeting. I'd now like to turn the call over to Russ Becker for closing remarks.

Thank you. In closing, I would like to thank all our team members for their continued support and dedication to our business. I'm truly grateful for what each and every one of you do on a daily basis. I would also like to thank our long-term shareholders as well as those that have recently joined us for their support. We appreciate your ownership of API and look forward to updating you on our progress throughout the remainder of the year. Thank you, everybody, for joining the call this morning.

This concludes today's meeting. You may now disconnect.

Good morning, everybody. Thank you all for joining. My name is Stephanie Moore. I'm the business services analyst here at Jefferies. We're very pleased to have APi Group with us again a couple of years in a row at least. So very pleased to have the team with us. We have Russ Becker, CEO; we have David Jackola, CFO; and then Adam Fee, Head of Investor Relations. Thanks for joining, guys.

Thanks for having us.

Thank you.

Great. Well, I'm going to kick it off with a series of questions. At the end, if we have time, certainly happy to open it up for Q&A in the audience. But I think I'll start with probably the more obvious question in this environment. But maybe if you could talk a little bit about the demand environment for your inspection and monitoring services as well as across specialties.

Well, demand, especially when you look at the inspection part of our fire life safety business, none of the noise that's going on from a macro perspective impacts that at all. It's one of the reasons that we like the space as much as we like the space is that it's the statutory nature of it. So a commercial office building, regardless of whether President Trump is adding more tariffs on to India doesn't matter. They still have to do the inspections of their fire life safety systems for functionality and operability.

From -- just from an overarching demand perspective, the -- in general, things continue to be strong and robust. I think that we've said this really pretty consistently that the end markets that you choose to play in really do matter. And end markets such as data centers, advanced manufacturing, health care continue to provide really robust opportunities and we continue to see that in our business.

Proposal activity remains strong. Our backlog continues to grow. I think when we released our second quarter numbers, we shared that our backlog was in excess of $4 billion for the first time. So we're seeing really good demand in the business amidst all the noise that you're seeing come out of the -- out of Washington, D.C.

A question we get a lot is what metric should we look at as we think about just the overall -- or what we should monitor? So in terms of commercial activity, new construction, ISM activity because I think a lot of that, there's growth, as you said, in data centers, but for the most part, industrial is pretty weak. So is there anything that you can kind of point us to? Or as you stated, has it really come down to the end markets you choose to play in?

Well, I mean, there's a few things that I would point you to. Number one, just like as it relates to us, we talk about how our North American safety business has had double-digit inspection growth pretty consistently going all the way back to 2020 every quarter. So that's a key data point for us and something that we continue to monitor. I mean we look at all of the data points that are out there, whether that's FMI has industry-specific data by end market that you can follow. McGraw-Hill has stuff. I don't pay as much attention to the Architectural Billing Index. But all of those things provide just data points as it relates to the overarching health of the industry, but as you're aware, we've continued to try to build and focus our model on the inspection first.

With this inspection-first mindset, continuing to build our inspection service and monitoring businesses to a higher proportion of our total revenue. So in 2024, I think we finished '24 at 54% of our revenue coming from inspection service and monitoring. And that continues to be important for us so that we -- there's less reliance on the lumpiness of, say, the project space.

Absolutely. And I'm going to touch on the inspection business in here in just a minute, but just to round out the project space. You did call out on your last call the record $4 billion project backlog. Can you talk a little bit about just the visibility you do have into project timing and kind of customer capital allocation decisions for 2026 that kind of are embedded in that pipeline?

Well, our average project size, the reality of it is the average project size is probably 3 to 4 months with the work that we do. Our backlog from a coverage perspective is probably closer to 12 months just in general. So as we work our way into the back half of '25 and we start talking about having a $4 billion-plus backlog and you start thinking about roughly 12 months of total coverage there, you can see that we've got really good visibility and line of sight into what 2026 is ultimately going to look like. So we feel good about that.

And for us, I think as part of that, it's the quality of the backlog is just as important, if not more important, than the backlog. And that's really been an area of focus and emphasis for our business leaders. So we feel really good about what we're seeing, what we're hearing from our customers. And we even have people reaching out to us looking to what would be the right way to put it. I don't know if formalized is really the right word, but to enhance working relationships and building partnerships because of some of the demand in semiconductors, data centers and things like that. And some of these project sizes are so big that you need to have the right partners in order to be able to execute in the time frame that your clients are demanding.

Absolutely. Maybe switching to the inspection services side. As you noted, it has continued to grow at a really nice clip even through 2020 and the like. So as you think about that growth, how would you characterize the major drivers? Is it new business wins, growth with existing customers, pricing?

Well, it's a little bit of everything. I think the -- for us, everybody always wonders about price and stickiness and everything else. And -- the reality of it is that we're building price into our inspection agreements. We're trying -- our sales leaders are incented to sell longer-term contracts. So the -- so to speak, their compensation is higher for selling a 5-year inspection plan versus a 3-year versus a single year. And we're building price right into those agreements.

And so we are taking price and continue to take price and that price is sticky. I think one of the unique things for us, though, is that we continue to build out that inspection sales leadership across the portfolio, and we're taking share. And so when we start talking about double-digit inspection sales growth, that's -- there's an element there that's going to be price, obviously, but there's -- we're taking share because there's very little material included in that. It's mostly labor and you're actually selling the inspections and you're taking that from somebody else.

I guess just a follow-up. Who do you think you're taking share from? I mean it is an industry that appears to be consolidating. A lot of mom -- and PE has definitely been involved, some mom-and-pops. So how would you characterize, I guess, the competitive landscape and then who you're taking share from?

Well, even with some of the consolidation in the industry, the industry in general remains highly fragmented. And so I would say, in general, you're taking share from small family-owned businesses. You don't see -- even some of our peers that -- like EMCOR has a fire protection business, but their fire protection business is focused primarily on project-related work and not focused on the inspection service and monitoring piece of it.

To have a really robust inspection, service and monitoring business, you need to have bricks and mortar. You need to be actually have physical locations in communities in order to be able to properly service those clients. And that's really how we've built our business versus, say, just booming in the town, doing a large project and then packing up our bags and leaving.

Absolutely. And then as you think, I don't know how many years forward, but how consolidated can this industry become?

Well, I don't. I mean, I had a crystal ball, Stephanie. The reality of it is like I don't even really lose sleep over that, to be honest with you. So if you think about it, we're the largest player in the space. And if you look at every major metropolitan market in like just say, the United States, we have, for sure, less than 10% of the market, and I would say probably less than 5%. And I mean -- and so like I know Buffalo is not Houston, but just to give you an example, we've had a company that we've owned in Buffalo for a long period of time. We did a small acquisition in Buffalo and bolted it on to this business. And so we -- and our team thought that they were crushing it.

They thought, man, we've got Buffalo locked up. And the woman who leads national sales for us, her and her team were out there for some training and development stuff, and they did a market study and analysis, and we only had 4% of the market. And our team thought they had like 50% of the market share. And like I can tell you, we can go to St. Paul, Minnesota, we can go to L.A., we can go to Houston, and we're going to find the exact same thing.

So the opportunity to continue to build our business is really robust and real. It's not some fictitious thing. So it gets me excited. And the reality of it is even with the entree of private equity into the space, that doesn't really concern me either. And the reason it doesn't concern me is because companies that want to sell to private equity probably aren't going to get through kind of our analysis, like I talk all the time about the different gates that we use when we evaluate potential acquisitions.

And the most important of those gates is culture, values and fit. And we want -- we're going to own these businesses forever. We're not selling the business in 3 years. And so we want companies to join the APi family that fit our culture, and they don't have to have the exact same values, but the values have to align. And I always kind of make a comparison to Thanksgiving dinner. And if you have a choice when you're inviting people to Thanksgiving dinner, excuse my language, you're not going to invite an a******. And I mean, you don't always have a choice for Thanksgiving dinner and everybody's got those family members that maybe fall into that category.

But if you have a choice, you're not going to invite an a******. And so it's no different with -- when you buy these small companies and you bolt them on to your business, you're inviting these people to a permanent Thanksgiving dinner. And like I'm not that old, but like I'm old enough to know that I just want to work with really good people that share kind of our value system and are going to be additive to what we're trying to accomplish. And if all they care about is price, then they should sell their business to private equity. If they care about a forever home for their team and finding the right place for their people to land, and that's us. And that's how we're going to continue to build our business.

Got it. Two follow-up questions to that because I think it's important. So the first is, how do you generally measure culture? Because I think, Russ, especially at your Analyst Day this year, you talked a lot about the importance of culture. You obviously just talked a lot about it now. So how do you constantly manage the culture of your organization as you grow as well as you evaluate new organizations? And maybe if you could talk a little bit about just your focused leadership development program as well.

Well, I can take the next 20 minutes then. So it's kind of like I'm going to try to separate them. So assessing culture during the M&A process. So when we're looking at small bolt-on type M&A, geographic fit is important to us. The services that the business offers is important to us. The financial profile of the business is important to us. And then culture values and fit is the most important gate that we have to get -- work our way through. And the only way you assess that is by spending time with these people.

And like I've got my own little funky things that I like to do and which includes going out to dinner with people and seeing how they treat the wait staff and the hostess and those types of things. You tell a lot about people just walking around their business. And we have one of our business leaders, a newly acquired company that's with us, and I was just in their office just, I don't know, what, 4, 6 weeks ago. And not even that, I mean you walk through it and like you can just tell. I mean, this is a fine story.

Anyways, I walk into the office, and there's a picture of me on the front desk. What I mean, like that's really weird. So I want to pus, turn it over. And they -- every workstation in every office, they had a picture of me in it. And it was actually like you couldn't make it up. And it was so damn funny. And so the next thing you know I'm walking into somebody's workstations is to say hi to them. And I'm looking for the damn picture. You know what I mean?

And it was the weirdest thing then so one of the guys that was traveling with me stole one of them, and I showed up on Monday for a meeting, and he's got one of those pictures on the conference room table. But my point in sharing all that is like there's culture there. And these people like love their work and they love what they do. That's what we're looking for. And then like when I think about APi's culture, our culture at APi is centered on our enduring purpose and our enduring purpose is building great leaders.

And we've been on a journey of leader development since really 2003. And in a business like -- that's structured like ours, where we have 500 branches across the world, every person in our organization deserves to have a great leader. And it starts at the company level or the country level, and then it moves to the branch level and then it moves to the department inside the branch. Every person deserves to have a great leader. And we've actually moved to a point where we say this all the time, and it's one of our foundational beliefs at APi is that everyone everywhere is a leader, which means that every person in our organization has the opportunity to be a leader. It's just that your role is different, and that's okay.

And when you think about leadership and leader development at APi, we look at it through like it sits in 3 different pillars. The first pillar is leading self. The second pillar is leading others and the third pillar is leading teams and businesses.

And every single one of us, including me, has an opportunity to be a better version of ourselves from a leadership perspective. So what am I doing to improve my leadership in how I show up every single day. And I think it's something that's important to us. And like when I think about APi and everything else, like everybody -- if you ask somebody, what keeps you awake at night? The first thing they're going to say to you is, can't find enough people.

Like -- and I just call kind of BS on that, like that's an excuse. Like we've all known that this competition for good people, like we've been talking about it for 7 years. So for me, it's like what are you doing about that versus using it as an excuse. So I view that as more of an excuse.

For me, what keeps me awake at night is culture and how do we continue to not only maintain our culture, but build our culture. And for us, it's going to be -- it's centered around our purpose of building great leaders and the investment we're making in every single APi team member around the world from a leadership perspective. We want to invest in people as human beings versus training and all that other stuff that comes with it. And it's a big part of who we are.

Thank you. Appreciate it.

It's all I get a little excited about it.

Well, I do think it's important it is a people business at the end of the day. But on the same thread, as you think about your inspection-first strategy, through our conversations, we talked to maybe some competitors or some smaller players, and we really haven't heard of many that follow that approach. So I guess, could you walk through maybe just the competitive moat that you created with this strategy? Why you don't think competitors have followed? Maybe it is to some of the culture you just outlined, but maybe just talk about the strength that you get from this inspection-first strategy.

All right. I'm going to answer this one, and then you got to ask these guys a question. So I think that, number one, again, going back to this highly fragmented nature of the industry, and you're still competing mostly with smaller family-owned businesses to build a really robust inspection, sales execution kind of piece of your business, takes resources and it takes time, it takes energy. And if you're -- if it's -- you're a $15 million a year company, it's a lot easier for you to go out and say, book a $750,000 new installation project than it is to build $750,000 of revenue $1,000 at a time.

Your average ticket size for an inspection is going to be about $1,000. And it takes a tremendous amount of infrastructure to execute all of that work because you got to have somebody sell it and then you got to have somebody dispatch the inspector and then the inspector has got to go do the work and then there's the deficiency report. And oh, by the way, we have to invoice for the work and then we have to collect it and all that stuff.

And so it takes infrastructure there. And typically, when the industry would see slower periods of time, you see people try to migrate towards like I've got to build a robust inspection service and monitoring business. And as soon as the industry recovers, they just snap right back to doing project-related work. And so for us, we have that infrastructure. We've been on this mission for an extended period of time. And so we have those resources there. And for us, we're at a position now where it's scalable.

So as we continue to add inspection sales leaders, we're backfilling with inspectors and then we're backfilling with service people to do the pull-through service work. So to me, that's the biggest part of it. And there's -- we saw actually a small company that came up for sale that had a similar philosophy as us that we were interested in potentially acquiring and for whatever reason, it didn't work out, but small firm. You know what I mean, so you just -- for whatever reason, it just hasn't been adopted and it takes hard work, and that's probably the biggest thing. It's not easy.

Got it. Well, I'm going to give you a break, Russ and maybe kick it over to David, and we can talk a little bit about margins here. So on the margin front, I think we've talked a lot or you guys have talked a lot about branches eventually getting to 20% plus EBITDA margins. So maybe you could just talk a little bit about the levers it takes for the kind of percentage of your current business that is still trying to reach that level.

Yes, absolutely. So at the Investor Day, we shared a chart that had the margin profile of our branches. And if you look back at 2019, I think something like 9% or 10% of our branches -- 9% or 10% in total of our branches in North America were north of 20%. And in 2024, that number was closer to 40%. And when you think about that, it first starts with the leader of that branch. And when you have a great branch leader, great things happen. I mean we talk all the time about how having a great playbook is important. But if you don't have a great quarterback who's leading that playbook, you're not going to cover a lot of yards. And so it all starts with the leader.

Second, I think, is really adoption of the inspection-first mindset that Russ talked about earlier. And we've got branches that are at various stages in that journey, but the adoption of that inspection-first mindset. And one of the things that we started to talk more about is this critical point in a branch's life journey where they're able to cover their entire overhead cost from the gross margin that they generate from inspection service and monitoring revenue.

And when that happens, that's really when the magic in the branch starts to happen and allows them to become so much more focused and so much more disciplined on the projects and the customers that they're selecting. And then not only are their inspection service and monitoring margins moving upward, but you're able to get really accretive gross margins on the project side as well. So that's really the playbook and getting to that critical point where your overheads are covered by service work allows that extra level of customer and project selectivity.

And then maybe just as a follow-up, as you think about -- obviously, you have a lot of branches all over the world, but is there anything unique you can point to certain branches, I mean, does it matter what market you're in? Does it matter pricing, growth of that market retention when it comes to kind of ultimately hitting a 20% plus branch level margin profile?

Absolutely not. Absolutely not. We believe that every branch within our network has the potential with the right leader and the right mindset to be a 20% margin or more. No issue there. One of the things that we do across the business is we rank order and we stack order the performance of our branches all around the world, and we share that performance with our operators. And so one of the most important things we talked about this over and over again is mindset. And in the international business, when I was over there for the last 2.5 years, when I joined, they did not share branch performance across the business.

So everybody was going wrong thinking that they were delivering 12% adjusted EBITDA margin, and they were doing a great job. And they didn't know that there were businesses within international that were north of 20%. And so you show them what's possible and you get those competitive juices flowing and all of a sudden, you start seeing performance across the network improve, and that's really important.

And just sticking on the margin front, maybe switching a little bit to the projects or specialty side of the business. I think on the quarter, you did talk a little bit about margins just being pressured just given project starts. So can you talk a little bit about maybe the margin trajectory as projects progress and then how we should think about just margin expansion in the second half of this year and just as more project starts come online?

Yes, absolutely. So I'll talk about the 2 different reportable segments. So in Specialty, our margins were down year-over-year, largely due to project starts, as we mentioned. We expect margins in that segment to improve sequentially Q2 into Q3, Q3 into Q4 and then be year-over-year accretive as we get into 2026. in the safety side, I think you'll see margins in the back half of the year improve sequentially much at the same rate as they did in the first half.

Got it. And then at your Analyst Day, you did provide some medium-term margin targets, I think, in total consolidated margin of 16%. As you think about the trajectory of hitting that target, how would you kind of outline the path to hit those targets over the next couple of years? And then as you think about any major tailwinds, how should we think about the major buckets as well?

Yes. Great question. So largely, the levers and the drivers that got us to our -- well, we haven't finished 2025 yet, but our -- the midpoint of our guide is north of our 13% 2025 adjusted EBITDA margin goal. But largely, the levers that got us to 13% are going to be the same levers that get us to 16%. It's investments in systems and processes that will allow us to grow our SG&A at a slower rate than we're growing revenue. The mix impact of inspection service and monitoring, which on average, has a higher gross margin profile than contract work being really disciplined about the customers and the projects that we work on, getting margin accretive pricing year-over-year and benefits of procurement and then most importantly, the improved performance of our branch network year-over-year. So the drivers really haven't changed.

In terms of cadence, this year, because of the mix of project work that's driving our revenue growth year-over-year will be maybe a little bit lighter than the margin expansion that we saw in 2024. We haven't started the 2026 budget process yet. So I can't give you a great answer of how that will go '26, '27, '28. But my expectation is that it will be largely consistent across the 3-year period.

Great. Well, just being mindful of time, I do want to touch a little bit on M&A and Russ, you talked on some of this a little bit, but maybe digging in a little bit further, I wanted to get a sense of, I think anyone can answer this, but I wanted to get a sense of your appetite for maybe larger deals. We talked a little bit about the tuck-in of deal and that pipeline remains robust, as you noted. But now that you've digested Elevated, talking about your appetite for maybe doing something the size of Elevated or even bigger? And then kind of what area of your business you would be most interested or if there's any new services you would look to enter into?

Well, I mean, I think I can comment on your last part of your question first. As it sits right now, I'd say not necessarily looking at adding another leg to the stool. I feel like we have a lot of work to do building out our Elevator business. We've said publicly that we see an opportunity to build out a $1 billion-plus platform there. And we're really just in the bottom of the first inning on that journey. So I feel like there's a lot of work for us to continue to do that.

Now all that being said, if the right opportunity came along, we would dig in and do some work on it. Appetite for something bigger, like I don't look at like Elevated like it was a very big deal. It might have been -- the headline number might have been fairly good size because we paid up to kind of get our entree into the space. Basically, it was just north of a $200 million business from a revenue perspective. So I don't really view that as being very big. So we do something like that tomorrow. You know what I mean, if that opportunity -- if the right opportunity came along.

Something bigger, I mean, I think that we've shown that we're pretty disciplined. And if the right fit came along for us, we would -- we're always kind of doing some work in the background and digging in on certain opportunities. And for us, it's really about finding the right fit and businesses that are going to be accretive to our long-term goals and objectives.

So are we doing anything like Chubb ask right now? No. Are we sticking our nose underneath the covers on a few things? Yes, you know what I mean, but there's nothing that's imminent. And if there's something that fits us, we'll do the work and make sure that it is the right fit. And so it's kind of -- I'm not really answering your question, but -- so the answer is yes, if it's the right fit, we would be interested and willing to take a peak.

Great. And you touched on Elevated a little bit, so I do want to touch on that a bit. So you've owned that asset for over a year now. As you think about what are some of the biggest lessons that you've learned from that business, cross-selling opportunities, how have those kind of materialized, maybe combining sales teams. I'd love to get a bit of an update on just that asset.

Well, it's not an asset. It's a company.

Sorry, company.

It's got full of living, breathing organisms in it.

I can tell, I've never run a company, Russ.

So these guys are wondering if I was going to bust your chops about saying that. You know what I mean. But I hate when people call our business as assets because an asset is this table. Companies are people. And to me, that's -- there's an important differentiation there. So I apologize, Stephanie.

So we're happy with where that business is at. And we think that there's -- like a lot of these companies, they have a tendency to take a little dip kind of post-acquisition because everybody is so focused on getting the deal across the finish line that they kind of take their eye off the ball on the day-to-day stuff. And we saw that in Elevated just like we see it in probably 90% plus of the deals that we do. But we're really happy with it.

We did -- we bought another elevator company. We call it a Tweener because it's not quite a bolt-on, but it's not quite the size of Elevated. So we're continuing to expand in the space, and we see the opportunity for those businesses to perform at the same level as our Life Safety and Security businesses. So we're super happy with the business. We've taken one of our best and brightest and put this individual in charge of our Elevator business. We're calling it an APi Elevator. As we continue to build out that platform, not everything is going to be bolted on to Elevated. So we felt like we needed to dedicate some additional leadership to the space. So as we continue to build it out. But I'm fired up.

We're hopeful that we'll get something done here in the next month or 2, which would be more of a pure-play bolt-on to Elevated that will be a good test for that business to -- I didn't say this when I was talking about the hurdles that we evaluate bolt-ons through. But one of the hurdles also that I failed to mention was the company that we're bolted it on to has to have the ability to take it, accept it and integrate it.

And they -- Elevated hasn't done any sort of bolt-on even going back 3 years, I think, prior to us owning the business. So we need to buy one, go through that process of integrating it, see how that goes before we go and buy another one. And -- but the pipeline is really -- we're building a nice pipeline of opportunities in the elevator and escalator space. So I'm really optimistic. I think the investment we make in people, the culture that we have, kind of our branch-led operating model that we have allows these businesses, the sellers who become leaders in our organization to maintain some individuality and being entrepreneurs in their businesses is attractive. And I think we're going to be an attractive place for people to sell their businesses in that space, just like in the fire life safety space. So I'm really fired up about it.

Great. Well, I've monopolized a lot of the time here. Anyone in the audience with questions for the team while we have them?

Talk a lot about [indiscernible] not just on the project side, right, kind of business you got, but more on the inspection side. Is there anything -- could it get a little bit easier if you add a couple of points right there? What do you think about that?

I think -- I mean, positive economic times are going to be positive for everything in some way, shape or form. So like when you think about the inspector goes through and does the inspections on a building, they're going to identify things that are deficiencies. And some of those deficiencies, the code is going to mandate that they make those repairs and some of it, the client gets to decide whether they want to make those repairs. So do -- if everybody is a little bit more flush, you know what I mean, are they going to be more likely to spend a little bit of that -- some extra dollars on some of those discretionary items? Yes, for sure.

People are going to be thinking a little bit differently about things maybe that they've deferred and put off and all that stuff. So do I think that there's -- that really robust positive economic times is going to help every aspect of our business? I do. So...

All right. Well, I appreciate your time. Thank you.

Thanks, Stephanie.

Thank you.

Good morning, ladies and gentlemen, and welcome to APi Group's Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions]

I will now turn the call over to Adam Fee, Vice President of Investor Relations at APi Group. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining our second quarter 2025 earnings conference call. Joining me on the call today are Russ Becker, our President and CEO; David Jackola, our Executive Vice President and Chief Financial Officer; and sir Martin Franklin and Jim Lillie, our Board Co-Chairs.

Before we begin, I would like 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 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 a guarantee 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 and filings with the SEC, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, July 31, and we undertake no obligation to update any forward-looking statements we may make, except as required by law. As a reminder, we have posted a presentation detailing our second quarter financial performance on the Investor Relations page on our website. Our comments today will 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 our presentation.

It's now my pleasure to turn the call over to Russ.

Thank you, Adam. Good morning, everyone. Thank you for taking the time to join our call this morning. Before we get into our record second quarter results, I wanted to thank our 29,000 leaders for their hard work and dedication to APi. The safety, health and well-being of each of our leaders remains our #1 value. When I say safety, I don't just mean job site safety. We owe it to every one of our teammates to create an environment that's safe for them to do their job, not just physically, but also mentally and emotionally.

At APi, we believe that culture drives results. We include a slide in our earnings presentation that highlights our culture and our investment in people as human beings, a key ingredient in our progress to becoming a $7 billion, 13% adjusted EBITDA margin company in 2025. It also includes 2 opportunities to learn more about our culture, which is centered on our purpose of building great leaders. I encourage you to take advantage of these if you haven't done so already.

I also wanted to spend a minute on one of our foundational beliefs, the care factor. To win and achieve our new long-term financial targets, we need to care about and invest in our APi teammates as human beings. A couple of months ago, at our Investor Day, we announced the start of The Care Factor Fund, an initiative designed to support APi team members and their children in offsetting the expense of unexpected mental health treatment. This is something that is important to both me and our Board of Directors. And I'd like to thank our team members for their generosity in contributing to the fund. I'm happy to share that we have approved the first grant from the fund to one of our teammates. This is just one small way we show our teammates that the APi family cares during an important time of need.

Over the last several years, our team has remained relentlessly focused on our long-term 13/60/80 value creation targets we created in 2022. With our 13% or more adjusted EBITDA margin target in our sights for 2025, we are shifting our focus to the new 10/16/60+ shareholder value creation framework we introduced in May at our Investor Day. As a reminder, these targets are the following: $10 billion plus in net revenues by 2028, supported by consistent mid-single-digit organic growth, 16% plus adjusted EBITDA margin by 2028, 60% plus of our revenues from inspection, service and monitoring over the long term and $3 billion-plus of cumulative adjusted free cash flow through 2028.

Our leaders rallied behind our 13/60/80 targets to deliver on our commitments, and they have done the same with respect to these new targets. We have clear plans for how we intend to deliver on our 10/16/60+ targets. Fortunately, we don't need to reinvent the wheel. The main initiatives that enabled us to achieve our 13/60/80 targets will also enable us to hit our new 10/16/60+ targets. These initiatives are pricing, improved inspection, service and monitoring revenue mix, disciplined customer and project selection, procurement, systems and scale, accretive M&A and selective business pruning. And as I like to say, we can always just be better. We will augment these initiatives with our continued focus on building great leaders and the technology necessary to support our growth.

Now turning to our record second quarter results. The business continued to accelerate its momentum, delivering strong top line growth while expanding margins. Some highlights include the following: consistent margin expansion in Safety Services, a growing inspection, service and monitoring business, a return to organic growth in Specialty Services. record backlog in both segments; and finally, an acceleration of accretive bolt-on M&A activity, all of which I will detail shortly.

For the quarter, net revenues increased by 15%, up over 8% organically with strong growth across both segments. In our Safety Services segment, revenues grew organically in line with expectations by approximately 6%, while delivering 80 basis points of segment earnings margin expansion. Within Safety Services, we delivered strong organic growth across the North American Safety business. Importantly, and in line with our strategic initiatives, the North American Safety business achieved double-digit inspection growth for the 20th straight quarter. The international business delivered another solid quarter of organic growth, along with single -- with high single-digit order growth as that business continues to build momentum under APi's ownership.

As expected, Specialty Services returned to growth in the second quarter, delivering 13.3% organic growth as steady increases in backlog dating back to 2024 converted to revenue growth. The momentum across the business is significant with our record backlog eclipsing $4 billion for the first time in APi history. Importantly, the double-digit organic growth in backlog includes contributions from our cross-sell efforts, focuses on our target end markets and is healthy from a disciplined customer and project selection perspective.

Our continued focus on our margin improvement initiatives allowed APi to deliver year-over-year improvements in adjusted EBITDA margin in the second quarter with a 30 basis point increase versus last year. Our continued strong free cash flow generation and balance sheet provide us with flexibility to pursue value-enhancing capital deployment alternatives.

In the second quarter, we accelerated our M&A activity, completing 6 acquisitions, including our second elevator business. We have now closed 7 acquisitions year-to-date, and we have several more opportunities under letter of intent. We remain on track to deploy approximately $250 million in accretive bolt-on M&A at attractive multiples this year. We also undertook some selective pruning of a small business in our Specialty segment that was not accretive to our new 10/16/60+ financial targets, which is the lens we'll use to continue to evaluate businesses in both segments going forward.

In summary, we moved to the second half of 2025 with great momentum. Our inspection, service and monitoring business continues to expand. Our backlog is at a record high. Our balance sheet remains strong, and we are confident in our leaders' ability to execute our strategy and deliver against our 2025 plan.

I would now like to hand the call over to David to discuss our financial results and guidance in more detail. David?

Thanks, Russ, and good morning, everyone. Reported revenues for the 3 months ended June 30 were $2 billion, a 15% increase compared to $1.73 billion in the prior year period. Organic growth of 8.3% was driven by strong project revenue growth, pricing improvements and continued growth in inspection, service and monitoring revenues. Adjusted gross margin for the 3 months ended June 30 was 31.2%, representing a 50 basis point decrease compared to the prior year period, driven by mix, partially offset by pricing improvements across the business.

Adjusted EBITDA increased by 17.7% for the 3 months ended June 30, with adjusted EBITDA margin coming in at 13.7%, representing a 30 basis point increase compared to the prior year period. Growth in adjusted EBITDA was driven by an increase in adjusted gross profit. Adjusted diluted earnings per share for the second quarter was $0.39, representing a $0.06 increase or 18.2% compared to the prior year period, primarily driven by strong adjusted EBITDA growth.

I will now discuss our results in more detail for Safety Services. Safety Services reported revenues for the 3 months ended June 30 increased by 15.8% to $1.36 billion compared to $1.18 billion in the prior year period. Organic growth of 5.6% was driven by pricing improvements and strong growth in both service and project revenues. Our North America Safety business continued its momentum with double-digit inspection revenue growth. Adjusted gross margin for the 3 months ended June 30 was 37.2%, representing a 70 basis point increase compared to the prior year period, driven by disciplined customer and project selection and pricing improvements, leading to margin expansion in both service and project revenues. Segment earnings increased by 22.1% for the 3 months ended June 30, and segment earnings margin was 17%, representing an 80 basis point increase compared to the prior year period, primarily to the increase in adjusted gross margin.

I will now discuss our results in more detail for Specialty Services. Specialty Services reported organic revenues for the 3 months ended June 30 grew 13.3% to $629 million compared to $555 million in the prior year period, driven by strong project revenue growth. Adjusted gross margin for the 3 months ended June 30 was 18.1%, representing a 350 basis point decrease compared to the prior year period, driven by increased project starts, rising material costs and weather. Segment earnings decreased 2.7% for the 3 months ended June 30, and segment earnings margin was 11.3%, representing a 190 basis point decrease compared to the prior year period, primarily due to the decrease in adjusted gross margins, partially offset by favorable fixed cost absorption.

Turning to cash flow. For the first 6 months of the year, adjusted free cash flow was $186 million, reflecting an improvement of $52 million versus the prior year period and an adjusted free cash flow conversion of 40%. Free cash flow generation has been and continues to be a priority across APi, and we are pleased with our strong performance in the first half of the year as the business accelerates revenue growth.

During the second quarter, we increased our revolving credit facility from $500 million to $750 million and extended its maturity to 2030. At the end of the quarter, our net debt to adjusted EBITDA ratio was approximately 2.2x. As a reminder, the back half of the calendar year is seasonally stronger from a free cash flow generation perspective. We expect that trend to continue this year, providing us with significant opportunities for continued value-enhancing capital deployment, leveraging our strong balance sheet.

I will now discuss our guidance for the third quarter and full year 2025, which, as a reminder, is based on current foreign currency exchange rates. We expect increased full year net revenues of $7.65 billion to $7.85 billion, up from $7.4 billion to $7.6 billion, representing organic growth in net revenues of 4% to 7% for the year. Moving down the P&L, we expect increased full year adjusted EBITDA of $1.005 billion to $1.045 billion, up from $985 million to $1.035 billion, representing adjusted EBITDA growth of approximately 15% at the midpoint. Our increased full year revenue and EBITDA guidance is driven by updates to our business outlook, including the impact of closed M&A during the quarter, our second quarter overdelivery and our latest outlook for the rest of the year. Based on most recent rates, the impact of foreign currency is immaterial to our change in guide.

In terms of the third quarter, we expect reported net revenues of $1.985 billion to $2.035 billion. This guidance represents reported net revenue growth of approximately 9% to 11% and organic revenue growth of 5% to 7%. We expect Q3 adjusted EBITDA of $270 million to $280 million, which represents adjusted EBITDA growth of approximately 9% to 13% on a fixed currency basis. For 2025, we anticipate interest expense to be approximately $145 million, depreciation to be approximately $90 million, capital expenditures to be approximately $100 million and our adjusted effective tax rate to be approximately 23%. We expect our adjusted diluted weighted average share count for the year to be approximately 424 million, reflecting the completion of our 3-for-2 stock split on June 30. We continue to expect adjusted corporate expenses to be between $30 million to $35 million per quarter with some timing variability throughout the year.

Overall, we are pleased with the team's execution of our strategy in an evolving macroeconomic environment during the second quarter and first half of 2025. I look forward to sharing more updates on our progress throughout the year.

I will now turn the call back over to Russ.

Thanks, David. We entered the second half of 2025 with continued positive momentum across our global business platform. We continue to accelerate organic growth while expanding adjusted EBITDA margins, growing our recurring inspection, service and monitoring business, building on our record backlog and improving our free cash flow generation. We believe our proven operating model built on an inspection and service first strategy, purpose-driven leadership and a disciplined approach to capital allocation positions APi for sustained organic growth, margin expansion and value-accretive M&A. We are confident in our leaders' ability to execute our strategy and deliver against our new 10/16/60+ long-term financial targets, creating value for all our stakeholders.

With that, I would now like to turn the call over to the operator and open the call for Q&A.

[Operator Instructions] And your first question comes from the line of Tim Mulrooney of William Blair.

So two quick ones for me. On the second quarter, the revenue in your second quarter was -- well, it was more than $60 million above the high end of the guidance range that you provided for the second quarter. Just curious what business or businesses outperformed your own internal expectations in the quarter?

Yes. Tim, I'm happy to take that one. So you're breaking down the quarter. I'd say our inspection service and monitoring businesses performed largely as expected. We saw really strong contract and project activity across both of the segments during the second quarter. And we did see a little bit of an impact from rising material costs and the pull forward of materials in the quarter that took us over the top end of the range.

Okay. Yes. I'm following up on that. In your Specialty business, obviously, revenue looked great, but the gross margins, 350 basis point decline. How much of that was due to rising material costs? I know you have pricing escalators and other things, but curious how much of that was maybe project specific or specifically on the rising raw material costs? And do you expect that gross margin pressure in Specialty to carry into the back half of the year, particularly as some of these tariffs potentially start to hit on things like copper?

Yes. Great question again, Tim. So when we think about our Specialty margins in the second quarter, they were down year-over-year, really driven by increased project starts -- and at the front end of a project, that tends to be more material driven, which is lower margin. And as you work your way through a quarter or a project, you typically start working your margin up. Rising material costs and the impact of weather did play a role on our margins in the quarter. And I don't know if we can quantify the precise amount. What I would say about margins in the Specialty segment is we do expect them to improve sequentially as we work our way throughout the year.

Next question comes from the line of Andy Wittmann of Baird.

I think, David, you addressed this question a little bit in your prepared remarks, but I just want to drill into the guidance a little bit more. I'm looking at the increase here. Obviously, the revenue here in the quarter above expectations, very good. A little bit of incremental M&A helps your guidance as well. So I'm just trying to see if the forward outlook for the base business is changed or unchanged. I heard pull forward mentioned in the previous answer to the question. So I just want to get my arms around, have things improved from your outlook for the balance of the year or not on an organic basis?

Yes. Andy, thanks for the question. Here are big high-level round numbers, you can think of our EBITDA raise as 1/3 of it driven by our Q2 over delivery, maybe 1/3 of it due to M&A in the quarter and maybe 1/3 of it due to an increase or an improvement in our second half business outlook.

That's helpful. And then just as it relates to, I guess, capital deployment, I heard kind of the comments about you've got a number of under LOI, still targeting $250 million. You're kind of well over $100 million here. So you're doing -- you're on track at least. Does it feel like the M&A capital deployment, Russ has a potential to be maybe above that given where you sit today with what's under contract and heading forward?

I would say -- Andy, welcome back. I would say that the potential is there. I -- M&A is kind of like no different than disciplined project and customer selection. We need to continue to be disciplined in the companies and the businesses that we invite to join the APi family. So I would say the pipeline is robust. I would say the potential is there for us to overdeliver on the $250 million kind of commitment, if you will. But in the same breath, we're going to be really disciplined. And so if it's $250 million, it's $250 million, if it's $235 million, it's $235 million. And if it's $290 million, it's $290 million.

Your next question comes from the line of Julian Mitchell of Barclays.

I think, first off, I just wanted to try and understand the Safety business. Are we expecting that kind of 6%-ish organic growth in the back half as well, pretty steady sort of run rate now? And maybe flesh out a little bit more how satisfied you are with your elevator market share and sort of top line push efforts, please?

Sure. I'll take the first part, Julian, and maybe I'll hand the second part on elevators over to Russ. So I'd say our outlook for the Safety Service segment in the back half of the year is really consistent with where we've had it for the year-to-date. We continue to target mid- to upper single-digit revenue growth in the service side of the business, low to mid-single digit on the project to get to that mid-single-digit, 5% to 6% revenue growth in the back half of the year.

And Julian, just to add a little bit of color on the elevator business. I'll talk about the existing business that we acquired about this time last year, Elevated. That business is really performing as expected. They're showing kind of mid- to upper single-digit organic growth. The performance of the business is really as expected. The new acquisition that we just made is really what we're calling a tweener. I know that's just a really good use of vocabulary, but it's kind of -- it's not necessarily a bolt-on, but it's not the size of Elevated either, but it's a really good company and it positions us in the Northeast that we think will be super additive to our business.

We have a number of additional opportunities that we're continuing to do some work on from a bolt-on perspective. So we remain super optimistic, but we've got a long ways to go to building out this $1 billion elevator and escalator platform that we stated that we believe we have the potential to do. So we're just getting going, but I'm really optimistic and really excited about the direction that we're headed and the opportunities that are in front of us.

That's helpful. And then I just wanted to follow up on the acquisition front. And clearly, you've made good progress already this year. Sorry if I missed it, but would you mind sort of fleshing out the profile sort of in aggregate of the acquisitions that have been announced and/or closed in terms of sort of aggregate organic growth rate? Any sort of margin profile, how much EBITDA dollars are dialed into the guide now from acquisitions that have closed in the last 12 months or expected to close this year?

Well, David can talk about the numbers, but I'll talk to you a little bit about the profile of the deals. Obviously, one of them is an elevator company, and that's kind of -- because we said that. And then 5 of the 7 are in our North American Safety business in the fire and security space. And one of the businesses was a very, very profitable HVAC service business that was a bolt-on to one of our existing companies. And every one of these acquisitions is accretive. They're either at fleet average or better. So they're all accretive to really our long-term results. Regarding what's included in the guide, I think David already said it was about 1/3 of our increased guidance was through M&A. I don't know if you have any specific numbers you want to share or.

No, that both does over the course of the year from Q1 to the end of Q4, we expect M&A to contribute north of $200 million of revenue in the business.

Your next question comes from the line of Ashish Sabadra of RBC Capital Markets.

This is David Paige on for Ashish. I was wondering if you could give an update on the international business, Chubb, just how that performed in the quarter and how you're looking at it for the rest of the year?

Well, we -- like super fired up about the business and where that business is performing. It showed organic growth again in the quarter. I think that business has grown now organically every quarter since we've owned it. We shared a data point in, I think, my prepared remarks about we saw high single-digit order growth in the business, which really speaks to the health of their inspection and service business. So we continue to see really good momentum in our international business. And we still have some work to do. They're still optimizing. We have an integration going on in Benelux that's fairly significant that we've got great leadership handling. We're still continuing to do some work in our monitoring centers to optimize those. But like business as usual there, and I would tell you that they're doing a great job.

Your next question comes from the line of Jonathan Tanwanteng of CJS Securities.

Nice quarter and nice to see the progress on the M&A front. I was wondering if you could drill down on the elevator acquisition that you did. If I recall correctly, Elevated itself had a very high EBITDA margin compared to your corporate average. And I'm wondering if the business that you acquired was similar to that or if it was more closer to your corporate average and you can maybe get closer to what elevator does over time.

I would say it's kind of funny because we were joking around about this as we were getting prepped that it's really really closer to fleet average. We think -- obviously, we think that the potential for the business to get to, so to speak, the profile where Elevated is, is there. But we feel that way with -- actually every one of our businesses. It's no different than how we're looking at our life safety and security businesses where the kind of the new normal from a branch perspective is 20%, and that's where we're pushing all of our businesses. So -- but at the time of the acquisition, it's really on par with the fleet average and with the potential to go and improve.

Okay. Great. And then I noticed that the 7 acquisitions you did, I don't believe any one of them was international. I was wondering if you could speak to the opportunity there, the opportunity set that you're seeing if any of the LOIs that you've been -- that you mentioned previously are in the international space and what we can expect there going forward?

So we do have one small business under LOI in our international business as we sit here. And our team is doing diligence on that company as we speak. So there is no question that we've opened the aperture up to the international business. I would say that it's on a country-by-country basis, just like it is for us in North America on a company-by-company basis. In the international business, the country has to be able to kind of accept and integrate that business. And not every one of our businesses internationally has progressed to the point where we feel like they're ready for a bolt-on, but a number of them are. And we're certainly doing work and looking at a number of opportunities, but we do have one small business under LOI in the international business.

Next question comes from the line of Jasper Bibb of Truist Securities.

I wanted to ask a 2-parter about Specialty projects. Just hoping you could provide a bit more detail on the new business pipeline there and then also how your project selection initiatives might impact the margins for that business once you get through the ramp-up phase you talked about on some of these new wins.

Well, I would say that the new pipeline backlog is really solid. I mean we don't -- we -- in our prepared remarks, we stated that our backlog eclipsed $4 billion for the first time, and that's really kind of distributed across all aspects of our business. And I would say all aspects of our business are at record levels. So it's very, very good and it's very, very, very healthy. So we feel good about where we're at. David mentioned that we expect to see sequential growth in gross margins as we work our way through the back half of the year. And that's the expectation that we have on the business, and we think that the margins in our backlog are strong.

Got it. And then Specialty really surprised this quarter, but I guess wondering how we should think about the composition of segment organic revenue growth and margins in your third quarter outlook?

Yes, I can give you some color on that, Jasper. So I'd expect in the third quarter, I think we answered a question earlier on the Safety business, mid-single-digit organic revenue growth in the third quarter there. I'd expect high single-digit organic revenue growth in the Specialty business in the third quarter.

Your next question comes from the line of Andy Kaplowitz at Citi.

Andy, are you going to ask 7 questions in 1 question?

I'll try not to, Russ. I just wanted to ask you about Specialty in one sense. You've been focused on sort of higher-margin projects, sort of getting rid of the loss leading projects. How would you sort of assess that progress here? Like is any of that impacting the quarter? Or is it more just as you talked about, sort of materials and mix?

Yes. I mean, Andy, as you know, business isn't linear and not everything necessarily flushes itself out in a perfectly straight line. And if you look at like our Q2 of last year, we had a number of projects coming to completion and you typically have gross margin improvement as your projects finish. And we have so to speak, more project starts going on right now. And typically, that's at a lower gross margin. And so -- and then you factor in, you have a little bit of cost inflation. We had some weather impacts and all that stuff kind of put us where we are sitting in this quarter. And we think it will only get better as we work our way through the second half of the year.

Appreciate that, Russ. And then obviously, nonres markets have been kind of all over the place, but your Safety business is doing really well. Maybe just talk about sort of what you're seeing out there, inspection and service kind of continue to grow double digits for the foreseeable future?

Well, we are really I guess, pleased with the way our -- again, our bellwether always is inspection growth. And we stated that inspections grew for the 20th straight quarter at a double-digit clip. So we don't see really any let off in that, and that's been really positive, and that's leading to strong organic growth in our service business. That's primarily in North America. And what we're seeing internationally with high single-digit order growth is, I guess, really sending us a message that the sales transformation that has been initiated by our leadership there is really taking hold and taking shape. So that's all really focused on the service side of our business in Safety, and that's really positive, and that gives us good comfort in direction that we're going.

Then you layer in really the strong project opportunities in the end markets that we pursue, and that's just a really good combination, and that's what we're seeing. And data center, semiconductors, advanced manufacturing, all are really providing robust opportunities for us, and we're just trying to make sure that we're being smart so that we can get the gross margins on the work that we really need to get for that work to be beneficial to the company and ultimately to our shareholders.

So there's a lot of opportunity out there and proposal activity, even with all the noise around tariffs still, the proposal activity is very, very robust. And we're just trying to be smart about what work we take and what work we pursue.

Your next question comes from the line of Tomo Sano of JPMorgan.

My first question is the North America inspection revenues have another 20 consecutive quarters of double-digit growth. And I wanted to get more color on the pricing improvements as well as your inspection-first strategies, including technology standpoints, like AI field productivity tools, how you see the improvement of the margins of the -- in addition to the volume side of this business, please?

Yes. So I'm happy to take it and if Russ has any commentary at the end. So we continue to be able to capture low to mid-single-digit pricing in our inspection service and monitoring revenue streams. And your question then on margin and the impact of AI and digital on margins going forward. I would say our expectation on all of our revenue streams is that we're going to continue to be able to expand margin into '26, '27 and '28 as we pursue our 10/16/60 strategic goals and the technology and the use of technology will be a part of that.

Yes. What I would say, Tomo, is that I think actually the technology and AI and all that stuff that comes together is probably going to be more of providing leverage from an SG&A perspective and making us more efficient. And when you think about the labor market that's out there, we need to -- our efforts around artificial intelligence and technology need to enable us to continue to scale our business because we're going to have less people to be able to do the work. And so that's really where the focus is. But we have a team that is focused basically on AI on an international basis. And the reality of it is just like most every other company, we're probably in the bottom of the first inning in our efforts there. But we actually are resourcing and have kind of an AI task force for lack of better words.

And just one follow-up on innovation side, international business and Safety Services. Could you talk about leveraging digital with 2 visions, how actually you see customer reactions there? And could you talk about the -- how you're excited about this in terms of the volumes and margin in international business, please?

Tom, could you repeat your question, please?

So I would like to get more color on digital strategies in international business, especially Chubb [ visiON ] that you showcased at the IR Day. If you see any -- the customer feedback in the second quarter and some expectation in the second half, please?

Well, I mean, the work with Chubb [ visiON ] and stuff is really just in its infancy as well and just really getting cranked up. I mean we see a lot of opportunity with the work that, that team is doing. I mean, I think there's a lot of really good stuff happening there, but I think we're too early to like declare victory or anything like that, Tomo. I think there's a tremendous amount of opportunity.

I would tell you that in a lot of ways, our international business is further along in that journey. Our leader there, Andrew White, is a bit techy himself. And I think he has a really broad vision for where that can go, and that's something that we're working on making sure that we can take across the entire breadth of our portfolio, not just in the international business. But I'd say it's too early to declare victory. I don't know, David, you worked there for -- so do you have any other color?

No. I mean the only thing I -- it's too early to declare victory, but it's an incredible opportunity. I mean, in our international business, we've got 50 million connected devices and the more that we can use technology to serve our customers, the better our business will be.

Your next question comes from the line of Kathryn Thompson of Thompson Research Group.

Just one observation. Despite all the gloomy headlines, I think it's worth noting that 1/3 of your EBITDA growth is from an improved outlook. So definitely separating from a few other companies. The question to you, when you look at -- I just want to pull the string a little bit more on kind of how API wins with AI. You look at companies like Meta had their guidance for $66 billion to $72 billion for this year, and they're raising and they're looking at reaching $100 billion next year. And you touched briefly on a few -- like on how API can win. But could you give a few examples in terms of either how you win with new projects or with the ongoing maintenance and operation of the AI, the [indiscernible]?

Well, when you're doing the inspection and service work at -- whether it's Meta or Microsoft or whoever, but when you're doing the inspection and service work at those facilities and they come along and expand at that existing site, the opportunity for you to win that expansion, the business associated with that expansion rises dramatically because of the relationships you have and the client is interested in consistency and service and follow through and all of that other stuff.

Then when you have other larger opportunities that are, say, more greenfield sites like, say, Meta's 10x site, in Louisiana, then it's really relationship-based and your ability to man work in some of these remote locations. And that's, I think, something that we have really a depth skill set and have the capacity and the workforce that we can bring to bear on those types of project opportunities. And those opportunities, the selection criteria is usually around your ability to work safely, your ability to provide the right high-quality skilled field leaders to actually execute the work, your ability to get the work done on time, I mean, because they're very aggressive schedules. And so there's all these other gates and price is a very small factor that comes into the equation.

I'd also say on the fire, life safety and security side of it, there's only a handful of firms that have the capacity and the skills to tackle projects of that magnitude. And that's an element of complexity that's a positive for a firm like ours. And so -- but in the same breath, we still have to be selective and be smart about which projects we pursue so that we don't overextend ourselves and therefore, don't deliver on the commitments that we make to that customer. So I don't know, did that make sense, Kathryn?

Yes. Yes. No. And so it sounds to me that you can win business both at the build-out, but then on an ongoing basis with the ongoing technical services that you would do for any complex commercial building and structure. Is that correct? Am I hearing you correctly on that?

That's correct. And the more complex the opportunity, the better off we're going to be. We don't want to find ourselves in positions for, say, project-related work where let's just say we're not doing the inspection and service work for that customer. We don't want to be in a position where we're just competing on price. Like that's just not our model. We don't do well when we just compete on price. And if it's just -- if that's what it is, if somebody is going to -- especially in today's world, if somebody is just going to treat it as an auction, if you will. We're just -- we're not going to do well in that environment. So it's like why even waste your time pursuing it.

And that's why we have a fairly robust go/no-go kind of checklist that we put our businesses through because we want them to actually think about, should I even pursue this. And the reality of it is, it's just going to be a price-driven decision, they shouldn't.

Your next question comes from the line of Josh Chan of UBS.

Just two quick ones for me. So on the guidance raise that was for the rest of the year, I guess, the 1/3 of the guidance raise, what got better? Was it primarily the Specialty side of things?

Josh, I think I'd attribute that to the really strong backlog that we were able to generate during the quarter and the strong margin and strength of the backlog gave us comfort in the back half of the year.

Okay. Great. And then on the -- on the backlog margin, it sounds like you're pleased with the backlog margin. I guess when it comes to realizing that backlog margin over time, obviously, you can control your own execution, but can you talk about other factors that you have to think about as that converts, things that may or may not be outside your control and what you could do to kind of ring-fence those?

Well, obviously, Josh, the material cost escalation is something as prices go up, whether it's because of tariffs or inflation or whatnot or a combination thereof. That's out of our control, but it's in our control. I mean, like we have been talking very openly since President Trump won the election that he's going to use tariffs as a lever for him. To level the playing field from a trade perspective. And so you knew that it was coming. And so we've been working hard to protect ourselves during the time of our proposals. I'm sure we're not perfect. And I'm sure there's some gaps in some places where we didn't do as well as we should. That would be one area. Weather is -- could be a significant issue and challenge for us because, obviously, when you have poor weather conditions, you're not going to be as efficient with the deployment of your field leaders. And so that's another area that could be challenging.

So those would probably be the primary two contributors. Obviously, we have to execute. That's an aspect of it. Availability of labor and things like that is -- could be a challenge as well. But -- the reality of it is everybody is knowing that there's going to be work availability of labor issues and challenges and shortages. And so as you are making decisions to take on whether it's master service agreements or other project-related opportunities, you should be factoring that into the equation, and that really should not be an excuse.

And we have one more question from Stephanie Moore of Jefferies.

Maybe just -- I want to go back to the margin performance in the quarter. It was very good across both segments, obviously, you've seen or for the consolidated level. But as we look at both segments, I was hoping maybe you could talk a little bit about the puts and takes of the margin performance. I know at your Analyst Day, you walked through several levers to achieve ultimately your 16% plus target, pricing, project selection and the like. So maybe if you could just talk about the underlying puts and takes and your path to achieve some of those -- to achieve that target and the levers to get there.

Yes. Happy to give you a little bit of color there, Stephanie. Puts and takes around margin in the quarter. So our margin performance on inspection service and monitoring was strong, continues to be -- we're able to get margin accretive price in that part of the business. We were able to get good leverage out of our fixed cost base during the quarter, partially due to the strong organic revenue growth. So that was a positive. We talked a little bit about rising material costs. And we've talked a lot over the last couple of quarters about how our business is able to protect itself at the time of proposal and being able to capture the dollar value of rising material costs, and we believe the business did a good job of doing that during the quarter. But that did have a little bit of margin erosion during the quarter.

So I think when you talk about the service mix, you talk about disciplined project and customer selection, getting leverage, we're seeing progress in all of those areas in our path to 13% and now 16% adjusted EBITDA margin.

Great. Very helpful. And then just one quick follow-up. Is there any chance you can give a bit of an update on the systems investment that you called out at the Analyst Day, how it's progressing thus far? Anything you can call out on that?

Yes, absolutely. I'm sure you saw in the release the spend on the system and business enablement in the quarter. What I'd say is those are difficult, challenging business-led projects, but the team is performing and executing well. And I've been particularly impressed with the way that, that team is working closely to make sure that the voices of our branch company and field leaders is heard each and every step along the way. So really good progress on that. The team is committed. They're executing well, and we feel good about where that work is.

And that concludes our Q&A session. I will now turn the conference back over to Russ Becker, our President and CEO, for closing remarks.

Thank you. In closing, I would like to thank all our team members for their continued support and dedication to our business. I'm truly grateful for what each and every one of you do on a daily basis. I would also like to thank our long-term shareholders as well as those that have recently joined us for their support. We appreciate your ownership of APi and look forward to updating you on our progress throughout the remainder of the year. Thank you, everybody.

Ladies and gentlemen, that concludes today's call. Thank you, everyone, for joining. You may now disconnect.

Thanks, everyone, for joining. My name is Tim Mulrooney. I'm the research analyst here at William Blair that covers APi Group. And I'm required to inform you that for a complete list of research disclosures or potential conflicts of interest, please visit our website at williamblair.com. That's the last time I have to do that this way.

So APi is a leader of fire and life safety solutions and they've got a specialty infrastructure business as well. We picked up coverage last year, so this is the first time that we're hosting them at our conference. And I'm really excited here to have CEO, Russ Becker; and CFO, David Jackola, joining us today; also head of IR, Adam.

And I just want to start off by laying the groundwork here. I think this is an interesting time for the company. We're coming off the heels of their Investor Day, where they laid out some ambitious but achievable medium-term targets. And what I like about these targets is that there's a clear connection between the financials and the overall strategy, which I'm sure we're going to dig into.

So I think we'll start out with some prepared remarks and then we're going to jump into more of a fireside. And we've got a breakout after that, but because this is the last presentation of the day, I think the breakout will just stay in here and I can kick some questions to you all if there's interest. But at this point, I'll turn it over to Russ. Thanks for being here.

Thanks, Tim. Thanks for having us, and thank you, everybody, for joining us. And for those of you that are shareholders, thank you for your support and for those of you that are new to this story, hopefully we can pique your interest in what I'm obviously biased and think is an absolutely great company.

So just really quickly, APi is north of a $7 billion firm today. Roughly 70% of our net revenues come from Safety Services, which is fire life safety, security and newly entered into the escalator and elevator space. And one of the reasons that we really like this space is the regulatory requirements for your typical commercial office building. Hotels like this are not great examples because they're super complicated.

But the life -- fire life safety system in facilities like this are required by law to be inspected at least annually, both on the fire sprinkler and the fire alarm side. A facility like this, because of the complexities associated with it and it's got fire pumps, it's going to be more often than that, but we're not going to spend any time with that.

The other 30% of our business comes from Specialty Services. And as Tim said, that's primarily infrastructure-type work, replacing existing potable water systems, natural gas distribution systems. We do some telecommunication, broadband, fiber optic work, a lot of industrial maintenance work. And at the first of the year this year, we re-segmented and moved our HVAC businesses into our Specialty Services business.

One of the things that makes our business a little bit unique is our core purpose, and our core purpose is building great leaders. Our culture as an organization and as a company is centered on our purpose of building great leaders. And I've been with APi since -- well, I started off with one of our operating companies in 1995 and some of you people are not that old. But -- and came to the parent company in 2002. And literally, I was promoted from company president, so to speak, to operating group leader from a Friday to a Monday.

In my initial -- when I started in 2002, the company was not performing very well. And my immediate reaction was I need to help my peers fix their businesses. And until I realized that I needed to make sure that we had great leaders at the company level, I really wasn't able to be effective in my role. And in 2003, we started a journey centered on leaders, building great leaders and leadership development in our company that focused at first on the company president level and then it went to the branch level and then it went to the department level to a place where we are today where we say at APi that everyone, everywhere is a leader.

Why invest in APi? And I think there's a lot of good reasons to invest in APi. Number one, we feel that our stock is, still today, undervalued, and we think that there's a tremendous opportunity for value creation there. Highly fragmented industry. We have a long track record of organic growth. We continue to shift our business mix to higher-margin recurring revenue inspection, service and monitoring, as we describe it. We think that there's a significant margin accretion opportunity still within the business that we'll share with you in just a few minutes.

And asset-light, low CapEx generates a ton of cash. And we feel like we're a good capital -- we deploy capital wisely. We've always said that our long-term targets are to keep our net leverage in that 2.5x range and we've obviously done that. M&A is a big part of our story, which we'll share with you in a few more minutes. And if our stock is undervalued, we're not afraid to buy back shares, and we were in the market the first quarter of this year.

So this slide, just a couple of quick points. If you look at that period of time from 2011 to 2019, there's 2 important things to share. Going all the way back to 2011, our revenue mix was more like 80-20, and that would be 80% project work and 20% inspection, service and monitoring. Today, we sit at 54% inspection, service and monitoring, and 40% of our revenue comes from project work. And we want the project work that we do execute each year to come from the relationships that we build by doing a great job with our inspection, service and monitoring accounts.

Next point I would make is that our business in that period from 2011 to 2019 grew organically at 7%. And we believe that this business, even though as we continue to get bigger, has the opportunity to grow organically in that mid-single-digit range. So 3 years ago, we laid out what we called our 13/60/80 shareholder value creation model. And our goal was to be at 13% adjusted EBITDA margin by 2025. If you look at the midpoint of our guide, we're on track to deliver 13.4% this year. The 60% long-term goal of our revenue mix coming from inspection, service and monitoring. We continue to gain on it. It's grown from 40% in 2021 to 55% in -- forecasted 55% in 2025.

A big component of that came from the acquisition of Chubb, and we continue to improve our adjusted free cash flow conversion. I think the most important thing for you to take note of on this slide is the top and it's the word commitment. And at APi, when we make a commitment, we take that commitment very, very seriously. And it's something that you can rest assured that we're going to tip over to deliver on our commitments.

So what's next for APi? And this started in December of 2023 at our Board meeting in Miami. And for those of you who don't know, APi went public via a SPAC. The founder of the vehicle that acquired us is a gentleman by the name of Martin Franklin. And Martin actually doesn't like the term SPAC. He views that his vehicles are slightly different. But Martin and 2 of his partners are on our Board, and one of those partners is a gentleman by the name of Ian Ashken. And Ian asked me to go for a walk with him on the boardwalk in Miami while we're in town for the Board meeting.

And as we were on our stroll, he started to push me about what's next for the company. And the way I'm wired, my response to him was, "Let's deliver on our commitments, which is 13/60/80 before we start talking about what's next." And his response was, "Well, I know you're going to hit your numbers. So what's next?" And nothing really came from that. Nothing more came from that. About 3 weeks later, it was like January 4 and it was a Saturday and I was on my way to Singapore to attend one of our Leader Labs.

And I was sitting in the Delta Club in Minneapolis, Saturday night and my brain started thinking about this conversation that I had with Ian. And for those of you that know me know that I -- my drink of choice is Macallan 12 single malt, and so I decided that I deserved to have one because it was Saturday and I was traveling for business so I got myself a Macallan. I also got out a cocktail napkin and I started to do some math. And I said, "All right, if our base is $7 billion and we grow organically 5% a year, what does that look like?"

And you can see that it adds about $350 million a year, and all you MBAs, I didn't compound it so I just -- I'm an engineer so I just did simple math here. And that gives you the roughly $8.4 billion. Then I said, all right, if we can continue on our streak of doing $250 million of bolt-on M&A a year, what does that mean? And when you buy small businesses and bolt them onto your existing business, our average multiple is about 6x. And at 6x, you get about $1 of revenue per $1 purchase price. So if you do $250 million a year for the next 4 years, it gets you another $1 billion.

And then I said, "All right, what about larger, more transformational acquisitions?" And that could be 2 transactions. It could be one, it could be something bigger, it could be something smaller. So I just took a swing and wild-a** guess, and I just said $1 billion. And you can see how this business can very, very easily get to $10.4 billion. And I set a time line of 2028. I'm not one of these people that likes to be out 5, 6, 7 years. And I want it to be something that's realistic that we can actually point the business towards.

And so you know, not all of our modeling and math comes from us having a couple of scotches in the Delta Club at MSP. So I went back to -- got back from my trip and that's when all the real work started. And we started to build a model. We built those models from the bottom up in the businesses, in the segments, leading up to ultimately the framework that we're going to lay out, which is to be $10 billion with 16% EBITDA margins with 60%-plus of our revenue coming from inspection, service and monitoring.

The 16% margin target, we've grown the business from a margin expansion perspective roughly 80 basis points a year over the last 3 years, so we feel like we can continue on that track. This business will generate over $3 billion if we continue to deliver on this commitment. And we think that this is something that's important. And at the bottom of that slide, you'll see in that black box is our aspirational goal to be the #1 people-first company. That's #1 in business performance. This will be APi's North Star. This is not something we're doing for folks like yourselves. We do this work and we will point the entire business and the entire organization towards these goals and objectives.

This slide is -- I'm not going to take hardly any time on it because I'm probably going running past some of the time that folks wanted me to. There's 2 things. Our purpose is building great leaders and our values. And the safety, health and well-being of each of our leaders remains and always will remain our #1 value. If you look in the left -- bottom left-hand corner of the slide, Tim can share this stuff with you as well or you can go to our Investor Relations page on our website.

But in the bottom left-hand corner is a QR code that would take you to our I am a Leader learning opportunity. And if you're going to make a statement that everyone, everywhere is a leader, you have to provide every single person on your team the opportunity to grow and develop as a leader. APi leadership kind of sits and falls in 3 pillars. First pillar is leading self. Second pillar is leading others. Third pillar is leading teams and businesses.

And the I am a Leader learning module is all about leading self. It'd take you 30 minutes to go through it. We've translated it into 7 languages so we could spread it across the breadth of our business. And we've had over 15,000 people opt in and participate in it. Next to it is another QR code that is our Building Great Leaders podcast. And we have a woman on our team by the name of Laura Seitz who, this is her brainchild. And she's done, I think, close to 100 podcasts with our different leaders from around the entire business in the globe that people can listen to, learn about others' journey and their stories and hopefully glean and learn from other people's experiences.

On the right-hand side, the reason we share this is that this is our journey of leader development. When I started at APi in 2002, we were a $600 million business, 3% margins. And if we deliver on our commitments this year, we'll be $7.5 billion at 13.4%. And I attribute a big part of this to our efforts around leadership development. David, you want to give them a quick overview now?

Absolutely. All right. Thanks, Russ, and thanks, everybody, for being here. I'll take you through a couple of things related to the financials, and the first is our path to our 2028 long-term strategic goals and the first is $10 billion of net revenue. And you can see how that builds out to the napkin math that Russ showed, 5% organic growth, which is consistent with what our business has delivered between 2021 and our 2025 forecast.

And you roll in $250 million to $300 million of bolt-on M&A in each of those years, which is consistent with our performance in 2024 and where we see 2025 coming in. And you add a couple of platform M&A deals, 1 to 2 maybe something that looks like Chubb and you can get to $10 billion or more in revenue, growing more than 9% from a compound annual growth basis.

If we continue to grow our adjusted EBITDA margins by 80 basis points a year, which is the performance of the business from 2021 through our 2025 forecasted results, you get to 16% or more adjusted EBITDA, and that $10 billion or more looks like $1.6 billion of adjusted EBITDA a year by 2028. And if we continue to convert cash at that 75% of adjusted EBITDA or 120% of our adjusted net income, this business is going to kick off more than $3 billion of adjusted free cash flow between now and the end of 2028.

So I'll take you through a little bit more detail on the organic growth algorithm. And so we're expecting our service side of our business to grow mid- to upper single-digit growth between now and 2028, and that's going to come from pricing. And we've been really disciplined and focused on driving pricing over the last 3 years, both through annual increases as well in allowing ourselves to pass on inflationary cost increases to our customers.

We also anticipate being able to take share through our inspection-first sales force initiatives. We'll win the customer through the inspection. We'll prove our value through doing a great job on service, and that will open up great project opportunities as well. And Russ talks all the time about how end markets matter, and we'll continue to focus on end markets that have regulatory requirements or insurance requirements that have a tailwind behind them, and that will help drive the business as well.

We'll continue to grow the project business. That is and will always be an important part of APi Group, and we'll target mid- or low to mid-single-digit growth in projects. So mid to upper single digit in service revenue, low to mid-single-digit revenue in projects is getting to that mid-single-digit 5% organic revenue growth year over year over year in a sustainable way.

So the levers that will get us to 16% adjusted EBITDA are largely the same levers that got us to 13% adjusted EBITDA. We talked at our Investor Day about a series of system and technology investments that we believe will provide the foundation for $10 billion-plus but will also allow us to grow our SG&A at a more cadenced scale relative to our revenue growth. We'll continue to push inspection, service and monitoring, which comes at approximately 10 basis points higher gross margin than our project work.

We'll continue to be disciplined in the customers, the projects and the end markets in which we do work. We'll continue to drive price not just as a revenue growth lever but as a margin accretive lever as well. And we've got ample opportunity across our network to improve the median EBITDA margin of our branches but also to take our lower-performing branches up each and every year.

Procurement is an area where we're still in early stages, and the system and technology investments that we're deploying are going to allow us to capture more value in that very important area. And acquisitions and divestitures will be through a lens of, are these businesses accretive to our mid- to long-term adjusted EBITDA margin goals?

The thing that I'm most excited about, about our 2028 goals and ambitions is the opportunity that this business has to deliver significant free cash flow over the next 3 years. And we've been on a really impressive journey of improving our free cash flow conversion. We've more than tripled our adjusted free cash flow delivery between 2021 and the end of 2024. And each year, we've converted a higher percentage of our adjusted EBITDA to cash. And we've done it while maintaining a strong balance sheet. We've proven that we can pretty quickly lever up as we did at the end of 2021, 2022 for the Chubb transaction and then delever very, very quickly from the cash flow that our businesses generate through operations.

And the levers that get us to $3 billion or more are there on the bottom. We'll grow earnings. We'll continue to focus on inspection, service and monitoring, which has a free cash flow conversion profile that's accretive to the base. We've got opportunities to improve our working capital rate, and we'll continue to deploy our capital into the Life Safety segment, which generally is accretive to our adjusted free cash flow conversion rates as well.

And so the exciting thing about all the cash that the business will generate over the next 3 years is the opportunities and the avenues that we have to deploy it. First and foremost, we'll be committed to maintaining our long-term net leverage ratio target of 2.5 to 3x adjusted EBITDA. Importantly, we will continue to invest in organic growth. And that's our CapEx, which will continue to be about 1% of sales but also the technology program that I touched on earlier, but most importantly, investing in the learning development of all of our leaders at APi.

M&A will continue to be a primary focus, our #1 preferred route for deploying capital. And we really view M&A through 2 lenses. One is larger platform-type opportunities that put -- that are accretive to our 10/16/60 goals and enhance our offerings but also through bolt-ons, and we expect to do between $250 million and $300 million of bolt-ons between -- per year between now and 2028. And with all the cash that, that generates, it will also give us the flexibility to be able to return cash to shareholders when we believe that our APi shares are undervalued. So that's at a high level the financial aspects of our 2028 goals, and maybe I'll hand it over to Tim.

Yes, that was great. Thank you, guys, for the overview. I think that was very clear on the what, on the numbers, where you are -- where you were, where you are, where you're going. I'd love to now take a minute on the how and dig in a little bit more on what makes the company special, make the story come alive, a little bit more on what it is that you're doing to drive such impressive numbers over the last 10 years.

Maybe we could start because a lot of people here are probably familiar with your story, but maybe there's some that aren't. Talk about what it is that you're doing and your fire and life safety on the services side with the inspection-first strategy. What is that? What has the journey there been like? And how is that different relative to what a lot of your competitors are doing?

Well, I mean, so that's a lot -- you asked a lot of stuff there.

You got 6 whole minutes.

I thought we had more time.

No, we do. As much time as you need.

Well, I'm more about not spending as much time up here as I can.

Yes. For those of you that don't know, this is Russ' favorite part of the job, investor-related obligations. He'd much rather be doing this than catching walleye in Canada.

Well, I actually don't -- I actually enjoy investor meetings. I just don't enjoy them when I have them stacked up like cordwood at 7:00 in the morning until 4:00 in the afternoon, and I get asked the same questions 27 different times.

What is your inspection-first strategy?

So anyways, I'm going to talk about inspections first and then I'm going to come back to what makes us unique.

Okay. Sounds good.

And inspection first. We have a woman who leads our -- she's our Vice President of National Inspection Sales, and this is her brainchild. And she was hired into one of our branches in one of our operating companies and she started selling inspections. So for those of you who are newer to the story, if you just, again, try to take a building like this out of your brain and think about like a 40,000-square-foot medical office building where you go into -- if you tweak your ankle or your knee or something like that, that building is required by law to have its fire life safety system inspected for functionality and operability.

And the way the industry has always operated is like a health care system is building that new medical office building. Let's go chase the installation work on that new building. And when that project is 95% complete, I'm going to try to find my way to the customer, and I'm going to try to sell them a service package that might include the inspection. So they're going to try to convert the new construction.

And what Courtney helped us do is change our mindset that we're going to start calling on the already built environment. So that building that's existing, we're going to call on that property manager and we're going to try to take and unseat the incumbent. We're going to take that inspection away from them. And the reason that we want to do that is that we have data that shows that for every $1 of inspection work that we generate, we generate $3 to $4 worth of pull-through service work.

And we also know that if we do a kick-a** job on the inspections and a kick-a** job on the service work, that we're going to build a stickier relationship with that customer so that when they have expansion needs, we're going to be in a position to pursue that work not based on price but based on value. And for us, that's something that's very important. And the individual that was running that business saw the work that she was doing and very quickly said, "Hey, can you take that idea to this branch and this branch?" And that's what she did.

And he's like, well, you need to take it to this branch, this branch, and this branch. And it slowly spread its way across this business and this operating company. Well, we took the guy that was running Las Vegas, and we promoted him to run a business for us in the Northeast. And first thing he did is he called Courtney. And he said, "Court, would you come out here and would you help us?" And it started to spread across that business. And this was all pre us really going public. We sold the company in 2019 and went public.

Well, about that same time, that first operating company, we promoted that business leader to be the leader of our North American Safety Services segment. And not too shortly after that, he brought Courtney to the corporate level and she started to bring that sales strategy to the corporation. And that's really the evolution in how we have driven the growth in our inspection sales. We've grown inspections at a double-digit clip for 19 straight quarters, I believe. And I attribute a lot of that to the work that Courtney is doing.

She's building out sales teams inside each business so that those businesses can function on their own. She's got it down. She's got the metrics. She's got all the stuff that goes with it. All that being said, it's a huge part of our strategy. There's no question about it, but that works hand-in-hand with how a branch operates. And a branch and a branch, and this is going to take me into what differentiates us, a branch can't operate at its highest level if it doesn't have the right leader.

And like at APi, we have this maniacal focus on leadership and leader development and it's a differentiator for us. It makes us different. And I talked a little bit about it in my remarks about how our culture is centered on our purpose, and our purpose is building great leaders. We actually have 8 foundational beliefs. I didn't go through that. We didn't have that slide in this presentation, but we have 8 foundational beliefs centered on what we believe leadership looks like in our company.

But like if we're going to win and we're going to grow to $10 billion, leadership is a huge component of it. And the example I've been giving folks in our individual one-on-one meetings is like, we could have the best playbook of all time and I can give it to you and you're the quarterback. And if you're just an average quarterback, what results are we going to get? Average. And so like for us, we have the playbook. We know what it takes to win, and we need to make sure we have the best quarterbacks and the best branch leaders.

And so you look at our company, leader development and talking about leadership, talking about caring about people is something that we take really, really seriously. And it is like if you came to see us and if you came to -- we host field trips where we take people out to our customer sites so they can see what does an inspection really look like, you can actually interact with our field leaders, you will see that this company is different and how we treat our people is different.

Like the men and the women that do the work in the field, I know that my job does not exist if those men and women don't go service our customers every single day. And so every decision, every choice that I make, I have to have the men and the women that work in the field at the front of my brain. We actually call that our central premise at APi and it's very, very important. The men and women in the field, they drive revenue, they drive gross margin, and they're the heart and soul of this company.

Yes. Yes, that makes sense. I think people here that appreciate good service businesses understand how important that is. Now what do you see at a branch? Let's say you got a branch that's further along in that inspection-first strategy versus one that's just starting out or maybe a competitive branch that's not doing that. What does the growth look like? What do the margins look like at a branch that's further along in that journey versus not? So folks can get an appreciation for what it is that you're really trying to do here.

Well, I mean, if you go back to the slides from our investor deck, you'll see that the median margin performance in North America is 17%, and which means we've got branches that are performing at 23%, 24%. We have branches that are performing at 6% or 7%. And so the chances are that the businesses that are higher performing have further progressed on their journey, I mean, there's -- the chances are. But I would also tell you, we have a business that does primarily project-related work that's a 30% performer every single year. They just have a really unique niche that they operate in and they're just very, very good.

So it doesn't paint a 100% picture. You can't paint everybody with the same brush exactly, but in general. And we've established a goal that we want every one of our branches in North America to be 20%. Our goal in our international business is 18%, but the expectation is that they'll get to 20% as well. They're just further behind because we've only owned them for 3.5 years.

Right, okay. That's helpful. I think, are we -- I guess we should transition now from the formal presentation that's recorded. We can cut that off and we'll move into a breakout, which we'll just stay in this room. But you've heard enough from me. I'll open it up to you, all, for anyone.