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APi Group Corp (APG)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered record net revenues of $1.86B (+5.8% YoY), record adjusted EBITDA of $242M (+16.3% YoY), and record adjusted EBITDA margin of 13.0%, driven by double‑digit inspection growth and pricing/value capture in Safety Services .
  • Mix shift and disciplined project/customer selection expanded reported gross margin by 200 bps YoY to 30.9% and adjusted gross margin by 100 bps to 31.1% .
  • Specialty Services remained a headwind (revenues −11.8% YoY; margin −130 bps) due to divestitures, delays, and lower fixed cost absorption, while Safety Services grew revenues +13.0% and lifted segment margins +70 bps to 16.0% .
  • 2025 guidance targets 13%+ margins and return to normalized organic growth: FY net revenues $7.3–$7.5B, adjusted EBITDA $970–$1,020M; Q1 2025 net revenues $1.625–$1.675B and adjusted EBITDA $185–$195M. Term loan repricing reduces the margin by 25 bps with ~$5M annual cash savings—incremental FCF tailwind .
  • Catalysts: Investor Day on May 21 with “meaningfully higher” long‑term targets; accelerating backlog (high single digits total; double‑digit organic in Specialty); elevator/escalator adjacency build‑out; ~$400M remaining repurchase authorization .

What Went Well and What Went Wrong

  • What Went Well

    • “Record results in 2024 once again demonstrate the strength of our recurring revenue, services‑focused business model” and set up “adjusted EBITDA margin of 13% or more this year” (CEO) .
    • Safety Services: revenues +13.0% (4.7% organic), segment earnings +18.5%, margin to 16.0% (+70 bps), supported by inspection/service/monitoring growth and pricing/value capture .
    • Full‑year adjusted FCF conversion hit 75% and net leverage fell to ~2.2x, expanding strategic flexibility (CEO) .

  • What Went Wrong

    • Specialty Services revenues −11.8% (−7.6% organic), margin −130 bps to 9.9%, pressured by divestitures, delays, and stranded costs; lower fixed cost absorption weighed on consolidated margin .
    • HVAC project revenues declined within Safety Services and delays impacted Specialty projects, including government and permitting/right‑of‑way issues (management detailed timing normalization into 2025) .
    • Interest expense remained elevated (Q4 interest expense $36M; FY $146M), partially offsetting EPS leverage; non‑GAAP adjustments (amortization, transformation, restructuring, non‑service pension) were sizable .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Revenue ($USD Billions)$1.759 $1.730 $1.826 $1.861
Gross Margin (%)28.9% 31.4% 31.1% 30.9%
Adjusted Gross Margin (%)30.1% 31.7% 31.0% 31.1%
Adjusted EBITDA ($USD Millions)$208 $231 $245 $242
Adjusted EBITDA Margin (%)11.8% 13.4% 13.4% 13.0%
Net Income ($USD Millions)$25 $69 $69 $67
Diluted EPS (GAAP, $)$(1.08) $0.22 $0.23 $(0.10)
Adjusted Diluted EPS ($)$0.44 $0.49 $0.51 $0.51
Consensus (EPS, Revenue)N/A (SPGI data unavailable at time of analysis; values would be from S&P Global)N/A (SPGI)N/A (SPGI)N/A (SPGI)

Segment breakdown (Q4 2024 vs Q4 2023):

Segment MetricQ4 2023Q4 2024
Safety Services Revenue ($USD Millions)$1,238 $1,399
Safety Services Adjusted Gross Margin (%)35.1% 35.7%
Safety Services Segment Earnings ($USD Millions)$189 $224
Safety Services Segment Earnings Margin (%)15.3% 16.0%
Specialty Services Revenue ($USD Millions)$525 $463
Specialty Services Adjusted Gross Margin (%)18.1% 17.3%
Specialty Services Segment Earnings ($USD Millions)$59 $46
Specialty Services Segment Earnings Margin (%)11.2% 9.9%

KPIs and cash/leveraging:

KPIQ4 2024FY 2024
Adjusted Free Cash Flow ($USD Millions)$307 $668
Adjusted FCF Conversion (%)126.9% 74.8%
Net Leverage (approx)~2.2x (CEO) ~2.2x (year‑end)
Inspection/Service/Monitoring Mix (%)—54% (vs 52% in 2023)
Backlog Growth—High single digits total; double‑digit organic in Specialty (entering 2025)
Term Loan Repricing Savings—~25 bps margin reduction; ~$5M annual cash savings
Share Repurchase Authorization—~$400M remaining

Non‑GAAP adjustments (examples in Q4):

  • Gross profit adjusted for backlog amortization (+$4M) and restructuring ($0M in Q4) .
  • SG&A adjusted for amortization (−$57M), transformation (−$26M), restructuring (−$15M), acquisition costs (−$2M), contingent comp (+$2M), other (+$0M) .
  • EBITDA adjusted for non‑service pension (+$5M), transformation (+$26M), restructuring (+$15M), acquisition (+$2M), loss on extinguishment (+$1M), contingent comp (−$2M), other (+$0M) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Revenues ($USD Billions)FY 2025$7.3–$7.5 (initial, 2/19/25) $7.3–$7.5 (2/26/25) Maintained
Adjusted EBITDA ($USD Millions)FY 2025$970–$1,020 (initial, 2/19/25) $970–$1,020 (2/26/25) Maintained
Adjusted FCF Conversion (%)FY 2025~75% (initial, 2/19/25) ~75% (2/26/25) Maintained
Net Revenues ($USD Billions)Q1 2025—$1.625–$1.675 New
Adjusted EBITDA ($USD Millions)Q1 2025—$185–$195 New
Interest Expense ($USD Millions)FY 2025—~$145 (CFO) New
Depreciation ($USD Millions)FY 2025—~$90 (CFO) New
CapEx ($USD Millions)FY 2025—~$100 (CFO) New
Adjusted Cash Tax Rate (%)FY 2025—~23% (CFO) New
Corporate Expense ($USD Millions/Qtr)FY 2025—$30–$35 per quarter (CFO) New
Adjusted Diluted Shares (Millions)FY 2025—~284 (CFO) New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
Margin expansion leversPricing, inspection/service mix, value capture, procurement, disciplined project selection Same levers to drive 13%+ margins; branches with >20% margins as benchmarks (CEO) Consistent, executing
Inspection/service/monitoring mixContinued double‑digit inspection growth; focus on raising mix Mix increased to 54% in 2024 (from 52%); target 60% (CEO) Improving
Project delays & Specialty ServicesDelays and divestitures pressured Specialty; HVAC project moderation 3 large delayed projects: one done, one (government) proceeding, one progressing post‑permitting; planning better; no new major delay Stabilizing into 2025
Tariffs/macroPricing agility on service work; variable cost structure Watching tariff impacts (steel pipe prices); ability to pass through via real‑time pricing (CEO) Manageable risk
Regulatory/CHIPS Act—Semiconductor project slippage was leadership/operational, not funding; limited exposure to large federal‑funded projects (CEO) Specific risk abated
International (Chubb) value captureValue capture ongoing >$90M of $125M realized; remainder in 2025/early 2026 Nearing completion
Internal controls/cyber/SOXTransformation investments ongoing Remediated prior year material weaknesses; cyber rollout in last inning Completed/near complete
Segment realignment—HVAC moved to Specialty; Safety now purer life safety/security/elevator/escalator Structural change
M&ABolt‑ons at mid‑single‑digit multiples ~$250M bolt‑on target for 2025; measured elevator/escalator bolt‑ons; international aperture opening Active, disciplined

Management Commentary

  • CEO: “We remain relentlessly focused on growing inspection, service and monitoring revenue… returning to traditional rates of organic growth in 2025 while continuing to expand our margins… near‑term focus on adjusted EBITDA margin of 13% or more this year.”
  • CEO: “We ended 2024 with a net leverage ratio of approximately 2.2x… driven by a 20%+ increase in adjusted free cash flow… conversion in line with our increased target of 75%.”
  • CFO: “Adjusted diluted EPS for the fourth quarter was $0.51… driven primarily by strong adjusted EBITDA growth… partially offset by increased interest expense and adjusted diluted weighted average shares outstanding.”
  • CEO on levers: disciplined customer/project selection, improved mix, pricing, procurement, Chubb value capture, shared services, accretive M&A, and “we could always just be better.”

Q&A Highlights

  • Margin expansion path to 13%+: reiterated same playbook; branch performance dispersion implies internal uplift opportunity .
  • Resiliency vs macro: service mix growth and variable cost base (70–75%) support flexibility; real‑time pricing offsets tariff cost inflation .
  • Project delays: three identified issues largely behind; better planning for herky‑jerky timing; Q1 normal seasonality vs unusually mild prior year .
  • Guidance drivers: mid‑upper single‑digit service growth plus low‑mid single‑digit project growth at midpoint; price discipline and end‑market mix selection to reach top‑end .
  • M&A: ~$250M bolt‑ons targeted; measured elevator/escalator integration path; watch valuations in pure‑play life safety; selective pruning across business for margin goals .
  • Transformation costs/adjustments: restructuring (Chubb) declines into 2025; SOX remediated; cyber rollout nearly complete; ongoing integration costs as needed .

Estimates Context

  • S&P Global (Capital IQ) consensus estimates for Q4 2024 (revenue/EPS/EBITDA) were unavailable at the time of analysis due to data access limits. Where comparisons to consensus would typically be included, they are omitted; we would anchor to S&P Global for estimate values when available.

Key Takeaways for Investors

  • Safety Services momentum and margin structure underpin the 13%+ adjusted EBITDA margin target in 2025; Specialty Services headwinds are moderating as delays clear and HVAC moves under Specialty leadership focus .
  • Cash generation is robust: FY adjusted FCF conversion at ~75% with term loan repricing adding ~$5M annual savings; net leverage at 2.2x supports accretive bolt‑ons and opportunistic buybacks ($400M authorization) .
  • Backlog and service mix (54% in 2024; target 60%) add resiliency and pricing agility, mitigating tariff/commodity inflation risks; monitor steel pipe pricing and tariff developments .
  • 2025 setup: FY net revenues $7.3–$7.5B and adjusted EBITDA $970–$1,020M; Q1 seasonally softer with weather impact but sequential improvement expected into Q2/Q3/Q4 .
  • Strategic adjacency: Elevator/escalator services platform buildout (long‑term $1B+ opportunity) with measured bolt‑on cadence; international M&A aperture opening as Chubb value capture nears completion .
  • Watch list: Specialty Services fixed cost absorption recovery, interest expense trajectory (~$145M guide), corporate cost cadence ($30–$35M/quarter), and any renewed project permitting/government delays .
  • Near‑term catalysts: May 21 Investor Day with “meaningfully higher” long‑term targets; potential updated capital allocation (repurchases/M&A) given leverage and FCF profile .