APi Group Corporation

Good morning, ladies and gentlemen, and welcome to API Group's third quarter 2024 financial results conference call. All participants are now in a listen-only mode until the question and answer session. 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 Fee, Vice President of Investor Relations at API Group. Please go ahead.

Thank you. morning everyone and thank you for joining our third quarter 2024 earnings conference call joining me on the call today are russ becker our president and ceo kevin crum our executive vice president and chief financial officer and sir martin franklin and jim lilly 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, or 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 31st, 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 other information regarding these items can be found in our press release and 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. Before we get into our 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 number one value. While I mentioned this every quarter, the events of the last few months, including the impact of the hurricanes on our teammates in the southeast, has given our organization the opportunity to put that value to practice. I'm happy with the way our teammates stepped up to help each other in the impacted communities in which we operate. Back in 2021, We detailed our 13% plus adjusted EBITDA margin target by year end 2025 as part of our broader 13, 60, 80 shareholder value creation framework that you can find on slide five of our third quarter presentation. In addition to the 13% target, the 60 and 80 financial goals are long-term revenues of 60% from inspection, service, and monitoring, and long-term adjusted free cash flow conversion of approximately 80%. Over the past few years, we have communicated and executed our strategy and its key initiatives intended to achieve these goals with a specific focus on expanding margins to reach 13% or more in 2025. The team has made excellent progress this year executing on our margin expansion initiatives with expected adjusted EBITDA margins up approximately 150 basis points. This has been accomplished by focusing on the following. First, pricing. Second, improved inspection, service, and monitoring revenue mix. Third, disciplined customer and project selection. Fourth, Chubb value capture. Fifth, procurement systems and scale. Sixth, accretive M&A and selective business pruning And finally, as I always like to say, we always have the opportunity to just be better. The team's work over the last few years executing our 1360-80 strategy has resulted in API being the strongest it has ever been. On slide six, we highlight the progress we have made as a business from 2021 to 2024. with 2024 expected to be a year of record net revenues, profitability, and free cash flow generation. The third quarter marks 17 quarters in a row of double-digit organic growth in inspection revenues and U.S. life safety. This performance has been a key contributor to our steady progress towards our long-term target of 60% of revenues coming from inspection, service, and monitoring. As we prepare to set new and increased financial goals for the next three years in 2025, it is gratifying to reflect on our progress since we first became a publicly traded company in late 2019. In our first year as a public company, we generated $393 million in adjusted EBITDA. This year, we expect to deliver about $900 million, and we have $1 billion of annual adjusted EBITDA close in our sights. As we prepare to enter 2025, we plan to continue to execute our strategy, accelerate organic growth, increase margins, and expand our bolt-on M&A program. Before Kevin gets into the third quarter results, I wanted to address our disciplined customer and project selection initiative on slide seven, which has been a significant contributor to the improvements we have made towards our 1360-80 financial targets. We have focused on disciplined customers and project selection for some time now and made it a point of emphasis in our planning cycle in early 2023. We challenged our business leaders to evolve away from large, lower margin, higher risk opportunities and focus on allocating our valuable field leaders to the best opportunities to position the business for long-term profitable growth. Our leadership team has done an excellent job executing this strategy. and it is positively impacting our financial results, allowing us to deliver adjusted EBITDA margins ahead of our expectations. We've been consistently setting new records as it relates to margins and cash flow generation as we evolve our business towards higher margin, more recurring service revenues. It is encouraging to note that our backlog is growing and healthy, with work that comes to us with a higher expected margin, lower expected risk, and smaller project sizes. This gives us confidence in re-accelerating growth in 2025 and beyond in these businesses. Equally important during this time, API's underlying core service business has grown steadily as we continue to take market share. More recently, in the second and third quarters of this year, we have faced temporary tiny revenue headwinds due to unexpected timing delays in certain customer projects. We expect the total impact of these headwinds on our 2024 net revenues to be approximately $150 million, with this impact predominantly driven by the specialty services and HVAC businesses. In specialty services, the delays were primarily with certain telecom and utility customers and were driven by the following. Higher than expected permitting and engineering delays, and slower than planned execution of federal rural broadband program. We believe these headwinds are limited to 2024 and primarily related to certain portions of our specialty services business. Our core life safety business, which includes our fire protection, electronic security, and elevator businesses, and excludes the more project heavy HVAC business, has made excellent progress as highlighted on slide eight. Core life safety represents over 65% of total API net revenues, and it's consistently demonstrated strong overall organic growth led by high single-digit organic growth in inspection, service, and monitoring revenues. The life safety business has a record high backlog of approximately $2 billion, up 5% organically versus prior year, and it's the healthiest we've seen it. From 2022 to 2024, adjusted gross profit and EBITDA margins in life safety have improved considerably, with adjusted EBITDA margins expanding more than 300 basis points. We expect the flywheel, which is underpinned by our inspection-first strategy driving outsized growth in service revenues, will continue to allow the businesses to be more selective on project revenues and drive further margin expansion across the branch network in 2025 and beyond. Starting in 2025, you will see our core life safety businesses more clearly as we have made the decision to realign the HVAC business under our specialty services segment. This change will put our HVAC business into a segment with other operating companies that serve similar customers in similar end markets to create synergies and efficiencies, which we highlight on slide nine. We enter 2025 with a lot of momentum. Organic growth of our inspection, service, and monitoring revenue streams in safety services remains strong. Organic growth in backlog and proposal activity is trending positively, providing support for a return to organic growth in project revenues. The international business is nearly finished working through its subpar inherited contracts and branch consolidation plans. On slide 10, The bolt-on M&A engine continues to accelerate and support future organic growth with 10 bolt-on acquisitions, excluding elevated, closed at reasonable multiples through October. We expect this momentum to continue in 2025 and beyond. And on slide 11, you can see the long-term benefits, which we have accelerated through M&A, of executing the initiatives behind our 136080 shareholder value creation framework. Our business continues to evolve into a more asset-light, services-focused, branch-led operating model with an increased mix of recurring higher margin revenues. During this evolution, our contract loss rate, which measures the dollar loss on projects as a percent of total revenue, dropped from approximately 1.5% in 2019 to less than 0.4% in 2024. reflecting more discipline, customer and project selection, and strong execution in the field. I am proud of the team's execution of our strategy. We have built a strong foundation, improved the quality of our business and backlog, and expect to return to margin-accretive organic growth in 2025. We are well positioned to achieve our 13% plus adjusted EBITDA margin target in 2025 and set new meaningfully higher targets for the following three years, which we will review during our investor day next year. I would now like to hand the call over to Kevin to discuss our financial results and guidance in more detail. Kevin?