APi Group Reports Fourth Quarter and Fiscal Year 2022 Financial Results

-Reported net revenues increased by approximately 53% and 66% in the fourth quarter and full year, respectively-

-Net revenues increased on an organic basis by approximately 6% and 12% in the fourth quarter and full year, respectively-

-Reported and adjusted gross margin expansion of 255 and 319 basis points, respectively, in the fourth quarter-

-Reported diluted earnings per share of $0.04 and adjusted diluted earnings per share of $0.36 in the fourth quarter-

-Reported net income of $22 million and adjusted net income of $98 million in the fourth quarter-

-Net debt to adjusted EBITDA decreased to 3.1x as of the end of the fourth quarter-

APi Group Corporation (NYSE: APG) (“APG”, “APi” or the “Company”) today reported its financial results for the three months and year ended December 31, 2022.

Fourth Quarter 2022 Highlights:

• Reported net revenues increased by 53.1% or $591 million to $1.7 billion compared to $1.1 billion in the prior year period, driven by revenue from acquisitions and strong organic growth in Safety Services
• Net revenues increased on an organic basis by 5.8% compared to the prior year period, driven by continued growth in inspection, service, and monitoring revenue in Safety Services
• Reported gross margin was 27.2%, representing a 255 basis point increase compared to prior year period reported gross margin of 24.6%. Adjusted gross margin was 27.8%, representing a 319 basis point increase compared to prior year period adjusted gross margin of 24.6%. Reported and adjusted gross margin expansion were driven by acquisitions in Safety Services, an improved mix of inspection, service and monitoring revenue and improved productivity in Specialty Services
• Reported net income was $22 million, representing a $7 million increase from prior year period reported net income of $15 million driven by accretion from acquisitions in Safety Services and strong organic growth in Safety Services. Reported diluted EPS was $0.04, representing a $0.79 increase from prior year period
• Adjusted net income was $98 million and adjusted diluted EPS was $0.36, representing a $0.07 increase from prior year period driven by accretion from acquisitions in Safety Services and strong organic growth in Safety Services
• Adjusted EBITDA increased by 59.1% or $68 million to $183 million compared to $115 million in the prior year period, driven by acquisitions and strong organic growth in Safety Services
• Adjusted EBITDA margin was 10.7%, representing a 40 basis point increase compared to prior year period adjusted EBITDA margin of 10.3%, driven by an improved mix of inspection, service and monitoring revenue and leverage on higher volumes

Fiscal Year 2022 Highlights:

• Reported net revenues increased by 66.4% or $2.6 billion to $6.6 billion compared to $3.9 billion in the prior year period, driven by revenue from acquisitions in Safety Services and strong organic growth in Safety and Specialty Services
• Net revenues increased on an organic basis by 12.2% compared to the prior year period, driven by continued growth in inspection, service and monitoring revenue in Safety Services as well as general market recovery in Safety and Specialty Services compared to the prior year period which was negatively impacted by the COVID-19 pandemic
• Reported gross margin was 26.1%, representing a 230 basis point increase compared to prior year period reported gross margin of 23.8%. Adjusted gross margin was 26.8%, representing a 288 basis point increase compared to prior year period adjusted gross margin of 24.0%. Reported and adjusted gross margin expansion were driven by acquisitions in Safety Services, an improved mix of inspection, service, and monitoring revenue, and improved productivity in Specialty Services
• Reported net income was $73 million, representing a $26 million increase from prior year period reported net income of $47 million driven by accretion from acquisitions in Safety Services and strong organic growth in Safety and Specialty Services. Reported diluted EPS was $0.10, representing a $0.77 increase from prior year period
• Adjusted net income was $358 million and adjusted diluted EPS was $1.33, representing a $0.30 increase from prior year period driven by accretion from acquisitions in Safety Services and strong organic growth in Safety and Specialty Services
• Adjusted EBITDA increased by 65.4% or $266 million to $673 million compared to $407 million in the prior year period, driven by acquisitions in Safety Services and strong organic growth in Safety and Specialty Services
• Adjusted EBITDA margin was 10.3%, consistent with prior year period adjusted EBITDA margin of 10.3%, driven by an improved mix of inspection, service and monitoring revenue and leverage on higher volumes, offset by supply chain disruptions, inflation and mix from completed acquisitions causing downward pressure on margins

Russ Becker, APi’s President and Chief Executive Officer stated: “2022 was a year of record financial results for APi. We delivered record net revenues, record adjusted EBITDA and record adjusted earnings per share in a challenging macro environment. We believe this once again demonstrates the stability of APi's recurring revenue, services focused business model, our ability to mitigate margin pressures that exist on a macro basis, and the ongoing execution of our strategy by our talented team members. Their ongoing leadership efforts continue to demonstrate that our leaders are a competitive advantage and help drive shareholder value.

Chubb continues to perform in-line with our expectations and delivered solid organic growth in 2022, despite macro headwinds. The integration is occurring swiftly, savings are significant, and we continue to be energized by the opportunities in front of us as the world’s leading life safety and security services provider.

We entered 2023 with positive momentum on many fronts. Our backlog remains strong and was up approximately 9% as of December 2022 compared to the end of December 2021. We are confident that our focus on growing statutorily-required, higher margin, inspection, service and monitoring revenue, combined with our robust backlog and variable cost structure positions us well to prosper even if the macro environment continues to be volatile. We remain focused on being disciplined on project and customer selection and will continue to focus our efforts on growing the acyclical, recurring service revenue aspects of our portfolio.”

APi Co-Chair James E. Lillie added: “APi’s continued strong performance in the fourth quarter was the culmination of what was another outstanding year for APi in 2022. APi’s double-digit growth in organic net revenues, combined with the acquisition of Chubb and the Company’s ability to offset macro headwinds, allowed APi to produce record earnings and generate substantial free cash flow.

As reflected in the guidance we gave last week for 2023, we have strong momentum balanced across our global platform. Our leaders continue to build on historically strong execution, continue to mitigate macro challenges and are staying focused on operational excellence. APi will continue to remain agile, focused and adaptive as needed to create sustainable shareholder value by focusing on our long-term value creation targets. These include solid organic growth, target adjusted free cash flow conversion of 80%, adjusted EBITDA margin of 13%+ by 2025 and target net leverage ratio of 2.0 to 2.5x, which we expect to achieve near year-end 2023 supplemented by our recent $200 million reduction in our term loan debt. Everyone is excited about the opportunities in the year ahead and our ability to execute on our strategic plan.”

Conference Call

APi will hold a webcast/dial-in conference call to discuss its financial results at 8:30 a.m. (Eastern Time) on Tuesday, February 28, 2023. Participants on the call will include Russell A. Becker, President and Chief Executive Officer; Kevin S. Krumm, Executive Vice President and Chief Financial Officer; and James E. Lillie and Sir Martin E. Franklin, Co-Chairs.

To listen to the call by telephone, please dial 800-343-4136 or 203-518-9843 and provide Conference ID 6468507. You may also attend and view the presentation (live or by replay) via webcast by accessing the following URL:

https://event.on24.com/wcc/r/4080924/F6495ADA7A66BD3125466D65A5B318AC

A replay of the call will be available shortly after completion of the live call/webcast via telephone at 800-723-2156 or 402-220-2660 or via the webcast link above.

About APi:

APi is a global, market-leading business services provider of life safety, security and specialty services with a substantial recurring revenue base and over 500 locations worldwide. APi provides statutorily mandated and other contracted services to a strong base of long-standing customers across industries. We have a winning leadership culture driven by entrepreneurial business leaders to deliver innovative solutions for our customers. More information can be found at www.apigroupcorp.com.

Forward-Looking Statements and Disclaimers

Certain statements in this announcement are forward-looking statements which are based on the Company’s expectations, intentions and projections regarding the Company’s future performance, anticipated events or trends and other matters that are not historical facts, including expectations regarding: (i) the Company’s long-term targets, goals and strategies, including its pricing, focus on growing inspection, service and monitoring revenue, strong spend controls, and disciplined project and customer selection; (ii) the Company’s outlook and expected 2023 financial performance and ability to execute on long-term goals; and (iii) the expected benefits of the acquisition of the Chubb fire and security business. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including: (i) economic conditions, competition and other risks that may affect the Company’s future performance, inflationary pressures and other macroeconomic factors on the Company’s business, markets, supply chain, customers and workforce, on the credit and financial markets, on the alignment of expenses and revenues and on the global economy generally; (ii) supply chain constraints and interruptions, and the resulting increases in the cost, or reductions in the supply, of the materials commodities and labor the Company uses in its business and for which the Company bears the risk of such increases; (iii) failure to realize the anticipated benefits of the acquisition of the Chubb fire and security business; (iv) changes in applicable laws or regulations; (v) the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors; (vi) the impact of the conflict between Russia and Ukraine; and (vii) other risks and uncertainties. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of such statements and, except as required by applicable law, the Company does not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

This press release contains non-U.S. GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. The Company uses certain non-U.S. GAAP financial measures that are included in this press release and the additional financial information both in explaining its results to shareholders and the investment community and in its internal evaluation and management of its businesses. The Company’s management believes that these non-U.S. GAAP financial measures and the information they provide are useful to investors since these measures (a) permit investors to view the Company’s performance using the same tools that management uses to evaluate the Company’s past performance, reportable business segments and prospects for future performance, (b) permit investors to compare the Company with its peers and (c) determine certain elements of management’s incentive compensation. Specifically:

• The Company’s management believes that adjusted gross profit, adjusted selling, general and administrative (“SG&A”) expenses, adjusted net income, and adjusted earnings per share, which are non-GAAP financial measures that exclude business transformation and other expenses for the integration of acquired businesses, the impact and results of businesses classified as assets held-for-sale and businesses divested, and one-time and other events such as impairment charges, restructuring costs, transaction and other costs related to acquisitions, amortization of intangible assets, net COVID-19 relief, non-service pension benefit, severance related costs related to corporate leadership changes and certain tax benefits from the acquisition of APi Group, Inc. (the “APi Acquisition”) are useful because they provide investors with a meaningful perspective on the current underlying performance of the Company’s core ongoing operations.

• The Company also presents organic changes in net revenues on a consolidated basis or segment specific basis to provide a more complete understanding of underlying revenue trends by providing net revenues on a consistent basis as it excludes the impacts of material acquisitions, completed divestitures, and changes in foreign currency from year-over-year comparisons on reported net revenues, calculated as the difference between the reported net revenues for the current period and reported net revenues for the current period converted at the prior year average monthly exchange rates (excluding acquisitions and divestitures). The remainder is divided by the prior year net revenues, excluding the impacts of material acquisitions and completed divestitures.

• Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is the measure of profitability used by management to manage its segments and, accordingly, in its segment reporting. The Company supplements the reporting of its consolidated financial information with certain non-U.S. GAAP financial measures, including EBITDA and adjusted EBITDA, which is defined as EBITDA excluding the impact of certain non-cash and other specifically identified items (“adjusted EBITDA”). Adjusted EBITDA margin is calculated as adjusted EBITDA divided by net revenues. The Company believes these non-U.S. GAAP measures provide meaningful information and help investors understand the Company’s financial results and assess its prospects for future performance. The Company uses EBITDA and adjusted EBITDA to evaluate its performance, both internally and as compared with its peers, because it excludes certain items that may not be indicative of the Company’s core operating results. Consolidated EBITDA is calculated in a manner consistent with segment EBITDA, which is a measure of segment profitability.

• The Company presents free cash flow, adjusted free cash flow and adjusted free cash flow conversion, which are liquidity measures used by management as factors in determining the amount of cash that is available for working capital needs or other uses of cash, however, it does not represent residual cash flows available for discretionary expenditures. Free cash flow is defined as cash provided by (used in) operating activities less capital expenditures. Adjusted free cash flow is defined as cash provided by (used in) operating activities plus or minus events including, but not limited to, transaction and other costs related to acquisitions, business transformation and other expenses for the integration of acquired businesses, payments on acquired liabilities, payments made for restructuring programs, impacts of businesses classified as assets held-for-sale and businesses divested, and one-time and other events such as COVID-19 related payroll tax deferral and relief items. Adjusted free cash flow conversion is defined as adjusted free cash flow as a percentage of adjusted EBITDA.

• The Company calculates its leverage ratio in accordance with its debt agreements which include different adjustments to EBITDA from those included in the adjusted EBITDA numbers reported externally.

While the Company believes these non-U.S. GAAP measures are useful in evaluating the Company’s performance, this information should be considered as supplemental in nature and not as a substitute for or superior to the related financial information prepared in accordance with U.S. GAAP. Additionally, these non-U.S. GAAP financial measures may differ from similar measures presented by other companies. A reconciliation of these non-U.S. GAAP financial measures is included later in this press release.