We're good to go. 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 week. 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. This is the first time that we're hosting them at our conference. I'm really excited here to have CEO Russ Becker and CFO David Jackola joining us today, also head of IR, Adam. I just want to start out 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. 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. I think we'll start out with some prepared remarks, and then we're going to jump into more of a fireside. We've got a breakout after that. Because this is the last presentation of the day, I think the breakout will just stay in here. I can kick some questions to you all if there's interest. At this point, I'll turn it over to Russ. Thanks for being here.
Thanks, Tim. Thanks for having us. Thank you, everybody, for joining us. For those of you that are shareholders, thank you for your support. For those of you that are new to the story, hopefully, we can pique your interest in what I'm obviously biased and think is an absolutely great company. 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. One of the reasons that we really liked this space is the regulatory requirements. For your typical commercial office building, hotels like this are not great examples because they're super complicated.
The 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. We're not going to spend any time on with that. The other 30% of our business comes from specialty services. 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. At the first of the year this year, we resegmented 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.
Our core purpose is building great leaders. Our culture as an organization, as a company, is centered on our purpose of building great leaders. I've been with APi since I started off in one of our operating companies in 1995. Some of you people, I'm not that old. I came to the parent company in 2002. Literally, I was promoted from company president, so to speak, to operating group leader from a Friday to a Monday. My initial, when I started in 2002, the company was not performing very well. My immediate reaction was, I need to help my peers fix their businesses. 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.
In 2003, we started a journey centered on building great leaders and leadership development in our company that focused at first on the company president level. Then it went to the branch level. 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? I think there's a lot of good reasons to invest in APi. Number one, we feel that our stock is still today undervalued. 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 services, 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. Asset light, low CapEx generates a ton of cash. 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 two and one-half times range. 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. If our stock is undervalued, we're not afraid to buy back shares. We were in the market in the first quarter of this year. This slide, just a couple of quick points. If you look at that period of time from 2011 to 2019, there's two important things to share.
Going all the way back to 2011, our revenue mix was more like 80/20. That would be 80% project work and 20% inspection service and monitoring. Today, we sit at 54% inspection service and monitoring. 40% of our revenue comes from project work. 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. The next point I would make is that our business in that period from 2011 to 2019 grew organically at 7%. 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. Three years ago, we laid out what we called our 1360/80 shareholder value creation model. Our goal was to be a 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% forecast in 2025. A big component of that came from the acquisition of Chubb. 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. It's the word commitment. At APi, when we make a commitment, we take that commitment very, very seriously. It's something that you can rest assured that we're going to tip over to deliver on our commitments. What's next for APi? This started in December of 2023 at our board meeting in Miami.
For those of you who do not know, APi went public via a SPAC. The founder of the vehicle that acquired us is a gentleman by the name of Martin Franklin. Martin actually does not like the term SPAC. He views that his vehicles are slightly different. Martin and two of his partners are on our board. One of those partners is a gentleman by the name of Ian Ashkin. Ian asked me to go for a walk with him on the boardwalk in Miami while we were in town for the board meeting. As we were on our stroll, he started to push me about what is next for the company. The way I am wired, my response to him was, let's deliver on our commitments, which is 1360/80, before we start talking about what is next.
His response was, I know you're going to hit your numbers. What is next? Nothing really came from that. Nothing more came from that. About three weeks later, it was January 4th. It was a Saturday. I was on my way to Singapore to attend one of our leader labs. I was sitting in the Delta Club in Minneapolis Saturday night. My brain started thinking about this conversation that I had with Ian. Those of you that know me know that my drink of choice is Macallan 12 Single Malt. I decided that I deserved to have one because it was Saturday. I was traveling for business. I got myself a Macallan. I also got out a cocktail napkin. I started to do some math.
I said, all right, if our base is $7 billion and we grow organically 5% a year, what does that look like? You can see that it adds about $350 million a year. All you MBAs, I did not compound it. I am an engineer, so I just did simple math here. That gets you to roughly $8.4 billion. 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? When you buy small businesses and bolt them onto your existing business, our average multiple is about six times. At six times, you get about a dollar of revenue per dollar purchase price. If you do $250 million a year for the next four years, it gets you another billion.
I said, all right, what about larger, more transformational acquisitions? That could be two transactions. It could be one. It could be something bigger. It could be something smaller. I just took a swing and wild ass guess. I just said a billion. You can see how this business can very, very easily get to $10.4 billion. I set a timeline of 2028. I'm not one of these people that likes to be out five, six, seven years. I want it to be something that's realistic that we can actually point the business towards. Just so you know, not all of our modeling and math comes from Russ having a couple of scotches in the Delta Club at MSP. I went back, got back from my trip. That's when all the real work started.
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 are 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 have grown on the business from a margin expansion perspective, roughly 80 basis points a year over the last three years. We feel like we can continue on that track. This business will generate over $3 billion if we continue to deliver on this commitment. We think that this is something that is important. At the bottom of that slide, you will see in that black box is our aspirational goal to be the number one people-first company that is number one 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. 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 running past some of the time that folks wanted me to. There are two things. Our purpose is building great leaders and our values. The safety, health, and well-being of each of our leaders remains and always will remain our number one value. If you look in the bottom left-hand corner of the slide, Tim can share this stuff with you as well. You can go to our investor relations page on our website. In the bottom left-hand corner is a QR code that would take you to our IME leader learning opportunity.
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 three pillars. First pillar is leading self. Second pillar is leading others. Third pillar is leading teams and businesses. The IME leader learning module is all about leading self. It'll take you 30 minutes to go through it. We've translated it into seven languages so we could spread it across the breadth of our business. 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. We have a woman on our team by the name of Laura Sykes who this is her brainchild.
She's done, I think, close to 100 podcasts with our different leaders from around the entire business and 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. If we deliver on our commitments this year, we'll be $7.5 billion at 13.4%. I attribute a big part of this to our efforts around leadership development. David, do you want to give them a quick overview?
Absolutely. Sorry. Yeah. All right. Thanks, Russ. Thanks, everybody, for being here. I'll take you through a couple of things related to the financials.
The first is our path to our 2028 long-term strategic goals. The first is $10 billion of net revenue. 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. You roll in $250 million-$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. You add a couple of platform M&A deals, one to two, maybe something that looks like Chubb. 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. That $10 billion or more looks like $1.6 billion of adjusted EBITDA a year by 2028. 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. I'll take you through a little bit more detail on the organic growth algorithm. We're expecting our service side of our business to grow mid to upper single-digit growth between now and 2028. That's going to come from pricing.
We have been really disciplined and focused on driving pricing over the last three years, both through annual increases as well as allowing ourselves to pass on inflationary cost increases to our customers. We also anticipate being able to take share through our inspection-first Salesforce initiatives. We will win the customer through the inspection. We will prove our value through doing a great job on service. That will open up great project opportunities as well. Russ talks all the time about how end markets matter. We will continue to focus at end markets that have regulatory requirements or insurance requirements that have a tailwind behind them. That will help drive the business as well. We will continue to grow the project business. That is and will always be an important part of APi Group. We will target mid or low to mid single-digit growth in projects.
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. The levers that'll 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+ , but will also allow us to grow our SG&A at a more cadence 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. We have 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. The system and technology investments that we're deploying are going to allow us to capture more value in that very important area. 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 three years.
We have been on a really impressive journey of improving our free cash flow conversion. We have more than tripled our adjusted free cash flow delivery between 2021 and the end of 2024. Each year, we have converted a higher percentage of our adjusted EBITDA to cash. We have done it while maintaining a strong balance sheet. We have proven that we can pretty quickly lever up as we did at the end of 2021, 2022 for the Chubb transaction, and then de-lever very, very quickly from the cash flow that our businesses generate through operations. The levers that get us to $3 billion or more are there on the bottom. We will grow earnings. We will continue to focus on inspection, service, and monitoring, which has a free cash flow conversion profile that is accretive to the base. We have opportunities to improve our working capital rate.
We will continue to deploy our capital into the life safety segment, which generally is accretive to our adjusted free cash flow conversion rates as well. The exciting thing about all the cash that the business will generate over the next three years is the opportunities and the avenues that we have to deploy it. First and foremost, we will be committed to maintaining our long-term net leverage ratio target of 2.5-3 times adjusted EBITDA. Importantly, we will continue to invest in organic growth. That is 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 number one preferred route for deploying capital. We really view M&A through two lenses.
One is the larger platform-type opportunities that are accretive to our 10, 16, 60 goals and enhance our offerings, but also through bolt-ons. We expect to do between $250 million and $300 million of bolt-ons per year between now and 2028. 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. That is at a high level, the financial aspects of our 2028 goals. Maybe I'll hand it over to Tim.
Yeah. That was great. Thank you, guys, for the overview. I think that was very clear on the what, on the numbers, 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 in 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?
I mean, that's a lot. You asked a lot of stuff there.
Got six whole minutes.
I thought we had more time.
I thought we did.
As much time as you need.
Yeah. I'm more about not spending as much time up here as I can.
Oh, yeah. For those of you that don't know, this is Russ's favorite part of the job, investor-related obligations. He'd much rather be doing this than catching walleye in Canada.
I actually enjoy investor meetings. I just don't enjoy them when I have them stacked up like cordwood.
Yeah. I'm sure.
7:00 A.M. until 4:00 P.M. And I get asked the same questions 27 different times.
What is your inspection-first strategy?
Yeah. Anyways, I'm going to talk about inspections first, and then I'm going to come back to what makes us unique.
Okay.
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.
She was hired into one of our branches in one of our operating companies. She started selling inspections. 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 sq ft 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 and life safety system inspected for functionality and operability. The way the industry has always operated is like a healthcare system is building that new medical office building. Let's go chase the installation work on that new building. When that project is 95% complete, I'm going to try to find my way to the customer.
I'm going to try to sell them a service package that might include the inspection. They're going to try to convert the new construction. What Courtney helped us do is change our mindset that we're going to start calling on the already built environment. That building that's existing, we're going to call on that property manager. We're going to try to take and unseat the incumbent. We're going to take that inspection away from them. The reason that we want to do that is that we have data that shows that for every dollar of inspection work that we generate, we generate $3-$4 worth of pull-through service work.
We also know that if we do a kick-ass job on the inspections and a kick-ass job on the service work, we are going to build a stickier relationship with that customer so that when they have expansion needs, we are going to be in a position to pursue that work not based on price, but based on value. For us, that is something that is very important. 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?" That is what she did. He is like, "You need to take it to this branch, this branch, and this branch." It slowly spread its way across this business and this operating company.
We took the guy that was running Las Vegas, and we promoted him to run a business for us in the Northeast. The first thing he did is he called Courtney. He said, "Court, would you come out here and would you help us?" It started to spread across that business. This was all pre us really going public. We sold the company in 2019 and went public. About that same time, that first operating company, we promoted that business leader to be the leader of our North American Safety Services segment. Not too shortly after that, he brought Courtney to the corporate level. She started to bring that sales strategy to the corporation. That is really the evolution in how we have driven the growth in our inspection sales. We have grown inspections at a double-digit clip for 19 straight quarters, I believe.
I attribute a lot of that to the work that Courtney's 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, huge part of our strategy, there's no question about it. That works hand in hand with how a branch operates. 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. At APi, we have this maniacal focus on leadership and leader development. It's a differentiator for us. It makes us different. 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 eight foundational beliefs. I did not go through that. We did not have that slide in this presentation, but we have eight foundational beliefs centered on what we believe leadership looks like in our company. If we are going to win and we are going to grow to $10 billion, leadership is a huge component of it. The example I have been giving folks in our individual one-on-one meetings is we could have the best playbook of all time, and I could give it to you, and you are the quarterback. If you are just an average quarterback, what result are we going to get? Average. For us, we have the playbook. We know what it takes to win. We need to make sure we have the best quarterbacks and the best branch leaders.
You look at our company, leader development and talking about leadership, talking about caring about people is something that we take really, really seriously. 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 site 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. 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 do not go service our customers every single day. 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. It is very, very important. The men and the women in the field, they drive revenue. They drive gross margin. They are the heart and soul of this company.
Yep. Yep. 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 is further along in that inspection-first strategy versus one that is just starting out or maybe a competitive branch that is not doing that. What does the growth look like? What do the margins look like at a branch that is further along in that journey versus not so folks can get an appreciation for what it is that you are really trying to do here?
If you go back to the slides and from our investor deck, you'll see that the median margin performance in North America is 17%, which means we've got branches that are performing at 23%, 24%. I mean, we have branches that are performing at six or seven. The chances are that the businesses that are higher performing have further progressed on their journey. I mean, the chances are. 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. It does not paint 100% the picture. You can't paint everybody with the same brush exactly, but in general. 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 three and a half years.
Right. Okay. That's helpful. I think, 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.
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