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 who work on the IR team. We'll structure this as a you know basic fireside Q&A, but if time permits, we can certainly open up to questions from the audience. Gentlemen, welcome. Thank you for coming. Appreciate it.
Thanks, Curt. Thanks for having us.
Yeah, first question, maybe starting with one on what I'll call the operational DNA of APi Inspection First. That's the playbook. Maybe walk through the history of the strategy, you know, how it's driven growth and how you've matured, you know, the model over the past, you know, let's call it, 10, 20 years.
Yeah, happy to do that. 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 a 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. We saw that it had really driven some great results in that branch and created a much more recurring, sustainable business model. It spread to that operating company. Then that operating company president joined another operating company, and it spread to that operating company, and it just kinda slowly spread. Then I'd 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. Since we've been public, there's been more adoption into the Inspection First strategy really across our full branch network. In North America, we do feel 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, you know, part of the next group of businesses that are putting that strategy into place. We're really excited about it and still in the early innings of implementing that strategy internationally as well.
Mature strategy, not mature in opportunity.
100%.
Yeah.
Correct.
Yeah. So, you know, on paper, at least conceptually, it seems, you know, kind of simple, right? You're, you know, targeting what are, you know, 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, you know, copy or emulate the strategy? And then I guess, what is it inherently within, you know, the culture, within, you know, the executional framework of the company that, you know, makes it so difficult for your competitors to lag against you?
Yeah. From time to time, we will see some competitors try to kinda 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. They have essentially run their business, usually project first 'cause they're focused on a larger ticket size, larger dollar amounts, despite it being lower margin. There's really not, you know, a catalyst for those businesses to wake up one day and flip their business model. This inspection first strategy, it requires a long-term investment in dollars and time.
You first need to sell the inspection, so we built a sales force. You need to dispatch the inspector, execute the inspection, create a deficiency report, turn that into a service proposal, execute the service. 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. 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, you know, some foot faults or stumble because they're getting pulled back to those higher- ticket size project opportunities.
You know, they don't have the, I guess, the specialization for one, right? They don't have the scale. Then, obviously building the, I guess, called the muscle memory seems like a pretty good moat.
100%. Like that all kind of comes from the foundation of our culture, too. Having a business with great 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 in their respective roles to lead in those roles and to help us get there. It's no different in the Inspection First strategy and putting that to 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 kinda, you know, where that could go, at least in the nearer term, as a percentage of revenue. In some of your other bigger verticals, you know, where are you seeing the most strength? You know, what's contributing to, you know, your, I guess, the highest revenue generation right now? Where are you seeing any weakness?
Yeah, 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. 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. You mentioned data centers, that is an area that's been strong. 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 healthcare have all been, you know, markets that have shown resilience and growth this year.
Last year, w e'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. 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.
Bigger and healthier margins maybe more importantly.
Yeah.
Okay.
For sure.
P retty decent, you know, recurring revenue stream. You know, just given that it's topical in terms of sensitivity to, you know, either economic downturns and inflation, what's going on with fuel, stuff like that, you know, 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 that, those costs through to our customers. I kinda 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, you know, already been, Depending on where you're looking, you know, office buildings, high-rise condos and apartment buildings have been in a tough spot for a couple of years now. We've been kinda successfully navigating that as we're focused on more owner-direct opportunities and those target end markets that we talked about.
Okay, fair enough. I guess staying on the topic of you know recurring revenues, getting closer or fairly close to the you know target of, I think, about 60% or so, right from inspections, from the servicing, right from monitoring. I think you were at 54% last year. Know what the opportunity set is. I think that that's fairly clear. In terms of you know hurdles to getting there, you know, what could they be?
Yeah, I can take that one. You mentioned it, we've ended at 54% this year from inspection service and monitoring. That's continued to kinda tick up year-over-year as we continue to focus our long-term algorithm on the kinda 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 we're gonna, y ou know, obviously take advantage of that, even if we're kind of growing that part of the business, you know, a little bit more than our long-term algorithm. Like, it's still great opportunity, great work for us, at healthy margins.
The robust project environment can definitely be a little bit of a headwind to get into that 60% target. The other, I would say kinda 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 kinda the bigger ticket, you know, project opportunities 'cause that helps them get their $10 million of revenue for the year.
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 kinda shift their strategy to align with the APi strategy of leading with inspections and driving that revenue? You know, if they're not, then it might not, you know, it might not be a good fit. Yeah, that can definitely be a headwind for us. You know, you can take two steps forward, one step back with some of the M&A.
Right. Just, you know, a rate of growth of, you know, project business. Maybe sticking on that for a second, and correct me if I'm wrong on the stats. I think historically it's about, for every $1 of project, you get $3-$4 bucks in recurring revenue, lead on revenue. For the, I guess, the book and the new project revenue are coming on, are you still kind of holding at those rates? Kinda where does that stand?
I think the ratio is actually pulled through from our inspection dollars. It's like for every $1 of inspection work we do, we typically get $3-$4 of service revenue from those inspections. We would expect as we have a more robust project environment now to have that ultimately be a tailwind to our inspection service work on the back end. Particularly the data center world, where, you know, 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 service work on the back end.
The stats for a different thing, but you're correct in the fact in the thought that those inspection opportunities t hat, you know, come from our inspection and service work will then provide new inspection and service opportunities in the future as well.
Yeah. Okay, fair enough. Thinking about the margin profile and specifically, customer selection, project selection has been a big focus. I think part of that is just, you know, you can be selective, you know, in a market like this. We talked about the higher margins, but, you know, aside from, you know, just inherent profitability, what are the other criteria that go into, you know, selections? Maybe put another way, you know, for every project you're turning down or you're accepting, how many are you turning down and why?
Yeah. Like when we talk about disciplined customer project selection, I mean, there's I would say a couple different kinda buckets there. One is like in this inspection first strategy, you're building good sticky customer relationships through that. Like, those are probably the customers that you wanna do project work with because you have the relationship. You know they're gonna pay their bills. You know they care about the life safety you know, systems protecting the people and the assets in the building. Like that's a good customer to do work with. Like that work, you're gonna be winning the work based on your relationship, not based on, you know, who has the lowest price. You wanna kinda go after that work and like stuff that's you know developer-led, for example.
Like, that's gonna be the lowest price wins, and that's not. We're not interested in that, l ike, we wanna be getting good, healthy margins on the project opportunities we're pursuing. You know, so that matters. I would just say, like, when you're putting together your proposal on a job, like, you wanna 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 you know is gonna be worthwhile and not you know lower margin work. Because that's like, if you think about just one, like, branch leader, like, that's one of the biggest strategic decisions they're gonna make is how are they using their people and making sure you're using them on good opportunities and not kinda you know wasting their time on bad work.
Right. I guess it's kind of a side question. How are you using technology for better project selection? Is that a focus, right? And particularly if it's on the branch level, I would imagine a lot of you know sort of human decision-making. But in terms of you know maybe adding new tools or analytics or maybe that's an opportunity you know that could be coming down the pipe but.
Yeah, I mean, we, like, just in general, technology, we see, especially in, like, you know, next five years, is, like, a really good opportunity for us. Going back to our competitive landscape, like, small family-owned businesses are probably not gonna be investing a lot of money in technology to kinda, you know, 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, you know, whether it's AI or other technology, like, in their hands to kind of eliminate the pain points, manually intensive stuff.
Yeah, there's like, you know, we're definitely starting to use technology for our field leaders to help t hem, you know, become more efficient with, you know, with what they're doing. We're definitely in the earlier innings, and there's a lot of big opportunity for us.
Could we expand a little on that a little bit more? You've given a handful of specific, you know, examples. Albeit, you know, it's pretty early, but, you know, whether it's, you know, reducing error rates, whether it's cycle time, you know, getting better route density. I mean, take your pick of, you know, operating metrics. You know, maybe unpack that a little bit in terms of, you know, general efficiency and maybe margin uplift you could see.
Yeah. I can give you a couple examples that the team's kinda working on right now. One is, it's called APi Echo. It's a tool that basically it's an app on your phone that allows our you know, field technicians, like, they don't have to take their gloves off or they're, you know, stop what they're doing and take notes and stuff. It's recording, what they're doing, and then they can kinda use that to help, like, put together a deficiency report 'cause it's got all the notes and the audio and everything. 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.
It basically takes all this customer data, and it can kinda predict when a customer could be at risk for attrition. You can try to make sure you're spending enough time or at least, you know, thinking about, am I spending enough time with this customer, to make sure they're happy, satisfied with the quality of service we're providing? You know, that's a good tool. Another tool is kind of putting in product manuals into that APi Echo tool.
If a technician is working on a fire alarm panel, and there's, you know, Error Code 222, and they don't know what Error Code 222 is, they can ask it, "What is error, you know, Error Code 222 on, this, whatever, Honeywell fire panel?" It can tell them how, you know, what that means, how to resolve it. There's a bunch of different little opportunities like that that we're rolling out, I would say, in small pockets of the business, seeing how it works, seeing what, you know, maybe there's kinks to kind of, you know, fix to make it better and then continue to roll it out to more, you know, more parts of the business.
Okay. An opportunity to be, you know, capitalized on. Okay. Right. Maybe just going back a bit to end markets. Advanced manufacturing, semiconductors, data centers, and pharma, all markets that I think you're pretty excited about. You know, within these, are there, you know, any end markets that are, I guess, more creative or, you know, margin enhancing than others?
I think within those type of target markets, they're all, you know, generally what we look for is the greater the complexity or 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 you know 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. All of those end markets, we are finding the ability to price our work in accordance with kinda the margin expectations we're looking for. It's because of that complexity and some of those issues.
If you're looking at, like, you know, a condo build, high-rise condo building or every floor is kind of a cookie cutter of the same floor, that's a less complexity, less ability to differentiate yourself and more, you know, price wins those. That's why end markets do matter for us. The markets you mentioned, I think, are all markets where we're seeing those stronger margins.
Maybe just kinda sticking on that and, you know, I think there's also been a desire to not, you know, over-index, and again, not to belabor a point. You know, data centers would be one of them. You know, I guess at what point, you know, would you consider yourself over-indexed to a particular market and maybe pull back because either it's drawing too many resources, you know, even if, you know, the margins are good. You know, how do you think through that?
Yeah. We don't have like a hard and fast rule on, hey, this, once you get to this percentage of revenue, we're not gonna do projects there. We've kind of consistently said we are gonna be opportunistic but not over-committed to the data center space, and that really goes for any end market that's experiencing robust growth, with the thought being we wanna continue to operate within the framework of that Inspection First flywheel. 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.
We happen to have a year where there's a, you know, an abundance of those, like 2025, we're happy to be opportunistic in those years. Yeah, we've gone from, I think, 6% of data center or high tech exposure, which includes data center in 2024 to 8% in 2025. We've made a, you know, a step change in, you know, in terms of increased exposure there, but a small step, and I don't think you'll see us, you know, in any of the areas of some of the other competitors that have kinda put all their eggs in that basket.
Sure. Okay. Fair enough. Shifting to elevator business, right? I think that's, you know, what I'll call maybe a newer greenfield, you know, opportunity. You made, you know, a relatively large, you know, acquisition through Elevated, a couple years ago. $10 billion market, I think it's, you know, fairly similar in terms of the dynamics of, you know, all the attractive, you know, recurring revenue streams and things like that, and mandated, you know, work. A couple questions. One, just, you know, how does the competitive set look compared to other markets? What gives APi, you know, the right to win? And then just the balance of organic versus inorganic growth.
Yeah. We became interested in the elevator market years ago for a lot of the same reasons we love the fire market. There's non-recurring demand for services that are regulatory mandated, and elevators are a highly important mechanical system that when they go down, the customers want them fixed right away. There's a really great demand dynamics and recurring revenue dynamics in that space, and we found that we thought that Elevated was the right business to kind of put our foot into that space. Since then nothing's really changed in our long-term thesis. We really believe that that's a place we'll continue to invest behind. We've said in the past we wanna have a billion-dollar 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. The right to win is really quite simple. There is an opportunity to just be a local service provider that builds relationships and 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. There's an opportunity to be that local provider that partners and provides excellent service.
We're non-union, so we're also able to kinda go to market with a bit lower price than the competition. Really what our right to win is providing that excellent service day in, day out and then retaining those customers by being their partner. We don't have like a 1-800 number that they need to call and wait on hold to kinda get to their local provider. They're gonna call someone that they know by name, who's gonna pick up the phone and be ready to provide service for them.
Is that a friction, not being non-union in, I don't know, a city like New York City or Chicago or, you know, there are others that you could probably put in that bucket?
Yeah, there's you know, certain cities that have more union and non-union dynamics, where there's plenty of areas to grow in that space, like you probably won't see us trying to, you know, open up a greenfield elevator shop in the middle of downtown Chicago, in the next, you know, few months. There's tons of cities that we feel like are underserved and that fit what we're looking to do really, really well. There's a big market out there that's non-union that we're ready to kinda go after.
Okay. I mean, just again, thinking about the Inspection First playbook, any verticals where, you know, you feel you're maybe put Elevated aside because, you know, we've talked about that, where either you're just kinda not a participant or under-scaled, and look attractive?
In terms of like a new leg on the stool 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, non-discretionary 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. We're more focused on continuing to grow there right now.
Okay. Maybe turning to capital allocation. One, just the basic question of just, you know, how the M&A pipeline is looking that's, you know, has been a pretty important part of the growth strategy and it's been accretive. Number two, in terms of thinking about, you know, I guess the playbook internationally that, you know, that business is, I guess you could say gone through a bit of a restructure where it's on a sounder operating sort of footprint right now. You know, how should we think about international as a, you know, a lever of growth?
Yeah, the M&A. The M&A team is certainly busy. The pipeline there is super robust. They did a great job in 2025, and then in 2026 here, they closed the CertaSite deal, which we announced in February, and then they've closed four additional bolt-ons kinda to date, and they have you know, several other deals that they have under LOI that they're actively looking at. 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 you know, from our existing businesses. On the international front, we've kinda opened the aperture there to start doing deals internationally. Like, that business is in a good spot.
It's, you know, not every single branch or country, just like in North America, like if the branches that are performing at a high level, like they're ready to do, you know, M&A. At branches that may have some integration or are just, you know, not performing as high, then like we're not gonna distract them with M&A. It's more like a branch-by-branch, country-by-country basis. Like they, you know, they have a pipeline, and they're actively looking at a few deals right now and, you know, I would suspect we see them do at least, you know, kinda one deal in 2026.
I would say kinda the same thing on the elevator side of the business. Like that business is in a good spot, and they kinda did one tweener deal in 2025. You know, like their pipeline is being built out, and I would kinda suspect the same thing. Like they're actively looking at some deals right now. You know, I would think they would get at least one done in 2026. 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. Just sticking on capital allocation, leverage, I think you're below 2x now, approaching 1x maybe by the end of the year, maybe by, you know, 2027. Appetite for repurchases?
Go ahead.
Yeah. Nothing planned right now. You know, we think there's enough opportunities on the M&A front to kinda—
Keep that dry powder.
Yeah. Obviously, like you never know. There's a war in Iran going on right now. You never know what's gonna happen, but nothing planned for 2026 as of right now.
Okay, fair enough. Maybe I'll open 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.
Okay, good answer. Gross margins.
Continuing to grow.
Bolt-on M&A, which we touched on.
Part of our DNA. Yeah.
Okay.
Yeah. That's an interesting. I like that. It keeps me on my toes for the end of this. Yeah.
Keep it interesting.
Yeah.
All righty. Well, I think we'll wrap it there. Really appreciate the conversation. Thanks so much for the time, and.
Thanks for having me.
Thanks for joining us. Yeah.
Thanks for joining us. Thank you.
Thanks.