Good morning, everybody. Welcome to Jefferies 2026 Industrials Conference. For those who may not know me, my name is Stephanie Moore. I am Jefferies' Transportation and Business Services analyst. We are very pleased today to have the team from APi Group. We have CEO Russ Becker, and then Adam Walters, who leads their investor relations efforts. The format is just fireside chat, but again, we really appreciate you both being here today.
Thanks for having us.
Okay. To kick things off, I want to touch on the specialty segment, which is maybe where we probably wouldn't have started last year if we were covering this company long enough. There has been a lot of excitement, quite frankly, on the specialty side of the business, and it has delivered some really strong organic growth year-to-date. Could you remind us, maybe just high level, what is driving the demand in this segment? How much of this is efforts that are more so your own efforts and concerted effort to go after this business? And then how much of this is just maybe some end market dynamics that have been particularly healthy or beneficial for you guys?
Yeah. T hat business, if you go back to 2024, for those of you that follow the company for multiple years, that business went through some kind of disciplined customer and project selection and made sure the work they are going after was in good end markets with good customers at good margins. They have really come out of that disciplined customer project selection with a lot of strength. We kind of saw it back even in 2025 as we kind of got halfway through the year last year, they really started to see some strength. I would say it is not specific pockets. It is really broad-based across the businesses within specialty, but also across various end markets.
Data centers obviously been a point of strength in that the specialty business has seen a lot of good opportunities on the data center build-out as well as kind of the service from data centers as well. Critical national infrastructure has been a point of strength as well for specialty, whether it's water treatment plant work or even just fiber optic cabling. We're starting to see some of the BEAD funding flow through to our customers, which has been good work on the fiber side. Advanced manufacturing continues to be good. Semiconductor work continues to be good. Is that business going to grow at 20% every single quarter? No, obviously, but they're seeing a lot of strength across the business and across a lot of different and diverse end markets. We're really pleased with how that business has been growing the last year plus.
Then, maybe Russ, I'd love your perspective. Given the strength that you're seeing, particularly in specialty, have you ever seen from an end market standpoint, maybe the robust growth that we have seen before? Or is this just kind of a function of you do see these kind of cyclical patterns where you see some of this growth kind of come through, whether it is because of infrastructure, CapEx spends, legislation, or is this truly an unprecedented time?
Well, you notice that she asked me that question because I'm probably almost two times as old as him, and I've been through it three times as long as him. I would say that what you're seeing specific to the data center market is unprecedented. I haven't seen anything like it in my career, in the industry. If you take data centers out and you look at the industry in general, as a kind of on a macro basis, the industry was flat to declining. Data centers basically has buoyed the entire sector. I think the biggest difference is maybe not necessarily the quantity, but the size. The size of the data center projects, they're big and that's probably just the best way to put it. T here's other end markets that are really robust.
Adam touched on it, but certain aspects of advanced manufacturing, if you look at Eli Lilly as an example, what the investment they're making primarily in GLP-1s, whether that's in their home state of Indiana or what they're doing in Milwaukee. We happen to be involved with the Milwaukee opportunity. You've seen that be really robust. Semiconductors continues to be robust. I don't know that I would credit that necessarily to reshoring, and some of the policies or not. I'll leave that up to each individual to decide. Y ou are seeing critical infrastructure and a number of opportunities there continue to provide a lot of opportunity. I would say that the data center component of it is the part that I'm going to put in the unprecedented bucket.
T hen, just for those who that might fear the data center build-out as a bubble or the longevity of it, or we start to be concerns that maybe we're going to get kind of a little too much exuberance. How would you kind of just walk through the life cycle in which APi can participate in just this data center build-out?
Well, at the end of our last call, I tried to make sure I took the opportunity to remind everybody that APi is a services company first that is going to take advantage of the robust project environment. That has not changed since our last call. It will not change in advance of our next call, and it won't change a year from now. Our focus is going to be on continuing to build out the inspection and service component of our business, but we want to take advantage of the data center market. I would tell you that the way we're looking at the data center project opportunity, is that we're putting our people to work on projects that are committed, and we're being prudent about how we're allocating our people.
Our people are precious gems, and we need to make sure that we're protecting them, and we're putting them to work with our good customers on good customer sites in places where people are going to value their expertise and their work. W e are, I think, being very prudent in how we're looking at customer selection and project selection, and where we're going to continue to put our people to work. W e talked about our backlog being at a record level of over $5 billion. If we don't have a signed contract, it's not in our backlog. W hen we talk about that, we're actually managing that quite well, and I think we've got the company in a really good position.
Also, we are spending the time to do our own work and not just speculate on what does the data center opportunity and opportunity set continue to look like. If you look at the projected demand curve that's going to come with AI as companies start to ramp up and utilize AI more, the data center build-out is not going to keep up to the demand. U nless you're going to stop using this, then the opportunity is going to continue to come. You have to make sure you're putting your people to work in the right places. Power is the next opportunity that's going to come right behind it, because there's not enough power to support the build-out and the capacity requirements that are coming from data centers. D id I answer your question?
You did. Maybe switching here to safety, because I think we've maybe exhausted data centers, because I do think you're right. The services side of the business, and particularly what we're seeing in safety, I think is still a really important aspect here. I think a question that I've certainly been receiving the last couple of months has been maybe on the differentiation in growth between North America and international. Maybe talk a little bit about organic growth performance, North America and international, and maybe what actions are being done behind the scenes at international.
Well, I'm going to start answering your question by saying business isn't linear. I think sometimes people think that business just automatically goes in a straight line like this, and that's just not the reality of where it's at. Our North American business continues to see really strong organic growth in our inspection and service business, which is, again, the bellwether we want you to measure us by. We're obviously seeing good organic growth on the project side of the business as well. W e are going to continue to focus on double-digit growth in inspections and continuing to build out our inspection sales force to support that work, and we continue to make really good progress there. We continue to feel really good about it.
In the international business, we went through a concerted effort to improve our discipline as it relates to project selection and customer selection. Over the course of, say, the end of 2025, you saw flattish growth in backlog. Not growth, but flattish, it stayed static. We're starting to see, as we got more focused on making sure that we're selecting the right projects. We also had some project work slide out to the right on us, which is not necessarily the best combination when you're trying to be more disciplined from a project selection and a customer selection perspective. We've seen increases in our backlog here over the last couple of months. We've seen an increase in orders, which is primarily on the service side. We have a new business leader over there that came from the U.S.
He will double down on the service-first mindset. I said service-first mindset purposely because the inspection environment and the statutory nature of both the European market and the Asia-Pacific market are different than what they are in North America. H e will double down that effort from a service perspective in selling service work first. We're really optimistic about the long-term growth algorithm for the international business, and we have expectations that it'll be no different than what we're seeing in North America. Do you add anything to that?
Yeah, I would just add that we tried to hit on it on the last call, but the North American business has just seen so much strength. They have been growing above algorithm for a year plus. Russ mentioned it, but the inspection service and monitoring, that business is just super steady. It continues to grow in that mid to upper single digits like we would expect each and every quarter. The project environment is just super robust, and we are taking advantage of that right now. It is going to convert to a lot of good long-term recurring revenue on the inspection service side.
Appreciate that. I do want to follow up on the inspection services side of North America, because as you noted, you have been outperforming what I think would be the overall market growth rate, whatever that might be. It is quite robust with what you have seen on the ISM side. What is the primary factors that have enabled you to gain share? If you could list or bucket what are the major contributors to this?
Yeah, if you just think of just the industry in general and how they go to market and what their strategy is, most of the industry is going to be project-focused, right? Maybe they have 20 technicians, and there is not inspection and service and project technicians. There is just 20 technicians. When they are focused on project work, if you have a $500,000 project opportunity, they are certainly going to be focusing there and sending their technicians to that work versus the $1,000 inspection. Our business is the exact opposite, where we have dedicated inspection sales leaders. We have dedicated inspectors that are not going to be pulled off of their inspections to go do project work, and same thing on the service side. You have dedicated service technicians.
The way we are going to market is our inspection sales leaders, they are out there actively knocking on the already built environment, trying to take share from our competitors, who, again, are focused on project work. What you typically see is these businesses that are focused on project work, maybe they keep delaying the inspection a week, or they do not show up on time at 6:00 A.M. when you need to be running water into the parking lot to make sure you got enough pressure, and you got to cone off an area of the parking lot. It causes disruption, and it is really an inconvenience to the facility manager if you are not doing the simple stuff right, like showing up on time, showing up the day you are supposed to.
Our focus on it, where we have people selling it and we have technicians that are dedicated to it, really helps us take share because that quality of service is going to be much higher when you have a heightened focus on it. When I just think about our growth ahead of market, obviously you have price, which is going to be 3%, 4%, 5% each year, which is going to be baked into your inspection contracts. You are going to have some growth just from market growth and new facilities being built. The rest of the growth is going to be from our inspection sales leaders taking share. That focus on it and our go-to-market strategy being inspection-first and inspection-focused is what allows us to continue to grow ahead of just general market growth in the industry.
The only thing I would add to that, Stephanie, is the infrastructure required, like the back office infrastructure that is required to support a really robust inspection and service business, is significantly different than what is required to support a project business. Just reminding everybody that the industry remains highly fragmented. While we have some public company peers, specifically EMCOR that is in the space, EMCOR's business is project based. They are not as interested in doing the inspection and service work. Most of our competitors are still small family-run businesses. To make the investment in people and personnel that it takes to manage a robust inspection and service department, the average inspection ticket is $1,000. Yes, when we do the inspection for Meta, it might be $200,000, but your average ticket size is 1,000 bucks, and so you need somebody to sell that.
When you sell it, you need somebody to dispatch the inspector. Once you do the work, you obviously have a deficiency report that you have to process, but then you have an invoice that you have to generate. You have to collect that. C ollecting a $1,000 receivable is a pain in the ass. You have to have the infrastructure that is built to support that. A small family-run business that is doing $15 million or $20 million in revenue, they are typically not interested and willing to make the investment that they need to make to really have a robust inspection and service business.
I have a list of follow-ups to both your answers, but I think the first follow-up that I would maybe start with would be, I think it is an area that you talk about quite a bit, and that is this is a people business, and you mentioned it earlier, and culture does matter. Maybe you could talk a little bit about how you kind of make sure that the culture, and then obviously translates into service every day, consistently outperforms your peers.
Well, culture trumps everything. Our culture is centered on our purpose of building great leaders. We have 32,000, 33,000 teammates across the globe now. We endeavor to invest in each and every one of them, as a leader and as a human being. I think that our culture differentiates us from our peers. It is something that we actually walk the walk as it relates to investing in our people. When you are in an environment where people talk about the tightness of the labor market and everything else, the number one most important thing you can do is keep the people that you have. If you are not investing in those people, you are not going to keep them, not in today's world, and especially the men and women that are working in the field.
There is nobody in our industry that is making the same investment in their field leaders, like APi is. I think that that is something that I take a tremendous amount of pride in. Not uncommon at a conference like this for somebody like yourself to say, "What keeps you awake at night?" Most people would say, "Labor" and "Can't find skilled labor," and all this other stuff. I would tell you culture for us, as we continue to grow APi towards our goal of $10 billion in revenue by 2028, which is clearly in sight. Investing in our culture and strengthening our culture is our number one mandate. We do a lot of bolt-on M&A. The most important, you can talk about the financial profile of the business.
You can talk about all of that other stuff, but at the end of the day, culture, values, and fit, and finding people that align with your values is the most important aspect of what we do from an M&A perspective. Obviously, as the company has gotten bigger, it is much more difficult for me to touch every one of our acquisitions, but trust me, I try to spend time with every potential acquisition that we are going to make. I hope I do not offend anybody by my next comment, but at APi, I have a no asshole rule. I have no interest at this stage of my career, much less 10 years ago, but I have no interest in working with assholes. That is like, you want to screw up your culture? Hire an asshole or acquire an asshole. Excuse me, but sorry about that.
Our Chief People Officer is joining us with us today. We were having a meeting with somebody. I said, "I have a no asshole rule." She said, "Do you know there is a book called 'The No Asshole Rule?'" I said, "No, I actually don't." She bought it for me. I thought I wrote it.
No, but I think it is an important point. It's actually, I did want to touch on this as well because Adam, you talked about maybe some of the efforts that have been driving your outperformance from an organic growth standpoint, and one of which is some of the efforts from your sales leaders and taking share. At your Analyst Day, you did talk about maybe increasing the number of salespeople that you have. Maybe just remind us where you are in the terms of taking some of those concerted efforts to ramp up those dedicated inspection ISM salespeople.
Yeah. Courtney Brogard who leads, she's the one that invent is probably not the right word, but invented the inspection first mindset, and she implemented that at the Sacramento branch that she was at, and the idea grew from there. She leads the inspection sales across our North American business. She has a bottoms-up build. She has her 2026 targets as how many IMAs, we call them IMAs, inspection sales leaders, how many IMAs do we want? She does that bottoms up. If Minneapolis, and I'm kind of just making these numbers up, but Minneapolis, maybe she wants three IMAs and we have two, so you got to add one there. In Phoenix, maybe we have one and she wants three, so you got to add two there.
She has her bottoms-up build, and I would say that's a 2026 target, and as we continue to grow and continue to build that inspection book of business, that IMA count is going to continue to grow with it. We're making good progress. There's obviously a focus on hiring these people and training them up, and she has a monthly refresher. This monthly refresher is for new IMAs, so somebody that's a couple of weeks in, and it's a three-day program where she's going through with them, like, how do you attack your market? How do you spend your time? She's going through the playbook. It's also for people that are six months into the program. These people have been out there trying to sell.
They have wins, and they have areas where they're struggling, and so it's helping them work through where are you struggling, and you're with your peers as well. You're with other IMAs that are new to the program. There's a lot of just refreshing, talking through how to attack where you're struggling, and also just meeting other people that are IMAs, and there's a lot of good networking there as well to share ideas and everything. She's got the program built out, and that continues to be a focus on growing that IMA headcount so that it can continue to support that double-digit inspection growth.
She has big aspirations. If you are ever having a bad day, you should pick up the phone and call her, because in seven minutes you will feel better about the future. One thing I would just remind everybody, it is just like he used Phoenix as an example. We have one, and we want three. It is not as easy as just saying we are going to go hire two new sales leaders, because when an inspection sales leader is fully ramped up, you need four inspectors to support the work that they sell once they are fully ramped up. It is going to take them some time to get ramped up. When they are fully ramped up, you need four inspectors.
We consistently say that we are going to get $3-$4 worth of service work for every dollar, on average, of inspection work that we do from that customer over a 12-month period. Which means that for every inspector that you add, you need to add someplace between three and four service technicians.
Okay.
For every sales leader you are adding, you are adding someplace between 12 and 16 people to your team. If it is a $40 million or $50 million branch like Phoenix is, it is probably not that big of a deal. If it is a $10 million branch like we have in, say, Jackson, Tennessee, that is going to be a bigger lift.
Yep.
It is not as easy as saying, "Go out and hire another 40 inspection salespeople," because you have got to have the infrastructure behind it to build that out. We are making really good progress on it, and there is no question in my mind that we will achieve our goals and our objectives. There is a lot more to it than just hiring sales leaders. The other component of it that I will mention, if anybody is thinking about this, there is not a single market that any one firm in this country, I do not care what people tell you, nobody has more than 10% share in any single market. I tell the story, and I know Buffalo is not Houston, Texas, but we have owned a business in Buffalo for over 20 years now.
We made a small bolt-on acquisition there three or four years ago. I can't even remember, but they were hands in the air like, "We own Buffalo. We own Buffalo." And our sales leader went out there, and they did a market study on the Buffalo market to see how much share that we had. 4%. T hey owned Buffalo. There's so much opportunity for us to keep taking share. Not in his career will we run out of opportunity. Notice I didn't say my career, but his career.
Maybe jumping to the elevator side, another aspect of your portfolio we haven't touched on. I believe you expanded into elevator in 2024. My years are blurring together, but I think around that time. How has that expansion gone the last couple of years? Are you finding elevator to be as attractive as what you're seeing in maybe the fire or some of your other end markets?
I remain bullish on the elevator space. There's ample opportunity for us to grow that business. It's a $275 million-ish business for us as we sit here today. We've said publicly that we expect to build a billion-dollar platform in the space. We've done a handful of acquisitions in the space. One, we called it a tweener. That's about a year ago. We did more of a pure play bolt-on this year. We bought some accounts and some other things like that in the space. I would tell you that we're in the bottom of the first inning. We're just getting cranked up and getting going. We've added to the leadership team there to build out the support structure that we need in order for us to really accelerate the business. I'm very purposeful with my remarks about bolt-on M&A in the elevator space.
We did our first pure bolt-on, and now we're in the process of, so to speak, integrating that, and we want to make sure that we do a good job of integrating that before we go do another bolt-on. Because if we don't take a walk before you run approach to that, one of the worst things you can do is overload a business with all of a sudden it's like, "Hey, Stephanie, here's three bolt-ons. Good luck." And that would screw up the bolt-ons, and it would screw up the core business. We are being very purposeful in taking a walk before you run approach. O nce we get through this integration, we'll pick up our head, say, "How did that go?" And it's going well, but then we'll start charging forward and we'll do some more. Very optimistic, though.
Maybe just to round out the conversation thus far, can you talk a little bit about the cross-selling opportunity, whether it's across fire or safety, but either also maybe some of the growth that you're seeing on the project side, or whether it's with data centers or the like. Just talk about, is there a future opportunity where you could see some incremental growth from cross-selling?
We have a business development leader that kind of sits with one foot on each side of the fence, both primarily in North America. H e's got one foot on each side of the fence as it relates to safety services and specialty. I would say that he spends, I don't know, 80% of his time, 85% of his time on data center space. I think that's probably a little bit of a, I don't know if it's a secret or not, we're not trying to keep it a secret, but there's probably more opportunity in our specialty business on the data center front than there is even in the safety services from a fire and security perspective.
Having him kind of working on both sides of the fence on both pieces of our business has been super helpful in creating the opportunities, probably even more so for the specialty business than the safety business. T hat's happening, and we're seeing the results of that kind of show up probably more in our backlog today than, so to speak, flowing through in our P&L at this moment. As it relates to the elevator space, and because a lot of people have an interest in that, as we continue to make progress in co-locating our elevator businesses with our fire business, we see more opportunities from a cross-selling perspective. Ev ery elevator mod has fire retrofit opportunities.
J ust human nature is like, if I don't have a relationship with you, say you work for the fire business and I'm the elevator person, and I don't have a relationship with you, and I don't know if you're going to do a good job or not so good job, the chances of me bringing you into one of my really good customers and one of my good customer relationships is probably not very high.
I f we co-locate and we start having potluck on Friday afternoon, I don't know if you guys have potluck where you're from or not, but on Friday afternoon, you start to get to know people, you build trust, and then you start bringing, you're more willing to bring people into your client relationships. As we continue to make progress in co-locating our fire and our elevator business, we continue to see more and more cross-selling opportunities generated. That will just take a little bit more time, but we are definitely making progress on it.
I would just add, too, and some of this is M&A, too, but if you just pulled up a map of the APi locations, there is not a ton of dots that do fire life safety, electronic security, elevator and escalator services at scale. The opportunity there is ginormous in terms of some of it is going to be cross-selling between the branches. Some of it is going to be adding people organically.
Maybe you got to add a fire alarm technician to start getting more fire alarm capabilities. Some of it is going to be through M&A, you are going to add capabilities into certain geographies. W e have a pretty good footprint, but we do not have a ton of branches where you do all those services that we want to be offering at scale. Just the opportunity there is to just keep making progress towards that is really big.
I do want to touch a bit on the margin front. Obviously, you have given your 10/16/60+ targets, and of that is the 16% margin target by 2028. Based on the guidance for this year, it does assume a slight acceleration in margin expansion next year and the year after, but relatively stable. W hat closes the gap from the margin performance today to eventually hit that 16% target?
I think it's the same levers we've been pulling. I'm not trying to dodge your question or escape your question by any stretch of the imagination. It starts with project selection and customer selection. We need to continue to grow inspection, service, and monitoring as a percentage of our mix, which is tough based on the large project environment that we have. Even though we're getting better gross margins on our data center work, it's still not the same margin as you get on, say, an inspection. T hat's a bit of a headwind for us right now, but not overly concerned about it. It's enabling from a business process perspective. We need to get common business systems so we can take advantage of our size and scale.
We don't talk about this enough, but we actually have opened up a global capability center in Bangalore that's going to allow us to leverage our scale even more so that we have quite a few team members working at now. I'm super impressed with the quality of our team in Bangalore. It's taken procurements an opportunity. We talk about branch optimization all the time, but we have a goal that we want every one of our branches to get to 20%. We still have some opportunity there. Strategic M&A matters, and making sure that we're being wise about the companies that we buy and add to the APi family matters. I tell people this all the time, that we have an opportunity to just be better. One of my greatest strengths is also one of my greatest weaknesses, is that I'm never satisfied.
It's a great strength if you're an investor because somebody's going to be continuing to drive the business. S ometimes, the weakness part of it comes where I don't stop to celebrate the wins. It's tough for me to stop it sometimes and celebrate the wins, but we do have opportunity to just be better.
Last question, focusing on M&A. You touched on this, and it's a variety of different factors. W hat is your appetite potentially expanding into, whether it's a vertical or maybe you have a little bit of exposure now, but it's not as large as fire or elevator. What's the general, maybe larger scale appetite for M&A strategy?
Like for another leg under the stool?
Yes.
Well, number one, I am just going to take one step back before I take a step forward, there is so much room for us. Adam talked a little bit about it, but there is so much room for us right now. If you look at our North American business, we have a very small security footprint. T here is a tremendous opportunity for us to build our security footprint from an M&A perspective. If you look at, we just made the Wtech acquisition that adds fire suppression capabilities for us in Western Europe, but we still have a ways to go, and there is a lot of opportunity there. We continue to do work on what is the next leg under the stool look like, and if I knew what it directionally where we were going, I would definitely foreshadow it.
R ight now, I would be at a loss to tell you what that next leg of the stool is. If we find it, would we have interest in potentially pursuing it and doing something? For sure. Our balance sheet is very strong. We have a lot of dry powder and a lot of capability as we sit here right now today. I do not know what that next leg looks like. W e continue to look, and we continue to do work.
Great. Well, that about wraps up time. Thank you both for your time.
Thank you.
Thanks, Stephanie.
Thank you for being here. Appreciate your interest.