APi Group: 1Q25 Business Recap

We are rolling out a new post format. Most companies do not have much change quarter to quarter and so rather than make each update 2-3k words, as we have in the past, we will publish shorter updates when warranted. We will still do longer business updates for each company about twice a year, and sometimes more, but we also don’t want to waste your time.

On the other hand, we want to say something on each company each quarter, even if there isn’t a lot new, just so you know we don’t think there is anything thesis changing in the quarter. We think having some shorter updates helps us accomplish this without us wasting your time.

These shorter posts will be called Business Recaps.

Summary: APi Group had a strong quarter of execution with organic revenues reaccelerating to +1.9% y/y from +1.3% y/y last Q. This helped bring total revenue growth for the quarter to +7.4% y/y, +160bps sequentially. Their Safety Services segment continues to lead organic growth, with inspection and monitoring revenues growing high single digits. In total, the Safety Services segment, which is their higher quality segment, grew +13.4% y/y, bringing them closer to their goal of 60% of revenues coming from inspection, monitoring, and service.

With Adjusted EBITDA margins expanding +30bps y/y, they believe they will exceed their 13% annual adjusted EBITDA target this year. They teased that on their May 21^st investor day they will be updating their long-term guidance.

Tariffs bring some macro uncertainty, but they haven’t noticed any slowdowns yet and emphasized that they made sure to account for potential material cost increase in their contracts. They learned from the inflation that picked up in 2022 to not price in fixed terms and do not believe tariffs will meaningfully impact profitability. They also noted that in the event of a material economic slowdown, 100% of their inspection and monitoring revenues will stay because of the regulatory nature.

They talked about hitting $10bn in revenues longer term (up from $7bn) today with acquisitions continuing to be a good portion of that growth. They did $250mn in acquisitions last year and plan on doing a similar amount this year. Management noted they want to go slow with bolt-on acquisitions for the elevator platform they acquired (Elevated), but once they build confidence in their integration, they can accelerate it.

This quarter they repurchased $75mn of stock and authorized up to $1bn in repurchases. While the stock is up about 13% since our original report a couple months ago, and earnings haven’t change that much, it is still important that we are seeing continued progress on the organic revenue growth side, just as management intended. At a $42.50 stock price, APG trades around 23x levered FCF or about 16x using a mature EBITDA margin of 15%.

Below are some notables from the quarter and the earnings call.

Key Take-aways

Reported revenues increased to +7.4% y/y
- Safety services increased +13.4% y/y
Net organic revenues grew +2% y/y
- Safety services grew +5.6% organically y/y, with high single digit revenue growth in inspection and monitoring revenues.
- Double digit increase in North America Inspection Revenues for the 19^th consecutive quarter, in line with their goal of reaching 60% of revenues from service, monitoring, and inspection.

Pull Forward

Slight pull forward of revenue from pre-purchasing materials ahead of tariffs implementation. This had a slightly positive impact on revenue.

Tariffs

“We believe we are also well positioned to navigate the evolving macro environment, including the impact of tariﬀs. I truly believe that APi is a safe harbor in the tariﬀ storm. Our leaders have been proactive in working to get out in front of the tariﬀ situation and implementing mitigation strategies since late last year.”

“We do not expect any material impact from tariﬀs on the 54% of our net revenues that comes from highly recurring inspection, service and monitoring. These services benefit from statutorily driven demand and have a cost structure comprised predominantly of labor . Any parts and materials are sourced in real time with their costs passed on to the customer.”

“In our Projects business, we are currently only seeing impacts from tariﬀs on the cost of our materials in our North American safety business, where pipe prices have increased. Our leaders have done a good job protecting our business for material cost increases through contractual provisions, and we expect to be able to pass along much, if not all, material cost increases that arise from these tariﬀs. Longer term, we expect increased investment in U.S. infrastructure and the onshoring of advanced manufacturing to be a benefit to the target end markets we serve.”

Have not seen any delays or any significant delays or pullbacks due to all the noise associated with the tariﬀs.

Long Term Guidance

Reiterated: Adjusted EBITDA margin of 13% or more in 2025, long-term revenues of 60% from inspection, service and monitoring, and finally, long-term adjusted free cash flow conversion of 80%.
On target for 75% FCF conversion for this year
Net leverage of 2.3x is below target of 2.5x
Increasing full year guidance range $100mn to $7.4 to 7.6bn in revenues and representing 2% to 5% revenue growth.
Adjusted EBITDA margins of 13.4% at the midpoint, with $985 to $1,035mn in EBITDA

Repurchases

Repurchased $75 million or 2.1 million shares
Board has authorized a new $1 billion share repurchase program,

M&A

spent $250 million on bolt-on acquisitions at attractive multiples in 2024, and we are targeting a similar level in 2025.
Looking to do first bolt-on acquisition in elevator this year.

You can learn more about our full research report on APi Group here.

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*At the time of this writing, one or more contributors to this report has a position in APG. Furthermore, accounts one or more contributors advise on may also have a position in APG. This may change without notice.