3Q25 Update.
APG reported strong 3Q results, with shares rising roughly +2% following the announcement. Year to date the stock has gained +46%.
APG’s revenue increased +14% y/y but growth contracted 100bps compared to last Q. Organic growth reached approximately +10% y/y, up from 8% in the prior quarter. Within that, the Safety Services segment posted +9% y/y organic growth, accelerating from +6% y/y in the previous quarter. The Specialty Services rose +12% y/y organically, 100bps less than last quarter.
CEO Russell Becker highlighted that inspection services achieved double-digit growth for the 21st consecutive quarter. As we noted in our last update, this is an important source of revenue because each dollar tends to lead to $3-4 dollar of recurring revenue.
The company continues to benefit from a favorable project environment and rising demand tied to data center construction, which represented 7–8% of total revenue this quarter and is expected to climb to 10–12% as AI-related capital spending accelerates. However, Becker did caution on the call that they are not overexposing themselves to this end market.
APi Group made progress on profitability in both segments. Safety Services reported a +30bps y/y gross margin increase, while Specialty Services expanded by +120bps. They attributed the margin gains to pricing discipline, a mix shift toward higher-margin work, and the rationalization of lower-margin contracts. As a reminder, they have been purposely eschewing lower margin construction projects in the Specialty Services segment even if it means losing revenues.
On the call CFO Glenn David noted, “We’ve seen really good margin expansion in our inspection service and monitoring work. And we’re able to continue to get margin-accretive pricing, and we expect that to continue into the future. And I’d say we’re still in the early phases of a lot of this contract work that is driving organic revenue growth, particularly. This comment is in the Specialty Services segment, and we’ll see margins expand sequentially again in Q4 and into 2026.”
Furthermore, APG continued to deploy capital strategically through acquisitions. They completed four bolt-on M&A deals during the quarter, bringing the year-to-date total to 11. They remain on pace to deploy approximately $250 million in bolt-on M&A this year while evaluating larger-scale opportunities. One recent transaction in the elevator space was described as a “tweener”, not fully integrated with Elevated, but operating more independently.
The acquisition pipeline remains robust, with growing international activity, though expansion continues to be selective and country-specific. Meanwhile, Elevated continues to show momentum with high-single-digit organic growth trending toward double digits as cross-selling efforts gain traction.
Looking ahead, management reiterated progress toward its 2028 “10/16/60+” strategic goals of over $10bn in revenues, 16%+ adjusted EBITDA margins, 60%+ of revenues from inspections and services, and over $3bn in adjusted free cash flow. At a stock price of $35, they have a market cap of $15bn. Today, they trade at 26x mature margin P/E (16% mature EBITDA margins) and looking at LTM free cash flow, they trade at 28x (on market cap).
Call Notes.
AI
- APi Echo, which allows our field leaders to record conversations and summarize key notes without having to leave the field or remove their safety gloves. One code, which provides quick access to situation-relevant fire protection code, fire protection code detail to save time for our estimators, designers and field leaders. Connected glasses, which allow our remote experts to guide field leaders in real time, resulting in quicker service to our customers with a higher first-time fixed rate and an AIenabled predictive tool, which flags customers who have a high attrition risk. This tool allows our local teams to take proactive steps to engage customers and focus on strengthening specific customer relationships.
Inspection
- Strong growth in inspection service and monitoring revenues led by double-digit inspection growth in North America for the 21st straight quarter, record backlog in both segments
M&A
- We continue to execute our M&A plan, completing 4 bolt-on acquisitions in the quarter, bringing our total for the year to 11 completed bolt-on acquisitions. We remain on track to deploy approximately $250 million in bolt-on M&A at attractive multiples this year. Our pipeline remains robust and continues to grow. Now including fire protection, electronic security and elevator services opportunities globally. Most importantly, our value proposition as a forever home for their team continues to resonate with sellers.
- Seeing more activity in their international business
- We made one acquisition in the elevator space. It’s really not a bolt-on to Elevated. It’s kind of what we turned a tweener. It’s a really — it’s a nice-sized business and we’re operating it independently of Elevated.
Data Centers
- We’re seeing very robust activity in the data center space across really both of our segment.
- Data centers probably accounted for some place around 7% to 8% of our total revenue, and maybe that’s going to push to 9% or 10% based on the tailwinds that we’re seeing in the space
- And the schedules for these data centers as you’re aware, are really aggressive. And so like you have to have, you have to have the people. And if you’re going to deploy your people to some of these project opportunities the margin opportunity needs to be there. And so — so it’s the size, it’s the scale, it’s the complexity and it’s the schedule and your ability to deliver. And you should get paid for that, and we’re seeing that.
- So like the HVAC/mechanical work on a large data center might be $500 million from a contract value perspective. And like I’m kind of making — I’m just trying to give you directional guidance on the numbers here. The fire life safety might be $10 million to $15 million on that same data center job. Now we’re seeing some of these large, large, very, very large projects where the fire life safety is higher than that. But then the mechanical is probably still 10x of that. And so the contracts, the sizes are different. And so that’s the reason that you won’t see it incrementally affect us as much as it say might affect of one our peers in the space
Elevated
- I think Elevated is doing really well. And they’re high single-digit, pushing double-digit but high single-digit organic growth. we’re in maybe the top of the second inning as it relates to cross-selling as those folks get to know their long-term APi teammates, that’s going to only accelerate but it’s happening more and more
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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.
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