APi Group Corporation (APG) Earnings

Management highlights

- Culture and Company Milestones * Safety and well-being of employees remains the company's top core value * API earned Great Place to Work certification for the fifth consecutive year, which management views as a long-term competitive advantage * API was named to the Fortune 500 list for the first time, coinciding with the company's 100-year anniversary - Operational Performance and End Market Focus * The company delivered robust top-line growth and margin expansion in Q2, ending the quarter with a record backlog that surpassed $5 billion for the first time in company history * North American Safety delivered high single-digit organic growth, outperforming the company's long-term mid-single-digit growth target, driven by the successful inspection-first go-to-market strategy; the segment has a healthy pipeline of both project and recurring service work * International Safety was flat for the quarter, but returned to organic growth in the back half of Q2, with rising pipeline and backlog, including meaningful new data center project awards; investments in global account capabilities are gaining traction * Specialty Services outperformed expectations, with broad-based growth across targeted end markets, and translated top-line growth into margin expansion; data centers are a notable high-growth end market contributor across both segments * Large current project work creates long-term opportunities for high-margin recurring inspection, service and monitoring revenue once projects are completed * Adjusted EBITDA margin increased 10 basis points YoY to 13.8%, despite a 10 percentage point typical gross margin gap between project work and service work * Year-to-date adjusted free cash flow was $228 million, up $42 million YoY, with 68% conversion on adjusted net income; the net leverage ratio was 2.2x, below the long-term target range of 2.5x to 3.0x - Capital Deployment and M&A Activity * Repurchased 1.6 million shares for $66 million under the existing $1 billion share repurchase program during the quarter * Completed the acquisition of Onyx Fire in June and WTech in early July, plus three additional bolt-on acquisitions during the quarter, including the first bolt-on for the elevator and escalator services business and one for the international safety business * All recent acquisitions are aligned with API's culture and strategy, add valuable geographic and capability scale, and integration is progressing on schedule * The served industry remains highly fragmented, with a robust bolt-on M&A pipeline at attractive multiples; API is on track to deploy $250 million in bolt-on M&A in 2026, and is building internal capabilities to scale annual bolt-on deployment to $350 million long-term * The strong balance sheet provides flexibility to pursue larger acquisitions when appropriate opportunities arise - Long-Term Financial Targets (unchanged): $10 billion+ net revenues by 2028, 16%+ adjusted EBITDA margin by 2028, 60%+ of revenue from inspection, service and monitoring long-term, and $3 billion+ cumulative adjusted free cash flow through 2028

Guidance

- Full-year 2026 guidance has been upwardly revised for both revenue and adjusted EBITDA, driven by stronger-than-expected first half performance and an improved outlook for the second half. The new guidance incorporates $30 million of net revenue headwinds and $5 million of adjusted EBITDA headwinds from foreign exchange relative to prior guidance. - New full-year 2026 net revenue guidance is $8.875 to $9.025 billion, up from the prior range of $8.66 to $8.86 billion, representing 7% to 9% organic revenue growth. - New full-year 2026 adjusted EBITDA guidance is $1.205 to $1.245 billion, up from the prior range of $1.177 to $1.237 billion, representing 16% to 20% adjusted EBITDA growth year-over-year, with a 13.7% adjusted EBITDA margin at the midpoint. - Q3 2026 guidance calls for reported net revenue of $2.375 to $2.425 billion, with 8% to 10% organic net revenue growth, and adjusted EBITDA of $325 to $335 million, representing 16% to 19% adjusted EBITDA growth year-over-year, with a 13.8% adjusted EBITDA margin at the midpoint. - Management reaffirmed the full-year adjusted free cash flow conversion target of approximately 115%, unchanged from prior guidance.

Segment performance

API Group reported total Q2 2026 net revenues of $2.25 billion, a 13.3% increase year-over-year, with 10.1% organic growth. 1. Safety Services Segment: - Net revenues: $1.48 billion, up 8.8% YoY, representing 65.8% of total Q2 net revenue - Organic growth: 4.7% YoY, driven by growth in inspection, service, monitoring and project revenues plus pricing improvements - Adjusted gross margin: 37.4%, a 20 basis point increase YoY - Segment earnings: up 8.6% YoY (7.7% on a fixed currency basis) - Segment earnings margin: 17%, unchanged YoY 2. Specialty Services Segment: - Net revenues: $773 million, up 22.9% YoY, representing 34.2% of total Q2 net revenue - Organic growth: 22% YoY, driven by robust growth in both project and service revenues, with particularly strong contribution from the data center end market - Adjusted gross margin: 19.3%, a 120 basis point increase YoY - Segment earnings: up 29.6% YoY - Segment earnings margin: 11.9%, a 60 basis point increase YoY

Risks & headwinds

- International Safety performance has been pressured by macroeconomic headwinds including the ongoing conflict in the Middle East, and some project work has been delayed. - The company is still working to shift the international safety business mindset to a recurring revenue/inspection-first model, which is a gradual cultural change rather than an immediate fix. - Local opposition to new data center development in some regions could create headwinds for future growth in that end market. - Forward-looking results are subject to known and unknown risks that could cause actual outcomes to differ materially from management projections, as detailed in the company's SEC filings. - Longer-duration large projects create more variability in backlog conversion to revenue over time.

Analyst Q&A

• Q: The analyst asks how average project size has changed, whether the current mix of higher project growth will prevent API from hitting its 16% long-term EBITDA margin target, and what margins look like on larger new projects. /

  A: Management confirms average project sizes have increased significantly: large data center fire projects that were $7-8 million four to five years ago now regularly reach $20 million. Larger, more complex projects can be priced higher, closing the typical 10 percentage point gross margin gap between project and service work, so the higher project mix will not prevent API from hitting its 2028 16% margin target.

• Q: The analyst asks if strong M&A momentum in the first half of 2026 will continue into the second half, and if there are any changes to API's M&A priority areas. /

  A: Management says there is no change to M&A strategy, with top priorities still fire/life safety, security, and elevator/escalator services, plus ongoing interest in the HVAC service space. Strong balance sheet allows API to act opportunistically on attractive deals, and bolt-on M&A activity will continue through the second half of 2026 and into 2027. API is building internal capabilities, including AI for due diligence, to scale annual bolt-on deployment from $250 million to $350 million to match the robust pipeline of opportunities.

• Q: The analyst asks how $5 billion record backlog will convert to revenue, and notes the 25% YoY backlog growth. /

  A: Backlog growth is broad-based across all business segments, and current backlog has higher quality (better expected gross margins) than backlog a year ago. Average project duration has extended from ~1.6-9 months to 9-12 months due to the larger size of current projects, which slows the pace of conversion, but overall backlog coverage remains very strong, and management remains pleased with the disciplined project and customer selection driving backlog growth.

• Q: The analyst asks what portion of specialty services organic growth comes from price versus volume, and how meaningful follow-on maintenance revenue will be from new data center projects. /

  A: Management says the majority of specialty services organic growth comes from volume and market share gains, with only mid-single-digit price escalation in existing service contracts. Most current Q2 project growth comes from existing customers that already use API's service work, which greatly increases the likelihood of winning follow-on recurring service. Large data center facilities generate far higher recurring inspection service revenue than typical smaller facilities, making this a very attractive long-term opportunity for both segments.

• Q: The analyst asks why international safety was flat in Q2, what segment of the business drove the slowdown, and what growth outcome management expects for the segment by end of 2026. /

  A: Flat Q2 growth stemmed from Middle East macro headwinds, delayed projects, and intentional pruning of low-margin service customers. The segment returned to organic growth in the back half of Q2, with growing order intake and backlog, and the global accounts strategy is gaining traction. Management expects the segment to deliver positive year-over-year organic growth in the second half of 2026 and remains optimistic about its long-term trajectory.