APi Group Reports Fourth Quarter and Full Year 2020 Financial Results

-Reported gross margin expansion of 235 and 148 basis points for the fourth quarter and full year 2020, respectively-

-Operating cash flow of $167 and $496 million for the fourth quarter and full year 2020, respectively-

-$515 million of cash on the balance sheet at the end of the year-

NEW BRIGHTON, Minn.--(BUSINESS WIRE)-- APi Group Corporation (NYSE: APG) (“APG”, “APi” or the “Company”) today reported its financial results for the three months and full year ended December 31, 2020.

Fourth Quarter 2020 Highlights:

• Reported net revenues declined by 10.5% or $103 million to $882 million, compared to $985 million in the prior year period, primarily driven by COVID-19 related impacts, disciplined project selection and the divestiture of two businesses in Industrial Services
• Adjusted net revenues declined by 5.5% or $51 million to $874 million, compared to $925 million in the prior year period, primarily driven by COVID-19 related impacts and disciplined project selection
• Reported gross margin was 22.4%, representing a 235 basis point increase compared to prior year gross margin of 20.1%, driven by a higher mix of service revenue in Safety Services and disciplined project selection and execution in Industrial Services
• Adjusted gross margin was 25.4%, representing a 183 basis point increase compared to prior year gross margin of 23.6%, driven by a higher mix of service revenue in Safety Services and disciplined project selection and execution in Industrial Services
• Reported operating loss was $21 million, an improvement of $117 million from prior year operating loss of $138 million
• Reported net loss was $22 million, a $128 million improvement from prior year net loss of $150 million and reported net loss was $1.44 per diluted share
• Adjusted net income was $61 million and adjusted diluted EPS was $0.34, representing a $0.02 decline from prior year
• Adjusted EBITDA was $103 million or 11.8%, relatively consistent with prior year adjusted EBITDA of $109 million and adjusted EBITDA margin of 11.8%

Full Year 2020 Highlights:

• Reported net revenues were $3.6 billion compared to $985 million in the prior year (Successor) and $3.1 billion in the period from January 1, 2019 through September 30, 2019 (Predecessor). The change was primarily driven by COVID-19 related impacts, disciplined project selection and the divestiture of two businesses in Industrial Services
• Adjusted net revenues declined by 8.0% or $306 million to $3.5 billion, compared to combined adjusted net revenues of $3.8 billion in the prior year period, primarily driven by COVID-19 related impacts and disciplined project selection
• Reported gross margin was 21.1%, compared to prior year gross margin of 20.1% in the prior year (Successor) and 19.4% in the period from January 1, 2019 through September 30, 2019 (Predecessor). The change was driven by a higher mix of service revenue in Safety Services and disciplined project selection and execution in Industrial Services
• Adjusted gross margin was 24.2%, representing a 260 basis point increase compared to combined prior year gross margin of 21.6%, driven by a higher mix of service revenue in Safety Services and improved project selection and execution in Industrial Services
• Reported operating loss was $166 million compared to an operating loss of $161 million in the prior year (Successor) and operating income of $102 million in the period from January 1, 2019 through September 30, 2019 (Predecessor), largely driven by a $197 million impairment charge and additional amortization expense in 2020
• Reported net loss was $153 million, compared to a net loss of $153 million in the prior year (Successor) and net income of $86 million in the period from January 1, 2019 through September 30, 2019 (Predecessor), primarily driven by a $197 million impairment charge. Reported net loss was $2.21 per diluted share
• Adjusted net income was $215 million and adjusted diluted EPS was $1.22, representing a $0.04 decline from combined EPS in the prior year
• Adjusted EBITDA was $381 million or 10.9%, representing a 56 basis point increase compared to prior year combined adjusted EBITDA margin of 10.3%
• Operating cash flow was $496 million, compared to prior year operating cash flow of $150 million in the prior year (Successor) and $145 million for the period from January 1, 2019 through September 30, 2019 (Predecessor)

Russ Becker, APi’s President and Chief Executive Officer stated: “Our strong results for 2020 reinforce the focus and commitment of our entire organization to serving customers safely and efficiently in the middle of a challenging environment. I am proud of how our team has continued to demonstrate resiliency and perseverance. We believe that our focus on growing inspection and service revenue, strong balance sheet and variable cost structure combined with the tough decisions and sacrifices made across the organization in 2020 strengthened the business and allowed us to continue to execute on our long-term goals.

As we look ahead to the remainder of the year, we are cautiously optimistic about the opportunities in front of us. We entered the year with a strong backlog which is slightly higher than it was a year ago. End markets that we serve such as data centers, fulfillment and distribution centers, high-tech and healthcare have continued to show their resilience throughout the pandemic, similar to the resilience shown by our business. We remain focused on achieving our pre-COVID-19 objectives and long-term value creation targets.”

APi Co-Chair James E. Lillie added: “2020 was a year of unique milestones from becoming a listed public company and proactively managing the business through the ongoing impact of COVID-19, to completing a number of acquisitions late in the year. APi’s execution against its goals despite the pandemic and its ability to deliver on its financial commitments speaks to the strength of the Company’s recurring revenue services-focused business model. Despite the challenges 2020 presented, the teams continued to focus on driving higher margin growth across all three segments. We demonstrated the Company’s ability to generate cash and ended the year with a strong balance sheet and plenty of capacity to absorb additional accretive acquisitions.

With the forward progress achieved in 2020, we remain confident in our previously stated long-term value creation targets, which are:

1. Deliver long-term organic revenue growth above the industry average
2. Continue to leverage our SG&A
3. Expand adjusted EBITDA margins to 12%+ by FY 2023
4. Maintain adjusted free cash flow conversion of 80%+
5. Generate high single digit average earnings growth, and
6. Target long-term net leverage ratio of 2.0 to 2.5x.

We are looking forward to our first analyst and investor day on Thursday, April 22, 2021. We plan to highlight our commitment to driving strong free cash flow and earnings, outline future growth and margin expansion opportunities in addition to providing expanded discussion about the company and certain key strategic initiatives including an update on the M&A environment.”

Conference Call

APi will hold a webcast/dial-in conference call to discuss its financial results at 8:30 a.m. (Eastern Time) on Wednesday, March 24, 2021. Participants on the call will include Russ Becker, President and Chief Executive Officer; Tom Lydon, Chief Financial Officer; and James E. Lillie and Sir Martin E. Franklin, Co-Chairs.

To listen to the call by telephone, please dial 833-721-2905 or 929-517-9835 and provide Conference ID 5678972. You may also attend and view the presentation (live or by replay) via webcast by accessing the following URL:

https://event.on24.com/wcc/r/3005616/61C0B137D70EC99344DE4EB8D5237DC3

A replay of the call will be available shortly after completion of the live call/webcast via telephone at 855-859-2056 or 404-537-3406 or via the webcast link above.

About APi:

APi is a market-leading business services provider of safety, specialty and industrial services in over 200 locations, primarily in North America and with an expanding platform in Europe. APi provides statutorily mandated and other contracted services to a strong base of long-standing customers across industries. We have a winning leadership culture driven by entrepreneurial business leaders to deliver innovative solutions for our customers. More information can be found at www.apigroupcorp.com.

Forward-Looking Statements and Disclaimers

Certain statements in this announcement are forward-looking statements which are based on the Company’s expectations, intentions and projections regarding the Company’s future performance, anticipated events or trends and other matters that are not historical facts, including expectations regarding: (i) the Company’s outlook for 2021; (ii) the future impact of the COVID-19 pandemic, including its impact on future demand for our service; (iii) our ability to deliver on our strategic and financial objectives; (iv) the impacts of a focus on service offerings and the size of our current backlog; and (v) the creation and continuation of significant capacity for opportunistic M&A. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including: (i) economic conditions, competition and other risks that may affect the Company’s future performance, including the impacts of the COVID-19 pandemic on the Company’s business, markets, supply chain, customers and workforce, on the credit and financial markets, on the alignment of expenses and revenues and on the global economy generally; (ii) the ability to recognize the anticipated benefits of the Company’s acquisitions, including its ability to successfully integrate and make necessary capital investments to support additional acquisitions, and the Company’s ability to take advantage of strategic opportunities; (iii) the Company’s ability or willingness to execute on future stock buybacks and debt repayment; (iv) changes in applicable laws or regulations; (v) the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors; (vi) the trading price of the Company’s common stock, which may be positively or negatively impacted by market and economic conditions, including as a result of the COVID-19 pandemic, the availability of Company common stock, the Company’s financial performance or determinations following the date of this announcement to use the Company’s funds for other purposes; and (vii) other risks and uncertainties. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of such statements and, except as required by applicable law, the Company does not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

This press release contains non-U.S. GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. The Company uses certain non-U.S. GAAP financial measures that are included in this press release and the additional financial information both in explaining its results to shareholders and the investment community and in its internal evaluation and management of its businesses. The Company’s management believes that these non-U.S. GAAP financial measures and the information they provide are useful to investors since these measures (a) permit investors to view the Company’s performance using the same tools that management uses to evaluate the Company’s past performance, reportable business segments and prospects for future performance, (b) permit investors to compare the Company with its peers and (c) determine certain elements of management’s incentive compensation. Specifically:

• Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is the measure of profitability used by management to manage its segments and, accordingly, in its segment reporting. The Company supplements the reporting of its consolidated financial information with certain non-U.S. GAAP financial measures, including EBITDA and adjusted EBITDA, which is defined as EBITDA excluding the impact of certain non-cash and other specifically identified items (“adjusted EBITDA”). The Company believes these non-U.S. GAAP measures provide meaningful information and help investors understand the Company’s financial results and assess its prospects for future performance. The Company uses EBITDA and adjusted EBITDA to evaluate its performance, both internally and as compared with its peers, because it excludes certain items that may not be indicative of the Company’s core operating results. Consolidated EBITDA is calculated in a manner consistent with segment EBITDA, which is a measure of segment profitability.
• The Company’s management believes that adjusted EBITDA, which excludes business transformation and other expenses for the integration of acquired businesses, the impact and results of businesses classified as assets held-for-sale and businesses divested, and other events such as impairment charges, share-based compensation associated with prior ownership and the sale of APi Group, Inc. (the “APi Acquisition”), transaction and other costs related to acquisitions, amortization of intangible assets and depreciation remeasurements associated with acquisitions, net COVID-19 relief, and certain tax benefits from the APi Acquisition, is useful because it provides investors with a meaningful perspective on the current underlying performance of the Company’s core ongoing operations.
• The Company’s management believes that organic net revenues change provides a consistent basis for year-over-year comparisons in net revenues as it excludes the impacts of material acquisitions, completed divestitures, and changes in foreign currency impacts. Foreign currency impacts represents the effect of foreign currency on current period reported net revenues and is calculated as the difference between current period net revenues by applying the prior year average monthly exchange rates to the current year local currency net revenues amounts (excluding acquisitions and divestitures).
• Adjusted net revenues is defined as net revenues excluding the impact and results of businesses classified as assets held-for-sale and businesses divested. The Company’s management believes that this measure is useful as a supplement to enable investors to compare period-over-period results on a more consistent basis without the effects of businesses classified as assets held-for-sale and businesses divested, which more meaningfully reflects the Company’s core ongoing operations and performance. The Company uses adjusted net revenues to evaluate its performance, both internally and as compared with its peers, because it excludes certain items that may not be indicative of the Company’s core operating results.
• The Company presents free cash flow, adjusted free cash flow and adjusted free cash flow conversion, which are liquidity measures used by management as factors in determining the amount of cash that is available for working capital needs or other uses of cash, however, it does not represent residual cash flows available for discretionary expenditures. Free cash flow is defined as cash provided by (used in) operating activities less capital expenditures. Adjusted free cash flow is defined as cash provided by (used in) operating activities plus or minus events including, but not limited to, transaction and other costs related to acquisitions, business transformation and other expenses for the integration of acquired businesses, impacts of businesses classified as assets held-for-sale and businesses divested, and one-time and other events such as COVID-19 related payroll tax deferral and relief items. Adjusted free cash flow conversion is defined as adjusted free cash flow as a percentage of adjusted EBITDA.
• The Company’s management believes that adjusted gross profit, adjusted selling, general and administrative (“SG&A”) expenses, adjusted net income and adjusted EPS, which all exclude business transformation and other expenses for the integration of acquired businesses, the impact and results of businesses classified as assets held-for-sale and businesses divested, and other events such as impairment charges, share-based compensation associated with prior ownership and the APi Acquisition, transaction and other costs related to acquisitions, amortization of intangible assets and depreciation remeasurements associated with acquisitions, net COVID-19 relief, and certain tax benefits from the APi Acquisition, is useful because it provides investors with a meaningful perspective on the current underlying performance of the Company’s core ongoing operations in each of those respective measures.

The Company does not provide reconciliations of forward-looking non-U.S. GAAP adjusted EBITDA, organic net revenues growth and adjusted net revenues to GAAP due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including adjustments that could be made for acquisitions and divestitures, business transformation and other expenses for the integration of acquired businesses, one-time and other events such as impairment charges, transaction and other costs related to acquisitions, amortization of intangible assets, net COVID-19 relief, and certain tax benefits from the APi Acquisition, and other charges reflected in the Company’s reconciliation of historic numbers, the amount of which, based on historical experience, could be significant.

While the Company believes these non-U.S. GAAP measures are useful in evaluating the Company’s performance, this information should be considered as supplemental in nature and not as a substitute for or superior to the related financial information prepared in accordance with U.S. GAAP. Additionally, these non-U.S. GAAP financial measures may differ from similar measures presented by other companies.

Organic net revenues change