APi Group Corporation (NYSE:APG), a global, market-leading business services provider of life safety, security, and specialty services, has reported its financial results for the first quarter of 2024, showcasing strong operational and financial performance. The company has also announced the strategic acquisition of Elevated Facility Services Group, expanding its footprint into the attractive elevator and escalator services market.

Financials

In the first quarter of 2024, APi Group reported net revenues of $1,601 million, compared to $1,614 million in the same period of the prior year, a slight decrease of 0.8%. The company's annual net income for 2023 was $153 million, while its annual revenue reached $6,928 million. APi Group's annual operating cash flow was $514 million, and its annual free cash flow was $428 million.

Despite the slight decline in quarterly net revenues, the company's profitability and margin expansion were impressive. Gross profit for the first quarter of 2024 was $492 million, representing a gross margin of 30.7%, a significant increase of 440 basis points compared to the prior-year period. This strong performance was driven by disciplined project and customer selection, pricing improvements in the Safety Services segment, and an improved mix of higher-margin inspection, service, and monitoring revenue.

The company's adjusted EBITDA for the first quarter of 2024 was $166 million, up 11.4% from the same period in 2023. Adjusted EBITDA margin expanded by 180 basis points to 10.9%, reflecting the company's focus on operational efficiency and margin expansion initiatives.

Segmental Performance

APi Group operates two primary reportable segments: Safety Services and Specialty Services.

Safety Services Segment:

The Safety Services segment reported net revenues of $1,214 million in the first quarter of 2024, an increase of 1.9% compared to the prior-year period. This growth was driven by a 4% increase in service revenues, including double-digit core inspection revenue growth in the U.S. life safety business. Adjusted EBITDA margin for the Safety Services segment expanded by 200 basis points to 14.3%, reflecting the segment's strong operational performance.

Specialty Services Segment:

The Specialty Services segment reported net revenues of $389 million in the first quarter of 2024, a decrease of 9.5% compared to the prior-year period. This decline was primarily due to a 14% decrease in project revenues, as the company continued its disciplined customer and project selection strategy. However, the segment's adjusted EBITDA margin expanded by 220 basis points to 8.7%, driven by the improved project and service revenue mix.

Recent Developments

Elevated Facility Services Group Acquisition

In a strategic move, APi Group announced the acquisition of Elevated Facility Services Group, a premier provider of contractually based services for all major brands of elevator and escalator equipment, for approximately $570 million. This acquisition represents APi Group's expansion into the attractive elevator and escalator services market, which is estimated to be a $10 billion-plus opportunity in the U.S.

Elevated is expected to contribute approximately $220 million in annualized revenues and generate adjusted EBITDA margins of around 20%. The acquisition is expected to be immediately accretive to APi Group's 13/60/80 shareholder value-creation framework, which includes an adjusted EBITDA margin target of 13% or more by 2025, 60% of revenues from inspection, service, and monitoring, and 80% adjusted free cash flow conversion.

The elevator and escalator services market benefits from continuous safety and regulatory requirements, servicing an aging installed base, and increasing demand driven by urbanization and modernization projects. Elevated's strong organic growth, high-margin profile, and asset-light business model make it a compelling addition to APi Group's portfolio.

Liquidity

As of March 31, 2024, APi Group had $247 million in cash and cash equivalents and $396 million of available borrowing capacity under its $500 million revolving credit facility, providing the company with ample liquidity to fund its operations and strategic initiatives.

During the first quarter of 2024, the company executed a series of transactions to simplify its capital structure, including the conversion and repurchase of all outstanding shares of its Series B Preferred Stock. This transaction eliminated the $44 million annual preferred dividend payment and provided the company with additional financial flexibility.

Additionally, APi Group recently completed a $450 million primary follow-on equity offering and launched a $550 million incremental term loan, which will be used to refinance existing debt and provide funding for general corporate purposes, including the Elevated acquisition.

Outlook

For the full year 2024, excluding the impact of the Elevated acquisition, APi Group expects net revenues to range from $7.05 billion to $7.25 billion, adjusted EBITDA to be between $855 million and $905 million, and adjusted free cash flow conversion to be approximately 70%.

The company expects to update its full-year guidance upon the close of the Elevated acquisition, which is anticipated to occur in the second quarter of 2024. The updated guidance will incorporate the contributions from Elevated, as well as the impact of recent divestitures and foreign exchange movements.

For the second quarter of 2024, the company expects reported net revenues to be in the range of $1.75 billion to $1.80 billion, reflecting the completed divestiture in the Specialty Services segment and the current foreign exchange environment. Adjusted EBITDA for the second quarter is expected to be between $220 million and $235 million, representing growth of approximately 9% to 16% on a fixed currency basis and adjusted EBITDA margin expansion of 140 basis points at the midpoint.

Conclusion

APi Group's first quarter 2024 results demonstrate the company's ability to execute on its strategic initiatives, drive margin expansion, and position itself for continued growth. The acquisition of Elevated Facility Services Group represents a compelling expansion into the attractive elevator and escalator services market, aligning with the company's focus on high-margin, recurring revenue streams.

With a strong balance sheet, ample liquidity, and a robust pipeline of acquisition opportunities, APi Group is well-positioned to continue delivering value to its shareholders through organic growth, strategic acquisitions, and operational excellence.