Great! Well, good morning, everybody. My name is Stephanie Moore. I am the Business Services and Transportation Analyst here at Jefferies. We're really pleased to have APi Group with us for a fireside chat. We have Kevin Krumm, CFO, and Adam Fee, Director of IR. We'll run through a series of questions that I have, and then I will open it up to the audience here at the call it last five, 10 minutes for any questions that you have. Thanks, guys, so much for joining us. Yeah, of course. Thanks for having us. So maybe, you know, just for some in the audience who might be newer to APi, can you kinda quickly run through the breakdown of the inspection and monitoring safety services you perform? What are more project-based services, what are more recurring, kind of just the likes of that, just to maybe do a quick intro here. Yeah, sure. I'll start. Thanks again for having us, Stephanie. We appreciate it, and we appreciate the interest and support from everybody in the room, so when you think about our business, the core of our business, so we built our business commercially around going to market through statutorily required inspections, so you'll hear us talk about inspection, service, and monitoring being the services side of the business, which again is how we go to market. That makes up about 53% of our revenue today. We like that approach because, one, it is statutorily required, so we believe it's gonna hold up in any sort of macro environment, specifically a macro downturn. We also like it because on the service side of the business, those services accrue to our P&L at higher gross margin or higher margins, about 10% higher margins than the project side of the business. And so, traditionally, that's not how the industry has built their revenue profile. It's something that we learned in the last financial crisis. We started with about 15% of our revenue going into that as service and 85 projects, and over the last decade plus, we've really invested in a sales organization, inspection organization, to build out that service capability, and that's how we've been able to move that revenue from 15% service, again, around 2010, to where it is today at 53%. Great. And maybe as just a follow-up, you know, any goal in terms of having this percentage of your mix kind of increasing on the recurring side that you've provided? And then similarly, how do you achieve those targets organically, M&A? And then on the flip side, thoughts on kind of divestitures of some of the, like, some of the other project-based work at this point. Yeah. So, we do have a goal. We have a value creation framework that we've talked about externally, which is 13, 60, 80. We also talk about it and live it internally as well. But in the 13, 60, 80, the 60 is 60% of our revenue. So our target is to have 60% of our revenue from the services side of the business over the long term. Again, we've moved that closer to it. We're now at 53%. I suspect when we get to 60, we'll reassess again. But that's our current goal, our current target, and we believe it to be achievable. Important to note, we're not ever gonna walk away from the project side of the business. It's really critical, and it's a great complement to what we do on the service side of the business, and specifically, as service becomes a larger piece of our revenue, it allows us to be much more selective on the project side of the business, and therefore, drive and expand margins on the project side of the business, while driving margin from the higher mix of service. You asked about divestitures and how we think about that. I would say, over the last twelve months, we've been going through a process we call disciplined customer and project selection, so you can think of it as divesting customers and some end markets. We've worked on that. There are businesses that we've divested, one of them recently in the safety segment, that was a predominantly projects business, that in working with the leadership team there, you know, it became clear we weren't gonna be able to get it to the level of service we wanted, and therefore, it wasn't accretive to where we were headed, and that's really kinda how we look at divestitures. The businesses we have today, we believe to all be accretive to what we're doing, both on the revenue mix standpoint as well on the margin standpoint, and when businesses we have aren't able to keep up or we don't think they're gonna be able to get there, that's when we're gonna make that assessment. Absolutely. As you think about, maybe sticking on the topic of the specialty or project side of your business, this was, I think, a pretty key point of interest on your second quarter call, maybe coming in a little bit weaker than expected. You know, what drove this weakness? How should we think about the improvement in 3Q, 4Q, or the types of projects? Any color there would be helpful. Yeah, sure. I'll take that again. So to answer it first, I'll sort of step back, and then I'll talk about the second quarter. So if you step back, we started early 2023, talking about the fact that we were moving in this period of disciplined customer and project selection. We're gonna use this environment, which is a high-demand environment, to really work through our project portfolio, primarily in international HVAC and specialty. So we started that work in earnest last year in the summer, and said it was gonna take us about a year. There's some other elements that were a headwind to the specialty business over this period of time, in addition to disciplined customer and project selection. The one I'll point to is the deflationary impacts that we're moving through our P&L. So, really, the revenue drag from prices going down on materials on that side of the business. So over the last four quarters, leading into the second quarter, that business had been flat to down, and our expectation in the second quarter this year was that it was gonna be down. All that said, we had a growing backlog and a healthier backlog as we moved into the summer months in that business, and so we were expecting to see that pull through. We had three large projects that were delayed in the second quarter, and the delays actually rolled into early Q3. They were in different operating companies in different regions around the world, in North America, and they were delayed for different reasons. So we believed it to be more of a confluence of three specific reasons than anything else. As we closed out August, we were back on those jobs, and we were back doing the work on those jobs, so the delays had been remedied. And as we think about that business, specifically, as we exit twenty twenty-four, we expect our exit rate in that business to be back to more historical levels, from an organic growth perspective. Appreciate that. Maybe it's just helpful to frame for those in the audience, as you think about some of the clients within this specialty and project side, have you seen any kind of hesitation or delays or anything that would suggest a weaker demand environment or the likes? Or as you noted, these seem pretty specific, but would love to just get the overall pulse on kind of how these customers are acting. So, with safety, we've been really purposeful over the last decade on the end markets. And even on the specialty side, we think we're in the end markets, infrastructure, utility, that are gonna perform well through, again, any macro environment. And so we really have not seen anything thematically with our customers on that side of the business. We believe the delays that we experienced in Q2, again, to be just a confluence of three specific events, and there's nothing really thematically that we're seeing with customers in that space. And frankly, you know, as we exit this year, the end markets we're in, in specialty, remain robust. Appreciate it. Maybe switching gears a little bit to the more inspection and monitoring services aspect of the business, can you talk a little bit about the demand environment for those services? Any volatility in that business, not necessarily in the moment, but historically, just so we can kind of think about, you know, what should we be monitoring? Is it commercial activity, construction, the macro? But so kind of a two-part question, the demand environment, and then how should we just monitor it on an ongoing basis? Yeah, I'll take that one. So the great thing about our business, and which is why we've shifted our business mix towards inspection service and monitoring, is the inspections that we perform for our customers are required by law to happen at least once a year, and those inspections are what pull through the service revenue for us. So that's why we've structured our business like that, and we've seen strong demand through all different macroeconomic conditions because of that regulatory tailwind. Over the long term, too, the regulatory environment has only gotten more strict and more robust, which has been slowly increases the scope of the inspections that we do perform for our customers. In general, what we look at internally is we drive double-digit organic inspection growth, on a quarterly basis, and that's what we push our teams to do and push our sales force to do, which is the real driver behind this inspection growth. We've developed an inspection-led sales force over time. But that's really what we look at internally. There's less, I guess, macro indicators, just given the regulatory environment, and that's why this part of our business has been very stable and has been where we've been investing behind and growing. That's helpful, and you brought up a good point. Can you talk a little bit about the inspection-led sales force? You know, how you view this as a differentiating factor versus yourself and your peers. Yeah, definitely. So I talked about double-digit inspection growth. We've achieved that now for 16 straight quarters in North America. The inspection-led sales force is a key driver why. I would say it's coming out of the Great Financial Crisis 10-15 years ago, as Kevin alluded to, when we started shifting our strategy to be inspection-led. And we made investments in the sales force at that time. We've also made investments in changing the way we structure our branches to support an inspection-led go-to-market strategy. So we think both of those investments, which have occurred over a decade plus, are really the moats that protect our business against the competitors. Your local kind of family business that we compete with don't have the resources or the long-term view typically to make investments in a sales force or investments in adding resources to your branch that are gonna be costs at first. And we've made those investments and set ourselves up with the foundation to scale our growth into the future. Excellent. Thank you. Oh, sorry about that. As you think about that double-digit growth you called out, so clearly there's a volume component to this, as you just outlined, but maybe talk a little bit about the drivers. So whether it's new business wins, growth with existing customers, pricing, if you could touch on just kind of pricing that, the pricing levers that you have. Yeah, definitely, so on the pricing side first, the important thing to remember about these inspections is they're really low ticket size items, so for our customers, this is a drop in the bucket in terms of their annual budget for whatever facility they're managing, so we've had a pretty disciplined pricing strategy, and we aim to take up to 5% price each year on these inspections, and when you think about an average inspection being $1,000 or $1,500 dollars, we're talking about nominal price increases of $50-$75, so our customers have generally been accepting of these price increases and value the service we provide, so that's been a key part of the growth strategy on inspections. And then on the volume side, we alluded to it, but the sales force is driving the key volume gains for us. And then behind that, the market is generally growing as well. So if you think about square footage under fire protection systems, that square footage of real estate under fire protection systems, that number is growing more in the GDP range, and then we're kind of adding more volume on top of that by taking share from our sales force. ... That's great, thank you. And then I know you've said this in the past, so, I might be butchering it, but it's, I think every one dollar of inspection drives... I'll let you fill in the blanks- Yeah -of incremental work. Talk a little bit about that, that dynamic, what that means from a, obviously, organic growth we can understand, but maybe a margin standpoint, retention, everything else that kind of puts you, that kind of outlines that opportunity. Yeah, the ratio is $1 of inspection revenue typically equates to $3-$4 of service revenue for that same customer within the same year. And the reason that exists is when we go in and do these inspections, we're finding deficiencies with the system that the customers need to fix in order to get back in compliance with the fire marshal or oftentimes their insurance provider, too. So that's really the big driver of kind of what—why customers are choosing us from that perspective. I think I might have missed the second part of your question. I think that that covers it. And correct me if I'm wrong, it's-- you're kind of to the point where they see these incremental services, and they almost have to perform them- Yeah Because it's almost a bad look if you don't. Is that the right kind of way to simplify it? Yeah. They're. I mean, they're protecting property and lives, and, their insurance providers also typically are requiring documentation to show that they've done these inspections and fixed the deficiencies, in order to, you know, be in a position where if there were an incident, they'd be able to not have any claim issues with their insurance provider. And other than the $1-$3 or $4, inspection and service revenue, as Kevin mentioned, both come in at a 10% plus higher gross profit margin. So this is part of an ongoing shift towards, more highly recurring, less cyclical, higher margin, and better cash flow generative revenue streams. So that's really the genesis behind why we've been making this shift over the last 10 to 15 years. Maybe that's a pretty good segue there. Maybe talk a little bit about on the margin front, kind of, you know, what are the major drivers of, you know, the annual margin expansion that you're expecting this year, some targets that you have, kind of as we look forward, you know, how do we get there? So I talked about 13/60/80 earlier, our value creation framework. So the 13 is 13% EBITDA margins by 2025, 60 is our longer-term target for revenue mix, and 80 is free cash flow conversion. Adam did a good job of explaining how we're gonna get to the 60 and the 80. On the 13%, really coming out of 2022, which is a period of escalated inflation, the levers we've been pushing on to deliver the margin performance that we've been able to deliver and set us up for our target of 13% by 2025 have been, you know, pricing. So on the service side of the business, we're year in and year out, we're expecting to get margin expansive pricing. Adam talked a little bit about that. The service mix element, as we continue to drive more of our revenue from inspection, service, and monitoring, again, that comes to our P&L at a higher margin rate. So that mix alone has been and will continue to drive margin. The work we've been doing on the project side of the business, so disciplined customer and project selection, we've seen significant improvements in the margins on our projects business. That has helped and aided our overall margin growth, and then within international, Chubb is the business that we closed early 2022. We set out an aggressive $125 million value capture target. Our team's done a great job of staying on that. They're slightly ahead of schedule, and that element has driven a pretty meaningful and significant impact to our margin story as well over that period of time. Helpful. Thank you. You know, as we think about this path to the 13% plus margins, can you maybe discuss what areas of your business are currently running north of 13? Sure. So a couple ways you can think about that. One is if, if you just start with our safety services segment, you know, I think in the first half of the year, margins were somewhere around 15% Adjusted EBITDA margin. Inside of that business, we have HVAC, which is gonna run below the average. And then we're gonna have, you know, North America Life Safety or US Life Safety, you'll hear us talk about that, that is gonna run above the average. Another way to look at it is branches in our Life Safety business, both in North America and internationally. You know, our branches, there's an average branch profitability, but you have a normal distribution around those branches. I'll say the average branch in the US, because they've been at this inspection, service, and monitoring journey longer, is a higher average margin than our international branches, but all that said, in both geographies, we have branches performing at 20% plus, which means, of course, we have branches that are performing, you know, low double digits, sometimes high single digit, and so part of our journey there is continuing to move those lower-performing branches to the right, and the big driver that's gonna do that is the continued work we're doing in pivoting the revenue portfolio more service, so that's on the safety side of the business, how we think about things. Specialty, I would say, you know, we have a first-half average margin there that I believe is below 13%. And inside of that business, you know, you're gonna see some of the same things. You're gonna have businesses that are performing above, specialty contracting is an example, and then you're gonna have some that are performing below that average. Helpful. I'm gonna touch, maybe switch gears a little bit to kind of the organic growth or I'm sorry, inorganic growth and M&A opportunity. But just to set the stage, could you talk a little bit about the competitive landscape within fire and safety? You know, what is your current market share? What is the TAM? What is the consolidation opportunity? You could probably talk on it or organically- Yeah ... but also in the context of M&A. ... Yeah, so the way we think about the TAM, in North America, the fire protection market is between $20 and $25 billion, and we're just shy of 10% share, but the number one player in that market. So, if you think about internationally, it's north of $60 billion, and if you add security capabilities to that, your TAM more than doubles from there. So, but just strictly within fire protection, we're the leading player, as I mentioned, but there's a long runway of family businesses that make up the majority of the market. So in terms of M&A runway, M&A capabilities, we think that there's, since Russ has been CEO, we've done close to 150 bolt-ons, and we think there's, you know, runway to continue our bolt-on strategy over the next decade-plus before the industry becomes remotely consolidated. So there's a great opportunity there, and we've expanded both now. We've historically acquired in fire protection. Now we have the opportunity to acquire in the elevator/escalator space after Elevated and also acquire in electronic security. So those are the areas where you'll see us focus on M&A. And that's a pretty good segue. You know, maybe talk a little bit about Elevated. So the strategic rationale of the deal, you know, what's attractive about the elevator inspection space? Who are you competing against, if it's different, versus maybe some of your other service businesses? And then lastly, just kinda how the acquisition integration's going so far. I'll take that. You might have to remind me some of the- I know, there are too many in there. No, that's all right. Sorry. So the elevator space is a space we've been looking at for a while. We've been looking at other, I'll say, tangential areas that we can continue to deploy our model and, and elevator is a space we've been talking about for the last couple of years. We like the space because if you think about their go-to-market, you know, they are selling statutorily required inspections, and those statutorily required inspections, of course, are gonna hold up through any environment. Similar to our business, they accrue to the P&L at a higher margin than the projects works business, and it has pull-through service revenue. They also go to market through a branch-led operating model, which is our model we like. It means they're living in the communities they're working in. It allows them to be better from a service standpoint. So there were a lot of business model things we liked about that space. Also highly fragmented, so it's a highly fragmented space. Elevated is the largest player in the markets it's in, and I think in any market it's in, it's generally less than 10% of the total market. So going to market through a sales organization that, and traditionally, they've been able to outgrow the market by leveraging that sales organization. So from an organic growth, looks a lot like our life safety businesses. When you think about inorganic, then there's an opportunity in the highly fragmented market they're in to continue to grow through bolt-on and tuck-in M&A. So we like that a lot. And you know, frankly, it's a great opportunity for us to cross-sell. I think you asked about integration, and I would say, you know, we had expectations that we were gonna be able to, in the markets we're in, probably collapse some roofs and save on footprint, was from a cost standpoint, but then we also have aspirations to grow each other's top line through cross-selling. I would say early days, you know, we're only three months in, but we've seen good success there, and we remain really excited about it, the ability for our teams to go to market together and cross-sell each other's offerings. That's helpful. No, thank you. You, you did get all of those. No, I- Maybe just around that Elevated, maybe the margin, the margin profile and anything, any opportunity there, anything that can be learned from that business as you apply it to maybe some of your others. Yeah, so that business comes to us with about 70% of their revenue from what I'll call inspection, service, maintenance, and repair. The other 30% is modernization of elevators, so it comes to us pretty profitable, a good profile. I think we talked about 20% EBITDA margins. When you look across the space, I'll say not all elevator businesses are operating at that level, so we think Elevated does a really good job. A lot to learn from as we continue to bolt-on acquisitions against it. We think it's gonna be an opportunity to leverage what they're doing and drive profitability in those bolt-ons. But from a, when you look inside Elevated, just like I talked about earlier on our international, our US Life Safety businesses, there's a spectrum of performance, and so there are branches that are normally distributed around their average, and we think there's an opportunity in their lower-performing branches to continue to move them to the right and therefore improve overall profitability of that platform. That's helpful. We have just over five minutes left, so I do wanna open up Q&A to the audience, if anyone in the audience has a question for the team. If not, I can always keep going, but... All right, well, raise your hand if you do come up with something. So I'll continue on the M&A thread, or M&A thread. So as you're thinking about kind of your appetite as you continue to grow via M&A, and maybe talk a little bit about which verticals are most interesting to you. It seems like fire, now elevator, anything else? And then also funding. So talk a little bit about free cash flow generation. You've been active at, you know, the last year, a little bit in the equity markets, but just talk about kind of funding it as well as we think forward. Okay. So when you think about M&A, we remain excited. If you look back, since we've been a public company, we've added a security capability now with Chubb. So we have another platform there, and then we've added Elevated. So we have a lot of opportunity out there when you just look across our existing platforms. All those platforms are ripe for bolt-on, tuck-in M&A opportunities, and our funnel and pipeline remain really strong. So I said earlier today that our corporate development team is literally up to their eyeballs in pipeline on bolt-on and tuck-in M&A. At the same time, we've talked about the work our international team is doing with the value capture. We said that was gonna be their focus for the first couple years. We're exiting sort of, I guess it would be year three of that business. That team's done a great job with their value capture work, meaning they're ready to start deploying our inorganic growth model against that international platform, which is another lane for us to deploy capital from an M&A standpoint. So we really remain excited across all there. We got opportunity internationally in the life safety and the security side of the business. We got opportunity domestically on life safety, security, and now elevator. So we think we have a lot of opportunities, and again, the pipeline remains robust. From a funding standpoint, our businesses, as we've talked about, produce good cash flow annually, so our bolt-on tuck-in campaign, I would say over the last twelve months, we've done about $150 million. We've been able to fund all that through ongoing cash flow. I expect it to step up over the next twelve months, and we will be able to fund that through cash flow. It's really when you get into a platform deal, something like Elevated, where you're gonna see us use financing, and probably at this point it would be more debt financing to go get those deals done. Excellent. And then just to maybe confirm, so given the platforms or the services that you're in currently, could we expect to see maybe another leg to the stool added, or kind of the current state is kind of where we should be for some time now? Yeah. That's a good way to think about it. I mean, over the long term, we think there's other opportunities out there, adjacencies to go after. But I would say right now, our focus is gonna be getting the work done inside of those businesses and those platforms that we've acquired and setting them up to be great platforms that we can deploy, bolt-on and tuck-in M&A against. Excellent. And maybe just to close things out here, you know, clearly services business, you know, heavily people-led here in terms of the quality of the services you provide. Can you talk a little bit about your focus on leadership development and why it's important to your business? Yeah, happy to take that one, so our purpose as a company is actually building great leaders, and that's something that began when Russ became CEO in the early 2000s, and has been a consistent focus for us over the last twenty-plus years. In our industry, it's unique, which is actually not a great thing. It means that the industry's left the men and women in the field behind and not invested in them as people. We've taken an approach where we believe investing in them as people and giving them access to leadership development opportunities results in better engagement, more productivity, and ultimately them taking better care of our customers. So yeah, we fundamentally believe that, you know, taking care of our people and giving them leadership opportunities is core to who we are as a company, and we'd encourage you guys to come out to Minneapolis and kind of tour the leadership development center and go on a customer inspection and kinda see our field leaders in action in the field. So, but yeah, that's... Appreciate you guys taking some time with us. Great. Well, thank you, everybody. Thanks, guys. Thanks. Thanks, all.