What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-02 compared with 2023-11-02 · 184 added, 275 removed, 218 unchanged (68% of the section changed)

19 unchanged sentences

We operate our business under two primary operating segments, which are also our reportable segments:

• Safety Services – A leading provider of safety services in North America, Asia Pacific, and Europe, focusing on end-to-end integrated occupancy systems (fire protection solutions, Heating, Ventilation, and Air Conditioning (“HVAC”) and entry systems), including design, installation, inspection and service of these integrated systems.

• Safety Services – Our Safety Services segment is a leading provider of safety services in North America, Europe, and Asia Pacific focusing on end-to-end integrated occupancy systems (fire protection, Heating, Ventilation, and Air Conditioning (“HVAC”) and entry), including service, monitoring, inspection, design and installation of these integrated systems.

The work performed within this segment spans across industries and facilities and includes commercial, education, healthcare, high-tech, industrial, and special-hazard settings.

• Specialty Services – A leading provider of a variety of infrastructure services and specialized industrial plant services, which include maintenance and repair of critical infrastructure such as underground electric, gas, water, sewer and telecommunications infrastructure.

• Specialty Services – Our Specialty Services segment is a leading provider of a variety of infrastructure services and specialized industrial plant services, which include maintenance and repair of critical infrastructure such as underground electric, gas, water, sewer, and telecommunications infrastructure.

Our services include engineering and design, fabrication, installation, maintenance service and repair, retrofitting and upgrading, pipeline infrastructure, access and road construction, supporting facilities, and performing ongoing integrity management and maintenance to customers within the energy industry.

7 unchanged sentences

The Chubb restructuring program includes expenses related to workforce reductions, lease termination costs, and other facility rationalization costs through fiscal year 2025.

During the nine months ended September 30, 2023, we have incurred pre-tax restructuring costs within the Safety Services segment of $21 million in connection with the Chubb restructuring program.

In total, we estimate that we will recognize approximately $105 million of restructuring costs related to the Chubb restructuring program by the end of fiscal year 2024.

During the three months ended March 31, 2024, we have incurred pre-tax restructuring costs within the Safety Services segment of $1 million in connection with the Chubb restructuring program.

In total, we estimate that we will recognize approximately $125 million of restructuring and other costs related to the Chubb restructuring program by the end of fiscal year 2025.

For additional information about our restructuring activity, see Note 4 – “Restructuring" to our condensed consolidated financial statements included herein.

Assets held for sale

During the three months ended September 30, 2023, we determined our intent to sell an infrastructure/utility operating company in our Specialty Services segment (the "Operating Company").

We classified the net book value of the Operating Company as held for sale in the condensed consolidated balance sheets with the assets recorded in prepaid expenses and other current assets and liabilities recorded in other accrued liabilities.

As of September 30, 2023, the Operating Company remains classified as held for sale.

Pursuant to the authoritative literature, we evaluated the recoverability of the carrying value of the assets and liabilities held for sale.

During the three months ended September 30, 2023, we recorded an impairment charge of $ 13 million.

Economic, Industry and Market Factors

11 unchanged sentences

Refer to Note 8 – "Derivatives" to our condensed consolidated financial statements included in this quarterly report for additional information on our hedging activities.

While we actively monitor economic, industry, and market factors that could affect our business, we cannot predict the effect that changes in such factors may have on our future results of operations, liquidity, and cash flows, and we may be unable to fully mitigate, or benefit from such changes.

While we actively monitor economic, industry, and market factors that could affect our business, we cannot predict the effect that changes in such factors may have on our future consolidated results of operations, liquidity, and cash flows, and we may be unable to fully mitigate, or benefit from such changes.

Effect of Seasonality and Cyclical Nature of Business

1 unchanged sentence

Seasonal variations can be influenced by weather conditions impacting customer spending patterns, contract award seasons, and project schedules, as well as the timing of holidays.

Consequently, net revenues for our businesses are typically lower during the first quarter due to the prevalence of unfavorable weather conditions within our North American operations, which can cause project delays and affect productivity.

Consequently, net revenues for our businesses are typically lower during the first and second quarters due to the prevalence of unfavorable weather conditions within our North America companies, which can cause project delays and affect productivity.

Additionally, the industries we serve can be cyclical.

20 unchanged sentences

Selling, general, and administrative expenses ("SG&A")

Selling expenses consist primarily of compensation and associated costs for sales and marketing personnel, costs of advertising, trade shows, and corporate marketing.

General and administrative expenses consist primarily of compensation and associated costs for executive management, personnel, facility leases, administrative expenses associated with accounting, finance, legal, information systems, leadership development, human resources, risk management, and overhead associated with these functions.

Selling expenses consist primarily of compensation and associated costs for sales and advertising, trade shows, and corporate marketing.

General and administrative expenses consist primarily of compensation and associated costs for executive management, personnel, facility leases, administrative expenses associated with accounting, finance, legal, information systems, leadership development, human resources, and risk management, and overhead associated with these functions.

General and administrative expenses also include outside professional fees and other corporate expenses.

4 unchanged sentences

Loss on extinguishment of debt, net reflects the difference between the repurchase price and carrying amount of debt at the time of extinguishment.

Non-service pension benefit

Non-service pension benefit reflects the sum of the components of pension expense not related to service cost, i.e.

interest cost, expected return on assets, and amortizations of prior service costs and actuarial gains and losses.

C RITICAL A CCOUNTING P OLICIES A ND E STIMATES

1 unchanged sentence

R ESULTS O F O PERATIONS

The following is a discussion of our financial condition and results of operations during the three and nine months ended September 30, 2023 and the three and nine months ended September 30, 2022.

Three months ended September 30, 2023 compared to the three months ended September 30, 2022

Three Months Ended September 30, Change

The following is a discussion of our financial condition and results of operations during the three months ended March 31, 2024 and the three months ended March 31, 2023.

Three months ended March 31, 2024 compared to the three months ended March 31, 2023

Three Months Ended March 31, Change

($ in millions) 2024 2023 $ %

5 unchanged sentences

Interest expense, net 34 37 (3) (8.1) %

Gain on extinguishment of debt, net — (5) 5 (100.0) %

Non-service pension benefit (3) (10) 7 (70.0) %

Investment income and other, net (4) (3) (1) 33.3 %

Loss on extinguishment of debt, net — 3 (3) (100.0) %

Investment expense (income) and other, net 3 (5) 8 (160.0) %

Other expense, net 37 35 2 5.7 %

2 unchanged sentences

Net income $ 45 $ 26 $ 19 73.1 %

Net revenues for the three months ended September 30, 2023 were $1,784 million compared to $1,735 million for the same period in 2022, an increase of $49 million or 2.8%.

The increase in net revenues occurred in the Safety Services segment, driven by growth in inspection, service, and monitoring revenue.

The following table presents our gross profit (net revenues less cost of revenues) and gross margin (gross profit as a percentage of net revenues) for the three months ended September 30, 2023 and 2022, respectively:

Three Months Ended September 30, Change

Net revenues for the three months ended March 31, 2024 were $1,601 million compared to $1,614 million for the same period in 2023, a decrease of $13 million or 0.8%.

The decrease in net revenues was primarily driven by disciplined project and customer selection on our longer term projects in the Specialty Services segment, partially offset by growth in inspection, service, and monitoring revenue in the Safety Services segment.

The following table presents our gross profit (net revenues less cost of revenues) and gross margin (gross profit as a percentage of net revenues) for the three months ended March 31, 2024 and 2023, respectively:

Three Months Ended March 31, Change

($ in millions) 2024 2023 $ %

1 unchanged sentence

Gross margin 30.7 % 26.3 %

Our gross profit for the three months ended September 30, 2023 was $511 million compared to $440 million for the same period in 2022, an increase of $71 million, or 16.1%.

Gross margin was 28.6%, an increase of 320 basis points compared to the prior year period, primarily due to disciplined project and customer selection, and pricing improvements in

our Safety Services and Specialty Services segments, as well as an improved mix of inspection, service, and monitoring revenue, which generates higher margins.

Our gross profit for the three months ended March 31, 2024 was $492 million compared to $425 million for the same period in 2023, an increase of $67 million, or 15.8%.

Gross margin for the three months ended March 31, 2024 was 30.7%, an increase of 440 basis points compared to the prior year period, primarily due to disciplined project and customer selection, pricing improvements in our Safety Services segment, and an improved mix of inspection, service, and monitoring revenue, which generates higher margins.

Operating expenses

The following table presents operating expenses and operating margin (operating income as a percentage of net revenues) for the three months ended September 30, 2023 and 2022, respectively:

Three Months Ended September 30, Change

The following table presents operating expenses and operating margin (operating income as a percentage of net revenues) for the three months ended March 31, 2024 and 2023, respectively:

Three Months Ended March 31, Change

($ in millions) 2024 2023 $ %

2 unchanged sentences

Operating margin 6.2 % 4.5 %

SG&A expenses (excluding amortization and impairment) (Non-GAAP) $ 345 $ 343 $ 2 0.6 %

SG&A expenses (excluding amortization and impairment) as a % of net revenues (Non-GAAP) 19.3 % 19.8 %

Selling, general, and administrative expenses

Our SG&A expenses for the three months ended September 30, 2023 were $407 million compared to $379 million for the same period in 2022, an increase of $28 million.

SG&A expenses as a percentage of net revenues was 22.8% during the three months ended September 30, 2023 compared to 21.8% for the same period in 2022.

The increase in SG&A expenses was primarily attributable to an impairment charge of $13 million related to assets held for sale and increased amortization expense in the three months ended September 30, 2023 compared to 2022.

Our SG&A expenses excluding amortization and impairment for the three months ended September 30, 2023 were $345 million, or 19.3% of net revenues, compared to $343 million, or 19.8% of net revenues, for the same period of 2022.

The decrease in SG&A expenses excluding amortization and impairment as a percentage of net revenues was driven by lower acquisition and integration related expenses incurred in three months ended September 30, 2023 compared to the same period in 2022 and better leverage of SG&A expenses across a growing revenue base, partially offset by investments to support growth in our Safety Services segment.

See the discussion and reconciliation of our non-U.S.

GAAP financial measures below.

Interest expense, net

Interest expense was $37 million and $33 million for the three months ended September 30, 2023 and 2022, respectively.

The increase in interest expense was primarily due to higher interest rates on our floating interest rate debt in the current year, partially offset by a decrease in the outstanding principal amounts of our floating rate debt.

Gain on extinguishment of debt, net

During 2022, we repurchased $13 million and $23 million of the outstanding principal amount of the 4.125% Senior Notes and 4.750% Senior Notes, respectively.

In connection with the repurchases, we recognized a net gain on debt extinguishment of $5 million.

Non-service pension benefit

The non-service pension benefit was $3 million and $10 million for the three months ended September 30, 2023 and 2022, respectively.

The change was due to higher interest costs due to higher discount rates and lower expected return on asset benefit compared to the same period of the prior year.

Investment income and other, net

Investment income and other, net was $4 million and $3 million for the three months ended September 30, 2023 and 2022, respectively.

The increase in investment income was primarily due to an increase in other miscellaneous income.

Income tax provision

The income tax provision for the three months ended September 30, 2023 was $20 million compared to $18 million for the three months ended September 30, 2022.

This change was driven by increased generated income before taxes in the three months ended September 30, 2023 compared to the same period in 2022.

The effective tax rate for the three months ended September 30, 2023 was 25.5%, compared to 40.5% in the same period of 2022.

The difference in the effective tax rate was driven by discrete and nondeductible permanent items.

The difference between the effective tax rate and the statutory U.S.

federal income tax rate of 21.0% is due to the nondeductible permanent items, taxes on foreign earnings in jurisdictions that have higher tax rates, and state taxes.

Net income and EBITDA

The following table presents net income and EBITDA for the three months ended September 30, 2023 and 2022, respectively:

Three Months Ended September 30, Change

($ in millions) 2023 2022 $ %

Net income $ 54 $ 28 $ 26 92.9 %

EBITDA (non-GAAP) 188 152 36 23.7 %

Net income as a % of net revenues 3.0 % 1.6 %

EBITDA as a % of net revenues 10.5 % 8.8 %

Our net income for the three months ended September 30, 2023 was $54 million compared to $28 million for the same period in 2022, an increase of $26 million.

The improvement primarily resulted from disciplined project and customer selection, pricing improvements within our Safety Services and Specialty Services segments, and an increase in inspection, service, and monitoring revenue.

The net income increase was partially offset by an impairment charge of $13 million related to assets held for sale.

Net income as a percentage of net revenues for the three months ended September 30, 2023 and 2022 was 3.0% and 1.6%, respectively.

EBITDA for the three months ended September 30, 2023 was $188 million compared to $152 million for the same period in 2022, an increase of $36 million.

The increase in EBITDA was primarily driven by the factors previously discussed.

See the discussion and reconciliation of our non-U.S.

GAAP financial measures below.

Operating Segment Results for the three months ended September 30, 2023 compared to the three months ended September 30, 2022

Three Months Ended September 30, Change

($ in millions) 2023 2022 $ %

Safety Services $ 1,217 $ 1,154 $ 63 5.5 %

Specialty Services 569 590 (21) (3.6) %

Corporate and Eliminations (2) (9) NM NM

$ 1,784 $ 1,735 $ 49 2.8 %

Operating Income (Loss)

Three Months Ended September 30, Change

($ in millions) 2023 2022 $ %

Safety Services $ 98 $ 60 $ 38 63.3 %

Safety Services operating margin 8.1 % 5.2 %

Specialty Services $ 43 $ 45 $ (2) (4.4 %)

Specialty Services operating margin 7.6 % 7.6 %

Corporate and Eliminations $ (37) $ (44) NM NM

$ 104 $ 61 $ 43 70.5 %

Three Months Ended September 30, Change

($ in millions) 2023 2022 $ %

Safety Services $ 153 $ 116 $ 37 31.9 %

Safety Services EBITDA as a % of net revenues 12.6 % 10.1 %

Specialty Services $ 70 $ 73 $ (3) (4.1 %)

Specialty Services EBITDA as a % of net revenues 12.3 % 12.4 %

Corporate and Eliminations $ (35) $ (37) NM NM

$ 188 $ 152 $ 36 23.7 %

NM = Not meaningful

The following discussion breaks down the net revenues, operating income (loss), and EBITDA by operating segment for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

Safety Services

Safety Services net revenues for the three months ended September 30, 2023 increased by $63 million or 5.5% compared to the same period in 2022.

The increase was primarily driven by increased inspection, service, and monitoring revenue.

This increase was also due to continued strength in our end markets and strategic pricing improvements.

Safety Services operating margin for the three months ended September 30, 2023 and 2022 was approximately 8.1% and 5.2%, respectively.

The increase was primarily the result of growth in inspection, service, and monitoring revenue, disciplined project and customer selection, and pricing improvements across the segment.

The increase was also driven by lower acquisition and integration related expenses incurred in the three months ended September 30, 2023 compared to the same period in 2022.

Safety Services EBITDA as a percentage of net revenues for the three months ended September 30, 2023 and 2022 was approximately 12.6% and 10.1%, respectively.

This increase was primarily related to the factors discussed above.

Specialty Services

Specialty Services net revenues for the three months ended September 30, 2023 decreased by $21 million or 3.6% compared to the same period in 2022.

The decrease was primarily due to continued disciplined customer and project selection and customer project delays in the fabrication business, partially offset by strong growth in the service business during the three months ended September 30, 2023 compared to the same period in 2022.

Specialty Services operating margin was approximately 7.6% for each of the three months ended September 30, 2023 and 2022.

The consistency in operating margin despite lower revenues was primarily the result of disciplined project and customer selection offsetting lower volume leverage during the three months ended September 30, 2023.

Specialty Services EBITDA as a percentage of net revenues for the three months ended September 30, 2023 and 2022 was approximately 12.3% and 12.4%, respectively, due to the factors discussed above.

Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022

Nine Months Ended September 30, Change

($ in millions) 2023 2022 $ %

Net revenues $ 5,169 $ 4,855 $ 314 6.5 %

Cost of revenues 3,737 3,604 133 3.7 %

Gross profit 1,432 1,251 181 14.5 %

Selling, general, and administrative expenses 1,148 1,138 10 0.9 %

Operating income 284 113 171 151.3 %

Interest expense, net 112 88 24 27.3 %

Loss (gain) on extinguishment of debt, net 3 (5) 8 (160.0) %

Non-service pension benefit (9) (32) 23 (71.9) %

Investment income and other, net (9) (5) (4) 80.0 %

Other expense, net 97 46 51 110.9 %

Income before income taxes 187 67 120 179.1 %

Income tax provision 59 16 43 268.8 %

Net income $ 128 $ 51 $ 77 151.0 %

Net revenues for the nine months ended September 30, 2023 were $5,169 million compared to $4,855 million for the same period in 2022, an increase of $314 million or 6.5%.

The increase in net revenues occurred in both the Safety Services and Specialty Services segments and was driven by growth in inspection, service, and monitoring revenue.

The following table presents our gross profit (net revenues less cost of revenues) and gross margin (gross profit as a percentage of net revenues) for the nine months ended September 30, 2023 and 2022, respectively:

Nine Months Ended September 30, Change

($ in millions) 2023 2022 $ %

Gross profit $ 1,432 $ 1,251 $ 181 14.5 %

Gross margin 27.7 % 25.8 %

Our gross profit for the nine months ended September 30, 2023 was $1,432 million compared to $1,251 million for the same period in 2022, an increase of $181 million, or 14.5%.

Gross margin was 27.7%, an increase of 190 basis points compared to the prior year period, primarily due to disciplined project and customer selection within our Safety Services and Specialty Services segments and pricing improvements, as well as an improved mix of inspection, service, and monitoring revenue, which generates higher margins.

Operating expenses

The following table presents operating expenses and operating margin (operating income (loss) as a percentage of net revenues) for the nine months ended September 30, 2023 and 2022, respectively:

Nine Months Ended September 30, Change

($ in millions) 2023 2022 $ %

Selling, general, and administrative expenses $ 1,148 $ 1,138 $ 10 0.9 %

SG&A expense as a % of net revenues 22.2 % 23.4 %

Operating margin 5.5 % 2.3 %

SG&A expenses (excluding amortization and impairment) (Non-GAAP) $ 988 $ 995 $ (7) (0.7 %)

SG&A expenses (excluding amortization and impairment) as a % of net revenues 19.1 % 20.5 %

SG&A expenses (excluding amortization) (Non-GAAP) $ 342 $ 304 $ 38 12.5 %

SG&A expenses (excluding amortization) as a % of net revenues (Non-GAAP) 21.4 % 18.8 %

Selling, general, and administrative expenses

Our SG&A expenses for the nine months ended September 30, 2023 were $1,148 million compared to $1,138 million for the same period in 2022, an increase of $10 million.

SG&A expenses as a percentage of net revenues was 22.2% during the nine months ended September 30, 2023 compared to 23.4% for the same period in 2022.

The decrease in expenses as a percentage of net revenues was driven by lower acquisition and integration related expenses incurred, better leverage of SG&A expenses across a growing revenue base, and changes in estimates to acquired liabilities in the nine months ended September 30, 2023 compared to the same period in the prior year, partially offset by an impairment charge of $13 million related to assets held for sale and investments to support growth in our Safety Services segment.

Our SG&A expenses excluding amortization and impairment for the nine months ended September 30, 2023 were $988 million, or 19.1% of net revenues, compared to $995 million, or 20.5% of net revenues, for the same period of 2022 primarily due to the factors discussed above.

Our SG&A expenses for the three months ended March 31, 2024 were $392 million compared to $352 million for the same period in 2023, an increase of $40 million.

SG&A expenses as a percentage of net revenues was 24.5% during the three months ended March 31, 2024 compared to 21.8% for the same period in 2023.

The increase in SG&A expenses as a percentage of net revenues was primarily driven by investments to support our Safety Services and Specialty Services segments in the three months ended March 31, 2024 compared to 2023.

The increase was also due to third party advisor costs related to the Series B Preferred Stock Conversion that are non-recurring in nature.

Our SG&A expenses excluding amortization for the three months ended March 31, 2024 were $342 million, or 21.4% of net revenues, compared to $304 million, or 18.8% of net revenues, for the same period of 2023.

The increase in SG&A expenses excluding amortization as a percentage of net revenues is primarily due to the factors discussed above.

See the discussion and reconciliation of our non-U.S.

1 unchanged sentence

Interest expense, net

Interest expense was $112 million and $88 million for the nine months ended September 30, 2023 and 2022, respectively.

Interest expense was $34 million and $37 million for the three months ended March 31, 2024 and 2023, respectively.

The decrease in interest expense was primarily due to the decrease in the average outstanding principal amounts of our floating rate debt, partially offset by an increase in interest rates on our floating interest rate debt.

Loss on extinguishment of debt, net

During the nine months ended September 30, 2023, we made payments of $100 million and $100 million of the outstanding principal amount of the 2019 Term Loan and 2021 Term Loan, respectively.

During 2023, we made aggregate payments of $200 million to pay down outstanding principal amounts of the 2019 Term Loan and 2021 Term Loan.

In connection with the payments, we recognized a net loss on debt extinguishment of $3 million.

Non-service pension benefit

The non-service pension benefit was $9 million and $32 million for the nine months ended September 30, 2023 and 2022, respectively.

The change was due to higher interest costs due to higher discount rates and lower expected return on asset benefit compared to the same period of the prior year.

Investment income and other, net

Investment income and other, net was $9 million and $5 million for the nine months ended September 30, 2023 and 2022, respectively.

The increase in investment income was primarily due to an increase in earnings from joint ventures.

Investment expense (income) and other, net

Investment expense and other, net was $3 million for the three months ended March 31, 2024 compared to income of $5 million the prior year.

The increase in investment expense and other was primarily due to an increase in non-service pension costs in the current year.

Income tax provision

The income tax provision for the nine months ended September 30, 2023 was an expense of $59 million compared to $16 million in the same period of 2022.

This change was driven by increased generated income before taxes in the nine months ended September 30, 2023 compared to the same period of the prior year, and the reversal of the permanent reinvestment assertion, which was $9 million of benefit in 2022.

The effective tax rate for the nine months ended September 30, 2023 was 31.3%, compared to 24.2% in the same period of 2022.

The difference in the effective tax rate was driven by discrete and nondeductible permanent items, primarily the reversal of our indefinite reinvestment assertion in 2022.

The effective tax rate for the three months ended March 31, 2024 was 28.0%, compared to 30.6% in the same period of 2023 .

The difference in the effective tax rate was driven by changes to the forecasted geographical income mix offset by discrete items.

The difference between the effective tax rate and the statutory U.S.

federal income tax rate of 21.0% is due to the nondeductible permanent items, taxes on foreign earnings in jurisdictions that have higher tax rates, state taxes, and discrete items.

federal income tax rate of 21.0% is due to the nondeductible permanent items, taxes on foreign earnings in jurisdictions that have higher tax rates, and state taxes.

The Organization for Economic Co-operation and Development has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar 2), with

certain aspects of Pillar 2 effective January 1, 2024 and other aspects effective January 1, 2025.

While it is uncertain whether the U.S.

will enact legislation to adopt Pillar 2, certain countries in which the Company operates have adopted the legislation, and other countries are in the process of introducing legislation to implement Pillar 2.

The Company is continuing to evaluate and monitor but does not expect for Pillar 2 to have a material impact on the effective tax rate or the consolidated financial statements.

Net income and EBITDA

The following table presents net income and EBITDA for the nine months ended September 30, 2023 and 2022, respectively:

Nine Months Ended September 30, Change

The following table presents net income and EBITDA for the three months ended March 31, 2024 and 2023, respectively:

Three Months Ended March 31, Change

($ in millions) 2024 2023 $ %

3 unchanged sentences

EBITDA as a % of net revenues 10.4 % 9.2 %

Our net income for the nine months ended September 30, 2023 was $128 million compared to $51 million for the same period in 2022, an increase of $77 million.

The improvement primarily resulted from disciplined project and customer selection, pricing improvements within our Safety Services and Specialty Services segments, and growth in inspection, service, and monitoring revenue.

The increase was also due to a decrease in operating expenses driven by lower acquisition and integration related expenses.

The increase in net income was partially offset by an impairment charge of $13 million related to assets held for sale.

Net income as a percentage of net revenues for the nine months ended September 30, 2023 and 2022 was 2.5% and 1.1%, respectively.

EBITDA for the nine months ended September 30, 2023 was $525 million compared to $380 million for the same period in 2022, an increase of $145 million.

Our net income for the three months ended March 31, 2024 was $45 million compared to $26 million for the same period in 2023, an increase of $19 million.

Net income as a percentage of net revenues for the three months ended March 31, 2024 and 2023 was 2.8% and 1.6%, respectively.

The improvement is primarily attributable to growth in inspection, service, and monitoring revenue and pricing improvements in our Safety Services segment, in addition to improved operating margin due to disciplined project and customer selection in our Specialty Services segment.

The net income increase was partially offset by an increase in non-service pension costs of approximately $7 million.

EBITDA for the three months ended March 31, 2024 was $166 million compared to $149 million for the same period in 2023, an increase of $17 million.

The increase in EBITDA was primarily driven by the factors previously discussed.

1 unchanged sentence

GAAP financial measures below.

Operating Segment Results for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022

Nine Months Ended September 30, Change

Operating Segment Results for the three months ended March 31, 2024 compared to the three months ended March 31, 2023

Three Months Ended March 31, Change

($ in millions) 2024 2023 $ %

4 unchanged sentences

Operating Income (Loss)

Nine Months Ended September 30, Change

Three Months Ended March 31, Change

($ in millions) 2024 2023 $ %

1 unchanged sentence

Safety Services operating margin 10.3 % 8.1 %

Specialty Services $ 84 $ 70 $ 14 20.0 %

Specialty Services $ 7 $ — $ 7 NM

Specialty Services operating margin 1.8 % — %

1 unchanged sentence

$ 100 $ 73 $ 27 37.0 %

Nine Months Ended September 30, Change

Three Months Ended March 31, Change

($ in millions) 2024 2023 $ %

6 unchanged sentences

NM = Not meaningful

The following discussion breaks down the net revenues, operating income (loss), and EBITDA by operating segment for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

The following discussion breaks down the net revenues, operating income (loss), and EBITDA by operating segment for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Safety Services

Safety Services net revenues for the nine months ended September 30, 2023 increased by $259 million or 7.7% compared to the same period in 2022.

The increase was driven by increased inspection, service, and monitoring revenue.

This increase was also due to continued strength in our end markets and strategic pricing improvements.

Safety Services operating margin for the nine months ended September 30, 2023 and 2022 was approximately 8.0% and 5.5%, respectively.

The increase was primarily the result of disciplined project and customer selection, pricing improvements, and improved mix of inspection, service, and monitoring revenue, which generates higher margins.

The increase was also driven by lower acquisition and integration related expenses incurred in the nine months ended September 30, 2023 compared to the same period in 2022.

Safety Services EBITDA as a percentage of net revenues for the nine months ended September 30, 2023 and 2022 was approximately 12.4% and 10.7%, respectively.

Safety Services net revenues for the three months ended March 31, 2024 increased by $23 million or 1.9% compared to the same period in 2023.

The increase was primarily driven by increased inspection, service, and monitoring revenue.

This increase was also due to continued strength in our new and existing end markets and strategic pricing improvements.

Safety Services operating margin for the three months ended March 31, 2024 and 2023 was approximately 10.3% and 8.1%, respectively.

The increase was primarily the result of disciplined project and customer selection, pricing improvements, improved mix of inspection, service and monitoring revenue, which generates higher margins, and savings in our Safety Services segment related to the Chubb restructuring program.

Safety Services EBITDA as a percentage of net revenues for the three months ended March 31, 2024 and 2023 was approximately 13.4% and 12.3%, respectively.

This increase was primarily related to the factors discussed above.

Specialty Services

Specialty Services net revenues for the nine months ended September 30, 2023 increased by $34 million or 2.2% compared to the same period in 2022.

The increase was primarily driven by an increase in service revenue in the infrastructure, utility, and specialty contracting markets during the nine months ended September 30, 2023 compared to the same period in 2022.

Specialty Services operating margin for the nine months ended September 30, 2023 and 2022 was approximately 5.4% and 4.6%, respectively.

The increase was primarily the result of disciplined project and customer selection during the nine months ended September 30, 2023.

Specialty Services EBITDA as a percentage of net revenues for the nine months ended September 30, 2023 and 2022 was approximately 10.7% and 10.1%, respectively, due to the factors discussed above.

Specialty Services net revenues for the three months ended March 31, 2024 decreased by $41 million or 9.5% compared to the same period in 2023.

The decrease was primarily due to continued disciplined project and customer selection on longer term projects and the planned exit of a customer relationship in the Infrastructure/Utility reporting unit.

Specialty Services operating margin was approximately 1.8% and 0% for the three months ended March 31, 2024 and 2023, respectively.

The increase was primarily the result of disciplined project and customer selection.

Specialty Services EBITDA as a percentage of net revenues for the three months ended March 31, 2024 and 2023 was approximately 8.5% and 6.3%, respectively, due to the factors discussed above.

Non-GAAP Financial Measures

We supplement our reporting of consolidated financial information determined in accordance with U.S.

GAAP with SG&A expenses (excluding amortization and impairment) and EBITDA (defined below), which are non-U.S.

GAAP with SG&A expenses (excluding amortization) and EBITDA (defined below), which are non-U.S.

GAAP financial measures.

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GAAP to be recorded in our financial statements and may not be comparable to similarly titled measures of other companies due to potential differences in calculation methods.

In addition, these measures are subject to inherent

limitations as they reflect the exercise of judgment by management about which items are excluded or included in determining these non-U.S.

In addition, these measures are subject to inherent limitations as they reflect the exercise of judgment by management about which items are excluded or included in determining these non-U.S.

GAAP financial measures.

Investors are encouraged to review the following reconciliations of these non-U.S.

Investors are encouraged to review the following reconciliations of

these non-U.S.

GAAP financial measures to the most comparable U.S.

GAAP financial measures and not to rely on any single financial measure to evaluate our business.

SG&A expenses (excluding amortization and impairment)

SG&A expenses (excluding amortization and impairment) is a measure of operating costs used by management to manage the business and its segments.

SG&A expenses (excluding amortization)

SG&A expenses (excluding amortization) is a measure of operating costs used by management to manage the business and its segments.

We believe this non-U.S.

GAAP measure provides meaningful information and helps investors understand our core selling, general, and administrative expenses excluding acquisition-related amortization expense and impairment charges to better enable investors to understand our financial results and assess our prospects for future performance.

The following tables present reconciliations of SG&A expenses to SG&A expenses (excluding amortization and impairment) for the periods indicated:

Three Months Ended September 30,

($ in millions) 2023 2022

Reported SG&A expenses $ 407 $ 379

Adjustments to reconcile to SG&A expenses to SG&A expenses (excluding amortization and impairment)

Amortization expense (49) (36)

Impairment of goodwill, intangibles, and other assets

SG&A expenses (excluding amortization and impairment)

Nine Months Ended September 30,

GAAP measure provides meaningful information and helps investors understand our core selling, general, and administrative expenses excluding acquisition-related amortization expense charges to better enable investors to understand our financial results and assess our prospects for future performance.

The following tables present reconciliations of SG&A expenses to SG&A expenses (excluding amortization) for the periods indicated:

Three Months Ended March 31,

($ in millions) 2024 2023

Reported SG&A expenses $ 392 $ 352

Adjustments to reconcile to SG&A expenses to SG&A expenses (excluding amortization and impairment)

Adjustments to reconcile to SG&A expenses to SG&A expenses (excluding amortization)

Amortization expense (50) (48)

Impairment of goodwill, intangibles, and other assets

SG&A expenses (excluding amortization and impairment)

SG&A expenses (excluding amortization) $ 342 $ 304

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.

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The following table presents a reconciliation of net income to EBITDA for the periods indicated:

Three Months Ended September 30,

($ in millions) 2023 2022

Reported net income

Adjustments to reconcile net income to EBITDA:

Interest expense, net 37 33

Income tax provision 20 18

Depreciation 21 22

Amortization 56 51

EBITDA $ 188 $ 152

Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions) 2024 2023

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L IQUIDITY A ND C APITAL R ESOURCES

Our primary sources of liquidity are cash flows from the operating activities of our consolidated subsidiaries, available cash and cash equivalents, access to our $500 million five-year senior secured revolving credit facility (the "Revolving Credit Facility") and the proceeds from debt offerings.

Our primary sources of liquidity are cash flows from the operating activities of our consolidated subsidiaries, available cash and cash equivalents, our access to our $500 million five year senior secured revolving credit facility (the "Revolving Credit Facility") and the proceeds from debt offerings.

We believe these sources will be sufficient to fund our liquidity requirements for at least the next twelve months.

Although we believe we have sufficient resources to fund our future cash requirements, there are many factors with the potential to influence our cash flow position including weather, seasonality, commodity prices, market conditions, and inflation, over which we have no control.

As of September 30, 2023, we had $945 million of total liquidity, comprising $461 million in cash and cash equivalents and $484 million ($500 million less outstanding letters of credit of approximately $16 million, which reduce availability) of available borrowings under our Revolving Credit Facility.

During 2022, we issued and sold 800,000 shares of Series B Preferred Stock (defined below) for an aggregate purchase price of $800 million, and entered into an amendment to our credit agreement.

As part of this amendment, we entered into a $1,100 million seven-year incremental term loan ("2021 Term Loan"), the Revolving Credit Facility was upsized by $200 million to $500 million, the maturity date of the Revolving Credit Facility was extended five years, and the letter of credit sublimit was increased by $100 million to $250 million.

As of March 31, 2024, we had $643 million of total liquidity, comprising $247 million in cash and cash equivalents and $396 million ($400 million less outstanding letters of credit of approximately $4 million, which reduce availability) of available borrowings under our Revolving Credit Facility.

During 2022, we entered into an amendment to our credit agreement.

As part of this amendment, we entered into a $1,100 million seven year incremental term loan ("2021 Term Loan"), the Revolving Credit Facility was upsized by $200 million to $500 million, the maturity date of the Revolving Credit Facility was extended five years, and the letter of credit limit was increased by $100 million to $250 million.

During 2023, we completed the Fourth Amendment to our credit agreement, repricing our 2019 Term Loan and 2021 Term Loan.

The repricing reduced the applicable margin on all outstanding amounts by 25 basis points.

Additionally, $422 million of the 2019 Term Loan was extended to the 2021 Term Loan and assumed all the same terms as the repriced 2021 Term Loan.

We made a repayment of $100 million on the 2019 Term Loan concurrent with the close of this transaction.

During the three months ended March 31, 2024, we upsized our 2021 Term Loan by $300 million with a Fifth Amendment to our credit agreement.

The loan proceeds were directed as consideration for a portion of the purchase price for the Series B Preferred Stock Conversion.

During the three months ended March 31, 2024, we drew $100 million under the Revolving Credit Facility to fund a portion of the purchase price for the Series B Preferred Stock Conversion.

We expect to continue to be able to access the capital markets through equity and debt offerings for liquidity purposes as needed.

Our principal liquidity requirements have been, and we expect will continue to be, for working capital and general corporate purposes, including capital expenditures and debt service, any accrued consideration and compensation due to selling shareholders, including tax payments in connection therewith, as well as to identify, execute, and integrate strategic acquisitions and business transformation transactions or initiatives.

In 2022, our Board of Directors authorized a stock repurchase program, authorizing the purchase of up to an aggregate of $250 million of common stock through February 2024.

During the three and nine months ended September 30, 2023, we repurchased 656,489 and 1,626,493 shares of common stock for aggregate payments of approximately $18 million and $41 million under this stock repurchase program, respectively, leaving approximately $166 million of authorized repurchases.

On February 26, 2024, our Board of Directors authorized a stock repurchase program ("SRP") to purchase up to an aggregate of $1,000 million of shares of our common stock.

This stock repurchase program is indefinite, unless otherwise modified or terminated by our Board of Directors at any time in its sole discretion.

During the three months ended March 31, 2024, we repurchased 16,260,160 shares of common stock for approximately $600 million.

As of March 31, 2024, we had approximately $400 million of authorized repurchases remaining under the SRP.

In 2022, our Board of Directors authorized a stock repurchase program ("2022 SRP"), authorizing the purchase of up to an aggregate of $250 million of common stock through February 2024.

The 2022 SRP expired on February 29, 2024.

The following table summarizes net cash flows with respect to our operating, investing and financing activities for the periods indicated:

Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions) 2024 2023

Net cash provided by operating activities $ 217 $ 82

Net cash provided by (used in) operating activities $ 7 $ (1)

Net cash used in investing activities (22) (27)

Net cash (used in) provided by financing activities (253) 1,773

Net cash used in financing activities (213) (216)

Effect of foreign currency exchange rate change on cash, cash equivalents, and restricted cash (4) 2

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Cash, cash equivalents, and restricted cash, end of period $ 248 $ 365

Net Cash Provided by Operating Activities

Net cash provided by operating activities was $217 million for the nine months ended September 30, 2023 compared to $82 million of cash used for the same period in 2022.

Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities was $7 million for the three months ended March 31, 2024 compared to $1 million of cash used for the same period in 2023.

The increase in cash provided by operating activities is primarily due to an increase in net income in the period.

This increase in cash provided is also driven by lower working capital needs associated with the various services we provided in the nine months ended September 30, 2023 compared to the same period of the prior year.

This increase in cash provided by operating activities is also driven by lower working capital needs associated with the various services we provided in the three months ended March 31, 2024 compared to the

same period of the prior year.

Cash flow from operations is primarily driven by changes in the mix and timing of demand for our services and working capital needs associated with the various services we provide.

Working capital is primarily affected by changes in total accounts receivable, accounts payable, accrued expenses, and contract assets and contract liabilities, all of which tend to be related and are affected by changes in the timing and volume of work performed.

The increase in cash provided by operating activities in the current year is also due to a one-time contribution to an assumed pension plan of $27 million during the nine months ended September 30, 2022.

Net Cash Used in Investing Activities

Net cash used in investing activities was $108 million for the nine months ended September 30, 2023 compared to $2,931 million for the same period in 2022.

During 2022, we completed the Chubb Acquisition resulting in the use of $2,881 million for acquisitions during the nine months ended September 30, 2022 compared to $57 million for the same period in 2023.

Net Cash (Used in) Provided by Financing Activities

Net cash used in financing activities was $(253) million for the nine months ended September 30, 2023 compared to $1,773 million provided by financing activities for the same period in 2022.

The decrease in cash provided by financing activities was primarily driven by equity and debt issuances in the nine months ended September 30, 2022 related to the Chubb Acquisition.

In the nine months ended September 30, 2022, cash provided by financing activities was higher due to $1,104 million of proceeds from the issuance of the 2021 Term Loan and other debt, and $797 million of proceeds from the issuance of Series B Preferred Stock.

The increase in cash used in financing activities in the nine months ended September 30, 2023 was also driven by $206 million of payments on long-term borrowings.

Net cash used in investing activities was $22 million for the three months ended March 31, 2024 compared to $27 million for the same period in 2023.

We had proceeds on the sale of property and equipment of $23 million during the three months ended March 31, 2024 compared to $4 million for the same period in 2023, partially offset by cash used in acquisitions of $23 million and $10 million in the three months ended March 31, 2024 and 2023, respectively.

Net Cash Used in Financing Activities

Net cash used in financing activities was $213 million for the three months ended March 31, 2024 compared to $216 million used in financing activities for the same period in 2023.

The consistent use of cash in financing activities was primarily driven by equity and stock repurchases in the three months ended March 31, 2024 related to the Series B Preferred Stock Conversion.

In the three months ended March 31, 2024, $400 million of proceeds from the 2021 Term Loan and Revolving Credit Facility were used for share repurchases of $600 million during the Series B Preferred Stock Conversion.

The cash used in financing activities in the three months ended March 31, 2023 was driven by $202 million of aggregate payments on the 2019 Term Loan and 2021 Term Loan.

Financing Activities

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We have entered into a Credit Agreement by and among APi Group DE, Inc., our wholly-owned subsidiary, as borrower ("APi Group DE"), APG as a guarantor, the subsidiary guarantors from time to time party thereto, the lenders from time to time party thereto, and Citibank N.A., as administrative agent and as collateral agent (the “Credit Agreement”) which provides for:

(1) a term loan facility, pursuant to which we incurred the $1,200 million 2019 Term Loan used to fund a part of the cash portion of the purchase price in the APi Acquisition, and a $1,100 million seven-year incremental term loan ("2021 Term Loan") used to fund a portion of the purchase price in the Chubb acquisition, and (2) a $500 million Revolving Credit Facility of which up to $250 million can be used for the issuance of letters of credit.

On October 11, 2023, we completed repricing of our 2019 Term Loan and 2021 Term Loan.

(1) a term loan facility, pursuant to which we incurred the $1,200 million term loan ("2019 Term Loan") used to fund a part of the cash portion of the purchase price in the APi Acquisition, and a $1,100 million seven-year incremental term loan ("2021 Term Loan") used to fund a portion of the purchase price in the Chubb acquisition, and (2) a $500 million Revolving Credit Facility of which up to $250 million can be used for the issuance of letters of credit.

During the three months ended March 31, 2024, we completed the Fifth Amendment to our credit agreement, upsizing our 2021 Term Loan by an aggregate principal amount equal to $300.

The loan proceeds were directed as consideration for a portion of the purchase price for the Series B Preferred Stock Conversion.

In 2023, we completed repricing of our 2019 Term Loan and 2021 Term Loan.

The repricing reduces the applicable margin on all outstanding amounts by 25 basis points.

Additionally, $422 million of the 2019 Term Loan was extended to the 2021 Term Loan and assumed all the same terms as the repriced 2021 Term Loan.

We made a repayment of $100 million on the 2019 Term Loan concurrent with the close of this transaction.

Following the repricing transaction, we have $505 million outstanding on 2019 Term Loan and $1,407 million outstanding on the 2021 Term Loan.

Following the debt repricing transaction, the amended interest rate applicable to the 2019 Term Loan is, at our option, either (a) a base rate plus an applicable margin equal to 1.25% or (b) a Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.25% plus a credit spread adjustment ("CSA").

Principal payments on the 2019 Term Loan are due in quarterly installments on the last day of each fiscal quarter, unless prepayments are made, for a total annual amount equal to 1.00% of the initial aggregate principal amount of the 2019 Term Loan.

The amended interest rate applicable to the 2019 Term Loan is, at our option, either (a) a base rate plus an applicable margin equal to 1.25% or (b) a Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.25% plus a credit spread adjustment ("CSA").

Principal payments on the 2019 Term Loan are due in quarterly installments on the last day of each fiscal quarter, unless prepayments are made, for a total total annual amount equal to 1.00% of the initial aggregate principal amount of the 2019 Term Loan.

The 2019 Term Loan matures on October 1, 2026.

Following the debt repricing transaction, the amended interest rate applicable to the 2021 Term Loan is, at our option, either (a) a base rate plus an applicable margin equal to 1.50% or (b) a Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.50% plus a CSA.

Principal payments on the 2021 Term Loan will be made in quarterly installments on the last day of each fiscal quarter, for a total annual amount equal to 1.00% of the initial aggregate principal amount of the 2021 Term Loan.

Based on the early prepayments we have made, we do not owe any quarterly principal amounts for the remainder of the 2019 Term Loan.

The amended interest rate applicable to the 2021 Term Loan is, at our option, either (a) a base rate plus an applicable margin equal to 1.50% or (b) a Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.50% plus a CSA.

Principal payments on the 2021 Term Loan will be made in quarterly installments on the last day of each fiscal quarter, for a total total annual amount equal to 1.00% of the initial aggregate principal amount of the 2021 Term Loan.

The 2021 Term Loan matures on January 3, 2029.

The 2021 Term Loan is subject to the same mandatory prepayment provisions as the 2019 Term Loan.

Based on the early prepayments we have made, we do not owe any quarterly principal amounts for the remainder of the 2021 Term Loan.

The interest rate applicable to borrowings under the Revolving Credit Facility is, at our option, either (a) a base rate plus an applicable margin equal to 1.25% or (2) a Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.25% plus a CSA.

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Furthermore, with respect to the revolving credit facility, we must maintain a first lien net leverage ratio that does not exceed (i) 4.00 to 1.00 for each fiscal quarter ending in 2021, and (ii) 3.75 to 1.00 for each fiscal quarter ending thereafter, if on the last day of any fiscal quarter the outstanding amount of all revolving loans and letter of credit obligations (excluding undrawn letters of credit up to $40 million) under the Credit Agreement is greater than 30% of the total revolving credit commitments thereunder subject to a right of cure.

Our first lien net leverage ratio as of September 30, 2023 was 1.92:1.00.

During the nine months ended September 30, 2023, we repaid an aggregate amount of $200 million, $100 million to each of the 2019 Term Loan and 2021 Term Loan.

As a result, as of September 30, 2023, the 2019 Term Loan and the 2021 Term Loan had remaining principal amounts of $1,027 million and $985 million, respectively.

On October 11, 2023, we made a repayment of $100 million on the 2019 Term Loan concurrent with the close of the repricing transaction.

Following the repricing transaction, we have $505 million outstanding on 2019 Term Loan and $1,407 million outstanding on the 2021 Term Loan.

We had no amounts outstanding under the Revolving Credit Facility, under which $484 million was available after giving effect to $16 million of outstanding letters of credit, which reduces availability.

Our first lien net leverage ratio as of March 31, 2024 was 2.09:1.00.

As of March 31, 2024, the 2019 Term Loan and the 2021 Term Loan have remaining principal amounts of $330 million and $1,707 million, respectively.

We had $100 million outstanding under the Revolving Credit Facility, under which $396 million was available after giving effect to $4 million of outstanding letters of credit, which reduces availability.

On April 30, 2024, we began a process to reprice our 2021 Term Loan with a remaining principal balance of $1,707 million.

We expect that the repricing will reduce the applicable margin on all outstanding amounts.

Additionally, we expect to increase the existing 2021 Term Loan by approximately $550 million on the same terms as the current 2021 Term Loan.

We expect to use the proceeds of approximately $550 million to refinance the 2019 Term Loan with a remaining principal of $330 million and repay the $100 million Revolving Credit Facility borrowing as well as to provide funds for general corporate purposes, including the acquisition of Elevated Facility Services Group.

We expect the transaction to close in early May 2024.

On June 22, 2021, APi Group DE completed a private offering of $350 million aggregate principal amount of 4.125% Senior Notes due 2029 (the “4.125% Senior Notes”), issued under an indenture, dated June 22, 2021.

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We used the net proceeds from the sale of the 4.125% Senior Notes to repay a previously outstanding term loan, prepay a portion of the 2019 Term Loan and for general corporate purposes.

As of September 30, 2023, we had $337 million aggregate principal amount of 4.125% Senior Notes outstanding.

On October 21, 2021, APi Escrow Corp, a wholly-owned subsidiary of the Company, completed a private offering of $300 million aggregate principal amount of 4.750% Senior Notes due 2029 (the “4.750% Senior Notes”) issued under an indenture dated October 21, 2021, as supplemented by a supplemental indenture dated January 3, 2022.

As of March 31, 2024, we had $337 million aggregate principal amount of 4.125% Senior Notes outstanding.

On October 21, 2021, a wholly-owned subsidiary of the Company, completed a private offering of $300 million aggregate principal amount of 4.750% Senior Notes due 2029 (the “4.750% Senior Notes”) issued under an indenture dated October 21, 2021, as supplemented by a supplemental indenture dated January 3, 2022.

The 4.750% Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by us and certain of our subsidiaries.

The 4.750% Senior Notes will mature on October 15, 2029, unless earlier redeemed, and bear interest at a rate of 4.750% per year until

maturity, payable semi-annually in arrears.

The 4.750% Senior Notes will mature on October 15, 2029, unless earlier redeemed, and bear interest at a rate of 4.750% per year until maturity, payable semi-annually in arrears.

We used the net proceeds from the sale of the 4.750% Senior Notes to finance a portion of the consideration for the Chubb Acquisition.

As of September 30, 2023, we had $277 million aggregate principal amount of 4.750% Senior Notes outstanding.

As of March 31, 2024, we had $277 million aggregate principal amount of 4.750% Senior Notes outstanding.

Debt Covenants

We were in compliance with all covenants contained in the indentures governing the 4.125% Senior Notes and 4.750% Senior Notes and Credit Agreement as of September 30, 2023 and December 31, 2022.

Issuance of Series B Preferred Stock

During 2022, we issued and sold 800,000 shares of our 5.5% Series B Redeemable Convertible Preferred Stock, par value $0.0001 per share (the "Series B Preferred Stock"), for an aggregate purchase price of $800 million, pursuant to securities purchase agreements entered into on July 26, 2021 with certain investors.

We were in compliance with all covenants contained in the indentures governing the 4.125% Senior Notes and 4.750% Senior Notes and Credit Agreement as of March 31, 2024 and December 31, 2023.

Issuance and Conversion of Series B Preferred Stock

securities purchase agreements entered into on July 26, 2021 with certain investors.

The net proceeds from the Series B Preferred Stock issuance were used to fund a portion of the consideration for the Chubb Acquisition.

The holders of the Series B Preferred Stock are entitled to dividends at the rate of 5.5% per annum, payable in cash or common stock, at our election.

The Series B Preferred Stock ranks senior to our common stock and Series A Preferred Stock with respect to dividend rights and rights upon the voluntary or involuntary liquidation, dissolution, or winding up of our affairs.

The Series B Preferred Stock is convertible, at the holder’s option, into shares of our common stock at a conversion price equal to $24.60 per share, subject to certain customary adjustments.

The holders of Series B Preferred Stock have certain other rights including voting rights on an as-converted basis, certain pre-emptive rights on our private equity offerings, certain registration rights, and, in the case of certain holders, certain director designation rights, as provided in the certificate of designation governing the Series B Preferred Stock.

We may, at our option, effect conversion of the outstanding shares of Series B Preferred Stock to common stock, but only if the volume-weighted average price of our common stock exceeds $36.90 per share for 15 consecutive trading days.

On February 28, 2024, we entered into a Conversion and Repurchase Agreement with Juno Lower Holdings L.P.

("Juno Lower Holdings"), FD Juno Holdings L.P.

("FD Juno Holdings", and together with Juno Lower Holdings, "Blackstone"), Viking Global Equities Master Ltd.

("VGEM") and Viking Global Equities II L.P.

(VGE II, and collectively with VGEM, "Viking" and collectively with the Blackstone, the "Series B Holders") pursuant to which Blackstone and Viking agreed to convert all of the outstanding shares of the Series B Preferred Stock that they hold, which represents all of the Series B Preferred Stock outstanding.

The transactions contemplated by the agreement (the "Series B Preferred Stock Conversion") were also consummated on February 28, 2024.

Under the terms of the agreement, (i) the Series B Holders each agreed to exercise their respective right to convert all of their Series B Preferred Stock into common stock, resulting in a total of 800,000 shares of Series B Preferred Stock being converted into approximately 32,803,519 shares of common stock (inclusive of approximately 283,196 shares attributable to accrued and unpaid dividends thereon (the "Conversion Shares") and (ii) upon issuance of the Conversion Shares, we agreed to immediately repurchase one-half of the Conversion Shares, on a pro rata basis, from the Series B Holders for an aggregate purchase price of $600.

The repurchase price was financed by (i) an incremental term facility of $300 funded exclusively by Blackstone in the amount of $225 and Viking in the amount of $75 and (ii) cash and available credit from the balance sheet.

Material Cash Requirements from Known Contractual and Other Obligations

Our material cash requirements from known contractual and other obligations primarily relate to the following, for which information on both a short-term and long-term basis is provided in the indicated notes to the Interim Statements and expected to be satisfied using cash generated from operations:

• Operating and Finance Leases – See Note 11 – "Leases" in the Annual Report on Form 10-K filed on March 1, 2023.

We have not had material changes to our lease obligations during the nine months ended September 30, 2023.

• Operating and Finance Leases – See Note 12 – "Leases" in the Annual Report on Form 10-K filed on February 28, 2024.

We have not had material changes to our lease obligations during the three months ended March 31, 2024.

• Debt – See Note 10 – "Debt" for future principal payments and interest rates on our debt instruments.

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We make investments in our properties and equipment to enable continued expansion and effective performance of our business.

Our capital expenditures are expected to be approximately 1.5% of annual net revenues.

Our capital expenditures are typically less than 1.5% of annual net revenues.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk

As of March 31, 2024, our outstanding variable interest rate debt was primarily related to our 2019 Term Loan and our 2021 Term Loan.

As of March 31, 2024, we had $330 million outstanding on the 2019 Term Loan and $1,707 million outstanding on the 2021 Term Loan.

To mitigate increases in variable interest rates, we have a $720 million interest rate swap, exchanging one-month SOFR for a rate of 3.59% per annum and a $400 million interest rate swap exchanging one-month SOFR for a rate of 3.41% per annum.

In addition, interest expense will be offset by the amortization through October 2024 of the remaining gain of $10 million recognized from the termination of the previously outstanding $720 million notional amount interest rate swap.

The remaining floating rate portfolio will bear interest based on one-month SOFR plus CSA plus 225 basis points (for the 2019 Term Loan) or one-month SOFR plus CSA plus 250 basis points (for the 2021 Term Loan).

As of March 31, 2024, excluding letters of credit outstanding of $4 million, we had $100 million of outstanding revolving loans under our Credit Agreement.

Foreign currency risk

We have operations in over 20 countries globally.

Revenues generated from foreign operations represented approximately 40% of our consolidated net revenues for three months ended March 31, 2024.

Net revenues and expenses related to our foreign operations are, for the most part, denominated in the functional currency of the foreign operation, which

minimizes the impact fluctuations in exchange rates would have on net income or loss.

We are subject to fluctuations in foreign currency exchange rates when transactions are denominated in currencies other than the functional currencies.

Such transactions were not material to our operations during the three months ended March 31, 2024.

These foreign currency transaction gains and losses, including hedging impacts, are classified in investment expense (income) and other, net, in the condensed consolidated statements of operations and were a (loss) gain of $(1) million and $— million for three months ended March 31, 2024 and 2023, respectively.

These net foreign currency transaction gains and losses include derivative instruments designed to reduce foreign currency exchange rate risks.

Translation gains or losses, which are recorded in accumulated other comprehensive loss in the condensed consolidated balance sheets, result from translation of the assets and liabilities of our foreign subsidiaries into U.S.

Foreign currency translation (losses) gains totaled approximately $(42) million and $14 million for the three months ended March 31, 2024 and 2023, respectively.

Our exposure to fluctuations in foreign currency exchange rates has increased as a result of our international presence and may continue to increase in the future if we continue to expand our operations outside of the U.S.

We seek to manage foreign currency exposure by minimizing our consolidated net assets and liability positions in currencies other than the functional currency of our foreign subsidiaries.

However, we believe that our exposure to transactional gains or losses resulting from fluctuations in foreign currencies is limited because our foreign operations primarily invoice and collect receivables in their respective local or functional currencies, and the expenses associated with these transactions are generally contracted and paid for in the same local currencies.

In order to manage foreign currency risk related to transactions in foreign currencies and the intercompany financing structure, we entered into cross-currency swaps to manage the foreign currency risk of certain intercompany loans.

We also use foreign currency contracts as a way to mitigate foreign currency exposure.

Other market risk

We are also exposed to market risks impacting our customer base due to the potential related impact on accounts receivable or contract assets on uncompleted contracts.

The amounts recorded may be at risk if our customers’ ability to pay these obligations is negatively impacted by economic conditions.

We continually monitor the creditworthiness of our customers and maintain ongoing discussions with customers regarding contract status with respect to change orders and billing terms.

Therefore, management believes it takes appropriate action to manage market and other risks, but there is no assurance management will be able to reasonably identify all risks with respect to the collectability of these assets.

See also “Revenue Recognition from Contracts with Customers” under Critical Accounting Estimates within Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

In addition, we are exposed to various supply chain risks, including the market risk of price fluctuations or availability of copper, steel, cable optic fiber, and other materials used as components of supplies or materials utilized in our operations.

We are also exposed to increases in energy prices, particularly as they relate to gasoline prices for our vehicle fleet.

Disruptions in our supply chain can occur due to market inefficiencies but can also be driven by other events, like cybersecurity breaches, pandemics, or similar disruptive events.

While we believe we can increase our contract prices to adjust for some price increases in commodities, there can be no assurance that such price increases, if they were to occur, would be recoverable.

Additionally, some of our fixed price contracts do not allow us to adjust prices and, as a result, increases in material costs could reduce profitability with respect to projects in progress.

Significant declines in market prices for oil, gas, and other fuel sources may also impact our operations.

Prolonged periods of low oil and gas prices may result in projects being delayed or canceled, and in a low oil and gas price environment, certain of our businesses could become less profitable or incur losses.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis