What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-01 compared with 2024-05-02 · 233 added, 108 removed, 294 unchanged (54% of the section changed)

28 unchanged sentences

R ECENT D EVELOPMENTS A ND C ERTAIN F ACTORS A ND T RENDS A FFECTING O UR R ESULTS O F O PERATIONS

On June 3, 2024, we completed the acquisition of Elevated Facility Services Group ("Elevated").

The total net consideration for the Elevated acquisition was $570 million.

Elevated is a premier provider of contractually based services for all major brands of elevator and escalator equipment.

For additional information about our acquisition activity, see Note 3 – “Business Combinations" to our condensed consolidated financial statements included herein.

Restructuring

1 unchanged sentence

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

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.

During the six months ended June 30, 2024, we have incurred pre-tax restructuring costs within the Safety Services segment of $5 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.

51 unchanged sentences

R ESULTS O F O PERATIONS

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

The following is a discussion of our financial condition and results of operations during the three and six months ended June 30, 2024 and the three and six months ended June 30, 2023.

Three months ended June 30, 2024 compared to the three months ended June 30, 2023

Three Months Ended June 30, Change

($ in millions) 2024 2023 $ %

5 unchanged sentences

Interest expense, net 35 38 (3) (7.9) %

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

Investment expense (income) and other, net 2 (6) (8) (133.3) %

3 unchanged sentences

Net income $ 69 $ 48 $ 21 43.8 %

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

Net revenues for the three months ended June 30, 2024 were $1,730 million compared to $1,771 million for the same period in 2023, a decrease of $41 million or 2.3%.

The decrease in net revenues was primarily driven by disciplined project and customer selection and project delays in the Specialty Services segment and the divestiture of an Infrastructure/Utility operating company in the Specialty Services segment during 2023, partially offset by growth in inspection, service, and monitoring revenue and acquisitions completed within 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 June 30, 2024 and 2023, respectively:

Three Months Ended June 30, Change

($ in millions) 2024 2023 $ %

1 unchanged sentence

Gross margin 31.4 % 28.0 %

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.

Our gross profit for the three months ended June 30, 2024 was $544 million compared to $496 million for the same period in 2023, an increase of $48 million or 9.7%.

Gross margin for the three months ended June 30, 2024 was 31.4%, an increase of 340 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 March 31, 2024 and 2023, respectively:

Three Months Ended March 31, Change

The following table presents operating expenses and operating margin (operating income as a percentage of net revenues) for the three months ended June 30, 2024 and 2023, respectively:

Three Months Ended June 30, Change

($ in millions) 2024 2023 $ %

5 unchanged sentences

Selling, general, and administrative expenses

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.

Our SG&A expenses for the three months ended June 30, 2024 were $418 million compared to $389 million for the same period in 2023, an increase of $29 million.

SG&A expenses as a percentage of net revenues was 24.2% during the three months ended June 30, 2024 compared to 22.0% for the same period in 2023.

The increase in SG&A expenses was primarily driven by investments to support our Safety Services segment and acquisition costs that are non-recurring in nature in the three months ended June 30, 2024 compared to 2023.

The increase in SG&A expenses was partially offset by savings in our Safety Services segment related to the Chubb restructuring program.

Our SG&A expenses excluding amortization for the three months ended June 30, 2024 were $366 million, or 21.2% of net revenues, compared to $339 million, or 19.1% 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.

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Interest expense, net

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 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.

Interest expense was $35 million and $38 million for the three months ended June 30, 2024 and 2023, respectively.

The decrease in interest expense was primarily due to the investment of the equity and debt cash proceeds prior to the Elevated acquisition.

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.

Investment expense (income) and other, net was expense of $2 million for the three months ended June 30, 2024 compared to income of $6 million for the same period of 2023.

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 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 effective tax rate for the three months ended June 30, 2024 was 22.4% compared to 37.2% in the same period of 2023.

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.

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

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

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.

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Net income and EBITDA

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

The following table presents net income and EBITDA for the three months ended June 30, 2024 and 2023, respectively:

Three Months Ended June 30, Change

($ in millions) 2024 2023 $ %

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EBITDA as a % of net revenues 11.5 % 10.6 %

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.

Our net income for the three months ended June 30, 2024 was $69 million compared to $48 million for the same period in 2023, an increase of $21 million.

The improvement is 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 Safety Services and Specialty Services segments.

The increase is also attributable to savings in our Safety Services segment related to the Chubb restructuring program.

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.

Net income as a percentage of net revenues for the three months ended June 30, 2024 and 2023 was 4.0% and 2.7%, respectively.

EBITDA for the three months ended June 30, 2024 was $199 million compared to $188 million for the same period in 2023, an increase of $11 million.

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

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GAAP financial measures below.

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

Operating Segment Results for the three months ended June 30, 2024 compared to the three months ended June 30, 2023

Three Months Ended June 30, Change

($ in millions) 2024 2023 $ %

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Operating Income (Loss)

Three Months Ended March 31, Change

Three Months Ended June 30, Change

($ in millions) 2024 2023 $ %

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Safety Services operating margin 10.9 % 8.0 %

Specialty Services $ 7 $ — $ 7 NM

Specialty Services $ 35 $ 41 $ (6) (14.6 %)

Specialty Services operating margin 7.7 % 7.4 %

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$ 126 $ 107 $ 19 17.8 %

Three Months Ended March 31, Change

Three Months Ended June 30, Change

($ in millions) 2024 2023 $ %

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NM = Not meaningful

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.

The following discussion breaks down the net revenues, operating income (loss), and EBITDA by operating segment for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

Safety Services

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.

Safety Services net revenues for the three months ended June 30, 2024 increased by $54 million or 4.4% compared to the same period in 2023.

The increase was primarily driven by increased inspection, service, and monitoring revenue and revenue from acquisitions completed during the last year.

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 June 30, 2024 and 2023 was approximately 10.9% and 8.0%, 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.

Safety Services EBITDA as a percentage of net revenues for the three months ended June 30, 2024 and 2023 was approximately 14.4% and 12.2%, respectively.

This increase was primarily related to the factors discussed above.

Specialty Services

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.

Specialty Services net revenues for the three months ended June 30, 2024 decreased by $102 or 18.4% compared to the same period in 2023.

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

The decrease is also due to the divestiture of an Infrastructure/Utility operating company during 2023.

Specialty Services operating margin was approximately 7.7% and 7.4% for the three months ended June 30, 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.

Specialty Services EBITDA as a percentage of net revenues for the three months ended June 30, 2024 and 2023 was approximately 13.7% and 12.4%, respectively, due to the factors discussed above.

Six months ended June 30, 2024 compared to the six months ended June 30, 2023

Six Months Ended June 30, Change

($ in millions) 2024 2023 $ %

Net revenues $ 3,331 $ 3,385 $ (54) (1.6) %

Cost of revenues 2,295 2,464 (169) (6.9) %

Gross profit 1,036 921 115 12.5 %

Selling, general, and administrative expenses 810 741 69 9.3 %

Operating income 226 180 46 25.6 %

Interest expense, net 69 75 (6) (8.0) %

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

Investment expense (income) and other, net 5 (11) (16) (145.5) %

Other expense, net 74 67 7 10.4 %

Income before income taxes 152 113 39 34.5 %

Income tax provision 38 39 (1) (2.6) %

Net income $ 114 $ 74 $ 40 54.1 %

Net revenues for the six months ended June 30, 2024 were $3,331 million compared to $3,385 million for the same period in 2023, a decrease of $54 or 1.6%.

The decrease was primarily driven by disciplined project and customer selection and project delays in the Specialty Services segment and the divestiture of an Infrastructure/Utility operating company in the Specialty Services segment during 2023, 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 six months ended June 30, 2024 and 2023, respectively:

Six Months Ended June 30, Change

($ in millions) 2024 2023 $ %

Gross profit $ 1,036 $ 921 $ 115 12.5 %

Gross margin 31.1 % 27.2 %

Our gross profit for the six months ended June 30, 2024 was $1,036 million compared to $921 million for the same period in 2023, an increase of $115 million, or 12.5%.

Gross margin was 31.1%, an increase of 390 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 (loss) as a percentage of net revenues) for the six months ended June 30, 2024 and 2023, respectively:

Six Months Ended June 30, Change

($ in millions) 2024 2023 $ %

Selling, general, and administrative expenses $ 810 $ 741 $ 69 9.3 %

SG&A expense as a % of net revenues 24.3 % 21.9 %

Operating margin 6.8 % 5.3 %

SG&A expenses (excluding amortization) (non-GAAP) $ 708 $ 643 $ 65 10.1 %

SG&A expenses (excluding amortization) as a % of net revenues (non-GAAP) 21.3 % 19.0 %

Selling, general, and administrative expenses

Our SG&A expenses for the six months ended June 30, 2024 were $810 million compared to $741 million for the same period in 2023, an increase of $69 million.

SG&A expenses as a percentage of net revenues was 24.3% during the six months ended June 30, 2024 compared to 21.9% for the same period in 2023.

The increase in SG&A expenses was primarily driven by investments to support our Safety Services and Specialty Services segments in the six months ended June 30, 2024 compared to 2023.

The increase was also due to acquisition costs and third party advisor costs related to the Series B Preferred Stock Conversion that are non-recurring in nature in the six months ended June 30, 2024.

The increase in SG&A expenses was partially offset by savings in our Safety Services segment related to the Chubb restructuring program.

Our SG&A expenses excluding amortization and impairment for the six months ended June 30, 2024 were $708 million or 21.3% of net revenues, compared to $643 million, or 19.0% of net revenues, for the same period of 2023 primarily due to the factors discussed above.

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

GAAP financial measures below.

Interest expense, net

Interest expense was $69 million and $75 million for the six months ended June 30, 2024 and 2023, respectively.

The decrease in interest expense was primarily due to the investment of the equity and debt cash proceeds prior to the Elevated acquisition and lower debt issuance cost amortization.

Loss on extinguishment of debt, net

During the six months ended June 30, 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.

Investment expense (income) and other, net

Investment expense (income) and other, net was expense of $5 million during the six months ended June 30, 2024 compared to income of $11 million for the same period in 2023 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 six months ended June 30, 2024 was $38 million compared to $39 million in the same period of 2023.

This change was driven by increased generated income before taxes in the six months ended June 30, 2024 compared to the same period of the prior year.

The effective tax rate for the six months ended June 30, 2024 was 24.7%, compared to 35.0% in the same period of 2023.

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, state taxes, and discrete items.

Net income and EBITDA

The following table presents net income and EBITDA for the six months ended June 30, 2024 and 2023, respectively:

Six Months Ended June 30, Change

($ in millions) 2024 2023 $ %

Net income $ 114 $ 74 $ 40 54.1 %

EBITDA (non-GAAP) 365 337 28 8.3 %

Net income as a % of net revenues 3.4 % 2.2 %

EBITDA as a % of net revenues 11.0 % 10.0 %

Our net income for the six months ended June 30, 2024 was $114 million compared to $74 million for the same period in 2023, an increase of $40 million.

The increase in is also attributable to savings in our Safety Services segment related to the Chubb restructuring program.

The net income increase was partially offset by an increase in non-service pension costs of approximately $15 million.

Net income as a percentage of net revenues for the six months ended June 30, 2024 and 2023 was 3.4% and 2.2%, respectively.

EBITDA for the six months ended June 30, 2024 was $365 million compared to $337 million for the same period in 2023, an increase of $28 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 six months ended June 30, 2024 compared to the six months ended June 30, 2023

Six Months Ended June 30, Change

($ in millions) 2024 2023 $ %

Safety Services $ 2,493 $ 2,416 $ 77 3.2 %

Specialty Services 842 985 (143) (14.5) %

Corporate and Eliminations (4) (16) NM NM

$ 3,331 $ 3,385 (54) (1.6) %

Operating Income (Loss)

Six Months Ended June 30, Change

($ in millions) 2024 2023 $ %

Safety Services $ 264 $ 194 $ 70 36.1 %

Safety Services operating margin 10.6 % 8.0 %

Specialty Services $ 42 $ 41 $ 1 2.4 %

Specialty Services operating margin 5.0 % 4.2 %

Corporate and Eliminations $ (80) $ (55) NM NM

$ 226 $ 180 $ 46 25.6 %

Six Months Ended June 30, Change

($ in millions) 2024 2023 $ %

Safety Services $ 347 $ 296 $ 51 17.2 %

Safety Services EBITDA as a % of net revenues 13.9 % 12.3 %

Specialty Services $ 95 $ 96 $ (1) (1.0 %)

Specialty Services EBITDA as a % of net revenues 11.3 % 9.7 %

Corporate and Eliminations $ (77) $ (55) NM NM

$ 365 $ 337 $ 28 8.3 %

NM = Not meaningful

The following discussion breaks down the net revenues, operating income (loss), and EBITDA by operating segment for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Safety Services

Safety Services net revenues for the six months ended June 30, 2024 increased by $77 or 3.2% compared to the same period in 2023.

The increase was driven by increased inspection, service, and monitoring revenue and revenue from acquisitions completed in the last year.

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

Safety Services operating margin for the six months ended June 30, 2024 and 2023 was approximately 10.6% and 8.0%, 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, and savings in our Safety Services segment related to the Chubb restructuring program.

Safety Services EBITDA as a percentage of net revenues for the six months ended June 30, 2024 and 2023 was approximately 13.9% and 12.3%, respectively.

This increase was primarily related to the factors discussed above.

Specialty Services

Specialty Services net revenues for the six months ended June 30, 2024 decreased by $143 million or 14.5% compared to the same period in 2023.

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

The decrease is also due to the divestiture of an Infrastructure/Utility operating company during 2023.

Specialty Services operating margin for the six months ended June 30, 2024 and 2023 was approximately 5.0% and 4.2%, respectively.

The increase was primarily the result of disciplined project and customer selection during the six months ended June 30, 2024.

Specialty Services EBITDA as a percentage of net revenues for the six months ended June 30, 2024 and 2023 was approximately 11.3% and 9.7%, respectively, due to the factors discussed above.

Non-GAAP Financial Measures

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GAAP financial measures.

We use these non-U.S.

use these non-U.S.

GAAP financial measures to evaluate our performance, both internally and as compared with our peers because they exclude certain items that may not be indicative of our core operating results.

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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.

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

Three Months Ended March 31,

Three Months Ended June 30,

($ in millions) 2024 2023

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SG&A expenses (excluding amortization) $ 366 $ 339

Six Months Ended June 30,

($ in millions) 2024 2023

Reported SG&A expenses $ 810 $ 741

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

Amortization expense (102) (98)

SG&A expenses (excluding amortization) $ 708 $ 643

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 March 31,

Three Months Ended June 30,

($ in millions) 2024 2023

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EBITDA $ 199 $ 188

Six Months Ended June 30,

($ in millions) 2024 2023

Reported net income

Adjustments to reconcile net income to EBITDA:

Interest expense, net 69 75

Income tax provision 38 39

Depreciation 39 38

Amortization 105 111

EBITDA $ 365 $ 337

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, our 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 and equity 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 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 of June 30, 2024, we had $820 million of total liquidity, comprising $324 million in cash and cash equivalents and $496 million ($500 million less outstanding letters of credit of approximately $4 million, which reduce availability) of available borrowings under our Revolving Credit Facility.

During 2022, we completed the Second 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.

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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.

During the first quarter of 2024, we completed the Fifth Amendment to our credit agreement, upsizing our 2021 Term Loan by $300 million.

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.

During the second quarter of 2024, we completed the Sixth Amendment to our credit agreement, repaying the 2019 Term Loan and refinancing the 2021 Term Loan through an upsizing and repricing.

We incurred approximately $550 million of incremental principal on our 2021 Term Loan.

The proceeds were used to repay the remaining $330 million of the 2019

Term Loan, repay $100 million of the Revolving Credit Facility outstanding, and for general corporate purposes, including to partially fund the Elevated acquisition.

During the second quarter of 2024, we issued 12,650,000 shares of Company common stock in a public underwritten offering.

The proceeds from this offering totaled approximately $458 million, net of related expenses.

We expect to use the net proceeds from this offering for general corporate purposes, which may include future acquisitions and other business opportunities, capital expenditures and working capital.

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

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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.

During the six months ended June 30, 2024, we repurchased 16,260,160 shares of common stock for approximately $600 million.

As of June 30, 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.

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

Three Months Ended March 31,

Six Months Ended June 30,

($ in millions) 2024 2023

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

Net cash provided by operating activities 117 73

Net cash used in investing activities (623) (82)

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

Net cash provided by (used in) financing activities 357 (232)

Effect of foreign currency exchange rate change on cash, cash equivalents, and restricted cash (5) 4

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Cash, cash equivalents, and restricted cash, end of period $ 326 $ 370

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.

Net Cash Provided by Operating Activities

Net cash provided by operating activities was $117 million for the six months ended June 30, 2024 compared to $73 million 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 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.

This increase in cash provided is also driven by lower working capital needs associated with the various services we provided in the six months ended June 30, 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.

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Net Cash Used in Investing Activities

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.

Net cash used in investing activities was $623 million for the six months ended June 30, 2024 compared to $82 million for the same period in 2023.

During the six months ended June 30, 2024, we completed the Elevated acquisition and several individually immaterial acquisitions, resulting in the use of $606 million for acquisitions during the six months ended June 30, 2024 compared to $45 million for the same period in 2023.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities was $357 million for the six months ended June 30, 2024 compared to $232 million used in financing activities for the same period in 2023.

The increase in cash provided by financing activities was primarily driven by equity and debt issuances in the six months ended June 30, 2024 .

In the six months ended June 30, 2024, cash provided by financing activities was higher due to $850 million of proceeds from the repricing transactions of the 2021 Term Loan, and $458 million of proceeds from the issuance of common shares.

The increase in cash used in financing activities in the six months ended June 30, 2024 was partially offset by $334 million of payments on long-term borrowings and $600 million of payments for conversion of the Series B Preferred Stock.

Financing Activities

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(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.

During the first quarter of 2024, we completed the Fifth Amendment to our credit agreement, upsizing our 2021 Term Loan by an aggregate principal amount equal to $300 million.

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

During the second quarter of 2024, we completed the Sixth Amendment to our credit agreement, refinancing the 2021 Term Loan through an upsizing and repricing and repaying the 2019 Term Loan.

We incurred approximately $550 million of incremental principal our 2021 Term Loan.

The proceeds were used to repay the remaining $330 million of the 2019 Term Loan, repay $100 million of the Revolving Credit Facility loan outstanding, and for general corporate purposes, including to partially fund the Elevated acquisition.

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

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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.

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.

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 amended interest rate applicable to the 2021 Term Loan is, at our option, either (a) a base rate plus an applicable margin equal to 1.00% or (b) a Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.00%.

The 2021 Term Loan matures on January 3, 2029.

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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 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.

Our first lien net leverage ratio as of June 30, 2024 was 2.0:1.0.

As of June 30, 2024, the 2019 Term Loan and the 2021 Term Loan have remaining principal amounts of $0 million and $2,257 million, respectively.

We had no amounts outstanding under the Revolving Credit Facility, under which $496 million was available after giving effect to $4 million of outstanding letters of credit, which reduces availability.

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

As of June 30, 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.

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

As of June 30, 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 March 31, 2024 and December 31, 2023.

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 June 30, 2024 and December 31, 2023.

Issuance and Conversion 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.

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

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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.

The repurchase price was financed by (i) an incremental term facility of $300 and (ii) cash and available credit from the balance sheet.

Material Cash Requirements from Known Contractual and Other Obligations

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• 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.

We have not had material changes to our lease obligations during the six months ended June 30, 2024.

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

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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.

As of June 30, 2024, our outstanding variable interest rate debt was primarily related to our $2,257 million 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 $5 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.

The remaining floating rate portfolio will bear interest based on one-month SOFR plus 200 basis points.

As of June 30, 2024, excluding letters of credit outstanding of $4 million, we had no amounts 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.

Revenues generated from foreign operations represented approximately 38% and 39% of our consolidated net revenues for the three and six months ended June 30, 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.

Such transactions were not material to our operations during the six months ended June 30, 2024.

These foreign currency transaction gains and losses, including hedging impacts, are classified in investment income and other, net, in the condensed consolidated statements of operations and were a (loss) gain of $(1) and $0 million for the three months ended June 30, 2024 and 2023 respectively, and $(2) million and $0 million for the six months ended June 30, 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.

Foreign currency translation (losses) gains totaled approximately $(1) million and $27 million for the three months ended June 30, 2024 and 2023, respectively, and $(43) million and $41 million for the six months ended June 30, 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.

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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