APi Group Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) section should be read in conjunction with the interim unaudited condensed consolidated financial statements (the "Interim Statements") and related notes included in this quarterly report, and the Company's 2024 audited annual consolidated financial statements, the related notes thereto and under the heading "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and other disclosures contained in our Annual Report on Form 10-K, including financial results for the year ended December 31, 2024. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed under the “Cautionary Note Regarding Forward Looking Statements” section of this quarterly report. We prepare our financial statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”). To supplement our financial results presented in accordance with GAAP in this MD&A section, we present EBITDA, which is a non-GAAP financial measure, to assist readers in understanding our performance and provide an additional perspective on trends and underlying operating results on a period-to-period comparable basis. Non-GAAP financial measures either exclude or include amounts not reflected in the most directly comparable measure calculated and presented in accordance with GAAP. Where a non-GAAP financial measure is used, we have provided the most directly comparable measure calculated and presented in accordance with GAAP, a reconciliation to the GAAP measure and a discussion of the reasons why management believes this information is useful to it and may be useful to investors. Unless the context otherwise requires, all references in this section to “APG,” the “Company”, “we,” “us,” and “our” refer to APi Group Corporation and its subsidiaries. Overview We are a global, market-leading business services provider of fire and life safety, security, elevator and escalator, and specialty services with a substantial recurring revenue base and over 500 locations worldwide. We provide statutorily mandated and other contracted services to a strong base of long-standing customers across industries. We have a winning leadership culture driven by entrepreneurial business leaders that deliver innovative solutions to our customers. We operate our business under three primary operating segments, which aggregate to our two reportable segments: • Safety Services – A leading provider of safety services in North America, Europe, and Asia-Pacific, focusing on end-to-end integrated occupancy systems (fire protection solutions, entry systems, and elevators and escalators), including design, installation, inspection, and service 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, as well as design, installation, inspection, and service of Heating, Ventilation, and Air Conditioning (“HVAC”) systems. 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. Customers within this segment vary from private and public utilities, communications, healthcare, education, transportation, manufacturing, industrial plants and governmental agencies throughout North America. In January 2025, due to a change in the way the businesses are managed, we realigned our segments by moving the HVAC business from Safety Services to Specialty Services. As a result, beginning in January 2025, HVAC business leadership responsibility and full accountability was transferred to report through the Specialty Services segment and information for the HVAC business is combined with the Specialty Services segment within the information reviewed by the CODM. As such, we have recast all historical segment information to reflect current period presentation. We focus on growing our recurring revenues and repeat business from our diversified long-standing customers across a variety of end markets, which we believe provides us with stable cash flows and a platform for organic growth. We believe maintenance and service revenues are generally more predictable through contractual arrangements with typical terms 34 Table of Contents ranging from days to three years, with the majority having short durations and are often recurring due to consistent renewal rates and long-standing customer relationships. For financial information about our segments see Note 17 – “Segment Information” to our condensed consolidated financial statements included herein. R ECENT D EVELOPMENTS A ND C ERTAIN F ACTORS A ND T RENDS A FFECTING O UR R ESULTS O F O PERATIONS Acquisitions On February 3, 2025, we completed an acquisition in the Safety Services Segment. The aggregate consideration paid was approximately $8 million. For additional information about our acquisition activity, see Note 3 – "Business Combinations" to our condensed consolidated financial statements included herein. Restructuring During 2022, we announced our multi-year Chubb restructuring program designed to drive efficiencies and synergies and optimize operating margin. 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, 2025, we incurred no pre-tax restructuring costs within the Safety Services segment 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. Economic, Industry and Market Factors We closely monitor the effects of general changes in economic and market conditions on our customers. General economic and market conditions can positively or negatively affect demand for our customers’ products and services, which can impact their planned capital and maintenance budgets in certain end markets. Market, regulatory, and industry factors could affect demand for our services. Availability of transportation and transmission capacity and fluctuations in market prices for energy and other fuel sources can also affect demand for our services for pipeline and power generation construction services. These fluctuations, as well as the highly competitive nature of our industries, have resulted, and may continue to result, in lower proposals and lower profit on the services we provide. Increased volatility in the global economy, and the recently announced increased tariffs on imported goods by the United States, Canada, and other countries, may also impact the financial results of some of our businesses. These tariffs have a direct impact on the cost of certain materials utilized in the services we provide and will increase the overall cost of projects which could lower project activity and impact the demand for our services. In the face of increased pricing pressure on key materials or other market developments, we strive to maintain our profit margins through productivity improvements, cost reduction programs, pricing adjustments, and business streamlining efforts. Increased competition for skilled labor resources and higher labor costs can reduce our profitability and impact our ability to deliver timely service to our customers. We have experienced supply chain disruptions, which have negatively impacted the source and supply of materials needed to perform our work. In addition, fluctuations in foreign currencies may have an impact on our financial position and results of operations. However, we believe that our exposure to transactional gains or losses resulting from changes 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 cases where operational transactions represent a material currency risk, we generally enter into cross-currency swaps. 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 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 Our net revenues and results of operations can be subject to variability stemming from seasonal and other variations. Seasonal variations can be influenced by weather conditions impacting customer spending patterns, contract award seasons, 35 Table of Contents and project schedules, as well as the timing of holidays. 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 American companies, which can cause project delays and affect productivity. Additionally, the industries we serve can be cyclical. Fluctuations in end-user demand, or in the supply of services within those industries, can affect demand for our services. As a result, our business may be adversely affected by industry declines or by delays in new projects. Variations or unanticipated changes in project schedules in connection with large projects can create fluctuations in net revenues. Recent Accounting Pronouncements A summary of recent accounting pronouncements is included in Note 2 – “Recent Accounting Pronouncements” to our condensed consolidated financial statements included herein. D ESCRIPTION O F K EY L INE I TEMS Net revenues Net revenues are generated from the sale of various types of contracted services, fabrication, and distribution. We derive net revenues primarily from services under contractual arrangements with durations ranging from days to three years, with the majority having durations of less than six months, and which may provide the customer with pricing options that include a combination of fixed, unit, or time and material pricing. Net revenues for fixed price agreements are generally recognized over time using the cost-to-cost method of accounting which measures progress based on the cost incurred to total expected cost in satisfying our performance obligation. Net revenues from time and material contracts are recognized as the services are provided. Net revenues earned are based on total contract costs incurred plus an agreed upon markup. Net revenues for these cost-plus contracts are recognized over time on an input basis as labor hours are incurred, materials are utilized, and services are performed. Net revenues from wholesale or retail unit sales are recognized at a point-in-time upon shipment. Cost of revenues Cost of revenues consists of direct labor, materials, subcontract costs, and indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation costs. Labor costs are considered to be incurred as the work is performed. Subcontractor labor is recognized as the work is performed. Gross profit Our gross profit is influenced by direct labor, materials, and subcontract costs. Our profit margins are also influenced by raw material costs, contract mix, weather, and proper coordination with contract providers. Labor-intensive contracts usually drive higher margins than those contracts that include material, subcontract, and equipment costs. Selling, general, and administrative ("SG&A") expenses 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, impairment, 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. Amortization of intangible assets Amortization expense reflects the charges incurred to amortize our finite-lived identifiable intangible assets, such as customer relationships, which are amortized over their estimated useful lives. There is a portion of amortization expense related to the backlog intangible assets reflected in cost of revenues in the condensed consolidated statements of operations. Investment expense and other, net Investment expense and other, net includes expense (income) from foreign currency forward contracts, cross-currency swaps, interest rate swaps agreements, joint ventures, non-service pension cost, and other miscellaneous items. Non- 36 Table of Contents service pension cost reflects the sum of the components of pension expense not related to service expense, i.e. interest expense, expected return on assets, and amortizations of prior service expenses and actuarial gains and losses. C RITICAL A CCOUNTING P OLICIES A ND E STIMATES For information regarding our Critical Accounting Policies, see the “Critical Accounting Policies” section of the “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, 2024. 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, 2025 and the three months ended March 31, 2024. During 2025, the Company moved the HVAC business from the Safety Services segment to the Specialty Services segment, and prior period amounts in this discussion have been recast to reflect the current period presentation. Three months ended March 31, 2025 compared to the three months ended March 31, 2024 Three Months Ended March 31, Change ($ in millions) 2025 2024 $ % Net revenues $ 1,719 $ 1,601 $ 118 7.4 % Cost of revenues 1,177 1,109 68 6.1 % Gross profit 542 492 50 10.2 % Selling, general, and administrative expenses 458 392 66 16.8 % Operating income 84 100 (16) (16.0) % Interest expense, net 38 34 4 11.8 % Investment expense and other, net — 3 3 (100.0) % Other expense, net 38 37 1 2.7 % Income before income taxes 46 63 (17) (27.0) % Income tax provision 11 18 (7) (38.9) % Net income $ 35 $ 45 $ (10) (22.2) % Net revenues Net revenues for the three months ended March 31, 2025 were $1,719 million compared to $1,601 million for the same period in 2024, an increase of $118 million or 7.4%. The increase in net revenues was primarily driven by revenue from acquisitions completed, pricing improvements, growth in inspection, service, and monitoring revenue, and project revenue growth in the Safety Services segment, partially offset by an anticipated decrease in Specialty Services revenues. Gross profit The following table presents our gross profit (net revenues less cost of revenues) and gross margin (gross profit as a percentage of net revenues) for the three months ended March 31, 2025 and 2024, respectively: Three Months Ended March 31, Change ($ in millions) 2025 2024 $ % Gross profit $ 542 $ 492 $ 50 10.2 % Gross margin 31.5 % 30.7 % Our gross profit for the three months ended March 31, 2025 was $542 million compared to $492 million for the same period in 2024, an increase of $50 million or 10.2%. Gross margin for the three months ended March 31, 2025 was 31.5%, an increase of 80 basis points compared to the prior year period, primarily due to disciplined project and customer selection, pricing improvements, and savings in our Safety Services segment related to the Chubb restructuring program. 37 Table of Contents Operating expenses The following table presents operating expenses and operating margin (operating income as a percentage of net revenues) for the three months ended March 31, 2025 and 2024, respectively: Three Months Ended March 31, Change ($ in millions) 2025 2024 $ % Selling, general, and administrative expenses $ 458 $ 392 $ 66 16.8 % SG&A expenses as a % of net revenues 26.6 % 24.5 % SG&A expenses (excluding amortization) (non-GAAP) $ 401 $ 342 $ 59 17.3 % SG&A expenses (excluding amortization) as a % of net revenues (non-GAAP) 23.3 % 21.4 % Selling, general, and administrative expenses Our SG&A expenses for the three months ended March 31, 2025 were $458 million compared to $392 million for the same period in 2024, an increase of $66 million. SG&A expenses as a percentage of net revenues was 26.6% during the three months ended March 31, 2025 compared to 24.5% for the same period in 2024. The increase in SG&A expenses was primarily driven by SG&A expenses from acquisitions completed, non-recurring systems and business enablement expenses, and acquisition costs that are non-recurring in nature in the three months ended March 31, 2025 compared to 2024, partially offset by savings related to the Chubb restructuring program. Our SG&A expenses excluding amortization for the three months ended March 31, 2025 were $401 million, or 23.3% of net revenues, compared to $342 million, or 21.4% of net revenues, for the same period of 2024. 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-GAAP financial measures below. Interest expense, net Interest expense was $38 million and $34 million for the three months ended March 31, 2025 and 2024, respectively. The increase in interest expense was primarily due to an increase in average debt volume and discontinuation of benefit from certain derivatives partially offset by a decrease in floating rates and the benefits from May 2024 and February 2025 repricings. Investment expense and other, net Investment expense and other, net was $0 million for the three months ended March 31, 2025 compared to $3 million of expense for the same period of 2024. The decrease in investment expense and other was primarily due to a decrease in the loss associated with the impact of foreign currency exchange rates in the current year. Income tax provision The effective tax rate for the three months ended March 31, 2025 was 23.4% compared to 28.0% in the same period of 2024. The difference in the effective tax rate was driven by discrete and nondeductible permanent items. The difference between the effective tax rate and the statutory U.S. federal income tax rate of 21.0% is due to nondeductible permanent items, taxes on foreign earnings in jurisdictions that have higher tax rates, state taxes, and discrete items. The Organization for Economic Co-operation and Development ("OECD") has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as "Pillar 2"), with certain aspects of Pillar 2 effective January 1, 2024 and other aspects effective January 1, 2025. While it is uncertain whether the U.S. will enact legislation to adopt Pillar 2, certain countries in which we operate have adopted the legislation, and other countries are in the process of introducing legislation to implement Pillar 2. The Company continues to evaluate and monitor but does not expect for Pillar 2 to have a material impact on the effective tax rate or the consolidated financial statements. 38 Table of Contents Net income and Adjusted EBITDA The following table presents net income and Adjusted EBITDA for the three months ended March 31, 2025 and 2024, respectively: Three Months Ended March 31, Change ($ in millions) 2025 2024 $ % Net income $ 35 $ 45 $ (10) (22.2 %) Adjusted EBITDA (non-GAAP) 193 175 18 10.3 % Net income as a % of net revenues 2.0 % 2.8 % Adjusted EBITDA as a % of net revenues 11.2 % 10.9 % Our net income for the three months ended March 31, 2025 was $35 million compared to $45 million for the same period in 2024, a decrease of $10 million. The decrease is attributable to non-recurring SG&A expenses discussed above, partially offset by gross margin expansion from the factors previously referenced. Net income as a percentage of net revenues for the three months ended March 31, 2025 and 2024 was 2.0% and 2.8%, respectively. Adjusted EBITDA for the three months ended March 31, 2025 was $193 million compared to $175 million for the same period in 2024, an increase of $18 million. The Adjusted EBITDA improvement is attributable to acquisitions completed in our Safety Services segment, improved operating margin due to pricing improvements and disciplined project and customer selection, and savings in our Safety Services segment related to the Chubb restructuring program. See the discussion and reconciliation of our non-GAAP financial measures below. Segment Results for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 Net Revenues Three Months Ended March 31, Change ($ in millions) 2025 2024 $ % Safety Services $ 1,267 $ 1,117 $ 150 13.4 % Specialty Services 453 486 (33) (6.8) % Corporate and Eliminations (1) (2) NM NM $ 1,719 $ 1,601 $ 118 7.4 % Segment Earnings Three Months Ended March 31, Change ($ in millions) 2025 2024 $ % Safety Services $ 199 $ 165 $ 34 20.6 % Safety Services segment earnings as a % of net revenues 15.7 % 14.8 % Specialty Services $ 29 $ 43 $ (14) (32.6 %) Specialty Services segment earnings as a % of net revenues 6.4 % 8.8 % Corporate and Eliminations $ (35) $ (33) NM NM Adjusted EBITDA (non-GAAP) $ 193 $ 175 $ 18 10.3 % NM = Not meaningful The following discussion breaks down the net revenues and segment earnings by operating segment for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Safety Services Safety Services net revenues for the three months ended March 31, 2025 increased by $150 million or 13.4% compared to the same period in 2024. The increase was primarily driven by revenue from acquisitions completed during the last year, pricing improvements, and strong growth in inspection, service, and monitoring revenues as well as project revenues. 39 Table of Contents Safety Services segment earnings as a percentage of net revenues for the three months ended March 31, 2025 and 2024 was approximately 15.7% and 14.8%, respectively. The increase was primarily due to disciplined customer and project selection, pricing improvements, and value capture initiatives. Specialty Services Specialty Services net revenues for the three months ended March 31, 2025 decreased by $33 or 6.8% compared to the same period in 2024. The decrease was driven by an anticipated decrease in project and service revenues and adverse weather impacts. Specialty Services segment earnings as a percentage of net revenues for the three months ended March 31, 2025 and 2024 was approximately 6.4% and 8.8%, respectively. The decrease was driven by lower fixed cost absorption due to lower net revenues from factors discussed above. Non-GAAP Financial Measures We supplement our reporting of consolidated financial information determined in accordance with GAAP with SG&A expenses (excluding amortization) and adjusted EBITDA (defined below), which are non-GAAP financial measures. We use these non-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. Management believes these measures are useful to investors since they (a) permit investors to view our performance using the same tools that management uses to evaluate our past performance and prospects for future performance, (b) permit investors to compare us with our peers, (c) in the case of adjusted EBITDA, determine certain elements of management’s incentive compensation, and (d) provide consistent period-to-period comparisons of the results. These non-GAAP financial measures, however, have limitations as analytical tools and should not be considered in isolation from, a substitute for, or superior to, the related financial information we report in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses required by 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-GAAP financial measures. Investors are encouraged to review the following reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measures and not to rely on any single financial measure to evaluate our business. SG&A expenses (excluding amortization) SG&A expenses (excluding amortization) is a measure of operating costs used by management to manage the business. We believe this non-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) 2025 2024 Reported SG&A expenses $ 458 $ 392 Adjustments to reconcile to SG&A expenses to SG&A expenses (excluding amortization) Amortization expense (57) (50) SG&A expenses (excluding amortization) $ 401 $ 342 Adjusted EBITDA Adjusted earnings before interest, taxes, depreciation, and amortization (“adjusted EBITDA”) is the measure of profitability used by management to manage the business. Adjustments include expenses that are non-recurring in nature and that may not be indicative of the Company’s core operating results, including systems and business enablement expenses, business transformation expenses, and other expenses for the integration of acquired businesses, the impact and results of 40 Table of Contents businesses classified as assets held-for-sale and divested, and one-time and other infrequent events such as impairment charges, restructuring costs, transaction and other costs related to acquisitions, and non-service pension cost. We supplement the reporting of our consolidated financial information with adjusted EBITDA. We believe this non-GAAP measure provides meaningful information and helps investors understand our financial results and assess our prospects for future performance. The following table presents a reconciliation of net income to adjusted EBITDA for the periods indicated: Three Months Ended March 31, ($ in millions) 2025 2024 Reported net income $ 35 $ 45 Adjustments to reconcile net income to adjusted EBITDA: Interest expense, net 38 34 Income tax provision 11 18 Depreciation 20 19 Amortization 60 50 Contingent consideration and compensation 1 2 Non-service pension cost 4 4 Systems and business enablement 12 — Business process transformation expenses 4 6 Acquisition related expenses 3 1 Restructuring program related costs 3 5 Other $ 2 $ (9) Adjusted EBITDA $ 193 $ 175 L IQUIDITY A ND C APITAL R ESOURCES Overview 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, 2025, we had $954 million of total liquidity, comprising $460 million in cash and cash equivalents and $494 million ($500 million less outstanding letters of credit of approximately $6 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. 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 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. We also 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. Additionally, we made a repayment of $100 million on the 2021 Term Loan. 41 Table of Contents During 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. During the first quarter of 2025, we completed the Seventh Amendment to our credit agreement, repricing the 2021 Term Loan. The repricing reduced the applicable margin on the 2021 Term Loan by 25 basis points. 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, identifying, executing, and integrating strategic acquisitions and business transformation transactions or initiatives, as well as any accrued consideration and compensation due to selling shareholders, including tax payments in connection therewith. In 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 will expire when the authorized amount is exhausted, unless otherwise modified or terminated by our Board of Directors at any time in its sole discretion. This stock repurchase program is indefinite, unless otherwise modified or terminated by our Board of Directors at any time in its sole discretion. During 2024, we repurchased 16,260,160 shares of common stock for approximately $600 million. During the three months ended March 31, 2025, we repurchased 2,063,715 shares of common stock for approximately $75 million. As of March 31, 2025, we had approximately $325 million of authorized repurchases remaining under the SRP. In April 2025, our Board of Directors authorized a new share repurchase program to purchase up to $1,000 million of shares of our common stock. The timing, amount and manner of any repurchases under the new repurchase program will be determined at the discretion of our leadership based on a number of factors, including the availability of capital, capital allocation alternatives, and market conditions for our common stock. The share repurchase program is open-ended and does not require us to acquire any specific number of shares. It may be modified, suspended, extended, or terminated by us at any time without prior notice and may be executed through open-market purchases, privately negotiated transactions or otherwise, and we may enter into Rule 10b5-1 trading plans in connection with such repurchases. This new authorization replaces our previous share repurchase authorization announced in 2024. Cash Flows The following table summarizes net cash flows with respect to our operating, investing and financing activities for the periods indicated: Three Months Ended March 31, ($ in millions) 2025 2024 Net cash provided by operating activities 62 7 Net cash used in investing activities (14) (22) Net cash used in financing activities (98) (213) Effect of foreign currency exchange rate change on cash, cash equivalents, and restricted cash 10 (4) Net decrease in cash, cash equivalents, and restricted cash $ (40) $ (232) Cash, cash equivalents, and restricted cash, end of period $ 461 $ 248 Net Cash Provided by Operating Activities Net cash provided by operating activities was $62 million for the three months ended March 31, 2025 compared to $7 million for the same period in 2024. The increase in cash provided by operating activities is primarily due to improvements in working capital efficiencies associated with the various services we provided in the three months ended March 31, 2025 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. 42 Table of Contents Net Cash Used in Investing Activities Net cash used in investing activities was $14 million for the three months ended March 31, 2025 compared to $22 million for the same period in 2024. During the three months ended March 31, 2025, we had proceeds on the sale of property and equipment of $4 million, compared to $23 million for the same period in 2024, offset by cash used in acquisitions of $6 million and $23 million in the three months ended March 31, 2025 and 2024, respectively. Net Cash Used in Financing Activities Net cash used in financing activities was $98 million for the three months ended March 31, 2025 compared to $213 million for the same period in 2024. The decrease in cash used in financing activities was primarily driven by stock repurchases. The cash used in financing activities for the three months ended March 31, 2025 was driven by $75 million of share repurchases and $19 million of restricted shares tendered for taxes, while in the three months ended March 31, 2024, the cash used in financing activities was driven by the Series B Preferred Stock Conversion. In the three months ended March 31, 2024, $300 million of proceeds from the 2021 Term Loan and $100 million from the Revolving Credit Facility were used for share repurchases of $600 million during the Series B Preferred Stock Conversion. Financing Activities Credit Agreement 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 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 first quarter of 2025, we completed the Seventh Amendment to our credit agreement, repricing the 2021 Term Loan. The repricing reduced the applicable margin on the 2021 Term Loan by 25 basis points. During 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 2024, we also completed the Sixth Amendment to our credit agreement, upsizing and repricing the 2021 Term Loan and repaying the 2019 Term Loan. The repricing reduced the applicable margin on the 2021 Term Loan by 50 basis points and removed the credit spread adjustment ("CSA"). As part of this transaction, 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 2024, we also made a $100 million repayment on 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 0.75% or (b) a Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 1.75%. The 2021 Term Loan matures on January 3, 2029. 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. The Credit Agreement contains customary representations and warranties, and affirmative and negative covenants, including covenants that, among other things, restrict our, and our restricted subsidiaries’, ability to (i) incur additional indebtedness; (ii) pay dividends or make other distributions or repurchase or redeem capital stock; (iii) prepay, redeem or repurchase certain debt; (iv) make loans and investments; (v) sell, transfer and otherwise dispose of assets; (vi) incur or permit to exist certain liens; (vii) enter into transactions with affiliates; (viii) enter into agreements restricting subsidiaries’ ability to pay dividends; and (ix) consolidate, amalgamate, merge or sell all or substantially all assets. The Credit Agreement also contains customary events of default. 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 43 Table of Contents 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, 2025 was 1.7:1.0. As of March 31, 2025, the 2021 Term Loan has $2,157 million remaining principal amount outstanding. We had no amounts outstanding under the Revolving Credit Facility, under which $494 million was available after giving effect to $6 million of outstanding letters of credit, which reduces availability. Senior Notes 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. The 4.125% Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by us and certain of our subsidiaries. The 4.125% Senior Notes will mature on July 15, 2029, unless redeemed earlier, and bear interest at a rate of 4.125% per year until maturity, payable semi-annually in arrears. 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, 2025, 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. 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, 2025, 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, 2025 and December 31, 2024. 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. During 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 million. The repurchase price was financed by (i) an incremental term facility of $300 million and (ii) cash and available credit from the balance sheet. 44 Table of Contents 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: • Debt – See Note 10 – "Debt" for future principal payments and interest rates on our debt instruments. • Tax Obligations – See Note 11 – "Income Taxes." • Pension obligations – See Note 12 – "Employee Benefit Plans." • Operating and Finance Leases – See Note 12 – "Leases" in the Annual Report on Form 10-K filed on February 26, 2025. We have not had material changes to our lease obligations during the three months ended March 31, 2025. We make investments in our properties and equipment to enable continued expansion and effective performance of our business. Our capital expenditures are typically less than 1.5% of annual net revenues. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk As of March 31, 2025, our outstanding variable interest rate debt was primarily related to our $2,157 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, maturing October 2026, and a $400 million interest rate swap exchanging one-month SOFR for a rate of 3.41% per annum, maturing January 2028. During 2024, we entered into a $720 million notional amount forward starting interest rate swap commencing in October 2026 and maturing in January 2029 that exchanges a variable rate of interest (SOFR) for an average fixed rate of interest of approximately 3.13% over the term of the agreement. The remaining floating rate portfolio bears interest based on one-month SOFR plus 175 basis points. As of March 31, 2025, excluding letters of credit outstanding of $6 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 37% of our consolidated net revenues for the three months ended March 31, 2025. 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, 2025. 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 gain (loss) of $0 million and $(1) million for the three months ended March 31, 2025 and 2024, 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. dollars. Foreign currency translation gains (losses) totaled approximately $59 million and $(42) million for the three months ended March 31, 2025 and 2024, 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 forward contracts as a way to mitigate foreign currency exposure. 45 Table of Contents 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, 2024. 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.