APi Group's Q3 2025: Contradictions Emerge on Margins, M&A, Tariffs, and Organic Growth

Date of Call: October 30, 2025

Financials Results

• Revenue: $2.1B for Q3, up 14.2% YOY (prior year $1.83B)
• EPS: $0.41 adjusted diluted EPS for Q3, up $0.07 or 20.6% YOY
• Gross Margin: Adjusted gross margin 31.5%, up 50 bps YOY
• Operating Margin: Adjusted EBITDA margin 13.5%, up 10 bps YOY

Guidance:

• Full-year 2025 net revenues raised to $7.825B–$7.925B (reported growth ~12–13%; organic ~7–8%).
• Full-year adjusted EBITDA expected $1.015B–$1.045B (midpoint ~15% growth; EBITDA margin above 13%).
• Interest ~$145M; depreciation ~$85M; capex ~$100M; adjusted tax rate ~23%; diluted share count ~424M.
• Expect adjusted corporate expenses ~ $35M/quarter and year-end adjusted FCF conversion ~75%.
• Bolt-on M&A cadence to deploy ~ $250M+ in 2025.

Business Commentary:

* Record Financial Performance and Growth: - APA Group Corporation reported net revenues of $2.1 billion for Q3 2025, representing a 14% increase year-over-year. - The growth was driven by strong performance in inspection service and monitoring revenues, particularly in North America, and strategic acquisitions.

• Inspection and Service Revenue Expansion:
• Both inspection and service segments experienced robust growth, with North America safety reporting double-digit inspection growth for the 21st straight quarter.

• This was supported by strong growth in project revenues and disciplined customer and project selection.

• M&A and Strategic Acquisitions:

• The company completed 11 bolt-on acquisitions year-to-date, with a goal to deploy approximately $250 million in 2025.

• The focus on bolt-on acquisitions was driven by the opportunity to enhance market position and expand service offerings, particularly in data centers.

• Free Cash Flow and Financial Flexibility:

• Adjusted free cash flow for the third quarter was $248 million, reflecting an 88% conversion rate.
• The strong free cash flow generation provided flexibility for strategic capital deployment and maintaining a healthy balance sheet with a net debt to adjusted EBITDA ratio below the long-term target.

Sentiment Analysis:

Overall Tone: Positive

• Management described a "record third quarter" with "net revenues increased by 14%" and raised full‑year revenue/EBITDA guidance; noted "backlog is at a record high," strong free cash flow and continued M&A pipeline, signaling constructive momentum.

Q&A:

• Question from Andrew Kaplowitz (Citigroup): How did organic growth break down — data centers vs broader project or service growth?
  Response: Growth is broad‑based; data centers are growing but remain a modest share (~7–10% of revenue) while semiconductors, advanced manufacturing, healthcare and aviation also drive strong activity and larger, more complex projects.

• Question from Andrew Kaplowitz (Citigroup): Are you ahead of plan on M&A given 11 bolt‑ons and reiteration of $250M+ expectation?
  Response: Management says M&A pace is on track — pipeline strong with focus on North American fire, electronic security and elevator bolt‑ons; actual spend could exceed $250M depending on execution.

• Question from Kathryn Thompson (Thompson Research Group): How do you balance growth from reindustrialization/data centers versus consolidating verticals like elevators?
  Response: They can do both — geographic footprint enables capturing large projects while continuing targeted consolidation (e.g., elevators); they manage capacity to avoid overcommitment.

• Question from Kathryn Thompson (Thompson Research Group): Which markets offer better margin as you pursue growth?
  Response: Highest margins come from large, complex projects where size, complexity and aggressive schedules allow premium pricing.

• Question from Andrew J. Wittmann (Baird): Are you at the right balance between growth and margin expansion or should growth be throttled to meet '28 margin goals?
  Response: Management believes balance is appropriate — expects continued margin expansion into Q4 and 2026 while investing to scale inspection/service; confident in achieving targets without throttling growth.

• Question from Andrew J. Wittmann (Baird): Any detail on materials and investments mentioned impacting margins?
  Response: Investments are primarily building out the sales organization and inspector workforce to scale the inspection/service business toward 2028 objectives.

• Question from Joshua Chan (UBS): Is the current outsized organic growth sustainable versus the long‑term mid‑single‑digit target?
  Response: Yes — the long‑term organic algorithm is sustainable: mid‑to‑upper single‑digit growth in safety service, low‑to‑mid single‑digit project growth, and mid‑single‑digit in specialty.

• Question from Joshua Chan (UBS): You raised revenue guide materially but only nudged EBITDA—why?
  Response: Revenue lift is driven by project mix, which carries lower early‑stage margins; as projects progress margins should increase, explaining smaller immediate EBITDA translation.

• Question from Ethan on for Tomo (JPMorgan): Status and geographic/service priorities of the M&A pipeline?
  Response: Cadence continues; priority remains North American safety (fire, electronic security, elevators); international bolt‑ons pursued selectively based on country readiness.

• Question from Ethan on for Tomo (JPMorgan): Labor availability, retention and wage pressure for technicians/sales?
  Response: Retention is strong (>90%); they recruit from nontraditional channels and scale training programs; labor tightness is managed and not viewed as a growth excuse.

• Question from Harold Antor (Jefferies): How is Elevated (elevator business) performing on organic growth and cross‑sell?
  Response: Elevated is growing high‑single‑digit (approaching double digits); cross‑selling is early but accelerating; one separate elevator deal runs independently.

• Question from Harold Antor (Jefferies): Specialty pipeline size and 2026 setup — could growth run ahead of mid‑single digits?
  Response: Backlog at record highs across segments; exiting 2025 with strong momentum; targeted organic growth for 2026 remains mid‑single digit, taking opportunistic accretive work where appropriate.

• Question from Julian Mitchell (Barclays): How should we think about M&A revenue contribution and profitability for closed deals into next year?
  Response: Rule of thumb: ~$1 of purchase price yields roughly ~$1 of revenue over 12 months; recent deals are expected to be accretive to fleet‑average margins.

• Question from Julian Mitchell (Barclays): Is the mid‑teens incremental EBITDA margin run‑rate sustainable?
  Response: Management recommends modeling a somewhat higher incremental EBITDA margin into 2026 versus the current mid‑teens run‑rate.

• Question from Jasper Bibb (Truist): Will data center contribution continue to materially build beyond the ~9–10% cited?
  Response: Unlikely to be materially higher — may creep to ~10–11% but unlikely to reach ~12%; fire life‑safety is a relatively small portion of overall data center contract value.

• Question from Jasper Bibb (Truist): Update on tech/ERP investment and milestones for 2026?
  Response: ERP rollout in Safety Services is on track: out of blueprinting, piloting deployment; 2025 is peak spend with costs stepping down in 2026 and further in 2027.

• Question from Jonathan Tanwanteng (CJS Securities): Do upcoming project starts imply no big quarters ahead that would depress incremental margins?
  Response: Project start timing caused prior margin swings; Specialty margins are expected to be year‑over‑year accretive in Q4 and normalize through Q1/Q2, making prior swings transitory.

Contradiction Point 1

Impact of Large Project Starts on Margins

It involves the expectations around the impact of large project starts on company margins, which are critical for financial forecasting and investor expectations.

If incremental margins are expected to be higher, does that mean no major project starts are affecting margins? - Jonathan Tanwanteng (CJS Securities, Inc.)

2025Q3: The impact of large project starts is expected to be marginal in the future. Margins will be influenced by project ebbs and flows but not significantly. - Russell Becker(CEO)

What portion of the 350-basis-point gross margin decline in the Specialty business was due to rising material costs? Will the gross margin pressure in the Specialty business persist into the second half of the year? - Timothy Mulrooney (William Blair)

2025Q2: The decline in Specialty margins was driven by increased project starts, which are typically more material-driven and lower margin initially. - Glenn Jackola(CFO)

Contradiction Point 2

M&A Contribution to Revenue

It involves expectations regarding the contribution of mergers and acquisitions (M&A) to company revenue, which is crucial for understanding growth strategies and financial projections.

Did you mention 11 bolt-ons and the $250 million plus this year guidance? Are you ahead of schedule on M&A? - Andrew Kaplowitz (Citigroup Inc., Research Division)

2025Q3: Our M&A activities remain primarily in North America, focusing on fire protection and electronic security. There's also more international activity as countries become ready for bolt-ons. - Russell Becker(CEO)

Can you provide details on acquisitions completed or expected in the past 12 months and this year? How much EBITDA from acquisitions is included in the guidance? - Julian Mitchell (Barclays)

2025Q2: All acquisitions are accretive at fleet average or better. For the year, M&A is expected to contribute north of $200 million in revenue. - Russell Becker(CEO), Glenn Jackola(CFO)

Contradiction Point 3

Tariff Impact and Material Cost Management

It involves the company's stance and management approach to tariff-related impacts and material costs, which directly affect financial performance and operating strategies.

What is the current backlog status for Q1, and will safety and specialty segments return to mid-single-digit growth in Q2? How are tariffs affecting your guidance, and is higher pricing factored in? - Andrew Kaplowitz(Citigroup)

2025Q3: We have contracts in place to pass along cost increases to customers. We have seen some prepurchasing of materials, which may affect margins slightly in Q1. However, we feel well-positioned to manage tariff impacts. - Russ Becker(CEO)

What percentage of your revenue is directly exposed to tariffs in the U.S. Life Safety segment? How are you managing risks related to materials costs? - Jasper Bibb(Truist Securities)

2025Q1: Around 15% of our revenues are exposed to tariffs. Regarding materials, we are managing risks by staying close to vendors and anticipating market changes. We've seen hot-rolled prices moderate recently. - David Jackola(CFO), Russ Becker(CEO)

Contradiction Point 4

Organic Growth and Market Conditions

It involves the company's expectations and assessment of organic growth in the face of economic conditions, which are critical for investor expectations.

Can you comment on the sustainability of mid-single-digit growth and the cadence of growth? - Joshua Chan(UBS Investment Bank)

2025Q3: We continue to believe that our organic growth targets of mid- to upper single-digit for safety services and mid-single-digit for specialty services are sustainable and accretive. - Glenn Jackola(CFO)

Premier's growth has slowed, and you're pruning projects. However, organic growth is higher this year than recent quarters. What's driving the increase? How should we expect growth to trend for the year? - Jack Cauchi(Barclays)

2025Q1: Our safety services have mid- to upper single-digit growth, and specialty services mid-single-digit growth. The algorithm is sustainable, and we expect to meet these targets. - Glenn Jackola(CFO)

Contradiction Point 5

M&A Activity and Strategic Focus

It involves the company's strategic approach to mergers and acquisitions, which is crucial for future growth and market positioning.

How do you balance growth and M&A priorities, especially with 45% of end markets benefiting from reindustrialization versus consolidating verticals like elevators? - Kathryn Thompson(Thompson Research Group)

2025Q3: We are on track. There's activity in the fourth quarter we still need to execute on. Our M&A activities remain primarily in North America, focusing on fire protection and electronic security. - Russell Becker(CEO)

Can you discuss international exposure and geographic trends impacting operations? - Kathryn Thompson(Thompson Research Group)

2025Q1: We are focusing on North America and really honing in on fire protection, electronic security and elevator verticals, which have significant international activity. ... Things are getting ready to move as far as some of these bolt-ons. - Russ Becker(CEO)