FORM10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2024
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 98-1510303 | |||||
(State or other jurisdiction of
| (I.R.S. Employer
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1100 Old Highway 8 NW New Brighton, Minnesota | 55112 | |||||
(Address of principal executive offices) | (Zip Code) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |||||||||||||
Common Stock, par value $0.0001 per share | APG | New York Stock Exchange |
Large accelerated filer | x | Accelerated filer | ||||||||||||||
Non-accelerated filer | o | Smaller reporting company | ||||||||||||||
Emerging growth company |
FINANCIAL STATEMENTS Assets Current assets: Cash and cash equivalents Accounts receivable, net of allowances of $1 and $0 at March 31, 2020 and December 31, 2019, respectively Inventories Contract assets Prepaid expenses and other current assets Assets held for sale Total current assets Property and equipment, net Operating lease right of use asset Goodwill Intangible assets, net Preferred tax assets Other assets Total assets Liabilities and Shareholders’ Equity Current liabilities: Short-term and current portion of long-term debt Accounts payable Contingent consideration and compensation liabilities Accrued salaries and wages Deferred consideration Other accrued liabilities Contract liabilities Operating and finance leases Total current liabilities Long-term debt, less current portion Contingent consideration and compensation liabilities Operating and finance leases Deferred tax liabilities Deferred consideration Other noncurrent liabilities Total liabilities Shareholders’ equity: Preferred shares, no par value; unlimited authorized shares; 4 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively Ordinary shares; no par value, unlimited authorized shares, 169 and 170 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively Additionalpaid-in capital Accumulated deficit Accumulated other comprehensive income (loss) Total shareholders’ equity Total liabilities and shareholders’ equity per share data)ItemFinancial StatementsMarch 31, 2020 (Successor) (Unaudited)December 31, 2019 (Successor)(In millions)(Unaudited) March 31,
2020
(Successor) December 31,
2019
(Successor) $ 436 $ 256 662 730 59 58 251 245 37 33 5 20 1,450 1,342 397 402 103 105 767 980 1,069 1,121 64 — 36 61 $ 3,886 $ 4,011 $ 217 $ 19 152 156 47 49 104 149 35 73 132 157 205 193 27 27 919 823 1,167 1,171 22 15 93 95 24 23 53 78 83 49 2,361 2,254 — — — 1,880 1,885 (325 ) (131 ) (30 ) 3 1,525 1,757 $ 3,886 $ 4,011 March 31,
2024December 31,
2023Assets Current assets: Cash and cash equivalents $ 247 $ 479 Accounts receivable, net of allowances of $5 and $5 at March 31, 2024 and December 31, 2023, respectively 1,256 1,395 Inventories 148 150 Contract assets 458 436 Prepaid expenses and other current assets 123 122 Total current assets 2,232 2,582 Property and equipment, net 375 385 Operating lease right of use assets 234 233 Goodwill 2,471 2,471 Intangible assets, net 1,549 1,620 Deferred tax assets 115 113 Pension and post-retirement assets 106 111 Other assets 110 75 Total assets $ 7,192 $ 7,590 Liabilities, Redeemable Convertible Preferred Stock, and Shareholders’ Equity Current liabilities: Short-term and current portion of long-term debt $ 105 $ 5 Accounts payable 382 472 Contingent consideration and compensation liabilities 21 22 Accrued salaries and wages 241 363 Contract liabilities 542 526 Operating and finance leases 75 75 Other accrued liabilities 288 344 Total current liabilities 1,654 1,807 Long-term debt, less current portion 2,624 2,322 Pension and post-retirement obligations 48 50 Contingent consideration and compensation liabilities 17 11 Operating and finance leases 173 172 Deferred tax liabilities 236 233 Other noncurrent liabilities 139 127 Total liabilities 4,891 4,722 Commitments and contingencies (Note 14) 5.5% Series B Redeemable Convertible Preferred Stock, $0.0001 par value, 800,000 authorized shares, 0 and 800,000 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively — 797 Shareholders’ equity: Series A Preferred Stock, $0.0001 par value; 7,000,000 authorized shares; 4,000,000 shares issued and outstanding at March 31, 2024 and December 31, 2023 — — Common stock; $0.0001 par value, 500,000,000 authorized shares, 261,636,951 shares and 235,575,316 shares issued at March 31, 2024 and December 31, 2023, respectively (excluding 8,281,148 shares declared for stock dividend at December 31, 2023) — — Additional paid-in capital 2,814 2,572 Retained earnings (accumulated deficit) 10 (11) Accumulated other comprehensive loss (523) (490) Total shareholders’ equity 2,301 2,071 Total liabilities, redeemable convertible preferred stock, and shareholders’ equity $ 7,192 $ 7,590 1
Three Months Ended March 31, 2020 (Successor) and 2019 (Predecessor)
(Unaudited)
(Unaudited)
Three months ended March 31, | ||||||||||
2020 | 2019 | |||||||||
(Successor) | (Predecessor) | |||||||||
Net revenues | $ | 858 | $ | 922 | ||||||
Cost of revenues | 696 | 759 | ||||||||
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Gross profit | 162 | 163 | ||||||||
Selling, general, and administrative expenses | 188 | 137 | ||||||||
Impairment of goodwill and intangible assets | 208 | — | ||||||||
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Operating income (loss) | (234 | ) | 26 | |||||||
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Interest expense, net | 14 | 6 | ||||||||
Investment income and other, net | (3 | ) | (2 | ) | ||||||
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Other expense, net | 11 | 4 | ||||||||
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Income (loss) before income tax provision | (245 | ) | 22 | |||||||
Income tax provision (benefit) | (51 | ) | 1 | |||||||
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Net income (loss) | $ | (194 | ) | $ | 21 | |||||
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Net loss per ordinary share: | ||||||||||
Basic | $ | (1.14 | ) | n/a | ||||||
Diluted | $ | (1.14 | ) | n/a | ||||||
Weighted average shares outstanding: | ||||||||||
Basic | 170 | n/a | ||||||||
Diluted | 170 | n/a | ||||||||
Pro forma income information (See Note 2): | ||||||||||
Historical income before income taxes | n/a | $ | 22 | |||||||
Pro forma provision for income taxes | n/a | 6 | ||||||||
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Pro forma net income | n/a | $ | 16 | |||||||
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Three Months Ended March 31, | |||||||||||
2024 | 2023 | ||||||||||
Net revenues | $ | 1,601 | $ | 1,614 | |||||||
Cost of revenues | 1,109 | 1,189 | |||||||||
Gross profit | 492 | 425 | |||||||||
Selling, general, and administrative expenses | 392 | 352 | |||||||||
Operating income | 100 | 73 | |||||||||
Interest expense, net | 34 | 37 | |||||||||
Loss on extinguishment of debt, net | — | 3 | |||||||||
Investment expense (income) and other, net | 3 | (5) | |||||||||
Other expense, net | 37 | 35 | |||||||||
Income before income taxes | 63 | 38 | |||||||||
Income tax provision | 18 | 12 | |||||||||
Net income | $ | 45 | $ | 26 | |||||||
Net (loss) income attributable to common shareholders: | |||||||||||
Stock dividend on Series B Preferred Stock | $ | (7) | $ | (11) | |||||||
Conversion of Series B Preferred Stock | (372) | — | |||||||||
Net (loss) income attributable to common shareholders | $ | (334) | $ | 15 | |||||||
Net (loss) income per common share: | |||||||||||
Basic | $ | (1.34) | $ | 0.05 | |||||||
Diluted | (1.34) | 0.05 | |||||||||
Weighted average shares outstanding: | |||||||||||
Basic | 250 | 234 | |||||||||
Diluted | 250 | 267 |
2
Three Months Ended March 31, 2020 (Successor) and 2019 (Predecessor)
(Unaudited)
(Unaudited)
Three months ended March 31, | ||||||||||
2020 | 2019 | |||||||||
(Successor) | (Predecessor) | |||||||||
Net income (loss) | $ | (194 | ) | $ | 21 | |||||
Other comprehensive income (loss): | ||||||||||
Fair value change - derivatives, net of $9 and $0 of tax (expense) benefit, respectively | (27 | ) | — | |||||||
Foreign currency translation adjustment | (6 | ) | 3 | |||||||
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Comprehensive income (loss) | $ | (227 | ) | $ | 24 | |||||
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Three Months Ended March 31, | |||||||||||
2024 | 2023 | ||||||||||
Net income | $ | 45 | $ | 26 | |||||||
Other comprehensive income: | |||||||||||
Fair value change - derivatives, net of tax (expense) benefit of $(5), and $3, respectively | 13 | (13) | |||||||||
Foreign currency translation adjustment | (42) | 14 | |||||||||
Comprehensive income | $ | 16 | $ | 27 |
3
Three Months Ended March 31, 2020 (Successor) and 2019 (Predecessor)
(Unaudited)
(Unaudited)
Successor | ||||||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||
Preferred Shares Issued | Ordinary Shares Issued | Additional | Other | Total | ||||||||||||||||||||||||||||
and Outstanding | and Outstanding | Paid-In | Accumulated | Comprehensive | Shareholders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||||||||
Balance, December 31, 2019 | 4,000,000 | $ | — | 169,902,260 | $ | — | $ | 1,885 | $ | (131 | ) | $ | 3 | $ | 1,757 | |||||||||||||||||
Net loss | — | — | — | — | — | (194 | ) | — | (194 | ) | ||||||||||||||||||||||
Share cancellations | — | — | (608,016 | ) | — | (6 | ) | — | — | (6 | ) | |||||||||||||||||||||
Share-based compensation | — | — | — | — | 1 | — | — | 1 | ||||||||||||||||||||||||
Fair value change - derivatives | — | — | — | — | — | — | (27 | ) | (27 | ) | ||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | (6 | ) | (6 | ) | ||||||||||||||||||||||
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Balance, March 31, 2020 | 4,000,000 | $ | — | 169,294,244 | $ | — | $ | 1,880 | $ | (325 | ) | $ | (30 | ) | $ | 1,525 | ||||||||||||||||
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Predecessor | ||||||||||||||||||||||||||||||||
Accumulated | Note | |||||||||||||||||||||||||||||||
Common Stock Issued | Additional | Other | Receivable | Total | ||||||||||||||||||||||||||||
and Outstanding | Paid-In | Retained | Comprehensive | From | Stockholders’ | |||||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income (Loss) | Stockholder | Equity | ||||||||||||||||||||||||||
Balance, December 31, 2018 |
| 11,000,000 | $ | — | $ | — | $ | 663 | $ | (28 | ) | $ | (2 | ) | $ | 633 | ||||||||||||||||
Net income |
| — | — | — | 21 | — | — | 21 | ||||||||||||||||||||||||
Distributions and other |
| — | — | — | (15 | ) | — | — | (15 | ) | ||||||||||||||||||||||
Foreign currency translation adjustment |
| — | — | — | — | 3 | — | 3 | ||||||||||||||||||||||||
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Balance, March 31, 2019 |
| 11,000,000 | $ | — | $ | — | $ | 669 | $ | (25 | ) | $ | (2 | ) | $ | 642 | ||||||||||||||||
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Preferred Stock Issued and Outstanding | Common Stock Issued and Outstanding | Additional Paid-In Capital | (Accumulated Deficit) Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2023 | 4,000,000 | $ | — | 235,575,316 | $ | — | $ | 2,572 | $ | (11) | $ | (490) | $ | 2,071 | |||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 45 | — | 45 | |||||||||||||||||||||||||||||||||||||||
Fair value change - derivatives | — | — | — | — | — | — | 13 | 13 | |||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | (42) | (42) | |||||||||||||||||||||||||||||||||||||||
Gain on dedesignated derivatives amortized from AOCI into income | — | — | — | — | — | — | (4) | (4) | |||||||||||||||||||||||||||||||||||||||
Series A Preferred Stock dividend | — | — | 7,944,104 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Series B Preferred Stock dividend | — | — | 620,240 | — | 7 | (7) | — | — | |||||||||||||||||||||||||||||||||||||||
Conversion of Series B Preferred Stock, net | — | — | 16,260,163 | — | 214 | (17) | — | 197 | |||||||||||||||||||||||||||||||||||||||
Profit sharing plan contributions | — | — | 510,319 | — | 18 | — | — | 18 | |||||||||||||||||||||||||||||||||||||||
Share-based compensation and other, net | — | — | 726,809 | — | 3 | — | — | 3 | |||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2024 | 4,000,000 | $ | — | 261,636,951 | $ | — | $ | 2,814 | $ | 10 | $ | (523) | $ | 2,301 |
Preferred Stock Issued and Outstanding | Common Stock Issued and Outstanding | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2022 | 4,000,000 | $ | — | 233,403,912 | $ | — | $ | 2,558 | $ | (164) | $ | (267) | $ | 2,127 | |||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 26 | — | 26 | |||||||||||||||||||||||||||||||||||||||
Fair value change - derivatives | — | — | — | — | — | — | (13) | (13) | |||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | 14 | 14 | |||||||||||||||||||||||||||||||||||||||
Series B Preferred Stock dividend | — | — | 1,082,877 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Share repurchases | — | — | (541,316) | — | (12) | — | — | (12) | |||||||||||||||||||||||||||||||||||||||
Profit sharing plan contributions | — | — | 631,194 | — | 14 | — | — | 14 | |||||||||||||||||||||||||||||||||||||||
Share-based compensation and other, net | — | — | 636,233 | — | 9 | — | — | 9 | |||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2023 | 4,000,000 | $ | — | 235,212,900 | $ | — | $ | 2,569 | $ | (138) | $ | (266) | $ | 2,165 |
4
Three Months Ended March 31, 2020 (Successor) and 2019 (Predecessor)
(Unaudited
)(Unaudited)
Three months ended March 31, | ||||||||||
2020 | 2019 | |||||||||
(Successor) | (Predecessor) | |||||||||
Cash flows from operating activities: | ||||||||||
Net income (loss) | $ | (194 | ) | $ | 21 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
Depreciation | 18 | 16 | ||||||||
Amortization | 52 | 9 | ||||||||
Impairment of goodwill and intangible assets | 208 | — | ||||||||
Deferred taxes | (53 | ) | — | |||||||
Share-based compensation expense | 1 | — | ||||||||
Other, net | (2 | ) | (2 | ) | ||||||
Changes in operating assets and liabilities, net of effects of business acquisitions | ||||||||||
Accounts receivable | 63 | 102 | ||||||||
Contract assets | (7 | ) | (52 | ) | ||||||
Inventories | (2 | ) | (6 | ) | ||||||
Prepaid expenses and other assets | 9 | (2 | ) | |||||||
Accounts payable | (4 | ) | (37 | ) | ||||||
Accrued liabilities and income taxes payable | (56 | ) | (24 | ) | ||||||
Contract liabilities | 14 | (9 | ) | |||||||
Other liabilities | 8 | 9 | ||||||||
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Net cash provided by operating activities | 55 | 25 | ||||||||
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Cash flows from investing activities: | ||||||||||
Acquisitions, net of cash acquired | (5 | ) | (1 | ) | ||||||
Purchases of property and equipment | (11 | ) | (22 | ) | ||||||
Proceeds from sales of property, equipment and held for sale | 1 | 2 | ||||||||
Advances on other notes receivable | — | (4 | ) | |||||||
Payments received on other notes receivable | — | 1 | ||||||||
Proceeds from sale of marketable securities, net | — | 2 | ||||||||
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Net cash used in investing activities | (15 | ) | (22 | ) | ||||||
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Cash flows from financing activities: | ||||||||||
Net short-term debt | 200 | 1 | ||||||||
Proceeds from long-term borrowings | 1 | 5 | ||||||||
Payments on long-term borrowings | (6 | ) | (7 | ) | ||||||
Payments of acquisition-related consideration | (56 | ) | — | |||||||
Distributions paid | — | (15 | ) | |||||||
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Net cash provided by (used in) financing activities | 139 | (16 | ) | |||||||
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Effect of foreign currency exchange rate change on cash and cash equivalents | 1 | — | ||||||||
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Net increase (decrease) in cash and cash equivalents | 180 | (13 | ) | |||||||
Cash and cash equivalents, beginning of period | 256 | 54 | ||||||||
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Cash and cash equivalents, end of period | $ | 436 | $ | 41 | ||||||
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Supplemental schedule of disclosures of cash flow information: | ||||||||||
Cash paid for interest | $ | 13 | $ | 6 | ||||||
Cash paid for income taxes, net of refunds | 8 | 2 |
Three Months Ended March 31, | |||||||||||
2024 | 2023 | ||||||||||
Cash flows from operating activities: | |||||||||||
Net income | $ | 45 | $ | 26 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation | 19 | 19 | |||||||||
Amortization | 50 | 55 | |||||||||
Restructuring charges, net of cash paid | (8) | — | |||||||||
Share-based compensation expense | 8 | 5 | |||||||||
Profit-sharing expense | 6 | 5 | |||||||||
Non-cash lease expense | 26 | 18 | |||||||||
Net periodic pension cost (benefit) | 4 | (3) | |||||||||
Loss on extinguishment of debt, net | — | 3 | |||||||||
Other, net | (13) | (5) | |||||||||
Changes in operating assets and liabilities, net of effects of acquisitions: | |||||||||||
Accounts receivable | 128 | 96 | |||||||||
Contract assets | (26) | (30) | |||||||||
Prepaid expenses and other current assets | (7) | (15) | |||||||||
Accounts payable | (86) | (47) | |||||||||
Accrued liabilities and income taxes payable | (128) | (112) | |||||||||
Contract liabilities | 19 | 5 | |||||||||
Other assets and liabilities | (30) | (21) | |||||||||
Net cash provided by (used in) operating activities | 7 | (1) | |||||||||
Cash flows from investing activities: | |||||||||||
Acquisitions, net of cash acquired | (23) | (10) | |||||||||
Purchases of property and equipment | (22) | (21) | |||||||||
Proceeds from sales of property and equipment | 23 | 4 | |||||||||
Net cash used in investing activities | (22) | (27) | |||||||||
Cash flows from financing activities: | |||||||||||
Net short-term debt | 100 | — | |||||||||
Proceeds from long-term borrowings | 300 | — | |||||||||
Payments on long-term borrowings | (2) | (202) | |||||||||
Repurchases of common stock | — | (12) | |||||||||
Conversion of Series B Preferred Stock | (600) | — | |||||||||
Restricted shares tendered for taxes | (11) | (2) | |||||||||
Net cash used in financing activities | (213) | (216) | |||||||||
Effect of foreign currency exchange rate change on cash, cash equivalents, and restricted cash | (4) | 2 | |||||||||
Net decrease in cash, cash equivalents, and restricted cash | (232) | (242) | |||||||||
Cash, cash equivalents, and restricted cash, beginning of period | 480 | 607 | |||||||||
Cash, cash equivalents, and restricted cash, end of period | $ | 248 | $ | 365 | |||||||
Supplemental cash flow disclosures: | |||||||||||
Cash paid for interest, net of interest income | $ | 36 | $ | 27 | |||||||
Cash paid for income taxes, net of refunds | 35 | 19 | |||||||||
Accrued consideration issued in business combinations | 5 | 1 | |||||||||
Shares of common stock issued to profit sharing plan | 18 | 14 | |||||||||
Shares of common stock issued for conversion of Series B Preferred Stock | 569 | — |
5
(Unaudited)
(Unaudited)
Note 1. Nature of Business
APi Group Corporation (the “Company” or “APG”) is a market-leading business services provider of safety, specialty, and industrial services in over 200 locations, primarily in North America. Until its acquisition of APi Group, Inc. (“APi Group”) on October 1, 2019, the Company had neither engaged in any operations nor generated any revenues. (See Note 4 – “Business Combinations”).
Note 2. Basis
specialty services with a substantial recurring revenue base and over 500 locations worldwide.
In accounting for
As a result of the application of the acquisitionequity method of accounting as of the effective date of the APi Acquisition, the accompanying Interim Statements include a black line division, where applicable, which indicates a differentiation that the Predecessor and Successor reporting entities shown are presented on a different basis and are, therefore, not comparable.
The historical financial information of the Company which was, prior todoes not exercise control over the APi Acquisition, an acquisition vehicle, has not been presented injoint ventures. The Company exercises control over one joint venture that is consolidated into the Company's financial statements as these historical amounts are not considered meaningful. As an acquisition vehicle, the Company retained and invested the proceeds from its initial public offering (the “IPO”) and the funds were used to pay a portion of the cash considerationresults for that joint venture for the APi Acquisition.
As ofthree months ended March 31, 2020, the Company had two classes2024 were immaterial. The Company’s share of stock outstanding: ordinary shares, which equate to common shares under U.S. GAAP, and Founder Preferred Shares, which equate to preferred shares under U.S. GAAP. Subsequent to March 31, 2020, the Company changed its jurisdiction of incorporationearnings from the British Virgin Islands to the State of Delaware, which resulted in conversion of ordinary shares
6
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except sharesnon-consolidated joint ventures was $2 and where noted otherwise)
(Unaudited)
and Founder Preferred Shares to shares of common stock and Series A Preferred Stock, respectively (see Note 17 – “Subsequent Events”). The Interim Statements present the ordinary shares and Founder Preferred Shares that were outstanding as of March 31, 2020 and December 31, 2019 prior to the change in the jurisdiction of incorporation and the conversion of such shares.
Unaudited pro forma income information: The unaudited pro forma net income information presented on the face of the unaudited condensed consolidated statements of operations gives effect to the conversion of APi Group to a C corporation. Prior to such conversion, APi Group was a S corporation and generally not subject to federal income taxes within the United States. The pro forma net income presented on the face of the unaudited condensed consolidated statement of operations, therefore, includes an adjustment for income tax expense on the income as if APi Group had been a C corporation for the period from January 1, 2019 through March 31, 2019, at an assumed combined federal, state, local and foreign effective income tax rate of 28.7%.
Use of estimates and risks and uncertainty ofCOVID-19: The Interim Statements are prepared in conformity with U.S. GAAP. Management’s application of U.S. GAAP requires the pervasive use of estimates and assumptions in preparing the unaudited condensed consolidated financial statements. On January 30, 2020, the World Health Organization declared the coronavirus outbreak(COVID-19) a “Public Health Emergency of International Concern” and on March 11, 2020, declaredCOVID-19 a pandemic. Inmid-March 2020, U.S. State Governors, local officials and leaders outside of the U.S. began ordering various“shelter-in-place” orders which have had various impacts on the U.S. and global economies. This has required greater use of estimates and assumptions in the preparation of the Interim Statements, specifically those estimates and assumptions utilized in the Company’s forecasted cash flows that form the basis in developing the fair values utilized in its impairment assessments, annual effective tax rate, and assessment of the realizability of deferred tax assets. This has included assumptions as to the duration and severity of theCOVID-19 pandemic, timing and amount of demand shifts for the Company’s services, labor availability and productivity, supply chain continuity, required remedial measures, and timing as to a return to normalcy.
As theCOVID-19 pandemic continues to evolve, the Company believes the extent of the impact to its businesses, operating results, cash flows, liquidity and financial condition will be primarily driven by the severity and duration of theCOVID-19 pandemic, the pandemic’s impact on the U.S. and global economies and the timing, scope and effectiveness of federal, state and local governmental responses to the pandemic. Those primary drivers are beyond the Company’s knowledge and control, and as a result, at this time the Company is unable to predict the cumulative impact, both in terms of severity and duration, thatCOVID-19 will have on its businesses, operating results, cash flows and financial condition, but it could be material if the current circumstances continue to exist for a prolonged period of time. Although we have made our best estimates based upon current information, actual results could materially differ from the estimates and assumptions developed by management. If so, the Company may be subject to future incremental impairment charges as well as changes to recorded reserves and valuations.
7
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except shares and where noted otherwise)
(Unaudited)
Goodwill impairment: Goodwill represents the excess of cost over the fair market value of net tangible and identifiable intangible assets of acquired businesses. Goodwill is not amortized but instead is annually tested for impairment, or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired. The Company has recorded goodwill in connection with its historical acquisitions of businesses. Upon acquisition, these businesses were either combined into one of the existing components or managed on a stand-alone basis as an individual component.
The components are aligned to one of the Company’s three reportable segments, Safety Services, Specialty Services, or Industrial Services. Goodwill is required to be evaluated for impairment at the reporting unit level, which represents the operating segment level or one level below the operating segment level for which discrete financial information is available.
Management identifies its reporting units by assessing whether components have discrete financial information available, engage in business activities, and have a segment manager regularly review the component’s operating results. If two or more components are deemed economically similar, those components are aggregated into one reporting unit when performing the annual goodwill impairment test.
The Company performs its annual goodwill impairment assessment on October 1 each fiscal year, or more frequently if events or circumstances arise which indicate that goodwill may be impaired. Qualitative indicators that may trigger the need for annual or interim quantitative impairment testing include, among other things, deterioration in macroeconomic conditions, declining financial performance, deterioration in the operational environment, or an expectation of selling or disposing of a portion of a reporting unit. Additionally, a significant change in business climate, a loss of a significant customer, increased competition, a sustained decrease in share price, or a decrease in estimated fair value below book value may trigger the need for interim impairment testing of goodwill associated with one or more reporting units.
While the Company’s services have largely been deemed essential, the Company did experience negative impacts on its operations in the latter part of March as the shelter-in-place orders began. The impact of COVID-19 has negatively impacted the Company’s operations, suppliers and other vendors, and customer base. In addition to the impacts of COVID-19, the Company was also impacted by a significant decline in demand and volatility in oil prices as some of the Company’s services involve work within the oil and gas industry. As a result, during the first quarter of 2020, the Company concluded that an impairment triggering event had occurred for all of its reporting units and performed impairment tests for its goodwill and recoverability tests for its long-lived assets, which primarily include finite-lived intangible assets, property and equipment and right of use lease assets. As a result of the impairment testing performed in connection with the triggering event, the Company determined that certain of its goodwill and intangible assets were impaired as the preliminary carrying values exceeded fair values. The Company recorded an aggregate non-cash charge$2 during the three months ended March 31, 2020 in connection with these impairments. See Note 7 – “Goodwill2024 and Intangibles” for further information.
As a result of the impairment triggering event2023, respectively. The earnings are recorded within investment expense (income) and the Company performed an impairment test for its goodwill at all reporting units. The Company performed a quantitative test comparing the fair value of each reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recorded as a reduction to goodwill with a corresponding change to earningsother, net in the period the goodwill is determined to be impaired. Any goodwill impairment is limited to the total amountcondensed consolidated statements of goodwill allocated to that reporting unit. Asoperations. The investment balances were $5 and $4 as of March 31, 2020, the Company had not finalized its purchase price allocation for the APi Acquisition (See Note 4 – “Business Combinations”). The carrying value of each reporting unit used2024 and December 31, 2023, respectively, and are recorded within other assets in the impairment test was based on preliminary values from the APi Acquisition. The Company anticipates it will finalize its accounting for the APi Acquisition during the third quarter of 2020, which will lead to changes in the carrying value of each reporting unit and may change the corresponding impairment charge recognized in each reporting unit.
The Company determines the fair value of its reporting units using a combination of the income approach (discounted cash flow method) and market approach (guideline transaction method and guideline public company method). Management weighs each of the methods applied to determine the fair value of its reporting units.
Under the discounted cash flow method, the Company determines fair value based on the estimated future cash flows for each reporting unit, discounted to present value using a risk-adjusted industry weighted-average cost of capital, which reflects the overall level of inherent risk for each reporting unit and the rate of return an outside investor would expect to earn. Cash flow projections are derived from budgeted amounts (typically aone-year model) and subsequent period cash flows are developed for each reporting unit using growth rates that management believes are reasonably likely to occur from a market participant’s standpoint. All cash flow projections by reporting unit are evaluated by management. A terminal value is derived by capitalizing free cash flow into perpetuity. The capitalization rate is derived from the weighted-average cost of capital and the estimated long-term growth rate for each reporting unit.
8
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except shares and where noted otherwise)
(Unaudited)
Under the guideline transaction and guideline public company methods, the Company determines the estimated fair value for each of its reporting units by applying transaction multiples and public company multiples, respectively, to each reporting unit’s applicable earnings measure. The transaction multiples are based on observed purchase transactions for similar businesses adjusted for size, diversification and risk. The public company multiples are based on peer group multiples adjusted for size, growth, risk and margin.
Impairment of long-lived assets excluding goodwill: The Company periodically reviews the carrying amount of its long-lived asset groups, including property and equipment and other identifiable intangibles subject to amortization, when events or changes in circumstances indicate the carrying value may not be recoverable. If facts and circumstances support the possibility of impairment, the Company will compare the carrying value of the asset or asset group with the undiscounted future cash flows related to the asset or asset group. If the carrying value of the asset or asset group is greater than its undiscounted cash flows, the resulting impairment will be determined as the difference between the carrying value and the fair value, where fair value is determined for the carrying amount of the specific asset groups based on discounted future cash flows or appraisal of the asset groups.
As noted above in “Use of estimates and risks and uncertainty ofCOVID-19”, during the first quarter of 2020, the Company concluded that an impairment triggering event had occurred. The Company reviewed its long-lived assets for impairment and recorded a $5 impairment charge related to the intangible assets that were part of a business classified as held for sale at March 31, 2020. The impairment was measured under the market multiple approach, utilizing estimates of market multiples from the eventual sale of the business based on information obtained as part of the marketing process. The carrying value used in the impairment test was based on preliminary values from the APi Acquisition. The Company anticipates it will finalize its purchase price allocation for the APi Acquisition during the third quarter of 2020, which will lead to changes in the carrying value and may change the corresponding impairment charge.
Note 3. Recent accounting pronouncements
Accounting standards issued 10-K filed on February 28, 2024.
In August 2018, the FASB issued ASUNo. 2018-13,Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The ASU removes the requirement to disclose the amountstandardization of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. The ASUclimate-related disclosures, which requires disclosure of changesmaterial climate-related risks, material Scope 1 and Scope 2 greenhouse gas emissions, and other matters. As it pertains to the financial statements, subject to certain materiality thresholds, the final rules require the financial statement footnotes to include certain disclosures regarding the amounts of expenses (or capitalized costs) incurred that relate to severe weather events and other natural conditions, as well as other disclosures regarding the material impact on financial estimates and assumptions of severe weather events and other natural conditions or disclosed targets or transition plans, and
In June 2016, the FASB issued ASUNo. 2016-13,Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to replace the incurred loss model for financial assets measured at amortized cost and require entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. For trade and other receivables, contract assets, loans and other financial
9
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except shares and where noted otherwise)
(Unaudited)
instruments, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. The Company adopted this guidance as of January 1, 2020, which did not have a material impact on its consolidated financial statements as credit losses are not expected to be significant based on historical trends, the financial condition of our customers and external factors. Management actively monitors the economic environment, including any potential effects from theCOVID-19 pandemic, on the Company’s customers and its financial assets.
Accounting standards issued but not yet adopted:
In January 2020, the FASB issued ASU2020-01,Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (“ASU2020-01”)to clarify the interaction in accounting for equity securities under Topic 321, investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. ASU2020-01 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.
In December 2019, the FASB issued ASU2019-12,Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU2019-12”), which eliminates certain exceptions to the existing guidance for income taxes related to the approach for intra-period tax allocations, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This ASU also simplifies the accounting for income taxes by clarifying and amending existing guidance related to the effects of enacted changes in tax laws or rates in the effective tax rate computation, the recognition of franchise tax and the evaluation of astep-up in the tax basis of goodwill, among other clarifications. ASU2019-12 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.
Note 4. Business Combinations
On September 2, 2019, the
The aggregate purchase price consideration transferred to the shareholders of APi Group (the “Sellers”) totaled $2,991, which included: i) a cash payment made at closing of $2,565, net of cash acquired; ii) deferred purchase consideration with an estimated fair value of $135; and iii) 28,373,000 ordinary shares of the Company with a value of $291. The Company funded the cash portion of the purchase price with a combination of cash on hand, a $1,200 term loan underportfolio into a new term loan facility (see Note 11 – “Debt”) and approximately $207 of proceeds from a warrant exercise.
The deferred purchase price consideration is an estimate of future payments to be made to the Sellers pursuant to the terms of the Purchase Agreement upon final determination of certain income tax related matters. Prior to the APi Acquisition, APi Group was structured for United States (“US”) income tax purposes as a “flow through entity”. Pursuant to the terms of the Purchase Agreement, the Company agreed to pay to the Sellers the following amounts: i) up to $130 related to an Internal Revenue Code (“IRC”) Section 338(h)(10) election made by the Sellers; ii) up to $22.5 for IRC Section 965 taxes incurred by the Sellers and; iii) an amount sufficient to cover the Sellers’ state and federal tax liabilities for 2019. These deferred paymentsattractive business area. Acquisitions are expected to be paid to the Sellers over the course of approximately 18 months from the APi Acquisition date. A final determination of the amounts of deferred purchase consideration due to the sellers will not be determined until such time that the Company files its final 2019 tax return. The
10
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except shares and where noted otherwise)
(Unaudited)
Company expects to file its final 2019 tax returns no later than the fourth quarter of 2020. The fair value of the deferred purchase consideration is based on management’s estimated amounts and timing of future payments, discounted utilizing rates ranging from 2.6% to 2.8% to reflect market participant assumptions. The discount rate utilized was a risk-free rate selected based on the nearest risk-free rate term associated with the payments of the deferred purchase consideration, with a credit risk premium applied as the payments are not risk-free. During the three months ended March 31, 2020, the Company recorded measurement period adjustments related to revising the estimate of deferred consideration, which reduced the purchase price by $12.
The estimated fair value of the Company’s capital stock issued as purchase consideration was determined in accordance with ASC 820,Fair Value Measurement (“ASC 820”).
The APi Acquisition was accounted for as a business combinationcombinations using the acquisition method of accounting in accordance with ASC 805,Business Combinations(“ASC 805”). Theaccounting. As such, the Company makes a preliminary allocation of the purchase price has been preliminarily allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed. In the months after closing, as the Company obtains additional information about the acquired assets and liabilities and learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. Purchase price is allocated to acquired assets and liabilities assumed based upon their estimated fair values, with limited exceptions as permitted pursuant to U.S. GAAP, as determined based on estimates and assumptions deemed reasonable by the exceptionCompany. The Company engages third-party valuation specialists to assist with preparation of critical assumptions and calculations of the following: i)pre-acquisition contingencies which are recognized and measured in accordance with ASC 450,Contingencies (“ASC 450”) if fair value cannot be determined; ii) indemnificationof acquired tangible and intangible assets which are recognized and recorded in accordanceconnection with ASC 805 consistent with that used to measure the liabilities to which they relate, subject to any contractual limitations; iii) deferred income tax assets acquired and liabilities assumed which are recognized and measured in accordance with ASC 740,Income Taxes; iv) certain lease related assets and liabilities which are measured and recognized in accordance with ASC 842,Leases and; v) assets held for sale which are measured in accordance with ASC 360,Impairment or Disposal of Long-Live Assets. The Company has not finalized its accounting for the APi Acquisition as this transaction occurred during the fourth quarter of 2019. The areas of the purchase price allocation that are not yet finalized are primarily related to the valuation of: i) property and equipment; ii) intangible assets; iii) lease-related assets and liabilities; iv) indemnification assets and; v)pre-acquisition contingencies. Additionally, the purchase price allocation is provisional for incometax-related matters and a final determination of deferred purchase consideration. The Company anticipates it will finalize its accounting for the APi Acquisition, including the allocation of goodwill to reporting units, during the third quarter of 2020.
significant acquisitions. The excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed has beenis recorded as goodwill. The APi Acquisition resulted in recorded goodwill as a result of a higher consideration multiple paid relativeGoodwill is attributable to prior similar acquisitions driven by maturity and qualitythe workforce of the acquired businesses, the complementary strategic fit and resulting synergies these businesses bring to existing operations, and industry, including workforce, and howthe opportunities in new markets expected to be achieved from the expanded platform.
Prior$47. See Note 6 - "Goodwill and Intangibles" for the provisional goodwill assigned to the APi Acquisition, oneeach segment.
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except shares and where noted otherwise)
(Unaudited)
The following table summarizes the preliminary fair value of consideration transferred and the preliminary estimated fair values of the assets acquired and liabilities assumed at the datedates of the APi Acquisition:
Cash paid at closing | $ | 2,703 | ||
Deferred consideration | 135 | |||
Share consideration—28,373,000 APG ordinary shares | 291 | |||
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Total consideration | $ | 3,129 | ||
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Cash | $ | 138 | ||
Accounts receivable | 770 | |||
Contract assets | 350 | |||
Other current assets | 182 | |||
Property and equipment | 416 | |||
Finance and operating lease right of use assets | 102 | |||
Other noncurrent assets | 72 | |||
Assets held for sale | 14 | |||
Intangibles | 1,182 | |||
Goodwill | 969 | |||
Accounts payable | (188 | ) | ||
Contract liabilities | (206 | ) | ||
Accrued expenses | (392 | ) | ||
Other current liabilities | (57 | ) | ||
Operating lease liability | (101 | ) | ||
Finance lease liability | (18 | ) | ||
Deferred tax liability | (25 | ) | ||
Other noncurrent liabilities | (79 | ) | ||
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Net assets aquired | $ | 3,129 | ||
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acquisition:
Acquisition A23 | Acquisition B23 | Other 2023 acquisitions | |||||||||||||||
Cash paid at closing | $ | 30 | $ | 27 | $ | 22 | |||||||||||
Cash deposited into escrow | 5 | — | — | ||||||||||||||
Accrued consideration | 3 | 5 | 2 | ||||||||||||||
Total net consideration | $ | 38 | $ | 32 | $ | 24 | |||||||||||
Cash and cash equivalents | — | 1 | — | ||||||||||||||
Accounts receivable | 6 | 7 | — | ||||||||||||||
Contract assets | 1 | 2 | — | ||||||||||||||
Other current assets | — | — | 1 | ||||||||||||||
Intangible assets | 13 | 11 | 9 | ||||||||||||||
Goodwill | 21 | 15 | 16 | ||||||||||||||
Other accrued liabilities | — | (2) | — | ||||||||||||||
Contract liabilities | (3) | (2) | (2) | ||||||||||||||
Net assets acquired | $ | 38 | $ | 32 | $ | 24 |
As part of the purchase price allocation, the Company determined the identifiable intangible assets were: i) customer relationships; ii) tradenames and trademarks and; iii) contractual backlog. The fair value of the intangible assets was estimated using variations of the income approach. Specifically, the excess earnings method was utilized to estimate the fair value of the customer relationships and the contractual backlog and the relief from royalty method was utilized to estimate the fair value of the tradenames and trademarks. The customer relationships intangible asset pertains to APi Group’snon-contractual relationships with its customers. Tradenames and trademarks relate to the individual acquired subsidiaries’ names and overall consolidated group name and related industry recognition. Contractual backlog represents the expected remaining cash flows to be received undernon-cancellable customer contracts, which are anticipated to be completed within the next 15 months. The cash flow projections were discounted using rates ranging from 15.7% to 17.5%. The cash flows were based on estimates used to price the transaction, including market participant considerations, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital.
12
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except shares and where noted otherwise)
(Unaudited)
The following table summarizes the preliminary fair value of the identifiable intangible assets:
Contractual backlog | $ | 112 | ||
Customer relationships | 762 | |||
Tradenames and trademarks | 308 | |||
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Total intangibles | $ | 1,182 | ||
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The estimated useful lives over which the intangible assets will be amortized are as follows: contractual backlog (15 months), customer relationships (8 years), and tradenames and trademarks (15 years).
Pursuant to the terms of the Purchase Agreement, approximately $2 of cash consideration and $18 of share consideration (1,746,342 ordinary shares) were placed into escrow. As of March 31, 2020, 608,016 shares had been released from escrow. The cash escrow and share consideration escrow represent escrow accounts established for consideration adjustments that may be required to be made by the employee stock ownership plan (“ESOP”). The share consideration placed in escrow is specifically related to any indemnification matters, including certain specifically identified indemnification matters in the Purchase Agreement (the “Indemnity Escrow Account”) related topre-acquisition asserted claims and litigation. The Indemnity Escrow Account will remain in place until the later of March 31, 2021 or the receipt of the Final Determination Letter (as defined in the Purchase Agreement) in relation to the termination of the ESOP, to the extent there are no submitted but unsettled indemnification claims at that date. Prior to the APi Acquisition, the ESOP held an approximately 36% ownership interest in APi Group. Pursuant to the terms of the Purchase Agreement, the Purchase Agreement contains an indemnification cap of $45. For any indemnification claims that are identified, thepro-rata portion that relates to the ESOP shareholders of APi Group will be paid from the Indemnity Escrow Account up to $18. For any indemnification claims that are identified, thepro-rata portion that relates to thenon-ESOP shareholders of APi Group will require settlement directly from those former shareholders.
The following unaudited pro forma consolidated financial information reflects the results of operationssellers who become employees of the Company for the three months ended March 31, 2019 as if the APi Acquisition and related financing had occurred as of January 1, 2018, after giving effect to certain purchase accounting and financing adjustments. These amounts are based on financial information of APi Group and are not necessarily indicative of what Company’s operating results would have been had the acquisition and related financing taken place on January 1, 2018.
Three Months Ended March 31, 2019 (Predecessor) | ||||
Net revenue | $ | 922 | ||
Net loss | (10 | ) |
Pro forma financial information is presented as if the operations of APi Group had been included in the consolidated results of the Company since January 1, 2018 and gives effect to transactions that are directly attributable to the APi Acquisition and related financing. Successor and Predecessor periods have been combined in the pro forma financial information for the three months ended March 31, 2019 with pro forma adjustments to adjust for the different basis in accounting between the Successor and the Predecessor. Adjustments include: additional depreciation and amortization expense related to the fair value of acquired property and equipment and intangible assets as if such assets were acquired on January 1, 2018; interest expense under the Company’s $1,200 term loan under a new term loan facility as if the amount borrowed to partially finance the purchase price was borrowed on January 1, 2018; and adjustments for interest and investment income on cash and cash equivalents and investments in marketable securities held by the Company for the three months ended March 31, 2019 related to
13
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except shares and where noted otherwise)
(Unaudited)
the IPO proceeds generated and invested until the completion of the APi Acquisition as the pro forma financial statements assume that the IPO financing occurred on January 1, 2018 and the proceeds were used to complete the APi Acquisition concurrently. Further adjustments assume income taxes for the Predecessor periods based on a blended US federal and state statutory tax rate.
The purchase agreements related to APi Group’s previously completed acquisitions typically included deferred payment provisions to the former owners, who became employees of APi Group.or its subsidiaries. The provisions are made up of twothree general types of arrangements, bothcontingent compensation and contingent consideration (both of which are contingent on the future performance of the acquired entity; contingententity) and deferred payments related to indemnities. Contingent compensation and contingent consideration. Compensation arrangements are alsotypically contingent on the former owner’s future employment with APi Group. The expensethe Company, and the related to contingent compensation arrangements isamounts are recognized over the required employment period, which is typically threeone to fivefour years. Contingent consideration arrangements are not contingent on employment and are included as part of purchase consideration at the time of the initial acquisition. Both the compensation-typeacquisition and contingent consideration arrangements are typically paid over a three-one to five-yearfour year period.
The totalliability for deferred payments is recognized at the date of acquisition based on the Company’s best estimate and is typically payable over a one to three year period. Deferred payments are not contingent compensation arrangement liability assumed as part of the APi Acquisition was $27. on any future performance or employment obligations and can be offset for working capital true-ups, and representations and warranty items.
period.
Theearnings. For additional considerations regarding the fair value of the Company's contingent consideration obligations assumed related to APi Group’s previously completed acquisitions is determined using a probability-weighted discounted cash flow method. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. This analysis reflects the contractual terms of the purchase agreements (e.g., potential payment amounts, length of measurement periods, manner of calculating any amounts due, etc.) and utilizes assumptions with regard to future cash flows, probabilities of achieving such future cash flows and a discount rate. There are no elements of contingent consideration related to the APi Acquisition, other than those liabilities, assumed related to APi Group’s previously completed acquisitions. Seesee Note 8 – “Fair7 - "Fair Value of Financial Instruments”Instruments."
In conjunction with the APi Acquisition, the Company acquired certain assets that qualified as held for sale. Accordingly, these assets were recognized by the Company in purchase accounting at fair value less the cost to selldeferred payments was $21 and totaled $14. All of these assets were sold by the Company$17 as of March 31, 2020.
Note 5. Divestitures2024 and HeldDecember 31, 2023, respectively, and is included in contingent consideration and compensation liabilities in the condensed consolidated balance sheets for Sale
all periods presented.
14
APi Group Corporation
NotesIn total, the Company estimates that it will recognize approximately $125 of restructuring and other costs related to Condensed Consolidated Financial Statements
(Amounts in millions, except sharesthe Chubb restructuring program by the end of fiscal year 2025.
(Unaudited)
voluntary early retirement benefits. Program related costs include costs incurred as a direct result of the restructuring program such as consulting fees and facility relocation costs.
March 31, 2020 (Successor) | December 31, 2019 (Successor) | |||||||
Property and equipment, net | $ | — | $ | 9 | ||||
Goodwill | — | 1 | ||||||
Intangible assets, net(1) | 5 | 10 | ||||||
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Total assets held for sale | $ | 5 | $ | 20 | ||||
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Note 6. Revenue
Under ASC 606,Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when, or as, control of promised goods and services is transferred to customers, and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred. Revenue is primarily recognized by the Company over time utilizing thecost-to-cost measure of progress, consistent with the Company’s previous revenue recognition practices. Revenue recognized at a point in time relates primarily to distribution contracts and was not materialCompany's restructuring program for the three months ended March 31, 2020 (Successor)2024 and 2019 (Predecessor), respectively.
2023:
Employee termination benefits | Program related costs | Asset write-downs | Total | ||||||||||||||||||||
December 31, 2023 | $ | 32 | $ | — | $ | 6 | $ | 38 | |||||||||||||||
Charges | 1 | 4 | — | 5 | |||||||||||||||||||
Payments | (8) | (4) | — | (12) | |||||||||||||||||||
Currency translation adjustment | (1) | — | — | (1) | |||||||||||||||||||
March 31, 2024 | $ | 24 | $ | — | $ | 6 | $ | 30 |
Employee termination benefits | Program related costs | Asset write-downs | Total | ||||||||||||||||||||
December 31, 2022 | $ | 22 | $ | — | $ | — | $ | 22 | |||||||||||||||
Charges | — | — | — | — | |||||||||||||||||||
Payments | (5) | — | — | (5) | |||||||||||||||||||
March 31, 2023 | $ | 17 | $ | — | $ | — | $ | 17 |
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except shares and where noted otherwise)
(Unaudited)
The Company disaggregates its revenuenet revenues primarily by segment, service type, and country from which revenues are invoiced, as the nature, timing, and uncertainty of cash flows are relatively consistent within each of these categories. The following tables provide disclosure of disaggregated net revenues by segment for the three months ended March 31, 2024 and 2023. Disaggregated revenuenet revenues information is as follows:
Three Months Ended March 31, 2020 (Successor) | ||||||||||||||||||||
Safety | Specialty | Industrial | Corporate and | |||||||||||||||||
Services | Services | Services | Eliminations | Consolidated | ||||||||||||||||
Life safety | $ | 343 | $ | — | $ | — | $ | — | $ | 343 | ||||||||||
Mechanical | 81 | — | — | — | 81 | |||||||||||||||
Infrastructure/Utility | — | 170 | — | — | 170 | |||||||||||||||
Fabrication | — | 38 | — | — | 38 | |||||||||||||||
Specialty contracting | — | 92 | — | — | 92 | |||||||||||||||
Transmission | — | — | 93 | — | 93 | |||||||||||||||
Civil | — | — | 7 | — | 7 | |||||||||||||||
Inspection | — | — | 37 | — | 37 | |||||||||||||||
Corporate and eliminations | — | — | — | (3 | ) | (3 | ) | |||||||||||||
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Net revenues | $ | 424 | $ | 300 | $ | 137 | $ | (3 | ) | $ | 858 | |||||||||
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Three Months Ended March 31, 2019 (Predecessor) | ||||||||||||||||||||
Safety | Specialty | Industrial | Corporate and | |||||||||||||||||
Services | Services | Services | Eliminations | Consolidated | ||||||||||||||||
Life safety | $ | 334 | $ | — | $ | — | $ | — | $ | 334 | ||||||||||
Mechanical | 92 | — | — | — | 92 | |||||||||||||||
Infrastructure/Utility | — | 160 | — | — | 160 | |||||||||||||||
Fabrication | — | 41 | — | — | 41 | |||||||||||||||
Specialty contracting | — | 85 | — | — | 85 | |||||||||||||||
Transmission | — | — | 151 | — | 151 | |||||||||||||||
Civil | — | — | 2 | — | 2 | |||||||||||||||
Inspection | — | — | 60 | — | 60 | |||||||||||||||
Corporate and eliminations | — | — | — | (3 | ) | (3 | ) | |||||||||||||
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Net revenues | $ | 426 | $ | 286 | $ | 213 | $ | (3 | ) | $ | 922 | |||||||||
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Safety | Specialty | Industrial | Corporate and | |||||||||||||||||
Services | Services | Services | Eliminations | Consolidated | ||||||||||||||||
United States | $ | 376 | $ | 300 | $ | 131 | $ | (3 | ) | $ | 804 | |||||||||
Canada and United Kingdom | 48 | — | 6 | — | 54 | |||||||||||||||
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Net revenues | $ | 424 | $ | 300 | $ | 137 | $ | (3 | ) | $ | 858 | |||||||||
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Three Months Ended March 31, 2019 (Predecessor) | ||||||||||||||||||||
Safety | Specialty | Industrial | Corporate and | |||||||||||||||||
Services | Services | Services | Eliminations | Consolidated | ||||||||||||||||
United States | $ | 374 | $ | 286 | $ | 186 | $ | (3 | ) | $ | 843 | |||||||||
Canada and United Kingdom | 52 | — | 27 | — | 79 | |||||||||||||||
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Net revenues | $ | 426 | $ | 286 | $ | 213 | $ | (3 | ) | $ | 922 | |||||||||
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16
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except shares and where noted otherwise)
(Unaudited)
The Company’sThree Months Ended March 31, 2024 Safety
ServicesSpecialty
ServicesConsolidated Life Safety $ 1,103 $ — $ 1,103 Heating, Ventilation, and Air Conditioning ("HVAC") 111 — 111 Infrastructure/Utility — 205 205 Fabrication — 50 50 Specialty Contracting — 134 134 Corporate and Eliminations — — (2) Net revenues $ 1,214 $ 389 $ 1,601
Three Months Ended March 31, 2023 | |||||||||||||||||
Safety Services | Specialty Services | Consolidated | |||||||||||||||
Life Safety | $ | 1,068 | $ | — | $ | 1,068 | |||||||||||
HVAC | 123 | — | 123 | ||||||||||||||
Infrastructure/Utility | — | 240 | 240 | ||||||||||||||
Fabrication | — | 55 | 55 | ||||||||||||||
Specialty Contracting | — | 135 | 135 | ||||||||||||||
Corporate and Eliminations | — | — | (7) | ||||||||||||||
Net revenues | $ | 1,191 | $ | 430 | $ | 1,614 |
Three Months Ended March 31, 2024 | |||||||||||||||||||||||
Safety Services | Specialty Services | Corporate and Eliminations | Consolidated | ||||||||||||||||||||
United States | $ | 581 | $ | 384 | $ | (2) | $ | 963 | |||||||||||||||
France | 162 | — | — | 162 | |||||||||||||||||||
Other | 471 | 5 | — | 476 | |||||||||||||||||||
Net revenues | $ | 1,214 | $ | 389 | $ | (2) | $ | 1,601 |
Three Months Ended March 31, 2023 | |||||||||||||||||||||||
Safety Services | Specialty Services | Corporate and Eliminations | Consolidated | ||||||||||||||||||||
United States | $ | 560 | $ | 417 | $ | (7) | $ | 970 | |||||||||||||||
France | 156 | — | — | 156 | |||||||||||||||||||
Other | 475 | 13 | — | 488 | |||||||||||||||||||
Net revenues | $ | 1,191 | $ | 430 | $ | (7) | $ | 1,614 |
When more than one contract is entered into with a customer$2,894. The Company expects to recognize revenue on or close to the same date, management evaluates whether those contracts should be combined and accounted for as a single contract as well as whether those contracts should be accounted for as one, or more than one, performance obligation. This evaluation requires significant judgment and is based on the facts and circumstancesapproximately 86% of the various contracts.
Contracts are often modified through change orders to account for changes in the scope and price of the goods or services being provided. Although the Company evaluates each change order to determine whether such modification creates a separate performance obligation, the majority of change orders are for goods or services that are not distinct within the context of the original contract and, therefore, are not treated as separateremaining performance obligations but rather as a modificationover the next twelve months.
The timing of revenue recognition may differ from the timing of invoicing to customers. liabilities
17
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except shares and where noted otherwise)
(Unaudited)
The Company utilizes the practical expedient under ASC 606 and does not adjust for a significant financing component if the time between payment and the transfer of the related good or service is expected to be one year or less. The Company’s revenue arrangements are typically accounted for under such expedient as payments are within one year of performance for the Company’s services. As of March 31, 2020, none of the Company’s contracts contained a significant financing component. Contract liabilities from the Company’s construction contracts arise when amounts invoiced to the Company’s customers exceed revenues recognized under thecost-to-cost measure of progress. Contract liabilities also include advance payments from the Company’s customers on certain contracts. Contract liabilities decrease as the Company recognizes revenue from the satisfaction of the related performance obligation. Contact assets and liabilities are classified as current in the condensed consolidated balance sheets as all amounts are expected to be relieved within one year.
The opening and closing balances of accounts receivable, net of allowances, contract assets, and contract liabilities from contracts with customers as of March 31, 20202024 and December 31, 20192023 are as follows:
March 31, | December 31, | December 31, | ||||||||||
2020 | 2019 | 2018 | ||||||||||
(Successor) | (Successor) | (Predecessor) | ||||||||||
Accounts receivable, net of allowances | $ | 662 | $ | 730 | $ | 765 | ||||||
Contract assets | 251 | 245 | 240 | |||||||||
Contract liabilities | 205 | 193 | 203 |
Accounts receivable, net of allowances | Contract assets | Contract liabilities | |||||||||||||||
Balance at March 31, 2024 | $ | 1,256 | $ | 458 | $ | 542 | |||||||||||
Balance at December 31, 2023 | 1,395 | 436 | 526 |
Costs to obtain or fulfill a contract: The Company generally does not incur significant incremental costs related to obtaining or fulfilling a contract prior to the start of a project. The Company may incur certain fulfilment costs such as initial design or mobilization costs which are capitalized if: (i) they relate directly to the contract, (ii) are expected to generate resources that will be used to satisfy the Company’s performance obligation under the contract, and (iii) are expected to be recovered through revenue generated under the contract. Such costs, which are amortized over the life of the respective project, were not material for any period presented. The Company generally does not incur any significant costs related to obtaining a contract with a customer.
18
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except shares and where noted otherwise)
(Unaudited)
Note 7.
Goodwill:December 31, 2023. The changes in the preliminary carrying amount of goodwill by reportable segment for the three months ended March 31, 20202024 are as follows (amounts primarily representfollows:
Safety Services | Specialty Services | Total Goodwill | |||||||||||||||
Goodwill as of December 31, 2023 | $ | 2,294 | $ | 177 | $ | 2,471 | |||||||||||
Acquisitions | 21 | 7 | 28 | ||||||||||||||
Foreign currency translation and other, net (1) | (28) | — | (28) | ||||||||||||||
Goodwill as of March 31, 2024 | $ | 2,287 | $ | 184 | $ | 2,471 |
Safety | Specialty | Industrial | Total | |||||||||||||
Services | Services | Services | Goodwill | |||||||||||||
Goodwill as of December 31, 2019 | $ | 639 | $ | 290 | $ | 51 | $ | 980 | ||||||||
Acquisitions | — | 2 | — | 2 | ||||||||||||
Impairments(1) | (34 | ) | (120 | ) | (49 | ) | (203 | ) | ||||||||
Measurement period adjustments | (6 | ) | (4 | ) | (2 | ) | (12 | ) | ||||||||
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Goodwill as of March 31, 2020 | $ | 599 | $ | 168 | $ | — | $ | 767 | ||||||||
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(1) Duringmeasurement period ended during the first quarter of 2020, the Company concluded that a triggering event had occurred for all of its reporting units (Seethree months ended March 31, 2024 (see Note 2 – “Basis of Presentation and Significant Accounting Policies”3 - "Business Combinations"). Pursuant to the authoritative literature, the Company performed an impairment test and recorded an impairment charge of $203 to reflect the impairment of its goodwill.
Intangibles: The Company has the followingCompany’s identifiable intangible assets are comprised of the following as of March 31, 20202024 and December 31, 2019 (amounts primarily represent the preliminary estimate2023:
March 31, 2024 | |||||||||||||||||||||||
Weighted Average Remaining Useful Lives (in Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||
Amortized intangibles: | |||||||||||||||||||||||
Contractual backlog | 0.0 | $ | 154 | $ | (154) | $ | — | ||||||||||||||||
Customer relationships | 9.2 | 1,536 | (553) | 983 | |||||||||||||||||||
Trade names and trademarks | 11.9 | 713 | (147) | 566 | |||||||||||||||||||
Total | $ | 2,403 | $ | (854) | $ | 1,549 |
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except shares and where noted otherwise)
(Unaudited)
December 31, 2023 Weighted Average Remaining
Useful Lives
(in Years)Gross
Carrying
AmountAccumulated
AmortizationNet Carrying
AmountAmortized intangibles: Contractual backlog 0.5 $ 155 $ (154) $ 1 Customer relationships 9.4 1,552 (518) 1,034 Trade names and trademarks 12.1 722 (137) 585 Total $ 2,429 $ (809) $ 1,620
Three Months Ended March 31, | ||||||||||||
2020 (Successor) | 2019 (Predecessor) | |||||||||||
Cost of revenues | $ | 22 | $ | — | ||||||||
Selling, general, and administrative expense | 30 | 9 | ||||||||||
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Total intangible asset amortization expense | $ | 52 | $ | 9 | ||||||||
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Three Months Ended March 31, | |||||||||||
2024 | 2023 | ||||||||||
Cost of revenues | $ | — | $ | 7 | |||||||
Selling, general, and administrative expenses | 50 | 48 | |||||||||
Total intangible asset amortization expense | $ | 50 | $ | 55 |
Note 8. Fair Value of Financial Instruments
|
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Fair Value Measurements at March 31, 2020 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Derivatives | $ | — | $ | (36 | ) | $ | — | $ | (36 | ) | ||||||
Contingent consideration obligations | — | — | (9 | ) | (9 | ) | ||||||||||
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$ | — | $ | (36 | ) | $ | (9 | ) | $ | (45 | ) | ||||||
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Fair Value Measurements at December 31, 2019 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Derivatives | $ | — | $ | — | $ | — | $ | — | ||||||||
Contingent consideration obligations | — | — | (7 | ) | (7 | ) | ||||||||||
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$ | — | $ | — | $ | (7 | ) | $ | (7 | ) | |||||||
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2023:
Fair Value Measurements at March 31, 2024 | |||||||||||||||||||||||
Financial assets: | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Derivatives designated as hedge instruments | |||||||||||||||||||||||
Cash flow hedges - interest rate swaps | $ | — | $ | 22 | $ | — | $ | 22 | |||||||||||||||
Cash flow hedges - cross currency contracts | — | 11 | — | 11 | |||||||||||||||||||
Cash flow hedges - foreign currency forward contracts | — | — | — | — | |||||||||||||||||||
Net investment hedges - cross currency contracts | — | 22 | — | 22 | |||||||||||||||||||
Fair value hedges - cross currency contracts | — | 30 | — | 30 | |||||||||||||||||||
Derivatives not designated as hedge instruments | |||||||||||||||||||||||
Foreign currency forward contracts | — | — | — | — | |||||||||||||||||||
Total | $ | — | $ | 85 | $ | — | $ | 85 | |||||||||||||||
Financial liabilities: | |||||||||||||||||||||||
Derivatives not designated as hedge instruments | |||||||||||||||||||||||
Foreign currency forward contracts | — | — | — | — | |||||||||||||||||||
Contingent consideration obligations | — | — | (6) | (6) | |||||||||||||||||||
Total | $ | — | $ | — | $ | (6) | $ | (6) |
Fair Value Measurements at December 31, 2023 | |||||||||||||||||||||||
Financial assets: | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Derivatives designated as hedge instruments | |||||||||||||||||||||||
Cash flow hedges - interest rate swaps | $ | — | $ | 7 | $ | — | $ | 7 | |||||||||||||||
Cash flow hedges - cross currency contracts | — | 10 | — | 10 | |||||||||||||||||||
Net investment hedges - cross currency contracts | — | 20 | — | 20 | |||||||||||||||||||
Fair value hedges - cross currency contracts | — | 17 | — | 17 | |||||||||||||||||||
Derivatives not designated as hedge instruments | |||||||||||||||||||||||
Foreign currency forward contracts | — | — | — | — | |||||||||||||||||||
Total | $ | — | $ | 54 | $ | — | $ | 54 | |||||||||||||||
Financial liabilities: | |||||||||||||||||||||||
Derivatives not designated as hedge instruments | |||||||||||||||||||||||
Foreign currency forward contracts | — | — | — | — | |||||||||||||||||||
Contingent consideration obligations | — | — | (6) | (6) | |||||||||||||||||||
Total | $ | — | $ | — | $ | (6) | $ | (6) |
20
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except shares and where noted otherwise)
(Unaudited)
Contingent consideration obligations
Three Months Ended March 31, 2020 | ||||
Balances at beginning of period | $ | 7 | ||
Acquisitions | — | |||
Issuances | — | |||
Settlements | — | |||
Adjustments to fair value | 2 | |||
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Balance at end of period | $ | 9 | ||
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| |||
Number of open contingent consideration arrangements at the end of period | 6 | |||
Maximum potential payout at end of period | $ | 11 |
Three Months Ended March 31, 2024 | |||||
Balance as of December 31, 2023 | $ | 6 | |||
Issuances | — | ||||
Settlements | — | ||||
Balance as of March 31, 2024 | $ | 6 | |||
Number of open contingent consideration arrangements at the end of the period | 2 | ||||
Maximum potential payout at the end of the period | $ | 6 |
2024.
From time10 – “Debt”), including current portions and excluding unamortized debt issuance costs. Fair value is estimated by discounting future cash flows at currently available rates for borrowing arrangements with similar terms and conditions, which are considered to time,be Level 2 inputs under the fair value hierarchy. The interest rates of the variable interest rate long-term debt instruments are generally reset monthly. During the three months ended March 31, 2024, the Company (Successor) enters into derivative transactionsupsized the 2021 Term Loan by an aggregate principal amount equal to hedge its exposures to$300.
March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
2019 Term Loan | $ | 330 | $ | 330 | $ | 330 | $ | 331 | |||||||||||||||
2021 Term Loan | 1,707 | 1,711 | 1,407 | 1,407 | |||||||||||||||||||
4.125% Senior Notes | 337 | 302 | 337 | 305 | |||||||||||||||||||
4.750% Senior Notes | 277 | 254 | 277 | 257 |
March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||
Outstanding Gross Notional Amount | Other Assets | Other Noncurrent liabilities | Outstanding Gross Notional Amount | Other Assets | Other Noncurrent liabilities | ||||||||||||||||||||||||||||||
Derivatives designated as hedging instruments: | |||||||||||||||||||||||||||||||||||
Cash flow hedges: | |||||||||||||||||||||||||||||||||||
Interest rate swaps | $ | 1,120 | $ | 22 | $ | — | $ | 1,120 | $ | 7 | $ | — | |||||||||||||||||||||||
Cross currency contracts | 120 | 11 | — | 120 | 10 | — | |||||||||||||||||||||||||||||
Foreign currency forward contracts | 8 | — | — | — | — | — | |||||||||||||||||||||||||||||
Fair value hedges: | |||||||||||||||||||||||||||||||||||
Cross currency contracts | 721 | 30 | — | 721 | 17 | — | |||||||||||||||||||||||||||||
Net investment hedges: | |||||||||||||||||||||||||||||||||||
Cross currency contracts | 230 | 22 | — | 230 | 20 | — | |||||||||||||||||||||||||||||
Total derivatives designated as hedging instruments | 2,199 | 85 | — | 2,191 | 54 | — | |||||||||||||||||||||||||||||
Derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||||||||
Foreign currency forward contracts | 121 | — | — | 73 | — | 1 | |||||||||||||||||||||||||||||
Total derivatives not designated as hedging instruments | 121 | — | — | 73 | — | 1 | |||||||||||||||||||||||||||||
Total derivatives | $ | 2,320 | $ | 85 | $ | — | $ | 2,264 | $ | 54 | $ | 1 |
Amount of income (expense) recognized in income | ||||||||||||||||||||
Derivatives | Location of income (expense) recognized in the condensed consolidated statements of operations | Three Months Ended March 31, | ||||||||||||||||||
2024 | 2023 | |||||||||||||||||||
Cash flow hedging relationships: | ||||||||||||||||||||
Interest rate swaps | Interest expense, net | $ | 9 | $ | 2 | |||||||||||||||
Cross currency contracts | Investment expense (income) and other, net | 2 | (1) | |||||||||||||||||
Cross currency contracts | Interest expense, net | 1 | 1 | |||||||||||||||||
Foreign currency forward contracts | Investment expense (income) and other, net | — | — | |||||||||||||||||
Fair value hedging relationships: | ||||||||||||||||||||
Cross currency contracts | Investment expense (income) and other, net | 12 | (8) | |||||||||||||||||
Cross currency contracts | Interest expense, net | 1 | 1 | |||||||||||||||||
Net investment hedging relationships: | ||||||||||||||||||||
Cross currency contracts | Interest expense, net | 1 | 1 | |||||||||||||||||
Not designated as hedging instruments: | ||||||||||||||||||||
Foreign currency forward contracts | Investment expense (income) and other, net | — | — |
Amount of gain (loss) recognized in other comprehensive income | Location of gain (loss) reclassified from AOCI into income | Amount of gain (loss) reclassified from AOCI into income | ||||||||||||||||||||||||||||||
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
Derivatives | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||
Cash flow hedging relationships: | ||||||||||||||||||||||||||||||||
Interest rate swaps | $ | 11 | $ | (13) | Interest expense, net | $ | 4 | $ | (4) | |||||||||||||||||||||||
Cross currency contracts | (1) | 1 | Investment expense (income) and other, net | 2 | 1 | |||||||||||||||||||||||||||
Forward currency forward contracts | — | — | Investment expense (income) and other, net | — | — | |||||||||||||||||||||||||||
Fair value hedging relationships: | ||||||||||||||||||||||||||||||||
Cross currency contracts | — | — | Investment expense (income) and other, net | 13 | 7 | |||||||||||||||||||||||||||
Net investment hedging relationships: | ||||||||||||||||||||||||||||||||
Cross currency contracts | 2 | (1) | Interest expense, net | (1) | (3) |
At March 31, 2020,hedge effectiveness.
The fair value of the interest rate swap designated as an effective hedge was a liability of $36 and an asset of less than $1 as$2,037. As of March 31, 20202024, the weighted average fixed rate of interest on these swaps was approximately 3.52%. Variations in the assets and December 31, 2019, respectively. The increase in the
21
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except shares and where noted otherwise)
(Unaudited)
liability wasbalances are primarily driven by changes in the applicable LIBOR rate which was 0.99% at March 31, 2020 comparedforward yield curves related to 1.76% at December 31, 2019. SOFR.
Note 10. Property and Equipment, Net
Estimated Useful Lives (In Years) | March 31, 2020 | December 31, 2019 | ||||||||||
Land | N/A | $ | 20 | $ | 19 | |||||||
Building | 40 | 64 | 66 | |||||||||
Machinery and equipment | 3–15 | 179 | 174 | |||||||||
Autos and trucks | 5 | 73 | 67 | |||||||||
Office equipment | 3–7 | 67 | 66 | |||||||||
Leasehold improvements | 2–10 | 28 | 28 | |||||||||
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Total cost | 431 | 420 | ||||||||||
Accumulated depreciation | (34 | ) | (18 | ) | ||||||||
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Property and equipment, net | $ | 397 | $ | 402 | ||||||||
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Estimated Useful Lives (In Years) | March 31, 2024 | December 31, 2023 | |||||||||||||||
Land | N/A | $ | 21 | $ | 27 | ||||||||||||
Building | 39 | 101 | 105 | ||||||||||||||
Machinery, equipment, and office equipment | 1-20 | 359 | 353 | ||||||||||||||
Autos and trucks | 4-10 | 112 | 112 | ||||||||||||||
Leasehold improvements | 1-15 | 33 | 35 | ||||||||||||||
Total cost | 626 | 632 | |||||||||||||||
Accumulated depreciation | (251) | (247) | |||||||||||||||
Property and equipment, net | $ | 375 | $ | 385 |
Note 11. Debt
Description | Maturity Date | March 31, 2020 | December 31, 2019 | |||||||||
Term Loan Facility | ||||||||||||
Term Loan | October 1, 2026 | $ | 1,197 | $ | 1,200 | |||||||
Revolving Credit Facility | October 1, 2024 | 200 | — | |||||||||
Other Obligations | 10 | 14 | ||||||||||
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Total debt obligations | 1,407 | 1,214 | ||||||||||
Less unamortized deferred financing costs | (23 | ) | (24 | ) | ||||||||
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| |||||||||
Total debt, net of deferred financing costs | 1,384 | 1,190 | ||||||||||
Less current portion of long-term debt | (217 | ) | (19 | ) | ||||||||
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| |||||||||
Long-term debt | $ | 1,167 | $ | 1,171 | ||||||||
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|
Maturity Date | March 31, 2024 | December 31, 2023 | |||||||||||||||
Term loan facility | |||||||||||||||||
2019 Term Loan | October 1, 2026 | $ | 330 | $ | 330 | ||||||||||||
2021 Term Loan | January 3, 2029 | 1,707 | 1,407 | ||||||||||||||
Revolving Credit Facility | October 1, 2026 | 100 | — | ||||||||||||||
Senior notes | |||||||||||||||||
4.125% Senior Notes | July 15, 2029 | 337 | 337 | ||||||||||||||
4.750% Senior Notes | October 15, 2029 | 277 | 277 | ||||||||||||||
Other obligations | 5 | 5 | |||||||||||||||
Total debt obligations | 2,756 | 2,356 | |||||||||||||||
Less: unamortized deferred financing costs | (27) | (29) | |||||||||||||||
Total debt, net of deferred financing costs | 2,729 | 2,327 | |||||||||||||||
Less: short-term and current portion of long-term debt | (105) | (5) | |||||||||||||||
Long-term debt, less current portion | $ | 2,624 | $ | 2,322 |
October 1, 2026. The interest rate applicable to borrowingsthe 2019 Term Loan is, at the Company's option, either (a) a base rate plus an applicable margin equal to 1.25% or (b) Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.25% plus a credit spread adjustment ("CSA").
22
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except shares and where noted otherwise)
(Unaudited)
During March 2020,2024, the Company drew $200had the 2026 Interest Rate Swap with $720 of notional value, exchanging one-month SOFR for a fixed rate of 3.59% per annum, and the 2028 Interest Rate Swap with aggregate $400 notional value, exchanging one-month SOFR for a rate of 3.41%. Accordingly, the Company's fixed interest rate per annum on its Revolving Credit Facility, which was subsequently paid down during April 2020. Atthe first swapped $400 notional value of the term loans is 3.41% and the second swapped $720 notional value of the term loans is 3.59% through their maturity. The remaining $917 of the term loans balance will bear interest based on one month SOFR plus CSA plus 225 basis points or SOFR plus CSA plus 250 basis points, but the rate will fluctuate as SOFR fluctuates. Refer to Note 8 - "Derivatives" for additional information.
credit, respectively.
One ofindentures for the Company’s Canadian operations has a $20 unsecuredline-of-credit agreement with a variable-interest rate based upon the prime rate. The Company had no amounts outstanding under the line of credit4.125% Senior Notes and 4.750% Senior Notes as of March 31, 20202024, and December 31, 2019.
2023.
Note 12. Income Taxes
Historically, APi Group has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code for federal tax purposes. As a result, APi Group’s income was not subject to U.S. federal income taxes or state income taxes in those states where the S Corporation status is recognized. In Predecessor periods, no provision or liability for federal or state income tax has been provided in its consolidated financial statements except for those taxing jurisdictions where the S Corporation status is not recognized. In connection with the APi Acquisition, APi Group’s S Corporation status was terminated and APG will be treated as a C Corporation under Subchapter C of the Internal Revenue Code and will be part of the consolidated tax group of the Company. The termination of the “S” Corporation election has had a material impact on the Company’s results of operations, financial condition, and cash flows as reflected in the March 31, 2020 consolidated financial statements. The effective tax rate has increased, and net income has decreased as compared to the Company’s “S” Corporation tax years, since the Company is now subject to U.S. federal and state corporate income taxes in addition to foreign corporate income taxes on its earnings.
vehicles.
rates, and state taxes.
23
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except shares and where noted otherwise)
(Unaudited)
carryforwards will be able to offset 80% of future taxable income for years beginning after 2020.2027. The foreign net operating losses have carryback periods of three years, carryforward periods of twenty years, or are indefinite, and begin to expire in 2034.
2036.
expense.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law making several changes to the Internal Revenue Code. The CARES Act, among other things, permits Net Operating Loss (“NOL“) carryovers to offset 100% of taxable income for tax years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding tax years to generate a refund of previously paid income taxes. The CARES Act contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The modifications to Section 163(j) increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income. The CARES Act also accelerates the refund of AMT credits that were previously accumulated. The tax law changes in the CARES Act did not have a material impact on the Company’s income tax provision.
Note 13. Employee Benefit Plans
Certain
Three Months Ended March 31, | |||||||||||
2024 | 2023 | ||||||||||
Service cost | $ | 1 | $ | 1 | |||||||
Interest cost | 15 | 15 | |||||||||
Expected return on plan assets | (10) | (18) | |||||||||
Net periodic pension cost (benefit) | $ | 6 | $ | (2) |
Note 14. Related-Party Transactions and Investments
24
APi Group Corporation
Notesa co-chair of the Company’s Board of Directors. In addition, dividends for Series A Preferred Stock were declared as of December 31, 2023 and settled in 7,944,104 shares issued during January 2024. The shares were issued to Condensed Consolidated Financial Statements
(AmountsMariposa Acquisition IV, LLC, a related entity that is controlled by a co-chair of the Company's Board of Directors.
(Unaudited)
issued dividends of 124,573 shares of common stock on the Series B Preferred Stock held by the Viking Purchasers during the three months ended March 31, 2023.
SHAREHOLDERS’ EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
Three Months Ended March 31, 2020 | ||||
Numerator: | ||||
Net loss | $ | (194 | ) | |
Adjustment for vested participating Founder Preferred shares | — | |||
|
| |||
Net loss attributable to ordinary shares | $ | (194 | ) | |
|
| |||
Denominator: | ||||
Weighted average shares outstanding - basic | 169,822,082 | |||
Dilutive securities(1) | — | |||
|
| |||
Weighted average shares outstanding - diluted | 169,822,082 | |||
|
| |||
Basic and diluted loss per ordinary share | $ | (1.14 | ) | |
Ordinary shares issuable upon conversion of Founder Preferred Shares | 4,000,000 |
|
Predecessor
Three Months Ended March 31, | |||||||||||
2024 | 2023 | ||||||||||
Basic (loss) earnings per common share: | |||||||||||
Net income | $ | 45 | $ | 26 | |||||||
Less income allocable to Series A Preferred Stock | — | (1) | |||||||||
Less income allocable to Series B Preferred Stock | — | (2) | |||||||||
Less stock dividend attributable to Series B Preferred Stock | (7) | (11) | |||||||||
Less conversion of Series B Preferred Stock | (372) | — | |||||||||
Net (loss) income attributable to common shareholders | $ | (334) | $ | 12 | |||||||
Weighted average shares outstanding - basic | 249,744,275 | 234,386,758 | |||||||||
(Loss) income per common share - basic | $ | (1.34) | $ | 0.05 | |||||||
Diluted (loss) earnings per common share: | |||||||||||
Net income | $ | 45 | $ | 26 | |||||||
Less income allocable to Series A Preferred Stock | — | (1) | |||||||||
Less stock dividend attributable to Series B Preferred Stock | (7) | (11) | |||||||||
Less conversion of Series B Preferred Stock | (372) | — | |||||||||
Net (loss) income attributable to common shareholders - diluted | $ | (334) | $ | 14 | |||||||
Weighted average shares outstanding - basic | 249,744,275 | 234,386,758 | |||||||||
Dilutive securities: (1) | |||||||||||
Restricted stock units, warrants, and stock options | — | 265,515 | |||||||||
Shares issuable upon conversion of Series B Preferred Shares | — | 32,520,000 | |||||||||
Weighted average shares outstanding - diluted | 249,744,275 | 267,172,273 | |||||||||
(Loss) income per common share - diluted | $ | (1.34) | $ | 0.05 |
Note 16. Segment Information
over 20 countries.
25
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except shares and where noted otherwise)
(Unaudited)
special-hazard settings.
The Industrial Services segment provides a variety of specialty contracting servicesrepair, retrofitting and solutions to the energy industry focused on transmission and distribution. Services within this segment include oil and gasupgrading, pipeline infrastructure, access and road construction, supporting facilities, and performing ongoing integrity management and maintenance.
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.
Three Months Ended March 31, 2020 (Successor) | ||||||||||||||||||||
Safety Services | Specialty Services | Industrial Services | Corporate and Eliminations | Consolidated | ||||||||||||||||
Net revenues | $ | 424 | $ | 300 | $ | 137 | $ | (3 | ) | $ | 858 | |||||||||
EBITDA Reconciliation | ||||||||||||||||||||
Operating loss | $ | (10 | ) | $ | (136 | ) | $ | (58 | ) | $ | (30 | ) | $ | (234 | ) | |||||
Plus: | ||||||||||||||||||||
Investment income and other, net | 1 | 2 | — | — | 3 | |||||||||||||||
Depreciation | 3 | 8 | 4 | 3 | 18 | |||||||||||||||
Amortization | 24 | 18 | 9 | 1 | 52 | |||||||||||||||
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EBITDA | $ | 18 | $ | (108 | ) | $ | (45 | ) | $ | (26 | ) | $ | (161 | ) | ||||||
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Total assets | $ | 1,721 | $ | 1,160 | $ | 441 | $ | 564 | $ | 3,886 | ||||||||||
Capital expenditures | 1 | 6 | 4 | — | 11 |
26
Three Months Ended March 31, 2024 | |||||||||||||||||||||||
Safety Services | Specialty Services | Corporate and Eliminations | Consolidated | ||||||||||||||||||||
Net revenues | $ | 1,214 | $ | 389 | $ | (2) | $ | 1,601 | |||||||||||||||
EBITDA Reconciliation | |||||||||||||||||||||||
Operating income (loss) | $ | 125 | $ | 7 | $ | (32) | $ | 100 | |||||||||||||||
Plus: | |||||||||||||||||||||||
Investment (expense) income and other, net | (6) | 2 | 1 | (3) | |||||||||||||||||||
Depreciation | 8 | 11 | — | 19 | |||||||||||||||||||
Amortization | 36 | 13 | 1 | 50 | |||||||||||||||||||
EBITDA | $ | 163 | $ | 33 | $ | (30) | $ | 166 | |||||||||||||||
Total assets | $ | 5,671 | $ | 1,110 | $ | 411 | $ | 7,192 | |||||||||||||||
Capital expenditures | 5 | 10 | 7 | 22 |
Three Months Ended March 31, 2023 | |||||||||||||||||||||||
Safety Services | Specialty Services | Corporate and Eliminations | Consolidated | ||||||||||||||||||||
Net revenues | $ | 1,191 | $ | 430 | $ | (7) | $ | 1,614 | |||||||||||||||
EBITDA Reconciliation | |||||||||||||||||||||||
Operating income (loss) | $ | 96 | $ | — | $ | (23) | $ | 73 | |||||||||||||||
Plus: | |||||||||||||||||||||||
Investment income and other, net | 3 | 2 | — | 5 | |||||||||||||||||||
Loss on extinguishment of debt, net | — | — | (3) | (3) | |||||||||||||||||||
Depreciation | 6 | 12 | 1 | 19 | |||||||||||||||||||
Amortization | 41 | 13 | 1 | 55 | |||||||||||||||||||
EBITDA | $ | 146 | $ | 27 | $ | (24) | $ | 149 | |||||||||||||||
Total assets | $ | 6,001 | $ | 1,247 | $ | 518 | $ | 7,766 | |||||||||||||||
Capital expenditures | 5 | 15 | 1 | 21 |
APi Group Corporation
Notes to Condensed Consolidated Financial Statements
(Amounts in millions, except shares and where noted otherwise)
(Unaudited)
Three Months Ended March 31, 2019 (Predecessor) | ||||||||||||||||||||
Safety Services | Specialty Services | Industrial Services | Corporate and Eliminations | Consolidated | ||||||||||||||||
Net revenues | $ | 426 | $ | 286 | $ | 213 | $ | (3 | ) | $ | 922 | |||||||||
EBITDA Reconciliation | ||||||||||||||||||||
Operating income (loss) | $ | 52 | $ | — | $ | (9 | ) | $ | (17 | ) | $ | 26 | ||||||||
Plus: | ||||||||||||||||||||
Investment income and other, net | — | 1 | — | 1 | 2 | |||||||||||||||
Depreciation | 1 | 8 | 4 | 3 | 16 | |||||||||||||||
Amortization | 2 | 5 | 2 | — | 9 | |||||||||||||||
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EBITDA | $ | 55 | $ | 14 | $ | (3 | ) | $ | (13 | ) | $ | 53 | ||||||||
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Total assets | $ | 780 | $ | 813 | $ | 356 | $ | 116 | $ | 2,065 | ||||||||||
Capital expenditures | 4 | 11 | 7 | — | 22 |
Note 17. Subsequent Events
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
•our beliefs and expectations regarding our business strategies and competitive strengths;
•our beliefs regarding the recurring and repeat nature of our business;
our expectations regarding industry trendsbusiness, customers and theirrevenues, and its impact on our business,cash flows and organic growth opportunities and our ability to capitalize onbelief that it helps mitigate the opportunities presented in the markets we serve;
•our intent to continue to grow our business, both organically and through acquisitions, and our beliefs regarding the impact of our business strategies on our growth;
•our beliefs regarding our customer relationships;
•our beliefs regarding our ability to pass along commodity price increases to our customers;
•our expectations regarding future capital expenditures;
the impact of theCOVID-19 pandemic on our business, markets, supply chain, customers and workforce, on the credit and financial markets, and on the global economy generally;
•adverse developments in the credit markets that could adversely affect funding of construction projects;
•exposure to global economic, political and legal risks related to our international operations, including geopolitical instability;
•a decline in demand for our services or for the products and services of our customers;
•the fact that our revenues are derived primarily from contracts with durations of less than six months and the risk that customers will not renew or enter into new contracts;
•our ability to successfully acquire other businesses, successfully integrate acquired businesses into our operations and manage the risks and potential liabilities associated with those acquisitions;
•the impact of our regional, decentralized business model on our ability to execute on our business strategies and operate our business successfully;
•our ability to compete successfully in the industries and markets we serve;
28
•our ability to properly manage and accurately estimate costs associated with specific customer projects, in particular for arrangements with fixed price terms;
•supply chain constraints and interruptions, and the resulting increases in the cost, or reductions in the supply, of the materials and commodities we use in our business and for which we bear the risk of such increases;
•the impact of inflation;
•the inherently dangerous nature of the services we provide and the risks of potential liability;
•the impact of customer consolidation;
•the loss of the services of key senior management personnel and the availability of skilled personnel;
•the seasonality of our business and the impact of weather conditions;
•the variability of our operating results between periods and the resulting difficulty in forecasting future operating results;
•litigation that results from our business, including costs related to any damages we may be required to pay as a result of general liability or workmanship claims brought againstby our customers;
•the impact of health, safety, and environmental laws and regulations, and the costs associated with compliance with such laws and regulations;
•our substantial level of indebtedness and the effect of restrictions on our operations set forth in the documents that govern such indebtedness;
•our compliance with certain financial maintenance covenants in our credit agreement and the effect on our liquidity of any failure to comply with such covenants.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSItemManagement’s Discussion and Analysis of Financial Condition and Results of OperationsInterim Statementsinterim unaudited condensed consolidated financial statements (the "Interim Statements") and related notes included in this quarterly report, and the Consolidated Financial Statements,Company's 2023 audited annual consolidated financial statements, the related notes thereto and under the “APG Management’sheading "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” sectionOperations" and other disclosures contained in our Registration StatementAnnual Report on FormS-4 effective May 1, 2020 (the “FormS-4”), 10-K, including financial results for the year ended December 31, 2019.2023. 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-LookingForward Looking Statements” section of this quarterly report. generally accepted in the United States of America (“U.S. GAAP”). To supplement our financial results presented in accordance with U.S. GAAP in this Management’s Discussion and Analysis of Financial Condition and Results of OperationsMD&A section, we present EBITDA, which is anon-U.S. GAAP financial measure, to assist readers29
in understanding our performance and provide an additional perspective on trends and underlying operating results on aperiod-to-period comparable basis.Non-U.S. GAAP financial measures either exclude or include amounts that are not reflected in the most directly comparable measure calculated and presented in accordance with U.S. GAAP. Where anon-U.S. GAAP financial measure is used, we have provided the most directly comparable measure calculated and presented in accordance with U.S. GAAP, a reconciliation to the U.S. GAAP measure and a discussion of the reasons why management believes this information is useful to it and may be useful to investors.
subsidiaries.
culture driven by entrepreneurial business leaders that deliver innovative solutions to our customers.
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30
•Safety Services – Our Safety Services segment is a leading provider of safety services in North America, Europe, and Asia Pacific focusing on end-to-end integrated occupancy systems (fire protection, Heating, Ventilation, and Air Conditioning (“HVAC”) and entry), including service, monitoring, inspection, design and installation of these integrated systems. The work performed within this segment spans across industries and facilities and includes commercial, education, healthcare, high-tech, industrial, and special-hazard settings.
Prior
such changes.
Recent Developments
Impairment of Goodwill and Intangibles
During the first quarter of 2020, we concluded that a triggering event had occurred for all of our reporting units as a result of theCOVID-19 global pandemic and we recorded total non-cash charges of $208 million to reflect the impairment of our goodwill and intangible assets as preliminary carrying values exceeded fair value. Pursuant to the authoritative literature, we performed impairment tests and determined that, as a result of the impact ofCOVID-19, which has negatively impacted our operations, suppliers and other vendors, customer base, the demand for work within the oil and gas industry as a result of the volatility in oil prices and other factors outside of the control of management, certain of our goodwill and intangible assets were impaired. Specifically, we determined the goodwill associated with our Mechanical, Infrastructure/Utility, Fabrication, Specialty Contracting, Transmission and Civil reporting units were impaired by $34 million, $80 million, $17 million, $23 million, $45 million and $4 million, respectively. We also determined that intangible assets of a business classified as held for sale were impaired by $5 million.
31
The circumstances and global disruption caused byCOVID-19 has affected, and we believe it will continue to affect, our businesses, operating results, cash flows and financial condition, however the scope and duration of the impact is highly uncertain. In addition, some of the inherent estimates and assumptions used in determining the fair value of our reporting units are outside the control of management, including interest rates, cost of capital, tax rates, industry growth, credit ratings, foreign exchange rates, and labor inflation. Given the uncertainty of these factors, as well as the inherent difficulty in predicting the severity and duration of theCOVID-19 global pandemic and associated recovery and the uncertainties regarding the potential financial impact on our business and the overall economy, there can be no assurance that our estimates and assumptions made for purposes of the goodwill impairment testing performed during the first quarter of 2020 will prove to be accurate predictions of the impact in future periods.
While we believe we have made reasonable estimates and assumptions to calculate the fair values of our reporting units which were based on facts and circumstances known at such time, it is possible that existing or new events may result in forecasted cash flows, revenue and earnings that differ from those that formed the basis of our estimates and assumptions. For each of our reporting units, particularly if the global pandemic caused byCOVID-19 continues to persist for an extended period of time, a reporting unit’s actual results could be materially different from our estimates and assumptions used to calculate fair value. If so, we may be required to recognize material impairments to goodwill or other long-lived assets. We will continue to monitor our reporting units for any triggering events or other signs of impairment. We may be required to perform additional impairment testing based on further deterioration of the global economic environment, continued disruptions to our businesses, further declines in operating results of our reporting units and/or tradenames, sustained deterioration of our market capitalization, and other factors, which could result in additional impairment charges in the future. Although we cannot predict when improvements in macroeconomic conditions will occur, if consumer confidence and consumer spending decline significantly in the future or if economic activity experiences a sustained deterioration from current levels, it is reasonably likely we will be required to record additional impairment charges in the future.
As of March 31, 2020, there was one reporting unit, Life Safety, with fair value exceeding its carrying value by less than 10%. Since the goodwill balances for each reporting unit are still preliminary, pending finalizing purchase price allocation from the APi Acquisition, it is possible the Life Safety reporting unit may experience an impairment charge even if there are no changes to the aforementioned discount rates. Based on a sensitivity analysis, a 10% increase in the carrying value of the Life Safety reporting unit would have resulted in an impairment charge of $27 million.
See Note 2 – “Basis of Presentation and Significant Accounting Policies” and Note 7 – “Goodwill and Intangibles” of the Interim Statements for additional information.
Credit Facilities
In late March 2020, we drew down $200 million under our $300 million Revolving Credit Facility. As of March 31, 2020, $33 million was available after giving effect to $67 million of outstanding letters of credit, which reduce availability. We were in compliance with all covenants contained in the Credit Agreement as of March 31, 2020. During April 2020, we repaid the $200 million of borrowings on the Revolving Credit Facility.
Income Taxes
The three months ended March 31, 2020 were also impacted by certain discrete ornon-recurring tax items. The income tax benefit of $51 for the three months ended March 31, 2020 was primarily due to impairment of goodwill and intangible assets. The tax law changes in the CARES Act had an impact of $0 on the Company’s income tax provision.
32
COVID-19 Update
We continue to monitor the short- and long-term impacts ofCOVID-19, a global pandemic that has caused a significant slowdown in the global economy beginning in March 2020. While we had some slowdown impact in March, the impacts ofCOVID-19 were not seen as significant at that time. During the three months ended March 31, 2020, we continued to provide services to our customers and saw a relatively minor impact to our business. To date, the services we provide have been deemed to be essential in most instances. However, as theCOVID-19 situation has evolved in April and May, we have seen various disruptions in our work due to the domino effects of the various local, state and national jurisdictional“shelter-in-place” orders, including but not limited to the impact on our efficiency to perform our work while adhering to physical distancing protocols demanded byCOVID-19, customers deferring inspection and service projects, and temporary shutdowns of active projects as they work throughCOVID-19 related matters. Due to the statutory nature of much of our work and the long-term investments being made across the public and private utility sector, to date we have not experienced significant cancellations. However, we are experiencing delays in certain projects and disruptions to the flow of our work to meetCOVID-19 working protocols. We are actively quoting new work for customers such as schools, universities, hotels, casinos and other customers that may be temporarily operating at less than capacity or closed. Should the macro economy continue to be negatively impacted by theCOVID-19 pandemic, it is possible that some projects could be delayed indefinitely or cancelled, or that we are not successful in accelerating inspection and service projects.
As we have monitored our activity in April and May 2020, revenue period over period has been impacted by the level ofshelter-in-place orders and outbreaks ofCOVID-19, which for certain larger projects, caused customers to temporarily halt work to put inCOVID-19 working protocols. Subsequent to March 31, 2020, all of our segments have seen volume declines. Recently we are seeing indications of stabilizing and some volume improvements off previous lows as our teams and customers are adapting to working in theCOVID-19 environment and with the easing of someshelter-in-place orders. There can be no assurance that this will continue in a positive manner.
To date, we have been able to source the supply and materials needed for our business with minimal disruptions. However, the continued impact ofCOVID-19 on our vendors is evolving and could make it difficult to obtain needed materials.
We have also implemented a preemptive cost reduction plan, which we expect will save both expense and cash in 2020 if market conditions require us to maintain them throughout the rest of the year.
While we cannot estimate the duration or future negative financial impact of theCOVID-19 pandemic on our business, we are currently experiencing some negative impact, which we expect to continue in the future.
Recent Accounting Pronouncements
Descriptionherein.
Revenue isrevenues
33
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 materialsmaterial pricing. RevenueNet revenues for fixed price agreements isare generally recognized over time using thecost-to-cost method of accounting which measures progress based on the cost incurred to total expected cost in satisfying our performance obligation.
Revenue
revenues
profit
Selling, General and Administrative Expenses
intangible assets
Impairment There is a portion of Goodwill, Intangibles and Long-Lived Assets
Goodwill is tested for impairment annually, or more frequently as events and circumstances change. Expenses for impairment chargesamortization expense related to the write-down of goodwill balances and identifiablebacklog intangible assets balances are recorded toreflected in cost of revenues in the extent theircondensed consolidated statements of operations.
Critical Accounting Policies and Estimates
extinguishment.
34
Operations” in our Annual Report on FormS-4. Additionally, see 10-K for the “Usefiscal year ended December 31, 2023.
2023.
Three Months Ended March 31, | ||||||||||||||||
2020 | 2019 | Change | ||||||||||||||
($ in millions) | (Successor) | (Predecessor) | $ | % | ||||||||||||
Net revenues | $ | 858 | $ | 922 | $ | (64 | ) | (6.9)% | ||||||||
Cost of revenues | 696 | 759 | (63 | ) | (8.3)% | |||||||||||
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Gross profit | 162 | 163 | (1 | ) | (0.6)% | |||||||||||
Selling, general, and administrative expenses | 188 | 137 | 51 | 37.2% | ||||||||||||
Impairment of goodwill, intangibles and long-lived assets | 208 | — | 208 | �� | NM | |||||||||||
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Operating income (loss) | (234 | ) | 26 | (260 | ) | NM | ||||||||||
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Interest expense, net | 14 | 6 | 8 | 133.3% | ||||||||||||
Investment income and other, net | (3 | ) | (2 | ) | (1 | ) | 50.0% | |||||||||
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Other expense, net | 11 | 4 | 7 | 175.0% | ||||||||||||
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Income (loss) before income taxes | (245 | ) | 22 | (267 | ) | NM | ||||||||||
Income tax provision (benefit) | (51 | ) | 1 | (54 | ) | NM | ||||||||||
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Net income (loss) | $ | (194 | ) | $ | 21 | $ | (215 | ) | NM | |||||||
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NM = Not meaningful
2023
Three Months Ended March 31, | Change | |||||||||||||||||||||||||
($ in millions) | 2024 | 2023 | $ | % | ||||||||||||||||||||||
Net revenues | $ | 1,601 | $ | 1,614 | $ | (13) | (0.8) | % | ||||||||||||||||||
Cost of revenues | 1,109 | 1,189 | (80) | (6.7) | % | |||||||||||||||||||||
Gross profit | 492 | 425 | 67 | 15.8 | % | |||||||||||||||||||||
Selling, general, and administrative expenses | 392 | 352 | 40 | 11.4 | % | |||||||||||||||||||||
Operating income | 100 | 73 | 27 | 37.0 | % | |||||||||||||||||||||
Interest expense, net | 34 | 37 | (3) | (8.1) | % | |||||||||||||||||||||
Loss on extinguishment of debt, net | — | 3 | (3) | (100.0) | % | |||||||||||||||||||||
Investment expense (income) and other, net | 3 | (5) | 8 | (160.0) | % | |||||||||||||||||||||
Other expense, net | 37 | 35 | 2 | 5.7 | % | |||||||||||||||||||||
Income before income taxes | 63 | 38 | 25 | 65.8 | % | |||||||||||||||||||||
Income tax provision | 18 | 12 | 6 | 50.0 | % | |||||||||||||||||||||
Net income | $ | 45 | $ | 26 | $ | 19 | 73.1 | % |
segment.
Three Months Ended March 31, | ||||||||||||||||
2020 | 2019 | Change | ||||||||||||||
($ in millions) | (Successor) | (Predecessor) | $ | % | ||||||||||||
Gross profit | $ | 162 | $ | 163 | $ | (1 | ) | (0.6)% | ||||||||
Gross profit margin | 18.9 | % | 17.7 | % |
35
Three Months Ended March 31, Change ($ in millions) 2024 2023 $ % Gross profit $ 492 $ 425 $ 67 15.8 % Gross margin 30.7 % 26.3 %
Three Months Ended March 31, | ||||||||||||||||
2020 | 2019 | Change | ||||||||||||||
($ in millions) | (Successor) | (Predecessor) | $ | % | ||||||||||||
Selling, general, and administrative expenses | $ | 188 | $ | 137 | $ | 51 | 37.2% | |||||||||
Impairment of goodwill, intangibles and long-lived assets | 208 | — | 208 | NM | ||||||||||||
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Total operating expenses | $ | 396 | $ | 137 | $ | 259 | 189.1% | |||||||||
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Operating expenses as a percentage of net revenues | 46.2 | % | 14.9 | % | ||||||||||||
Operating margin | (27.3 | %) | 2.8 | % |
Three Months Ended March 31, | Change | |||||||||||||||||||||||||
($ in millions) | 2024 | 2023 | $ | % | ||||||||||||||||||||||
Selling, general, and administrative expenses | $ | 392 | $ | 352 | $ | 40 | 11.4 | % | ||||||||||||||||||
SG&A expenses as a % of net revenues | 24.5 | % | 21.8 | % | ||||||||||||||||||||||
Operating margin | 6.2 | % | 4.5 | % | ||||||||||||||||||||||
SG&A expenses (excluding amortization) (Non-GAAP) | $ | 342 | $ | 304 | $ | 38 | 12.5 | % | ||||||||||||||||||
SG&A expenses (excluding amortization) as a % of net revenues (Non-GAAP) | 21.4 | % | 18.8 | % |
Operating income and EBITDA
Three Months Ended March 31, | ||||||||||||||||
2020 | 2019 | Change | ||||||||||||||
($ in millions) | (Successor) | (Predecessor) | $ | % | ||||||||||||
Operating income (loss) | $ | (234 | ) | $ | 26 | $ | (260 | ) | NM | |||||||
EBITDA | (161 | ) | 53 | (214 | ) | (403.8)% |
the Series B Preferred Stock Conversion that are non-recurring in nature. Our operating lossSG&A expenses excluding amortization for the three months ended March 31, 2020 was $2342024 were $342 million, or 21.4% of net revenues, compared to income$304 million, or 18.8% of $26 millionnet revenues, for the same period of 2023. The increase in 2020, a decrease of $260 million. Operating margin decreased to approximately (27.3)% in 2020 from 2.8% in 2019. The decrease was primarily attributable to impairment expense of $208 million, increasedSG&A expenses related to intangible assetexcluding amortization expense, which increased $43 million over the prior year, and other increases in operating expenses discussed above. EBITDA as a percentage of net revenues decreasedis primarily due to (18.8)% in 2020 from 5.7% in 2019. The decrease was primarily driven by the increased operating expensesfactors discussed above.
See the discussion and reconciliation of our non-U.S. GAAP financial measures below.
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Income tax provision
Three Months Ended March 31, | Change | |||||||||||||||||||||||||
($ in millions) | 2024 | 2023 | $ | % | ||||||||||||||||||||||
Net income | $ | 45 | $ | 26 | $ | 19 | 73.1 | % | ||||||||||||||||||
EBITDA (non-GAAP) | 166 | 149 | $ | 17 | 11.4 | % | ||||||||||||||||||||
Net income as a % of net revenues | 2.8 | % | 1.6 | % | ||||||||||||||||||||||
EBITDA as a % of net revenues | 10.4 | % | 9.2 | % |
2024 was $45 million compared to $26 million for the same period in 2023, an increase of $19 million. Net income as a percentage of net revenues for the three months ended March 31, 2024 and 2023 was 2.8% and 1.6%, respectively. The improvement is primarily attributable to growth in inspection, service, and monitoring revenue and pricing improvements in our Safety Services segment, in addition to improved operating margin due to disciplined project and customer selection in our Specialty Services segment. The net income increase was partially offset by an increase in non-service pension costs of approximately $7 million. EBITDA for the three months ended March 31, 2024 was $166 million compared to $149 million for the same period in 2023, an increase of $17 million. The increase in EBITDA was primarily driven by the factors previously discussed. See the discussion and reconciliation of our non-U.S. GAAP financial measures below.
Net Revenues | ||||||||||||||||||||||||||
Three Months Ended March 31, | Change | |||||||||||||||||||||||||
($ in millions) | 2024 | 2023 | $ | % | ||||||||||||||||||||||
Safety Services | $ | 1,214 | $ | 1,191 | $ | 23 | 1.9 | % | ||||||||||||||||||
Specialty Services | 389 | 430 | $ | (41) | (9.5) | % | ||||||||||||||||||||
Corporate and Eliminations | (2) | (7) | NM | NM | ||||||||||||||||||||||
$ | 1,601 | $ | 1,614 | $ | (13) | (0.8) | % |
Operating Income (Loss) | ||||||||||||||||||||||||||
Three Months Ended March 31, | Change | |||||||||||||||||||||||||
($ in millions) | 2024 | 2023 | $ | % | ||||||||||||||||||||||
Safety Services | $ | 125 | $ | 96 | $ | 29 | 30.2 | % | ||||||||||||||||||
Safety Services operating margin | 10.3 | % | 8.1 | % | ||||||||||||||||||||||
Specialty Services | $ | 7 | $ | — | $ | 7 | NM | |||||||||||||||||||
Specialty Services operating margin | 1.8 | % | — | % | ||||||||||||||||||||||
Corporate and Eliminations | $ | (32) | $ | (23) | NM | NM | ||||||||||||||||||||
$ | 100 | $ | 73 | $ | 27 | 37.0 | % |
EBITDA | ||||||||||||||||||||||||||
Three Months Ended March 31, | Change | |||||||||||||||||||||||||
($ in millions) | 2024 | 2023 | $ | % | ||||||||||||||||||||||
Safety Services | $ | 163 | $ | 146 | $ | 17 | 11.6 | % | ||||||||||||||||||
Safety Services EBITDA as a % of net revenues | 13.4 | % | 12.3 | % | ||||||||||||||||||||||
Specialty Services | $ | 33 | $ | 27 | $ | 6 | 22.2 | % | ||||||||||||||||||
Specialty Services EBITDA as a % of net revenues | 8.5 | % | 6.3 | % | ||||||||||||||||||||||
Corporate and Eliminations | $ | (30) | $ | (24) | NM | NM | ||||||||||||||||||||
$ | 166 | $ | 149 | $ | 17 | 11.4 | % |
This 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, reportable business segments, and prospects for future performance, (b) permit investors to compare us with our peers, and (c) in the case of EBITDA, determines certain elements of management’s incentive compensation.
Three Months Ended March 31, | ||||||||||||||
($ in millions) | 2024 | 2023 | ||||||||||||
Reported SG&A expenses | $ | 392 | $ | 352 | ||||||||||
Adjustments to reconcile to SG&A expenses to SG&A expenses (excluding amortization) | ||||||||||||||
Amortization expense | (50) | (48) | ||||||||||||
SG&A expenses (excluding amortization) | $ | 342 | $ | 304 |
Three Months Ended March 31, | ||||||||
($ in millions) | 2020 (Successor) | 2019 (Predecessor) | ||||||
Reported net income (loss) | $ | (194 | ) | $ | 21 | |||
Adjustments to reconcile net income (loss) to EBITDA: | ||||||||
Interest expense, net | 14 | 6 | ||||||
Income tax provision (benefit) | (51 | ) | 1 | |||||
Depreciation | 18 | 16 | ||||||
Amortization | 52 | 9 | ||||||
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EBITDA | $ | (161 | ) | $ | 53 | |||
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Operating Segment Results for the Three Months Ended March 31, 2020 (Successor) versus Three Months Ended March 31, 2019 (Predecessor)
Net Revenues | ||||||||||||||||
Three Months Ended March 31, | ||||||||||||||||
2020 | 2019 | Change | ||||||||||||||
($ in millions) | (Successor) | (Predecessor) | $ | % | ||||||||||||
Safety Services | $ | 424 | $ | 426 | $ | (2 | ) | (0.5)% | ||||||||
Specialty Services | 300 | 286 | 14 | 4.9% | ||||||||||||
Industrial Services | 137 | 213 | (76 | ) | (35.7)% | |||||||||||
Corporate and Eliminations | (3 | ) | (3 | ) | — | 0.0% | ||||||||||
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$ | 858 | $ | 922 | $ | (64 | ) | (6.9)% | |||||||||
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Operating Income (loss) | ||||||||||||||||
Three Months Ended March 31, | ||||||||||||||||
2020 | 2019 | Change | ||||||||||||||
($ in millions) | (Successor) | (Predecessor) | $ | % | ||||||||||||
Safety Services | $ | (10 | ) | $ | 52 | $ | (62 | ) | (119.2)% | |||||||
Specialty Services | (136 | ) | — | (136 | ) | NM | ||||||||||
Industrial Services | (58 | ) | (9 | ) | (49 | ) | NM | |||||||||
Corporate and Eliminations | (30 | ) | (17 | ) | (13 | ) | 76.5% | |||||||||
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$ | (234 | ) | $ | 26 | $ | (260 | ) | NM | ||||||||
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EBITDA | ||||||||||||||||
Three Months Ended March 31, | ||||||||||||||||
2020 | 2019 | Change | ||||||||||||||
($ in millions) | (Successor) | (Predecessor) | $ | % | ||||||||||||
Safety Services | $ | 18 | $ | 55 | $ | (37 | ) | (67.3)% | ||||||||
Specialty Services | (108 | ) | 14 | (122 | ) | NM | ||||||||||
Industrial Services | (45 | ) | (3 | ) | (42 | ) | NM | |||||||||
Corporate and Eliminations | (26 | ) | (13 | ) | (13 | ) | 100.0% | |||||||||
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$ | (161 | ) | $ | 53 | $ | (214 | ) | NM | ||||||||
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The following discussion breaks down the net revenues, operating income and EBITDA by operating segment for the three months ended March 31, 2020 compared to the three months ended March 31, 2019.
Safety Services
Safety Services net revenues for the three months ended March 31, 2020 decreased by $2 million, or 0.5% compared to the same period in the prior year. This is due to timing of larger contract revenues during the year-over-year period, combined with some impact ofCOVID-19 andshelter-in-place orders during the last half of March.
Safety Services operating margin for the three months ended March 31, 2020 and 2019 was approximately (2.4)% and 12.2%, respectively. The decrease was primarily driven by impairment charges of $34 million and intangible asset amortization expense, which was $22 million higher for the three months ended March 31, 2020 compared to the same period in the prior year as a result of the APi Acquisition and the step up in fair values for intangible assets. Safety Services EBITDA as a percentage of net revenues for the three months ended March 31, 2020 and 2019 was approximately 4.2% and 12.9%, respectively. The decrease was primarily driven by impairment charges.
38
Three Months Ended March 31, | ||||||||||||||
($ in millions) | 2024 | 2023 | ||||||||||||
Reported net income | $ | 45 | $ | 26 | ||||||||||
Adjustments to reconcile net income to EBITDA: | ||||||||||||||
Interest expense, net | 34 | 37 | ||||||||||||
Income tax provision | 18 | 12 | ||||||||||||
Depreciation | 19 | 19 | ||||||||||||
Amortization | 50 | 55 | ||||||||||||
EBITDA | $ | 166 | $ | 149 |
Specialty Services
Specialty Services net revenues for the three months ended March 31, 2020 increased by $14 million, or 4.9% compared to the same period in the prior year. Segment revenue growth was primarily driven by increased demand from our customers and timing of projects, slightly offset by negative impacts of COVID-19 during the last half of March.
Specialty Services operating margin for the three months ended March 31, 2020 and 2019 was approximately (45.3)% and 0.0%, respectively. The decrease was primarily driven by impairment charges of $120 million, and intangible asset amortization expense, which was $13 million higher for the three months ended March 31, 2020 compared to the same period in the prior year as a result of the APi Acquisition and the step up in fair values for intangible assets and contract mix. Specialty Services EBITDA as a percentage of net revenues for the three months ended March 31, 2020 and 2019 was approximately (36.0)% and 4.9%, respectively. The decrease was primarily driven by impairment charges.
Industrial Services
Industrial Services net revenues for the three months ended March 31, 2020 decreased by $76 million, or 35.7% compared to the same period in the prior year. This decrease was primarily due to decreased volume of projects as a result of our focus on project selection and reduced market demand in our Canadian operations.
Industrial Services operating margin for the three months ended March 31, 2020 and 2019 was approximately (42.3)% and (4.2)%, respectively. The decline was primarily driven by impairment charges of $49 million, and intangible asset amortization expense, which was $7 million higher for the three months ended March 31, 2020 compared to the same period in the prior year as a result of the APi Acquisition and the step up in fair values for intangible assets. This was partially offset by productivity increases due to better project selection and jobsite conditions. Industrial Services EBITDA as a percentage of net revenues, was (32.8)% and (1.4)% for the three months ended March 31, 2020 and 2019, respectively. The decrease was primarily driven by impairment charges, partially offset by contract selection, productivity and favorable jobsite conditions.
Liquidity and Capital Resources
Given the uncertainties regarding theCOVID-19 global pandemic and in preparation for its potential unforeseen impacts, in late March 2020, we drew down $200 million under our Revolving Credit Facility. As of March 31, 2020, we had $1.2 billion of indebtedness outstanding under the Term Loan, and $200 million outstanding under the $300 million Revolving Credit Facility. As of March 31, 2020, $33 million was available after giving effect to $67 million of outstanding letters of credit, which reduce availability. Subsequently, in April 2020, we repaid the full amount borrowed on the Revolving Credit Facility.
We also expect to continue to raise cash through equity and debt offerings when capital market conditions are favorable and other sources of liquidity are not sufficient. Our principal liquidity requirements have been, and we expect will be, any contingent consideration due to selling shareholders, including tax payments in connection therewith, for working capital and general corporate purposes,
39
including capital expenditures and debt service, as well as to identify, execute and integrate strategic acquisitions and business transformation. Our capital expenditures were approximately $11 and $22 million in the three months ended March 31, 2020 and 2019, respectively.
Including our current assessment of the potential effects of theCOVID-19 pandemic on our results of operations, we anticipate that funds generated from operations, available borrowings under our Credit Facility and our cash balances will be sufficient to meet our working capital requirements, anticipated capital expenditures, debt service obligations, insurance and performance collateral requirements, letter of credit needs,earn-out obligations, required income tax payments, acquisition and other investment funding requirements, share repurchase activity and other liquidity needs for at least the next twelve months.
Credit Facilities
We have a credit agreement which provides for (1) a term loan facility, pursuant to which we incurred a $1.2 billion Term Loan, which we used to fund a part of the cash portion of the purchase price in the APi Acquisition and (2) a $300 million Revolving Credit Facility of which up to $150 million can be used for the issuance of letters of credit.
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 prolonged impacts ofCOVID-19 andshelter-in-place governmental action,inflation, over which we have no control.
Effective October 1, 2019,
Oneindefinite, unless otherwise modified or terminated by our Board of APi Group’s Canadian subsidiariesDirectors 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 a $20approximately $400 million unsecured line of credit agreement with a variable interest rate based upon the prime rate. APi Group had no amounts outstandingauthorized repurchases remaining under the lineSRP.
We were in complianceDirectors authorized a stock repurchase program ("2022 SRP"), authorizing the purchase of up to an aggregate of $250 million of common stock through February 2024. The 2022 SRP expired on February 29, 2024.
Cash Flows
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
($ in millions) | (Successor) | (Predecessor) | ||||||
Net cash provided by operating activities | $ | 55 | $ | 25 | ||||
Net cash used in investing activities | (15 | ) | (22 | ) | ||||
Net cash provided by (used in) financing activities | 139 | (16 | ) | |||||
Effect of foreign currency exchange rate change on cash and cash equivalents | 1 | — | ||||||
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Net increase (decrease) in cash and cash equivalents | $ | 180 | $ | (13 | ) | |||
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Cash and cash equivalents at the end of the period | $ | 436 | $ | 41 |
periods indicated:
Three Months Ended March 31, | ||||||||||||||
($ in millions) | 2024 | 2023 | ||||||||||||
Net cash provided by (used in) operating activities | $ | 7 | $ | (1) | ||||||||||
Net cash used in investing activities | (22) | (27) | ||||||||||||
Net cash used in financing activities | (213) | (216) | ||||||||||||
Effect of foreign currency exchange rate change on cash, cash equivalents, and restricted cash | (4) | 2 | ||||||||||||
Net decrease in cash, cash equivalents, and restricted cash | $ | (232) | $ | (242) | ||||||||||
Cash, cash equivalents, and restricted cash, end of period | $ | 248 | $ | 365 |
40
Net Cash Used in Investing Activities
Net Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities was $139 million for three months ended March 31, 20202024 compared to net cash used in financing activities of $16$4 million for the same period in 2019.2023, partially offset by cash used in acquisitions of $23 million and $10 million in the three months ended March 31, 2024 and 2023, respectively.
Off-Balance Sheet Financing Arrangements
early May 2024.
March 31, 2024, we had $277 million aggregate principal amount of 4.750% Senior Notes outstanding.
ItemQuantitativeQUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKQualitative Disclosures about Market RiskThereour 2021 Term Loan. As of March 31, 2024, we had $330 million outstanding on the 2019 Term Loan and $1,707 million outstanding on the 2021 Term Loan. To mitigate increases in variable interest rates, we have been no material changesa $720 million interest rate swap, exchanging one-month SOFR for a rate of 3.59% per annum and a $400 million interest rate swap exchanging one-month SOFR for a rate of 3.41% per annum. In addition, interest expense will be offset by the amortization through October 2024 of the remaining gain of $10 million recognized from the informationtermination of the previously reportedoutstanding $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.heading “APG Management’smost part, denominated in the functional currency of the foreign operation, whichCondition—QualitativeCondition and Quantitative Disclosures about Market Risk”Results of Operations" in our Annual Report on FormS-4. 10-K for the fiscal year ended December 31, 2023.
CONTROLS AND PROCEDURESItemControls and Procedureswhich is required to be disclosed by the us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed,processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating such controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.atas of March 31, 2020,2024 due to the material weaknessweaknesses in internal control over financial reporting described below, which waswere previously disclosed in the “Risk Factors” sectionItem 9A. “Controls and Procedures” of our FormS-4.41
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim consolidated financial statements will not be prevented or detectedAnnual Report on a timely basis.
As indicated above, control deficiencies in our internal control over financial reporting have been identified which constitute material weaknesses relating to inadequate design and implementation of:
information technology general controls that preventForm 10-K for the information systems from providing complete and accurate information consistent with financial reporting objectives and current needs;
internal controls over the preparation of the financial statements, including the insufficient review and oversight over financial reporting, journal entries along with related file documentation;
internal controls to identify and manage segregation of certain accounting duties;
internal controls over estimated costs of completion on contracts where revenue is recognized over time; and
management review controls over projected financial information used in fair value financial models used for purchase accounting and intangible asset valuations.
Management is in the process of developing a remediation plan. The material weaknesses will not be considered remediated until management designs and implements effective controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective. We will monitor the effectiveness of our remediation plans and will make changes management determines to be appropriate.
Changes in Internal Control Over Financial Reporting
We are developing a remediation plan to remediate the material weaknesses relating to our internal control over financial reporting, as described above. Except as otherwise described herein, there were no material changes to our internal control over financial reporting (as defined in Rules13a-15(f) and15d-15(f) under the Exchange Act) that occurred during the quarteryear ended MarchDecember 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls and Procedures
2023.
42
10-K for the year ended December 31, 2023.ItemRisk FactorsThe following disclosures update certain risk factors previously disclosed in our FormS-4. Other than as set forth below, there wereRISK FACTORStheour risk factors disclosedcontained in the section entitled “Risk Factors”Part I, Item 1A. "Risk Factors" of our FormS-4.impactfollowing table provides information about the Company's purchase of equity securities during the three months ended March 31, 2024:During the Three Months Ended March 31, 2024 Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or ProgramsMaximum Approximate Dollar Value of
Shares that May Yet Be Purchased Under
the Plans or Programs (in millions)January 1, 2024 - January 31, 2024 — $ — — $ — February 1, 2024 - February 29, 2024 16,260,160 36.90 16,260,160 400 March 1, 2024 - March 31, 2024 — — — Total 16,260,160 $ 36.90 16,260,160 $ 400 coronavirus(COVID-19) pandemic or similar global health concerns, could leadDodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to project delays or cancellations, could adversely affect our ability to timely complete projects and sourcethis quarterly report.supplies we need, and may impact labor availability and productivity, and could result in impairment risks, each of which could adversely impact our business, financial condition and results of operations.The coronavirus outbreak in China in December 2019 and the subsequent spreadthree months ended March 31, 2024, Sir Martin E. Franklin, a director of the virus throughoutCompany, adopted a “Rule 10b5-1 trading arrangement” as defined in Regulation S-K Item 408, as follows:world has resulted in widespread infections and fatalities. Governments in affected countries, includingsale of the United States, have launched measuresCompany's common stock (a "Rule 10b5-1 Trading Plan") that is intended to combatsatisfy the spreadaffirmative defense conditions ofCOVID-19, including travel bans, quarantines and lock-downs Exchange Act Rule 10b5-1(c). Mr. Franklin’s Rule 10b5-1 Trading Plan provides for the sale of affected areas that include closures ofnon-essential businesses. We rely on the availabilityup to 1,980,000 shares of our skilled workforce and third-party contractorscommon stock pursuant to meet contractual milestones and timely complete projects. Ifone or more limit orders until December 13, 2024, or earlier if all transactions under theCOVID-19 pandemic trading arrangement are completed.similar outbreak were to require us to discontinue operations, directors, as defined in Rule 16a-1(f), adopted and/or to cause shortages of our workforceterminated a “Rule 10b5-1 trading arrangement” or third-party contractors, it could resulta “non-Rule 10b5-1 trading arrangement,” as defined in cancellations or deferrals of project work, which could lead to a decline in revenue and an increase in costs. In addition, such outbreak may impact the availability of the commodities, supplies and materials needed for projects, and we may experience difficulties obtaining such commodities, supplies and materials from suppliers or vendors whose supply chains are impacted by the outbreak. If we are unable to source the essential commodities, supplies and materials in adequate quantities, at acceptable prices and in a timely manner, our business, financial condition and results of operations could be adversely affected. Similarly, our customers may be impacted by theCOVID-19 pandemic, which could cause them to cancel or defer project work, which could have a negative impact on our business.In addition, our results of operations are materially affected by conditions in the credit and financial markets and the economy generally. Global credit and financial markets have experienced extreme volatility and disruptions as a result of theCOVID-19 pandemic including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurance that deterioration in credit and financial markets and confidence in economic conditions will not occur or be sustained as a result of theCOVID-19 pandemic. Any protracted economic disruption or recession could lead customers to delay or cancel projects, which would negatively impact our revenues, earnings and financial condition. In addition, our general business strategy may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or do not improve, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure by us or our customers to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon current or expected projects.Our collective bargaining agreements generally require us to participate with other companies in multiemployer pension plans. Our future contribution obligations and potential withdrawal liability exposure with respect to these plans could increase significantly based on the investment and actuarial performance of those plans, the insolvency of other companies that contribute to those plans and other factors, which could be negatively impacted as a result of the unfavorable and uncertain economic and financial market conditions resulting from the ongoingCOVID-19 pandemic and related issues.Furthermore, some of the inherent estimates and assumptions used in determining the fair value of our reporting units are outside the control of management, including interest rates, cost of capital, tax rates, industry growth, credit ratings, foreign exchange rates, and labor inflation. As a result of the impact ofCOVID-19 which has negatively impacted our operations, suppliers and other vendors, customer base, and other factors outside of the control of management, in the first quarter of 2020 we determined that certain of our goodwill and intangible assets were impaired as the preliminary carrying values exceeded fair value and we recorded anon-cash charge of approximately $208 million. Given the uncertainty of43
these factors, as well as the inherent difficulty in predicting the severity and duration of theCOVID-19 global pandemic and associated recovery and the uncertainties regarding the potential financial impact on our business and the overall economy, there can be no assurance that our estimates and assumptions made for purposes of the goodwill testing performedRegulation S-K Item 408, during the first quarter ended March 31, 2024.
Exhibit No. Description of ExhibitsItemExhibitsEXHIBITS3.1 31.1*10.1 10.2 31.1* 31.2* 32.1** 32.2** 95.1* 101.INS* Inline XBRL Instance Document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document. 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). *Filed herewith**Furnished herewith44
APi GROUP CORPORATION | ||||||||||
/s/ Russell A. Becker | ||||||||||
Russell A. Becker | ||||||||||
Chief Executive Officer | ||||||||||
(Duly Authorized Officer) | ||||||||||
May 2, 2024 | /s/ Kevin S. Krumm | |||||||||
| ||||||||||
Chief Financial Officer | ||||||||||
(Principal Financial Officer) |
45