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APi Group Reports Third Quarter and Nine Month 2019 Financial Results

November 20, 2019 GMT

NEW BRIGHTON, Minn., Nov. 20, 2019 /PRNewswire/ -- APi Group Corporation (OTC:JJAQF; LSE:JTWO) (“APi” or the “Company”), today reported financial results of APi Group, Inc. for the three and nine month periods ended September 30, 2019.

Third Quarter 2019 Highlights:

Nine Months 2019 Highlights:

Russ Becker, APi Group’s President and Chief Executive Officer said, “We are pleased to report strong financial results within our core operating segments. Through the first nine months of 2019, we have realized the strength of our operating model and diversified end markets, with particularly positive results in our Safety Solutions and Specialty Services segments. We achieved $3.0 billion year to date in net revenue and adjusted EBITDA margins of 9.0%, excluding non-recurring and transaction related items.”

“I am immensely proud of the leadership displayed throughout our organization during this transition period and the financial results we have achieved. We continue to see on-going growth opportunities and supportive macro trends within the industries and core end markets we serve. We look to leverage our scale and operational expertise to capitalize on these opportunities for the balance of the year and as we move into 2020.”

APi Co-Chairman James E. Lillie added, “We are excited about the future for APi. The results for the third quarter as well as the year to date results reinforce our view of the potential for the Company. With the investments we are making coupled with leveraging our scale, we expect to improve margins and improve cash generation as we focus on growing the company organically and through opportunistic M&A, we expect this growth to continue while maintaining a conservative balance sheet. We look forward to finishing the year in line with the guidance we have provided while focusing on building a solid plan for 2020.”

2019 Guidance

The Company continues to expect full year 2019 revenue of approximately $4.0 billion and adjusted EBITDA of approximately $400 million.

Recent Developments

As previously announced, the Company is in the process of listing its ordinary shares on the New York Stock Exchange under the symbol APG and changing its jurisdiction of incorporation to Delaware, which is expected to occur late in the first quarter of 2020. The Company’s ordinary shares continue to be traded on the OTC market in the U.S. under the symbol JJAQF. The Company expects its initial registration statement on to be filed with the SEC later this quarter.

In the next few days, the Company expects to complete a process that would result in certain trades of our ordinary shares on the over-the-counter market in the U.S. being eligible for settlement through the DTC.

Conference Call

APi Group will host a webcast/dial-in conference call to discuss its financial results at 8:30 a.m. (Eastern Time) on Wednesday, November 20, 2019. Participants on the call will include Russ Becker, President and Chief Executive Officer; Tom Lydon, Chief Financial Officer; James E. Lillie and Martin E. Franklin, Co-Chairmen.

To listen to the call by telephone, please dial 866-342-8591 or 203-518-9713 and provide Conference ID APi3Q19. You may also attend and view the presentation (live or by replay) via webcast by accessing the following URL:

https://event.on24.com/wcc/r/2138554-1/3AA981295773D9AB516969F169B9A50A

A replay of the call will be available shortly after completion of the live call on the webcast or by telephone, 800-839-4018 or 402-220-2985.

About APi

APi Group Corporation is a market leading provider of commercial life safety solutions and industrial specialty services. The Company is a top-5 specialty services contractor in the U.S. with a diversified, blue chip customer and supplier base, a robust service offering, and a track record of successful acquisitions. The Company operates three segments in over 200 locations primarily in the U.S., with its international operations in Canada and the UK. More information can be found at https://www.apigroupinc.com/.

Investor Relations Inquiries:

email: investorrelations@apigroupinc.us

Media Contacts:

Liz Cohen
Kekst CNC
+1 212-521-4845
Liz.Cohen@kekstcnc.com

Special Note Regarding Consolidated Financial Statements and Supplementary Information

The attached Condensed Consolidated Financial Statements and Supplementary Information for APi Group, Inc. and its subsidiaries have been prepared based on the U.S. accounting principles and standards (“U.S. GAAP”) applicable to private companies (the “Historical Financial Statements”). APi Group, Inc. was acquired by the Company on October 1, 2019. In connection with the anticipated registration statement to be filed by the Company pursuant to the Securities Act of 1933, as amended (the “Securities Act”) the Historical Financial Statements of APi Group Inc. will be revised to comply with U.S. GAAP applicable to public companies (the “Public Company Financial Statements”). In preparing the Public Company Financial Statements, the Company will need to apply certain accounting standards under U.S. GAAP applicable to public companies that were not applicable to these historical financial statements. As a result, the Public Company Financial Statements, which were not available as of this announcement, may differ materially from the Historical Financial Statements. The actual type and amount of the impact of the conversion on APi Group, Inc.’s consolidated balance sheets and statements of operations and cash flows are not yet known.

Based on information available as of the Announcement Date, the expected differences are as follows:

(i) We expect the application of ASC 606 (related to revenue recognition) to be adopted as of January 1, 2018, using the modified-retrospective method of adoption, will decrease revenues and gross profit by less than 1%. The net difference on the income statement will also increase current assets. As of January 1, 2018, a cumulative effective adjustment will be recorded which is expected to increase current assets for the treatment of capitalized fulfillment costs. This adjustment will be offset with a corresponding adjustment to opening retained earnings.

(ii) The application of ASC 842 (related to leases) prospectively as of January 1, 2019 is expected to result in an increase in fixed assets related to “right of use assets” of between $105 and $115 million and a corresponding lease liability. The effect on 2019 earnings, based upon 2018 data, is expected to be minimal.

(iii) We have historically accounted for business combinations and goodwill in accordance with U.S. GAAP applicable to private companies. In the Public Company Financial Statements, goodwill will be restated to a) separately classify certain identifiable intangible asset amounts such as customer relationship, b) reverse the effects of amortizing goodwill, and c) adjust for any impairment charges not previously recorded under U.S. GAAP application to private companies.

Forward-Looking Statements and Disclaimers

This announcement does not constitute or form part of any offer or invitation to purchase, otherwise acquire, issue, subscribe for, sell or otherwise dispose of any securities, nor any solicitation of any offer to purchase, otherwise acquire, issue, subscribe for, sell, or otherwise dispose of any securities.

The release, publication or distribution of this announcement in certain jurisdictions may be restricted by law and therefore persons in such jurisdictions into which this announcement is released, published or distributed should inform themselves about and observe such restrictions.

Certain statements in this announcement are forward-looking statements which are based on the Company’s expectations, intentions and projections regarding the Company’s future performance, anticipated events or trends and other matters that are not historical facts, including expectations regarding: (i) the ability of the Company to meet the eligibility criteria and effect a registration under the Securities Act of its securities, a listing of its securities on the New York Stock Exchange and the timing for such registration and listing, and until such time, the ability to make its ordinary shares eligible for settlement through the DTCC; (ii) continued trading of the Company’s ordinary shares on the OTC market; (iii) the future operating and financial performance of the Company, including the Company’s guidance for full year 2019; (iv) the trends in the industries and end markets in which the Company operates and the Company’s ability to capitalize on those trends; (v) the impact to the Historical Financial Statements as a result of applying accounting standards applicable to public companies and the differences between the Historical Financial Statements and the Public Company Financial Statements; and (v) the ability of the Company to capitalize on growth and expansion opportunities, generate cash flows, drive long-term shareholder value, achieve estimates of organic growth, successfully complete strategic acquisitions and delever. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including: (i) economic conditions, competition and other risks that may affect the Company’s future performance; (ii) the risk that securities markets will react negatively to the acquisition of APi Group, Inc. or other actions by the Company following the acquisition; (iii) the risk that the acquisition disrupts current plans and operations as a result of the consummation of the transaction; (iv) the ability to recognize the anticipated benefits of the acquisition and of the Company to take advantage of strategic opportunities; (v) the limited liquidity and trading of the Company’s securities; (vi) changes in applicable laws or regulations; (vii) the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors; and (viii) other risks and uncertainties. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of such statements and, except as required by applicable law, the Company does not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Nothing in this announcement constitutes or should be construed as constituting a profit forecast. This announcement contains inside information as defined in article 7 of the Market Abuse Regulation (EU) No 596/2014.

Non-GAAP Financial Measures

In this press release, the Company presents adjusted EBITDA and adjusted EBITDA margin, pro forma adjusted EBIT, profit before tax net income and EPS and organic revenue growth, which are non-U.S. GAAP financial measures. The Company believes these non-U.S. GAAP financial measures provide meaningful information and help investors understand the Company’s financial results and assess its prospects for future performance. While the Company believes these non-U.S. GAAP measures are useful in evaluating the Company’s performance, this information should be considered as supplemental in nature and not as a substitute for or superior to the related financial information prepared in accordance with U.S. GAAP. Additionally, these non-U.S. GAAP financial measures may differ from similar measures presented by other companies. The Company uses these non-U.S. GAAP financial measures to evaluate its performance, both internally and as compared with its peers, because it excludes certain items that may not be indicative of the Company’s core operating results for its reportable segments, as well as items that can vary widely across different industries or among companies within the same industry, and for noncash stock-based compensation expense, can also be subject to volatility from changes in the market price per share of the Company’s common stock or variations in the value of shares granted. The Company presents non-U.S. GAAP financial measures on a pro forma basis, including pro forma adjusted EBIT, pro forma adjusted net income, and pro forma adjusted EPS, to illustrate the impact of the APi Group, Inc. acquisition. Specifically, the pro forma financial metrics reflect the debt facilities incurred by the Company in connection with the acquisition had they been incurred at the beginning of the periods presented, adjust for the long-term tax benefit from the acquisition and factor in the capitalization of the Company post-acquisition. The Company believes that these pro forma measures provide a more complete picture of our results after factoring in the Company’s current debt and capitalization structure. The Company uses organic revenue growth, which excludes revenue from companies acquired during the periods presented, to assess its performance without the impact of acquisitions in order to provide a useful period-to-period comparison. The Company believes that organic revenue growth is useful to investors to help understand the Company’s growth in revenues not attributable to acquired businesses. A reconciliation of these Non-U.S. GAAP financial measures is included later in this press release.

APi Group, Inc.

Condensed Consolidated Statements of Operations

(In thousands) (Unaudited)



For the three months ended
September 30,


For the nine months ended
September 30,


2019


2018


2019


2018

Net revenues

$ 1,113,470


$ 1,009,586


$ 3,025,784


$ 2,696,185

Cost of sales

879,424


791,916


2,418,793


2,137,212

Gross profit

234,046


217,670


606,991


558,973

Selling, general and administrative expenses

215,810


127,027


479,423


378,102

Amortization and earnout expense, net

2,733


16,915


37,448


54,297

Income from operations

15,503


73,728


90,120


126,574

Interest expense, net

6,388


5,499


19,161


14,490

Other income, net

(7,164)


(3,960)


(10,505)


(9,963)

Income before income taxes

16,279


72,189


81,464


122,047

Foreign and state income taxes

1,926


1,248


4,962


4,073

Net income, including noncontrolling interests

14,353


70,941


76,502


117,974

Less: net income attributable to noncontrolling interests

91


81


269


252

Net income attributable to the Company

$ 14,262


$ 70,860


$ 76,233


$ 117,722

APi Group, Inc.

Consolidated Balance Sheets

(In thousands) (Unaudited)



September 30,
2019


December 31,
2018

Assets




Current assets:




Cash and cash equivalents

$ 133,610


$ 54,093

Accounts receivable

772,616


764,995

Inventories

60,325


56,159

Costs and estimated earnings in excess of billings on uncompleted contracts

299,724


241,552

Other current assets

26,835


17,993

Total current assets

1,293,110


1,134,792

Noncurrent assets:




Related-party notes receivable and investments

13,024


12,292

Other assets

34,140


34,555

Intangibles, net

51,343


58,221

Goodwill, net

381,542


421,255

Property and equipment, net

331,123


327,780

Total assets

2,104,282


1,988,895

Liabilities and Stockholders' Equity




Current liabilities:




Accounts payable

$ 190,404


$ 173,678

Current related-party liabilities

-


49,077

Accrued liabilities and income taxes payable

379,700


284,865

Billings in excess of costs and estimated earnings on uncompleted contracts

184,113


193,488

Current maturities of long-term debt

20,205


33,985

Revolving line of credit

342,000


261,117

Total current liabilities

1,116,422


996,210

Long-term debt, less current maturities

301,592


304,975

Noncurrent related-party liabilities

70,587


54,161

Other noncurrent liabilities

18,533


56,850

Total liabilities

1,507,134


1,412,196

Total stockholders' equity

597,004


575,513

Non-controlling interests

144


1,186

Total equity

597,148


576,699

Total liabilities and equity

$ 2,104,282


$ 1,988,895

APi Group, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands) (Unaudited)



For the nine months ended
September 30,


2019


2018

Cash flows from operating activities:




Net income, including noncontrolling interests

$ 76,502


$ 117,974

Adjustments to reconcile net income to net cash provided by operating activities:



Depreciation and amortization

103,217


90,730

Gain on sale of property and equipment

(1,289)


(2,046)

Stock compensation expense

37,500


750

Changes in operating assets and liabilities, net of effects of business acquisitions

(82,385)


(182,708)

Net cash provided by operating activities

133,545


24,700

Cash flows from investing activities:




Acquisitions, net of cash acquired

(5,096)


(235,579)

Purchases of property and equipment

(56,114)


(50,777)

Proceeds from sales of property and equipment

7,031


2,046

Advances on notes receivable

(4,610)


(10,051)

Payments received on notes receivable

5,969


5,456

Change in investments

(2,366)


543

Net cash used in investing activities

(55,186)


(288,362)

Cash flows from financing activities:




Receipts on long-term borrowings and revolving line of credit

1,010,165


1,569,898

Payments on long-term borrowings and revolving line of credit

(945,914)


(1,230,213)

Earnout expenses paid

(16,164)


(20,634)

Distributions to shareholders

(46,983)


(51,972)

Net cash provided by financing activities

1,104


267,079

Effect of foreign currency exchange rate change on cash and cash equivalents

54


(3,448)

Net increase (decrease) in cash and cash equivalents

79,517


(31)

Cash and cash equivalents at beginning of year

54,093


41,466

Cash and cash equivalents at end of period

$ 133,610


$ 41,435

APi Group, Inc.

Segment Financial Report

(In thousands) (Unaudited)



For the nine months ended
September 30,


2019


2018





Safety Solutions

$ 1,320,761


$ 1,220,711

Specialty Services

1,093,703


987,734

Industrial Solutions

611,320


487,740

Total net revenues

$ 3,025,784


$ 2,696,185





Safety Solutions

$ 147,846


$ 122,840

Specialty Services

67,052


53,395

Industrial Solutions

(1,634)


3,878

Corporate

(123,145)


(53,539)

Total operating income

$ 90,119


$ 126,574





Safety Solutions

$ 168,552


$ 144,842

Specialty Services

115,941


104,543

Industrial Solutions

26,484


28,874

Corporate

(37,717)


(35,082)

Total adjusted EBITDA

$ 273,260


$ 243,177

APi Group, Inc.

Reconciliations of GAAP to Non-GAAP Financial Measures

(In thousands) (Unaudited)



For the three months ended
September 30,


For the nine months ended
September 30,

Adjusted EBITDA

2019


2018


2019


2018









Reported net income

$ 14,262


$ 70,860


$ 76,233


$ 117,722

Adjustments to reconcile to net income (loss)








Interest expense, net

6,388


5,499


19,161


14,490

Foreign & state income taxes

1,926


1,248


4,962


4,073

Depreciation and amortization

35,675


30,241


103,217


90,730

Earnout expense (income), net (a)

(14,420)


409


(13,864)


1,340

Non-recurring expenses (b)

19,308


-


22,226


-

Non-recurring expenses related to prior ownership (c)

45,339


1,824


50,514


13,022

Transaction related expenses

10,811


1,313


10,811


1,800

Adjusted EBITDA

$ 119,289


$ 111,394


$ 273,260


$ 243,177

Notes:

(a)

Reflects contingent consideration based on financial performance of acquired businesses.

(b)

Non-recurring expenses unrelated to the acquisition including primarily items for which the Seller has indemnified the Company.

(c)

Includes non-recurring costs and expenses related to completing the acquisition.

Pro forma adjusted net income and EPS

For the three months ended
September 30,


For the nine months ended
September 30,


2019


2018


2019


2018

Adjusted EBITDA

$ 119,289


$ 111,394


$ 273,260


$ 243,177

Depreciation (a)

18,695


11,815


56,114


50,777

Pro forma adjusted EBIT

100,594


99,579


217,146


192,400

Pro forma interest expense (b)

13,672


13,744


41,052


40,751

Pro forma adjusted profit before tax

86,922


85,835


176,094


151,649

Tax (c)

19,992


19,742


40,502


34,879

Pro forma adjusted net income

66,930


66,093


135,592


116,770

Pro forma shares outstanding (d)

173,902


173,902


173,902


173,902

Pro forma adjusted EPS

$ 0.38


$ 0.38


$ 0.78


$ 0.67

Notes:

(a)

Utilized actual capital expenditures to provide a directional cash amount for this pro forma calculation. Does not reflect an estimate of any fair valuations to be obtained in conjunction with the acquisition.

(b)

Interest expense calculated as new senior secured term debt issued in conjunction with acquisition plus interest on assumed debt at an assumed annual rate of 4.5%.

(c)

Assumes 23.0% tax rate which adjusts the expected GAAP effective tax rate to take in account of the long-term annualized cash tax benefit from the acquisition.

(d)

Represents total ordinary shares outstanding as of the closing of the acquisition including approximately 170 million ordinary shares and 4.0 million founder preferred shares. Excludes unvested restricted stock units and warrants outstanding.

Segment Adjusted EBITDA

For the nine months ended
September 30,


2019


2018

Safety Solutions




Operating income

$ 147,846


$ 122,840

Other income, net

1,555


971

Depreciation and amortization

21,205


20,816

Earnout (income) expense, net (a)

(5,210)


215

Non-recurring expenses (d)

2,076


-

Non-recurring expenses related to prior ownership (c)

1,080


-

Safety Solutions adjusted EBITDA

$ 168,552


$ 144,842

Specialty Services




Operating income

$ 67,052


$ 53,395

Other income, net

6,760


6,936

Depreciation and amortization

49,959


43,087

Earnout (income) expense, net (a)

(8,989)


1,125

Non-recurring expenses (b)

1,159


-

Specialty Services adjusted EBITDA

$ 115,941


$ 104,543

Industrial Solutions




Operating (loss) income

(1,634)


3,878

Other income, net

1,720


980

Depreciation and amortization

26,063


24,016

Earnout expense, net (a)

335


-

Industrial Solutions adjusted EBITDA

$ 26,484


$ 28,874

Notes:

(a)

Reflects contingent consideration based on financial performance against targets of acquired businesses following the acquisition.

(b)

Non-recurring expenses unrelated to the acquisition including primarily items for which the Seller has indemnified the Company.

(c)

Includes costs and expenses related to prior ownership that have not continued after the acquisition closed.

(d)

Includes non-recurring costs and expenses related to completing the acquisition.

Organic Growth Reconciliation

For the nine months ended
September 30, 2019


Consolidated


Specialty
Solutions
Segment





Reported net revenue growth

12.2%


10.7%

Growth due to acquisitions

2.9%


9.9%

Organic growth

9.3%


0.8%





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SOURCE APi Group Corporation