Good morning, ladies and gentlemen and welcome to APi Group's Third Quarter 2021 Financial Results Conference Call. All participants are now in a listen-only mode until the question-and-answer session. Please note, this call is being recorded. I will be standing by should you need any assistance. I will now turn the call over to Olivia Walton, Vice President of Investor Relations at APi Group. Please go ahead.

Thank you. Good morning, everyone and thank you for joining our third quarter 2021 earnings conference call. Joining me on the call today are Russ Becker, our President and CEO; Kevin Krumm, our Executive Vice President and Chief Financial Officer; and Sir Martin Franklin and Jim Lillie, our Board Co-Chairs. Before we begin, I would like to remind you that certain statements in the company's earnings press release announcement and on this call are forward-looking statements which are based on expectations, intentions and projections regarding the company's future performance, anticipated events or trends and other matters that are not historical facts. These statements are not a guarantee 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. In our press release and filings with the SEC, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, November 10 and we have no obligation to update any forward-looking statement we may make. As a reminder, we have posted a presentation detailing our third quarter financial performance on the Investor Relations page of our website. Our comments today will also include non-GAAP financial measures and other key operating metrics. The reconciliation of and other information regarding these items can be found in our press release and our presentation. In addition, please note that the company no longer adjusts gross profit, selling, general and administrative expenses and net income for depreciation remeasurements associated with acquisitions. The prior comparative periods have been recast to reflect the updated presentation. There is no impact on future periods as actual and adjusted amounts are approximately the same for the fourth quarter. The supplemental information is available in the Presentation section of our website. It is now my pleasure to turn the call over to Martin.

Thank you, Olivia. We had another very productive quarter and I might add, a very busy one. Over the last 90 days or so since our last earnings call, we announced the planned acquisition of the Chubb fire and safety security business and add on to our term loan facility, an equity offering and completed a very successful bond offering. Each of these capital markets activities gave Russ, Jim and I and now Kevin, the opportunity to update current investors of the business and introduce new investors to the company. We will welcome three new bulge-bracket firm analysts to all of you as they launch coverage in the company in the coming months as we continue to widen the audience and network of APi investors. Having recently passed our two-year anniversary since completing the acquisition of APi on October 1, 2019, we're very pleased with the progress achieved in the company, while also being very focused on the future with the upcoming strategic acquisition of Chubb. The Chubb acquisition will open another new chapter for APi. However, we also see it as a continuation of our original investment thesis and the value of creating the global leader in life safety services, concentrating the majority of the business on statutorily mandated recurring revenue services. Russ and Kevin will speak to the performance of the business but I would like to add that in our view, the strong performance of the business speaks to the leadership team, discipline of the organization and the future opportunities for APi as we continue our focus on shareholder value creation. We believe we have strong momentum and a clear path to make the most of the opportunities in front of us. Russ and his team are doing the right things internally to build on our already solid foundation for a very bright future. With that, I'll hand the call over to Russ.

Thank you, Martin and good morning, everyone. Thank you for taking the time to join our call this morning. As you heard from Martin and saw from our press release on September 8, we're all delighted to welcome our new Executive Vice President and Chief Financial Officer, Kevin Krumm, to APi's senior leadership team. He is the right person at the right time for APi as we continue our evolution and our growth as a public company and plan for the acquisition and integration of the Chubb business around year-end. Kevin's deep operating and public company finance background, including substantial international and integration experience, is being immediately leveraged as APi begins the next leg of this journey as the world's leading life safety services provider following the acquisition of Chubb. As Martin said, we had another very productive quarter. From the announcement on July 27 of our entry into an agreement for the transformational acquisition of the Chubb fire and security business to the completion of our common stock offering on September 17 and the expansion of our leadership team, this was an active three months, in addition to executing on our ongoing business operations and delivering solid operational performance. Despite all of that activity, the safety, health and well-being of our leaders remains our number one priority. Before we provide you with a summary of our strong third quarter financial results, our positive outlook and an update on the acquisition of Chubb, I would like to start by thanking our team for all of their hard work to support the ongoing evolution of the business. I am pleased with our continued ability to execute in the third quarter amidst ongoing supply chain disruptions, inflationary pressures and continued COVID-19 impacts. While supply chain disruptions and modest inflation caused some downward pressure on margins as expected, our proactive approach to mitigating the impact through measures such as pricing, combined with our disciplined approach to project and customer selection and the strength of our recurring revenue services-focused business model yielded results. As we look to the future, we believe the company is well positioned to achieve our long-term goals. Our backlog is at an all-time high and we have seen increases across all three of our segments relative to prior year levels. Backlog is up more than 20% for our Safety and Specialty Services segments. We continue to see strong demand across our key end markets such as data centers, fulfillment and distribution centers, health care and high tech. Last Friday, Congress agreed to an infrastructure spending bill. We expect this to be a net positive for us. As we have said on past calls, we do not have anything built into our budget for an infrastructure build or a stimulus that would incentivize investment in the renovation of existing infrastructure. We do expect certain aspects of our business, such as 5G fiber, renewable energy, water and gas services to benefit due to existing core competencies combined with incremental opportunities. As we move through the balance of the year and into 2022, we are closely monitoring supply chain constraints, inflationary pressures and vaccine mandates and we'll remain proactive in our approach to mitigating risk through pricing and appropriate contract language for proposals. We remain focused on achieving continued success within our existing core businesses and are also spending a considerable amount of time planning for the opportunities 2022 and beyond will bring. As part of our annual budgeting process, we challenged each of our operating companies to develop a long-term plan that addresses the opportunities as well as any potential challenges unique to their market and operations. These plans are reviewed during strategic planning sessions with our segment leaders and include a detailed roadmap for organic revenue growth and margin expansion opportunities to drive towards our goal of achieving an adjusted EBITDA margin of 13% by 2025. These include the following key initiatives, as outlined at our Investor Day in April. First, improving our mix. We have a relentless focus on growing recurring inspection and service revenue. We are on track to achieve our goal of growing inspection revenue by 10% plus in 2021. Second, disciplined project and customer selection. Our contract loss rate continues to improve. We have made significant progress towards achieving our target of 0.70% or less in 2021. We will continue to resist lower-margin, higher-risk activity. Third, continued focus on pricing opportunities. Fourth, leveraging SG&A and cost of goods sold through areas such as shared services and procurement. Kevin will provide an update on our business process transformation efforts later in the call. And fifth and lastly, operational excellence. As many of you heard me say previously, there isn't one part of our business that couldn't be better. Before turning the call over to Kevin to cover our results and outlook in more detail, I'd like to spend a few minutes providing an update on our previously announced acquisition of Chubb. Since announcing the transaction which remains on track to close around year-end, the level of excitement from our international customers and our teams about the opportunities the combined platform will bring has continued to validate our belief that the transaction will be highly accretive with compelling synergies, that it will complement revenue growth from cross-selling certain products and services and that the opportunity for margin expansion is meaningful. Most importantly, we couldn't be more excited about the prospects of working with such a talented international leadership team that carries the same values and focus we do at APi. As discussed on our last earnings call, similar to APi, Chubb is a people-centered business. In a people-centered business, individual growth, both personal and professional, is the key ingredient to our long-term success. We intend to leverage the best practices of both organizations across all aspects of the business and look forward to creating an environment in which the combined 26,000 employees can continue to grow and flourish. We believe great leaders are a competitive advantage and drive shareholder value creation. We have dedicated teams working intently on the integration. You may have seen our press release on September 8 announcing senior leaders in charge of aspects of the integration. These teams are just a few of the many people focused on each functional area of the business, working with their peers at Chubb, planning the integration. Kevin and I spent last week getting a firsthand view in London with the Chubb team and going through transformation plans designed to achieve our 2025 goals, after which we will then set new and higher goals. We look forward to providing more detail on our plans to drive operational improvements and capitalize on the synergies that exist between the two businesses after the transaction is closed and budgets have been finalized. In summary, I'm very pleased with how the business has performed this year and how we are dealing with the challenges and opportunities before us. I'm excited to have Kevin on our team and I'm excited about the momentum we have in the business. I would now like to hand the call over to Kevin to discuss our financial results and outlook in more detail.

Thanks, Russ, and good morning, everyone. I'm thrilled to be here today for my first earnings call since joining APi on September 20. I'll start by reviewing our consolidated results, followed by our balance sheet position and segment-level operating performance, and then I’ll share our outlook. I will wrap up with a brief update on our business process transformation efforts. For the three months ended September 30, 2020, net revenues increased organically by 13.4% compared to the previous year, excluding Industrial Services. For the nine months ended September 30, 2021, net revenues rose on an organic basis by 12%, again excluding Industrial Services. The adjusted gross margin for the three months ended September 30, 2021, was 24.3%, which marks a 34 basis point increase from the previous year, boosted by significant growth in our higher-margin Safety Services segment and an improved mix of inspection and service revenue. These gains were slightly tempered by anticipated supply chain disruptions and mild inflation exerting downward pressure on margins. For the nine months ended September 30, 2021, the adjusted gross margin stood at 23.7%, reflecting a 50 basis point increase compared to the prior year, attributable to the previously mentioned factors affecting the third quarter adjusted gross margin. The adjusted EBITDA margin for the three months ended September 30, 2021, was 11.9%, consistent with the prior year, driven by robust performance in the higher-margin Safety Services segment and an improved mix of inspection and service revenue. This was partially offset by ongoing supply chain challenges and modest inflation creating downward margin pressure, as well as reduced contributions year-on-year from joint ventures in our Specialty Services segment. For the nine months ended September 30, 2021, the adjusted EBITDA margin was 10.3%, reflecting a 28 basis point decline from the previous year due to the factors affecting the third quarter's EBITDA margin. The adjusted earnings per share for the three months ended September 30, 2021, was $0.35, excluding a positive adjustment of $0.02 related to the cessation of the depreciation remeasurement adjustment mentioned earlier. We remain focused on generating strong free cash flow while maintaining a robust balance sheet and liquidity profile. As we highlighted last quarter, our significant growth in organic net revenues necessitated increased working capital investment on a year-to-date basis after ending Q4 2020 with reduced working capital levels. For the nine months ended September 30, 2021, our adjusted free cash flow was $85 million, down $216 million from the prior year, with an adjusted free cash flow conversion rate of about 29%. Our year-to-date cash flow performance met expectations and aligned with historical trends as we continued to build working capital from a lower prior year base. We anticipate generating additional adjusted free cash flow in the fourth quarter, aiming for an adjusted free cash flow conversion rate for 2021 of approximately 70%. As of September 30, 2021, we had $1.1 billion in cash and cash equivalents with no outstanding borrowings under our $300 million revolving credit facility. We expect a pro forma net leverage ratio of 4.1x at the closing of the Chubb transaction, with the aim of reducing it to below 3x expeditiously. Our immediate focus is on completing the transaction and then deleveraging by roughly one turn annually through our high free cash flow conversion stemming from our combined asset-light operating model, while also continuing to invest in our leadership team and business process improvements. Now, I will delve deeper into our segments, beginning with Safety Services. Safety Services net revenues for the three months ended September 30, 2021, increased organically by 22.8% due to ongoing growth in inspection and service revenue across most of our markets, along with a general market recovery compared to the prior year's period, which had been impacted by the pandemic. For the nine months ended September 30, 2021, net revenues rose organically by 15.5% due to the previously mentioned factors for third-quarter organic revenue growth. The adjusted gross margin for the three months ended September 30, 2021, was 31.7%, a decline of 97 basis points from the prior year, driven by supply chain disruptions that reduced productivity; however, this was partially offset by an improved mix of inspection and service revenue. For the nine months ended September 30, 2021, the adjusted gross margin remained steady at 31.7%, similar to the prior year's adjusted gross margin of 31.6%. The adjusted EBITDA margin for the three months ended September 30, 2021, was 14.3%, down 183 basis points from the previous year due to the return of mainly temporary cost containment measures put in place last year in response to the pandemic's impact. This decline was somewhat mitigated by an improved mix of inspection and service revenue. For the nine months ended September 30, 2021, the adjusted EBITDA margin was 14.2%, a 40 basis point increase from the prior year, again due to an improved mix of inspection and service revenue, partially offset by the reinstatement of previous cost containment efforts. Now, turning to the Specialty Services segment. Specialty Services net revenues for the three months ended September 30, 2021, rose organically by 9%, primarily driven by increased demand and timing for our specialty contracting services. For the nine months ended September 30, 2021, net revenues increased organically by 11.7% based on the factors I previously mentioned for third-quarter growth, although weather posed an additional challenge in Q1 2021. The adjusted gross margin for the three months ended September 30, 2021, was 17%, down 78 basis points from the prior year due to anticipated supply chain disruptions and mild inflation pressuring margins, though this decline was partially balanced out by an improved mix of service revenue and disciplined project/customer selection. For the nine months ended September 30, 2021, the adjusted gross margin was 15.4%, down 37 basis points from the previous year due to the aforementioned factors, in addition to lower productivity linked to adverse weather during Q1 2021. The adjusted EBITDA margin for the three months ended September 30, 2021, was 12.4%, which is a decrease of 186 basis points stemming from the issues affecting gross margin, along with the return of largely temporary cost containment measures taken in the prior year and a reduced contribution from joint ventures compared to the prior year. For the nine months ended September 30, 2021, the adjusted gross margin was 10.6%, reflecting a 143 basis point decrease compared to the previous year, influenced by the previously discussed factors. Next, I'll review the results for our Industrial Services segment. In Industrial Services, net revenues for the three and nine months ended September 30, 2021, dropped organically by 33.3% and 49.6%, respectively. This decline was attributed to our continued commitment to disciplined project and customer selection, customers deciding to delay or suspend certain projects, and challenging industry conditions. The adjusted gross margin and EBITDA margin for the three months ended September 30, 2021, stood at 10.7% and 8.7%, respectively, compared to 16.3% and 14.4% in the previous year. The reduced performance was driven by unabsorbed costs from leases and equipment due to lower volume, although this was partially mitigated by a favorable mix of service revenue. For the nine months ended September 30, 2021, the adjusted gross margin and adjusted EBITDA margin were 5.6% and 2.6%, respectively, down from 16.6% and 13.8% in the prior year due to the factors previously mentioned. Moving on to our 2021 guidance, our full-year revenue and adjusted EBITDA estimates remain unchanged and do not take into account any contributions from the Chubb acquisition. We continue to forecast adjusted net revenues for 2021 of between $3.65 billion and $3.75 billion, along with anticipated growth in the fourth quarter, and adjusted EBITDA around $405 million for 2021. We also continue to expect capital expenditures of approximately $55 million and anticipate depreciation of about $75 million, which includes $15 million related to the recast of prior comparative periods. Our cost of capital is roughly 5%, and our adjusted mid and long-term effective tax rate is expected to remain around 21%. The estimated adjusted diluted weighted average share count for 2021 is around 211 million, with the third quarter's adjusted diluted weighted average shares outstanding at 210 million. Before handing off to Jim, I want to provide a brief update on our multiyear business process transformation project. This initiative involves ongoing efforts to better align our technology platform with improved business processes, which we believe will facilitate the transition to a true shared service model, ultimately enhancing our SG&A efficiency. This transformation effort also aims to leverage purchasing and procurement scale to drive margin improvements, contributing to our goal of achieving an adjusted EBITDA margin expansion of 13% by year-end 2025, as previously mentioned. The process, which was outlined during Investor Day, continues to progress as planned, largely on budget, and is meeting key milestones in alignment with the original deliverable schedule. We are seeing gradual improvements that we expect will benefit us well into the future. As we move through the planning, budgeting, and integration stages with Chubb and gain further insights into their needs, we will reassess and refine the scope of our business process transformation project so that we remain flexible and considerate of Chubb's requirements. Our intent is to leverage their investments effectively, resulting in a meaningful, unified plan for ongoing operations. We will keep you updated on this and all our projects in 2022 following the closure of the Chubb transaction. I will now turn the call over to Jim.

Thanks, Kevin. We believe that the company is operating well in this environment despite some of the supply chain disruptions and inflationary cost pressure we've seen in the industry. Fortunately, APi has more tools to mitigate these issues than some businesses that have longer contract durations than ours and have more exposure to inflation. While APi isn't immune to what is occurring in the marketplace, we do believe we have certain competitive advantages that protect and drive shareholder value. Our team has always been a cost-focused culture and they are skilled at proactively and preemptively minimizing these negative effects. As we've stated previously, the average size of our projects, including all three of our segments, is less than $100,000 which helps to limit our exposure to increases in raw material costs. In addition, the average duration of our projects is less than six months. So we have less inflationary exposure to cost of goods sold or changes in labor expenses than others may experience in an inflationary environment. Our pricing is very much real-time pricing as our visibility curve is very clear as we are quoting projects that are occurring in the near term. We believe that these are competitive advantages that allow us to take focus on real-time pricing and operational efficiency to ensure true costs are reflected in each project that we take on. The Chubb fire and safety and security business has a similar profile and we believe it will enhance our overall position rather than detract from it. It's also very gratifying to see strong underlying demand for our services, as reflected in our organic revenue growth in our core business segments and the elevated year-over-year backlog across all three of our segments. This has given us momentum in the third quarter and provides us momentum as we move into the fourth quarter and plan for 2022 and the acquisition and integration of the Chubb fire and security business. We're very excited by the near-term and long-term opportunities for APi and believe there is significant future value creation as we combine our two organizations and realize revenue as well as cost synergies. As you've heard from all of us, we have great confidence in the business and the direction we're heading and we look forward to reporting on our continued progress as we continue our focus on driving shareholder value. And with that, I'd like to go back to the operator and turn the call open for Q&A.

We'll take a question from Jon Tanwanteng of CJS Securities.

Hi, all. Good morning and thank you for taking my question. Kevin, congrats on the appointment. My first question is actually for you. I wanted to circle back on the depreciation item you and Olivia mentioned earlier in the call. Is that clearly an accounting change with no cash impact? And furthermore, on an apples-to-apples basis, what would your adjusted EPS or net income have been compared to prior periods if that was a consistent item?

Yes. It's an accounting change, I can answer that. Thank you, Jon. And it is also a noncash impact, so it doesn't affect our adjusted cash. I referenced it earlier. So it had a $0.02 impact on us by removing it in the quarter.

So Jon, that would have been 37 versus the 35.

Okay, great. And then, more broadly, I was wondering if you guys could comment on the M&A environment. My understanding is that one of your peers, Service Logic, traded between private equity for a pretty big premium. You obviously have a record for acquiring smaller assets in the mid-single-digit EBITDA, Chubb and SK in the low teens. Can you help us understand how you're able to increase deals at substantially lower multiples for these assets, especially given the current environment and what private equities pay for these things these days?

Yes. To start, we did take a brief pause in our bolt-on M&A strategy while we managed the financing activities related to Chubb. This was a deliberate decision we made, believing it was the wisest course for the business. However, we have a strong pipeline of potential opportunities that we are actively evaluating. We've resumed our efforts and still see promising opportunities in the 4x to 6x range. The key difference for us is that we believe we can offer a very compelling narrative, making us an appealing option for many smaller, family-owned businesses looking to sell. They want not only to facilitate a long-term exit but also to ensure their employees are taken care of. We are confident in our story and continue to see opportunities to acquire businesses in the 4x to 7x range.

I'd also add that we've been observing some of the larger transactions, especially in the United States, reaching EBITDA multiples in the high teens and nearly mid-20s. We're clearly not going to engage in that space. However, in terms of comparative value, it supports our thesis and our disciplined approach in seeking scalable opportunities like Chubb. We believe we are in a unique position as buyers and can achieve value at multiples that are more acceptable compared to some current deals. Therefore, we will maintain our discipline, but there are certainly opportunities in the tuck-in market, following the original strategy that APi successfully implemented. This also encourages us regarding what comparative multiples should be over time as a larger public company.

Got it. And just last one for me. Russ, I know I've asked this a couple of times in prior calls but now that the infrastructure bill is passed on to a much more later stage, where it's likely to be signed to law, at this point, is it prudent to start budgeting for it? Or do you need to see it signed first and wait for your customers to announce what their plans are before you start thinking about what the impact could be?

Yes, there's a lot to discuss here, Jon. To begin, I believe that a rising tide lifts all boats, and the infrastructure bill will definitely have a positive effect on the industry overall. However, some of these spending programs will take time to materialize, and we will incorporate those opportunities into our plans as we gain more clarity. There are several areas that are noteworthy and may directly impact us. For instance, there's about $65 billion allocated for broadband Internet aimed at increasing access for rural low-income and tribal communities, which presents an opportunity for us. Additionally, there's around $55 billion designated for potable water infrastructure that will positively influence aspects of our business. These are areas where we expect to see beneficial outcomes for the company, but we will hold off on integrating this into our plans until we have greater certainty about the implementation of the work programs.

Okay. Fair enough. Thank you, guys.

Thanks, Jon.

Our next question is from Markus Mittermaier of UBS.

Hi, good morning, everyone and welcome, Kevin.

Thank you.

One on margins, if I could. Russ and Kevin, you mentioned, obviously, supply chain and inflation pressures. Understand the point on small project size and short duration. But can you elaborate a little bit on sort of like where you saw that downward pressure, how much pricing you were able to put through and what that then means for backlog margins, right? You kind of say 20% up in terms of backlog in safety. Should we assume that margins there are protected? I'm just trying to reconcile a little bit that you had gross margins obviously relatively stable but there seems to be some movements here or pressure on the segment margin. Is that all that cost coming back that you alluded to? Is there some inflation in that as well? Just if you could elaborate on that, that would be great.

Yes, thank you, Markus, for being here today. There are a few points to address. First, I want to distinguish between the supply chain disruptions and the inflation-related cost issues we are experiencing in the business. In terms of supply chain, the margin pressure arises because it hampers our efficiency and productivity in executing our work. This is less about pricing and more about our ability to be productive. Additionally, if someone in front of us faces supply chain problems, it can negatively impact our workforce’s efficiency, despite our best supply chain management. Therefore, we need to take proactive measures in this area. Regarding inflation, I’d be misleading if I claimed we weren’t affected by rising steel prices and similar costs. However, it’s important to consider the small average project sizes we handle. For instance, in Safety Services, our average project size is $10,000, and in Specialty Services, it’s $70,000. This means our work programs are generally quick and allow us to incorporate cost escalation into our pricing as we proceed. Overall, I am confident in the integrity of the margins within our backlog. We've effectively communicated with our teams, and for our larger installation projects, we have included provisions for price escalation in our contracts to safeguard against rapid increases. I believe we've successfully navigated this situation and ensured that our operations are protected from potential price hikes.

That's helpful. And for my second one, more long term. Now we have a few more months looking at Chubb, I know that the 13% target that we have is for old APi, so to speak. How much confidence do you have that the combined entity is going to be at these levels or maybe even higher now that you kind of looked at the asset for a few more months? And sort of what are some examples that maybe get you excited for that opportunity? If you can share anything on that would be also helpful.

So I'm very confident that our 13% EBITDA margin target for 2025 is achievable even with the Chubb acquisition. The more time that I spend with Chubb and the leadership team with Chubb, with the people on our team, Paul Bruno, Kristin Schultes, that are really working on the integration, I get excited. There's a tremendous amount of work associated with the integration and getting to the point where we get the transaction closed. We have very good visibility into the areas of opportunities that we see that we're going to be able to really take advantage from a margin improvement perspective inside of Chubb. And like I've said in previous calls, like I really feel like this is a center of fairway transaction for us. This branch-led ownership at the branch level model is exactly how we've built APi and that's how we're going to really truly transform the performance of Chubb, is working directly with their leadership and improving the performance of the individual branches while we're taking advantage of procurement in other areas that we can really focus on enhancing the margin profile of the company. So, I'm greatly confident.

Thank you.

Thanks, Markus.

Our next question is from Andy Wittmann of Baird.

Great. Good morning. Thanks for taking my questions, guys. I have a few of them here. And I just thought I'd start out by asking about the guidance and the implied fourth quarter guidance in particular. I think it's fair to say that the revenues in this quarter, which you pre-released, were trending at the high end of analyst expectations. It seems like the backlog is clearly should be supportive here. It feels like the revenue guidance, in particular, screens as a little bit conservative. Am I thinking about that the right way?

Andy, it's Jim. I think consensus out there right now is at the high end of the range that we gave which implies around 6% or 7% growth. And we've got your conference. We've got other conferences. October is just behind us. We can give an update later in the quarter. But we're comfortable with where consensus is right now which is towards the higher end of the guidance we gave. So I wouldn't worry about where the numbers are. If you look at the words and listen to what we've said, we're very comfortable with the momentum that we have in the third quarter and that coming into the fourth quarter and the momentum carrying in and if you listen to what Russ said about the backlog. But we like to under-promise and over-deliver. And we just don't want the world getting too far out in front of us.

Got it. Fair enough. I thought I'd ask my next question on free cash flow. And I guess, you did say kind of what the number was going to be for the year and it implies a pretty big fourth quarter. So I guess maybe a two-part question for Kevin would just be like the working capital seems like it's a pretty significant draw here in the third quarter. And just is there anything that we should know that's inside that, customer disputes or things that slowdown collections that happened in the quarter? And then maybe talk a little bit about the visibility you have into that fourth quarter given its implication that it's a pretty big quarter for cash.

Yes, Andy, thanks. So a few things on cash flow. Just as a reminder, our base year last year was an anomaly for us from a free cash flow conversion standpoint. We ended the year well above 100%. It's also important to note that Q4 is usually our largest free cash flow quarter in any given year and we expect it to be back this year, too, especially as we come off of our highest revenue quarter, which is traditionally in Q3. So all that said, we ended last year Q4 with suppressed levels of working capital just because of where we were in the year with backlog and everything else. So we ended the year with really suppressed levels. We built those back significantly in the first half of the year due to the significant organic revenue growth we had. And so, on a year-to-date basis, our free cash flow conversion is around 30%. This is in line with expectations and historical patterns, using 2019 as a reference there. So 2019, you can probably look at it, I think we were around 30% to 40% through the third quarter. And so all that said, we anticipate Q4 this year to be our strongest free cash flow conversion quarter as well. We're at 30% on a year-to-date basis, we're expecting significant conversion in Q4 as our revenue comes off those Q3 levels. And therefore, that's why we're comfortable with the guidance provided around that 70% number for the full year.

We do not have any significant disputes ongoing with any of our clients right now.

Yes. I'm sorry, Andy. Thanks, Russ, for that. We've actually seen a slight improvement in our key working capital metrics on a year-to-date basis.

Yes, you all know because of the small projects usually doesn't lend it to that anyway but I thought I'd ask. Just maybe last question, Russ. In your commentary, you didn't talk about labor availability, labor cost issues, changes that are happening there. Given that, that is a pretty important macro theme that's happening out there, I thought it would be remiss if we didn't ask about what you're seeing and how you're dealing with that.

I think that's a valid and important question. I'll start by discussing labor costs. Most of our field workforce is unionized, which gives us good insight into wage increases and the compensation packages for our field leaders. This allows us to incorporate those factors into our pricing strategy as we progress. However, we do notice some labor shortages in specific markets; for instance, Houston has shown some signs of tightness. We are also managing a significant installation project in Northern Minnesota that is experiencing some labor constraints. That said, our investment in our leaders, including our field personnel, is crucial. We prioritize their growth and development, both personally and professionally, which sets us apart. One of our advantages has been our ability to retain our workforce, and in my view, that's essential for succeeding in a tight labor market. Keeping our best employees helps us attract additional talent to our organization. We're monitoring the situation closely and have successfully navigated through these challenges so far.

And I would just supplement. These are well-paid jobs with high-skilled people. This isn't a situation of, should we pay people $15 an hour? These are well-paid jobs. So you're attracting a higher caliber, if you will, different demographic that isn't a transitory workforce, might be a fair way to say it.

Yes, these individuals did not have a reason to opt for unemployment due to the additional benefits provided by the federal government, as their wages significantly exceed those benefits. This situation has given us an edge regarding the composition of our field workforce.

And just commercial, we're looking forward to participating in that Baird conference this week.

We'll move next to Julian Mitchell of Barclays. Your line is open.

Hi, this is Kiran Patel-O'Connor on for Julian. I just had a question on Industrial Services. I saw there was significant margin improvement during the quarter. Can you help us think about what a normalized margin looks like for this business and when you'll return to top line growth in that segment?

Yes. So we view that the segment has sort of hit the bottom of the trough and is beginning to rebound. If you recall, that is the one piece of our business, in particular, one company inside that segment that has some exposure to the oil and gas space. And obviously, oil and gas is one of the sectors that was most heavily impacted by COVID. And we're starting to see our customers' spending increase. We're also really working hard to reposition the business to take advantage of the service side of the transmission space which we, in our world, we call that integrity work. Transmission and integrity work is government regulated and the transmission companies have expansive spending programs and that's really where we want to spend our time and our energy. We believe that the margin opportunity, while I don't know that it will get back to fleet average in 2022, but we do believe that the opportunity for the work in the segment will be at or near fleet average.

Got it. And then, my follow-up question is on SKF. Can you give us an update on how the SKF integration is proceeding? Any surprises to the upside there? And is there anything you've learned that will inform the integration of Chubb?

Yes. When considering the integration of SK, it's important to remember that when we acquired the firm a year ago, we anticipated a reverse integration opportunity. We were looking into potentially integrating our existing U.K. business with SK. However, the acquisition of Chubb changes that perspective significantly. Our team is currently working diligently on this aspect and will provide more updates regarding how we plan to integrate SK's business with Chubb's as we develop our budget and approach the first quarter of next year. There are certain areas within SK's business that outperform Chubb's in overlapping markets, and we want to ensure we make informed decisions about the personnel involved. We see the opportunity for significant synergy as we move forward with the integration, often described as one plus one equals three. Overall, SK's business has met our expectations. Although their performance has been impacted by COVID more than our life safety businesses in the U.S., we have navigated these challenges successfully. We believe there is always room for improvement, and we are encouraging them to continue growing and performing at a higher level.

Perfect, thank you.

We'll take our next question from Kathryn Thompson. Your line is open.

Hi, thank you for taking my questions. Regarding the physical materials and procurement needed to complete jobs, you mentioned some of this in today's prepared comments and Q&A. Can you provide an update on specific materials, such as structural steel and fiber optic cables, which have been more difficult to obtain or take longer to procure? Additionally, are there other categories we should monitor?

Yes. From a structural steel standpoint, our only manufacturing operation is focused on structural steel. The primary impact area has been the supply of joists and decks, with deliveries now extending from six to eight months. This situation makes planning crucial. We are fortunate to have Amazon as a customer, as they have exclusive access to joists and decks, which has provided us an advantage in navigating these challenges. Steel pipe prices have experienced the most rapid increases, rising approximately 250% since the start of the year. While I'm relying on my memory for that figure, I want to emphasize that due to the short duration of our projects, we can pass these cost increases on to our customers efficiently. The spikes in steel pipe prices represent the most significant cost increases we have encountered.

Okay. I have a follow-up regarding labor. I understand that most of your labor is unionized and you might have up to five years' visibility on certain key wage metrics. What kind of feedback or pushback are you receiving from unions about revisiting this issue? What discussions have you had in relation to reexamining established agreements?

We haven't received any requests to reopen any previously settled collective bargaining agreements. Recently, we settled a collective bargaining agreement in Los Angeles, and I believe the wage settlement was fair for both parties given the current circumstances. We secured a five-year agreement with the largest union we work with, which was linked to consumer price increases during the pandemic. This settlement means that as economic conditions fluctuate, wage rates will also adjust accordingly. Overall, I think we have reached an effective solution, and we haven't encountered any issues with unions regarding this matter, which I see as a benefit for us.

It's Jim, unrelated to APi but in my early part of my career, I was a labor contract negotiator. Careful what you ask for, people don't like to open contracts because it goes both ways. And so if you open it for one side, then you started the ugly precedent of two years from now the other side wants to open it for something else. And nobody likes doing that. So it's a pretty rare event when those things happen.

Kathryn, just one additional point regarding steel pipe prices. Kevin whispered in my ear that they've actually come down just a little bit over the course of the last couple of weeks. So hopefully, we're at the plateau and we'll see a downward trend from a steel pipe price increases.

Okay, great. I have one last cleanup question. You've done an excellent job on backlogs and provided some high-level insights into what is driving this demand. However, could you share a bit more detail regarding geographic differences? Some of the industries make sense, but are you noticing any variations across different regions? Additionally, anything related to the population shift towards the Southeast and Southwest of the U.S. would be helpful.

Well, I would say, Kathryn, that in general we've seen really good opportunities across really most aspects of the business. Surprisingly enough, the market that's probably the most suppressed for us right now is Chicago. And I suspect that, that market will slowly show some additional recovery. Obviously, the Southeast and the Southwest, with the demographic shifts, continue to provide great opportunity. But we don't really do residential work and we don't play in markets such as that. But like as an example, one of our largest customers is Intel. They have a major expansion that just happens to be going on in the Phoenix marketplace which is a great market for us. And we'll continue to take advantage of those opportunities. But in general, I feel like our business is seeing really positive opportunities across all aspects of it, across really North America. And if I had to pick a market that was the softest, I would pick Chicago.

Okay, great. Thanks for answering my questions today. Have a great day.

Thanks, Kathryn.

We'll take our next question from Adam Thalhimer of Thompson Davis.

Hey, good morning, guys. Russ, I was hoping you can give a little more color on the bidding environment. Because the leading indicators for non-res construction dipped a bit during Delta but I would say they've really reaccelerated in the past month or two. Just curious if you're seeing that in your bidding.

I'm going to start by saying that we don’t use the term bid at APi. When we bid on work, it suggests that customers choose us solely based on the lowest price, and we aim to provide the best value. So, I don't particularly like the word bid. However, I can tell you that proposal activity has remained strong. The area experiencing the most significant recovery is our Industrial Services segment. It's important to note that Industrial Services accounts for less than 10% of our total revenue, so while it’s encouraging to see a rebound, it's not the main focus. Other areas of our business are still seeing robust activity. There have been some delays in Specialty Services, which is contributing to our strong backlog. We've been able to generate revenue across each segment while also building our backlog as some opportunities have shifted to the fourth quarter and into 2022. But overall, proposal activity remains strong.

What are some of the real pockets of strength within specialty?

I think we're seeing areas of strength in the 5G, telecom, and fiber sectors. However, we're also noticing a decline in some parts due to supply chain issues affecting our customers. Our customers supply a significant amount of the product, and availability has been challenging. On a positive note, we've observed strong opportunities in our manufacturing business, largely linked to Amazon and the distribution center market. Many of our industrial clients have robust work plans that we've been able to leverage. For instance, Florida Power & Light recently approached us for assistance due to the winter storm in Texas last year and its repercussions on the utility sector. They've requested us to retrofit several of their electric heat tracing systems in various facilities. Overall, there are significant opportunities across most areas of our business.

Sounds good. Nice quarter. Thanks.

Thanks, Adam.

And this does conclude our question-and-answer session for today. I'd be happy to return the call to Russ Becker for any final remarks.

Thank you very much. I want to express my gratitude again to the men and women at APi who continue to work hard and deliver exceptional results for all of our shareholders. I'm thankful for your hard work and effort. I also want to thank everyone for your continued interest in APi. We have just begun our journey, and it's going to be an exciting ride. We are fortunate to have each of you with us. Thank you, and have a great day.

This does conclude today's conference call. You may now disconnect your lines. And everyone, have a great day.