Good morning, ladies and gentlemen, and welcome to APi Group First Quarter 2023 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 Adam Fee, Vice President of Investor Relations of APi Group. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining our first quarter 2023 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 of 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, May 4, and we undertake no obligation to update any forward-looking statements we may make, except as required by law. As a reminder, we have posted a presentation detailing our first 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. It's now my pleasure to turn the call over to Jim.

Thanks, Adam, and welcome to APi. In 2022, APi became the world's leading life safety and security services provider, with a global platform serving our customers in over 20 countries while delivering record financial performance. Today, we continue to be pleased with the momentum APi is building and with an outstanding quarter to start 2023. We have great confidence in the business and the direction we're heading. The company delivered record first quarter results to start 2023 for net revenues and adjusted EBITDA, while delivering margin-accretive double-digit organic growth across the platform. Our strong financial results speak to the consistent efforts of our 27,000 leaders and to the strength of APi's recurring revenue, statutorily-required services business model. While successfully growing the business with an inspection-first mindset, the team has never lost sight of serving our customers safely and efficiently, and we are grateful for their commitment. As we look at our roadmap for sustainable shareholder value creation, we believe that we can achieve outsized investor returns in the years ahead by focusing on our long-term 13/60/80 value creation targets, which include organic revenue growth above industry average; adjusted EBITDA margin of 13%, driven by our continued focus on generating 60% of our revenue coming from inspection, service, and monitoring; adjusted free cash flow conversion of 80%; and a targeted net leverage ratio of 2x to 2.5x. We look forward to updating you on our progress throughout the course of this year. And with that, I'll hand the call over to Russ to walk you through our performance. Russ?

Thank you, Jim. Good morning, everyone. Thank you for taking the time to join our call this morning. Before we start, I too want to welcome Adam to our leadership team. We look forward to his contributions. Jim mentioned our 13/60/80 long-term shareholder value creation model that you see included in our presentation. We are relentlessly focused on driving the strategy through the organization and have distilled it down to an easy-to-remember and distinct phrase. I routinely speak to our field leaders about how they can help us deliver on this strategy when I'm visiting our locations around the world. Our leaders know what we want to achieve and how we intend to achieve it. Before we provide you with a summary of our record first quarter results, I would like to thank our approximately 27,000 leaders for their unwavering commitment to APi. The safety, health, and well-being of each of our team members remains our number one priority. We remain grateful for their hard work and effort. We believe that taking care of our leaders results in our leaders taking care of our customers. This is one of the foundational principles from which we will continue to enhance shareholder value. This week marks APi's eighth straight year of celebrating Safety Week, which, like the Kentucky Derby, is always the first week of May. The theme this year is, I am a Safety Leader. At APi, we believe everyone, everywhere is a leader, and being a leader begins with the daily commitment to safety for ourselves, our teammates, our customers, and the communities we serve. This commitment to safety drives industry-leading safety outcomes across the organization. At the end of 2022, our Total Recordable Incident Rate, or TRIR, was below 1, which is significantly better than the industry average. We continue to strive for zero recordable incidents and our leadership prioritizing safety makes APi a safer place to work, which contributes to our historically low turnover relative to industry benchmarks. Turning to the first quarter, I am pleased with the record results delivered by our global team as we continue to see robust demand across the business. Net revenues grew organically by 12.1%, reaching $1.6 billion for the three months ended March 31, 2023. This represents the eighth straight quarter of organic growth for APi, with all but two of these quarterly increases being double-digit organic growth. Safety Services has delivered double-digit organic growth in each of the last eight quarters, with over 20% organic growth in four of those eight quarters. This is a testament to our growth strategy, which includes strategic pricing initiatives, increasing share with existing customers through cross-selling, as well as purposely expanding with new customers in the fragmented growing fire and life safety market. This quarter, organic growth in Safety Services was solid at 14.1% in the first quarter, with organic growth in U.S. Life Safety remaining strong at approximately 20%. As detailed at our November Investor Day, we are purposely managing our international growth in Safety Services, which came in at approximately 11% on an organic basis. We remain focused on solid growth at the right margin, managing customer and project selection and evolving away from certain customer relationships when appropriate, when margins do not meet our targeted path for improvement. I want to take a minute to recognize the progress we have made in growing our inspection customer base, continuing to realize benefits from our commitment to have an inspection-first mindset and how that mindset has contributed to the outstanding organic growth in Safety Services. First, achieving double-digit inspection growth is not by accident. Over the last five-plus years, we have developed the organizational capability of selling inspections to existing facilities and have built what we believe is the best inspection sales organization globally focused on fire and life safety. To be clear, the growth in inspections driven by our sales team of leaders is achieved by taking share from competitors. Second, two weeks ago, we held a company-wide Inspection Sales Leader Summit. I had the chance to stop by and speak to the room full of inspection sales leaders in attendance, and it was awesome to see the sales teams across our operating companies making connections, sharing best practices, and showing excitement for our common goal. Third, growing inspections has become increasingly within our control as we see the results of investing in our sales organization. March was the highest month of inspection revenue on record for APi. As a reminder, we estimate that every dollar of inspection revenue typically leads to approximately $3 to $4 of service revenue. On average, inspection and service revenue is 10% plus higher gross margin than contract revenue, and monitoring revenue is 20% plus higher than contract revenue. Finally, on top of this, growing our inspection customer base provides a larger installed base where we are often the first call for any repair or other service work. This inspection sales effort is the key pillar to achieving 60% of revenues from inspection, service, and monitoring, which is a key driver for achieving our 13% adjusted EBITDA margin target for 2025. Back to the rest of the results. Adjusted gross margin grew nicely in the first quarter, up 40 basis points year-over-year. After easing up in the second half of last year, we saw inflation come back into play during the first quarter as certain prices rose across our suppliers. In a challenging environment, I am pleased with leadership's commitment to driving gross margin improvements through pricing activities; implementing fuel surcharges; shifting business mix towards inspection, service and monitoring; procurement initiatives; and disciplined project and customer selection. As a reminder, our small project size averaging $5,000 in Safety Services and a short project duration of less than six months for the company gives us the flexibility to manage inflationary pressures in our supply chain. Finally, adjusted free cash flow came in flat for the quarter, in line with our expectations for Q1, and reflected an improvement of $47 million versus the prior year period. Our international operations continue to perform as expected. At Chubb, I am confident we now have the leadership teams in place to execute our strategy and move the business forward. In the first quarter, we continued to accelerate top-line growth in that business, marking the fourth straight quarter of organic growth after years of no growth prior to APi's ownership. In November and on our Q4 call, we went into detail on our strategy for Chubb and how we plan to execute our $100 million value capture plan by 2025. We are pleased with the team's progress, executing a multi-pronged strategy while delivering solid operational performance. In summary, we are exiting the first quarter with strong momentum. The business continues to perform well. Our consolidated backlog remains near-record highs and business activity across both Safety and Specialty Services remains robust. We are starting to see benefits of increased demand for our services, driven by federal funding flowing in the high-tech market within Safety Services and the infrastructure and utility markets we serve in Specialty Services. We challenged the team to remain focused on disciplined project and customer selection rather than growing for the sake of growth, and I'm pleased that it's beginning to show through improved profitability of projects in our backlog. We believe our robust backlog, variable cost structure as well as the statutorily-driven demand for our services and the diversity of the global end markets we serve provide predictable, recurring revenue opportunities and build a protective moat around the business in any macroeconomic conditions. We remain focused on capitalizing on the opportunities in front of us while driving leverage to our targeted net leverage ratio of 2x to 2.5x, which we expect to achieve near year-end, even with a modest return to bolt-on M&A in 2023. The markets we operate in are highly fragmented, and we are excited about the robust pipeline of opportunities for Life Safety and Security Services businesses. I would now like to hand the call over to Kevin to discuss our financial results and guidance in more detail. Kevin?

Thanks, Russ. Good morning, everyone. I will begin my remarks by reviewing our consolidated results and segment level operating performance before turning to our guidance. Reported revenues for the three months ended March 31, 2023, increased by 9.7% to $1.6 billion compared to $1.5 billion in the prior year period. Net revenues increased organically from the same period by 12.1%, driven by double-digit growth in services revenues in both our Safety and Specialty segments. In 2022, approximately two-thirds of our growth was driven by price and pass-through of material and labor costs and one-third was driven by volume, which we measure through labor hours. This quarter, we saw this mix come in closer to 50-50, although we are keeping a close eye on the price of key inputs like pipe prices, which have been trending up in early 2023. Adjusted gross margin for the three months ended March 31, 2023, grew to 26.8%, representing a 40 basis point increase compared to the prior year period, driven by favorable mix impacts from outsized growth in our Safety Segment and services in both segments. These factors were partially offset by inflation, which caused downward pressure on our margins. Adjusted EBITDA increased by 17.6% on a fixed currency basis for the three months ended March 31, 2023, and adjusted EBITDA margin was 9.1%, representing a 40 basis point increase compared to the prior year period, primarily due to the factors impacting gross margins. Adjusted diluted earnings per share for the first quarter was $0.25 per share, representing a $0.02 per share increase compared to the prior year period. The increase was driven primarily by strong organic growth and margin expansion in both Safety and Specialty Services. This is offset by an increase in interest expense compared to the prior year period. I will now discuss our results in more detail for Safety Services. Safety Services reported revenues for the three months ended March 31, 2023, increased by 10.9% to $1.2 billion compared to $1.1 billion in the prior year period. Net revenues increased organically by 14.1%, and as Russ mentioned earlier, U.S. Life Safety was up organically 20.1% with our International Life Safety operations up organically 11%. The strong organic growth was driven by double-digit inspection service and monitoring revenue growth within our Life Safety businesses as well as continued pricing improvements. Adjusted gross margins for the three months ended March 31, 2023, was 35.1%, which was flat compared to the prior year adjusted gross margin, driven primarily by pricing strength in inspection service and monitoring revenue offset by inflation and unfavorable mix impact. Adjusted EBITDA increased by 18.5% on a fixed currency basis for the three months ended March 31, 2023, and adjusted EBITDA margin was 12.3%, representing a 50 basis point increase compared with the prior year period, driven primarily by leverage of SG&A spend across strong organic revenue growth. I'll now discuss our results in more detail for our Specialty Services segment. Specialty Services reported revenues for the three months ended March 31, 2023, increased by 4.4% to $430 million compared to $412 million in the prior year period, primarily driven by increased demand in the infrastructure and utility markets. Adjusted gross margin for the three months ended March 31, 2023, was 13.3%, representing a 120 basis point increase compared to the prior year period, driven by strong organic growth, a shift in mix towards higher-margin service and disciplined project and customer selection. Adjusted EBITDA increased by 21.7% for the three months ended March 31, 2023, and adjusted EBITDA margin was 6.5%, representing a 90 basis point increase compared to the prior year period, primarily due to the factors impacting adjusted gross margins. Turning to cash flow. In line with our guidance and expectations, our adjusted free cash flow for Q1 was flat, a $47 million improvement over the same period last year. As a reminder, Q1 is traditionally our lowest cash flow quarter due to seasonality and timing of annual payments. We reaffirm our prior guidance of delivering free cash flow conversion at or above 65% for 2023 on the way to our long-term adjusted free cash flow conversion target of approximately 80%. At the end of Q1, our net debt to adjusted EBITDA was approximately 3.1x. We remain laser-focused on cash generation and deleveraging to our stated long-term net leverage target of 2x to 2.5x, with current expectations to achieve approximately 2.5x near the year-end 2023. I will now discuss our guidance for Q2 and full year 2023. While some might argue the macro became more uncertain during the quarter, the strength of our business, our top-line momentum, and the quality of our backlog gives us confidence to raise our prior full year guidance for reported net revenues and adjusted EBITDA. We now expect full year reported net revenues of $6.875 billion to $7.025 billion, up from $6.8 billion to $6.95 billion. At current currency expectations, this represents reported net revenue growth of approximately 5% to 7%. We now expect full year adjusted EBITDA of $740 million to $780 million, up from $735 million to $775 million, which represents reported adjusted EBITDA growth of 10% to 16%. In terms of Q2, we expect reported net revenues of $1.75 billion to $1.78 billion. This guidance represents reported net revenue growth of approximately 6% to 8%. We expect Q2 adjusted EBITDA of $195 million to $205 million, which represents reported adjusted EBITDA growth of 11% to 16%. For 2023, we anticipate interest expense to be approximately $145 million, depreciation expense to be approximately $85 million, capital expenditures to be approximately $95 million, and our adjusted effective cash tax rate to be approximately 24%. We expect our adjusted diluted weighted average share count for the year to be approximately 273 million. April marks APi's three-year anniversary of being listed on the NYSE. We're excited across this mark with a stronger business, stronger leadership team, and record first quarter results. With this three-year anniversary and in conjunction with our filing of our 10-Q, as a matter of housekeeping only, we will also be updating on our shelf registration statement later today. This update is not meant to imply any planned issuances of shares or other activity, but is merely allowing us to have another two at our disposal now that this window has opened for the company. Overall, we are extremely pleased with the results delivered by our global team in the first quarter and look forward to sharing more updates as we progress throughout the year. I will now turn the call over to Russ.

Thanks, Kevin. APi's record first quarter results speak to the strong momentum balanced across our global platform. Delivering the margin-enhancing double-digit organic growth while improving backlog quality gives us the comfort to raise our full-year guidance for the business. As you've heard from all of us, we have great confidence in the business and the direction we are heading despite the macroeconomic environment. That said, we remain agile, adaptive, and confident in our ability to take definitive and early actions in the face of a worsening of macroeconomic conditions. As we look to the years ahead, we believe we can create sustainable shareholder value by focusing on our 13/60/80 long-term value creation targets. These include above-industry average organic growth; adjusted EBITDA margin of 13% plus by 2025; 60% of revenue from service, inspection, and monitoring; and adjusted free cash flow conversion of 80%. Coming off a great first quarter, I'm excited about the opportunities for the rest of 2023 and our ability to execute on our strategic plan in the years to come. With that, I would now like to turn the call back over to the operator and open the call for Q&A.

We'll take our first question from Andy Kaplowitz from Citigroup.

Russ, obviously, strong growth in your core America Life Safety business. When you talk to your customers, any sort of signs of any verticals slowing? And when you mentioned that you have improved backlog quality, maybe you can give us some more color on what that means and your visibility going forward?

Yes. Thank you, Andy. I appreciate you being here this morning. I've mentioned before that the end markets are crucial. I recently attended an industry association meeting and spoke with several CEOs in the semiconductor, data center, healthcare, and aviation sectors. Those markets, along with manufacturing, particularly pharma and food and beverage, are performing exceptionally well. However, if you're in Chicago and considering a 50-story condo tower, that project is unlikely to move forward. We're seeing a lot of developer-led opportunities being delayed or canceled. Fortunately, developer-led project work tends to be price-driven, and we haven't had much competition in that area, so it doesn't represent a significant risk for us. I didn't even mention the infrastructure and utility markets, which remain very strong. It's really about focusing on the right end markets. Regarding our backlog, I must say that I don't view backlog as a reliable benchmark due to our disciplined project and customer selection process. However, we do have visibility into our backlog and the anticipated gross margins tied to it. We believe the quality of our backlog has improved significantly, particularly from late last year into the early part of this year. We're maintaining a careful review of larger project proposals and associated work programs. We feel positive about that. Last year, we discussed our efforts to reduce lower-margin project work in our HVAC business that couldn't keep pace with inflation. We're pleased that we've made progress in addressing that as we continue to manage some of that backlog this year.

Very helpful. And then you mentioned the increase in infrastructure and utility spending. I just wanted to ask you about specialty. Can you sustain that sort of mid-single-digit growth that you did in Q1 in that business? And are you seeing any impact from fiscal stimulus out there yet? And maybe just what's going on in telecom? Is that a more difficult environment this year?

Yes. You asked several questions at once. Many of your peers are good at that as well. From a rural broadband perspective, we are observing funds entering the system, and we've identified opportunities in our businesses related to that work, which has been a positive development. Most of the funding is being allocated to the states, and they are figuring out how to utilize those resources, so it's situation-dependent based on what our business leaders are observing. Kevin and I recently visited one of our businesses engaged in this area, and we had a productive discussion about the current opportunities. For instance, in Minnesota, they are finding opportunities. There is activity happening there. Regarding the infrastructure bill, while funding is beginning to flow, much of the work requires design and engineering efforts, so robust opportunities are not yet evident. In terms of telecom, while many large telecom providers have scaled back their CapEx budgets, they have moved from extremely high to still very high levels. This has not led to a slowdown in our business, and we continue to see opportunities. To address your question directly, there is ample opportunity available for us to maintain the organic growth we demonstrated in the first quarter. Our focus should be on ensuring our business leaders remain disciplined and prioritize gross margin and EBITDA margin. This discipline is essential for achieving our 13% goal, and the growth opportunities are definitely there; we just need to ensure we choose the right ones.

Just one quick follow-up for Kevin. You mentioned you're watching pipe prices. Have you put in maybe rising commodity prices into your guidance? Is that the reason why you raised EBITDA maybe a little less than revenue for the year?

So yes, pipe prices are one of the critical elements that we purchased. We did see a runoff here in the first quarter. I would say that our guide, generally in the back half of the year, we are not yet taking a position on inflation. That is not baked into our guide any sort of significant inflation and, therefore, pass-through of that from a revenue standpoint would flow through.

Our next question comes from Julian Mitchell from Barclays.

This is Kiran Patel-O'Connor on behalf of Julian. I wanted to ask about the Chubb acquisition and how the integration is progressing. Are there any updates on the synergy expectations for fiscal '23 and the timeline throughout the year? Thank you.

We look at Chubb and our international business together, and I can say we are very pleased with the progress of the integration efforts. Our leadership team has truly come together across all aspects of the business, and we feel optimistic about our current position and future direction. We shared some insights on organic growth internationally, although we don’t intend to report on that quarterly. However, we wanted to highlight the significant progress that our leadership has been making. We are confident about the $100 million value capture opportunity ahead of us and have guided for $55 million to $65 million this year, primarily in the second half, and we believe we are fully on track to achieve that. Overall, we feel very positive about the trajectory of the business. Would you like to add anything?

Just a point of clarification. There's really no update from a restructuring or synergy timing standpoint from our last call. The $55 million to $65 million that Russ referenced was a restructuring charge that we anticipate this year for the work we're doing there internationally, and we would expect that charge to be later in the year. And therefore, any value capture opportunities that come from the charge sales will be back half loaded really into 2024.

Understood. Thank you. And then my follow-up question was just on the comments you made on returning to bolt-on M&A later in '23. What gives you confidence to return to this bolt-on M&A? Is it strength in the cash flow later in the year? And should we expect the size of the deals to be relatively small and financed by cash on hand, or would you be willing to take on any additional debt for the right deal? Thanks.

Yeah. So we're focused primarily, from a bolt-on M&A, on smaller transactions that are accretive to our existing business, primarily in North America. We want our team internationally to really stay focused on the integration work that's in front of them. That doesn't mean that if the right small opportunity came along with the right leader that would have the capacity to handle it, that we wouldn't take a look at it. So I don't want to say that it's 100% not going to happen. But the focus is primarily in North America where we feel like the existing leadership has the capacity to integrate it. We've modeled in some dollars, so to speak, into our cash flow forecast. So even as we talked about getting delevered to that 2.4x, 2.5x by year-end, we've modeled in a modest amount of dollars for bolt-on M&A. So essentially, we would do that with cash on hand. And I suspect that if the right larger transformational opportunity would come along, I suspect that we would take a look at it, but it would have to be another kind of center-of-the-fairway type transaction for us that really, really made a lot of sense. But I would tell you that we're very, very excited to kind of turn the bolt-on M&A faucet and get it going again. And we have some really, really nice opportunities that we're digging in on right now.

Got it. Thank you.

Thank you.

Our next question comes from Kathryn Thompson from Thompson Research Group.

Hi, thank you for taking my questions today. I have a broader question to start. We are looking at four significant trends impacting the U.S., particularly reshoring, near-shoring, population shifts, an increased emphasis on environmental concerns, and government support for construction spending through the IIJA, the Inflation Reduction Act, and the CHIPS Act. Considering these four major trends in the U.S., how does APi Group take advantage of them? Specifically, we are hearing insights from peers and related companies about the benefits they are already experiencing in fire and life safety.

I believe that the fire and life safety sector is evolving, and security is progressing with it even if it doesn't have the same legal requirements. The enhancements in codes and increased regulations in this area are beneficial for our business. Considering initiatives like the CHIPS Act, the efforts to bring semiconductor production back to the U.S. are already underway, and while the $30 billion funding may seem significant, it’s really just a small part of what is needed. The expenditures seem excessive from that viewpoint. Our focus on fostering a strong company culture and developing leaders is key, and this investment aligns with our environmental, social, and governance (ESG) goals, allowing us to have a positive impact in our communities. In this competitive labor market, we believe these efforts strengthen our company and support our growth. Companies that prioritize a people-first approach will ultimately succeed, with other factors becoming secondary as they work to advance their business. Our emphasis on ESG aligns with our focus on people, including diversity, equity, and inclusion. We see significant opportunities for sustainability that will enhance our customers' initiatives. Overall, our company is well-positioned to leverage the positive trends you've mentioned because of our commitment to developing exceptional leaders.

And then a follow-up question I have, more relates to the Chubb acquisition. You're anniversarying that. And one of the areas that you're focusing on is that inspection-first mindset with Chubb. Where are we today versus with that when you first acquired the company? And how far along in that journey are you in really converting to that inspection-first mindset?

I would say that we're just at the beginning of our journey. It’s similar to trying to turn a freighter around, which requires time, energy, and effort. Our new sales leader in the international business is on the call today, and I hope he understands the significance of this. It takes both time and effort. A great example is that our leader in Asia shared that we recently won an inspection-first contract with a casino in Macau, which we celebrated across the organization. This highlights the mindset we need to change. There’s still a prevailing thought that we should first secure an installation job and only then convert it to an inspection and service contract. Changing that mindset will take time and energy, and recognizing the right behaviors is crucial. We are currently working on transforming our sales force in the international sector, and I am confident that we have the right leader guiding that part of the business. We are making progress, but there is still much work ahead, and it would not be accurate to suggest otherwise.

Okay, perfect. Thanks very much.

Thanks, Kathryn.

Our next question comes from Ian Wittmann from Baird.

Great. I guess just a technical one to start out with here. Just on the guidance, Kevin, maybe can you talk about what the FX hit is that's implicit in your guidance for this year? I think for the balance of the year, it should be evening out a little bit. But why don't you just comment on that? And then just a point of clarification, make sure we're on the same page, Russ. You mentioned that there were some dollars on the investment side for some bolt-on M&A. I just want to make sure that the EBITDA guidance, the revenue guidance does not include any unanticipated or unannounced, I guess, I'd say, M&A through today.

Hey, Andy, good morning. I'll address both questions. First, foreign exchange was a challenge compared to last year in the first quarter. Our materials indicate that it cost us about $30 million in revenue. However, we expect things to improve in the second half of the year, both in our reported results and guidance. Overall, we anticipate a slightly favorable impact on revenue and, consequently, a very slight improvement in EBITDA for the year. Regarding your question on bolt-on acquisitions, our guidance typically does not include any expected revenue or EBITDA from potential M&A.

Yes. Okay. And then, I guess, just, Russ, I thought your commentary in your prepared remarks on the sales force and the investments in bringing the team in were kind of interesting. Kind of got me thinking more about that. With the company growing nicely here on the Safety segment, in particular, I guess I'm just curious, are you still hiring there, or are you expecting the productivity of the existing sales force to continue to drive sales from here? I'm just kind of wondering how you're thinking about investments in a macro that's a little bit more uncertain, although your demand seems like it's pretty good.

Yes, we are still hiring and expanding our sales team. There are many markets where we are currently underrepresented, which I see as a significant opportunity for our business. Regardless of the macroeconomic environment, inspections for buildings, facilities, and manufacturing operations will always be necessary. This represents a future investment for us, and we will continue to enhance our sales force.

Got it. That's helpful. And then I guess my final question would just be trying to get an understanding of the extent of customers on the Chubb side that you've decided to go a different direction with that you've exited. Maybe could you help us just understand how much of an impact that was on a year-over-year basis to the revenue line in the quarter? Or maybe what do you anticipate that to be as a headwind to the revenue that's implicit in the guidance that you gave here today? Just so we can kind of frame what that looks like and what your gross new sales are really adding to the business.

If we look back at the materials from last November, we indicated in our revenue bridge that customer attrition was around 5%. In reality, it's actually lower, probably in the 2% to 3% range. We've observed that some of the loss-making or underperforming service and maintenance contracts, where we might have been a bit aggressive with pricing, did not result in the attrition we anticipated. This is a positive outcome for us. We recognize there is still work to be done, and we will likely continue focusing on this throughout the year and possibly into next year as well.

Got it. That's helpful. Thank you very much. Have a good day.

Thanks a lot, Andy. Appreciate it.

Our next question comes from Chris Snyder from UBS.

Thank you. I want to ask on M&A, and particularly the tightening lending standards we're seeing in the market. Has that had any impact on the competition for deals? I would think maybe some of the smaller potential buyers out there in the market could be impacted by that.

I think that larger transactions are definitely experiencing a decline in multiples, making it more challenging for private equity firms to secure the leverage they need. However, for smaller transactions, particularly the types of businesses we aim to acquire, typical sellers aren't really inclined to sell to private equity firms. Instead, these sellers are more focused on finding the right fit for their teams and company culture. We align our focus on culture, values, and fit, which resonates with potential sellers as well. This allows us to acquire these businesses at an economically fair valuation, likely between 5x and 7x, and we continue to find strong opportunities in this area. While it’s somewhat of a bolt-in approach, the companies and sellers we target generally prefer not to engage with private equity, and we have a distinctly different and, I believe, better narrative to share.

Thank you, I appreciate that. Following up on the bolt-on acquisitions, can we assume that future bolt-ons will primarily focus on life and fire safety? Or is there a possibility of exploring adjacent building services markets where we could leverage our workforce and expand our total addressable market? Thank you.

As we consider our mergers and acquisitions activity, our primary focus remains on Life Safety and Security, particularly in North America. In terms of interest in adjacent markets, there is some willingness, but we need to ensure that any adjacency we pursue offers substantial scaling opportunities. For instance, while we have expressed interest in the elevator and escalator sectors, acquiring a small $6 million elevator maintenance business in Paducah, Kentucky may not be strategic for us. However, if a chance arises to enter this market with a platform-leading business, we would be much more inclined to pursue it. We will continue to maintain a strong focus on our core capabilities while exploring potential adjacencies.

Makes a ton of sense. Thank you.

Our next question comes from Ashish Sabadra from RBC.

Hi, this is David Paige standing in for Ashish. Congratulations on the strong results. I have a question about the new business wins you mentioned at the start of the call. Are you capturing market share from competitors, or are you simply increasing your share of wallet? Could you provide more details on how you are approaching these new business opportunities? Thank you.

When considering our growth in inspections, it's clear that we are raising our prices, but the growth primarily comes from an increase in volume and market share. We're targeting the existing built environment that our sales teams have identified and focusing on those customers, which is where we're seeing volume growth. We are also converting new building installations, but a significant portion of our growth is derived from capturing volume and share. We're dedicated to maximizing our engagement with existing customers wherever possible, which drives our focus on expanding inspections. One advantage from the infrastructure bill is that as funding becomes available and creates project-related opportunities, many of our competitors will shift towards these larger projects. This shift will create more opportunities for us to gain additional market share among our existing customers. It may also give us a chance to increase our prices due to reduced competition in the market. While pricing is certainly a factor, we are actively capturing volume and market share.

Great. Thank you.

Thank you.

Our next question comes from Andrew Obin from Bank of America.

Hi. This is David Ridley-Lane on for Andrew Obin. As you've gotten more experience with Chubb's security business, how are you kind of thinking about that service lines, characteristics, returns, et cetera? And is that an area for investment for you?

We see it as a key area for investment. From the beginning, we've regarded it as central to our strategy. We believe we are the right fit to own and support that business, and it was never our intention to acquire it without committing to its growth. Our focus is on optimizing and stabilizing the business. We strongly believe we need a solid foundation before we can implement strategies for growth. The markets they operate in are as fragmented as those in North America, and we fully intend to invest in it. Additionally, there are other opportunities within that business, such as enhancing Chubb's strong security capabilities, where we currently have less strength in North America. We see potential to leverage that expertise in our existing operations. Conversely, we possess greater strength in sprinkler solutions, and we believe we can enhance our offerings in mechanical life safety by sharing our expertise. There are opportunities for growth through both acquisitions and organic development, as well as improvements through best practices and knowledge sharing. We are very optimistic about what we can achieve. A significant part of our optimism stems from the strong leadership team we have established there, which I believe will ultimately drive excellent results. I have great confidence in their capabilities.

Got it. And just a quick follow-up. I think the implication of some of the pricing commentary here is that you're seeing an acceleration in labor hours, just the cleanest metric of volume. Is that the right read here?

Yeah. I would say that it varies across our businesses for sure. But in general, as we move sort of back half 2022 in the first half or early 2023, I would say in the aggregate, we're not seeing an acceleration per se, but we're seeing sort of the growth that we saw last year in labor hours in the back half of the year continuing in the first quarter of 2023.

Thank you.

Our next question comes from Steve Tusa from J.P. Morgan.

Hey, this is Parth Patel on for Steve Tusa. Good morning, and thanks for taking my questions. Are you seeing any impact of higher vacancy rates, particularly in office vertical?

I'm sorry, I didn't hear you.

Can you hear me now?

Yeah, try me again.

Are you seeing any impact of higher vacancy rates, particularly in office?

No, I think the inspections are legally required. We are focused on the existing built environment, which gives us an advantage. We are not involved in a lot of developer-led commercial office building construction that is currently on hold, so this situation does not significantly affect our business. We are concentrating on the right end markets, and it has not had a meaningful impact on our business at all.

Okay, great. Thank you.

Our next question comes from Adam Wyden from ADW Capital.

Hey, guys. Thank you for taking my call, and no, really nice job. Obviously, the free cash flow conversion was a lot better and things are sort of normalizing. But I had sort of more of a qualitative question. Some people sort of referenced APi as a construction company, and I think some people sort of danced around the issue, well, there's new construction down or there's vacancies down. And I think a lot of building service companies that sell into sort of the end markets that you sell into like a Watsco or an Otis elevator, they sort of give two numbers. One is sort of recurring service and recurring, and then like what is replacement in nature. I think earlier on in your sort of IPO go public process, you sort of spoke to the company being sort of 90%-plus recurring and replacement. So sort of stuff that isn't directly levered to new construction because new construction building stock is only growing about 3% a year. So maybe it would be helpful to sort of give people a sense of sort of how much of new business is sort of contractual service? How much of it is replacement? And how much of it is really levered to sort of new installations or new buildings, so people can get a sense of sort of the macroeconomic sensitivity?

Thank you for your interest and support, Adam. The 90% you mentioned refers to our recurring customer base. We operate as a relationship-based business, and 90% of our revenue comes from the same customers year after year, and we are highly focused on retaining them. While we do not disclose exact figures for inspection service and monitoring, over 50% of our total revenue is generated from these areas. If you break it down further, the remaining high 40% would be attributed to installation or project-related work. I estimate that about 20% to 25% of that is related to retrofit and upgrade work, although we don't categorize it that way in our management. A significant portion of our business is resilient economically. It's important to highlight the end markets we serve, such as semiconductor, data center, health care, utility, and infrastructure. We have focused on these markets and are aligned as a leadership team. There is still work to do internationally, but we are confident in the company's resiliency. In closing this morning, I want to express my gratitude to our team members who are dedicated to supporting our company, customers, and the communities we serve. The safety, health, and well-being of each of our leaders is our top priority. I also want to thank our long-term shareholders, our new shareholders, and those interested in APi. We value your support. We are enthusiastic about the opportunities ahead and look forward to updating you on our progress throughout the year. Thank you all once again for joining the call. We are very excited about what we will be able to show you as we move through the year.

Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.