Conference Transcript - APG 2026-02-18

Julian Mitchell, Analyst — Barclays

Well, I know it's a very early start, so I appreciate everyone who set their alarm clocks on time this morning. It's my pleasure to open the second day here with API Group, Russ Becker, longstanding CEO and president, and David Jackler, CFO. Maybe Russ and David obviously gave a brief sort of update on things yesterday morning. You know, any initial comments sort of fleshing that out and how you see kind of the cadence of the year, if anything, to add on that?

Russell Becker, CEO

Well, David can speak more to the numbers, but what I would tell you is that we feel really good about where our business is positioned as we, you know, start working our way through 26. You know, we finished the, you know, 2025 with really strong results. As we continue to build backlog, we continue to see good organic growth in our inspection and service business, which was positive. And as we start moving through the first quarter of 2026, we feel like we're in a great spot and kind of like where the company is sitting. And, I mean, we're like everybody else. We still have challenges and issues and things that we need to deal with, and the work is really never done, Julian. But, you know, I like our team and feel good about where we're at.

David Jackola, CFO

Good. I just said a couple of things. First, we ended 2025 above our 13% adjusted EBITDA margin goal, which is a really great accomplishment by the team. Second, we did end the year with momentum. The fourth quarter was, you know, as we said in the press release, delivered comfortably above the midpoint of our guide for revenue and adjusted EBITDA. I think really importantly, we ended the year with really good margin momentum. The fourth quarter was our strongest quarter from a year-over-year margin perspective, and that sets us up really strong for Q1 and 2026. We got at $8.4 to $8.6 billion of revenue, $1.14 to $1.2 billion of adjusted EBITDA, 13.8% at the midpoint of the margin, and I wouldn't say anything out of the usual in terms of how that will play out from a cyclicality or a quarterly perspective.

Julian Mitchell, Analyst — Barclays

How should we think about that mix of activity, sort of inspection and service on the one hand, you know, project on the other? Because in the last couple of years, you know, the project piece just by nature is more lumpy, swings around, easy comps, tough comps, and so forth. How's that mix expected to move this year?

Russell Becker, CEO

So I would tell you, you know, we continue to see high single-digit growth in our inspection service and monitoring business, which is kind of where we've been guiding people to, and that should be their expectation with low single-digit growth in our projects business. We are seeing a little bit of a tailwind, you know, driven primarily from the, you know, data center space. I'd say not just data centers, but that's been strong. You know, advanced manufacturing, including pharma and things, semiconductor remains strong for us as well. So we're seeing a bit of a tailwind, you know, from our project business, which is helping to drive that. But from a planning purpose and everything else, we remain disciplined in customer and project selection. We don't intend to over-index in any one end market, but we're going to take advantage of, you know, know, the opportunities that are there. Do you add any color to that, David?

Julian Mitchell, Analyst — Barclays

No, I think that's good. And so the project side of things, kind of how's the visibility there in terms of, you know, how much is in backlog? And is projects one of those things where you start the year with high growth and then it sort of slows down just in the back half because of the backlog shape or comps?

Russell Becker, CEO

I think that it's possible, you know, that you can see some of that where you're burning through your backlog, especially through the third quarter. But our backlog, as we move into the new year, continued to grow on a sequential basis. Our backlog is really strong and in a great place. And I guess more important than anything, we're seeing improved margin in our backlog as well. So backlogs that are at all-time highs and just in a great spot.

Julian Mitchell, Analyst — Barclays

and you mentioned russ a little bit the some of the end markets um and what's driving demand there um yeah i think a lot of a big focus for investors here is around the green shoots in u.s industrial activity and you mentioned advanced manufacturing as a vertical have been relatively strong you know have you seen domestic industrial activity the last six months have you seen an improvement, or it's pretty steady at a high level in things like semis or healthcare?

Russell Becker, CEO

I would say that I would put it more as steady. I mean, where you're clearly seeing all the activities in data center space, you know, where you could argue that you've seen increased activity, you know, in the data center space. And, you know, not only in the number of projects, but the size of the projects. and the project sizes have increased dramatically, which is actually a positive thing for a firm like API. There's not many firms that have the capability to tackle some of these, you know, large installation opportunities in the data center space, and so that creates really good opportunities for our businesses and our team.

Julian Mitchell, Analyst — Barclays

And I suppose, you know, with data centers, you have the ancillary kind of tailwinds boosting the power market as well, you know, whether it's generation or transmission in particular. You know, maybe remind us kind of this year, let's say, or exiting 2025, what the revenue exposure is of API to data center and power markets.

Russell Becker, CEO

Oh, man, I don't know what power is right off the top of my head. Data centers is a little bit more at the forefront of our brains because it seems like everybody wants to talk about it. But I think our revenue in 2025, total revenue was 8% was in data centers. We expect it to be closer to 10%. I said earlier, you know, in our program, Julian, that we have no intent to over-index in any one particular end market. We are, however, going to take advantage of the opportunities. I don't know. David, do you have any idea what we do in utility work?

David Jackola, CFO

Probably a couple of points on top of that eight.

Julian Mitchell, Analyst — Barclays

Okay. So combined, those are probably, like, low, mid-teens this year. I think directly that's fair. And as soon as within data center, you know, I feel like the tone from API is, you know, a little bit different to maybe 12 or 18 months ago. I think the profitability maybe of data center project is more appealing now. Does that go back to that point on, you know, the size of them gets larger, and so you've just got better economics for API?

Russell Becker, CEO

Well, I mean, we've always done well on, you know, the installation side of data centers. You know, our focus has always been on our clients where we're actually doing the inspection service and monitoring, you know, at their existing facilities. I think one of the things that has changed in the data center space is, you know, a lot more new greenfield sites so that, you know, one of your hyperscaler customers, you know, you might be working on seven or eight of their different sites doing their inspection service work, and all of a sudden they're building a new greenfield facility in these, you know, like, as an example, we have a customer that's got a large, large, large project in northern Louisiana. and no existing facility there. The reason that they're siting the project there is because of access to power, but it's a very, very large project. And again, the remote location adds another element of complexity to it, so you have to have the ability to travel the people in to that location. We actually happen to have an office in Monroe, Louisiana. You know, I think our large branch network that we have is actually, you know, it's crucial for our inspection service and monitoring business, you know, for us to be able to, you know, provide, you know, great service to our clients. But it's actually proving to be an advantage, you know, in the large project environment right now and having access to people and to resources that are close by, you know, our branch network. So it's a positive thing. You know, we have a branch office in El Paso, Texas. We have another hyperscaler customer that's building a data center in El Paso. And, you know, and so our El Paso office is fantastic. We have great people there, you know. Not that we don't have great people in Monroe either. So in case anybody's tuning in, Julian, you know, I've got to make sure I need to qualify that. Well, we do. We have good people there too.

Julian Mitchell, Analyst — Barclays

Good. that's good to hear and on that point on kind of labor you know i think a lot of people ask questions around the ability to execute large projects on schedule without cost overruns in the context of kind of high inflation for all kinds of things metals prices more recently and sort of labor scarcity so maybe i guess there's two different things maybe help us understand on the labor side, you know, how are you finding it to sort of train service technicians, train the people who can help with the greenfield project activity? Start

Russell Becker, CEO

with that, please. So I view, so we've had a tight labor market for many years. So I don't view the labor market as actually being a new phenomena. I view it as being, you know, something that we've actually been dealing with for many years. And so when I think about, you know, labor and, you know, I view that more as an excuse than, you know, and say, you know, I can't find the right people or whatever. Like, there's people there. You just have to have, you just have to be thinking differently about it. API's purpose is building great leaders. And one of our core beliefs is that every one of our 29,000 teammates is a leader. Their role is just different. And that includes the men and the women in the field. And we're investing in the men and the women in the field as leaders and as human beings, just like we're investing in myself and David and Adam and Adam and Kim, who are with us from our API team. We're investing in those folks just the same as we're investing in everybody else. So to me, the first place to start is to keep your people and to retain the people that you have and to create a positive work environment because they're your best recruiting mechanism. You also have to be willing and think differently about where you're going to recruit people. So we have, as a really good example, we have a gentleman that works in one of our businesses in the Northeast who went through the state of New York and basically got an apprenticeship program accredited through the state for fire alarm technicians. So fire alarm technicians are, you know, one of our bottlenecks, if you will. And the United States Army has a program where essentially, as men and women are exiting the service, you can basically hire them for six months, and as like an internship, the Army actually pays them their wages, and you get to try them on, and they get to try you on. So we're taking these people as they come out of Fort Drum, putting them in this apprenticeship program from a fire alarm technician, and these people want to go home when they're done. And so then that person might be from Austin, Texas or Dallas, Texas. Well, we have branches in all those locations. So we're able to help disperse folks that are trained and able to actually go to work in the field when they leave this apprenticeship program. So you have to have different things like that. We have one of our businesses developed a program to basically train inspectors. So you can hire and recruit inspectors from alternative sources. So you just have to take the responsibility on yourself and to hire people from different places, get them the training that they need, and then be able to put them to work productively in your business. So we continue to work at it. But, yeah, I mean, you know, is there pockets where you're going to have really tight situations from a labor perspective? Yeah, but you have to think out of the box. You have to be willing to move people in between branches and in between businesses, and you can solve for all that.

Julian Mitchell, Analyst — Barclays

Got it. And if we think about the kind of cost side, whether wage inflation or broader costs of materials and so forth, kind of how easy is it for API to deal with those and still get decent operating leverage?

Russell Becker, CEO

We have pretty good visibility into our labor costs, especially on the FHIR side. More than 50% of our team members are in the union. So we have really good visibility into their wages and, you know, what they look like, you know, for the next three, four, five years in some cases. And then things like materials, you know, we watch it every single week. You know, we actually have a summary that comes out on what commodity prices look like. You know, we feel like we got out in front of, like, the tariffs from the current administration. administration, you know, you kind of knew that he was going to, President Trump was going to use tariffs as a hammer as part of his tactics. And so if you, in my opinion, if you didn't get out in front of it, it's kind of your own fault. And so we feel like we did a pretty good job of getting out in front of it and been able to manage that and make sure that we're working escalation into our proposals and into our contracts and our different agreements. So I feel like that we're position really well there.

Julian Mitchell, Analyst — Barclays

Great. And if we talk about some of the other verticals, you know, parts of, I guess, broader buildings activity, you know, it's been quite mixed the last couple of years, like office, for example, or education. It seems like K through 12 is tough, higher ed, very good. Anything you're seeing movement-wise in some of those end markets beyond data center and industrial that you already touched on?

Russell Becker, CEO

You know, I mean, so if you look at, in some of our materials, you'll see, you know, the vertical or, you know, when you look at that and you see, like, commercial office space and things like that, most of that business is inspection service and monitoring for us. So, you know, we're not doing a lot of project-related work in commercial office space because there's not a lot of project work to do because, you know, it's still at the bottom of the trough. Now, you know, depending upon who you talk to, you know, I was with a real estate colleague of mine. He's a real estate developer a couple weeks ago. In Minneapolis, they feel like the real estate market is at the bottom and actually starting to trend up from a commercial real estate perspective. So most of that type of project-related work, we don't participate in anyways because that's low price. And if we're only going to compete on price, that doesn't work for us.

Julian Mitchell, Analyst — Barclays

And if you look at the HVAC business within API, it's been some time now since it was sort of resegmented. How satisfied are you with where the HVAC business is right now? Is it back on sort of growth mode?

Russell Becker, CEO

I would say I'm very satisfied. I feel like moving it into the specialty services segment was good for that team. The leadership in the specialty services segment has been additive to our HVAC business. I would also tell you that our HVAC team has really done a good job of stepping up and, you know, kind of stepping up their game. And they're doing a really good job. I mean, that's probably just the best way to put it. They've been much more selective on the project opportunity that they're taking. Their service business is growing. we've taken this same inspection first mindset from a sales perspective and we're executing that inside the HVAC business so I feel like our team is

Julian Mitchell, Analyst — Barclays

doing a really good job there great and then you know elevators you've been in that market now a couple of years you know how does the M&A pipeline look there and you know you kind of pleased with how that business that rollouts going in terms of market share?

Russell Becker, CEO

Well, as far as market share, I think we have a lot of work to do and a lot of opportunity in front of us. And, I mean, I would really phrase it as opportunity. We've really only done one acquisition in the space after the original kind of platform investment that we made and elevated 18 months ago. And that business really wasn't a bolt-on. It was more of a tweener. It operates under API Elevator. So I think last year we finished at $240 or $250 million in total revenue in the elevator and escalator space, which is on its way to, you know, we've said publicly that we feel that we can build a billion-dollar-plus platform in the elevator space. We have, from an M&A perspective, we have some really good opportunities, you know, in the pipeline that we're actually working on now. We're taking a walk-before-you-run approach. You know, the business hasn't done any M&A, so we want to get one across the finish line, work with the team to get it properly integrated, you know, into their business, make sure that we, you know, take lessons learned from that integration process and then apply it to the next one and, you know, be very purposeful about how we do it, and then we can pick up momentum and pick up some steam. But we see a lot of opportunity in the elevator space, and we're excited about what the future holds there.

Julian Mitchell, Analyst — Barclays

Great. And, you know, if we think about kind of operating margins, you've got those goals out, you know, 2028. Do we think about the path to get there to be sort of fairly linear? And is within this current year, is the framework kind of steady margin expansion each quarter?

David Jackola, CFO

Yeah, absolutely, Julian. You saw the midpoint of our guide, which is at 13.8%. That's going to be a pretty good first step towards getting to 10, 16, 60. And getting there is really going to be a lot of what got us to 13% adjusted EBITDA margin in 2025. So really focusing on the inspection first model and using inspections to drive service work and then the relationship from service work. It's going to allow you to have great project opportunities, but more importantly, project opportunities that you're able to execute at really high margins. And so it's really just continuing to grow and mature into the playbook, and those margins will come pretty even throughout the next three years.

Julian Mitchell, Analyst — Barclays

And on the project side of things, you know, you mentioned there is a lot of activity sort of in areas like data center and industrial. I guess shouldn't we expect the project side could grow faster than low single digits, you know, the next year or two, particularly if the profitability is looking brighter? Well, I guess I thought I said that. I think it's a low-digit project.

Russell Becker, CEO

I said that's what the algorithm is. and that's what our long-term objectives is, we will see a tailwind, and we do expect our project revenue to grow organically higher than that. So I guess I was speaking in code or something.

Julian Mitchell, Analyst — Barclays

No, no, no. You clarified it.

Russell Becker, CEO

I'm just happy that there's people here. David and I were in the car on a ride over here this morning. We thought maybe we'd have Adam, Adam, and Kim here, since it was at 7.30.

Julian Mitchell, Analyst — Barclays

The streets are quiet here before about 9.00, yeah.

Russell Becker, CEO

So thank you for coming.

Julian Mitchell, Analyst — Barclays

Yes, no, it's a good turnout. Switch maybe to inorganic opportunities. You know, there's always companies at this conference looking to sort of divest assets and so forth, and, you know, there's one or two kind of larger things out there that may get peeled off, you know, some of your bigger competitors. Maybe help us understand kind of the appetite to do a larger deal, The Chubb integration, I think it's been, what, four years now, played out very successfully. So what's the kind of appetite to do a larger deal again in sort of fire and security, you know, field space?

Russell Becker, CEO

Well, we feel like we did what we said we would do as it relates to Chubb. And so we feel like we've improved the capability to take a larger acquisition and help improve the business. And I think that's the most important aspect of it. The business has improved steadily since we've owned it. And I think a lot of that has to do with the investment in the people that we are making. and to a certain degree they've found their forever home. So I think our appetite, if it's the right fit and the right opportunity, would be there. But it has to be the right fit and the right opportunity. I mean, we always have something kind of that we're doing a little bit of work on and peeking underneath the covers and looking at. We haven't found that right opportunity, But if we do, you'll see us move forward and act on it.

Julian Mitchell, Analyst — Barclays

Remind us of some of those main kind of framing factors for M&A around kind of leverage that you'd be comfortable going up to at least initially after a transaction and then it would come down.

Russell Becker, CEO

Well, when we did Chubb, we levered up to roughly four times. I think actually 4.1 times and very quickly, you know, have taken our leverage down. And if you look where our leverage ended up at the end of the year, we're well below two. And so we've demonstrated, you know, the company generates a ton of cash. You know, I don't know that we would lever up to four times. It had to be a really special opportunity, I suppose. And we would have to see a clear path to delevering, again, to, you know, our stated goals of below two and a half times, two and a half to three times. So we feel, you know, the company, you know, does generate a ton of cash. So, you know, so when you think about the different gates and everything else that we look at, you know, we look at geography. And is geography, is it geographically complementary to, you know, our portfolio and our current offerings? We look at the services that the business offers. You know, if you think about it in, you know, we have a significant security business, but it's primarily in the international operations. So it would be an opportunity for us to add security services to, say, our United States, you know, business today. That would be something that would be interesting, you know, to us. So the services that the business offers.

David Jackola, CFO

Financial profile matters.

Russell Becker, CEO

It doesn't necessarily have to be day one accreted to this 16% long-term target, but we have to see a path to being able to do that. And that was one of the things with the Chubb acquisition. When we bought that business, you could argue that that business was an 8% or 9% EBITDA margin business, but we saw a clear path to getting it to our fleet average and the expectations that we've set forth for our business. And then for us, you know, the culture and the values and the fit component of it matter. Some of these larger transactions, it's harder to vet that because they're, you know, process-driven in their bid. You know, like, I hate that word bid. Everybody should know I hate that word bid. But you used the word asset, too, and I don't like that word. But Casey thought I missed that.

Julian Mitchell, Analyst — Barclays

No, you're sharp this morning.

Russell Becker, CEO

And so I was in the gym at 5, but that's important to us. And culture and alignment of values matters to us. And so as we look at any large-scale acquisition, we're going to do our best to vet that.

Julian Mitchell, Analyst — Barclays

That's great. And with that, we'll switch to the audience response questions, please. So the first question is just sort of current ownership of API. Overweight. Second question is around kind of general attitude to the name at the moment.

Russell Becker, CEO

This is the weirdest thing to sit up here and watch you people like grade us.

Julian Mitchell, Analyst — Barclays

It's short. Painless. Okay, so generally very positive. The third question is around EPS growth profile, and this is sort of versus the multi-industry average that's here to generally very high earnings growth. Fourth question is around capital deployment. and we were just talking about that. Bolt on M&A, vast majority. Fifth question is on valuation, kind of the appropriate PE multiple, so around sort of 20 times. And then last question is on, you know, why isn't the valuation warranted to be higher? What's kind of the main anchor on it right now? So it's organic growth and execution. I don't know. We'll see. Great. Well, with that, thanks very much, Russ and David. David, lovely to see you again. Thanks a lot.