APi Group Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This filing reports full-year results, not separate fourth-quarter results. Amounts are in millions of U.S. dollars unless otherwise noted.
Business context and reporting period
APi Group provides safety and specialty services across more than 500 locations and over 20 countries. Its reportable segments are Safety Services, including fire protection, HVAC and entry systems, and Specialty Services, including infrastructure and industrial services. In January 2022, APi acquired Chubb’s fire and security business for net consideration of $2,893 million, significantly expanding Safety Services and international operations. The company combined its legacy Industrial Services and Specialty Services segments; prior-year segment figures were recast.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net revenue | $6,558 | $3,940 |
| Gross profit / margin | $1,714 / 26.1% | $939 / 23.8% |
| Operating income / margin | $162 / 2.5% | $136 / 3.5% |
| Net income | $73 | $47 |
| Diluted earnings per common share | $0.10 | $(0.67) |
| Operating cash flow | $270 | $182 |
| Capital expenditures | $79 | $55 |
- Revenue increased 66.4%, primarily from acquired businesses, alongside growth in inspection, service and monitoring revenue and pricing increases. Chubb contributed $2,061 million of revenue and $18 million of operating income from acquisitions closed in the prior twelve months.
- Gross margin improved 230 basis points, reflecting acquisitions and a richer service mix, partly offset by supply-chain and inflationary pressures. Operating margin declined as SG&A grew faster than revenue, including acquisition costs and higher amortization. Net income margin was 1.1%, compared with 1.2%.
- EBITDA, a non-GAAP measure, was $522 million versus $341 million; EBITDA margin was 8.0% versus 8.7%. Management cautions that EBITDA is not a substitute for GAAP results.
- Interest expense rose to $125 million from $60 million, reflecting acquisition financing and higher rates. The effective tax rate was 22.0%, down from 40.0%.
- Operating cash flow rose to $270 million. Investing activities used $2,901 million, including $2,839 million for acquisitions. Ending cash, cash equivalents and restricted cash were $607 million, including $605 million of cash and cash equivalents.
- Year-end liquidity was $1,051 million: $605 million cash and $446 million available under the revolving facility. Gross debt was $2,832 million ($2,789 million net of deferred financing costs); principal debt outstanding under credit facilities and senior notes was $2,826 million. A $200 million term-loan repayment followed on January 6, 2023. The company reported compliance with debt covenants and a 2.25:1.00 first-lien net leverage ratio at year-end.
Material changes versus the prior comparable period
- Safety Services revenue more than doubled to $4,575 million, largely due to Chubb; segment operating margin fell to 5.6% from 10.0%, with acquisition-related amortization, inflation and supply-chain disruptions weighing on results.
- Specialty Services revenue increased 6.4% to $2,030 million and operating margin improved to 4.8% from 4.1%, supported by productivity and volume, partly offset by inflation. Segment EBITDA margin was 10.1%, down from 10.7%.
- Comparability is affected by the January 2022 Chubb acquisition and segment reorganization. As an additional reference, unaudited 2021 pro forma results including Chubb were revenue of $6,099 million and net loss of $189 million.
Outlook, risks, contingencies and unusual items
- Management said liquidity should be sufficient for at least the next 12 months. No specific revenue or earnings guidance is provided in the supplied filing text. The company expects capital expenditures of approximately 1.5% of annual revenue.
- The multi-year Chubb restructuring program is expected to cost approximately $105 million through the end of 2024; $30 million was incurred in 2022. Management expects the program to drive efficiencies and improve operating margin.
- Key risks include Chubb integration and transition, debt and floating-rate exposure, labor availability and union obligations, supply and commodity costs, project-estimate revisions, cyclicality and weather, international and currency exposure, cybersecurity, and litigation and environmental claims. A 100-basis-point increase in applicable credit-facility rates was estimated to add approximately $21 million to 2022 interest expense.
- Internal controls remain a significant concern: management and the auditor identified material weaknesses in IT user-access controls and revenue-recognition process controls. Management concluded disclosure controls and internal control over financial reporting were ineffective; KPMG issued an adverse opinion on ICFR. The financial statements received an unqualified audit opinion. Management excluded acquired Chubb controls, representing 47% of consolidated assets and 31% of revenue, from its ICFR assessment, and aimed to remediate identified weaknesses within the next year.
- The company is substantially self-insured for many claims. Environmental liabilities accrued were $16 million at year-end. Management stated ordinary-course litigation outcomes were not expected to have a material adverse effect. Other notable items include $164 million of foreign-currency translation losses in other comprehensive income and a $165 million pension-plan adjustment.
- Series B preferred stock carries a 5.5% annual dividend and is convertible at the holder’s option; 2022 dividends were paid in common shares. The company repurchased $44 million of common stock under its $250 million authorization and does not currently anticipate cash dividends on common stock.
Important facts for investors to verify
- Chubb’s realized contribution to organic growth, segment profitability and cash generation, separately from acquisition effects and integration costs.
- Progress and independent testing of remediation for the IT access and revenue-recognition control weaknesses, including the integration of Chubb’s financial controls.
- Debt repayment plans, covenant headroom, interest-rate hedging coverage and the effect of benchmark-rate transition on financing costs.
- Cash conversion and working-capital trends, particularly receivables, contract assets and inventory amid supply-chain and inflation pressures.
- Delivery against the $105 million restructuring estimate and expected margin benefits, alongside potential dilution from preferred-stock conversion and share-paid dividends.