# APi Group Corp (APG) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from APi Group Corp's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1796209/000162828025008189/apg-20241231.htm
Accession: 0001628280-25-008189
Filing date: 2025-02-26
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/APG/
All MD&A years: /company/APG/mda/
Previous year: /company/APG/mda/fy2023/ (FY 2023)
Next year: /company/APG/mda/fy2025/ (FY 2025)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and year-to-year comparisons of APG’s financial condition and results of operations for the years ended December 31, 2024 and 2023.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

OVERVIEW

We are a global, market-leading business services provider of fire and life safety, security, elevator and escalator, and specialty services with a substantial recurring revenue base and over 500 locations worldwide. We provide statutorily mandated and other contracted services to a strong base of long-standing customers across industries. We have a winning leadership culture driven by entrepreneurial business leaders that deliver innovative solutions to our customers.

We focus on growing our recurring revenues and repeat business from our diversified long-standing customers across a variety of end markets, which we believe provides us with stable cash flows and a platform for organic growth. We believe maintenance and service revenues are generally more predictable through contractual arrangements with typical terms ranging from days to three years, with the majority having short durations and are often recurring due to consistent renewal rates and long-standing customer relationships.

CERTAIN FACTORS AND TRENDS AFFECTING OUR RESULTS OF OPERATIONS

Acquisitions

During 2024, we completed 13 acquisitions. Total purchase consideration for all of the completed acquisitions of $821 million consisted of cash paid at closing of $784 million, cash deposited into escrow for future deferred payments of $8 million, and accrued consideration of $29 million. The results of operations of these acquisitions are included in our consolidated statements of operations from their respective dates of acquisition.

For additional information about our acquisitions, see Note 4 – “Business Combinations” to our consolidated financial statements included in this Annual Report.

Restructuring

During 2022, we announced our multi-year Chubb restructuring program designed to drive efficiencies and synergies and optimize operating margin. The Chubb restructuring program includes expenses related to workforce reductions, lease termination costs, and other facility rationalization costs through fiscal year 2025.

We incurred pre-tax restructuring costs within the Safety Services segment of $12 million and $37 million in connection with the Chubb restructuring program in 2024 and 2023, respectively. In total, we estimate that we will recognize an aggregate of approximately $125 million of restructuring and other costs related to the Chubb restructuring program by the end of fiscal year 2025.

For additional information about our restructuring activity, see Note 6 – “Restructuring" to our consolidated financial statements included in this Annual Report.

Economic, Industry and Market Factors

We closely monitor the effects of general changes in economic and market conditions on our customers. General economic and market conditions can positively or negatively affect demand for our customers’ products and services, which can impact their planned capital and maintenance budgets in certain end markets. Market, regulatory, and industry factors could affect demand for our services. Availability of transportation and transmission capacity and fluctuations in market prices for energy and other fuel sources can also affect demand for our services for pipeline and power generation construction services. These fluctuations, as well as the highly competitive nature of our industries, have resulted, and may

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continue to result, in lower proposals and lower profit on the services we provide. In the face of increased pricing pressure on key materials or other market developments, we strive to maintain our profit margins through productivity improvements, cost reduction programs, pricing adjustments, and business streamlining efforts. Increased competition for skilled labor resources and higher labor costs can reduce our profitability and impact our ability to deliver timely service to our customers. We have experienced supply chain disruptions, which have negatively impacted the source and supply of materials needed to perform our work. In addition, fluctuations in foreign currencies may have an impact on our financial position and results of operations. However, we believe that our exposure to transactional gains or losses resulting from changes in foreign currencies is limited because our foreign operations primarily invoice and collect receivables in their respective local or functional currencies, and the expenses associated with these transactions are generally contracted and paid for in the same local currencies. In cases where operational transactions represent a material currency risk, we generally enter into cross-currency swaps. Refer to Note 10 – "Derivatives" to our consolidated financial statements included in this Annual Report for additional information on our hedging activities. While we actively monitor economic, industry and market factors that could affect our business, we cannot predict the effect that changes in such factors may have on our future consolidated results of operations, liquidity, and cash flows, and we may be unable to fully mitigate, or benefit from, such changes.

Effect of Seasonality and Cyclical Nature of Business

Our net revenues and results of operations can be subject to variability stemming from seasonal and other variations. Seasonal variations can be influenced by weather conditions impacting customer spending patterns, contract award seasons, and project schedules, as well as the timing of holidays. Consequently, net revenues for our businesses are typically lower during the first and second quarters due to the prevalence of unfavorable weather conditions within our North American companies, which can cause project delays and affect productivity.

Additionally, the industries we serve can be cyclical. Fluctuations in end-user demand, or in the supply of services within those industries, can affect demand for our services. As a result, our business may be adversely affected by industry declines or by delays in new projects. Variations or unanticipated changes in project schedules in connection with large projects can create fluctuations in net revenues.

DESCRIPTION OF KEY LINE ITEMS

Net revenues

Net revenues are generated from the sale of various types of contracted services, fabrication, and distribution. We derive net revenues primarily from services under contractual arrangements with durations ranging from days to three years, with the majority having durations of less than six months, and which may provide the customer with pricing options that include a combination of fixed, unit, or time and material pricing. Net revenues for fixed price agreements are generally recognized over time using the cost-to-cost method of accounting which measures progress based on the cost incurred to total expected cost in satisfying our performance obligation.

Net revenues from time and material contracts are recognized as the services are provided. Net revenues earned are based on total contract costs incurred plus an agreed upon markup. Net revenues for these cost-plus contracts are recognized over time on an input basis as labor hours are incurred, materials are utilized, and services are performed. Net revenues from wholesale or retail unit sales are recognized at a point-in-time upon shipment.

Cost of revenues

Cost of revenues consists of direct labor, materials, subcontract costs, and indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation costs. Labor costs are considered to be incurred as the work is performed. Subcontractor labor is recognized as the work is performed.

Gross profit

Our gross profit is influenced by direct labor, materials, and subcontract costs. Our profit margins are also influenced by raw material costs, contract mix, weather, and proper coordination with contract providers. Labor intensive contracts usually drive higher margins than those contracts that include material, subcontract, and equipment costs.

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Selling, general, and administrative ("SG&A") expenses

Selling expenses consist primarily of compensation and associated costs for sales and advertising, trade shows, and corporate marketing. General and administrative expenses consist primarily of compensation and associated costs for executive management, personnel, facility leases, impairment, administrative expenses associated with accounting, finance, legal, information systems, leadership development, human resources, and risk management and overhead associated with these functions. General and administrative expenses also include outside professional fees, and other corporate expenses.

Amortization of intangible assets

Amortization expense reflects the charges incurred to amortize our finite-lived identifiable intangible assets, such as customer relationships, which are amortized over their estimated useful lives. There is a portion of amortization expense related to the backlog intangible assets reflected in cost of revenues in the consolidated statements of operations.

Loss (gain) on extinguishment of debt, net

Loss (gain) on extinguishment of debt, net reflects the difference between the repurchase price and the carrying amount of debt at the time of extinguishment.

Investment expense (income) and other, net

Investment expense (income) and other, net includes expense (income) from foreign currency forward contracts, cross-currency swaps, interest rate swaps agreements, joint ventures, non-service pension expense (benefit), and other miscellaneous items. Non-service pension expense (benefit) reflects the sum of the components of pension expense not related to service expense, i.e. interest expense, expected return on assets, and amortizations of prior service expenses and actuarial gains and losses.

RESULTS OF OPERATIONS

The following is a discussion of our financial condition and results of operations for the years ended     December 31, 2024 and 2023. The following financial information has been extracted from our audited consolidated financial statements included in this Annual Report.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","Change"],["($ in millions)","","2024","","2023","","$","","%"],["Net revenues","","$","7,018","","","$","6,928","","","$","90","","","1.3","%"],["Cost of revenues","","4,840","","","4,988","","","(148)","","","(3.0","%)"],["Gross profit","","2,178","","","1,940","","","238","","","12.3","%"],["Selling, general, and administrative expenses","","1,694","","","1,581","","","113","","","7.1","%"],["Operating income","","484","","","359","","","125","","","34.8","%"],["Interest expense, net","","146","","","145","","","1","","","0.7","%"],["Loss on extinguishment of debt, net","","1","","","7","","","(6)","","","(85.7","%)"],["Investment expense (income) and other, net","","7","","","(25)","","","32","","","NM"],["Other expense, net","","154","","","127","","","27","","","21.3","%"],["Income before income taxes","","330","","","232","","","98","","","42.2","%"],["Income tax provision","","80","","","79","","","1","","","1.3","%"],["Net income","","$","250","","","$","153","","","$","97","","","63.4","%"]]
[[/GREPCENT_TABLE]]

NM = Not meaningful

Year ended December 31, 2024 versus year ended December 31, 2023

Net revenues

Net revenues for the year ended December 31, 2024 were $7,018 million compared to $6,928 million for the year ended December 31, 2023, an increase of $90 million or 1.3%. The increase was primarily driven by revenue from acquisitions completed within the Safety Services segment, growth in inspection, service, and monitoring revenues, and

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pricing improvements in our Safety Services segment, partially offset by divestitures, planned disciplined customer and project selection, as well as project delays in our HVAC business and Specialty Services segment.

Gross profit

The following table presents our gross profit (net revenues less cost of revenues) and gross margin (gross profit as a percentage of net revenues) for the years ended December 31, 2024 and 2023, respectively:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","Change"],["($ in millions)","","2024","","2023","","$","","%"],["Gross profit","","$","2,178","","","$","1,940","","","$","238","","","12.3","%"],["Gross margin","","31.0","%","","28.0","%"]]
[[/GREPCENT_TABLE]]

Our gross profit for the year ended December 31, 2024 was $2,178 million compared to $1,940 million for the year ended December 31, 2023, an increase of $238 million, or 12.3%. Gross margin for the year ended December 31, 2024 was 31.0%, an increase of 300 basis points compared to the prior year, primarily driven by planned disciplined customer and project selection, pricing improvements in our Safety Services segment, and savings from the Chubb restructuring program.

Selling, general, and administrative expenses

The following table presents selling, general, and administrative expenses for the years ended December 31, 2024 and 2023, respectively:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","Change"],["($ in millions)","","2024","","2023","","$","","%"],["Selling, general, and administrative expenses","","$","1,694","","","$","1,581","","","$","113","","","7.1","%"],["SG&A expenses as a % of net revenues","","24.1","%","","22.8","%"],["SG&A expenses (excluding amortization and impairment) (non-GAAP)","","$","1,478","","","$","1,372","","","$","106","","","7.7","%"],["SG&A expenses (excluding amortization and impairment) as a % of net revenues (non-GAAP)","","21.1","%","","19.8","%"]]
[[/GREPCENT_TABLE]]

Our SG&A expenses for the year ended December 31, 2024, were $1,694 million compared to $1,581 million for 2023, an increase of $113 million. SG&A expenses as a percentage of net revenues was 24.1% during the year ended December 31, 2024 compared to 22.8% in 2023. The increase in SG&A expenses was primarily driven by investments to support our Safety Services segment, SG&A expenses from acquisitions completed, and acquisitions costs in the year ended December 31, 2024. The increase in SG&A expenses was partially offset by savings related to the Chubb restructuring program in the year ended December 31, 2024 and a $12 million impairment charge included in 2023, related to assets sold in that year. Our SG&A expenses excluding amortization and impairment for the year ended December 31, 2024 was $1,478 million, or 21.1% of net revenues, compared to $1,372 million or 19.8% of net revenues for 2023, primarily due to the factors discussed above. See "Non-GAAP Financial Measures" below for a discussion and reconciliation of our non-GAAP financial measures.

Interest expense, net

Interest expense was $146 million and $145 million for the years ended December 31, 2024 and 2023, respectively. The increase in interest expense was primarily due to an increase in debt outstanding partially offset by lower interest rates on our floating interest rate debt and increased interest income generated by the investment of the equity and debt financings that were ultimately used in the Elevated acquisition.

Loss on extinguishment of debt, net

During the year ended December 31, 2024, we made a $100 million payment to pay down outstanding principal of the 2021 Term Loan. In connection with the payment, we recognized a net loss on debt extinguishment of $1 million. During the year ended December 31, 2023, we made payments of $375 million and $100 million to pay down outstanding

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principal amounts of the 2019 Term Loan and 2021 Term Loan, respectively. In connection with the payments, we recognized a net loss on debt extinguishment of $7 million.

Investment expense (income) and other, net

Investment expense (income) and other, net was $7 million and $(25) million for the years ended December 31, 2024 and 2023, respectively. The change in investment expense (income) and other, net was primarily due to an increase in non-service pension costs in the current year partially offset by an increase in earnings from joint ventures. The non-service pension expense (benefit) was $22 million and $(12) million for the years ended December 31, 2024 and 2023, respectively. The change was due to higher interest costs as a result of higher discount rates in 2024 compared to 2023.

Income tax provision

The effective tax rate for the year ended December 31, 2024 was 24.0% compared to an effective tax rate of 33.9% for the year ended December 31, 2023. The decrease was primarily due to current year changes to the geographical income mix and valuation allowance positions.

The Organization for Economic Co-operation and Development ("OECD") has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as "Pillar 2"), with certain aspects of Pillar 2 effective January 1, 2024 and other aspects effective January 1, 2025. While it is uncertain whether the U.S. will enact legislation to adopt Pillar 2, certain countries in which we operate have adopted the legislation, and other countries are in the process of introducing legislation to implement Pillar 2. Therefore, we have considered Pillar 2 tax within the provisions for income taxes and do not expect Pillar 2 to have a material impact on the effective tax rate or the consolidated financial statements.

Net income and Adjusted EBITDA

The following table presents net income and Adjusted EBITDA for the years ended December 31, 2024 and 2023, respectively:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","Change"],["($ in millions)","","2024","","2023","","$","","%"],["Net income","","$","250","","","$","153","","","$","97","","","63.4","%"],["Adjusted EBITDA (non-GAAP)","","893","","","782","","","111","","","14.2","%"],["Net income as a % of net revenues","","3.6","%","","2.2","%"],["Adjusted EBITDA as a % of net revenues","","12.7","%","","11.3","%"]]
[[/GREPCENT_TABLE]]

Net income for the year ended December 31, 2024 was $250 million compared to $153 million for the year ended December 31, 2023, an increase of $97 million. Net income as a percentage of net revenues for the years ended December 31, 2024 and 2023 was 3.6% and 2.2%, respectively. The net income improvement is primarily attributable to significant gross margin expansion resulting from the factors mentioned above, partially offset by SG&A expenses discussed above. Adjusted EBITDA for the years ended December 31, 2024 and 2023 was $893 million and $782 million, respectively, an increase of $111 million. The increase in Adjusted EBITDA was primarily driven by the factors previously discussed. See "Non-GAAP Financial Measures" below for a discussion and reconciliation of our non-GAAP financial measures.

Operating Segment Results

[[GREPCENT_TABLE]]
[["","","Net Revenues"],["","","Year Ended December 31,","","Change"],["($ in millions)","","2024","","2023","","$","","%"],["Safety Services","","$","5,227","","","$","4,871","","","$","356","","","7.3","%"],["Specialty Services","","1,798","","","2,079","","","(281)","","","(13.5","%)"],["Corporate and Eliminations","","(7)","","","(22)","","","NM","","NM"],["","","$","7,018","","","$","6,928","","","$","90","","","1.3","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","","Segment Earnings"],["","","Year Ended December 31,","","Change"],["($ in millions)","","2024","","2023","","$","","%"],["Safety Services","","$","809","","","$","664","","","$","145","","","21.8","%"],["Safety Services segment earnings as a % of net revenues","","15.5","%","","13.6","%"],["Specialty Services","","$","209","","","$","239","","","$","(30)","","","(12.6","%)"],["Specialty Services segment earnings as a % of net revenues","","11.6","%","","11.5","%"],["Corporate and Eliminations","","$","(125)","","","$","(121)","","","NM","","NM"],["Adjusted EBITDA (non-GAAP)","","$","893","","","$","782","","","$","111","","","14.2","%"]]
[[/GREPCENT_TABLE]]

NM = Not meaningful

The following discussion breaks down the net revenues and segment earnings by reportable segment for the years ended December 31, 2024 and 2023.

Safety Services

Safety Services net revenues for the year ended December 31, 2024 were $5,227 million compared to $4,871 million during the same period in the prior year. The increase was primarily driven by revenue from acquisitions, increased inspection, service, and monitoring revenues, and pricing improvements, partially offset by a decline in project revenues in the HVAC business.

Safety Services segment earnings as a percentage of net revenues was 15.5% and 13.6% for the years ended December 31, 2024 and 2023, respectively. The increase was primarily the result of planned disciplined project and customer selection, pricing improvements, savings from the Chubb restructuring program, and improved mix of inspection, services and monitoring revenues.

Specialty Services

Specialty Services net revenues for the years ended December 31, 2024 and 2023 were $1,798 million and $2,079 million, respectively. The decrease was primarily driven by divestitures, the impact of the planned exit of a customer relationship in the Infrastructure/Utility reporting unit, project delays, and project and customer selection.

Specialty Services segment earnings as a percentage of net revenues for the years ended December 31, 2024 and 2023 was 11.6% and 11.5%, respectively. The increase was primarily the result of planned disciplined project and customer selection during the year ended December 31, 2024.

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Year ended December 31, 2023 versus year ended December 31, 2022

The following is a discussion of our financial condition and results of operations for the years ended     December 31, 2023 and 2022. The following financial information has been extracted from our audited consolidated financial statements included in this Annual Report.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","Change"],["($ in millions)","","2023","","2022","","$","","%"],["Net revenues","","$","6,928","","","$","6,558","","","$","370","","","5.6","%"],["Cost of revenues","","4,988","","","4,844","","","144","","","3.0","%"],["Gross profit","","1,940","","","1,714","","","226","","","13.2","%"],["Selling, general, and administrative expenses","","1,581","","","1,552","","","29","","","1.9","%"],["Operating income","","359","","","162","","","197","","","121.6","%"],["Interest expense, net","","145","","","125","","","20","","","16.0","%"],["Loss (gain) on extinguishment of debt, net","","7","","","(5)","","","12","","","NM"],["Investment income and other, net","","(25)","","","(51)","","","26","","","NM"],["Other expense, net","","127","","","69","","","58","","","84.1","%"],["Income before income taxes","","232","","","93","","","139","","","149.5","%"],["Income tax provision","","79","","","20","","","59","","","295.0","%"],["Net income","","$","153","","","$","73","","","$","80","","","109.6","%"]]
[[/GREPCENT_TABLE]]

NM = Not meaningful

Net revenues

Net revenues for the year ended December 31, 2023 were $6,928 million compared to $6,558 million for the year ended December 31, 2022, an increase of $370 million or 5.6%. The increase in net revenues was attributable to the Safety Services and Specialty Services segments and was primarily driven by growth in inspection, service, and monitoring revenue.

Gross profit

The following table presents our gross profit (net revenues less cost of revenues) and gross margin (gross profit as a percentage of net revenues) for the years ended December 31, 2023 and 2022, respectively:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","Change"],["($ in millions)","","2023","","2022","","$","","%"],["Gross profit","","$","1,940","","","$","1,714","","","$","226","","","13.2","%"],["Gross margin","","28.0","%","","26.1","%"]]
[[/GREPCENT_TABLE]]

Our gross profit for the year ended December 31, 2023 was $1,940 million compared to $1,714 million in the year ended December 31, 2022, an increase of $226 million, or 13.2%. Gross margin for the year ended December 31, 2023 was 28.0%, an increase of 190 basis points compared to the prior year, primarily due to planned disciplined project and customer selection, pricing improvements in our Safety Services segment, and an improved mix of inspection, service, and monitoring revenue, which generates higher margins.

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Selling, general, and administrative expenses

The following table presents selling, general, and administrative expenses for the years ended December 31, 2023 and 2022, respectively:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","Change"],["($ in millions)","","2023","","2022","","$","","%"],["Selling, general, and administrative expenses","","$","1,581","","","$","1,552","","","$","29","","","1.9","%"],["SG&A expenses as a % of net revenues","","22.8","%","","23.7","%"],["SG&A expenses (excluding amortization and impairment) (non-GAAP)","","$","1,372","","","$","1,355","","","$","17","","","1.3","%"],["SG&A expenses (excluding amortization and impairment) as a % of net revenues (non-GAAP)","","19.8","%","","20.7","%"]]
[[/GREPCENT_TABLE]]

Our SG&A expenses for the year ended December 31, 2023, were $1,581 million compared to $1,552 million for the same period in 2022, an increase of $29 million. SG&A expenses as a percentage of net revenues was 22.8% during the year ended December 31, 2023 compared to 23.7% in 2022. The decrease in SG&A expenses as a percentage of net revenues was primarily driven by lower acquisition and integration related expenses incurred, partially offset by an impairment charge of $12 million related to assets sold in 2023 and investments to support our Safety Services and Specialty Services segments. Our SG&A expenses excluding amortization and impairment for the year ended December 31, 2023 was $1,372 million, or 19.8% of net revenues, compared to $1,355 million or 20.7% of net revenues for 2022, primarily due to the factors discussed above. See "Non-GAAP Financial Measures" below for a discussion and reconciliation of our non-GAAP financial measures.

Interest expense, net

Interest expense was $145 million and $125 million for the years ended December 31, 2023 and 2022, respectively. The increase in interest expense was primarily due to higher interest rates on our floating interest rate debt in 2023, partially offset by a decrease in the outstanding principal amounts of floating rate debt reflecting the debt repayments described below.

Loss (gain) on extinguishment of debt, net

During the year ended December 31, 2023, we made payments of $375 million and $100 million to pay down outstanding principal amounts of the 2019 Term Loan and 2021 Term Loan, respectively. In connection with the payments, we recognized a net loss on debt extinguishment of $7 million. During 2022, we repurchased $13 million and $23 million of the outstanding principal amount of the 4.125% Senior Notes and 4.750% Senior Notes, respectively. In connection with these repurchases, we recognized a net gain on debt extinguishment of $5 million.

Non-service pension benefit

The non-service pension benefit was $12 million and $42 million for the years ended December 31, 2023 and 2022, respectively. The change was due to higher interest costs as a result of higher discount rates in 2023 compared to 2022.

Investment income and other, net

Investment income and other, net was $13 million and $9 million for the years ended December 31, 2023 and 2022, respectively. The increase in investment income was primarily due to an increase in earnings from joint ventures.

Income tax provision

The effective tax rate for the year ended December 31, 2023 was 33.9% compared to an effective tax rate of 22.0% for the year ended December 31, 2022. The increase was primarily due to changes in 2023 to the geographical income mix and valuation allowance positions. Additionally, a benefit for withholding taxes on foreign earnings reduced the effective tax rate in the prior year.

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Net income and Adjusted EBITDA

The following table presents net income and Adjusted EBITDA for the years ended December 31, 2023 and 2022, respectively:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","Change"],["($ in millions)","","2023","","2022","","$","","%"],["Net income","","$","153","","","$","73","","","$","80","","","109.6","%"],["Adjusted EBITDA (non-GAAP)","","782","","","673","","","109","","","16.2","%"],["Net income as a % of net revenues","","2.2","%","","1.1","%"],["Adjusted EBITDA as a % of net revenues","","11.3","%","","10.3","%"]]
[[/GREPCENT_TABLE]]

Net income for the year ended December 31, 2023 was $153 million compared to $73 million for the year ended December 31, 2022, an increase of $80 million. Net income as a percentage of net revenues for the years ended December 31, 2023 and 2022 was 2.2% and 1.1%, respectively. The improvement is primarily attributable to planned disciplined project and customer selection, pricing improvements within our Safety Services and Specialty Services segments, and growth in inspection, service, and monitoring revenue, as well as savings in our Safety Services segment related to the Chubb restructuring program. The net income increase was partially offset by an impairment charge of $12 million related to assets sold in 2023, an increase in interest expense of $20 million, and an increase in the income tax provision of $59 million. Adjusted EBITDA for the years ended December 31, 2023 and 2022 was $782 million and $673 million, respectively, an increase of $109 million. With the exception of savings in our Safety Services segment related to the Chubb restructuring program, which is excluded from adjusted EBITDA, the increase in adjusted EBITDA was primarily driven by the factors previously discussed. See "Non-GAAP Financial Measures" below for a discussion and reconciliation of our non-GAAP financial measures.

Operating Segment Results

[[GREPCENT_TABLE]]
[["","","Net Revenues"],["","","Year Ended December 31,","","Change"],["($ in millions)","","2023","","2022","","$","","%"],["Safety Services","","$","4,871","","","$","4,575","","","$","296","","","6.5","%"],["Specialty Services","","2,079","","","2,030","","","49","","","2.4","%"],["Corporate and Eliminations","","(22)","","","(47)","","","NM","","NM"],["","","$","6,928","","","$","6,558","","","$","370","","","5.6","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Segment Earnings"],["","","Year Ended December 31,","","Change"],["($ in millions)","","2023","","2022","","$","","%"],["Safety Services","","$","664","","","$","559","","","$","105","","","18.8","%"],["Safety Services segment earnings as a % of net revenues","","13.6","%","","12.2","%"],["Specialty Services","","$","239","","","$","210","","","$","29","","","13.8","%"],["Specialty Services segment earnings as a % of net revenues","","11.5","%","","10.3","%"],["Corporate and Eliminations","","$","(121)","","","$","(96)","","","NM","","NM"],["Adjusted EBITDA (non-GAAP)","","$","782","","","$","673","","","$","109","","","16.2","%"]]
[[/GREPCENT_TABLE]]

NM = Not meaningful

The following discussion breaks down the net revenues and segment earnings by reportable segment for the years ended December 31, 2023 and 2022.

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Safety Services

Safety Services net revenues for the year ended December 31, 2023 were $4,871 million compared to $4,575 million during the same period in the prior year. The increase was driven by increased inspection, service, and monitoring revenue. This increase was also due to continued strength in our end markets and strategic pricing improvements.

Safety Services segment earnings as a percentage of net revenues was 13.6% and 12.2% for the years ended December 31, 2023 and 2022, respectively. The increase was primarily the result of planned disciplined project and customer selection, pricing improvements, and improved mix of inspection, service, and monitoring revenue, which generates higher margins.

Specialty Services

Specialty Services net revenues for the years ended December 31, 2023 and 2022 were $2,079 million and $2,030 million, respectively. The increase was primarily due to strong growth in the service business during the year ended December 31, 2023 compared to the same period in the prior year. The increase was partially offset by continued planned disciplined customer and project selection and customer project delays in the fabrication business.

Specialty Services segment earnings as a percentage of net revenues was 11.5% and 10.3% for the years ended December 31, 2023 and 2022, respectively. The increase was primarily the result of planned disciplined project and customer selection during the year ended December 31, 2023 compared to the same period in 2022.

NON-GAAP FINANCIAL MEASURES

We supplement our reporting of consolidated financial information determined in accordance with GAAP with SG&A expenses (excluding amortization and impairment) and adjusted EBITDA (defined below), which are non-GAAP financial measures. We use these non-GAAP financial measures to evaluate our performance, both internally and as compared with our peers, because they exclude certain items that may not be indicative of our core operating results. Management believes these measures are useful to investors since they (a) permit investors to view our performance using the same tools that management uses to evaluate our past performance and prospects for future performance, (b) permit investors to compare us with our peers, (c) in the case of adjusted EBITDA, determine certain elements of management’s incentive compensation, and (d) provide more consistent period-to-period comparisons of the results.

These non-GAAP financial measures, however, have limitations as analytical tools and should not be considered in isolation from, a substitute for, or superior to, the related financial information that we report in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses that are required by GAAP to be recorded in our financial statements and may not be comparable to similarly titled measures of other companies due to potential differences in calculation methods. In addition, these measures are subject to inherent limitations as they reflect the exercise of judgment by management about which items are excluded or included in determining these non-GAAP financial measures. Investors are encouraged to review the following reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measures and not to rely on any single financial measure to evaluate our business.

SG&A expenses (excluding amortization and impairment)

SG&A expenses (excluding amortization and impairment) is a measure of operating costs used by management to manage the business and its segments. We believe this non-GAAP measure provides meaningful information and helps investors understand our operational selling, general, and administrative expenses excluding acquisition-related amortization expense and impairment charges to better enable investors to understand our financial results and assess our prospects for future performance.

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The following tables present reconciliations of SG&A expenses to SG&A expenses (excluding amortization and impairment) for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["($ in millions)","","2024","","2023","","2022"],["Reported SG&A expenses","","$","1,694","","","$","1,581","","","$","1,552"],["Adjustments to reconcile SG&A expenses to SG&A expenses (excluding amortization and impairment)"],["Amortization expense","","(216)","","","(197)","","","(197)"],["Impairment of goodwill, intangibles, and other assets","","\u2014","","","(12)","","","\u2014"],["SG&A expenses (excluding amortization and impairment)","","$","1,478","","","$","1,372","","","$","1,355"]]
[[/GREPCENT_TABLE]]

Adjusted EBITDA

Adjusted Earnings before interest, taxes, depreciation and amortization after adjustments for non-recurring items (“Adjusted EBITDA”) is the measure of profitability used by management. Adjustments include expenses that are non-recurring in nature and that may not be indicative of the Company’s core operating results, including business transformation and other expenses for the integration of acquired businesses, the impact and results of businesses classified as assets held-for-sale and divested, and one-time and other infrequent events such as impairment charges, restructuring costs, transaction and other costs related to acquisitions, and non-service pension cost or benefit. We supplement the reporting of our consolidated financial information with Adjusted EBITDA. We believe this non-GAAP measure provides meaningful information and helps investors understand our financial results and assess our prospects for future performance.

The following table presents a reconciliation of net income to Adjusted EBITDA for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["($ in millions)","","2024","","2023","","2022"],["Reported net income","","$","250","","","$","153","","","$","73"],["Adjustments to reconcile net income to adjusted EBITDA:"],["Interest expense, net","","146","","","145","","","125"],["Income tax provision","","80","","","79","","","20"],["Depreciation","","80","","","79","","","77"],["Amortization","","222","","","224","","","227"],["Contingent consideration and compensation","","3","","","14","","","9"],["Non-service pension cost (benefit)","","22","","","(12)","","","(42)"],["Inventory step-up","","\u2014","","","\u2014","","","9"],["Business process transformation expenses","","52","","","30","","","31"],["Acquisition related expenses","","13","","","7","","","121"],["Loss (gain) on extinguishment of debt, net","","1","","","7","","","(5)"],["Restructuring program related costs","","32","","","46","","","30"],["Other","","(8)","","","10","","","(2)"],["Adjusted EBITDA","","$","893","","","$","782","","","$","673"]]
[[/GREPCENT_TABLE]]

LIQUIDITY AND CAPITAL RESOURCES

Overview

Our primary sources of liquidity are cash flows from the operating activities of our consolidated subsidiaries, available cash and cash equivalents, our access to our $500 million five-year senior secured revolving credit facility (the “Revolving Credit Facility”), and the proceeds from debt and equity offerings. We believe these sources will be sufficient to fund our liquidity requirements for at least the next twelve months. Although we believe we have sufficient resources to fund our future cash requirements, there are many factors with the potential to influence our cash flow position including weather, seasonality, commodity prices, market conditions, and inflation, over which we have no control.

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As of December 31, 2024, we had $993 million of total liquidity, comprising $499 million in cash and cash equivalents and $494 million ($500 million less outstanding letters of credit of approximately $6 million, which reduces availability) of available borrowings under our Revolving Credit Facility.

During 2022, we completed the Second Amendment to our credit agreement. As part of this amendment, we entered into a $1,100 million seven-year incremental term loan ("2021 Term Loan"), the Revolving Credit Facility was upsized by $200 million to $500 million, the maturity date of the Revolving Credit Facility was extended five years, and the letter of credit limit was increased by $100 million to $250 million.

During 2023, we completed the Fourth Amendment to our credit agreement, repricing our 2019 Term Loan and 2021 Term Loan. The repricing reduced the applicable margin on all outstanding amounts by 25 basis points. Additionally, $422 million of the 2019 Term Loan was extended to the 2021 Term Loan and assumed all the same terms as the repriced 2021 Term Loan. We made a repayment of $100 million on the 2019 Term Loan concurrent with the close of this transaction.

During the first quarter of 2024, we completed the Fifth Amendment to our credit agreement, upsizing our 2021 Term Loan by $300 million. The loan proceeds were directed as consideration for a portion of the purchase price for the Series B Preferred Stock Conversion.

During the second quarter of 2024, we completed the Sixth Amendment to our credit agreement, upsizing and repricing the 2021 Term Loan and repaying the 2019 Term Loan. We incurred approximately $550 million of incremental principal on our 2021 Term Loan. The proceeds were used to repay the remaining $330 million of the 2019 Term Loan, repay $100 million of the Revolving Credit Facility outstanding, and for general corporate purposes, including to partially fund the Elevated acquisition.

During the second quarter of 2024, we issued 12,650,000 shares of Company common stock in a public underwritten offering. The proceeds from this offering totaled approximately $458 million, net of related expenses. The net proceeds from this offering were used for general corporate purposes and to partially fund the Elevated acquisition.

During the fourth quarter of 2024, we made a repayment of $100 million on the 2021 Term Loan.

In February 2025, we completed the Seventh Amendment to our credit agreement, repricing the 2021 Term Loan. The repricing reduced the applicable margin on the 2021 Term Loan by 25 basis points.

We expect to continue to be able to access the capital markets through equity and debt offerings for liquidity purposes as needed. Our principal liquidity requirements have been, and we expect will continue to be, for working capital and general corporate purposes, including capital expenditures and debt service, identifying, executing, and integrating strategic acquisitions and business transformation transactions or initiatives, as well as any accrued consideration and compensation due to selling shareholders, including tax payments in connection therewith. Our capital expenditures were approximately $84 million and $86 million in the years ended December 31, 2024 and 2023, respectively.

In 2022, our Board of Directors authorized a stock repurchase program, authorizing the purchase of up to an aggregate of $250 million, which expired in February 2024. As a result of the program's expiration, on February 26, 2024, our Board of Directors authorized a stock repurchase program to purchase up to an aggregate of $1,000 million of shares of our common stock. This stock repurchase program will expire when the authorized amount is exhausted, unless otherwise modified or terminated by our Board of Directors at any time in its sole discretion. During the year ended December 31, 2024, we repurchased 16,260,160 shares of common stock for approximately $600 million. As of December 31, 2024, we had approximately $400 million of authorized repurchases remaining under the stock repurchase program.

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Cash Flows

Cash Flows

The following table summarizes net cash flows with respect to our operating, investing, and financing activities for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["($ in millions)","","2024","","2023"],["Net cash provided by operating activities","","$","620","","","$","514"],["Net cash used in investing activities","","(829)","","","(115)"],["Net cash provided by (used in) financing activities","","245","","","(532)"],["Effect of foreign currency exchange rate change on cash, cash equivalents, and restricted cash","","(15)","","","6"],["Net increase (decrease) in cash, cash equivalents, and restricted cash","","$","21","","","$","(127)"],["Cash, cash equivalents, and restricted cash, end of period","","$","501","","","$","480"]]
[[/GREPCENT_TABLE]]

Net cash provided by operating activities

Net cash provided by operating activities was $620 million for the year ended December 31, 2024 compared to $514 million of cash provided in 2023. The increase in cash provided by operating activities was primarily due to an increase in net income in the period. This increase in cash was also driven by lower working capital needs associated with the various services we provided in 2024 compared to 2023. Cash flow from operations is primarily driven by changes in the mix and timing of demand for our services and working capital needs associated with the various services we provide. Working capital is primarily affected by changes in total accounts receivable, accounts payable, accrued expenses, and contract assets and contract liabilities, all of which tend to be related and are affected by changes in the timing and volume of work performed.

Net cash used in investing activities

Net cash used in investing activities was $829 million and $115 million in the years ended December 31, 2024 and 2023, respectively. During 2024, we completed the Elevated acquisition and several other acquisitions, resulting in the use of $778 million for acquisitions, compared to $83 million in 2023.

Net cash provided by (used in) financing activities

Net cash provided by financing activities was $245 million for the year ended December 31, 2024 compared to $532 million used in financing activities in 2023. The increase in cash provided by financing activities was primarily driven by equity and debt issuances in 2024. During 2024, cash provided by financing activities was higher due to $850 million of proceeds from the repricing and upsizing transactions of the 2021 Term Loan and $458 million of proceeds from the issuance of common shares. The increase in cash used in financing activities in 2024 was partially offset by $437 million of payments on long-term borrowings and $600 million of share repurchases in connection with the conversion of the Series B Preferred Stock.

Year ended December 31, 2023 versus year ended December 31, 2022

For a discussion of our Liquidity and Capital Resources for the fiscal year ended December 31, 2023 compared to the fiscal year ended December 31, 2022, refer to Part I, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 28, 2024.

Financing Activities

Credit Agreement

We have entered into a Credit Agreement by and among APi Group DE, Inc., our wholly-owned subsidiary, as borrower ("APi Group DE"), APG as a guarantor, the subsidiary guarantors from time to time party thereto, the lenders from time to time party thereto, and Citibank N.A., as administrative agent and as collateral agent (the “Credit Agreement”) which provides for: (1) a term loan facility, pursuant to which we incurred the $1,200 million term loan ("2019 Term Loan") used to fund a part of the cash portion of the purchase price in the APi Acquisition, and a $1,100 million seven-year

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incremental term loan ("2021 Term Loan") used to fund a portion of the purchase price in the Chubb Acquisition, and (2) a $500 million Revolving Credit Facility of which up to $250 million can be used for the issuance of letters of credit.

In 2023, we completed repricing of our 2019 Term Loan and 2021 Term Loan. The repricing reduced the applicable margin on all outstanding amounts by 25 basis points. Additionally, $422 million of the 2019 Term Loan was extended to the 2021 Term Loan and assumed all the same terms as the repriced 2021 Term Loan.

During the first quarter of 2024, we completed the Fifth Amendment to our credit agreement, upsizing our 2021 Term Loan by an aggregate principal amount equal to $300 million. The loan proceeds were directed as consideration for a portion of the purchase price for the Series B Preferred Stock Conversion.

During the second quarter of 2024, we completed the Sixth Amendment to our credit agreement, upsizing and repricing the 2021 Term Loan and repaying the 2019 Term Loan. The repricing reduced the applicable margin on the 2021 Term Loan by 50 basis points and removed the credit spread adjustment ("CSA"). As part of the transaction, we incurred approximately $550 million of incremental principal our 2021 Term Loan. The proceeds were used to repay the remaining $330 million of the 2019 Term Loan, repay $100 million of the Revolving Credit Facility outstanding, and for general corporate purposes, including to partially fund the Elevated acquisition.

As of December 31, 2024, the amended interest rate applicable to the 2021 Term Loan was, at our option, either (a) a base rate plus an applicable margin equal to 1.00% or (b) a Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.00%. The 2021 Term Loan matures on January 3, 2029. Subject to certain exceptions, the 2021 Term Loan may be subject to mandatory prepayments using (i) proceeds from non-ordinary course asset dispositions, (ii) proceeds from certain incurrences of debt or (iii) a portion of the Company’s annual excess cash flows based upon certain leverage ratios. Based on the early prepayments we have made, we do not owe any quarterly principal amounts for the remainder of the 2021 Term Loan.

In February 2025, we completed the Seventh Amendment to our credit agreement, repricing the 2021 Term Loan. The repricing reduced the applicable margin on the 2021 Term Loan by 25 basis points.

The interest rate applicable to borrowings under the Revolving Credit Facility is, at our option, either (a) a base rate plus an applicable margin equal to 1.25% or (2) a Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.25% plus a CSA.

The Credit Agreement contains customary representations and warranties, and affirmative and negative covenants, including covenants that, among other things, restrict our, and our restricted subsidiaries’, ability to (i) incur additional indebtedness; (ii) pay dividends or make other distributions or repurchase or redeem capital stock; (iii) prepay, redeem or repurchase certain debt; (iv) make loans and investments; (v) sell, transfer and otherwise dispose of assets; (vi) incur or permit to exist certain liens; (vii) enter into transactions with affiliates; (viii) enter into agreements restricting subsidiaries’ ability to pay dividends; and (ix) consolidate, amalgamate, merge or sell all or substantially all assets. The Credit Agreement also contains customary events of default. Furthermore, with respect to the Revolving Credit Facility, we must maintain a first lien net leverage ratio that does not exceed (i) 4.00 to 1.00 for each fiscal quarter ending in 2021, and (ii) 3.75 to 1.00 for each fiscal quarter ending thereafter, if on the last day of any fiscal quarter the outstanding amount of all revolving loans and letter of credit obligations (excluding undrawn letters of credit up to $40 million) under the Credit Agreement is greater than 30% of the total revolving credit commitments thereunder subject to a right of cure. Our first lien net leverage ratio as of December 31, 2024 was 1.6:1.0.

During 2024, we made a repayment of $100 million to the 2021 Term Loan. As a result, as of December 31, 2024, we had no principal outstanding under the 2019 Term Loan and $2,157 million of principal outstanding under the 2021 Term Loan. We had no amounts outstanding under the Revolving Credit Facility, under which $494 million was available after giving effect to $6 million of outstanding letters of credit, which reduces availability.

Senior Notes

On June 22, 2021, APi Group DE completed a private offering of $350 million aggregate principal amount of 4.125% Senior Notes due 2029 (the “4.125% Senior Notes”), issued under an indenture, dated June 22, 2021. The 4.125% Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by us and certain subsidiaries. The 4.125% Senior Notes will mature on July 15, 2029, unless redeemed earlier, and bear interest at a rate of 4.125% per year until maturity, payable semi-annually in arrears. We used the net proceeds from the sale of the 4.125% Senior Notes to

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repay the previously outstanding term loan, prepay a portion of the 2019 Term Loan and for general corporate purposes. During the year ended December 31, 2022, we repurchased $13 million of outstanding principal amount of the 4.125% Senior Notes and recognized a net gain of $2 million on the debt extinguishment. As of December 31, 2024, we had $337 million aggregate principal amount of 4.125% Senior Notes outstanding.

On October 21, 2021, a wholly-owned subsidiary of the Company completed a private offering of $300 million aggregate principal amount of 4.750% Senior Notes due 2029 (the “4.750% Senior Notes”) issued under an indenture dated October 21, 2021, as supplemented by a supplemental indenture dated January 3, 2022. The 4.750% Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by us and certain of our subsidiaries. The 4.750% Senior Notes will mature on October 15, 2029, unless earlier redeemed, and bear interest at a rate of 4.750% per year until maturity, payable semi-annually in arrears. We used the net proceeds from the sale of the 4.750% Senior Notes to finance a portion of the consideration for the Chubb Acquisition. During the year ended December 31, 2022, we repurchased $23 million of outstanding principal amount of the 4.750% Senior Notes and recognized a net gain of $3 million on the debt extinguishment. As of December 31, 2024, we had $277 million aggregate principal amount of 4.750% Senior Notes outstanding.

Debt Covenants

As of December 31, 2024 and 2023, we were in compliance with all covenants contained in the indentures governing the 4.125% Senior Notes and 4.750% Senior Notes and the Credit Agreement.

Issuance and Conversion of Series B Preferred Stock

During 2022, we issued and sold 800,000 shares of our 5.5% Series B Redeemable Convertible Preferred Stock, par value $0.0001 per share (the "Series B Preferred Stock"), for an aggregate purchase price of $800 million, pursuant to securities purchase agreements entered into on July 26, 2021 with certain investors. The net proceeds from the Series B Preferred Stock issuance were used to fund a portion of the consideration for the Chubb Acquisition.

On February 28, 2024, we entered into a Conversion and Repurchase Agreement with Juno Lower Holdings L.P. ("Juno Lower Holdings"), FD Juno Holdings L.P. ("FD Juno Holdings," and together with Juno Lower Holdings, "Blackstone"), Viking Global Equities Master Ltd. ("VGEM") and Viking Global Equities II L.P. (VGE II, and collectively with VGEM, "Viking" and collectively with the Blackstone, the "Series B Holders") pursuant to which Blackstone and Viking agreed to convert all of the outstanding shares of the Series B Preferred Stock that they hold, which represents all of the Series B Preferred Stock outstanding. The transactions contemplated by the agreement (the "Series B Preferred Stock Conversion") were also consummated on February 28, 2024.

Under the terms of the agreement, (i) the Series B Holders each agreed to exercise their respective right to convert all of their Series B Preferred Stock into common stock, resulting in a total of 800,000 shares of Series B Preferred Stock being converted into approximately 32,803,519 shares of common stock (inclusive of approximately 283,196 shares attributable to accrued and unpaid dividends thereon (the "Conversion Shares") and (ii) upon issuance of the Conversion Shares, we agreed to immediately repurchase one-half of the Conversion Shares, on a pro rata basis, from the Series B Holders for an aggregate purchase price of $600 million.

The repurchase price was financed by (i) an incremental term facility of $300 million and (ii) cash and available credit from the balance sheet.

Material Cash Requirements from Known Contractual and Other Obligations

Our material cash requirements from known contractual and other obligations primarily relate to the following, for which information on both a short-term and long-term basis is provided in the indicated notes to the consolidated financial statements and expected to be satisfied using cash generated from operations:

•Operating and Finance Leases – See Note 12 – "Leases."

•Debt – See Note 13 – "Debt" for future principal payments and interest rates on our debt instruments.

•Tax Obligations – See Note 14 – "Income Taxes."

•Pension obligations – See Note 16 – "Pension."

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We make investments in our properties and equipment to enable continued expansion and effective performance of our business. Our capital expenditures are typically less than 1.5% of annual net revenues.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

We review new accounting standards to determine the expected impact, if any, of the adoption of such standards will have on our financial position and/or results of operations. See Note 3 – “Recent Accounting Pronouncements” for further information regarding new accounting standards, including the anticipated dates of adoption and the effects on our consolidated financial position, results of operations or liquidity.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following as our critical accounting estimates:

Revenue Recognition from Contracts with Customers

We recognize net revenues from contracts with customers under Accounting Standards Codification (“ASC”) Topic 606. ASC 606 aligns revenue recognition with the timing of when promised goods or services are transferred to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. This core principle is achieved through the application of the following five step model: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to performance obligations in the contract, and (5) recognize revenue as performance obligations are satisfied.

We recognize net revenues at the time the related performance obligations are satisfied by transferring a promised good or service to our customers. A good or service is considered to be transferred when the customer obtains control. We can transfer control of a good or service and satisfy our performance obligations either over time or at a point in time. We transfer control of a good or service over time and, therefore, satisfy a performance obligation and recognize revenue over time, if one of the following three criteria are met: (a) the customer simultaneously receives and consumes the benefits provided as we perform, (b) our performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (c) our performance does not create an asset with an alternative use, and we have an enforceable right to payment for performance completed to date.

For our performance obligations satisfied over time, we recognize revenue by measuring the progress toward complete satisfaction of that performance obligation. The selection of the method to measure progress towards completion can be either an input or output method and requires judgment based on the nature of the goods or services to be provided.

For our construction contracts, net revenues are generally recognized over time as our performance creates or enhances an asset that the customer controls as it is created or enhanced. Our fixed price construction projects generally use a cost-to-cost input method to measure progress towards completion of the performance obligation as we believe it best depicts the transfer of control to the customer, which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Costs incurred include direct materials, labor and subcontract costs, and indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. These contract costs are included in the results of operations under cost of revenues. Labor costs are considered to be incurred as the work is performed. Subcontractor labor is recognized as work is performed.

Net revenues from time and material construction contracts are recognized as the services are provided and is equal to the sum of the contract costs incurred plus an agreed upon markup. Net revenues earned from distribution contracts are recognized upon shipment or performance of the service.

We have a right to payment for performance completed to date at any time throughout our performance of a contract, including in the event of a cancellation, and as such, revenue is recognized over time. These performance obligations use the cost-to-cost input method to measure our progress towards complete satisfaction of the performance

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obligation as we believe it best depicts the transfer of control to the customer which occurs as we incur costs on the contracts.

Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised on an on-going basis. For those performance obligations for which net revenues are recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicates a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.

The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our long-term construction projects when net revenues recognized under the cost-to-cost measure of progress exceed amounts invoiced to our customers. Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. In addition, many of our time and materials arrangements, as well as our contracts to perform turnaround services within the Specialty Services segment, are billed in arrears pursuant to contract terms that are standard within the industry, and resulting in contract assets and/or unbilled receivables being recorded, as revenue is recognized in advance of billings. Contract assets are generally classified as current assets within the consolidated balance sheets.

Contract liabilities from our long-term construction contracts arise when amounts invoiced to our customers exceed net revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from our customers on certain contracts. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation and are recorded as either current or long-term, depending upon when we expect to recognize such revenue. The long-term portion of contract liabilities is included in other noncurrent liabilities in the consolidated balance sheets.

Business Combinations

The nature or importance of this critical accounting estimate changes based on the transactional activity occurring in a given year. The determination of the fair value of net assets acquired in a business combination and estimates of acquisition-related contingent consideration requires estimates and judgments of future cash flow expectations for the acquired business and the related identifiable tangible and intangible assets. Fair values of net assets acquired are calculated using standard valuation techniques. Fair values of contingent consideration liabilities are estimated using an income approach such as discounted cash flows or option pricing models. We allocate purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions consistent with those of a market participant, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to, future expected cash flows from backlog, customer relationships, and trade names and trademarks; and discount rates. In estimating the future cash flows, management considers demand, competition and other economic factors. Management’s estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates, which could result in impairment charges in the future.

Due to the time required to obtain the necessary data for each acquisition, GAAP provides a “measurement period” of up to one year from the date of acquisition in which to finalize these fair value determinations. During the measurement period, preliminary fair value estimates may be revised if new information is obtained about the facts and circumstances existing as of the date of acquisition, or based on the final net assets and working capital of the acquired business, as prescribed in the applicable purchase agreement. Such revisions may result in the recording of “measurement period adjustments," which may result in the recognition of, or adjustment to, the fair values of acquisition-related assets or liabilities and/or consideration paid, as well as the related depreciation and amortization expense.

Significant changes in the assumptions or estimates used in the underlying valuations, including the expected profitability or cash flows of an acquired business, could materially affect our operating results in the period such changes are recognized.

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The Periodic Assessment of Potential Impairment of Goodwill

Goodwill represents the excess of cost over the fair market value of net tangible and identifiable intangible assets of acquired businesses. Goodwill is not amortized but instead is annually tested for impairment, or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired. We have recorded goodwill in connection with our historical acquisitions of businesses. Upon acquisition, these businesses were either combined into one of the existing components or managed on a stand-alone basis as an individual component.

The components are aligned to one of our two reportable segments, Safety Services or Specialty Services. Goodwill is required to be evaluated for impairment at the reporting unit level, which represents the operating segment level or one level below the operating segment level for which discrete financial information is available.

We perform our annual goodwill impairment assessment on October 1 each fiscal year, or more frequently if events or circumstances arise which indicate that goodwill may be impaired. Accounting standards for testing goodwill for impairment require the application of either a qualitative or quantitative assessment to analyze whether or not goodwill has been impaired. We perform the qualitative analysis by evaluating financial performance, macroeconomic conditions, and industry trends. Under the quantitative assessment, the estimated fair value of a reporting unit is compared with its carrying amount, including goodwill. If the carrying amount exceeds fair value, then an impairment loss would be recognized in an amount equal to that excess, limited to the amount of goodwill allocated to that reporting unit.

Quantitative testing performed is based on the estimated fair value using a combination of market and income approaches. Under the market approach, fair values were estimated using published market multiples for comparable companies and applying them to revenue and EBITDA. Under the income approach, a discounted cash flow methodology was used considering management estimates, general economic and market conditions, and the impact of planned business and operational strategies. Estimated discount rates were determined using the weighted-average cost of capital for each reporting unit at the time of the analysis, taking into consideration the risks inherent within each reporting unit individually.

For the year ended December 31, 2024, we performed our annual goodwill impairment assessment as of October 1, 2024. We had total goodwill of $2,894 million as December 31, 2024. Based on the annual test, no goodwill impairment was indicated for any of the reporting units: North American Life Safety, International Life Safety, Heating, Ventilation and Air Conditioning ("HVAC"), Infrastructure/Utility, Fabrication, and Specialty Contracting.

While we believe we have made reasonable estimates and assumptions to calculate the fair values of the reporting units, it is possible changes could occur. We will continue to monitor reporting units in 2025 for any triggering events or other indicators of impairment.

Income Taxes

Our provision for income taxes uses an effective tax rate based on annual pre-tax income, statutory tax rates, permanent tax differences and tax planning opportunities in the various jurisdictions in which we operate. Significant factors that can affect our annual effective tax rate include our assessment of certain tax matters, the location and amount of taxable earnings, changes in certain non-deductible expenses and expected credits. Although we believe our provision for income taxes is correct and the related assumptions are reasonable, the final outcome of tax matters could be materially different from what we currently anticipate, which could result in significant costs or benefits to us. See Note 14 – “Income Taxes” for additional discussion.

In the ordinary course of business, there is inherent uncertainty in quantifying income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based on our evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recognized the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in our financial statements.

We file income tax returns in numerous tax jurisdictions, including U.S. federal, most U.S. states and certain foreign jurisdictions. Although we believe our calculations for tax returns are correct and the positions taken thereon are reasonable, the final outcome of income tax examinations could be materially different from our expectations and the estimates that are reflected in our consolidated financial statements, which could have a material effect on our results of operations, cash flows and liquidity.

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