APi Group Corporation (APG) Q2 2025 Earnings Call Transcript

APi Group Corporation (NYSE: APG) Q2 2025 Earnings Call dated Jul. 31, 2025

Corporate Participants:

Unidentified Speaker

Adam Fee — Vice President of Investor Relations

Russ Becker — President and CEO

David Jackola — Executive Vice President and Chief Financial Officer

Analysts:

Unidentified Participant

Tim Marouy — Analyst

Andy Wigman — Analyst

Julian Mitchell — Analyst

Jonathan Wonton — Analyst

Andy Kaplowitz — Analyst

Thomas Sanna — Analyst

Kathryn Thompson — Analyst

Josh Chan — Analyst

Stephanie Moore — Analyst

Presentation:

operator

Good morning. Good morning ladies and gentlemen and welcome TO API Group’s second quarter 2025 financial results conference call. All participants are now in a listen only mode until the question and answer session. Please note this call is being recorded. I will be standing by should you need any assistance. I will now turn the call over to Adam Fee, Vice President of Investor Relations at API Group. Please go ahead. Thank you.

Adam Fee — Vice President of Investor Relations

Good morning everyone and thank you for joining our second quarter 2025 earnings conference call. Joining me on the call today are Russ Becker, our President and CEO David Jackala, our Executive Vice President and Chief Financial Officer and Sir Martin Franklin and Jim Lilly, our Board Co Chairs. Before we begin, I would like to remind you that certain statements in the company’s earnings press release announcement and on this call are forward looking statements which are based on expectations, intentions and projections regarding the Company’s future performance, anticipated events or trends and other matters that are not historical facts.

These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward looking statements. In our press release and filings with the sec, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, July 31st and we undertake no obligation to update any forward looking statements we may make except as required by law. As a reminder, we have posted a presentation detailing our second quarter financial performance performance on the investor relations page on our website.

Our comments today will include non GAAP financial measures and other key operating metrics. The reconciliation of and other information regarding these items can be found in our press release and our presentation. It’s now my pleasure to turn the call over to Russ.

Russ Becker — President and CEO

Thank you, Adam. Good morning everyone. Thank you for taking the time to join our call this morning. Before we get into our record second quarter results, I wanted to thank our 29,000 leaders for their hard work and dedication to API. The safety, health and well being of each of our leaders remains our number one value. When I say safety, I don’t just mean job site safety. We owe it to every one of our teammates to create an environment that’s safe for them to do their job, not not just physically, but also mentally and emotionally. At API, we believe that culture drives results.

We include a slide in our earnings presentation that highlights our culture and our investment in people as human beings. A key ingredient in our progress to becoming a 7 billion 13% adjusted EBITDA margin company in 2025. It also includes two opportunities to learn more about our culture, which is centered on our purpose of building great leaders. I encourage you to take advantage of these if you haven’t done so already. I also wanted to spend a minute on one of our foundational beliefs, the Care factor. To win and achieve our new long term financial targets, we need to care about and invest in our API teammates as human beings.

A couple of months ago at our Investor Day, we announced the start of the CareFactor Fund, an initiative designed to support API team members and their children in offsetting the expense of unexpected mental health treatment. This is something that is important to both me and our Board of Directors and I’d like to thank our team members for their generosity in contributing to the fundamental I’m happy to share that we have approved the first grant from the fund to one of our teammates. This is just one small way we show our teammates that the API family cares during an important time of need.

Over the last several years our team has remained relentlessly focused on our long term 136080 value creation targets we created in 2022 with our 13% or more adjusted EBITDA margin target in our sites for 2025, we are shifting our focus to the new 101660 plus shareholder value creation framework we introduced in May at our Investor Day. As a reminder, these Targets are the $10 billion plus in net revenues by 2028 supported by consistent mid single digit organic growth, 16% plus adjusted EBITDA margin by 2028, 60% plus of our revenues from inspection service and monitoring over the long term, and $3 billion plus of cumulative adjusted free cash flow through 2028.

Our leaders rallied behind our 136080 targets to deliver on our commitments and they have done the same with respect to these new targets. We have clear plans for how we intend to deliver on our 101660 plus targets. Fortunately, we don’t need to reinvent the wheel. The main initiatives that enabled us to achieve our 136080 targets will also enable us to hit our new 101660 plus targets. These initiatives are pricing, improved inspection service and monitoring revenue mix, disciplined customer and project selection, procurement systems and scale, accretive M and A and selective business pruning. And as I like to say, we can always just be better.

We will augment these initiatives with our continued focus on building great leaders and the technology necessary to support our growth. Now turning to our record second quarter results, the business continued to accelerate its momentum, delivering strong top line growth while expanding margins. Some highlights include the consistent margin expansion in safety services, a growing inspection service and monitoring business, a return to organic growth in specialty services, record backlog in both segments and finally an acceleration of accretive bolt on MA activity, all of which I will detail shortly. For the quarter, net revenues increased by 15% up over 8% organically with strong growth across both segments.

In our safety services segment, revenues grew organically in line with expectations by approximately 6% while delivering 80 basis points. While delivering 80 basis points of segment earnings margin expansion within safety Services, we delivered strong organic growth across the North American safety business. Importantly and in line with our strategic initiatives, the North American safety business achieved double digit inspection growth for the 20th straight quarter. The international business delivered another solid quarter of organic growth along with single with high single digit order growth as that business continues to build momentum under API’s ownership. As expected, specialty services returned to growth in the second quarter delivering 13.3% organic growth as steady increases in backlog dating back to 2024 converted to revenue growth.

The momentum across the business is significant with our record backlog eclipsing $4 billion for the first time in API history. Importantly, the double digit organic growth and backlog includes contributions from our cross sell efforts, focuses on our target end markets and is healthy from a disciplined customer and project selection perspective. Our continued focus on our margin improvement initiatives allowed API to deliver year over year improvements in adjusted EBITDA margin in the second quarter with a 30 basis point increase versus last year. Our continued strong free cash flow generation and balance sheet provide us with flexibility to pursue value enhancing capital deployment alternatives.

In the second quarter we accelerated our M&A activity completing six acquisitions including our second elevator business. We have now closed seven acquisitions year to date and we have several more opportunities. Under letter of intent we remain on track to deploy approximately $250 million in accretive bolt on MA at attractive multiples. This year we also undertook some selective pruning of the a small business in our specialty segment that was not accretive to our new 101660 plus financial targets which is the lens we’ll use to continue to evaluate businesses in both segments going forward. In summary, we move to the second half of 2025 with great momentum.

Our inspection service and monitoring business continues to expand, our backlog is at a record high, our balance sheet remains strong and we are confident in our leaders ability to execute our strategy and deliver against our 2025 plan. I would now like to hand the call over to David to discuss our financial results and guidance in more detail.David

David Jackola — Executive Vice President and Chief Financial Officer

thanks Russ and good morning everyone. Reported revenues for the three months ended June 30 were $2 billion, a 15% increase compared to 1.73 billion in the prior year period. Organic growth of 8.3% was driven by strong project revenue growth, pricing improvements and continued growth in inspection service and monitoring revenues. Adjusted gross margin for the three months ended June 30 was 31.2%, representing a 50 basis point decrease compared to the prior year period compared to driven by mix, partially offset by pricing improvements across the business. Adjusted EBITDA increased by 17.7% for the three months ended June 30th with adjusted EBITDA margin coming in at 13.7% representing a 30 basis point increase compared to the prior year period.

Growth in adjusted EBITDA was driven by an increase in adjusted gross profit. Adjusted diluted earnings per share for the second quarter was $0.39 representing a $0.06 increase or 18.2% compared to the prior year period, primarily driven by strong adjusted EBITDA growth. I will now discuss our results in more detail for Safety Services Safety Services Reported revenues for the three months ended June 30 increased by 15.8% to $1.36 billion compared to 1.18 billion in the prior year period. Organic growth of 5.6% was driven by pricing improvements and strong growth in both service and project revenues. Our North America safety business continued its momentum with double digit inspection revenue growth.

Adjusted gross margin for the three months ended June 30 was 37.2% representing a 70 basis point increase compared to the prior year period driven by disciplined customer and project selection and pricing improvements leading to margin expansion in both service and project revenues. Segment earnings increased by 22.1% for the three months ended June 30 and segment earnings margin was 17% representing an 80 basis point increase compared to the prior year period, primarily to the increase in adjusted gross margin. I will now discuss our results in more detail for Specialty Services Specialty Services reported organic revenues for the three months ended June 30 through 13.3% to $629 million compared to 555 million in the prior year period driven by strong project revenue growth.

Adjusted gross margin for the three months ended June 30 was 18.1% representing a 350 basis point decrease compared to the prior year period driven by increased project starts, rising material costs and weather. Segment earnings decreased 2.7% for the three months ended June 30th and segment earnings margin was 11.3% representing a 190 basis point decrease compared to the prior year period, primarily due to the decrease in adjusted gross margins partially offset by favorable fixed cost absorption. Turning to cash flow, for the first six months of the year adjusted free cash flow was 186 million, reflecting an improvement of 52 million versus the prior year period and an adjusted free cash flow conversion of 40%.

Free cash flow generation has been and continues to be a priority across API and we are pleased with our strong performance in the first half of the year as the business accelerates revenue growth. During the second quarter, we increased our revolving credit facility from 500 million to 750 million and extended its maturity to 2030. At the end of the quarter, our net debt to adjusted EBITDA ratio was approximately 2.2 times. As a reminder, the back half of the calendar year is slightly seasonally stronger from a free cash flow generation perspective. We expect that trend to continue this year, providing us with significant opportunities for continued value enhancing capital deployment, leveraging our strong balance sheet.

I will now discuss our guidance for the third quarter and full year 2025, which as a reminder is based on current foreign currency exchange rates. We expect increased full year net revenues of 7.65 to 7.85 billion, up from 7.4 to 7.6 billion representing organic growth and net revenues of 4 to 7% for the year. Moving down the P and L, we expect increased full year adjusted EBITDA of 1,005,000,000 to 1,045,000,000 up from 985,000,000 to to 1,035,000,000 representing adjusted EBITDA growth of approximately 15% at the midpoint. Our increased full year revenue and EBITDA guidance is driven by updates to our business outlook including the impact of closed MA during the quarter, our second quarter over delivery, and our latest outlook for the rest of the year based on most recent rates.

The impact of foreign currency is impacted immaterial to our change in guide. In terms of the third quarter, we expect reported net revenues of 1.985 to 2.035 billion. This guidance represents reported net revenue growth of approximately 9 to 11% and organic revenue growth of 5 to 7%. We expect Q3 adjusted EBITDA of 270 to 280 million, which represents adjusted EBITDA growth of approximately 9 to 13% on a fixed currency basis. For 2025 we anticipate interest expense to be approximately 145 million, depreciation to be approximately 90 million, capital expenditures to be approximately 100 million and our adjusted effective tax rate to be approximately 23%.

We expect our adjusted diluted weighted average share count for the year to be approximately 424 million, reflecting the completion of our 3 for 2 stock split on June 30th. We continue to expect adjusted corporate expenses to be between 30 to 35 million dollars per quarter with some timing variability throughout the year. Overall, we are pleased with the team’s execution of our strategy in an evolving macroeconomic environment during the second quarter, quarter and first half of 2025. I look forward to sharing more updates on our progress throughout the year. I will now turn the call back over to Russ.

Russ Becker — President and CEO

Thanks David. We entered the second half of 2025 with continued positive momentum across our global business platform. We continue to accelerate organic growth while expanding adjusted EBITDA margins, growing our recurring inspection service and monitoring business, building on our record backlog and improving our free cash flow generation. We believe our proven operating model built on an inspection and service first strategy, purpose driven leadership and a disciplined approach to capital allocation positions API for sustained organic growth, margin expansion and value accretive M and A. We are confident in our leaders ability to execute our strategy and and deliver against our new 10, 16, 60 plus long term financial targets, creating value for all our stakeholders.

With that, I would now like to turn the call over to the operator and open the call for Q and A.

Questions and Answers:

operator

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press Star one on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question, just simply press the Star one again. If you are called upon to ask your question and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question again. Please press Star one to join the queue and your first question comes from the line of Team Marui of William Blair.

Please go ahead.

Tim Marouy

Russ David, Good morning.

Russ Becker

Hey Tim, how are you doing?

Tim Marouy

Well, thank you. So two quick ones for me on the second quarter. The revenue in your second quarter was well, it was more than $60 million above the high end of the guidance range that that you provided for the second quarter. Just curious what business or businesses outperformed your own internal expectations in the quarter?

David Jackola

Yeah. Hey Tim, I’m happy to take that one. So you’re breaking down the quarter. I’d say our inspection service and monitoring businesses performed largely as expected. We saw really strong contract and project activity across over both of the segments during the second quarter and we did see a little bit of an impact from rising material costs in the pull forward of materials in the quarter that took us over the top end of the range.

Tim Marouy

Okay, yeah, thanks David. I’m following up on that. You know, your specialty business, obviously revenue looked great, but you know, the gross margins, 350 basis point decline, how much of that was due to rising material costs? I know you have pricing escalators and other things, but curious how much of that was maybe project specific or specifically on the rising raw material costs. And do you expect that gross margin pressure in specialty to carry into the back half of the year? You know, particularly if some of these tariffs potentially start to hit on things like copper.

Thank you.

Russ Becker

Yeah, great, great question again, Tim. So you know, when I, when we think about our specialty margins in the second quarter, they were down year over year really driven by increased project starts. And you know, at the front end of a project that, that, that tends to be more material driven, which is lower margin. And as you work your way through a quarter or a project, you typically start working your margin up. Rising material costs and the impact of weather did play a role on our margins in the quarter. And I don’t know if we can quantify, you know, the precise amount.

What I would say about margins on the specialty segment is we do expect them to improve sequentially as we work our way throughout the year.

Tim Marouy

Got it. Thanks so much.

operator

Next question comes from the line of Andy Whitman of Bird. Please go ahead.

Andy Wigman

Yeah, great, thank you. I think David, you addressed this question a little bit in your prepared remarks. But I just want to drill into the guidance a little bit more. I’m looking at the increase here, obviously the revenue here in the quarter above expectations. Very good. A little bit of incremental MA helps your guidance as well. So I’m just trying to see if the forward outlook for the base businesses is changed or unchanged. I heard pull forward mention in the previous answer to the question. So I just want to get my arms around have things improved from your outlook for the balance of the year or not on an organic basis?

David Jackola

Yeah. Hey, good morning Andy. Thanks for the question. You hear big high level round numbers. You can think of our EBITDA raise as a third of it driven by our Q2 over delivery, maybe a third of it due to MA in the quarter and maybe a third of it due to an increase or an improvement in our second half business outlook.

Andy Wigman

Okay, that’s helpful. And then just as it relates to, I guess, capital deployment, I heard kind of the comments about You’ve got a number of under LOI still targeting $250 million. You’re kind of well over $100 million here. So you’re doing, you’re on track at least. Does it feel like the MA capital deployment, Russ, has potential to be maybe above that, given where you sit today with what’s under contract and heading forward?

Russ Becker

I would say. Hey, Andy, good morning, by the way, and welcome back. I would say that the potential is there. You know, I, you know, M and A is kind of like no different than disciplined project and customer selection. You know, we need to continue to be disciplined, you know, in the companies and the businesses that, you know, we invite to join the API family. So I would say the pipeline is robust. I would say the potential is there for us to open deliver on the $250 million, you know, kind of commitment, if you will.

But, you know, in the same breath, we’re going to be really disciplined. And so if it’s 250, it’s 250. If it’s 235, it’s 235. And if it’s 290, it’s 290.

Andy Wigman

`Yeah. Okay, that’s all I have for today. Thank you.

David Jackola

Thanks, Andy.

operator

Your next question comes from the line of Julian Mitchell of Barclays. Please go ahead.

Julian Mitchell

Hi, good morning. I think, you know, first off, just wanted to try and understand the safety business. Are we expecting that kind of 6% ish organic growth in the back half as well? Pretty steady sort of run rate now and maybe flesh out a little bit more, you know, you know how satisfied you are with your elevator market share and sort of top line push efforts, please.

David Jackola

Sure. Hey, I’ll take the first part, Julian, and maybe I’ll hand the second part on elevators over to Russ. So I’d say our outlook for the safety service segment in the back half of the year is really consistent with where we’ve had it for the year to date. We continue to target mid to upper single digit revenue growth in the service side of the business, low to mid single digit on the project to get to that mid single digit, 5,6% revenue growth in the back half of the year.

Russ Becker

And Julian, just to, just to add a little bit of color on the elevator business, I’ll talk about the existing business that we acquired, you know, about this time last year elevated. That business is really performing as expected. They’re showing, you know, kind of mid to upper single digit organic growth on the performance of the business is really as expected. The new acquisition that we Just made is really a what we’re calling a tweener. I know that’s just a really, really good use of vocabulary, but it’s kind of, it’s not necessarily a bolt on, but it’s not the size of elevated either.

But it’s a really good company and it positions us in the Northeast that we think will be super additive to our business. We have a number of additional opportunities that we’re continuing to do some work on from a bolt on perspective. So we remain super optimistic. But we’ve got a long ways to go to building, to building out this billion dollar elevator and escalator platform that, that we stated that we believe we have the potential to do. So we’re just getting going. But I’m really optimistic and really excited about the direction that we’re headed and the opportunities that are in front of us.

Julian Mitchell

That’s helpful, thank you. And then I just wanted to follow up on the acquisition front and clearly you’ve made good progress already this year. Sorry if I missed it, but would you mind sort of fleshing out, you know, the profile sort of in aggregate of the acquisitions that have been announced, you know, and or closed in terms of sort of aggregate organic growth rate, any sort of margin profile, you know, how much EBITDA dollars are dialed into the guide now from acquisitions, you know, that have closed in the last 12 months or expected to close this year.

Russ Becker

Well, David can talk about the numbers, but I’ll talk to you a little bit about the profile of the deals. Obviously one of them is an elevator company and that’s kind of because we said that. And then five of the seven are in our North American safety business in, in the fire and security space. And one of the businesses was a very, very profitable H Vac service business that was a bolt on to one of our existing companies. And every one of these acquisitions is accretive. They’re either at fleet average or better. So they’re all accretive to, you know, really our long term results regarding what’s included in the guide.

I think David already said it was about a third of our increased guidance was through ma. I don’t know if you have any specific numbers you want to share.

David Jackola

No, that about does it. Over the course of the year, from Q1 to the end of Q4, we expect M&A to contribute north of $200 million of revenue in the business.

Julian Mitchell

Great, thank you.

Unidentified Speaker

Thanks, Julian.

operator

Your next question comes from the line of Ashish Sabada of RBC Capital Markets. Please go ahead.

Unidentified Participant

Hi. Good Morning. This is David Pajan for Ashish. Thanks for taking our questions. I was wondering if you could give an update on the international business chubb, just how that performed in the corner in the quarter and how you’re looking at it for the rest of the year. Thank you.

Russ Becker

Well, we like super fired up about the business and where that business is performing. You know, it showed organic growth again, you know, in the quarter. I think that business has grown now organically every quarter since we’ve owned it. We shared a data point in I think my prepared remarks about. We saw high single digit order growth in the business which really speaks to the health of their inspection and service business. So we continue to see really good momentum in our international business and we still have some work to do. They’re still optimizing. You know, we have an integration going on in Benelux that’s you know, fairly, fairly significant.

That got great leadership handling. We’re still continuing to do some work, you know, in our monitoring centers to optimize those but like business as usual there. And I would tell you that they’re doing a great job.

Unidentified Participant

Thank you.

operator

Your next question comes from the line of Jonathan Wonton of CJS Securities. Your line is now open.

Jonathan Wonton

Hi, good morning guys. Thank you for taking my questions. Ninth quarter and nice to see the progress on the M and A front. I was wondering if you could drill down on the elevator acquisition that you did. If I recall correctly, you know, Elevated itself had a very high EBITDA margin compared to your corporate average. And I’m wondering if the business that you acquired was similar to that or if it was more closer to your corporate average and maybe get close to what Elevated does over time.

Russ Becker

I would say. You know, it’s kind of funny because we were joking around about this as we were getting prepped that it’s, it’s really, really closer to Fleet average. We think, obviously we think that the potential for the business to get to, so to speak, the profile we’re elevated is, is there. But we feel that way with every, actually every one of our business. It’s no different than how we’re looking at our life safety and security businesses. You know, where the kind of the new normal for from a branch perspective is 20% and that’s where we’re pushing, you know, all of our businesses.

So but you know, at the time of the acquisition it’s really on par with Fleet average and with the potential to go and improve.

Jonathan Wonton

Okay, great, thank you. And then I noticed that the seven acquisitions you did, I Don’t believe any one of them was in international. I was wondering if you could speak to the opportunity there, the opportunity set that you’re seeing if any of the Lois that you’ve been, that you mentioned previously are in the international space and what we can expect there going forward.

Russ Becker

So we do have one small business under LOI in our international business as we sit here and our team is doing diligence on that company, you know, as we sit. So there’s no question that we’ve opened the aperture up to the international business. I would say that it’s, you know, it’s on a country by country basis just like it is for us, you know, in North America on a company by company basis. On the, you know, in the international business the country has to be able to kind of accept and integrate that business. And not, not every one of our businesses internationally is progressed to the point where we feel like they’re ready for a bolt on, but a number of them are and we’re certainly doing work and looking at a number of opportunities.

But we do have one small business under LOI in the international business.

Jonathan Wonton

Got it. Thanks, Russ.

Russ Becker

Thank you.

operator

Next question comes from the line of Jasper Beef of True Securities. Please go ahead.

Unidentified Participant

Hey, good morning everyone. Wanted to ask a two parter about specialty projects. Just hoping you could provide a bit more detail on the new business pipeline there and then also how your project selection initiatives might impact the margins for that business once you get through the ramp up phase. You talked about on some of these new wins.

Russ Becker

Well, I would say that the new pipeline, you know, and backlog is really, really solid. I mean, you know, we don’t, we. In our prepared remarks we stated that our backlog eclipsed 4 billion for the first time and that’s, you know, really kind of distributed across all aspects of our business. And I would say all aspects of our business are at record levels. So it’s very, very good and it’s very, very, very healthy. So we feel good about where we’re at. David mentioned that we expect to see sequential growth in gross margins as we work our way through the back half of the year.

And that’s the expectation that we have on the business and we think that the margins in our backlog are strong.

Unidentified Participant

Got it. And then specialty really surprised this quarter. But I guess wondering how we should think about the composition of segment organic revenue growth and margins in your third quarter outlook.

David Jackola

Yeah, I can give you some color on that, Jasper. So I’d expect in the third quarter, I think we answered a Question earlier on on the safety business. Mid single digit organic revenue growth in the third quarter there I’d expect high single digit organic revenue growth in the specialty business in the third quarter.

Unidentified Participant

Okay, got it. Thank you for taking the questions.

operator

Your next question comes from the line of Andy Kapowicz at cd. Your line is now open.

Andy Kaplowitz

Good morning everyone.

Russ Becker

Hey Andy, are you going to ask. Us seven questions in one question?

Andy Kaplowitz

I’ll try not to, Russ. I just wanted to ask you about, I just wanted to ask you about specialty. In one sense, you know, you’ve been focused on sort of higher margin projects, sort of getting rid of the low, you know, lost leading projects. How would you sort of assess that progress here? Like is any of that, you know, impacting the quarter or is it more just as you talked about sort of materials and mix?

Russ Becker

Yeah, I mean Andy, as you know, business isn’t linear and not everything, you know, necessarily flushes itself out in a perfectly straight line. And you know, if you look at like our Q2 of last year, we had a number of projects coming to completion and you typically have, you know, gross margin improvement as your projects finish and we have so to speak, more project starts going on right now, you know, and typically that’s at a lower gross margin. And so then you factor in, you have a little bit of cost inflation. You know, we had some weather impacts and all that stuff kind of put us where we are, you know, sitting in this quarter and we think it’ll only get better as we work our way through the, through the second half of the year.

Andy Kaplowitz

Appreciate that, Russ. And then obviously, you know, non res markets have been kind of all over the place. But your safety business is doing really well. You know, maybe just talk about sort of what you’re seeing out there. Inspection and service can continue to grow double digits, you know, for the foreseeable future.

Russ Becker

Well, we, we are really, I guess pleased with the way our, you know, again, our bellwether always is, you know, inspection growth. And you know, we stated that inspections grew for the 20th straight quarter at a double digit clip. So we don’t see really any let off in that. And that’s been really positive and that’s leading to strong organic growth in our service business that’s primarily in North America. And what we’re seeing internationally with you know, high single digit order growth is a, I guess really sending us a message that the sales transformation that has been initiated by our leadership there is really taking hold and taking shape.

So that’s all really focused on the service side of our Business in safety and that’s really positive and that gives us good comfort in direction that we’re going. Then you layer in really the strong project opportunities in the end markets that you know, we pursue and that’s just a really good combination and that’s what we’re seeing. And you know, data centers, semiconductors, advanced manufacturing, you know, all are really providing robust opportunities for us. And we’re just trying to make sure that we’re being smart so that we can, you know, get the gross margins on the work that we, that we really need, need to get for that work to be beneficial to, you know, to the company and to ultimately to our shareholders.

So there’s a lot of opportunity out there and proposal activity, you know, even with all the noise around tariffs, still the proposal activity is very, very robust. And we’re just trying to be smart about which what work we take and what work we pursue.

Andy Kaplowitz

Very helpful. Thanks, Beth.

Unidentified Speaker

Thank you, Andy.

operator

Your next question comes from the line of Thomas Sanna of JP Morgan. Please go ahead.

Thomas Sanna

Hi, good morning everyone. Thank you for taking my question.

Unidentified Speaker

Morning, Tomo.

Thomas Sanna

My first question is the North America inspection revenues have another 20 consecutive quarters double digit growth and wanted to get more color on the pricing improvements as well as the your inspection first strategies including technology standard points like AI field productivity tools. How you see the improvement of the margins of the in addition to the volume side of this business, please.

David Jackola

Yeah, so I’m happy to take it and if Russ has any commentary at the end. So we continue to be able to capture a little bit single digit pricing in our inspection service and monitoring revenue streams. And your question then on margin and the impact of AI and digital on margins going forward? I would say our expectation on all of our revenue streams is that we’re going to continue to be able to expand margin into 26, 27 and 28 as we pursue our 10, 16, 60 strategic goals. And that technology and the use of technology will be a part of that.

Russ Becker

Yeah. What I would say Tomo, is that I think actually the technology and AI and all that stuff that comes together is probably going to be more of providing leverage from an SGA perspective and making us more efficient. And you know, when you think about, you know, the labor market that’s out there, you know, we need to, you know, our efforts around artificial intelligence and technology need to enable us to continue to scale our business because we’re gonna have less people to be able to do the work. And so that’s really where the focus focus is.

But we’re, we have a team that is focused, you know, basically on AI on an international basis. And you know, the reality of it is, is just like most every other company, we’re probably in the bottom of the first inning in our, in our efforts there. But, you know, we actually are source resourcing and have a kind of an AI task force, for lack of better words.

Thomas Sanna

Thank you. And just one follow up on innovation side international business and safety services. Could you talk about leveraging digital with two visions? How actually you see customer reactions there. And could you talk about the, how you excited about the disk in terms of the volumes and margin International business, please?

David Jackola

Tomu, could you repeat your question, please?

Thomas Sanna

Yes. So I would like to get more color on digital strategies in international business, especially visions that you showcased at the IL day. If you see any the customer feedback in the second quarters and some expectation in the second half, please.

Russ Becker

Well, I mean, the work with Chubb, you know, Chubb Vision and stuff is really just in its infancy as well and just really getting cranked up. I mean, we see a lot of opportunity and with the work that that team is doing, I mean, I think there’s, there’s a lot of really good stuff happening there. But I think we’re too early to, you know, like declare victory or anything like that. Tomo, I think there’s a tremendous amount of opportunity. I would tell you that in a lot of ways our international businesses further along, you know, in that journey, you know, our leader there, Andrew White, is a bit techie himself and I think he, you know, he has, you know, a really broad vision for where that can go.

And that’s something that we’re working on making sure that we can take across the entire breadth of our portfolio, not just, you know, in the international business. But I’d say it’s too early to do to declare victory. I don’t know. David, you work there for, you know, so do you have any other color?

David Jackola

No. I mean, the only thing, it’s too early to declare victory, but it’s an incredible opportunity. I mean, in our international business, we’ve got 50 million connected devices and the more that we can use technology to serve our customers, the better our business will be.

Unidentified Speaker

Thank you for the caller, looking forward to it. Thank you very much.

operator

Your next question comes from the line of Kathleen Thompson of Thompson Research Group. Please go ahead.

Kathryn Thompson

Hi. Thank you for taking my question today. Just one observation. Despite all the gloomy headlines, I think it’s worth noting that a third of your EBITDA growth is from an improved outlook. So definitely Separating from a few other companies. The question to you when you look at, I just want to pull the string a little bit more on how API wins with AI. You know, you look at companies like Meta, had their guidance for 66 to 72 billion dollars for this year and they’re raising and they’re looking at reaching 100 billion next year. And you’ve touched briefly on a few, like on how API can win.

But could you give a few examples in terms of either how you win with new projects or with the ongoing maintenance and operation of the AI behemoth network that. Thanks very much.

Russ Becker

Well, when you’re doing the inspection and service work, you know, at whether it’s Meta or Microsoft or whoever, but when you’re doing the inspection service work at those facilities and they come along and expand at that existing site, you know, the opportunity for you to win that, that expansion, the business associated with that expansion rises, you know, dramatically because of the relationships you have and you know, the client is, you know, interested in consistency and service and follow through and all of that other stuff. Then when you have other larger opportunities that are, say more greenfield sites like say Meta’s 10x site, you know, in Louisiana, then it’s really relationship based and your ability to man work in some of these remote locations.

And that’s I think, something that we have really adept skills at and have the capacity and the workforce that we can bring to bear on those types of project opportunities. And those, those opportunities, you know, the selection criteria is usually around your ability to work safely, your ability to provide, you know, the right, you know, high quality, you know, skilled lead field leaders to actually execute the work, your ability to get the work done on time. I mean, because they’re very aggressive schedules and so there’s all these other gates and price is a very small factor that comes into the equation.

I’d also say on the fire life, safety and security side of it, there’s only a handful of firms that have the capacity and the skills to tackle projects of that magnitude. And that’s an element of complexity that’s a positive for a firm like ours. And so, but in the same breath we still have to be selective and be smart about, you know, which projects we pursue so that we don’t overextend ourselves and therefore, you know, don’t deliver on the commitments that we make to that customer. So I don’t know. Did that make sense, Katherine?

Kathryn Thompson

Yeah. Yeah. And so what it sounds to me that you can win business both at the build out, but then on an Ongoing basis with the ongoing typical services that you would do for any complex commercial building and structure. Is that correct? Am I hearing you correctly on that?

Russ Becker

That’s correct. And the more complex the opportunity, the better off we’re going to be. We don’t want to find ourselves in positions for say, project related work where let’s just say we’re not doing the inspection and service work for that customer. We don’t want to be in a position where we’re just competing on price. Like that’s just not our model. We don’t do well when we just compete on price. And if it’s just, if that’s what it is, if somebody’s going to, especially in today’s world, if somebody’s just going to treat it as an auction, if you will, we’re just, we’re not going to do well in that environment.

So it’s like, why even, why even waste your time pursuing it? And that’s why we have, you know, a fairly robust go, no go kind of checklist that we put our businesses through because we want them to actually, you know, think about should I even pursue this? And in the reality of it is it’s just going to be a price driven decision. They shouldn’t.

Kathryn Thompson

Yep, excellent. Thanks so much and best of luck going forward.

Russ Becker

Thanks, Katherine.

operator

Your next question comes from the line of Josh Chan of ubs. Please go ahead.

Josh Chan

Hey, good morning, Russ. David. Just two quick ones for me. So on the guidance raise that was for the rest of the year, I guess, the one third of the guidance raise, what got better? Was it primarily the specialty side of things.

Russ Becker

Josh? I think I’d attribute that to the really strong backlog that we were able to generate during the quarter. And the strong margin and strength of the backlog gave us comfort in the back half of the year.

Josh Chan

Okay, great. Thank you. And then on the backlog margin, it sounds like you’re pleased with the backlog margin. I guess when it comes to realizing that backlog margin over time, obviously you can control your own execution. But can you talk about other factors that you have to think about as that converts things that may or may not be outside your control and what you could do to kind of ring fence those?

Russ Becker

Well, obviously, Josh, the material cost escalation, inflation is something as prices go up, whether it’s because of tariffs or inflation or whatnot or a combination thereof. You know, that’s out of our control, but it’s in our control. I mean, like we have been talking very openly since President Trump won the election that he’s going to use tariffs as, you know, a lever for him to level the playing field from the tree trade perspective. And so you knew that it was coming. And so we’ve been working hard to protect ourselves, you know, during the time of our proposals.

I’m sure we’re not perfect and I’m sure there’s some gaps and some places where, you know, we, we, we didn’t do as well as we should. That would be one area. Weather is, you know, could be a significant, you know, issue and challenge for us because obviously when you have poor weather conditions, you’re not going to be as efficient, you know, with the deployment of your field leaders. And so that’s another area that could be, could be challenging. So those would probably be the primary two, you know, contributors. Obviously we have to execute. That’s an aspect of it.

Availability of labor and, and things like that is, could be a challenge as well. But the reality is, you know, everybody’s knowing that there’s going to be, you know, work, you know, availability of labor issues and challenges and shortages. And so, you know, as you are making decisions to take on, you know, whether it’s, you know, master service agreements or other project related opportunities, you know, you should be factoring that into, into the equation and that really should not be an excuse.

Josh Chan

Great. Thank you for the color, David and Russ and Congressman quarter.

Unidentified Speaker

Thanks, Josh.

operator

And we have one more question from Stephanie Moore of Jeffries. Please go ahead.

Stephanie Moore

Hi, good morning. Thanks everybody. Maybe just I want to go back to the margin performance in the quarter was very good, you know, across both segments. Obviously you’ve seen or consolidated level. But as we look at both segments, I was hoping maybe you could talk a little bit about the puts and takes of the margin performance. I know at your analyst day you walked through several levers to achieve, you know, ultimately your 16% plus target, you know, pricing, project selection and the like.

So maybe if you could just talk about, you know, the underlying puts and takes and your path to achieve some of those to achieve that target and then levers to get there. Thank you.

David Jackola

Yeah, happy to give you a little bit of color there, Stephanie. Puts and takes our own margin in the quarter. So our margin performance on inspection service and monitoring was strong. Continues to be. We’re able to get margin accretive price in that, that price part of the business. We were able to get good leverage out of our fixed cost base during the quarter partially due to the strong organic revenue growth. So that was a positive. We talked a little bit about rising material costs and we’ve talked a lot over the last couple of quarters about how our business is able to protect itself at the time of proposal and being able to capture the dollar value of rising material costs.

And we believe the business did a good job of doing that during the quarter. But that did have a little bit of margin erosion during the quarter. So I think, you know, when you talk about the service mix, you talk about discipline, project and customer selection, getting leverage. We’re seeing progress in all of those areas in our path to 13 and now 16% adjusted EBITDA margin.

Stephanie Moore

Great, very helpful. And then just one quick follow up. Is there any chance you can give a bit of an update on the systems investment that you called out at the analyst day, how it’s progressing thus far and anything you can call out on that. Thank you.

David Jackola

Yeah, absolutely. I’m sure you saw in the release the spend on the system and business enablement in the quarter. What I’d say is those are difficult, challenging, business led projects, but the team is performing, executing well and I’ve been particularly impressed with the way that that team is working closely to make sure that the voices of our branch company and field leaders is heard each and every step along the way. So really good progress on that. The team is committed, they’re executing well and we feel good about where that work is.

Stephanie Moore

Got it. Thank you. Appreciate it.

Unidentified Speaker

Thanks, Stephanie.

operator

And that concludes our Q and A session. I will now turn the conference back over to Ross Peter, our President and CEO, for closing remarks.

Russ Becker

Thank you. In closing, I would like to thank all our team members for their continued support and dedication to our business. I’m truly grateful for what each and every one of you do on a daily basis. I would also like to thank our long term shareholders as well as those that have recently joined us for their support. We appreciate your ownership of API and look forward to updating you on our progress throughout the remainder of the year. Thank you everybody.

operator

Ladies and gentlemen, that concludes today’s call. Thank you everyone for joining. You may now disconnect.