APi Group Corp - Quarter Report: 2023 September (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________

FORM 10-Q

___________________________________________________________

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to

Commission File Number 001-39275

____________________________________________________________

APi Group Corporation

(Exact Name of Registrant as Specified in its Charter)

____________________________________________________________


Delaware			98-1510303
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

1100 Old Highway 8 NW New Brighton, Minnesota			55112
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (651) 636-4320

____________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

APG

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 235,559,170 shares of common stock as of October 26, 2023.

Table of Contents

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION			3

Item 1. Financial Statements			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			38
Item 3. Quantitative and Qualitative Disclosures about Market Risk			53
Item 4. Controls and Procedures			55

PART II. OTHER INFORMATION			57

Item 1A. Risk Factors			57
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities			57
Item 4. Mine Safety Disclosures			57
Item 5. Other Information			57
Item 6. Exhibits			58

SIGNATURES			59

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

APi Group Corporation

Condensed Consolidated Balance Sheets (Unaudited)

(In millions, except share and per share data)


	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	461	$	605
Accounts receivable, net of allowances of $4 and $3 at September 30, 2023 and December 31, 2022, respectively	1,280		1,313
Inventories	155		163
Contract assets	530		459
Prepaid expenses and other current assets	226		112
Total current assets	2,652		2,652
Property and equipment, net	377		407
Operating lease right of use assets	227		222
Goodwill	2,404		2,382
Intangible assets, net	1,624		1,784
Deferred tax assets	107		108
Pension and post-retirement assets	407		392
Other assets	151		144
Total assets	$	7,949	$	8,091

Liabilities, Redeemable Convertible Preferred Stock, and Shareholders’ Equity
Current liabilities:
Short-term and current portion of long-term debt	$	256	$	206
Accounts payable	431		490
Contingent consideration and compensation liabilities	18		27
Accrued salaries and wages	320		337
Contract liabilities	474		463
Operating and finance leases	72		73
Other accrued liabilities	328		325
Total current liabilities	1,899		1,921
Long-term debt, less current portion	2,342		2,583
Pension and post-retirement obligations	37		40
Contingent consideration and compensation liabilities	10		6
Operating and finance leases	170		166
Deferred tax liabilities	340		340
Other noncurrent liabilities	122		111
Total liabilities	4,920		5,167

Commitments and contingencies (Note 15)

5.5% Series B Redeemable Convertible Preferred Stock, $0.0001 par value, 800,000 authorized shares, 800,000 shares issued and outstanding at September 30, 2023 and December 31, 2022; aggregate liquidation preference of $840	797		797

Shareholders’ equity:
Series A Preferred Stock, $0.0001 par value; 7,000,000 authorized shares; 4,000,000 shares issued and outstanding at September 30, 2023 and December 31, 2022	—		—
Common stock; $0.0001 par value, 500,000,000 authorized shares, 235,146,035 shares and 233,403,912 shares issued at September 30, 2023 and December 31, 2022, respectively (excluding 413,135 and 584,584 shares declared for stock dividend at September 30, 2023 and December 31, 2022, respectively)	—		—
Additional paid-in capital	2,562		2,558
Accumulated deficit	(36)		(164)
Accumulated other comprehensive loss	(294)		(267)
Total shareholders’ equity	2,232		2,127
Total liabilities, redeemable convertible preferred stock, and shareholders’ equity	$	7,949	$	8,091

See notes to condensed consolidated financial statements.

Table of Contents

APi Group Corporation

Condensed Consolidated Statements of Operations (Unaudited)

(In millions, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net revenues	$	1,784	$	1,735	$	5,169	$	4,855
Cost of revenues	1,273		1,295		3,737		3,604
Gross profit	511		440		1,432		1,251
Selling, general, and administrative expenses	407		379		1,148		1,138
Operating income	104		61		284		113
Interest expense, net	37		33		112		88
(Gain) loss on extinguishment of debt, net	—		(5)		3		(5)
Non-service pension benefit	(3)		(10)		(9)		(32)
Investment income and other, net	(4)		(3)		(9)		(5)
Other expense, net	30		15		97		46
Income before income taxes	74		46		187		67
Income tax provision	20		18		59		16
Net income	$	54	$	28	$	128	$	51
Net income attributable to common shareholders:
Stock dividend on Series B Preferred Stock	(11)		(11)		(33)		(33)
Net income attributable to common shareholders	$	43	$	17	$	95	$	18
Net income per common share:
Basic	$	0.15	$	0.06	$	0.32	$	0.06
Diluted	0.15		0.06		0.32		0.06
Weighted average shares outstanding:
Basic	235		234		235		233
Diluted	270		266		269		266

See notes to condensed consolidated financial statements.

Table of Contents

APi Group Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In millions)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income	$	54	$	28	$	128	$	51
Other comprehensive income (loss):
Fair value change - derivatives, net of tax benefit (expense) of $—, $(16), $(2), and $(27), respectively	1		51		7		82
Foreign currency translation adjustment	(63)		(86)		(22)		(311)
Comprehensive income (loss)	$	(8)	$	(7)	$	113	$	(178)

See notes to condensed consolidated financial statements.

Table of Contents

APi Group Corporation

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(In millions, except share amounts)


	Preferred Stock Issued and Outstanding			Common Stock Issued and Outstanding			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount
Balance, December 31, 2022	4,000,000	$	—	233,403,912	$	—	$	2,558	$	(164)	$	(267)	$	2,127
Net income	—	—		—	—		—		26		—		26
Fair value change - derivatives	—	—		—	—		—		—		(9)		(9)
Foreign currency translation adjustment	—	—		—	—		—		—		14		14
Gain on dedesignated derivatives amortized from AOCI into income	—	—		—	—		—		—		(4)		(4)
Series B Preferred Stock dividend	—	—		1,082,877	—		—		—		—		—
Share repurchases	—	—		(541,316)	—		(12)		—		—		(12)
Profit sharing plan contributions	—	—		631,194	—		14		—		—		14
Share-based compensation and other, net	—	—		636,233	—		9		—		—		9
Balance, March 31, 2023	4,000,000	$	—	235,212,900	$	—	$	2,569	$	(138)	$	(266)	$	2,165
Net income	—	—		—	—		—		48		—		48
Fair value change - derivatives	—	—		—	—		—		—		15		15
Foreign currency translation adjustment	—	—		—	—		—		—		27		27
Gain on dedesignated derivatives amortized from AOCI into income	—	—		—	—		—		—		(4)		(4)
Series B Preferred Stock dividend	—	—		436,992	—		—		—		—		—
Share repurchases	—	—		(428,688)	—		(11)		—		—		(11)
Share-based compensation and other, net	—	—		49,201	—		7		—		—		7
Balance, June 30, 2023	4,000,000	$	—	235,270,405	$	—	$	2,565	$	(90)	$	(228)	$	2,247
Net income	—	—		—	—		—		54		—		54
Fair value change - derivatives	—	—		—	—		—		—		1		1
Foreign currency translation adjustment	—	—		—	—		—		—		(63)		(63)
Gain on dedesignated derivatives amortized from AOCI into income	—	—		—	—		—		—		(4)		(4)
Share repurchases	—	—		(656,489)	—		(18)		—		—		(18)
Share-based compensation and other, net	—	—		532,119	—		15		—		—		15
Balance, September 30, 2023	4,000,000	$	—	235,146,035	$	—	$	2,562	$	(36)	$	(294)	$	2,232

Table of Contents


	Preferred Stock Issued and Outstanding			Common Stock Issued and Outstanding			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount
Balance, December 31, 2021	4,000,000	$	—	224,625,193	$	—	$	2,560	$	(237)	$	—	$	2,323
Net loss	—	—		—	—		—		(7)		—		(7)
Fair value change - derivatives	—	—		—	—		—		—		9		9
Foreign currency translation adjustment	—	—		—	—		—		—		(59)		(59)
Series A Preferred Stock dividend	—	—		7,539,697	—		—		—		—		—
Series B Preferred Stock dividend	—	—		519,469	—		—		—		—		—
Share repurchases	—	—		(531,431)	—		(11)		—		—		(11)
Profit sharing plan contributions	—	—		622,655	—		15		—		—		15
Share-based compensation and other, net	—	—		413,029	—		8		—		—		8
Balance, March 31, 2022	4,000,000	$	—	233,188,612	$	—	$	2,572	$	(244)	$	(50)	$	2,278
Net income	—	—		—	—		—		30		—		30
Fair value change - derivatives	—	—		—	—		—		—		22		22
Foreign currency translation adjustment	—	—		—	—		—		—		(166)		(166)
Series B Preferred Stock dividend	—	—		686,455	—		—		—		—		—
Share repurchases	—	—		(681,329)	—		(11)		—		—		(11)
Share-based compensation and other, net	—	—		24,584	—		3		—		—		3
Balance, June 30, 2022	4,000,000	—		233,218,322	—		2,564		(214)		(194)		2,156
Net income	—	—		—	—		—		28		—		28
Fair value change - derivatives	—	—		—	—		—		—		51		51
Foreign currency translation adjustment	—	—		—	—		—		—		(86)		(86)
Series B Preferred Stock dividend	—	—		739,015	—		—		—		—		—
Share repurchases	—	—		(738,572)	—		(11)		—		—		(11)
Share-based compensation and other, net	—	—		567,370	—		12		—		—		12
Balance, September 30, 2022	4,000,000	$	—	233,786,135	$	—	$	2,565	$	(186)	$	(229)	$	2,150

See notes to condensed consolidated financial statements.

Table of Contents

APi Group Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net income	$	128	$	51
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	59		60
Amortization	167		165
Restructuring charges, net of cash paid	17		12
Deferred taxes	5		(9)
Share-based compensation expense	19		14
Profit-sharing expense	14		10
Non-cash lease expense	55		49
Net periodic pension benefit	(9)		(32)
Loss (gain) on extinguishment of debt, net	3		(5)
Other, net	3		13
Pension contributions	(3)		(27)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	23		(104)
Contract assets	(78)		(134)
Inventories	2		(25)
Prepaid expenses and other current assets	(62)		(25)
Accounts payable	(47)		68
Accrued liabilities and income taxes payable	(27)		(6)
Contract liabilities	9		46
Other assets and liabilities	(61)		(39)
Net cash provided by operating activities	217		82
Cash flows from investing activities:
Acquisitions, net of cash acquired	(57)		(2,881)
Purchases of property and equipment	(64)		(60)
Proceeds from sales of property and equipment	13		10
Net cash used in investing activities	(108)		(2,931)
Cash flows from financing activities:
Proceeds from long-term borrowings	—		1,104
Payments on long-term borrowings	(206)		(33)
Repurchases of long-term borrowings	—		(30)
Payments of debt issuance costs	—		(25)
Repurchases of common stock	(41)		(33)
Proceeds from equity issuances	—		797
Payments of acquisition-related consideration	(4)		(6)
Restricted shares tendered for taxes	(2)		(1)
Net cash (used in) provided by financing activities	(253)		1,773
Effect of foreign currency exchange rate change on cash, cash equivalents, and restricted cash	(1)		(17)
Net decrease in cash, cash equivalents, and restricted cash	(145)		(1,093)
Cash, cash equivalents, and restricted cash, beginning of period	607		1,491
Cash, cash equivalents, and restricted cash, end of period	$	462	$	398
Supplemental cash flow disclosures:
Cash paid for interest	$	119	$	81
Cash paid for income taxes, net of refunds	70		24
Accrued consideration issued in business combinations	5		1
Shares of common stock issued to profit sharing plan	14		13

See notes to condensed consolidated financial statements.

Table of Contents

APi Group Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in millions, except shares and where noted otherwise)

NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of business

APi Group Corporation (the “Company” or “APG”) is a global, market-leading business services provider of safety and specialty services in over 500 locations worldwide.

Principles of consolidation

The accompanying interim unaudited condensed consolidated financial statements (the “Interim Statements”) include the accounts of the Company and of its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. These Interim Statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and do not include all of the information and footnotes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete financial statements. The condensed consolidated balance sheets as of December 31, 2022, were derived from audited financial statements for the year then ended but do not include all of the information and footnotes required by U.S. GAAP with respect to annual financial statements. In the opinion of management, the Interim Statements include all adjustments (including normal recurring accruals) necessary for a fair presentation of the Company’s consolidated financial position, results of operations, and cash flows for the dates and periods presented. It is recommended that these Interim Statements be read in conjunction with the Company’s audited annual consolidated financial statements and accompanying footnotes thereto for the year ended December 31, 2022. Results for interim periods are not necessarily indicative of the results to be expected for a full fiscal year or for any future period.

Cash, cash equivalents, and restricted cash

The Company considers all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents. Restricted cash is reported as other current assets in the condensed consolidated balance sheets. Restricted cash reflects collateral against certain bank guarantees.

Investments

The Company holds investments in joint ventures, the majority of which are accounted for under the equity method of accounting as the Company does not exercise control over the joint ventures. The Company exercises control over one joint venture that is consolidated into the Company's financial statements and the results for that joint venture for the three and nine months ended September 30, 2023 were immaterial. The Company’s share of earnings from the non-consolidated joint ventures was $1 and $2 during the three months ended September 30, 2023 and 2022, respectively, and $5 and $3 during the nine months ended September 30, 2023 and 2022, respectively. The earnings are recorded within investment income and other, net in the condensed consolidated statements of operations. The investment balances were $6 and $4 as of September 30, 2023 and December 31, 2022, respectively, and are recorded within other assets in the condensed consolidated balance sheets.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

See the discussion below for information pertaining to the effects of recent accounting pronouncements as updated from the discussion in the Company’s 2022 audited consolidated financial statements included in the Company’s Annual Report on Form 10-K filed on March 1, 2023.

In August 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-05, Business Combinations— Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement, which requires that a joint venture apply a new basis of accounting upon formation. As a result, a newly formed joint venture would initially measure its assets and liabilities at fair value. ASU 2023-05 is effective for joint ventures with a formation date on or after January 1, 2025, with early

Table of Contents

adoption permitted. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements, but does not expect the impact to be material.

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, which incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification. This update will improve disclosure and presentation requirements of a variety of topics and align the requirements in the FASB codification with the SEC’s regulations. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements, but does not expect the impact to be material.

NOTE 3. BUSINESS COMBINATIONS

The Company regularly evaluates potential acquisitions that strategically fit with the Company’s existing portfolio or expand the Company’s portfolio into a new and attractive business area. Acquisitions are accounted for as business combinations using the acquisition method of accounting. As such, the Company makes a preliminary allocation of the purchase price to the tangible assets, identifiable intangible assets acquired, and liabilities assumed. In the months after closing, as the Company obtains additional information about the acquired assets and liabilities and learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. The purchase price is allocated to acquired assets and liabilities assumed based upon their estimated fair values, with limited exceptions as permitted pursuant to U.S. GAAP, as determined based on estimates and assumptions deemed reasonable by the Company. The Company engages third-party valuation specialists to assist with the preparation of critical assumptions and calculations of the fair value of acquired tangible and intangible assets in connection with significant acquisitions. The excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed is recorded as goodwill. Goodwill is attributable to the workforce of the acquired businesses, the complementary strategic fit and resulting synergies these businesses bring to existing operations, and the opportunities in new markets expected to be achieved from the expanded platform.

2023 Acquisitions

The Company completed an acquisition included within the Safety Services segment on June 30, 2023 ("Acquisition A23"). Consideration for Acquisition A23 included cash paid at closing of $30, cash deposited into escrow for future deferred payments of $5, and accrued consideration of $3. The results of operations of this acquisition are included in the Company’s condensed consolidated statements of operations from the date of acquisition.

During the nine months ended September 30, 2023, the Company completed four individually immaterial acquisitions for aggregate consideration transferred of $24, made up of cash paid at closing of $22 and accrued consideration of $2. The results of operations of these acquisitions are included in the Company’s condensed consolidated statement of operations from their respective dates of acquisition and were not material.

The Company has not finalized its accounting for the acquisitions and will make appropriate adjustments to the purchase price allocation prior to completion of the measurement periods, as required. Based on preliminary estimates, the total amount of goodwill from acquisitions expected to be deductible for tax purposes is $38.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the dates of acquisition:

Table of Contents


	Acquisition A23		Other 2023 acquisitions
Cash paid at closing	$	30	$	22
Cash deposited into escrow	5		—
Accrued consideration	3		2
Total net consideration	$	38	$	24

Accounts receivable	$	8	$	—
Contract assets	1		—
Intangible assets	13		5
Goodwill	20		19
Accounts payable	(1)		—
Contract liabilities	(3)		—
Net assets acquired	$	38	$	24

2022 Chubb Acquisition

During 2022, the Company completed its acquisition of the Chubb fire and security business (the "Chubb Acquisition"). The Chubb fire and security business (the "Chubb business" or "Chubb") is a globally recognized fire safety and security services provider, offering customers complete and reliable services from design and installation to monitoring and on-going maintenance and recurring services. The Chubb business is headquartered in the United Kingdom, and has operations in 17 countries, expanding the Company's geographic footprint to a total of over 20 countries. The results of the Chubb business are reported within the Company's Safety Services segment.

Based on U.S. income tax principles related to acquisitions of non-U.S. entities, none of the total amount of goodwill is deductible for U.S. income tax purposes.

The following table summarizes the final fair values of the assets acquired and liabilities assumed at the date of the Chubb Acquisition:


Cash paid at closing	$	2,935
Working capital and net indebtedness adjustment	(42)
Total net consideration	$	2,893

Cash	$	60
Accounts receivable	426
Inventories	68
Contract assets	183
Other current assets	25
Property and equipment	73
Operating lease right of use assets	146
Pension and post-retirement assets	626
Other noncurrent assets	8
Intangible assets	1,200
Goodwill	1,367
Accounts payable	(192)
Contract liabilities	(162)
Accrued expenses	(255)
Finance and operating lease liabilities	(148)
Pension and post-retirement obligations	(56)
Deferred tax liabilities	(383)
Other noncurrent liabilities	(93)
Net assets acquired	$	2,893

Table of Contents

Accrued consideration

The Company’s acquisition purchase agreements typically include deferred payment provisions, often to sellers who become employees of the Company or its subsidiaries. The provisions are made up of three general types of arrangements, contingent compensation and contingent consideration (both of which are contingent on the future performance of the acquired entity) and deferred payments related to indemnities. Contingent compensation arrangements are typically contingent on the former owner’s future employment with the Company, and the related amounts are recognized over the required employment period, which is typically one to four years. Contingent consideration arrangements are not contingent on employment and are included as part of purchase consideration at the time of the initial acquisition and are paid over a one to four year period. The liability for deferred payments is recognized at the date of acquisition based on the Company’s best estimate and is typically payable over a one to three year period. Deferred payments are not contingent on any future performance or employment obligations and can be offset for working capital true-ups, and representations and warranty items.

The total contingent compensation arrangement liability was $7 and $19 at September 30, 2023, and December 31, 2022, respectively. The maximum payout of these arrangements upon completion of the future performance periods was $15 and $25, inclusive of the $7 and $19, accrued as of September 30, 2023, and December 31, 2022, respectively. The contingent compensation liability is included in contingent consideration and compensation liabilities in the condensed consolidated balance sheets for all periods presented. The Company primarily determines the contingent compensation liability based on forecasted cumulative earnings compared to the cumulative earnings target set forth in the arrangement. Compensation expense associated with these arrangements is recognized ratably over the required employment period.

The contingent consideration obligations are measured at fair value each reporting period and changes in estimates of fair value are recognized in earnings. For additional considerations regarding the fair value of the Company's contingent consideration liabilities, see Note 8 - "Fair Value of Financial Instruments."

The total liability for deferred payments was $14 and $9 at September 30, 2023 and December 31, 2022, respectively, and is included in contingent consideration and compensation liabilities in the condensed consolidated balance sheets for all periods presented.

NOTE 4. ASSETS HELD FOR SALE

During the three months ended September 30, 2023, the Company determined its intent to sell an infrastructure/utility operating company in its Specialty Services segment (the "Operating Company"), and classified the net book value of the Operating Company as held for sale in the condensed consolidated balance sheets. As of September 30, 2023, the Operating Company remains classified as held for sale. Pursuant to the authoritative literature, the Company evaluated the recoverability of the carrying value of the assets and liabilities held for sale. During the three months ended September 30, 2023, the Company recorded an impairment charge of $13 in selling, general, and administrative expenses in the condensed consolidated statements of operations related to impairment of goodwill, intangible assets, and other assets.

The following table presents information related to the major classes of assets recorded in prepaid expenses and other current assets and liabilities recorded in other accrued liabilities that were classified as held for sale in the condensed consolidated balance sheets:


	September 30, 2023
Accounts receivable	$	14
Inventories	2
Contract assets	6
Property and equipment, net	27
Operating lease right of use assets	2
Accounts payable	(8)
Other current liabilities	(3)
Noncurrent operating and finance leases	(3)
Total assets and liabilities held for sale	$	37

On October 3, 2023, the Company entered into a definitive agreement to sell the Operating Company for $37. The sale is expected to close before December 31, 2023.

Table of Contents

NOTE 5. RESTRUCTURING

During 2022, the Company announced its 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 2024.

During the nine months ended September 30, 2023, the Company incurred pre-tax restructuring costs within the Safety Services segment of $21 in connection with the Chubb restructuring program. Since the Chubb Acquisition, the Company has incurred aggregate restructuring costs of $51. As of September 30, 2023, the Company had $23 in restructuring liabilities recorded in other accrued liabilities on the condensed consolidated balance sheets for this plan.

In total, the Company estimates that it will recognize approximately $105 of restructuring costs related to the Chubb restructuring program by the end of fiscal year 2024.

For the restructuring program, employee-related costs consist of termination benefits provided to employees who have been involuntarily terminated and voluntary early retirement benefits. Program related costs include costs incurred as a direct result of the restructuring program such as consulting fees and facility relocation costs.

The following table summarizes the Company's restructuring program for the nine months ended September 30, 2023 and 2022:


	Employee termination benefits		Program related costs		Asset write-downs		Total
December 31, 2022	$	22	$	—	$	—	$	22
Charges	21		1		4		26
Payments	(18)		—		—		(18)
Reversals	(1)		—		—		(1)
Currency translation adjustment	(1)		—		—		(1)
September 30, 2023	$	23	$	1	$	4	$	28


	Employee termination benefits		Program related costs		Asset write-downs		Total
December 31, 2021	$	—	$	—	$	—	$	—
Charges	18		—		—		18
Payments	(6)		—		—		(6)
Currency translation adjustment	(1)		—		—		(1)
September 30, 2022	$	11	$	—	$	—	$	11

NOTE 6. NET REVENUES

Contracts with customers

The Company derives net revenues primarily from contracts with a duration of less than one week to three years (with the majority of contracts with durations of less than six months), which are subject to multiple pricing options, including fixed price, unit price, time and material, or cost plus a markup. Net revenues are primarily recognized by the Company over time utilizing the cost-to-cost measure of progress. Net revenues recognized at a point in time primarily relate to distribution contracts and short-term time and material contracts. The Company also enters into fixed-price service contracts related to monitoring, maintenance, and inspection of safety systems.

The Company disaggregates its net revenues primarily by segment, service type, and country from which revenues are invoiced, as the nature, timing, and uncertainty of cash flows are relatively consistent within each of these categories. The following tables provide disclosure of disaggregated net revenues by segment for the three and nine months ended September 30, 2023, and 2022. During 2023, the Company moved an immaterial business component within the Safety

Table of Contents

Services segment from the HVAC to the Life Safety reporting unit, and prior period amounts in this table have been recast to reflect the current period presentation. Disaggregated net revenues information is as follows:


	Three Months Ended September 30, 2023
	Safety Services		Specialty Services		Consolidated
Life Safety	$	1,084	$	—	$	1,084
Heating, Ventilation, and Air Conditioning ("HVAC")	133		—		133
Infrastructure/Utility	—		360		360
Fabrication	—		42		42
Specialty Contracting	—		167		167
Corporate and Eliminations	—		—		(2)
Net revenues	$	1,217	$	569	$	1,784


	Three Months Ended September 30, 2022
	Safety Services		Specialty Services		Consolidated
Life Safety	$	1,021	$	—	$	1,021
HVAC	133		—		133
Infrastructure/Utility	—		341		341
Fabrication	—		87		87
Specialty Contracting	—		162		162
Corporate and Eliminations	—		—		(9)
Net revenues	$	1,154	$	590	$	1,735


	Nine Months Ended September 30, 2023
	Safety Services		Specialty Services		Consolidated
Life Safety	$	3,250	$	—	$	3,250
HVAC	383		—		383
Infrastructure/Utility	—		907		907
Fabrication	—		155		155
Specialty Contracting	—		492		492
Corporate and Eliminations	—		—		(18)
Net revenues	$	3,633	$	1,554	$	5,169


	Nine Months Ended September 30, 2022
	Safety Services		Specialty Services		Consolidated
Life Safety	$	3,003	$	—	$	3,003
HVAC	371		—		371
Infrastructure/Utility	—		849		849
Fabrication	—		194		194
Specialty Contracting	—		477		477
Corporate and Eliminations	—		—		(39)
Net revenues	$	3,374	$	1,520	$	4,855

Table of Contents


	Three Months Ended September 30, 2023
	Safety Services		Specialty Services		Corporate and Eliminations		Consolidated
United States	$	595	$	559	$	(2)	$	1,152
France	140		—		—		140
Other	482		10		—		492
Net revenues	$	1,217	$	569	$	(2)	$	1,784


	Three Months Ended September 30, 2022
	Safety Services		Specialty Services		Corporate and Eliminations		Consolidated
United States	$	568	$	565	$	(9)	$	1,124
France	125		—		—		125
Other	461		25		—		486
Net revenues	$	1,154	$	590	$	(9)	$	1,735


	Nine Months Ended September 30, 2023
	Safety Services		Specialty Services		Corporate and Eliminations		Consolidated
United States	$	1,738	$	1,525	$	(18)	$	3,245
France	446		—		—		446
Other	1,449		29		—		1,478
Net revenues	$	3,633	$	1,554	$	(18)	$	5,169


	Nine Months Ended September 30, 2022
	Safety Services		Specialty Services		Corporate and Eliminations		Consolidated
United States	$	1,576	$	1,481	$	(39)	$	3,018
France	417		—		—		417
Other	1,381		39		—		1,420
Net revenues	$	3,374	$	1,520	$	(39)	$	4,855

For in-process contracts, the aggregate amount of transaction price allocated to the unsatisfied performance obligations at September 30, 2023 was $2,732. The Company expects to recognize revenue on approximately 87% of the remaining performance obligations over the next twelve months.

Contract assets and liabilities

Contract assets and contract liabilities are classified as current in the condensed consolidated balance sheets as all amounts are expected to be relieved within one year. The balances of accounts receivable, net of allowances, contract assets, and contract liabilities from contracts with customers as of September 30, 2023 and December 31, 2022 are as follows:


	Accounts receivable, net of allowances		Contract assets		Contract liabilities
Balance at September 30, 2023	$	1,280	$	530	$	474
Balance at December 31, 2022	1,313		459		463

The Company did not recognize significant revenues associated with the final settlement of contract value for any projects completed in prior periods. In accordance with industry practice, accounts receivable includes retentions receivable, a portion of which may not be received within one year. At September 30, 2023 and December 31, 2022, retentions receivable were $159 and $150, respectively, while the portions that may not be received within one year were $27 and $35, respectively.

Table of Contents

NOTE 7. GOODWILL AND INTANGIBLES

Goodwill

The following table provides disclosure of goodwill by segment as of September 30, 2023 and December 31, 2022. The changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2023 are as follows:


	Safety Services		Specialty Services		Total Goodwill
Goodwill as of December 31, 2022	$	2,201	$	181	$	2,382
Acquisitions	39		—		39
Impairment of goodwill (1)	—		(4)		(4)
Foreign currency translation	(13)		—		(13)
Goodwill as of September 30, 2023	$	2,227	$	177	$	2,404

(1) During the three months ended September 30, 2023, the Company determined its intent to sell the Operating Company (see Note 4 – “Assets Held for Sale”). Pursuant to the authoritative literature, the Company evaluated the recoverability of the carrying value of the assets and liabilities held for sale and recorded a goodwill impairment charge of $4.

Intangibles

The Company’s identifiable intangible assets are comprised of the following as of September 30, 2023 and December 31, 2022:


	September 30, 2023
	Weighted Average Remaining Useful Lives (in Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangibles:
Contractual backlog	0.3	$	154	$	(146)	$	8
Customer relationships	9.5	1,513		(477)		1,036
Trade names and trademarks	12.4	702		(122)		580
Total		$	2,369	$	(745)	$	1,624

Table of Contents


	December 31, 2022
	Weighted Average Remaining Useful Lives (in Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangibles:
Contractual backlog	0.9	$	153	$	(126)	$	27
Customer relationships	10.0	1,508		(367)		1,141
Trade names and trademarks	13.2	704		(88)		616
Total		$	2,365	$	(581)	$	1,784

Amortization expense recognized on identifiable intangible assets is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Cost of revenues	$	7	$	15	$	20	$	22
Selling, general, and administrative expenses	49		36		147		143
Total intangible asset amortization expense	$	56	$	51	$	167	$	165

NOTE 8. FAIR VALUE OF FINANCIAL INSTRUMENTS

U.S. GAAP defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance discusses valuation techniques such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. As the basis for evaluating such inputs, a three-tier value hierarchy prioritizes the inputs used in measuring fair value as follows:

Level 1:Observable inputs such as quoted prices for identical assets or liabilities in active markets.

Level 2:Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3:Unobservable inputs that reflect the Company's own assumptions.

Recurring fair value measurements

The Company’s financial assets and liabilities (adjusted to fair value at least quarterly) are derivative instruments and contingent consideration obligations. In the condensed consolidated balance sheets, derivative instruments are primarily included in other noncurrent assets and other noncurrent liabilities, and contingent consideration obligations are primarily included in contingent consideration and compensation liabilities.

Table of Contents

The following tables summarize the fair values and levels within the fair value hierarchy in which the measurements fall for assets and liabilities measured on a recurring basis as of September 30, 2023 and December 31, 2022:


	Fair Value Measurements at September 30, 2023
Financial assets:	Level 1		Level 2		Level 3		Total
Derivatives designated as hedge instruments
Cash flow hedges - interest rate swaps	$	—	$	36	$	—	$	36
Cash flow hedges - cross currency contracts	—		15		—		15
Cash flow hedges - foreign currency forward contracts	—		—		—		—
Net investment hedges - cross currency contracts	—		27		—		27
Fair value hedges - cross currency contracts	—		47		—		47
Derivatives not designated as hedge instruments
Foreign currency forward contracts	—		1		—		1
Total	$	—	$	126	$	—	$	126

Financial liabilities:
Derivatives not designated as hedge instruments
Foreign currency forward contracts	—		(1)		—		(1)
Contingent consideration obligations	—		—		(6)		(6)
Total	$	—	$	(1)	$	(6)	$	(7)


	Fair Value Measurements at December 31, 2022
Financial assets:	Level 1		Level 2		Level 3		Total
Derivatives designated as hedge instruments
Cash flow hedges - interest rate swaps	$	—	$	14	$	—	$	14
Cash flow hedges - cross currency contracts	—		17		—		17
Cash flow hedges - foreign currency forward contracts	—		—		—		—
Net investment hedges - cross currency contracts	—		32		—		32
Fair value hedges - cross currency contracts	—		50		—		50
Derivatives not designated as hedge instruments
Foreign currency forward contracts	—		—		—		—
Total	$	—	$	113	$	—	$	113

Financial liabilities:
Derivatives not designated as hedge instruments
Foreign currency forward contracts	—		—		—		—
Contingent consideration obligations	—		—		(4)		(4)
Total	$	—	$	—	$	(4)	$	(4)

The Company determines the fair value of its derivative instruments designated as hedge instruments using standard pricing models and market-based assumptions for all inputs such as yield curves and quoted spot and forward exchange rates. Accordingly, the Company’s derivative instruments are classified as Level 2.

Contingent consideration obligations

The value of the contingent consideration obligations is determined using a probability-weighted discounted cash flow method. This fair value measurement is based on unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. This analysis reflects the contractual terms of the purchase agreements (e.g.,

Table of Contents

potential payment amounts, length of measurement periods, manner of calculating any amounts due) and utilizes assumptions with regard to future cash flows, probabilities of achieving such future cash flows, and a discount rate. Depending on the contractual terms of the purchase agreement, the probabilities of achieving future cash flows or earnings generally represent the only significant unobservable inputs. The contingent consideration obligations are measured at fair value each reporting period, and changes in estimates of fair value are recognized in earnings.

The table below presents a reconciliation of the fair value of the Company’s contingent consideration obligations that use unobservable inputs (Level 3), as well as other information about the contingent consideration obligations:


	Nine Months Ended, September 30, 2023
Balance as of December 31, 2022	$	4
Issuances	3
Settlements	(1)
Adjustments to fair value	—
Balance as of September 30, 2023	$	6
Number of open contingent consideration arrangements at the end of the period	2
Maximum potential payout at the end of the period	$	6

At September 30, 2023, the remaining open contingent consideration arrangements are set to expire at various dates through 2025. Level 3 unobservable inputs were used to calculate the fair value adjustments shown in the table above. The fair value adjustments and the related unobservable inputs were not considered significant for the three and nine months ended September 30, 2023.

Fair value estimates

The following table presents the carrying amount and fair value of the Company’s term loans and senior notes (instruments defined in Note 11 – “Debt”), including current portions and excluding unamortized debt issuance costs. The fair values are estimated by discounting future cash flows at current interest rates for borrowing arrangements with similar terms and conditions. The inputs used to calculated fair value are considered to be Level 2 inputs under the fair value hierarchy. During the first quarter of 2023, the Company repaid an aggregate amount of $200, $100 to each of the 2019 Term Loan and 2021 Term Loan.


	September 30, 2023				December 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
2019 Term Loan	$	1,027	$	1,027	$	1,127	$	1,120
2021 Term Loan	985		986		1,085		1,075
4.125% Senior Notes	337		285		337		284
4.750% Senior Notes	277		242		277		243

See Note 19 - "Subsequent Events” for a discussion of the October 2023 repricing of the 2019 Term Loan and 2021 Term Loan, extension of the 2019 Term Loan, and partial repayment of the 2019 Term Loan.

NOTE 9. DERIVATIVES

The Company uses foreign currency forward contracts, cross-currency swaps, and interest rate swap agreements to manage risks associated with foreign currency exchange rates, net investments in foreign operations, and interest rates. The Company does not hold derivative financial instruments of a speculative nature or for trading purposes. The Company records derivatives as assets and liabilities on the condensed consolidated balance sheets at fair value. Changes in fair value are recognized immediately in earnings unless the derivative qualifies and is designated as a hedge under ASC 815, Derivatives and Hedging. Cash flows from derivatives are classified in the condensed consolidated statements of cash flows in the same category as the cash flows from items subject to designated hedge or undesignated (economic) hedge relationships. The Company evaluates hedge effectiveness at inception and on an ongoing basis. If a derivative is no longer expected to be effective, hedge accounting is discontinued.

Table of Contents

The Company is exposed to credit risk in the event of nonperformance of counterparties for foreign currency forward exchange contracts, cross currency swaps, and interest rate swap agreements. The Company monitors its exposure to credit risk by using credit approvals and credit limits and by selecting major global banks and financial institutions as counterparties. The Company does not enter into derivative transactions for trading purposes, and is not party to any derivatives that require collateral to be posted prior to settlement.

Certain of the Company’s derivative transactions are subject to master netting arrangements that allow the Company to net settle contracts with the same counterparties. These arrangements do not call for collateral, and no cash collateral had been received or pledged related to the underlying derivatives as of September 30, 2023.

The following table presents the fair value of derivative instruments:


	September 30, 2023						December 31, 2022
	Outstanding Gross Notional Amount		Other Assets		Other Noncurrent liabilities		Outstanding Gross Notional Amount		Other Assets		Other Noncurrent liabilities
Derivatives designated as hedging instruments:
Cash flow hedges:
Interest rate swaps	$	1,120	$	36	$	—	$	1,120	$	14	$	—
Cross currency contracts	120		15		—		120		17		—
Foreign currency forward contracts	2		—		—		—		—		—
Fair value hedges:
Cross currency contracts	721		47		—		721		50		—
Net investment hedges:
Cross currency contracts	230		27		—		230		32		—
Total derivatives designated as hedging instruments	2,193		125		—		2,191		113		—

Derivatives not designated as hedging instruments:
Foreign currency forward contracts	103		1		(1)		118		—		—
Total derivatives not designated as hedging instruments	103		1		(1)		118		—		—

Total derivatives	$	2,296	$	126	$	(1)	$	2,309	$	113	$	—

Table of Contents

The following table presents the after tax effect of derivatives on the condensed consolidated statements of operations:


		Amount of income (expense) recognized in income
Derivatives	Location of income (expense) recognized in income	Three Months Ended September 30,
		2023		2022
Cash flow hedging relationships:
Interest rate swaps	Interest expense, net	$	8	$	1
Cross currency contracts	Investment income and other, net	3		7
Cross currency contracts	Interest expense, net	1		1
Foreign currency forward contracts	Investment income and other, net	—		—
Fair value hedging relationships:
Cross currency contracts	Investment income and other, net	22		49
Cross currency contracts	Interest expense, net	1		1
Net investment hedging relationships:
Cross currency contracts	Interest expense, net	1		1
Not designated as hedging instruments:
Foreign currency forward contracts	Investment income and other, net	—		2


		Amount of income (expense) recognized in income
Derivatives	Location of income (expense) recognized in income	Nine Months Ended September 30,
		2023		2022
Cash flow hedging relationships:
Interest rate swaps	Interest expense, net	$	23	$	(3)
Cross currency contracts	Investment income and other, net	1		15
Cross currency contracts	Interest expense, net	2		2
Foreign currency forward contracts	Investment income and other, net	—		—
Fair value hedging relationships:
Cross currency contracts	Investment income and other, net	1		92
Cross currency contracts	Interest expense, net	2		3
Net investment hedging relationships:
Cross currency contracts	Interest expense, net	3		3
Not designated as hedging instruments:
Foreign currency forward contracts	Investment income and other, net	—		5

Currency Effects

The income (expense) from derivatives designed to offset foreign currency exposure and recorded in investment income and other, net were offset by foreign currency transaction gains and losses resulting in a net gain (loss) of $0 for both the three months ended September 30, 2023 and 2022, and $0 and $(2) for the nine months ended September 30, 2023 and 2022, respectively.

Table of Contents

The following table presents the effect of cash flow and fair value hedge accounting on accumulated other comprehensive income (loss) ("AOCI"):


	Amount of gain (loss) recognized in other comprehensive income				Location of gain (loss) reclassified from AOCI into income	Amount of gain (loss) reclassified from AOCI into income
	Three Months Ended September 30,					Three Months Ended September 30,
Derivatives	2023		2022			2023		2022
Cash flow hedging relationships:
Interest rate swaps	$	8	$	35	Interest expense, net	$	4	$	1
Cross currency contracts	(2)		—		Investment income and other, net	3		7
Forward currency forward contracts	—		—		Investment income and other, net	—		—
Fair value hedging relationships:
Cross currency contracts	(7)		6		Investment income and other, net	23		51
Net investment hedging relationships:
Cross currency contracts	2		10		Interest expense, net	(1)		(1)


	Amount of gain (loss) recognized in other comprehensive income				Location of gain (loss) reclassified from AOCI into income	Amount of gain (loss) reclassified from AOCI into income
	Nine Months Ended September 30,					Nine Months Ended September 30,
Derivatives	2023		2022			2023		2022
Cash flow hedging relationships:
Interest rate swaps	$	16	$	54	Interest expense, net	$	12	$	1
Cross currency contracts	(3)		3		Investment income and other, net	1		15
Forward currency forward contracts	—		—		Investment income and other, net	—		—
Fair value hedging relationships:
Cross currency contracts	(3)		1		Investment income and other, net	1		94
Net investment hedging relationships:
Cross currency contracts	(3)		25		Interest expense, net	—		(1)

Cash flow hedges

For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized in current earnings.

Interest rate swaps

The Company manages its fixed and floating rate debt mix using interest rate swaps. The Company uses interest rate swap contracts to separate interest rate risk management from the debt funding decision. The Company elected a method that does not require continuous evaluation of hedge effectiveness.

During 2022, the Company terminated the previously outstanding $720 notional amount interest rate swap with a maturity date in October 2024 ("2024 Interest Rate Swap"). The present value as of the date of termination of the 2024 Interest Rate Swap is recorded in AOCI on the condensed consolidated balance sheets. The fair value previously recognized in AOCI related to interest rate movements of the 2024 Interest Rate Swap is being amortized to interest expense on a straight-line basis through October 2024. As of September 30, 2023, approximately $18 of unrealized pre-tax gains remained in AOCI.

Table of Contents

During 2022, the Company entered into an aggregate $720 notional amount interest rate swap ("2026 Interest Rate Swap"), as amended on May 19, 2023 in connection with the transition to the Secured Overnight Financing Rate ("SOFR"). Refer to Note 11 - "Debt" for additional information. The 2026 Interest Rate Swap exchanges a variable rate of interest (SOFR) for an average fixed rate of interest of approximately 3.59% over the term of the agreement, which matures in October 2026.

During the first quarter of 2023, the aggregate $400 notional forward-starting swaps became effective ("2028 Interest Rate Swap"), as amended on May 19, 2023 in connection with the transition to SOFR. Refer to Note 11 - "Debt" for additional information. These interest rate swaps exchange a variable rate of interest (SOFR) for an average fixed rate of interest of approximately 3.41% over the term of the agreements, which mature in January 2028.

As of September 30, 2023, the Company had $1,120 notional amount outstanding in swap agreements, which includes the aggregate $400 notional 2028 Interest Rate Swap, and the $720 notional 2026 Interest Rate Swap. The Company has designated these swaps as cash flow hedges of the interest rate risk attributable to forecasted variable interest (SOFR) payments for its SOFR based term loans of $2,012. As of September 30, 2023, the weighted average fixed rate of interest on these swaps was approximately 3.52%. Variations in the assets and liability balances are primarily driven by changes in the applicable forward yield curves related to SOFR.

Cross-currency swaps

The Company enters into cross-currency exchange contracts utilized to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies and to hedge exposures of certain intercompany loans subject to changes in foreign currency exchange rates. The Company periodically assesses whether its currency exchange contracts are effective, and when a contract is determined to be no longer effective as a hedge, the Company discontinues hedge accounting prospectively.

During 2021, the Company entered into two cross-currency swaps designated as cash flow hedges with gross notional U.S. dollar equivalent amounts of $26 and $94 with maturity dates of September 2027 and 2030, respectively.

Foreign currency forward contracts

The Company utilizes foreign currency forward contracts to hedge the effect of foreign currency exchange rate fluctuations on forecasted foreign currency transactions, including inventory purchases and intercompany charges and other payments. These forward contracts are designated as cash flow hedges. The changes in fair value of these contracts are recorded in other comprehensive income until the hedged items affect earnings, at which time the hedge gain or loss is reclassified into current earnings.

The Company periodically assesses whether its currency exchange contracts are effective, and when a contract is determined to be no longer effective as a hedge, the Company discontinues hedge accounting prospectively.

Fair value hedges

The Company has certain intercompany loans subject to changes in foreign currency exchange rates. To hedge these exposures, during 2022, the Company entered into three cross-currency swaps each with maturity dates of January 2027. These contracts are designated as fair value hedges with gross notional U.S. dollar equivalents of $271, $241, and $209 in GBP, CAD, and EUR, respectively. The Company measures the effectiveness of fair value hedges of anticipated transactions on a spot-to-spot basis. Accordingly, the spot-to-spot change in the derivative fair values are recorded in the condensed consolidated statements of operations and perfectly offset the spot-to-spot change in the underlying intercompany loans, and as such, these hedges are deemed highly effective. The excluded component of the fair values of these derivatives is reported in AOCI within shareholders’ equity in the condensed consolidated balance sheets. Any cash flows associated with these instruments are included in operating activities in the condensed consolidated statements of cash flows.

Net investment hedges

The Company has net investments in foreign subsidiaries subject to changes in foreign currency exchange rates. During 2021, the Company entered into a $230 notional foreign currency swap designated as a net investment hedge for a portion of the Company’s net investments in Euro-denominated subsidiaries. Gains and losses resulting from a change in fair value of the net investment hedge are offset by gains and losses on the underlying foreign currency exposure and are included in AOCI in the condensed consolidated balance sheets.

Table of Contents

During 2021, the Company amended the critical terms of the foreign currency swap by extending the maturity date and modifying the U.S. dollar and Euro coupons. The amended swap was redesignated as a net investment hedge as a result of the amendment, recorded at fair value with changes recorded in AOCI, and the initial net investment hedge was dedesignated. The amended net investment hedge reduces the Company’s interest expense by approximately $3 annually and reduces its overall effective interest rate by approximately 24 basis points and will mature in July 2029.

The fair value previously recognized in AOCI related to interest rate movements of the dedesignated swap is being amortized to interest expense on a straight-line basis through the third quarter of 2029.

Foreign currency contracts

The Company uses foreign currency forward contracts to mitigate the foreign currency exposure of certain foreign currency transactions. Fair market value gains or losses on foreign currency forward contracts not designated as hedging instruments were included in the results of operations and are classified in investment income and other, net in the condensed consolidated statements of operations.

NOTE 10. PROPERTY AND EQUIPMENT, NET

The components of property and equipment as of September 30, 2023, and December 31, 2022 are as follows:


	Estimated Useful Lives (In Years)	September 30, 2023		December 31, 2022
Land	N/A	$	26	$	30
Building	39	83		98
Machinery and equipment	1-20	268		313
Autos and trucks	4-10	112		116
Office equipment	5-7	86		35
Leasehold improvements	1-15	33		33
Total cost		608		625
Accumulated depreciation		(231)		(218)
Property and equipment, net		$	377	$	407

Depreciation expense related to property and equipment, including finance leases, was $21 and $22 during the three months ended September 30, 2023 and 2022, and $59 and $60 during the nine months ended September 30, 2023 and 2022, respectively. Depreciation expense is included within cost of revenues and selling, general, and administrative expenses in the condensed consolidated statements of operations.

Table of Contents

NOTE 11. DEBT

Debt obligations consist of the following:


	Maturity Date	September 30, 2023		December 31, 2022
Term loan facility
2019 Term Loan	October 1, 2026	$	1,027	$	1,127
2021 Term Loan	January 3, 2029	985		1,085
Revolving Credit Facility	October 1, 2026	—		—
Senior notes
4.125% Senior Notes	July 15, 2029	337		337
4.750% Senior Notes	October 15, 2029	277		277
Other obligations		6		6
Total debt obligations		2,632		2,832
Less: unamortized deferred financing costs		(34)		(43)
Total debt, net of deferred financing costs		2,598		2,789
Less: short-term and current portion of long-term debt		(256)		(206)
Long-term debt, less current portion		$	2,342	$	2,583

Term loan facility

The Company amended its credit agreement during the second quarter of 2023, which provided for amended interest rates applicable to the Company's existing term loans and future borrowings under the revolving credit facility. In May 2023, the Company entered into an amendment to the credit agreement to replace the London Inter-Bank Offered Rate ("LIBOR") index with Term SOFR.

As of September 30, 2023, the Company had $1,027 of principal outstanding under the $1,200 term loan (the "2019 Term Loan") with a maturity date of October 1, 2026. During the nine months ended September 30, 2023, the Company made a payment of $100 on the 2019 Term Loan. The interest rate applicable to the 2019 Term Loan is, at the Company's option, either (a) a base rate plus an applicable margin equal to 1.50% or (b) Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.50% plus a credit spread adjustment ("CSA").

As of September 30, 2023, the Company had $985 of principal outstanding under the $1,100 term loan (the "2021 Term Loan") with a maturity date of January 3, 2029. During the nine months ended September 30, 2023, the Company made a payment of $100 on the 2021 Term Loan. The interest rate applicable to the 2021 Term Loan is, at the Company's option, either (1) a base rate plus an applicable margin equal to 1.75% or (2) Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.75% plus a CSA.

The interest rate applicable to borrowings under the $500 five-year senior secured revolving credit facility (the “Revolving Credit Facility”) is, at the Company’s option, either (1) 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.

Swap activity

In the three months ended September 30, 2023, the Company amended its existing interest rate swaps in connection with the transition to SOFR for the term loans.

As of September 30, 2023, the Company had a four-year interest rate swap with respect to $720 of notional value, exchanging one-month SOFR for a fixed rate of 3.59% per annum, and a five-year interest rate swap, which started in the first quarter of 2023, exchanging one-month SOFR for a rate of 3.41%. Accordingly, the Company's fixed interest rate per annum on the first swapped $400 notional value of the term loans is 3.41% and the second swapped $720 notional value of

Table of Contents

the term loans is 3.59% through their maturity. The remaining $892 of the term loans balance will bear interest based on one-month SOFR plus CSA plus 250 basis points or SOFR plus CSA plus 275 basis points, but the rate will fluctuate as SOFR fluctuates. Refer to Note 9 - "Derivatives" for additional information.

As of September 30, 2023 and December 31, 2022, the Company had no amounts outstanding under the Revolving Credit Facility, and $484 and $446 was available at September 30, 2023 and December 31, 2022, respectively, after giving effect to $16 and $54 of outstanding letters of credit, respectively.

As of September 30, 2023 and December 31, 2022, the Company was in compliance with all applicable debt covenants.

Senior notes

4.125% Senior Notes

During 2021, the Company completed a private offering of $350 aggregate principal amount of 4.125% Senior Notes (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 the Company and certain of the Company’s subsidiaries. The Company repurchased $13 of the 4.125% Senior Notes in September 2022 and the balance as of September 30, 2023 was $337.

4.750% Senior Notes

During 2021, the Company completed a private offering of $300 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 the Company and certain of the Company's subsidiaries. The Company repurchased $23 of the 4.750% Senior Notes in September 2022 and the balance as of September 30, 2023 was $277.

The Company was in compliance with all covenants contained in the indentures for the 4.125% Senior Notes and 4.750% Senior Notes as of September 30, 2023, and December 31, 2022.

Other obligations

As of each of September 30, 2023 and December 31, 2022, the Company had $6 in notes outstanding for working capital purposes and the acquisition of equipment and vehicles.

NOTE 12. INCOME TAXES

The Company’s quarterly income tax provision is measured using an estimate of its consolidated annual effective tax rate, adjusted in the current period for discrete income tax items, within the periods presented. The comparison of the Company’s income tax provision between periods may be impacted by the level and mix of earnings and losses by tax jurisdiction, foreign income tax rate differentials, and discrete items. The Company’s effective tax rate was 25.5% and 40.5% for the three months ended September 30, 2023 and 2022, and 31.3% and 24.2% for the nine months ended September 30, 2023, and 2022, respectively. The difference between the effective tax rate and the statutory U.S. federal income tax rate of 21.0% for the three and nine months ended September 30, 2023 and 2022 is due to nondeductible permanent items, state taxes, taxes on foreign earnings in jurisdictions that have higher tax rates, and the reversal of the Company’s indefinite reinvestment assertion.

As of September 30, 2023, the Company’s deferred tax assets included a valuation allowance of $105 primarily related to certain net operating loss, capital loss, and tax credit carryforwards of the Company’s foreign subsidiaries. The factors used to assess the likelihood of realization were the past performance of the related entities, forecasts of future taxable income, future reversals of existing taxable temporary differences, and available tax planning strategies that could be implemented to realize the deferred tax assets. The ability or failure to achieve the forecasted taxable income in these entities could affect the ultimate realization of deferred tax assets.

As of September 30, 2023, the Company had gross federal, state, and foreign net operating loss carryforwards of approximately $0, $21, and $104, respectively. The state net operating losses have carryforward periods of five to twenty

Table of Contents

years and begin to expire in 2027. The foreign net operating losses have carryback periods of three years, carryforward periods of twenty years, or are indefinite, and begin to expire in 2036.

The Company’s liability for unrecognized tax benefits is recorded within other noncurrent liabilities in the condensed consolidated balance sheets and recognizes interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes in the condensed consolidated statements of operations. As of September 30, 2023, and December 31, 2022, the total gross unrecognized tax benefits were $6 and $8, respectively. The Company had accrued gross interest and penalties as of each of September 30, 2023 and December 31, 2022 of $2. During the three and nine months ended September 30, 2023 and 2022, the Company did not recognize net interest expense.

If all of the Company’s unrecognized tax benefits as of September 30, 2023, were recognized, $8 would impact the Company’s effective tax rate. The Company does not expect any unrecognized tax benefits to expire in the next twelve months.

The Company files income tax returns in the U.S. federal jurisdiction, and various state, local, and foreign jurisdictions. As of September 30, 2023, with few exceptions, neither the Company nor its subsidiaries are subject to examination prior to tax year 2014. There are various other audits in state and foreign jurisdictions, including an ongoing IRS exam related to the 2019 final S Corporation return. No adjustments have been proposed and the Company does not expect the results of the audits to have a material impact on the Interim Statements.

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022, which includes changes to the U.S. corporate income tax system, including a 15% minimum tax based on “adjusted financial statement income” for certain large corporations which is effective for taxable years beginning after December 31, 2022, and a 1% excise tax on share repurchases after December 31, 2022. While these tax law changes are not expected to have a material adverse effect on the Company's results of operations going forward, it is unclear how this legislation will be implemented by the U.S. Department of Treasury and what, if any, impact it will have on the Company's effective tax rate. The Company will continue to evaluate the impact of the Inflation Reduction Act as further information becomes available.

NOTE 13. EMPLOYEE BENEFIT PLANS

Defined benefit pension plans

The Company sponsors both funded and unfunded foreign defined benefit pension plans that cover a portion of the Company's employees, and the largest plans are closed to new participants and frozen for accrual of future service.

During the second quarter of 2023, an annuity purchase transaction, commonly known as a “buy-in”, was executed for the two pension plans in the United Kingdom. Under the terms of the contract, which is issued by a third-party insurance company with no affiliation to the Company, all pension obligations will be funded by the insurer’s annuity payments, but the plans still retain full legal responsibility to pay the benefits to plan participants using the insurance payments. As the plans maintain full legal responsibility, with the annuity contracts being assets of the plans, settlement accounting has not been applied and the contracts represent a change in investment strategy and not a significant change in the plan structure requiring a remeasurement at the interim date. Given the funded status of the plans, the Company does not expect any future contributions to be required.

The components of the net periodic pension benefit for the defined benefit pension plans are as follows:


	Three Months Ended September 30,
	2023		2022
Service cost	$	1	$	3
Interest cost	16		7
Expected return on plan assets	(19)		(18)
Net periodic pension benefit	$	(2)	$	(8)

Table of Contents


	Nine Months Ended September 30,
	2023		2022
Service cost	$	3	$	9
Interest cost	47		24
Expected return on plan assets	(56)		(56)
Net periodic pension benefit	$	(6)	$	(23)

Multiemployer pension plans

Certain subsidiaries of the Company contribute amounts to multiemployer pension plans and other multiemployer benefit plans and trusts, which are recorded as a component of employee wages and salaries within costs of revenues on the condensed consolidated statements of operations. Contributions are generally based on fixed amounts per hour per employee for employees covered under these plans. Multiemployer plan contribution rates are determined annually and assessed on a pay-as-you-go basis based on union employee payrolls. Union payrolls cannot be determined for future periods because the number of union employees employed at a given time and the plans in which they participate vary depending upon the location, the number of ongoing projects, and the need for union resources in connection with those projects. Total consolidated contributions to multiemployer plans were $25 and $26 during the three months ended September 30, 2023 and 2022, respectively, and $75 and $77 during the nine months ended September 30, 2023 and 2022, respectively.

Profit sharing plans

The Company has a trustee-administered profit-sharing retirement plan covering substantially all of the Company's employees in the U.S. not covered by collective bargaining agreements and a profit sharing plan for employees in Canada (collectively, “Profit Sharing Plans”). The Profit-Sharing Plans provide for annual discretionary contributions in amounts based on a performance grid as determined by the Company’s directors, which may be settled in shares of the Company's common stock or in cash. In connection with these plans, the Company recognized $4 and $4 in expense during the three months ended September 30, 2023 and 2022, respectively, and $14 and $10 in expense during the nine months ended September 30, 2023 and 2022, respectively.

Employee stock purchase plan

Most of the Company’s employees in the U.S. and Canada, including named executive officers, are eligible to participate in the Company’s Employee Stock Purchase Plan (the “ESPP”). Sales of shares of the Company’s common stock under the ESPP are generally made pursuant to offerings that are intended to satisfy the requirements of Section 423 of the Internal Revenue Code. The ESPP permits employees of the Company to purchase common stock at a price equal to 85% of the lesser of (i) the market value of the common stock on the first day of the offering period, or (ii) the market value of the common stock on the purchase date, whichever is lower. Participants are subject to eligibility requirements and may not purchase more than 500 shares in any offering period or more than ten thousand dollars of common stock in a year under the ESPP. The Company recognized $1 of expense during each of the three months ended September 30, 2023 and 2022 and $4 and $3 of expense during the nine months ended September 30, 2023 and 2022, respectively.

NOTE 14. RELATED-PARTY TRANSACTIONS

The Company incurred advisory fees of $1 during each of the three months ended September 30, 2023 and 2022 and $3 during each of the nine months ended September 30, 2023 and 2022, in each case payable to Mariposa Capital, LLC, an entity owned by a co-chair of the Company’s Board of Directors. In addition, dividends for Series A Preferred Stock were declared as of December 31, 2021 and settled in shares during January 2022. The Company issued 7,539,697 shares in January 2022 to Mariposa Acquisition IV, LLC, a related entity that is controlled by a co-chair of the Company's Board of Directors.

During 2022, the Company issued and sold 800,000 shares of the Company’s 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. Of the 800,000 shares issued and sold, 200,000 shares were sold to Viking Global Equities Master Ltd. and Viking Global Equities II LP ("Viking Purchasers"), which is the aggregate owner of more than 5% of the Company's outstanding stock. The Company declared dividends of 103,283 and 184,754 shares of common stock on the Series B Preferred Stock held by the Viking Purchasers during the three months ended September 30, 2023, and 2022, respectively. The Company declared

Table of Contents

dividends of 337,103 and 486,234 shares of common stock on the Series B Preferred Stock held by the Viking Purchasers during the nine months ended September 30, 2023, and 2022, respectively.

The Company has entered into sales contracts with Royal Oak Enterprises, an entity controlled by a co-chair of the Company's Board of Directors, and recorded $1 and $3 in net revenues for the three and nine months ended September 30, 2023, respectively.

From time to time, the Company also enters other immaterial related-party transactions.

NOTE 15. COMMITMENTS AND CONTINGENCIES

The Company is involved in various litigation matters and is subject to claims from time to time from customers and various government entities. While it is not feasible to determine the outcome of any of these uncertainties, it is the opinion of management that their outcomes will not have a material adverse effect on the financial position, results of operations, or cash flows of the Company.

Environmental obligations

The Company's operations are subject to environmental regulation by various authorities. The Company has accrued for the costs of environmental remediation activities, including but not limited to, investigatory, remediation, operating and maintenance costs, and performance guarantees, and periodically reassess these amounts. Management believes that the likelihood of incurring losses materially in excess of the amounts accrued is remote.

The outstanding liability for these obligations was $17 and $16, and was included in other noncurrent liabilities on the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022, respectively.

NOTE 16. SHAREHOLDERS’ EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK

Shareholders' equity

Series A Preferred Stock

The Company had 4,000,000 shares of Series A Preferred Stock issued and outstanding as of September 30, 2023 ("Series A Preferred Stock"). The Series A Preferred Stock will be automatically converted into shares of common stock on a one-for-one basis on the last day of 2026. The holders of the Series A Preferred Stock are entitled to receive an annual dividend in the form of common stock or cash, at the Company’s sole option, based on the increase in the market price of the Company’s common stock.

Stock Repurchases

The Company is authorized to purchase up to an aggregate of $250 of shares of the Company’s common stock pursuant to the stock repurchase program ("SRP"), which will expire on February 29, 2024, unless otherwise modified or terminated by the Company's Board of Directors. The SRP authorizes open market, private, and accelerated share repurchase transactions. During the three months ended September 30, 2023, and 2022, the Company repurchased 656,489 and 738,572 shares of common stock for aggregate payments of approximately $18 and $11, respectively. During the nine months ended September 30, 2023 and 2022, the Company repurchased 1,626,493 and 1,951,332 shares of common stock for approximately $41 and $33, respectively. As of September 30, 2023, the Company had approximately $166 of authorized repurchases remaining under the SRP.

Redeemable Convertible Preferred Stock

Series B Preferred Stock

During 2022, the Company authorized, issued, and sold, for an aggregate purchase price of $800, 800,000 shares of the Company’s 5.5% Series B Preferred Stock, par value $0.0001 per share. The holders of the Series B Preferred Stock are entitled to dividends at the rate of 5.5% per annum, payable in cash or the Company’s common stock, at the Company's election. The Series B Preferred Stock ranks senior to the Company's common stock and Series A Preferred Stock with

Table of Contents

respect to dividend rights and rights upon voluntary or involuntary liquidation, dissolution, or winding up of the affairs of the Company. The Series B Preferred Stock is classified as redeemable convertible preferred stock on the condensed consolidated balance sheets due to a provision that a change in control or de-listing of the Company could require the Company to redeem the Series B Preferred Stock for cash at the election of the holder.

The Series B Preferred Stock is convertible, at the holder’s option, into shares of the Company’s common stock at a conversion price equal to $24.60 per share, subject to certain customary adjustments. The holders of Series B Preferred Stock have certain other rights including voting rights on an as converted basis, certain pre-emptive rights on private equity offerings by the Company, certain registration rights, and, in the case of certain holders, certain director designation rights, as provided in the certificate of designation governing the Series B Preferred Stock.

The Company may, at its option, effect conversion of the outstanding shares of Series B Preferred Stock to common stock, but only if the volume-weighted average price of the Company's common stock exceeds $36.90 per share for 15 consecutive trading days.

Dividends

The holders of Series B Preferred Stock are entitled to receive cumulative dividends at a rate of 5.5% as and when declared by the Board of Directors, prior and in preference to any declaration or payment of any dividend on the Company's common stock and Series A Preferred Stock. Series B Preferred Stock dividends are cumulative and accrued quarterly, in cash or in common stock, based on an annual 5.5% dividend rate. The Company declared a Series B Preferred Stock dividend of $11, or 584,584 shares of common stock, in December 2022 and issued the shares in January 2023. The Company declared a Series B Preferred Stock dividend of $11, or 413,135 shares of common stock, and $11, or 739,015 shares of common stock, during the three months ended September 30, 2023, and 2022, respectively. The Company declared and issued a Series B Preferred Stock dividend of $11, or 739,015 shares of common stock, during the three months ended September 30, 2022. The Company declared and issued a Series B Preferred Stock dividend of $22, or 935,285 shares of common stock, and $33, or 1,944,939 shares of common stock, during the nine months ended September 30, 2023, and 2022, respectively. If regular dividends are to be paid in shares of common stock, then each holder shall be entitled to receive such number of whole shares of common stock as is determined by dividing the pro rata amount of regular dividends to which a holder is entitled by the average price per share of common stock over the dividend determination period from dividend notice until the payment date.

NOTE 17. EARNINGS PER SHARE

Net income is allocated between the Company’s common shares and other participating securities based on their participation rights. The Series A Preferred Stock and Series B Preferred Stock represent participating securities. Earnings attributable to Series A Preferred Stock and Series B Preferred Stock are not included in earnings attributable to common shares in calculating earnings per common share (the two-class method). For periods of net loss, there is no impact from the two-class method on earnings per common share (“EPS”) as net loss is allocated to common shares because Series A Preferred Stock and Series B Preferred Stock shares are not contractually obligated to share the loss.

Table of Contents

The following table sets forth the computation of EPS using the two-class method. The dilutive effect of outstanding Series A Preferred Stock, Series B Preferred Stock, the Series A Preferred Stock dividend, and the Series B Preferred Stock dividend is reflected in diluted EPS using the if-converted method and options, restricted shares, and performance shares are reflected using the treasury stock method. For periods of net loss, basic and diluted EPS are the same, as the assumed exercise of Series A Preferred Stock, Series B Preferred Stock, restricted and performance shares, and stock options are anti-dilutive. (Amounts in millions, except share and per share amounts.)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Basic earnings per common share:
Net income	$	54	$	28	$	128	$	51
Less income allocable to Series A Preferred Stock	(4)		(2)		(10)		(2)
Less income allocable to Series B Preferred Stock	(4)		(2)		(10)		(2)
Less stock dividend attributable to Series B Preferred Stock	(11)		(11)		(33)		(33)
Net income attributable to common shareholders	$	35	$	13	$	75	$	14

Weighted average shares outstanding - basic	235,418,566		233,605,429		234,996,055		232,982,467
Income per common share - basic	$	0.15	$	0.06	$	0.32	$	0.06

Diluted earnings per common share:
Net income	$	54	$	28	$	128	$	51
Less income allocable to Series A Preferred Stock	(4)		(2)		(10)		(2)
Less stock dividend attributable to Series B Preferred Stock	(11)		(11)		(33)		(33)
Net income attributable to common shareholders - diluted	$	39	$	15	$	85	$	16

Weighted average shares outstanding - basic	235,418,566		233,605,429		234,996,055		232,982,467
Dilutive securities: (1)
Restricted stock units, warrants, and stock options	420,465		336,325		308,745		357,350
Shares issuable upon conversion of Series B Preferred Shares	32,520,000		32,520,000		32,520,000		32,520,000
Shares issuable pursuant to the Series A Preferred Stock dividend (2)	1,679,291		—		1,099,296		—
Weighted average shares outstanding - diluted	270,038,322		266,461,754		268,924,096		265,859,817
Income per common share - diluted	$	0.15	$	0.06	$	0.32	$	0.06

1.For all periods presented, 4,000,000 shares of Series A Preferred Stock, which are convertible to the same number of common shares, have been excluded from the calculation of diluted shares, as their inclusion would be anti-dilutive.

2.For the three and nine months ended September 30, 2023, dilutive securities include common share equivalents which represent the annual dividend, payable in the form of common shares or cash at the Company's sole option, that Series A Preferred Shares would be entitled to receive assuming that the volume weighted average price of the Company’s common shares for the last ten trading days of the period would be the same average price during the last ten trading days of the calendar year. The holders of the Series A Preferred Stock are entitled to receive an annual dividend based on the increase in the market price of the Company’s common stock (the "Annual Dividend Amount"). The Annual Dividend Amount is equal to 20% of the increase in the volume-weighted average market price per share of the Company’s common shares for the last ten trading days of the calendar year, multiplied by 141,194,638 shares. During 2023, the Annual Dividend Amount was calculated based on the appreciation of the Company’s share price over the highest previously used share price of $24.3968.

Table of Contents

NOTE 18. SEGMENT INFORMATION

The Company manages its operations under two operating segments which represent the Company’s two reportable segments: Safety Services and Specialty Services. This structure is generally focused on various businesses related to contracting services and maintenance of industrial and commercial facilities. Both reportable segments derive their revenues from installation, inspection, maintenance, service and repair, retrofitting and upgrading, engineering and design, distribution, fabrication, and various types of other services in over 20 countries.

The Safety Services segment focuses on end-to-end integrated occupancy systems (fire protection solutions, HVAC, and entry systems), including design, installation, inspection, and service of these integrated systems. The work performed within this segment spans across industries and facilities and includes commercial, education, healthcare, high-tech, industrial and special-hazard settings.

The Specialty Services segment provides a variety of infrastructure services and specialized industrial plant services, which include maintenance and repair of critical infrastructure such as underground electric, gas, water, sewer, and telecommunications infrastructure. This segment’s services include engineering and design, fabrication, installation, maintenance service and repair, retrofitting and upgrading, pipeline infrastructure, access and road construction, supporting facilities, and performing ongoing integrity management and maintenance to customers within the energy industry. Customers within this segment vary from private and public utilities, communications, healthcare, education, transportation, manufacturing, industrial plants, and governmental agencies throughout North America.

The accounting policies of the reportable segments are the same as those described in Note 1 – “Basis of Presentation and Significant Accounting Policies.” All intercompany transactions and balances are eliminated in consolidation. Intercompany revenues and costs between entities within a reportable segment are eliminated to arrive at segment totals and eliminations between segments are separately presented. Corporate results include amounts related to corporate functions such as administrative costs, professional fees, acquisition-related transaction costs (exclusive of acquisition integration costs, which are included within the segment results of the acquired businesses), and other discrete items.

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is the measure of profitability used by management to manage its segments and, accordingly, in its segment reporting. As appropriate, the Company supplements the reporting of consolidated financial information determined in accordance with U.S. GAAP with certain non-U.S. GAAP financial measures, including EBITDA. The Company believes these non-U.S. GAAP measures provide meaningful information and help investors understand the Company’s financial results and assess its prospects for future performance. The Company uses EBITDA to evaluate its performance, both internally and as compared with its peers because it excludes certain items that may not be indicative of the Company’s core operating results for its reportable segments. Segment EBITDA is calculated in a manner consistent with consolidated EBITDA.

Summarized financial information for the Company’s reportable segments is presented and reconciled to consolidated financial information in the following tables, including a reconciliation of consolidated operating income (loss) to EBITDA:


	Three Months Ended September 30, 2023
	Safety Services		Specialty Services		Corporate and Eliminations		Consolidated
Net revenues	$	1,217	$	569	$	(2)	$	1,784
EBITDA Reconciliation
Operating income (loss)	$	98	$	43	$	(37)	$	104
Plus:
Investment income and other, net	2		1		1		4
Non-service pension benefit	3		—		—		3
Depreciation	8		13		—		21
Amortization	42		13		1		56
EBITDA	$	153	$	70	$	(35)	$	188
Total assets	$	5,983	$	1,315	$	651	$	7,949
Capital expenditures	5		10		3		18

Table of Contents


	Three Months Ended September 30, 2022
	Safety Services		Specialty Services		Corporate and Eliminations		Consolidated
Net revenues	$	1,154	$	590	$	(9)	$	1,735
EBITDA Reconciliation
Operating income (loss)	$	60	$	45	$	(44)	$	61
Plus:
Investment income and other, net	1		2		—		3
Non-service pension benefit	10		—		—		10
Gain on extinguishment of debt, net	—		—		5		5
Depreciation	8		12		2		22
Amortization	37		14		—		51
EBITDA	$	116	$	73	$	(37)	$	152
Total assets	$	5,879	$	1,357	$	705	$	7,941
Capital expenditures	5		16		5		26


	Nine Months Ended September 30, 2023
	Safety Services		Specialty Services		Corporate and Eliminations		Consolidated
Net revenues	$	3,633	$	1,554	$	(18)	$	5,169
EBITDA Reconciliation
Operating income (loss)	$	292	$	84	$	(92)	$	284
Plus:
Investment income and other, net	2		6		1		9
Non-service pension benefit	9		—		—		9
Loss on extinguishment of debt, net	—		—		(3)		(3)
Depreciation	21		37		1		59
Amortization	125		39		3		167
EBITDA	$	449	$	166	$	(90)	$	525
Total assets	$	5,983	$	1,315	$	651	$	7,949
Capital expenditures	19		41		4		64


	Nine Months Ended September 30, 2022
	Safety Services		Specialty Services		Corporate and Eliminations		Consolidated
Net revenues	$	3,374	$	1,520	$	(39)	$	4,855
EBITDA Reconciliation
Operating income (loss)	$	186	$	70	$	(143)	$	113
Plus:
Investment income and other, net	2		5		(2)		5
Non-service pension benefit	32		—		—		32
Gain on extinguishment of debt, net	—		—		5		5
Depreciation	20		35		5		60
Amortization	120		43		2		165
EBITDA	$	360	$	153	$	(133)	$	380
Total assets	$	5,879	$	1,357	$	705	$	7,941
Capital expenditures	16		37		7		60

Table of Contents

NOTE 19. SUBSEQUENT EVENTS

On October 3, 2023, the Company entered into a definitive agreement to sell an infrastructure/utility operating company in its Specialty Services segment, for $37. The sale is expected to close before December 31, 2023. Refer to Note 4 - "Assets Held for Sale" for additional information.

On October 11, 2023, the Company completed repricing of its 2019 Term Loan and 2021 Term Loan. The repricing reduces the applicable margin on all outstanding amounts by 25 basis points. Additionally, $422 of the 2019 Term Loan was extended to the 2021 Term Loan and assumed all the same terms as the repriced 2021 Term Loan. The Company made a repayment of $100 on the 2019 Term Loan concurrent with the close of this transaction. Following the repricing transaction, the Company has $505 outstanding on 2019 Term Loan and $1,407 outstanding on the 2021 Term Loan.

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). These forward-looking statements are based on beliefs and assumptions as of the date such statements are made and are subject to risks and uncertainties. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms including “expect”, “anticipate”, “project”, “will”, “should”, “believe”, “intend”, “plan”, “estimate”, “potential”, “target”, “would”, and similar expressions, although not all forward-looking statements contain these identifying terms.

These forward-looking statements are based on our current expectations and assumptions and on information currently available to management and include, among others, statements regarding, as of the date such statements are made:

•our beliefs and expectations regarding our business strategies and competitive strengths;

•our beliefs regarding procurement challenges and the nature of our contractual arrangements and renewal rates and their impact on our future financial results;

•our beliefs regarding our acquisition platform and ability to execute on and successfully integrate strategic acquisitions;

•our beliefs regarding the future demand for our services, the seasonal and cyclical volatility of our business, financial condition, results of operations, and cash flows;

•our beliefs regarding the recurring and repeat nature of our business, customers and revenues, and its impact on our cash flows and organic growth opportunities and our belief that it helps mitigate the impact of economic downturns;

•our intent to continue to grow our business, both organically and through acquisitions, and our beliefs regarding the impact of our business strategies on our growth;

•our beliefs regarding our customer relationships and plans to grow existing business and expand service offerings;

•our beliefs regarding our ability to pass along commodity price increases to our customers;

•our expectations regarding the cost of compliance with laws and regulations;

•our expectations regarding labor matters;

•our beliefs regarding market risk, including our exposure to foreign currency fluctuations, and our ability to mitigate that risk;

•our expectations and beliefs regarding accounting and tax matters;

•our beliefs regarding the effectiveness of the steps taken to remediate previously reported material weaknesses in our internal control over financial reporting and the timing of remediation;

•our expectations regarding future capital expenditures;

•our expectations regarding future expenses in connection with our multi-year restructuring program, including those related to workforce reductions;

•our expectations regarding future pension contributions;

•our expectations regarding the acquisition (the "Chubb Acquisition") of the Chubb fire and security business (the "Chubb business" or "Chubb"), including the operational challenges and the expected benefits of the acquisition and future growth, expansion, cross-selling and other value creation opportunities; and

•our beliefs regarding the sufficiency of our current sources of liquidity to fund our future liquidity requirements, our expectations regarding the types of future liquidity requirements and our expectations regarding the availability of future sources of liquidity.

These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this quarterly report and in our Annual Report on Form 10-K, filed on March 1, 2023, including those described under “Cautionary Note Regarding Forward Looking Statements” and “Risk Factors” in such Form

Table of Contents

10-K, and other filings we make with the SEC. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this quarterly report may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Important factors that may materially affect the forward-looking statements include the following:

•adverse developments in the credit markets that could adversely affect funding of construction projects;

•exposure to global economic, political and legal risks related to our international operations, including geopolitical instability;

•the ability and willingness of customers to invest in infrastructure projects;

•a decline in demand for our services or for the products and services of our customers;

•the fact that our revenues are derived primarily from contracts with durations of less than six months and the risk that customers will not renew or enter into new contracts;

•our ability to successfully acquire other businesses, successfully integrate acquired businesses into our operations and manage the risks and potential liabilities associated with those acquisitions;

•the impact of our regional, decentralized business model on our ability to execute on our business strategies and operate our business successfully;

•our ability to compete successfully in the industries and markets we serve;

•our ability to properly manage and accurately estimate costs associated with specific customer projects, in particular for arrangements with fixed price terms;

•supply chain constraints and interruptions, and the resulting increases in the cost, or reductions in the supply, of the materials and commodities we use in our business and for which we bear the risk of such increases;

•the impact of inflation;

•our relationship with our employees, a large portion of which are covered by collective bargaining arrangements, and our ability to effectively manage and utilize our workforce;

•the inherently dangerous nature of the services we provide and the risks of potential liability;

•the impact of customer consolidation;

•the loss of the services of key senior management personnel and the availability of skilled personnel;

•the seasonality of our business and the impact of weather conditions;

•the variability of our operating results between periods and the resulting difficulty in forecasting future operating results;

•litigation that results from our business, including costs related to any damages we may be required to pay as a result of general liability or workmanship claims brought by our customers;

•the impact of health, safety, and environmental laws and regulations, and the costs associated with compliance with such laws and regulations;

•our substantial level of indebtedness and the effect of restrictions on our operations set forth in the documents that govern such indebtedness;

•our expectations regarding the acquisition of the Chubb business, including the expected benefits of the acquisition and future value creation opportunities; and

•our compliance with certain financial maintenance covenants in our credit agreement and the effect on our liquidity of any failure to comply with such covenants.

The factors identified above are believed to be important factors, but not necessarily all of the important factors, which could cause actual results to differ materially from those expressed in any forward-looking statement made by us. Other factors not discussed herein could also have a material adverse effect on us. You should not rely upon forward-looking statements as predictions of future events. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. These forward-looking statements speak only as of the date of this quarterly report. We assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future, except as required by applicable law.

Table of Contents

All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this quarterly report and hereafter in our other SEC filings and public communications. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties.

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) section should be read in conjunction with the interim unaudited condensed consolidated financial statements (the "Interim Statements") and related notes included in this quarterly report, and the Company's 2023 audited annual consolidated financial statements, the related notes thereto and under the heading "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and other disclosures contained in our Annual Report on Form 10-K, including financial results for the year ended December 31, 2022. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed under the “Cautionary Note Regarding Forward Looking Statements” section of this quarterly report.

We prepare our financial statements in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). To supplement our financial results presented in accordance with U.S. GAAP in this MD&A section, we present EBITDA, which is a non-U.S. GAAP financial measure, to assist readers in understanding our performance and provide an additional perspective on trends and underlying operating results on a period-to-period comparable basis. Non-U.S. GAAP financial measures either exclude or include amounts not reflected in the most directly comparable measure calculated and presented in accordance with U.S. GAAP. Where a non-U.S. GAAP financial measure is used, we have provided the most directly comparable measure calculated and presented in accordance with U.S. GAAP, a reconciliation to the U.S. GAAP measure and a discussion of the reasons why management believes this information is useful to it and may be useful to investors.

Unless the context otherwise requires, all references in this section to “APG”, the “Company”, “we”, “us”, and “our” refer to APi Group Corporation and its subsidiaries.

Overview

We are a global, market-leading business services provider of safety and specialty services in 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 operate our business under two primary operating segments, which are also our reportable segments:

•Safety Services – A leading provider of safety services in North America, Asia Pacific, and Europe, focusing on end-to-end integrated occupancy systems (fire protection solutions, Heating, Ventilation, and Air Conditioning (“HVAC”) and entry systems), including design, installation, inspection and service of these integrated systems. The work performed within this segment spans across industries and facilities and includes commercial, education, healthcare, high-tech, industrial and special-hazard settings.

•Specialty Services – A leading provider of a variety of infrastructure services and specialized industrial plant services, which include maintenance and repair of critical infrastructure such as underground electric, gas, water, sewer and telecommunications infrastructure. Our services include engineering and design, fabrication, installation, maintenance service and repair, retrofitting and upgrading, pipeline infrastructure, access and road construction, supporting facilities, and performing ongoing integrity management and maintenance to customers within the energy industry. Customers within this segment vary from private and public utilities, communications, healthcare, education, transportation, manufacturing, industrial plants, and governmental agencies throughout North America.

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.

For financial information about our operating segments, see Note 18 – “Segment Information” to our condensed consolidated financial statements included herein.

Table of Contents

RECENT DEVELOPMENTS AND CERTAIN FACTORS AND TRENDS AFFECTING OUR RESULTS OF OPERATIONS

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 2024.

During the nine months ended September 30, 2023, we have incurred pre-tax restructuring costs within the Safety Services segment of $21 million in connection with the Chubb restructuring program. In total, we estimate that we will recognize approximately $105 million of restructuring costs related to the Chubb restructuring program by the end of fiscal year 2024.

For additional information about our restructuring activity, see Note 5 – “Restructuring" to our condensed consolidated financial statements included herein.

Assets held for sale

During the three months ended September 30, 2023, we determined our intent to sell an infrastructure/utility operating company in our Specialty Services segment (the "Operating Company"). We classified the net book value of the Operating Company as held for sale in the condensed consolidated balance sheets with the assets recorded in prepaid expenses and other current assets and liabilities recorded in other accrued liabilities. As of September 30, 2023, the Operating Company remains classified as held for sale. Pursuant to the authoritative literature, we evaluated the recoverability of the carrying value of the assets and liabilities held for sale. During the three months ended September 30, 2023, we recorded an impairment charge of $13 million.

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 negatively affect demand for our customers’ products and services, which can affect 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 continue to result, in lower proposals and lower profit on the services we provide. In the face of increased pricing pressure on key materials, such as steel, 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 the 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 9 – "Derivatives" to our condensed consolidated financial statements included in this quarterly 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 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 quarter due to the prevalence of unfavorable weather conditions within our North American operations, 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.

Table of Contents

Recent Accounting Pronouncements

A summary of recent accounting pronouncements is included in Note 2 – “Recent Accounting Pronouncements” to our condensed consolidated financial statements included herein.

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.

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

Selling expenses consist primarily of compensation and associated costs for sales and marketing personnel, costs of advertising, trade shows, and corporate marketing. General and administrative expenses consist primarily of compensation and associated costs for executive management, personnel, facility leases, administrative expenses associated with accounting, finance, legal, information systems, leadership development, human resources, 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 condensed consolidated statements of operations.

Loss on extinguishment of debt, net

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

Table of Contents

Non-service pension benefit

Non-service pension benefit reflects the sum of the components of pension expense not related to service cost, i.e. interest cost, expected return on assets, and amortizations of prior service costs and actuarial gains and losses.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For information regarding our Critical Accounting Policies, see the “Critical Accounting Policies” section of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

RESULTS OF OPERATIONS

The following is a discussion of our financial condition and results of operations during the three and nine months ended September 30, 2023 and the three and nine months ended September 30, 2022.

Three months ended September 30, 2023 compared to the three months ended September 30, 2022


	Three Months Ended September 30,				Change
($ in millions)	2023		2022		$		%
Net revenues	$	1,784	$	1,735	$	49	2.8	%
Cost of revenues	1,273		1,295		(22)		(1.7)	%
Gross profit	511		440		71		16.1	%
Selling, general, and administrative expenses	407		379		28		7.4	%
Operating income	104		61		43		70.5	%
Interest expense, net	37		33		4		12.1	%
Gain on extinguishment of debt, net	—		(5)		5		(100.0)	%
Non-service pension benefit	(3)		(10)		7		(70.0)	%
Investment income and other, net	(4)		(3)		(1)		33.3	%
Other expense, net	30		15		15		100.0	%
Income before income taxes	74		46		28		60.9	%
Income tax provision	20		18		2		11.1	%
Net income	$	54	$	28	$	26	92.9	%

Net revenues

Net revenues for the three months ended September 30, 2023 were $1,784 million compared to $1,735 million for the same period in 2022, an increase of $49 million or 2.8%. The increase in net revenues occurred in the Safety Services segment, 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 three months ended September 30, 2023 and 2022, respectively:


	Three Months Ended September 30,						Change
($ in millions)	2023			2022			$		%
Gross profit	$	511		$	440		$	71	16.1	%
Gross margin	28.6		%	25.4		%

Our gross profit for the three months ended September 30, 2023 was $511 million compared to $440 million for the same period in 2022, an increase of $71 million, or 16.1%. Gross margin was 28.6%, an increase of 320 basis points compared to the prior year period, primarily due to disciplined project and customer selection, and pricing improvements in

Table of Contents

our Safety Services and Specialty Services segments, as well as an improved mix of inspection, service, and monitoring revenue, which generates higher margins.

Operating expenses

The following table presents operating expenses and operating margin (operating income as a percentage of net revenues) for the three months ended September 30, 2023 and 2022, respectively:


	Three Months Ended September 30,						Change
($ in millions)	2023			2022			$		%
Selling, general, and administrative expenses	$	407		$	379		$	28	7.4	%
SG&A expenses as a % of net revenues	22.8		%	21.8		%
Operating margin	5.8		%	3.5		%

SG&A expenses (excluding amortization and impairment) (Non-GAAP)	$	345		$	343		$	2	0.6	%
SG&A expenses (excluding amortization and impairment) as a % of net revenues (Non-GAAP)	19.3		%	19.8		%

Selling, general, and administrative expenses

Our SG&A expenses for the three months ended September 30, 2023 were $407 million compared to $379 million for the same period in 2022, an increase of $28 million. SG&A expenses as a percentage of net revenues was 22.8% during the three months ended September 30, 2023 compared to 21.8% for the same period in 2022. The increase in SG&A expenses was primarily attributable to an impairment charge of $13 million related to assets held for sale and increased amortization expense in the three months ended September 30, 2023 compared to 2022. Our SG&A expenses excluding amortization and impairment for the three months ended September 30, 2023 were $345 million, or 19.3% of net revenues, compared to $343 million, or 19.8% of net revenues, for the same period of 2022. The decrease in SG&A expenses excluding amortization and impairment as a percentage of net revenues was driven by lower acquisition and integration related expenses incurred in three months ended September 30, 2023 compared to the same period in 2022 and better leverage of SG&A expenses across a growing revenue base, partially offset by investments to support growth in our Safety Services segment. See the discussion and reconciliation of our non-U.S. GAAP financial measures below.

Interest expense, net

Interest expense was $37 million and $33 million for the three months ended September 30, 2023 and 2022, respectively. The increase in interest expense was primarily due to higher interest rates on our floating interest rate debt in the current year, partially offset by a decrease in the outstanding principal amounts of our floating rate debt.

Gain on extinguishment of debt, net

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 the repurchases, we recognized a net gain on debt extinguishment of $5 million.

Non-service pension benefit

The non-service pension benefit was $3 million and $10 million for the three months ended September 30, 2023 and 2022, respectively. The change was due to higher interest costs due to higher discount rates and lower expected return on asset benefit compared to the same period of the prior year.

Investment income and other, net

Investment income and other, net was $4 million and $3 million for the three months ended September 30, 2023 and 2022, respectively. The increase in investment income was primarily due to an increase in other miscellaneous income.

Table of Contents

Income tax provision

The income tax provision for the three months ended September 30, 2023 was $20 million compared to $18 million for the three months ended September 30, 2022. This change was driven by increased generated income before taxes in the three months ended September 30, 2023 compared to the same period in 2022. The effective tax rate for the three months ended September 30, 2023 was 25.5%, compared to 40.5% in the same period of 2022. The difference in the effective tax rate was driven by discrete and nondeductible permanent items. The difference between the effective tax rate and the statutory U.S. federal income tax rate of 21.0% is due to the nondeductible permanent items, taxes on foreign earnings in jurisdictions that have higher tax rates, and state taxes.

Net income and EBITDA

The following table presents net income and EBITDA for the three months ended September 30, 2023 and 2022, respectively:


	Three Months Ended September 30,						Change
($ in millions)	2023			2022			$		%
Net income	$	54		$	28		$	26	92.9	%
EBITDA (non-GAAP)	188			152			36		23.7	%
Net income as a % of net revenues	3.0		%	1.6		%
EBITDA as a % of net revenues	10.5		%	8.8		%

Our net income for the three months ended September 30, 2023 was $54 million compared to $28 million for the same period in 2022, an increase of $26 million. The improvement primarily resulted from disciplined project and customer selection, pricing improvements within our Safety Services and Specialty Services segments, and an increase in inspection, service, and monitoring revenue. The net income increase was partially offset by an impairment charge of $13 million related to assets held for sale. Net income as a percentage of net revenues for the three months ended September 30, 2023 and 2022 was 3.0% and 1.6%, respectively. EBITDA for the three months ended September 30, 2023 was $188 million compared to $152 million for the same period in 2022, an increase of $36 million. The increase in EBITDA was primarily driven by the factors previously discussed. See the discussion and reconciliation of our non-U.S. GAAP financial measures below.

Operating Segment Results for the three months ended September 30, 2023 compared to the three months ended September 30, 2022


	Net Revenues
	Three Months Ended September 30,				Change
($ in millions)	2023		2022		$		%
Safety Services	$	1,217	$	1,154	$	63	5.5	%
Specialty Services	569		590		(21)		(3.6)	%
Corporate and Eliminations	(2)		(9)		NM		NM
	$	1,784	$	1,735	$	49	2.8	%


	Operating Income (Loss)
	Three Months Ended September 30,						Change
($ in millions)	2023			2022			$		%
Safety Services	$	98		$	60		$	38	63.3	%
Safety Services operating margin	8.1		%	5.2		%
Specialty Services	$	43		$	45		$	(2)	(4.4	%)
Specialty Services operating margin	7.6		%	7.6		%
Corporate and Eliminations	$	(37)		$	(44)		NM		NM
	$	104		$	61		$	43	70.5	%

Table of Contents


	EBITDA
	Three Months Ended September 30,						Change
($ in millions)	2023			2022			$		%
Safety Services	$	153		$	116		$	37	31.9	%
Safety Services EBITDA as a % of net revenues	12.6		%	10.1		%
Specialty Services	$	70		$	73		$	(3)	(4.1	%)
Specialty Services EBITDA as a % of net revenues	12.3		%	12.4		%
Corporate and Eliminations	$	(35)		$	(37)		NM		NM
	$	188		$	152		$	36	23.7	%

NM = Not meaningful

The following discussion breaks down the net revenues, operating income (loss), and EBITDA by operating segment for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

Safety Services

Safety Services net revenues for the three months ended September 30, 2023 increased by $63 million or 5.5% compared to the same period in 2022. The increase was primarily 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 operating margin for the three months ended September 30, 2023 and 2022 was approximately 8.1% and 5.2%, respectively. The increase was primarily the result of growth in inspection, service, and monitoring revenue, disciplined project and customer selection, and pricing improvements across the segment. The increase was also driven by lower acquisition and integration related expenses incurred in the three months ended September 30, 2023 compared to the same period in 2022. Safety Services EBITDA as a percentage of net revenues for the three months ended September 30, 2023 and 2022 was approximately 12.6% and 10.1%, respectively. This increase was primarily related to the factors discussed above.

Specialty Services

Specialty Services net revenues for the three months ended September 30, 2023 decreased by $21 million or 3.6% compared to the same period in 2022. The decrease was primarily due to continued disciplined customer and project selection and customer project delays in the fabrication business, partially offset by strong growth in the service business during the three months ended September 30, 2023 compared to the same period in 2022.

Specialty Services operating margin was approximately 7.6% for each of the three months ended September 30, 2023 and 2022. The consistency in operating margin despite lower revenues was primarily the result of disciplined project and customer selection offsetting lower volume leverage during the three months ended September 30, 2023. Specialty Services EBITDA as a percentage of net revenues for the three months ended September 30, 2023 and 2022 was approximately 12.3% and 12.4%, respectively, due to the factors discussed above.

Table of Contents

Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022


	Nine Months Ended September 30,				Change
($ in millions)	2023		2022		$		%
Net revenues	$	5,169	$	4,855	$	314	6.5	%
Cost of revenues	3,737		3,604		133		3.7	%
Gross profit	1,432		1,251		181		14.5	%
Selling, general, and administrative expenses	1,148		1,138		10		0.9	%
Operating income	284		113		171		151.3	%
Interest expense, net	112		88		24		27.3	%
Loss (gain) on extinguishment of debt, net	3		(5)		8		(160.0)	%
Non-service pension benefit	(9)		(32)		23		(71.9)	%
Investment income and other, net	(9)		(5)		(4)		80.0	%
Other expense, net	97		46		51		110.9	%
Income before income taxes	187		67		120		179.1	%
Income tax provision	59		16		43		268.8	%
Net income	$	128	$	51	$	77	151.0	%

Net revenues

Net revenues for the nine months ended September 30, 2023 were $5,169 million compared to $4,855 million for the same period in 2022, an increase of $314 million or 6.5%. The increase in net revenues occurred in both the Safety Services and Specialty Services segments and was 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 nine months ended September 30, 2023 and 2022, respectively:


	Nine Months Ended September 30,						Change
($ in millions)	2023			2022			$		%
Gross profit	$	1,432		$	1,251		$	181	14.5	%
Gross margin	27.7		%	25.8		%

Our gross profit for the nine months ended September 30, 2023 was $1,432 million compared to $1,251 million for the same period in 2022, an increase of $181 million, or 14.5%. Gross margin was 27.7%, an increase of 190 basis points compared to the prior year period, primarily due to disciplined project and customer selection within our Safety Services and Specialty Services segments and pricing improvements, as well as an improved mix of inspection, service, and monitoring revenue, which generates higher margins.

Table of Contents

Operating expenses

The following table presents operating expenses and operating margin (operating income (loss) as a percentage of net revenues) for the nine months ended September 30, 2023 and 2022, respectively:


	Nine Months Ended September 30,						Change
($ in millions)	2023			2022			$		%
Selling, general, and administrative expenses	$	1,148		$	1,138		$	10	0.9	%
SG&A expense as a % of net revenues	22.2		%	23.4		%
Operating margin	5.5		%	2.3		%

SG&A expenses (excluding amortization and impairment) (Non-GAAP)	$	988		$	995		$	(7)	(0.7	%)
SG&A expenses (excluding amortization and impairment) as a % of net revenues	19.1		%	20.5		%

Selling, general, and administrative expenses

Our SG&A expenses for the nine months ended September 30, 2023 were $1,148 million compared to $1,138 million for the same period in 2022, an increase of $10 million. SG&A expenses as a percentage of net revenues was 22.2% during the nine months ended September 30, 2023 compared to 23.4% for the same period in 2022. The decrease in expenses as a percentage of net revenues was driven by lower acquisition and integration related expenses incurred, better leverage of SG&A expenses across a growing revenue base, and changes in estimates to acquired liabilities in the nine months ended September 30, 2023 compared to the same period in the prior year, partially offset by an impairment charge of $13 million related to assets held for sale and investments to support growth in our Safety Services segment. Our SG&A expenses excluding amortization and impairment for the nine months ended September 30, 2023 were $988 million, or 19.1% of net revenues, compared to $995 million, or 20.5% of net revenues, for the same period of 2022 primarily due to the factors discussed above. See the discussion and reconciliation of our non-U.S. GAAP financial measures below.

Interest expense, net

Interest expense was $112 million and $88 million for the nine months ended September 30, 2023 and 2022, respectively. The increase in interest expense was primarily due to higher interest rates on our floating interest rate debt in the current year, partially offset by a decrease in the outstanding principal amounts of our floating rate debt.

Loss on extinguishment of debt, net

During the nine months ended September 30, 2023, we made payments of $100 million and $100 million of the outstanding principal amount of the 2019 Term Loan and 2021 Term Loan, respectively. In connection with the payments, we recognized a net loss on debt extinguishment of $3 million.

Non-service pension benefit

The non-service pension benefit was $9 million and $32 million for the nine months ended September 30, 2023 and 2022, respectively. The change was due to higher interest costs due to higher discount rates and lower expected return on asset benefit compared to the same period of the prior year.

Investment income and other, net

Investment income and other, net was $9 million and $5 million for the nine months ended September 30, 2023 and 2022, respectively. The increase in investment income was primarily due to an increase in earnings from joint ventures.

Table of Contents

Income tax provision

The income tax provision for the nine months ended September 30, 2023 was an expense of $59 million compared to $16 million in the same period of 2022. This change was driven by increased generated income before taxes in the nine months ended September 30, 2023 compared to the same period of the prior year, and the reversal of the permanent reinvestment assertion, which was $9 million of benefit in 2022. The effective tax rate for the nine months ended September 30, 2023 was 31.3%, compared to 24.2% in the same period of 2022. The difference in the effective tax rate was driven by discrete and nondeductible permanent items, primarily the reversal of our indefinite reinvestment assertion in 2022. The difference between the effective tax rate and the statutory U.S. federal income tax rate of 21.0% is due to the nondeductible permanent items, taxes on foreign earnings in jurisdictions that have higher tax rates, state taxes, and discrete items.

Net income and EBITDA

The following table presents net income and EBITDA for the nine months ended September 30, 2023 and 2022, respectively:


	Nine Months Ended September 30,						Change
($ in millions)	2023			2022			$		%
Net income	$	128		$	51		$	77	151.0	%
EBITDA (non-GAAP)	525			380			145		38.2	%
Net income as a % of net revenues	2.5		%	1.1		%
EBITDA as a % of net revenues	10.2		%	7.8		%

Our net income for the nine months ended September 30, 2023 was $128 million compared to $51 million for the same period in 2022, an increase of $77 million. The improvement primarily resulted from disciplined project and customer selection, pricing improvements within our Safety Services and Specialty Services segments, and growth in inspection, service, and monitoring revenue. The increase was also due to a decrease in operating expenses driven by lower acquisition and integration related expenses. The increase in net income was partially offset by an impairment charge of $13 million related to assets held for sale. Net income as a percentage of net revenues for the nine months ended September 30, 2023 and 2022 was 2.5% and 1.1%, respectively. EBITDA for the nine months ended September 30, 2023 was $525 million compared to $380 million for the same period in 2022, an increase of $145 million. The increase in EBITDA was primarily driven by the factors previously discussed. See the discussion and reconciliation of our non-U.S. GAAP financial measures below.

Operating Segment Results for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022


	Net Revenues
	Nine Months Ended September 30,				Change
($ in millions)	2023		2022		$		%
Safety Services	$	3,633	$	3,374	$	259	7.7	%
Specialty Services	1,554		1,520		34		2.2	%
Corporate and Eliminations	(18)		(39)		NM		NM
	$	5,169	$	4,855	$	314	6.5	%


	Operating Income (Loss)
	Nine Months Ended September 30,						Change
($ in millions)	2023			2022			$		%
Safety Services	$	292		$	186		$	106	57.0	%
Safety Services operating margin	8.0		%	5.5		%
Specialty Services	$	84		$	70		$	14	20.0	%
Specialty Services operating margin	5.4		%	4.6		%
Corporate and Eliminations	$	(92)		$	(143)		NM		NM
	$	284		$	113		$	171	151.3	%

Table of Contents


	EBITDA
	Nine Months Ended September 30,						Change
($ in millions)	2023			2022			$		%
Safety Services	$	449		$	360		$	89	24.7	%
Safety Services EBITDA as a % of net revenues	12.4		%	10.7		%
Specialty Services	$	166		$	153		$	13	8.5	%
Specialty Services EBITDA as a % of net revenues	10.7		%	10.1		%
Corporate and Eliminations	$	(90)		$	(133)		NM		NM
	$	525		$	380		$	145	38.2	%

NM = Not meaningful

The following discussion breaks down the net revenues, operating income (loss), and EBITDA by operating segment for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

Safety Services

Safety Services net revenues for the nine months ended September 30, 2023 increased by $259 million or 7.7% compared to the same period in 2022. 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 operating margin for the nine months ended September 30, 2023 and 2022 was approximately 8.0% and 5.5%, respectively. The increase was primarily the result of disciplined project and customer selection, pricing improvements, and improved mix of inspection, service, and monitoring revenue, which generates higher margins. The increase was also driven by lower acquisition and integration related expenses incurred in the nine months ended September 30, 2023 compared to the same period in 2022. Safety Services EBITDA as a percentage of net revenues for the nine months ended September 30, 2023 and 2022 was approximately 12.4% and 10.7%, respectively. This increase was primarily related to the factors discussed above.

Specialty Services

Specialty Services net revenues for the nine months ended September 30, 2023 increased by $34 million or 2.2% compared to the same period in 2022. The increase was primarily driven by an increase in service revenue in the infrastructure, utility, and specialty contracting markets during the nine months ended September 30, 2023 compared to the same period in 2022.

Specialty Services operating margin for the nine months ended September 30, 2023 and 2022 was approximately 5.4% and 4.6%, respectively. The increase was primarily the result of disciplined project and customer selection during the nine months ended September 30, 2023. Specialty Services EBITDA as a percentage of net revenues for the nine months ended September 30, 2023 and 2022 was approximately 10.7% and 10.1%, respectively, due to the factors discussed above.

Non-GAAP Financial Measures

We supplement our reporting of consolidated financial information determined in accordance with U.S. GAAP with SG&A expenses (excluding amortization and impairment) and EBITDA (defined below), which are non-U.S. GAAP financial measures. We use these non-U.S. 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, reportable business segments, and prospects for future performance, (b) permit investors to compare us with our peers, and (c) in the case of EBITDA, determines certain elements of management’s incentive compensation.

These non-U.S. 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 we report in accordance with U.S. GAAP. The principal limitation of these non-U.S. GAAP financial measures is that they exclude significant expenses required by U.S. 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

Table of Contents

limitations as they reflect the exercise of judgment by management about which items are excluded or included in determining these non-U.S. GAAP financial measures. Investors are encouraged to review the following reconciliations of these non-U.S. GAAP financial measures to the most comparable U.S. 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-U.S. GAAP measure provides meaningful information and helps investors understand our core 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.

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


	Three Months Ended September 30,
($ in millions)	2023		2022
Reported SG&A expenses	$	407	$	379
Adjustments to reconcile to SG&A expenses to SG&A expenses (excluding amortization and impairment)
Amortization expense	(49)		(36)
Impairment of goodwill, intangibles, and other assets	(13)		—
SG&A expenses (excluding amortization and impairment)	$	345	$	343


	Nine Months Ended September 30,
($ in millions)	2023		2022
Reported SG&A expenses	$	1,148	$	1,138
Adjustments to reconcile to SG&A expenses to SG&A expenses (excluding amortization and impairment)
Amortization expense	(147)		(143)
Impairment of goodwill, intangibles, and other assets	(13)		—
SG&A expenses (excluding amortization and impairment)	$	988	$	995

EBITDA

Earnings before interest, taxes, depreciation, and amortization (“EBITDA”) is the measure of profitability used by management to manage its segments and, accordingly, in its segment reporting. We supplement the reporting of our consolidated financial information with EBITDA. We believe this non-U.S. GAAP measure provides meaningful information and helps investors understand our financial results and assess our prospects for future performance. Consolidated EBITDA is calculated in a manner consistent with segment EBITDA, which is a measure of segment profitability.

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


	Three Months Ended September 30,
($ in millions)	2023		2022
Reported net income	$	54	$	28
Adjustments to reconcile net income to EBITDA:
Interest expense, net	37		33
Income tax provision	20		18
Depreciation	21		22
Amortization	56		51
EBITDA	$	188	$	152

Table of Contents


	Nine Months Ended September 30,
($ in millions)	2023		2022
Reported net income	$	128	$	51
Adjustments to reconcile net income to EBITDA:
Interest expense, net	112		88
Income tax provision	59		16
Depreciation	59		60
Amortization	167		165
EBITDA	$	525	$	380

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, access to our $500 million five-year senior secured revolving credit facility (the "Revolving Credit Facility") and the proceeds from debt 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.

As of September 30, 2023, we had $945 million of total liquidity, comprising $461 million in cash and cash equivalents and $484 million ($500 million less outstanding letters of credit of approximately $16 million, which reduce availability) of available borrowings under our Revolving Credit Facility.

During 2022, we issued and sold 800,000 shares of Series B Preferred Stock (defined below) for an aggregate purchase price of $800 million, and entered into an 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 sublimit was increased by $100 million to $250 million.

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, any accrued consideration and compensation due to selling shareholders, including tax payments in connection therewith, as well as to identify, execute, and integrate strategic acquisitions and business transformation transactions or initiatives.

In 2022, our Board of Directors authorized a stock repurchase program, authorizing the purchase of up to an aggregate of $250 million of common stock through February 2024. During the three and nine months ended September 30, 2023, we repurchased 656,489 and 1,626,493 shares of common stock for aggregate payments of approximately $18 million and $41 million under this stock repurchase program, respectively, leaving approximately $166 million of authorized repurchases.

Table of Contents

Cash Flows

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


	Nine Months Ended September 30,
($ in millions)	2023		2022
Net cash provided by operating activities	$	217	$	82
Net cash used in investing activities	(108)		(2,931)
Net cash (used in) provided by financing activities	(253)		1,773
Effect of foreign currency exchange rate change on cash, cash equivalents, and restricted cash	(1)		(17)
Net decrease in cash, cash equivalents, and restricted cash	$	(145)	$	(1,093)
Cash, cash equivalents, and restricted cash, end of period	$	462	$	398

Net Cash Provided by Operating Activities

Net cash provided by operating activities was $217 million for the nine months ended September 30, 2023 compared to $82 million of cash used for the same period in 2022. The increase in cash provided by operating activities is primarily due to an increase in net income in the period. This increase in cash provided is also driven by lower working capital needs associated with the various services we provided in the nine months ended September 30, 2023 compared to the same period of the prior year. 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. The increase in cash provided by operating activities in the current year is also due to a one-time contribution to an assumed pension plan of $27 million during the nine months ended September 30, 2022.

Net Cash Used in Investing Activities

Net cash used in investing activities was $108 million for the nine months ended September 30, 2023 compared to $2,931 million for the same period in 2022. During 2022, we completed the Chubb Acquisition resulting in the use of $2,881 million for acquisitions during the nine months ended September 30, 2022 compared to $57 million for the same period in 2023.

Net Cash (Used in) Provided by Financing Activities

Net cash used in financing activities was $(253) million for the nine months ended September 30, 2023 compared to $1,773 million provided by financing activities for the same period in 2022. The decrease in cash provided by financing activities was primarily driven by equity and debt issuances in the nine months ended September 30, 2022 related to the Chubb Acquisition. In the nine months ended September 30, 2022, cash provided by financing activities was higher due to $1,104 million of proceeds from the issuance of the 2021 Term Loan and other debt, and $797 million of proceeds from the issuance of Series B Preferred Stock. The increase in cash used in financing activities in the nine months ended September 30, 2023 was also driven by $206 million of payments on long-term borrowings.

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 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 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.

Table of Contents

On October 11, 2023, we completed repricing of our 2019 Term Loan and 2021 Term Loan. The repricing reduces 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. Following the repricing transaction, we have $505 million outstanding on 2019 Term Loan and $1,407 million outstanding on the 2021 Term Loan.

Following the debt repricing transaction, the amended interest rate applicable to the 2019 Term Loan is, at our option, either (a) a base rate plus an applicable margin equal to 1.25% or (b) a Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.25% plus a credit spread adjustment ("CSA"). Principal payments on the 2019 Term Loan are due in quarterly installments on the last day of each fiscal quarter, unless prepayments are made, for a total annual amount equal to 1.00% of the initial aggregate principal amount of the 2019 Term Loan. The 2019 Term Loan matures on October 1, 2026.

Following the debt repricing transaction, the amended interest rate applicable to the 2021 Term Loan is, at our option, either (a) a base rate plus an applicable margin equal to 1.50% or (b) a Term SOFR rate (adjusted for statutory reserves) plus an applicable margin equal to 2.50% plus a CSA. Principal payments on the 2021 Term Loan will be made in quarterly installments on the last day of each fiscal quarter, for a total annual amount equal to 1.00% of the initial aggregate principal amount of the 2021 Term Loan. The 2021 Term Loan matures on January 3, 2029. The 2021 Term Loan is subject to the same mandatory prepayment provisions as the 2019 Term Loan.

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 September 30, 2023 was 1.92:1.00.

During the nine months ended September 30, 2023, we repaid an aggregate amount of $200 million, $100 million to each of the 2019 Term Loan and 2021 Term Loan. As a result, as of September 30, 2023, the 2019 Term Loan and the 2021 Term Loan had remaining principal amounts of $1,027 million and $985 million, respectively. On October 11, 2023, we made a repayment of $100 million on the 2019 Term Loan concurrent with the close of the repricing transaction. Following the repricing transaction, we have $505 million outstanding on 2019 Term Loan and $1,407 million outstanding on the 2021 Term Loan. We had no amounts outstanding under the Revolving Credit Facility, under which $484 million was available after giving effect to $16 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 of our 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 repay a previously outstanding term loan, prepay a portion of the 2019 Term Loan and for general corporate purposes. As of September 30, 2023, we had $337 million aggregate principal amount of 4.125% Senior Notes outstanding.

On October 21, 2021, APi Escrow Corp, 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

Table of Contents

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. As of September 30, 2023, we had $277 million aggregate principal amount of 4.750% Senior Notes outstanding.

Debt Covenants

We were in compliance with all covenants contained in the indentures governing the 4.125% Senior Notes and 4.750% Senior Notes and Credit Agreement as of September 30, 2023 and December 31, 2022.

Issuance 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.

The holders of the Series B Preferred Stock are entitled to dividends at the rate of 5.5% per annum, payable in cash or common stock, at our election. The Series B Preferred Stock ranks senior to our common stock and Series A Preferred Stock with respect to dividend rights and rights upon the voluntary or involuntary liquidation, dissolution, or winding up of our affairs.

The Series B Preferred Stock is convertible, at the holder’s option, into shares of our common stock at a conversion price equal to $24.60 per share, subject to certain customary adjustments. The holders of Series B Preferred Stock have certain other rights including voting rights on an as-converted basis, certain pre-emptive rights on our private equity offerings, certain registration rights, and, in the case of certain holders, certain director designation rights, as provided in the certificate of designation governing the Series B Preferred Stock.

We may, at our option, effect conversion of the outstanding shares of Series B Preferred Stock to common stock, but only if the volume-weighted average price of our common stock exceeds $36.90 per share for 15 consecutive trading days.

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 Interim Statements and expected to be satisfied using cash generated from operations:

•Operating and Finance Leases – See Note 11 – "Leases" in the Annual Report on Form 10-K filed on March 1, 2023. We have not had material changes to our lease obligations during the nine months ended September 30, 2023.

•Debt – See Note 11 – "Debt" for future principal payments and interest rates on our debt instruments.

•Tax Obligations – See Note 12 – "Income Taxes."

•Pension obligations – See Note 13 – "Employee Benefit Plans."

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk

As of September 30, 2023, our outstanding variable interest rate debt was primarily related to our 2019 Term Loan and our 2021 Term Loan. As of September 30, 2023, we had $1,027 million outstanding on the 2019 Term Loan and $985 million outstanding on the 2021 Term Loan. On October 11, 2023, we made a repayment of $100 million on the 2019 Term Loan concurrent with the close of the repricing transaction. Following the repricing transaction, we have $505 million outstanding on 2019 Term Loan and $1,407 million outstanding on the 2021 Term Loan. To mitigate increases in variable interest rates, we have a $720 million four-year interest rate swap, exchanging one-month SOFR for a rate of 3.59% per annum and a $400 million five-year interest rate swap exchanging one-month SOFR for a rate of 3.41% per annum. In

Table of Contents

addition, interest expense will be offset by the amortization through October 2024 of the remaining gain of $18 million recognized from the termination of the previously outstanding $720 million notional amount interest rate swap. After the repricing transaction, the remaining floating rate portfolio will bear interest based on one-month SOFR plus CSA plus 225 basis points or one-month SOFR plus CSA plus 250 basis points. As of September 30, 2023, excluding letters of credit outstanding of $16 million, we had no amounts of outstanding revolving loans under our Credit Agreement.

Foreign currency risk

We have operations in over 20 countries globally. Revenues generated from foreign operations represented approximately 35% and 37% of our consolidated net revenues for the three and nine months ended September 30, 2023. Net revenues and expenses related to our foreign operations are, for the most part, denominated in the functional currency of the foreign operation, which minimizes the impact fluctuations in exchange rates would have on net income or loss. We are subject to fluctuations in foreign currency exchange rates when transactions are denominated in currencies other than the functional currencies. Such transactions were not material to our operations during the nine months ended September 30, 2023. These foreign currency transaction gains and losses, including hedging impacts, are classified in investment income and other, net, in the condensed consolidated statements of operations and were a gain (loss) of $0 million for both the three months ended September 30, 2023 and 2022, and $0 million and $(2) million for the nine months ended September 30, 2023 and 2022, respectively. These net foreign currency transaction gains and losses include derivative instruments designed to reduce foreign currency exchange rate risks. Translation gains or losses, which are recorded in accumulated other comprehensive loss in the condensed consolidated balance sheets, result from translation of the assets and liabilities of our foreign subsidiaries into U.S. dollars. Foreign currency translation gains (losses) totaled approximately $(63) million and $(86) million for the three months ended September 30, 2023 and 2022, respectively, and $(22) million and $(311) million for the nine months ended September 30, 2023 and 2022, respectively.

Our exposure to fluctuations in foreign currency exchange rates may continue to increase in the future if we continue to expand our operations outside of the U.S. We seek to manage foreign currency exposure by minimizing our consolidated net assets and liability positions in currencies other than the functional currency of our foreign subsidiaries. However, we believe that our exposure to transactional gains or losses resulting from fluctuations 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 order to manage foreign currency risk related to transactions in foreign currencies and the Chubb business intercompany financing structure, we entered into cross-currency swaps to manage the foreign currency risk of certain intercompany loans. We also occasionally use foreign currency contracts as a way to mitigate foreign currency exposure.

Other market risk

We are also exposed to market risks impacting our customer base due to the potential related impact on accounts receivable or contract assets on uncompleted contracts. The amounts recorded may be at risk if our customers’ ability to pay these obligations is negatively impacted by economic conditions. We continually monitor the creditworthiness of our customers and maintain ongoing discussions with customers regarding contract status with respect to change orders and billing terms. Therefore, management believes it takes appropriate action to manage market and other risks, but there is no assurance management will be able to reasonably identify all risks with respect to the collectability of these assets. See also “Revenue Recognition from Contracts with Customers” under the heading "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

In addition, we are exposed to various supply chain risks, including the market risk of price fluctuations or availability of copper, steel, cable optic fiber, and other materials used as components of supplies or materials utilized in our operations. We are also exposed to increases in energy prices, particularly as they relate to gasoline prices for our vehicle fleet. Disruptions in our supply chain can occur due to market inefficiencies but can also be driven by other events, like cybersecurity breaches, pandemics, or similar disruptive events. While we believe we can increase our contract prices to adjust for some price increases in commodities, there can be no assurance that such price increases, if they were to occur, would be recoverable. Additionally, some of our fixed price contracts do not allow us to adjust prices and, as a result, increases in material costs could reduce profitability with respect to projects in progress.

Significant declines in market prices for oil, gas, and other fuel sources may also impact our operations. Prolonged periods of low oil and gas prices may result in projects being delayed or canceled. In a low oil and gas price environment, certain of our businesses could become less profitable or incur losses.

Table of Contents

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating such controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

As required by Rule 13a-15(b) of the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are not effective as of September 30, 2023 due to the material weaknesses in internal control over financial reporting described below, which were previously disclosed in Item 9A. “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2022.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. However, our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent or detect all errors and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our Company have been detected.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a‑15(f) and 15d-15(f) under the Exchange Act. Under the supervision of our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2023 based on the guidelines established in Internal Control — Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was not effective as of September 30, 2023 due to the material weaknesses in internal control over financial reporting identified and further described below.

A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

We continue to have previously identified control deficiencies that are not remediated as of September 30, 2023 related to user access controls related to an information technology system which resulted from insufficient risk assessment and ineffective operation of process level controls over revenue recognition, which resulted from insufficient training. As a result of the user access control deficiencies, process level controls at certain entities that use information from the affected system cannot be relied upon. These control deficiencies constitute material weaknesses in our internal control over financial reporting as of September 30, 2023.

Ongoing Remediation Plan

Management has undertaken various steps to continue remediating such control deficiencies and has seen improved results versus December 31, 2022. Steps taken by us during the three months ended September 30, 2023 include the following:

•Performed weekly and monthly monitoring of privileged access activity;

•Conducted training with operating company personnel related to required level of documentation and proper review of estimates related to revenue recognition; and

Table of Contents

•Performed corporate level review of high risk contracts and their related revenue recognition documentation.

We plan to continue our efforts to strengthen our internal control over financial reporting and are committed to ensuring that such controls are operating effectively. We are implementing process and control improvements to address the above material weakness as follows:

•Continue to conduct ongoing training with control owners and reviewers within operations and finance with a specific focus on sufficient documentation and evidence in the execution of the controls; and

•Conduct an evaluation of information technology general controls ("ITGCs") and related policies, with a focus on risk assessment procedures and controls related to access to information technology ("IT") systems and implement an IT management review and testing plan to monitor ITGCs with a specific focus on systems supporting our financial reporting processes.

As anticipated, a remediation effort of this magnitude takes multiple years to complete and we have made significant progress with the Company’s multi-year remediation plans. Based on this progress, management believes full remediation of current material weaknesses can be achieved by year-end. In addition, under the direction of the Audit Committee of the Board of Directors, we will continue to review and make necessary changes to the overall design of the Company’s internal control environment, as well as to refine policies and procedures to improve the overall effectiveness of internal control over financial reporting of the Company.

The material weaknesses in our internal control over financial reporting will not be considered remediated until the remediated controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. No system of controls, no matter how well designed and operated, can provide absolute assurance that the objectives of the system of controls will be met, and no evaluation of controls can provide absolute assurance that all control deficiencies or material weaknesses have been or will be detected. There is no assurance that the remediation will be fully effective. As described above, these material weaknesses have not been remediated as of the filing date of this quarterly report. If these remediation efforts do not prove effective and control deficiencies and material weaknesses persist or occur in the future, the accuracy and timing of our financial reporting may be adversely affected.

Changes in Internal Control over Financial Reporting

We are executing our remediation plans to remediate the material weaknesses relating to our internal control over financial reporting, as described above. Other than changes described above, there have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended) during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

There have been no material changes to our risk factors contained in Part I, Item 1A. "Risk Factors" of our Form 10-K for the year ended December 31, 2022.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table provides information about the Company's purchase of equity securities during the three months ended September 30, 2023:


During the Three Months Ended September 30, 2023	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)
July 1, 2023 - July 31, 2023	—	$	—	—	$	—
August 1, 2023 - August 31, 2023	656,489	28.00		656,489	166
September 1, 2023 - September 30, 2023	—			—	—
Total	656,489	$	28.00	656,489	$	166

(1)During 2022, we announced that our Board of Directors authorized a stock repurchase program (“SRP”) to purchase up to an aggregate of $250 million of shares of our common stock. Acquisitions pursuant to the SRP may be made from time to time through a combination of open market repurchases in compliance with Rule 10b-18 under the Exchange Act, privately negotiated transactions, accelerated share repurchase transactions, and/or other derivative transactions, at our discretion, as permitted by securities laws and other legal requirements. In connection with the SRP, we may enter into Rule 10b5-1 trading plans which would generally permit us to repurchase shares at times when it might otherwise be prevented from doing so under the securities laws. The SRP will expire on February 29, 2024 unless otherwise modified or earlier terminated by our Board of Directors at any time in its sole discretion.

ITEM 4. MINE SAFETY DISCLOSURES

Information regarding mine safety violations and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this quarterly report.

ITEM 5. OTHER INFORMATION

During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Table of Contents

ITEM 6. EXHIBITS


Exhibit No.						Description of Exhibits

10.25						Amendment No. 4, dated October 11, 2023, among APi DE, Inc., APi Group Corporation, the subsidiary guarantors from time to time party thereto, the lenders and letter of credit issuers from time to time party thereto, and Citibank, N.A. as administrative agent and collateral agent.

31.1*						Certification by Russell A. Becker, Chief Executive Officer, pursuant to Exchange Act Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*						Certification by Kevin S. Krumm, Chief Financial Officer, pursuant to Exchange Act Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**						Certification by Russell A. Becker, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**						Certification by Kevin S. Krumm, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

95.1*						Mine Safety Disclosures.

101.INS*						Inline XBRL Instance Document.

101.SCH*						Inline XBRL Taxonomy Extension Schema Document.

101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104*						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*Filed herewith

**Furnished herewith

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized.


			APi GROUP CORPORATION

November 2, 2023			/s/ Russell A. Becker
			Russell A. Becker
			Chief Executive Officer
			(Duly Authorized Officer)

November 2, 2023			/s/ Kevin S. Krumm
			Kevin S. Krumm
			Chief Financial Officer
			(Principal Financial Officer)