[Audio Gap] [Operator Instructions] Please note, this call may be recorded. I will be standing by should you need any assistance. I will now turn the call over to Olivia Walton, Vice President of Investor Relations at APi Group. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining our first quarter 2020 earnings conference call. Joining me this morning are: Sir Martin Franklin and Jim Lillie, our Board co-Chairs; Russ Becker, our President and CEO; and Tom Lydon, our Chief Financial Officer. Before we begin, I would like to remind you that certain statements in the company's earnings press release announcement and on this call are forward-looking statements, which are based on expectations, intentions and projections regarding the company's future performance, anticipated events or trends and other matters that are not historical facts. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. In our press release and filings with the SEC, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, June 2, and we have no obligation to update any forward-looking statement we may make. As a reminder, we have posted a presentation detailing our first quarter 2020 financial performance on our website. Our comments today will also include non-GAAP financial measures and other key operating metrics. The reconciliation of and other information regarding these items can be found in our press release and our presentation. It is now my pleasure to turn the call over to Martin.

Thank you, Olivia. Good morning, everyone, and thank you for joining our first quarter conference call for APi Group. This is APi's first earnings conference call with investors since the completion of our domestications with Delaware corporation on April 28, followed by the commencement of trading of our shares on the New York Stock Exchange on April 29. The resilience of APi as a public company has been tested early. We couldn't be more proud of the way the entire organization has responded to the challenges, which have been proactive and maintain the forward momentum of the company. As we look to the future, we believe the company is well positioned for success. We are proud of the 15,000 leaders on our team and the efforts they have put forth to continue to serve our customers safely and efficiently. The health and well-being of all of our employees is a core value of the company. Keeping the APi family safe and helping the communities in which we operate are 2 top priorities for us. With that, I'll hand the call over to Russ. Russ?

Thank you, Martin, and good morning, everyone. Thank you for your interest in APi. Before we get started, all of us have been focused on COVID-19 over the last several months, and we will talk about that on this call. Here in Minneapolis as well as around the country, we are hearing from peaceful protesters as well as others. To the peaceful protesters, we want you to know that we hear you and support your message. I am proud of how our team has rallied around the challenges and continue to serve customers despite the headwinds they were facing. I would also like to acknowledge our team for all of the hard work that helped us to reach another important step in the ongoing evolution and growth of the company by completing the listing of our shares on the New York Stock Exchange at the end of April. Lastly, I would like to thank the teams at Citi and UBS for launching equity research coverage on us. We appreciate your interest in APi. We are looking forward to our participation in the virtual UBS Global Industrials and Transportation conference tomorrow. I will now provide you with an update on the business before turning it over to Tom, who will walk you through the financial results in more detail. Following the onset of the unprecedented pandemic beginning in March, we took a proactive approach to managing risk across our platform. As discussed on our last earnings call, we initiated a cost reduction plan to counteract the negative impact of COVID-19. This includes reducing labor costs, eliminating nonessential discretionary spending, freezing the company's nonessential capital spending, suspending employer match 401(k) contributions and working with our vendor partners to improve our pricing. We believe that these measures would result in up to $50…

Thanks, Russ, and good morning to all on the call. First, I'd like to echo Russ' comments in thanking all of our fellow employees, who are leading by example and helping us to navigate the COVID-19 world, and to all of our team members for their great work preparing us for the listing on the New York Stock Exchange and the continued efforts in our transition from private to public company. Let's start with our consolidated financial results, followed by an overview of the segment-level performance and conclude with an overview of our strong balance sheet and liquidity. We have presented adjusted numbers in the press release and investor presentations to assist investors in understanding the underlying performance of the business, exclusive of the noncash impairment charge, the purchase accounting adjustments associated with API acquisition, business classified as held for sale or divested as of March 31, 2020, and nonrecurring changes related to our listing and public company readiness work. For the 3 months ended March 31, 2020, total adjusted net revenues declined by $21 million or 2.5% to $820 million compared to $840 million in the prior year period with segment growth of 4.9% in Specialty Services, offset by a decline of 25% in Industrial Services as we delivered on our strategy to improve margins as opposed to growing the top line. Shelter-in-place orders that went into various levels of effect in March slightly reduced our volume of work year-over-year in our Safety and Specialty Services segments. Our gross margin was 22.4%, representing a 341 basis point increase compared to prior year adjusted gross margin of 19%. The increase was primarily due to the improved project selection, conditions and execution in our Industrial Services segment. Adjusted selling, general and administrative expenses increased by $25 million from $119 million in…

Thank you, Tom. Good morning, everyone. We remain confident in APi's operating model and the team's focus on driving higher margins as well as the company's ability to generate cash. We are focused on repeat business with long-term, well-diversified customers across a variety of end markets, which we believe provides us with a stable cash flow profile and substantial runway for organic growth. We believe that we are prepared to seize both near- and long-term opportunities and that our strong balance sheet and our new partnership with the NYSE will help allow us to take advantage of opportunities in 2020 and beyond. We appreciate the leadership and sacrifices demonstrated across our entire organization during this unprecedented period of time and history. We believe that the tough decisions and sacrifices made across the entire organization will help strengthen the business as we move through 2020 and continue to execute on our long-term goals. Operator, we'll now turn the call back over to you and open the call for Q&A. Thank you.

[Operator Instructions] Your first question comes from the line of Andy Kaplowitz with Citigroup.

Russ, could you give us a little more color on how your businesses are faring during the pandemic in the sense that Safety Services obviously almost half occurring. So how is that business performing to the sense that you can talk about in April and May? And then can you give us color on your ability to get into buildings to do inspections? You had talked about that, whether you would be able to do that. And then how much of it all in Specialty Services has been impacted by shelter at home or permitting delays? And one other thing that I would ask there is you talked about being able to accelerate inspections in some cases. Have you been able to do that?

Yes. Thank you, Andy, for joining the call, and thank you for providing coverage on the company. So our Safety Services segment has, I would say, fared fairly well going through it. We've obviously had some impacts, and it's been primarily based on the shelter-in-place orders that have come down in different jurisdictions. One of the biggest challenges across really both Safety Services and Specialty Services has been the varied nature of the different shelter-in-place orders. Not all of the rules are the same. And the rules of engagement change on a municipality-by-municipality basis. And that's been one of the biggest challenges for our business leaders to overcome. And the man hours for our inspection work in Safety Services have been pretty consistent and pretty solid, showing the resiliency to the business model. And so that's been very positive. There's been some locations where it's been difficult to get into the facility to perform the service work. However, we see that, that service work is just being deferred and put off, as an example, would be health care institutions. Most health care institutions right now are focused on the health and well-being of their patients. And we're focused on the health and well-being of our service technicians. And so the work is being deferred and not necessarily happening in those types of facilities. That work will get done. It has to get done. It's statutory by nature. And so we look very optimistically to get in on the other side of the pandemic. In Specialty Services, the opportunities really, as we said, in our comments earlier, the opportunities really have continued to be strong. And we have -- are really looking forward to the later part of this summer and getting things really rolling in our business. The biggest challenge there comes from the shelter-in-place orders, to be totally honest with you. And when you're doing natural gas distribution systems, water distribution systems, in a lot of cases, there is an interaction with the residents. And at some point, that system has to be cut over to the residents. Our customers have taken different approaches with interaction to homeowners. They've actually taken different approaches with interactions with commercial properties as well. And sometimes the direction that they're providing us varies from a week-to-week basis. And that's been the biggest challenge that we've seen in that segment. And we're pretty optimistic as the shelter-in-place orders start to get lifted that it's going to return more to a normal pace, and the interactions that we're seeing with our clients are being much more positive. So hopefully, things will continue to progress and improve as we march into June.

Russ, that's all helpful. Maybe just stepping back, I know you don't want to give us guidance, but can you give us any color, where coming into 2020, you talked about this baseline of $3.7 billion? You mentioned some of the project delays you're seeing. But you also seem to hint at optimism regarding your profitability so far this year, so when you talked about April EBITDA being in line with your plan. So could you give us more color into what that means? There aren't many estimates on The Street. But a couple of us that are out there have adjusted EBITDA in the mid-$300 million range for the year. Does that seem reasonable or even conservative based on what you've seen so far through the spring?

We believe that we will meet or exceed the analyst expectations of $330 million. And we are optimistic and hopeful that we will do better than that. The cost savings measures that we've put into place really to the credit of our business leaders and to our individual employees for their personal sacrifices to put the company first really have shown to be making a difference and have allowed the profitability of the company to continue to meet expectations. And so that's been very positive for us. And we look forward to a return to normalcy and getting to a more regular cadence from a revenue perspective. We want the cost savings measures that we've put into place to be temporary. And we look forward to having the opportunity to return our employees to, I guess, what I would call more normal from a compensation perspective.

Helpful. Let me just ask one more question and then I'll get back in queue. You generated $53 million of adjusted free cash flow and almost 90% of adjusted EBITDA, obviously above your goal of 80% that you've guided to in the past. I would assume that Q1 tends to be a seasonally slower quarter for you. I don't know if that's the case, you tell me. But with the good start to 2020, is it fair to say that there could be some upside to that 80% conversion goal for the year?

Tom?

Andy, this is Tom. Yes. So Q1 is seasonally our slower quarter out of the gate. So we do produce good cash flow there. And as we talked about with the focus on reducing the level of revenue in industrial, that was very helpful to us in that period as well as you note that we've put out that we're going to be lower on CapEx this year as we're monitoring that through COVID down into $30 million range. So those things will all be positive throughout the year.

Thanks, Andy, for launching on us, and we look forward to catching up to you later.

Your next question comes from the line of Chris Snyder with UBS.

So there's obviously some pretty significant macro headwinds heading into Q2 but also feels like we should get some positive seasonality, particularly for the specialty business. Can you maybe just provide some color around seasonality as we head into Q2 and what we should expect for the back half of the year? Just on the seasonality, obviously excluding the macro.

Chris, thank you, and thank you to UBS for launching coverage on the company as well, and we look forward to the virtual conference tomorrow. The seasonality associated with Specialty Services, I mean, it's just -- it's normal and it's natural. And we actually are hopeful and expect to see some pent-up demand push forward in the business. I think the bigger challenge is that we don't know what's going to happen with COVID as it relates to, is there going to be a second wave? How is that going to potentially impact us? We are working to make sure that the business is prepared to weather any sort of battle or storm that comes our way, if it does come back, and making sure that we are well prepared. We expect though -- we are hopeful and expect things to get really back to a true sense of normal by the end of June and, at the earliest, early July.

And then next, on M&A. The company continues to generate cash despite the difficult macro. And it sounds like acquisitions remain a priority for the company. Can you maybe provide some color on what you're seeing in the M&A market? Are you seeing the breadth of opportunities pick up as the downturn maybe pressure some of your smaller competitors?

Yes. I mean, that's a great -- no, that's a great question. And then I can answer it. And Martin, you can add any color that you would like to. But there's no -- so we had, I'll say, a pipeline of M&A opportunities that would be more consistent with, say, private company APi. And when really the pandemic really started to come forward, we put those activities on hold as we felt that if we are asking our employees to make sacrifices that -- and we were looking at making sure that we are preserving and maintaining the balance sheet for the company, we felt that, that was prudent and appropriate. As we start to work our way back out of the pandemic, we are -- we've kept active dialogue with some of our potential M&A targets, if you will, and look to hopefully to move those forward. There's no question that there's going to be some opportunity that comes out of this for a whole wide variety of reasons, whether people become economically stressed or because people -- it's the third down cycle that people have had to work their way through. And they're, quite frankly, just worn out from having to deal with some of these types of challenges. But there's no question that there's going to be more opportunity. And we're very active right now in making sure that we continue to fill the funnel and that we have our targets and the opportunities identified so that we can march forward. So Martin?

No, I would -- I completely agree, Russ, and I'd say that sort of for some of the, if you like, larger opportunities, there'll be a transition from people putting these things on hold in light of COVID-19. But as we come out of it, some of the companies that I think we're exploring opportunities will come back to the market. And I think that we'll be very well positioned from that perspective. We continue to generate a lot of cash, and we'll have the resources, I think, to pursue the opportunities as they come up. So it will be interesting times, I think, in the second half.

And is it fair to assume that M&A will be focused on life safety? Or is there kind of -- if the price is right, would you be willing to look into maybe specialty as well?

Yes. I mean, initially, the life safety and the service aspects, inspection service aspects of the business are what we're focusing on growth. So that would be, if you like, top of the list. Or to the extent there are other opportunities in the specialty segment, we're obviously going to be looking at those two. But the whole idea is to continue to build the business towards a more repeat business model. So businesses that tick that box will obviously be a high priority.

Makes sense. Appreciate that. And then just one more, if I could. Moving over to industrial, it's obviously not a huge driver. But since the J2 acquisition, the segment has done double-digit margins each of the last 2 quarters. Can you just maybe -- and obviously, that stands in pretty stark contrast, especially when we see kind of the year-on-year comparisons here in Q1. Can you just talk a little bit about what you're doing here on the margin side? And obviously, there's a lot of pressure on U.S. energy. But can we expect these double-digit margins to continue for the remainder of the year?

Russ, do you want to take that? But I would just remind everybody of our long-term goals is to drive margin improvement across all 3 of the businesses. And that's why we tactically focus less on revenue growth, particularly in the industrial side of the business, which historically had been both focused on growing its revenue and expanding its margins. But we want to accelerate that margin growth. So we're putting the brake on revenue for the sake of revenue, if you will. But our goal is to get everything into the double-digit neighborhood. And you know we've got the long-term range of 12%-plus EBITDA margins by 2023. And so we think that we're off to a solid start, as Russ said in his comments. But Russ, do you want to add incremental color?

Yes. I think it's -- for us, it's -- I don't want to be oversimplified, but I'm going to. It's called project selection, customer selection. And it's being super disciplined and focused on who you're going to work for, what types of work you're going to do so that you're maximizing your opportunities. And we want to make sure that we're really deploying our resources on profitable work. And I mean there's more to it. It's making sure that we have the right contract terms and other things associated with that. But we think that one of the easiest, the lowest-hanging fruit for us is around this topic of project selection and customer selection. And that's really across all of our segments. And if we're going to really achieve that goal, that's one of the first places that we need to start is being disciplined about who we're going to work for and what types of work we're going to do. And that goes to reducing our loss rate and being super focused on it. And we have improved our efforts there.

We'll see you at the conference. No pun intended.

And we have the next question, that question comes from the line of Jon Tanwanteng with CJS Securities.

Jon, quickly -- hey, Jon, before you ask your question, I know we threw a lot of love at Citi and UBS. But we have equal love for CJS and you having coverage on us as well.

That's much appreciated, and we look forward to seeing you at our virtual conference as well in July. Just first one is you mentioned in the press release and your prepared comments that adjusted EBITDA was in line with your internal plan. I'm just wondering, was that internal plan a pre-COVID or a post-COVID number and kind of what that target was for the quarter, if you're willing to get into a little bit more of the details there?

So I would say that we built a plan. Pre COVID, we built a budget. And as Russ said, we're in line with that plan. Obviously, we didn't give guidance. But we're working off the numbers that we were working off of as of January 1, when we launched the year. And so that was the reference that Russ was talking to. It's not an adjusted plan or anything else. And we hope to [Audio Gap] quarter. And as Russ said, there's an upturn. But it's in line with our internal plan, which I recognize we didn't share with anybody. But we feel good at our standing currently.

Got it. That's helpful. And just from a cost savings perspective, I'm wondering how much you realized in Q1 and kind of how much you've accomplished in Q2 so far.

As Russ said, and sorry to jump in on this, but we're looking at about $50 million of savings for the 9-month period. And so it's not all level-loaded across the months. But you're basically looking at $5 million to $6 million, $7 million per month, which gets you into the $15 million to $20 million neighborhood per quarter, depending on the timing of some of those expenses.

Okay. Great. I think you mentioned on the last call that you sold the businesses in the industrial segment. I'm not sure that made the quarter or not. It didn't look like it did. I'm just wondering what the proceeds were for those.

This is Russ. Jon, this is Russ. So we did close on the sale of one of the acquisitions. We have a confidentiality agreement with the buyer, and we are not disclosing the proceeds from the sale.

Okay. Fair enough. And then I think I caught you saying that you saw a net pickup in May as states reopened. Do you have any idea to what extent on a month-to-month or sequential basis you're seeing versus April in terms of either revenue or whatever kind of metric you want to provide?

Well, I -- we expect May to be probably similar to April from a revenue perspective. We're starting to slowly see man hours in the different businesses pick up. But that's not 100% in every single one of our businesses. Like if you use an example, you're seeing things improve, say, in New York, yet the Chicago market is still being impacted by the pandemic. So I would expect that there's going to be a similar -- we'll see a similar result from a May to an April.

Got it. And then finally, recognizing that you're really focusing on the recurring and long-term contract and services side. I was just wondering, can you talk about new construction opportunities that you see them now in bid market. To the extent you participate in them, how much of a slowdown are you seeing there? And when does it become an issue for you in terms of business going forward?

Well, like I said earlier, I think my comments were -- when I was talking specifically about Specialty Services, that proposal activity is strong, we're actually seeing strong proposal activity across the organization. Our signed backlog is very solid and consistent. And we're not highly exposed to some of the end markets that are most challenged, like hospitality, retail and such. And so we're not as dependent on those end markets. And so we are continuing to focus on the right aspects of our business. So the proposal activity remains pretty strong. And it will be interesting to see what challenges the industry faces over the course of the next 12 months. But our business is holding up.

And we do have one more question from the line of Chris Snyder with UBS.

I figured I'd take advantage of the time. And I had one for Martin or Jim or both. Now that you guys have been with the company for almost 3 quarters, what has surprised you most about the company, the business or the industry in general? And I imagine kind of facing a downturn like this pretty early on, you kind of get up to speed on the learning curve, maybe even quicker than you normally would.

So I'll jump in first and then I'll let Martin -- I'll ask Martin to leave the room, so he doesn't get my answer and then -- no, look, I'm not sure there's been any surprises. If you look at the reason why we liked APi, we thought that it had a protective moat around the business that was economically resilient. And as Martin said, we didn't expect to be stress-tested this early. I would say if there's any kind of surprise is how well the business has held up. What isn't the surprise is the culture, the dedication of the team, the leadership, how everybody is rowing the boat in one direction, looking for the best outcome for APi and its stakeholders. And so you come into a business saying, "Look, this business has a protective moat. It's got a great management team. It's very strong in niche markets. We think it's going to do well. If there is kind of a downturn, we think it's going to generate a lot of cash. We think that we can run this business with a low CapEx model." And so it's nice to see that those things actually exist. The company continues to execute. But I personally am just continually impressed with the entire team on how everybody has stepped up to do the right thing for the business. Martin, do you want to come back in?

After 17 years of doing this with Jim, we kind of speak with the same voice nowadays. I couldn't agree more. I would tell you though that one of the hallmarks for us of doing due diligence and getting to know a business before we get in bed is not to have surprises. So I would tell you that I'm not surprised that there's not a lot that surprised us. But thankfully, we knew the business, we call it the warts and all when we do our due diligence and we know the good things. We know the things that will need to be worked on. And I think, as Jim said, I think the business has performed admirably during all of this. And I think we're very grateful. And I think that, that will reflect itself in the market at some point. But this is a long game for us. We're very relaxed.

That does conclude the question-and-answer session. I would now like to turn the call back over to Mr. Russ Becker for closing remarks.

Well, I would just take this opportunity to thank each of you for your interest in the company. And please know that we are working hard and doing the best we can, not only for every one of our employees, but for our investors and the communities that we serve as well. So thank you again for joining our call this morning, and be safe and be well.

Thanks, everybody. Take care, bye.

This concludes today's conference. You may now disconnect.