UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2020

or

☐ 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  ☐    No  ☒

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  ☒    No  ☐

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.  ☐

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 169,794,175 shares of Common Stock as of November 9, 2020.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	1
Item 1. Financial Statements	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3. Quantitative and Qualitative Disclosures about Market Risk	44
Item 4. Controls and Procedures	45
PART II. OTHER INFORMATION	47
Item 1A. Risk Factors	47
Item 6. Exhibits	48
SIGNATURES	49

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

APi Group Corporation

Condensed Consolidated Balance Sheets (Unaudited)

(In millions, except per share data)

	September 30, 2020 (Successor)			December 31, 2019 (Successor)
Assets
Current assets:
Cash and cash equivalents	$	467		$	256
Accounts receivable, net of allowances of $2 and $0 at September 30, 2020    and December 31, 2019, respectively		634			730
Inventories		57			58
Contract assets		272			245
Prepaid expenses and other current assets		74			33
Assets held for sale		—			20
Total current assets		1,504			1,342
Property and equipment, net		354			402
Operating lease right of use assets		98			105
Goodwill		851			980
Intangible assets, net		921			1,121
Deferred tax assets		64			—
Other assets		34			61
Total assets	$	3,826		$	4,011
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term and current portion of long-term debt	$	16		$	19
Accounts payable		142			156
Contingent consideration and compensation liabilities		30			49
Accrued salaries and wages		162			149
Deferred consideration		68			73
Other accrued liabilities		139			157
Contract liabilities		249			193
Operating and finance leases		28			27
Total current liabilities		834			823
Long-term debt, less current portion		1,160			1,171
Contingent consideration and compensation liabilities		—			15
Operating and finance leases		88			95
Deferred tax liabilities		27			23
Deferred consideration		—			78
Other noncurrent liabilities		119			49
Total liabilities		2,228			2,254
Shareholders’ equity:
Preferred shares, no par value; unlimited authorized shares; 4 shares    issued and outstanding at September 30, 2020 and December 31, 2019, respectively		—			—
Common shares; $0.0001 par value, unlimited authorized shares, 170 shares issued and outstanding     at both September 30, 2020 and December 31, 2019		—			—
Additional paid-in capital		1,886			1,885
Accumulated deficit		(262	)		(131	)
Accumulated other comprehensive income (loss)		(26	)		3
Total shareholders’ equity		1,598			1,757
Total liabilities and shareholders’ equity	$	3,826		$	4,011

See notes to condensed consolidated financial statements.

1

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,
	2020			2019			2020			2019
	(Successor)			(Predecessor)			(Successor)			(Predecessor)
Net revenues	$	958		$	1,118		$	2,705		$	3,107
Cost of revenues		736			885			2,147			2,503
Gross profit		222			233			558			604
Selling, general, and administrative expenses		171			208			506			490
Impairment of goodwill		(11	)		12			197			12
Operating income (loss)		62			13			(145	)		102
Interest expense, net		13			7			41			20
Investment income and other, net		(6	)		(8	)		(20	)		(11	)
Other (income) expense, net		7			(1	)		21			9
Income (loss) before income tax provision		55			14			(166	)		93
Income tax provision (benefit)		28			2			(35	)		7
Net income (loss)	$	27		$	12		$	(131	)	$	86
Net income (loss) per common share:
Basic	$	0.14		n/a			$	(0.77	)	n/a
Diluted	$	0.13		n/a			$	(0.77	)	n/a
Weighted average shares outstanding:
Basic		169		n/a				170		n/a
Diluted		182		n/a				170		n/a
Pro forma income information (See Note 2):
Historical income before income taxes	n/a			$	14		n/a			$	93
Pro forma provision for income taxes	n/a				4		n/a				27
Pro forma net income	n/a			$	10		n/a			$	66

See notes to condensed consolidated financial statements.

2

APi Group Corporation

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

(In millions)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020		2019			2020			2019
	(Successor)		(Predecessor)			(Successor)			(Predecessor)
Net income (loss)	$	27	$	12		$	(131	)	$	86
Other comprehensive income (loss):
Fair value change - derivatives, net of tax (expense) benefit ($0, $0, $10, and $0, respectively)		—		—			(30	)		—
Foreign currency translation adjustment		1		(2	)		1			3
Comprehensive income (loss)	$	28	$	10		$	(160	)	$	89

See notes to condensed consolidated financial statements.

3

APi Group Corporation

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(In millions, except share amounts)

	Successor
																Accumulated
	Preferred Shares Issued and Outstanding				Common Shares Issued and Outstanding					Additional Paid-In			Accumulated			Other Comprehensive			Total Shareholders’
	Shares		Amount		Shares			Amount		Capital			Deficit			Income (Loss)			Equity
Balance, December 31, 2019		4,000,000	$	—		169,902,260		$	—	$	1,885		$	(131	)	$	3			1,757
Net loss		—		—		—			—		—			(194	)		—			(194	)
Fair value change - derivatives		—		—		—			—		—			—			(27	)		(27	)
Foreign currency translation adjustment		—		—		—			—		—			—			(6	)		(6	)
Share cancellations		—		—		(608,016	)		—		(6	)		—			—			(6	)
Share-based compensation		—		—		—			—		1			—			—			1
Balance, March 31, 2020		4,000,000	$	—		169,294,244		$	—	$	1,880		$	(325	)	$	(30	)	$	1,525
Net income		—		—		—			—		—			36			—			36
Fair value change - derivatives		—		—		—			—		—			—			(3	)		(3	)
Foreign currency translation adjustment		—		—		—			—		—			—			6			6
Share-based compensation		—		—		—			—		1			—			—			1
Balance, June 30, 2020		4,000,000	$	—		169,294,244		$	—	$	1,881		$	(289	)	$	(27	)	$	1,565
Net income		—		—		—			—		—			27			—			27
Fair value change - derivatives		—		—		—			—		—			—			—			—
Foreign currency translation adjustment		—		—		—			—		—			—			1			1
Warrants exercised		—		—		250,000			—		3			—			—			3
Share-based compensation		—		—		—			—		2			—			—			2
Balance, September 30, 2020		4,000,000	$	—		169,544,244		$	—	$	1,886		$	(262	)	$	(26	)	$	1,598

	Predecessor
										Accumulated			Note
	Common Stock Issued and Outstanding				Additional Paid-In		Retained			Other Comprehensive			Receivable From			Total Stockholders’
	Shares		Amount		Capital		Earnings			Income (Loss)			Stockholder			Equity
Balance, December 31, 2018		11,000,000	$	—	$	—	$	663		$	(28	)	$	(2	)	$	633
Net income		—		—		—		21			—			—			21
Foreign currency translation adjustment		—		—		—		—			3			—			3
Distributions and other		—		—		—		(15	)		—			—			(15	)
Balance, March 31, 2019		11,000,000	$	—	$	—	$	669		$	(25	)	$	(2	)	$	642
Net income		—		—		—		53			—			—			53
Foreign currency translation adjustment		—		—		—		—			2			—			2
Distributions and other		—		—		—		(19	)		—			—			(19	)
Balance, June 30, 2019		11,000,000	$	—	$	—	$	703		$	(23	)	$	(2	)	$	678
Net income		—		—		—		12			—			—			12
Foreign currency translation adjustment		—		—		—		—			(2	)		—			(2	)
Repayments of stockholder note		—		—		—		—			—			2			2
Distributions and other		—		—		—		(28	)		—			—			(28	)
Balance, September 30, 2019		11,000,000	$	—	$	—	$	687		$	(25	)	$	—		$	662

See notes to condensed consolidated financial statements.

4

APi Group Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)

	Nine Months Ended September 30,
	2020			2019
	(Successor)			(Predecessor)
Cash flows from operating activities:
Net income (loss)	$	(131	)	$	86
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		62			52
Amortization		134			26
Impairment of goodwill		197			12
Deferred taxes		(49	)		1
Share-based compensation expense		4			35
Other, net		3			—
Changes in operating assets and liabilities, net of effects of business acquisitions:
Accounts receivable		93			(1	)
Contract assets		(27	)		(113	)
Inventories		1			(4	)
Prepaid expenses and other assets		(19	)		(18	)
Accounts payable		(14	)		12
Accrued liabilities and income taxes payable		46			74
Contract liabilities		57			3
Other liabilities		(28	)		(20	)
Net cash provided by operating activities		329			145
Cash flows from investing activities:
Acquisitions, net of cash acquired		(6	)		(6	)
Purchases of property and equipment		(24	)		(53	)
Proceeds from sales of property, equipment, held for sale assets and disposals of businesses		13			7
Advances on related-party and other notes receivable		—			(4	)
Payments received on related-party and other notes receivable		—			5
Net cash used in investing activities		(17	)		(51	)
Cash flows from financing activities:
Net short-term debt		—			76
Proceeds from long-term borrowings		2			—
Payments on long-term borrowings		(16	)		(17	)
Proceeds from exercise of warrants		3			—
Payments of acquisition-related consideration		(90	)		(16	)
Distributions paid		—			(53	)
Net cash used in financing activities		(101	)		(10	)
Effect of foreign currency exchange rate change on cash and cash equivalents		—			—
Net increase in cash and cash equivalents		211			84
Cash and cash equivalents, beginning of period		256			54
Cash and cash equivalents, end of period	$	467		$	138
Supplemental schedule of disclosures of cash flow information:
Cash paid for interest	$	37		$	19
Cash paid for income taxes, net of refunds		19			7

See notes to condensed consolidated financial statements.

5

APi Group Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

Note 1.     Nature of Business

APi Group Corporation (the “Company” or “APG”) is a market-leading business services provider of safety, specialty, and industrial services in over 200 locations, primarily in North America. Until its acquisition of APi Group, Inc. (“APi Group”) on October 1, 2019, the Company had neither engaged in any operations nor generated any revenues (See Note 4 – “Business Combinations”).

Note 2.     Basis of Presentation and Significant Accounting Policies

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 accounting principles generally accepted in the United States of America (U.S. GAAP) for complete financial statements. The unaudited condensed consolidated balance sheet as of December 31, 2019 was derived from audited financial statements for the year then ended, but does 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 should be read in conjunction with the Company’s audited annual consolidated financial statements and accompanying footnotes thereto for the year ended December 31, 2019. Results for interim periods are not necessarily indicative of the results to be expected for a full fiscal year or for any future period.

In accounting for the acquisition of APi Group (the “APi Acquisition”), APG is considered the acquirer of APi Group for accounting purposes and APi Group is the accounting Predecessor. The Company’s financial statement presentation for the APi Group financial information as of and for the periods presented prior to the APi Acquisition date are labeled “Predecessor”. The Company’s financial statements, including APi Group from the APi Acquisition date, are labeled “Successor”. The merger was accounted for as a business combination using the acquisition method of accounting, and the Successor financial statements reflect a new basis of accounting that is based on the fair value of the net assets acquired. Determining the fair value of certain assets and liabilities assumed is judgmental in nature and often involves the use of significant estimates and assumptions. See Note 4 – “Business Combinations” for a discussion of the fair values of assets and liabilities recorded in connection with the APi Acquisition, which was finalized during the third quarter of 2020.

As a result of the application of the acquisition method of accounting as of the effective date of the APi Acquisition, the accompanying Interim Statements include a black line division, where applicable, which indicates a differentiation that the Predecessor and Successor reporting entities shown are presented on a different basis and are, therefore, not comparable.

The historical financial information of the Company which was, prior to the APi Acquisition, an acquisition vehicle, has not been presented in these Interim Statements as these historical amounts are not considered meaningful. As an acquisition vehicle, the Company retained and invested the proceeds from its initial public offering (the “IPO”) and the funds were used to pay a portion of the cash consideration for the APi Acquisition.

On April 28, 2020, the Company changed its jurisdiction of incorporation from the British Virgin Islands to the State o