10-Q 1 apg-10q_20200930.htm 10-Q apg-10q_20200930.htm

 

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

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 of Delaware (“the Domestication”). The business, and assets and liabilities of the Company and its subsidiaries were the same immediately after the Domestication as they were immediately prior to the Domestication. As a result of the Domestication, ordinary shares and Founder Preferred Shares were converted to shares of common stock and Series A Preferred Stock, respectively. Each holder of a warrant, option or restricted stock unit became a holder of a warrant, option or restricted stock unit of the domesticated Company. The number of shares outstanding did not change as a result of the Domestication, and the proportional equity interest of each shareholder remained the same. Shares referred to as ordinary shares and Founder Preferred Shares prior to the Domestication are referred to as common shares and Series A Preferred Shares (“Preferred Shares”) throughout these Interim Statements.