Good morning, ladies and gentlemen, and welcome to the APi's Group [Third] Quarter 2020 Financial Results Conference Call. [Operator Instructions] Please note, this call may be recorded. [Operator Instructions] 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 third quarter 2020 earnings conference call. Joining me on the call today 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 press -- earnings press release announcement and on this call are forward-looking statements, which are based on expectations, intentions and projections regarding the company's future performance, anticipated events or trends and other matters that are not historical facts. These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. In our press release and filings with the SEC, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, November 11, and we have no obligation to update any forward-looking statement we may make. As a reminder, we have posted a presentation detailing our third 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. We're very pleased with our third quarter results as well as the progress we've made during our first year as a public company. As I've said before, we have not expected to be stress tested this quickly. We believe that our results support the investment thesis we had when we first met Russ and the team. The culture and priorities of the company stand out during difficult times, and we are proud of how everyone within the company has persevered as we navigate the COVID-19 environment surrounding us. We remain focused on our goal of building upon APi's proven track record of organic growth within its niche business services markets, complemented with disciplined and accretive M&A. We're excited about our recently announced acquisitions. These businesses are highly complementary, and help expand our geographical reach in the important U.S. market and establish a beachhead for expansion on the continent in Europe. With that, I'll hand over the call to Russ.

Thank you, Martin. Good morning, everybody. Thank you for your interest in APi. I hope you and your families are staying healthy and safe. Before I provide you with a summary of our strong third quarter financial results, our M&A progress, our positive outlook and our increased guidance, in honor of today being veterans state, I would like to start the call by thanking the servicemen and women as well as their spouses across our country for their sacrifices. The values and culture at APi have long been influenced by our leadership's respect and reverence for the values of the U.S. military. We are committed to hiring our nation's veterans. We have a long history of hiring and supporting veterans and have hired an average of 400 veterans -- 450 veterans annually over the past 3 years. We are proud to have leaders that have veterans in our workforce today. We thank all of the vets who are part of the team today and all the veterans that have been part of our family over the years. We place an immense value on the leadership, loyalty and experience of military veterans and are fortunate to be able to work alongside those who have served our nation. I encourage everyone who has invested in APi to also invest in veterans and their spouses. I'm very pleased with our results for the third quarter, particularly considering the ongoing impact of COVID-19 and the resurgence of COVID-19 in certain areas of the country. Tom will take you through our results in more detail. I am proud of how our team has continued to show commitment and dedication to serving customers safely and efficiently. The safety, health and well-being of all of our employees and constituencies is our #1 priority. I'd like to thank…

Thanks, Russ, and good morning. I will start by reviewing our consolidated financial results, segment level performance as well as our strong balance sheet and liquidity, and conclude with providing an update of our expectations for the remainder of 2020. Adjusted net revenues for the 3 months ended September 30, 2020, declined by $93 million or 8.9% to $953 million compared to $1 billion in the prior year period. The decline was primarily attributable to the negative impacts of COVID-19. For the 9 months ended September 30, 2020, total adjusted net revenues declined by $255 million or 8.9%, to $2.6 billion compared to $2.9 billion in the prior year period. The decline was primarily attributable to the negative impacts of COVID-19, combined with improved project and customer selection, which led to a decrease in the volume of the projects. Adjusted gross margins for the 3 months ended September 30, 2020, was 24.3%, representing a 159 basis point increase compared to prior year. The increase was primarily due to our strategic focus on improving margins as opposed to growing the top line in the Industrial segment -- Industrial Services segment, combined with the improved project execution. In our Safety and Specialty Services segments, margin expansion was driven by mix of work, increased labor productivity and improved pricing. For the 9 months ended September 30, 2020, adjusted gross margins was 23.8%, representing a 284 basis point increase compared to the prior year due to the drivers I mentioned for the third quarter. Adjusted EBITDA margins, excluding corporate, for the 3 months ended September 30, 2020, was 15%, representing a 183 basis point increase compared to the prior year, driven by gross margin expansion and early execution of our largely temporary SG&A cost containment efforts, counteracting the negative impacts of COVID-19. Adjusted EBITDA…

Thanks, Tom, and good morning, everybody. As you heard today, we are pleased with our results this quarter, particularly in light of a difficult macro environment. While the pandemic continues to have a negative impact on net revenues across our 3 segments, as expected, our proactive approach to managing risk across our platform and the strength of our recurring revenue services focused business model has yielded results. Shortly following the end of the quarter, we proactively managed our capital structure by opportunistically accessing the debt capital market for an incremental term loan facility of $250 million provide us with additional financial flexibility to continue driving growth and creating shareholder value. As a reminder, there are outstanding warrants that will result in approximately $245 million of cash coming into the company, which can be used for additional accretive acquisitions or other corporate needs. As Russ mentioned earlier in the call, we remain confident in our previously stated long-term value creation targets and believe the resilience of our people as well as our recurring revenue services focused business model will drive results and have allowed us to continue to execute our long-term goals for the business. We believe that we are well positioned to deliver consistent profitable growth for our shareholders by optimizing the performance to our existing businesses, pursuing a disciplined acquisition strategy and effectively managing our capital structure. As we look at the calendar for investor engagements over the next couple of months, we look forward to participating in the Baird Industrial Conference tomorrow, a virtual non-deal roadshow, with Barclays as well in December and yet again with CJS and their conference in early January. We plan to participate in additional conferences and NDRs as we move towards the spring and also plan to host an analyst Investor Day sometime in the spring where we will share our 2021 outlook and our plans for expansion. I would now like to turn the call back over to the operator and open the call for question-and-answer with our remaining time. Operator?

[Operator Instructions] And your first question is coming from the line of Markus Mittermaier with UBS.

Quick question on the guide, thanks a lot for that, and what it implies. Maybe can you talk us through your thinking here. If I do the math here, it implies basically a high single-digit down Q-on-Q, is that kind of normal seasonality, it's kind of in line with what you saw last year, maybe a little bit better? Or is that still COVID impact that you're cautiously modeling here? And then on margin, maybe can you walk us through the cadence of the temporary cost-out? How do they come back? What's your current plan? Again, if I look at the Q4 implied, it looks like you're gearing us towards a roughly 10% margin. So just thinking through the various puts and takes here on costs coming back and the top line guide, maybe let's start there.

And we appreciate UBS' coverage of the company as well. So when you think about it, all right, the fourth quarter is typically, we start to see some seasonality kick in, both from a revenue perspective as well as from an SG&A perspective. So as revenues slow, SG&A will remain fairly consistent within the existing businesses. The other aspect of it as well is that we are continuing to bring the temporary cost containment measures back into play in the businesses. And I would say, for all intents and purposes that we're almost back to 100%. And so that's going to be adding some incremental cost to our overhead structure. We have some businesses that are continuing to remain on, I'll just say, reduced working with reduced wages. But that has become the exception now, and there's just a handful of us at corporate that are still not taking any compensation.

Okay. Got it. And then, Jim, you mentioned the warrant conversion and sort of the cash contribution or potential cash contribution from that, maybe can I tie that your overall thoughts on M&A. You've talked about, obviously, continuation of bolt-ons. You've also talked about transformational acquisitions in the past. To what extent would you say SK FireSafety is that transformation -- transition -- transaction that you kind of talked about? Is there more of that nature that you're thinking about given your leverage situation? Or how would you advise us to think about the strategy going forward? Is it leaning more towards bolt-ons? Or is there other larger transactions that you're thinking about?

Markus, we're running a parallel path. So the historical M&A that the company has done with small regional companies, local companies, has continued if you think of the acquisition announcement we've made just at the end of the third quarter. We have 3 of those little bolt-on transactions that will close by the end of the year. We continue, though, to have conversations of things of scale. I wouldn't say that SK is transformational; I think it was opportunistic. It's around $175 million of revenue in U.S. dollars. And so I think that, that is an appropriate-sized transaction. But as you know from our prior conversations, we're willing to look at things much larger, $500 billion, $600 billion, $700 billion. We have the intellectual bandwidth within the organization to do a larger size. We certainly have the liquidity. We're not relying on the conversion of the warrants. But that really represents almost a one-for-one on what we did in the debt markets. And so our leverage ratio will be low. We have confidence in our ability to continue to generate cash. So we feel pretty good about that. And so M&A is certainly in our line of sight. Russ will actually be with Martin and I in the next couple of days to go through some of the larger M&A transactions. So we're confident that we'll be able to execute as we move through the balance of the year and into 2021. And then if I could just kind of jump back to what Russ was talking about the fourth quarter. We've said all along since the beginning of the pandemic that the revenue is shifting off to the right. And ultimately, you're going to be squeezed on revenue just because the calendar is going to end. And so I think that, that's really more reflective of where we see the fourth quarter rather than any change in our customers' outlook, the business's focus. We're simply just running out of time. We're heading into high holiday activity. So more days will fall out of the calendar. But there's nothing systemically challenging within the business other than the things we've discussed already.

Okay. Got it. That's very helpful. So basically, in Safety Services, that 14.4% drop you had in the quarter, you've mentioned access restrictions, mechanical service windows may be shifting. So we should really think of that COVID impact more of a delay, not that these projects evaporate? Is it really sort of you think about this as being pushed out to the next possible window whenever that is? Or how would you think about that?

I think that, that's a very fair statement. But also, it's a tough comp on a year-over-year basis. We had a good fourth quarter last year in this segment. And so while people don't have a great track record of knowledge of the company, the weather was favorable last year, the weather hasn't been terrible so far this year. But those are really the primary drivers. It's a tough comp, and all the things that you just mentioned.

Markus, if I could add a little bit of color, too. While we don't publish our contract backlog, our contract backlog is -- on a year-over-year basis is actually very consistent with where it was at this point last year, if not slightly higher by about $100 million. So it is truly just things getting pushed out, as Jim had described, and we feel like the company is really in a good spot.

Your next question is from the line of Andy Kaplowitz with Citigroup.

Russ, maybe I can follow up on your last comment. You talked about the backlog. You mentioned service was up a little bit in the quarter. I mean it's early to talk about '21, especially during the pandemic. But at the same time, you do have your specialty business that looks like it's starting to turn and you mentioned service up in safety. So any initial thoughts about '21 and the confidence level around growth in the businesses, maybe you have more confidence in 1 segment versus another, but any initial thoughts that you'd have?

Well, we're rolling up our 2021 budget as we speak. I haven't seen really any of those figures at this point. But we remain confident in the business model that we put forth to you. If you look at our bellwether from -- in Safety Services, right, is inspections, right? And we talked a lot about how we're really just pounding the pavement as it relates to selling inspections first. On a year-over-year basis, inspections are up 6%. I think that's what we reported at the end of the second quarter in the call as well. And so we've maintained that through the third quarter in the middle of the pandemics. And so we believe that, that continued focus in growth and service is going to fare well for the business as we move into 2021. And our mechanical services businesses should see a resurgence in some of their work activities that were delayed as we went through the course of this year. We've talked a lot about Specialty Services being acyclical, and I think that those comments are accurate and they're proving to be accurate. And we're very confident as we move into fiscal '21.

Great. And you already talked about sort of the temporary benefits sort of rolling off here. But even if I exclude the $13 million of benefits, you still did almost 11% adjusted EBITDA margin. So look, I know you don't want to reset your margin target. But as we go into '21, is it possible to tell us or give us color on how much structural cost you've taken out of the business or -- versus we know you have things like ERP implementation, back office consolidation, so have you just been able to accelerate that more than you thought during the pandemic?

I'll let Russ answer that, but you're right, Andy. We're not going to change our macro goals.

It's a nice short answer, Jim, but any other color?

Go ahead, Russ.

Well, I mean, there's puts and takes, right? And when you think about it, the -- as we continue to bring these costs back, we are also incurring some additional costs as it relates to becoming a public company. And so we have to manage those expenses as well and need to include those in our forecast as we move forward. So it's not a one size fits all. It's not just the expenses that were taken out in the individual businesses. So you have to look at it on a more macro basis. So I don't know, Tom, do you have anything to add to that?

No. I think you said it well.

And then, Tom, maybe 1 quick follow-up for you on free cash flow. Obviously, good performance, 110% of EBITDA almost this year. Is Q4 conversion still expected to be pretty good? I mean, seasonally, I would guess it would be relatively strong. And is there any way to highlight how much 2020 has been unusual for you because, obviously, we know your target is 80%?

Yes. Well, it has been unusual. I think the way to think about how it's been unusual is if you just kind of take a look at the drop in AR, that's driving a big piece of that improved cash performance, and that's the direct connection to the revenue decline. We do expect fourth quarter to continue to throw cash off as it has in the past on a relative basis.

I would tell you, Andy, that we want to use some of that cash to fund working capital, which means we're putting more people to work and getting more activity within the businesses. And that's why I think it's important for people to continue to look at our cash flow conversion goal of 80%. You can't just look at it at any 1 point in time. You have to look at it over a wider range of time because we want to put some of that cash back to work.

And you'll typically see us also have cash come in through the first couple of months of the first quarter. And then we start to have it typically go back out, as Russ said, for the right reasons. We're growing revenue, growing activity, and we're increasing receivables and our working capital needs.

Your next question comes from the line of Julian Mitchell with Barclays.

We've had some fairly long questions. So I'll try and keep it concise. Maybe the first one around the handful of acquisitions that are collectively due to close in the next couple of months. Perhaps help us understand what the free cash flow conversion profile of that sort of $25 million or so of aggregate EBITDA is? And also, what's the expected 3 or 5-year ROIC on those various transactions?

Well, we would expect the free cash flow conversion on those businesses to be 80 plus percent. They're right down the middle of the fairway as it relates to the -- to our business model. They're all focused on the recurring revenue services component. And so we would expect the cash flow conversions to be right in our target range. We don't -- Julian, we don't track return on invested capital. That's not a metric that we currently utilize. We're focused on EBITDA and the -- whether that's going to be accretive to our overall margin expansion goals.

Okay. Fair enough. And then perhaps my second question would be around the balance sheet. So you saw obviously the 1.8x end of Q3 leverage ratio. There's a lot of moving pieces now with cash out for the deals, the EBITDA coming in, the warrant conversion. So maybe help us understand, let's say, end of this year or early next once a lot of those things have played out, where do you see the leverage position being?

Yes. So as we look to project through the end of the year, on a net basis, we think we'll be in kind of that 2.5% to 3% range, right in that midpoint kind of good place you expect us to land.

Yes. But I think your question is -- our long-term target leverage, as you know, is 2% to 2.5%. If the other $200 million of warrant -- it's about $250 million of warrant proceeds, and $245 million come then obviously the leverage ratio that Tom outlined would be somewhat lower.

Yes. And just -- Julian, this is Jim. If I could just kick in on this. If you think about, we ended the quarter at $1.8 million, will be around the 2.5 to 3x, but that's really more of a function of the calendar that we did fourth quarter acquisitions. We fully expect to be on a normalized year in that range that Martin talked about.

I see. So the implication would be you can carry on doing acquisitions from early next year. There's no sort of digestion period or anything like that?

No, we'll be fine. We'll be fine.

Your next question comes from the line of Andrew Wittmann with Baird.

I guess I want to start, I guess, maybe on the Industrial Services segment. The margins were obviously quite good. And it's not lost on anyone, I think that you guys have been focused on getting more profitable expense of revenue and that's all fine well and good. I think maybe the performance this quarter certainly exceeded our expectation. I was wondering, Tom, if in the quarter, there's anything unusual in terms of larger projects that closed out favorably in terms of the accounting perspective or anything that we should be aware of in terms of -- as it relates to the way we would extrapolate the strong margin performance into the future.

Yes. No, there was nothing unusual in the quarter from something closing out better, that was working through different quarters. What was delivered in the quarter was very consistent with what we had expected for the Industrial Services segment. We do expect the fourth quarter there to be smaller, just out of normal seasonality.

Great. That makes sense. And then, Russ, I was hoping you could just talk a little bit more about some of the delays that you've seen. It sounded like it was mostly in the mechanical portion of the Safety Services segment. I was just wondering about like the nature of those projects. Are those build-outs of commercial offices? Or if you could just be a little bit more specific so we could understand which key markets are being mostly affected by the delays today.

I would say probably health care in Safety Services is the primary place where we saw some things push out to the right. We haven't seen anything canceled. But not commercial real estate. When you think about the end markets that we serve, I mean, we're not in that developer-led market to any great extent. And I think that's one of the advantages that we have. That doesn't mean we don't do any commercial office work. But I'd say health care is the primary end market. Specialty Services had some of our industrial clients delay some of their outage work, if you will, maintenance outage work or whether it's a mining operation had scheduled planned outages. A number of those were delayed and pushed out just because they didn't want to have the risk of a COVID outbreak in the middle of that maintenance outage that would potentially delay the start-up of their facilities. So we saw some delays really in both segments.

Got it. That's helpful. And then I guess my last question here is just regarding the acquisition in Europe and opening up that new growth opportunity. I just was hoping you could talk a little bit about how you, as historically North American focused company, got comfortable with certainly the same types of businesses, but really in new markets and the new market dynamics that come with different cultures, different regulations, different labor rules. And certainly, probably a different customer set, a similar customer type, but different customers themselves. All those things are important, I think, as you decided to put capital there. I was just hoping you could walk us through a little bit of the process that you went through to get comfortable with us in this deal.

Yes. So we have a business that's based in the U.K. that we've had for a number of years, and we've always had some interest in continuing to grow our platform in the U.K. and in Europe, in general. And so SKG was really a great opportunity. I would tell you that the business is right down the center of the fairway for us. I mean, the services they provide, the work that they do, there's great synergy between the services that we provide in our Safety Services. And we've already started to collaborate with the SKG team and our safety services team on how can we leverage our spend with our vendors and so on and so forth. So like I don't look at SKG as a stretch or reach for us by any stretch of the imagination. It's not a huge business. It's not a big business. We really like the leadership team there. They're rock solid. And I think it's right down the center of the fairway. So -- and then the other part of it is that Martin Franklin is involved with Nomad Foods. And so they've already got tremendous amount of experience in the European markets that we're going to be able to lean on in addition to the experience that we have working there as well. So we're very comfortable. We think it's exciting. We're already exploring a couple of small bolt-on acquisitions to SKG, and we think that's going to be a great platform for us to move forward with.

Andrew, we'll see you at your conference tomorrow. I'm just going to tee up as we're talking about acquisitions, and since we have Martin on the phone, a lot of people have asked us about multiples that we've paid. But Martin, do you want to give some color just on how we're thinking about acquisitions and multiples?

Yes, sure. I mean, as you probably -- investors who sort of know the space and are familiar. You look at some of the other service companies that have been sold of late. You've got companies like [Indiscernible], Service Logic, companies like them that have been traded at 14 to 16-plus EBITDA multiples. People who know us long enough know that, that's not really our ZIP code. We like to trade at those levels, but we're not really buyers at those levels. We've tried to find the right, if you like, arbitrage between small and large. And the smaller acquisitions, as I think you all know, trade in the, if you would call it, mid-single-digit multiples, that's the norm for the smaller companies. When you get to midsize, those multiples start moving up as you probably saw with SKG. And I think you should use that as the model for how we look at acquisitions. Obviously, from our perspective, we look at our entry multiple in APi, which has rewarded investors so far, and I think has quite a long way to go. But philosophically, we're going to use the same disciplines that we've used over many, many years on how we buy, which is we want to buy things that are the right fit, fit all of our criteria, check all our boxes and come at an appropriate valuation. So we don't use sort of one size fits all. We're opportunistic. But we think that the door is still very much open for us to do the series of smaller acquisitions. And one of the things that hasn't really been said but is very compelling part of the story from the very beginning for us was if you look at the prices that you can pay for the smaller acquisitions, you really are self-funding in perpetuity as you continue to grow. And there's so many -- it's such a fragmented market, there are so many companies. You really don't need additional capital for the company to roll out those acquisitions in various geographic markets. So that continues to be very high on the priority list for acquisitions. And to the extent, we can create additional platforms and take ourselves into new territories, like we did with SKG, that's the strategy we're going to pursue. So expect more of the same kind of philosophy going into the next 3 to 5-year program.

Your next question is from the line of Adam Thalhimer with Thompson, Davis.

Congrats on a great Q3. Can you give us a little more color in the safety business? I'm surprised the revenue was down as much as it was in Q3, why was that? And then is that something that just sets you up for kind of an easy comparison next year?

Well, I'll say not to that part of the question. I'll let Russ answer the first part.

Well, I mean, it's not 100 -- there's -- we have mechanical services inside safety services as well. And that's where the primary impact was. We also have a -- we have certain locations that were impacted by COVID, more so than others. And so there is an element of looking at it from a geographic basis as well. There's markets like think about New York and the impacts that New York had compared to the rest of the country and their ability to recover and get back on a more normal cadence. So like we track man hours by week for every single one of our companies, and we've watched our man hours kind of tick up, tick up, pick up and pick up. But certain marketplaces has had slower, I guess, rates of tick up, if you will, based on the different shelter-in place orders and New York being one of those. And we like where the business is at now today, but it's taken longer for that business to ratchet back up and get to more normal levels. And so you're managing that across all aspects of the business. Our Canadian business, we're the largest provider of life safety services in Canada as well. And specifically, like Toronto went into a greater level of lockdown than some of the other markets. And it's the same thing. We're watching those hours kind of tick back up and get back to a more normal place. And so it varies by business. And so you have to make decisions based on the variability in each one of those businesses and how you react and respond.

Okay. And Russ, it's probably way too early, but there was a school of thought that post election -- now we have a positive vaccine news on top of that. But there was a school of thought that some of these delayed work would start to move forward post election. And then, I guess, now we have positive vaccine news, probably way too early. But I mean, are you seeing an uptick from those events?

Well, I think it's much too early. I mean the vaccine is not going to be readily available to Everyday America for a number of months. And so we are looking at our business, and we are continuously planning like there's the second wave and what's going to happen, what is your plan, so that you can respond and react. And we expect that things are going to change again by markets. So like if you look if you look at it, like yesterday, the governor of Minnesota came out with more restrictive actions because of COVID. Now I don't think it's going to affect our business at all. But you have to continue to observe what each individual community and state is doing so that you can properly respond and react to the market conditions that you have. And I think that we've demonstrated that we are proactive and we are going to manage our individual businesses based on the situations and the conditions that we're faced with. But I think it's too early to tell. Our backlog is solid. I mean that gives us great confidence as we move into 2021 and beyond. But like, I call it productive paranoia. And it means it's like always keep 1 eye open in the back of your head and to make sure that you're in a position where you can respond to the conditions that you're faced with.

No. And good job on flexing the estimates. The EBIT margins in light of the top line are very impressive.

Who is -- one of the things that you have to also think about, though, relative to the election, and I'll just call it, relative certainty as we head into next year. As Russ mentioned on the call, there are infrastructure opportunities for us, both in Safety and in the Specialty Services business. If Congress gets its act together, and moves forward on infrastructure, we just view that as kind of an upside surprise. We're not planning for anything, but it is a tailwind if it happens.

Your next question comes from the line of Kathryn Thompson with Thompson Research.

And I appreciate the color on the multiples with acquisition, that was actually, the part I was going to hunt down, so thanks, James, for that. But following up on your 3 remaining acquisitions, which you're going to be closing this quarter. Could you give a little bit more detail, just bigger picture in terms of the strategic thinking of how these companies fit into the growth trajectory for the company? And then also understand that many are just part of the bigger picture, but really want to be able to think. Because when you explain these 3, it gets a richer of how you're thinking strategically going forward.

Thanks, Kathryn, for your question. We appreciate it very much. So I would tell you that all 3 of these transactions are geographically complementary to our footprint. And that is something that's very important for us as we continue to build out the platform, specifically in Safety Services. But the acquisition in Specialty Services, again, is geographically complementary to our existing business. So that's one key driver for us. They're all focused on service and the recurring revenue component of service. And so that's a positive for us as well. And these are good people, and they fit our culture and they share our values. And for us, it's just a great opportunity for us to add quality people to the APi family. The thing that we know is that from an operational -- when you think about it from an operations perspective, we know that through our strength in buying today that we can help improve those business the results from day 1. And so there's just a tremendous amount of opportunity for us to continue to do it. In the call today, we talked about some of our corporate clients, and we talked about having 200-plus locations across really North America. And we need to continue to expand on that. And the -- especially in Safety Services, as we continue to put more geographic, I'll just call it, tags on the map, if you will, the better we're able to service our corporate clients from an inspection perspective across the U.S. and Canada. So these businesses all fit right into our sweet spot and what we're trying to accomplish.

Okay. And then just following up on the margin color you gave. I appreciate that there is a mix between a greater service and also improved efficiencies. For the quarter, at least, could you help us parse out in greater detail that how much of it was mix versus efficiencies and cost cutting measures? I mean you talked about it generally, but it would be helpful to say, well, listen, half of it was mix versus -- and the other half were cost cutting.

Yes. I think you're directionally right there. It's very difficult for us to have that information any tighter than what you've described there. It's a combination of many levers. There's a little bit of pricing improvement that we had. There was a little bit of better execution. We're in a time with COVID that we have some instances that we can get to places quicker because there's less cars on the road. But then we have an offset to that, where we've got -- we can't put 2 people in a truck to go work on a project. So we've got 2 vans going. So it's a little mix of everything. But I think directionally, it's cost containment and then better execution and really working as we have on reducing our contract loss rate as well.

Okay. And then, I guess, at least into my last question for the day. There's been a great deal of focus on project selection and reducing your loss rate overall. Could you give an update just in terms of how these best practices towards that goal are being implemented across the organization? And then what is the ultimate goal in terms of the margin upside to this specific initiative? And just a final point for that, where are you today versus a year ago in this journey?

So I would share with you that we've gained on it. And we shared, I think, that we had a contract loss rate of 1.5% last year. We have set a goal this year to reduce that by half, and we've gained on that. We're not 100% there, but we've gained on it. Now if you just do the simple math. I mean, if it's 1.5% and we get it to 0, you've got a 1.5% gain. So I mean, it's the -- you can figure out how that impacts our margin just intuitively, like it should be 0. And that's what the goal is. It should -- it makes me throw up on myself to think that, that we take money out of our pocket, so to speak, to go provide services to some of our customers. And so we have to be disciplined and we have to be better. So we've implemented a -- we've always had a process, so to speak, a notification process for larger opportunities for the company. But we've really instituted a much more disciplined go, no-go checklists that is actually an app that people have on their devices that they go through to -- before they even submit or put a pencil to paper as it relates to preparing a proposal for their client. And when they get to a certain size, they actually have to come across my desk. Even if it's a master service agreement that's got $50 million of opportunity inside it that are all $15,000 opportunities that roll up to this large master service agreement, it comes across my desk, and I see it. And so it's, I guess, bringing more discipline to our business as it relates to who do we want to work for. And in almost every situation, Kathryn, it comes down to really who's the customer, and we want to make sure that we're being really selective in who we're working for.

And Kathryn, it's Jim. A very good question. It's all part of our path to the 12% plus. We don't have any home runs built into this. It's all a bunch of singles and doubles. So we're not reliant on any 1 item to get us to that margin expansion goal for 2023. With that, Kathryn, I don't mean to cut you off, but we're a little bit over the time. We have CJS out there, which, as everybody knows, was the first guys to launch coverage on us. And so I think we should end with them, let them get their question. But I know you guys have other calls, and we have calls with investors. So if we have John in CJS.

Yes. One moment. And John's line is open.

We really appreciate your support. A lot of my questions have been answered, and I know we're short on time so I'll just keep it to one. Just wanted to drill into SKG a bit. I was wondering, first, what was the contribution you're expecting in your Q4 guidance from SKG?

It's about $0.015 or about $4 million in EBITDA, and call it, $40 million in revenue.

My apologies. John's line has disconnected.

Well, I guess everybody heard my answer to John's question. I'm not sure if John heard it. But with that, why don't we wrap it up? Russ, do you want to close this out?

No. Yes, Jim, I would. I just want to take the opportunity to thank everybody again for joining the call this morning. And really thank you for your interest in APi. We're very proud of where we're at today. It's been a long journey for the first year being a public company with -- amidst the pandemic. But we have a great team at APi. I'm very proud of our people and feel very fortunate and blessed to be able to work alongside them. So thank you, and we look forward to visiting with each of you in the coming days.

Thanks, everybody.

Thank you, ladies and gentlemen. This concludes today's conference call. We thank you for participating, and it's now that you could disconnect your lines.