APi Group Corporation (APG) Q1 2021 Earnings Call Transcript

APi Group Corporation (APG 3.23%)
Q1 2021 Earnings Call
May 12, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to APi Group's first-quarter 2021 financial results conference call. [Operator instructions] I will now turn the call over to Olivia Walton, vice president of investor relations at a APi Group. Please go ahead.

Olivia Walton -- Vice President of Investor Relations

Thank you. Good morning, everyone and thank you for joining our first-quarter 2021 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 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, May 12 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 financial performance on the investor relations page of 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 on our presentation. Before turning the call over to Martin, I'd like to thank everyone that participated in our first ever investor event on April 22. A replay of the webcast is available along with the presentation slides on the investor relations page of our website.

It is now my pleasure to turn the call over to Martin.

Martin Franklin -- Board Co-Chairman

Thank you, Olivia. Having just passed the one year anniversary of our listing on the New York Stock Exchange, I'm proud of what we've accomplished so far as a public company, and I'm pleased to say that our original investment thesis that I reviewed with all of you at our investor event has proved to be progressing as well as we could possibly have hoped. Our first-quarter results speak to the strength of the company's recurring revenue services-focused business model, which drives enhanced margins. We're excited about the organic prospects for the business and also believe there are significant opportunities to accelerate growth, service offerings and margin expansion through continued strategic M&A.

As many of you know, we have always maintained a disciplined approach when it comes to M&A. That will continue to be the case here, and we will remain focused on opportunities that will be accretive, not just to the financial profile of the company, but also to the cultural story of APi and its commitment to leadership development. This is a hugely fragmented market space, and we are very well positioned to pursue a fertile selection of acquisition prospects. With that, I'll hand the call over to Russ.

Russ Becker -- President and Chief Executive Officer

Thank you, Martin. And good morning everyone. Thank you for taking the time to join our call this morning. I would also like to thank you again to those who participated in our first ever investor event a few weeks ago.

We are pleased to deliver our first-quarter results with net revenues slightly above and margins in line with our previously communicated guidance. As you've heard me say on prior calls, the health and well-being of each of our employees and the communities in which we serve remain our No. 1 priority. This focus and other foundational priorities provides the platform from which we can continue to enhance shareholder value.

During today's call, I will provide a summary of our first-quarter results, the outlook including key growth drivers and margin expansion opportunities and update on strategic M&A efforts before I turn the call over to Tom. Tom will walk you through our most recent results and guidance in more detail. Before I walk through the highlights from our first-quarter results, I would like to remind everyone that APi did not begin to experience negative impacts from COVID-19 until mid- to late March last year. Therefore, we are comping this Q1 against the Q1 largely free from COVID-19 last year.

Also, as a reminder, our business ramps up as we move through the calendar. Our revenue is typically lowest at the beginning of the year and during the winter months because cold, snowy or wet conditions can cause delays with our work, particularly in our specialty and industrial services segments where a majority of the activity is performed outdoors. As the weather improves, so do our opportunities. During the first quarter of 2021, we experienced extreme weather conditions at several of our businesses, which tends to put pressure on margins.

Therefore, we also had a relatively tough margin comparison driven by unfavorable year-over-year weather in certain markets we serve. All of that being said, I'm very pleased with our performance and execution in the first quarter. Key highlights from our performance for the three months ended March 31, 2021 compared to the prior-year period include the following: number one, net revenues increased on an organic basis by 2.4% compared to the prior-year period. This excludes the anticipated decline in industrial services.

Growth was driven by increased demand and timing of projects in our safety and specialty services segments, offset by project delays and job site disruptions due to continued negative impacts of COVID-19 and unfavorable weather conditions; second, continued focus on our ongoing goal of growing recurring inspection and service revenue, which we believe helps build a more protective moat around the business; third, adjusted gross margins grew to 23%, which is an increase of 72 basis points. This is due to the improved mix in safety services and disciplined project and customer selection and specialty services; fourth, an adjusted EBITDA margin expansion of approximately 20 basis points driven primarily by the factors I mentioned as drivers of gross margin expansion. I'm inspired and appreciative of the resiliency and commitment of our approximately 13,000 team members who remain focused on serving customers despite the headwinds, both literally and figuratively, that they were facing this quarter. I'd like to thank them for their continued efforts.

Their ongoing leadership efforts continues to demonstrate that our leaders are a competitive advantage and help drive shareholder value. Before turning the call over to Tom, I'd like to spend a few minutes discussing our outlook and opportunities within key end markets, followed by a summary of margin expansion opportunities to drive further value creation, including strategic M&A. We believe that our revenue diversification across geographies, end markets, customers and projects provides us with stable cash flows and a platform for organic growth. The average size of our projects including all three of our segments is less than $100,000, which helps our ability to pass on raw material costs on a timely basis.

Our average project duration is relatively short so we don't have the inflationary exposure to cost of goods sold or changes in labor expense that some of our peers may experience in an inflationary environment. On contracts that are longer-term in nature, such as our multiyear master service agreements price escalators are typically built into initial proposals. In telecom and utilities, our largest end market, representing approximately 25% of our total consolidated net revenues, we continue to maintain strong direct customer relationships and are focused on growing service revenue through multiyear Master Service Agreements. We believe we are well positioned to benefit from recently announced increases in capital expenditure guidance relating to the rollout of 5G with two of our national telecom customers.

While these represent additional potential tailwinds, as you know, we have low customer concentration and typically, no customer represents more than 5% of our annual net revenues in any given year. As I said at our investor event, while we do not have anything built into our budget for an infrastructure build or stimulus that would incentivize investment in the renovation of existing infrastructure, there are certainly aspects of our business such as 5G fiber, renewable energy, potable water services, natural gas services that would benefit from the passage of such legislation. Due to our existing core competencies combined with incremental opportunities. We also continue to see strength in end markets such as fulfillment and distribution centers, healthcare, high tech, these combined represent approximately 20% of our total consolidated net revenues.

The work in these end markets is more complex, and we are typically awarded work based on the level of service we provide for our customers as opposed to price. During our recent investor event, we provided an illustrative bridge of the drivers to reach our adjusted EBITDA margin expansion goal of 12%-plus by 2023. As many of you have heard us say before, these are all singles and doubles. If any of these initiatives fall short, we believe there are many other initiatives behind it to help propel growth and margin expansion.

As we continue to focus on improving our mix, discipline project and customer selection, pricing opportunities, leveraging our spend, driving operational excellence and realizing synergies from future acquisitions, we are confident in establishing a new recently announced goal of 13%-plus adjusted EBITDA margin by year-end 2025. We believe that strategic M&A is an opportunity to accelerate the timetable to achieve our margin expansion objectives. We continue to build our global pipeline of opportunities to grow our family of market-leading service providers. Our powered by APi structure provides us with the ability to leverage our scale while also remaining entrepreneurial, nimble and opportunistic at the local level with reduced bureaucracy and overhead burden.

As I mentioned at our investor event, we are reviewing approximately 15 traditional, potential traditional APi M&A opportunities with revenues up to $100 million. While also partnering with Martin and Jim to look at several larger opportunities with revenues ranging from low $100s up to $1 billion. We look forward to closing on some of these opportunities as we move through the balance of the year and look forward to updating you on our expected progress. I would now like to hand the call over to Tom to discuss our financial results in more detail.

Tom?

Tom Lydon -- Chief Financial Officer

Thanks, Russ and good morning. I will start by reviewing our consolidated financial results and segment-level performance as well as our strong balance sheet and liquidity. As Russ mentioned earlier in the call, net revenues, excluding industrial services, increased on an organic basis by 2.4% compared to the prior-year period. Adjusted net revenues declined by 2.1% or $17 million to $803 million compared to $820 million in the prior-year period, primarily driven by the anticipated decline in industrial services.

Adjusted gross margins for the three months ended March 31, 2021 was 23%, representing a 72-basis-point increase compared to the prior year. The increase was primarily due to improved mix and disciplined project and customer selection, offset by project delays and unfavorable job site conditions. Adjusted EBITDA margin for the three months ended March 31, 2021 was 7.6%, representing an approximately 20-basis-point increase compared to the prior year due to the factors mentioned previously. We continue to focus on driving strong free cash flow and our balance sheet and liquidity profile remains strong.

For the three months ended March 31, 2021, adjusted free cash flow was $23 million, representing a $30 million decrease compared to prior year of $53 million, and our adjusted free cash flow conversion rate was approximately 38%. We expected -- the expected decline in cash flow was primarily due to lower outstanding accounts receivable balances as we entered 2021 compared to 2020, resulting from lower revenue, higher compensation and benefit payments and higher capital expenditures. As we have discussed, as revenue rebounds post-COVID-19, we expect to use cash to fund working capital to drive increased service revenue and higher margins leading to increased shareholder value. As I mentioned at our recent investor event, we expect 2021 to be somewhat of a hybrid year since we are still dealing with the impacts of COVID-19.

As of March 31, 2021, we had $972 million of total liquidity, comprised of $745 million in cash and cash equivalents and $227 million of available borrowings under our revolving credit facility. We had approximately $1.4 billion of gross debt outstanding and our net debt-to-adjusted EBITDA ratio, calculated in accordance with our credit facility, was 1.75 times. I will now discuss our results in more detail for each of our three segments, beginning with safety services. Safety services net revenues for the three months ended March 31, 2021 increased on an organic basis by one-half of a percent, primarily due to increased demand and timing for our HVAC services, offset by continued negative impacts of COVID-19.

Adjusted gross margins for the three months ended March 31, 2021 was 31.5%, representing 112-basis-point increase compared to the prior year due to improved mix of work toward inspection and service revenue combined with disciplined project and customer selection. Adjusted EBITDA margin for the three months ended March 31, 2021 was 13.5%, representing a 102-basis-point increase compared to the prior year due to the factors I mentioned as drivers for the gross margin expansion. Specialty services. Specialty services net revenues for the three months ended March 31, 2021 increased on an organic basis by 7%, primarily due to increased demand for the timing of a fabrication and specialty contracting services, offset by project deferrals and job site disruptions, driven by unfavorable weather conditions.

Adjusted gross margins for the three months ended March 31, 2021 was 12.8%, which was relatively consistent with prior-year period as leverage from higher volumes was offset by lower productivity due to unfavorable weather conditions. Adjusted EBITDA margin for the three months ended March 31, 2021 was 6.9%, representing an 85-basis-point increase compared to the prior year, primarily due to leveraging overhead expenses with higher revenue and disciplined cost management. Industrial services. In Industrial services, net revenues for the three months ended March 31, 2021 declined as expected due to decreased volumes, primarily driven by our strategic focus in improving margins as opposed to growing top line.

As Russ detailed in our investor event, we remain focused on growing the integrity side of pipeline transmission, which is statutorily driven as transmission companies are required by law to maintain their existing pipeline systems to ensure they are safe. Adjusted gross margins and adjusted EBITDA margin for the three months ended March 31, 2021 was negative 12% and negative 24%, respectively, compared to 16.2% and 10.1%, respectively, in the prior-year period. The decline is primarily driven by unabsorbed cost for leases and equipment due to lower volume. 2021 guidance.

As we confirmed during our recent investor event, our full-year guidance for 2021 remains unchanged. We expect adjusted net revenues for 2021 to range between $3.65 billion and $3.75 billion as we focus on driving inspection and service revenue, combined with our disciplined approach to project and customer selection. We expect adjusted EBITDA for 2021 to range between $405 million and $419 million. We expect capital expenditures to be approximately $55 million and normalized depreciation of approximately $60 million.

Our cost of capital is approximately 5%, and our adjusted mid- and long-term effective tax rate remains approximately 21%. And our estimated fully adjusted diluted share count is approximately 205 million. As we look at our guidance for the second quarter, and as we said earlier this year, we expect adjusted net revenues to range from $925 million to $950 million, with adjusted EBITDA margin between 11.4% and 12.1%. Before turning the call over to Jim, I wanted to advise everyone that we plan to file two S-3 registration statements later today.

The S-3 completes our -- the first S-3 completes our previously disclosed registration rights commitment to Viking Global and the second represents a universal shelf registration. While we have no immediate plans to raise public equity or debt, we believe it is prudent to have the flexibility to access the capital markets on a timely and efficient basis as or when needed. When declared effective by the SEC, the universal shelf will allow the company flexibility from time to time to offer to sell up to $500 million of public equity or debt. Both filings are purely administrative undertakings and are not meant to foreshadow any known or anticipated activity.

I will now turn the call over to Jim.

Jim Lillie -- Board Co-Chairman

Thanks, Tom. Good morning, everybody. We are pleased with our first-quarter results despite having a tough comparison relative to the first quarter in 2020 due to COVID-19 and the unfavorable weather conditions, as Russ mentioned. We are also very pleased that the team continues to execute against our long-term strategic plans.

I believe that those of you who joined us for our investor day saw depth to our leadership bench and gained additional insight into the various opportunities we have to drive earnings and margin expansion which we believe should drive multiple expansion. With one full year as a New York Stock Exchange-listed public company now behind us, we are proud of the track record of strong results we've accomplished in an unprecedented and challenging macroeconomic environment. The strong performance speaks to the leadership team, the strength of our business, our protective moat around the business driven by recurring revenue and our financial discipline as we continue to focus on shareholder value creation. We believe that in addition to our strong organic revenue growth prospects and margin expansion opportunities, we also have significant M&A opportunities in highly fragmented industries.

Our conservative balance sheet and liquidity profile provide us with ample capacity to absorb additional accretive acquisitions. As Tom mentioned, we ended the quarter with nearly $715 million of cash and a net debt-to-adjusted EBITDA ratio of 1.75 times, which is below our target long-term net ratio of two to two and a half times. As I said before, our priority for our use of cash is to explore opportunistic acquisitions as we move through the rest of the year. We're excited about potential targets in areas where we can leverage our existing competencies and infrastructure, such as fire and life safety, while also evaluating opportunities to expand our menu of service offerings in areas such as elevator and escalator services. We believe there is value in being a one-stop shop solution for building owners and operators.

As Martin said earlier in the call, we will continue to remain opportunistic yet disciplined with M&A. If there are not opportunities that meet our acquisition criteria, we are content to buy back our shares because we know the most about APi and what its future offers. We have great confidence in the business and the direction we're heading. We remain confident in our previously stated long-term value creation targets and are excited about our recently announced new goal of 13%-plus adjusted EBITDA margins by year-end 2025.

With that, I'd now like to turn the call back over to the operator and open the call for Q&A. Thank you.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Andy Kaplowitz of Citigroup.

Andy Kaplowitz -- Citi -- Analyst

Hey, good morning guys.

Russ Becker -- President and Chief Executive Officer

Hey, how are you?

Andy Kaplowitz -- Citi -- Analyst

Good. How are you? Russ, could you give us a little more color regarding your core safety services markets? You mentioned the resiliency in data centers, fulfillment. You've talked about healthcare before driving your Safety business, but are you seeing more general recovery at this point across your customer base, is inspection beginning to accelerate given reopening? And are you seeing customers who pulled back in the pandemic starting to spend again?

Russ Becker -- President and Chief Executive Officer

So yes, I would say, the reality of it is, Andy, is that our customers specifically our customers in data centers and semiconductors really have not pulled back even through the course of the pandemic, and in many situations have accelerated during the course of the pandemic as more and more people were working remotely and such. There was a piece in president Biden's proposed infrastructure bill that was specific toward the semiconductor space. We're seeing a lot of activity in that arena right now. And I think the most important thing for us is to be prudent as we see these opportunities come forward because in a people-centered business like ours, we need to make sure that we're deploying our field leaders in a fashion that we can maximize the return for our shareholders.

And that means we can't be everybody's solution, and we need to be super selective as we go forward. Speaking specifically to your question around inspections, we saw a really good solid inspection growth in the first quarter, north of 10%. And so we feel really good about our priority and our focus on continuing to grow inspections because we know that we're going to generate $3 to $4 of service from every dollar of inspection revenue that we generate. So the answer to that question is, yes.

And we think that we're going to continue to accelerate that growth as we continue to build out our sales force under Courtney Brogard's leadership. And hopefully, you got a chance to see the energy and the enthusiasm that she brings based on her 15 minutes or so during the investor day. She's outstanding.

Andy Kaplowitz -- Citi -- Analyst

Yeah. No, that's great to hear on inspection. So Russ or Tom, maybe you can talk to us about how much weather impacted margin, especially in specialty services? And then sales in industrial, I know you had talked about industrial being down 30% for the year. Q1 obviously was a little lower than that, but do you see industrial recovering? And then can you give us the discrete impact on margin in specialty?

Russ Becker -- President and Chief Executive Officer

Well, we don't have it itemized and broken out. I mean, really, I mean, all I can tell you is that it wasn't just Texas, it was really across the south and the southeast, all the way up through New Jersey. Like we had a period of time in New Jersey, where we have a significant presence where there was 30 inches of snow that our people were dealing with. And really, the way we generate revenue and make money is by burning man hours.

And it was very difficult for us to get people to work in the field and the work -- when we got people in the field, it was very difficult for them to be productive. And it would -- that would be nearly impossible for us to really truly quantify, to be honest with you. So I don't think it would be fair for us to do so. Speaking of industrial services, I just want to start by reminding everybody that is about 7% of our total revenue.

It's a very, very small piece of our business. It's probably the piece of our business that has faced some of the greatest headwinds because of COVID. And we have some unique opportunities for us in front of us right now that we're continuing to work through and we remain optimistic that the back half of the year is going to be as guided.

Andy Kaplowitz -- Citi -- Analyst

Russ, let me maybe ask you one follow-up there. Like if I think then about your guidance for the year, you didn't change it on the revenue side. Does it maybe slant a little bit more toward Safety and Safety doing a little bit better than you thought and Industrial a little worse? Or should we just think status quo?

Russ Becker -- President and Chief Executive Officer

Well, I would think about it from a status -- more of a status quo perspective, Andy. But again, I want to go back to Industrial is about 7% of our total revenue. It's like -- it's just such a small piece of our business that -- we work it. We work every piece of our business.

It's like having multiple children in your family, right? And I've heard Jim use this analogy a number of different times, and every one of your kids is in a different place and not every kid is as healthy as the other one, and you still need to give them all the right level of attention. And I think that's a really good analogy when you look at a company like us with 20-plus businesses and across it. And the safety services and specialty services, both have tremendous opportunities in front of them, and the backlogs are good. And really, there's just one aspect of industrial services that is driving the majority of our attention.

That business, we are continuing to push toward the integrity side of the space. And that's -- like that's inertia, and that takes some time to move there. You don't just flip that switch and one day, you're focused on, say, capital project-related work. And the next day, you're 100% focused on integrity and service-related work.

That takes -- it takes energy, effort and pushing in order to get there, and that's exactly what we're doing right now.

Andy Kaplowitz -- Citi -- Analyst

Thanks, Russ.

Operator

Your next question comes from the line of Markus Mittermaier of UBS.

Markus Mittermaier -- UBS -- Analyst

Yes, hi. Good morning, everyone.

Russ Becker -- President and Chief Executive Officer

Good morning. Hey, Markus.

Markus Mittermaier -- UBS -- Analyst

Russ, maybe -- hey, good morning. Maybe I can just follow-up here. And I know you guys track labor hours. Across your various businesses, how did those develop throughout the first quarter? And what was sort of the exit rate into the second quarter? Thanks.

Russ Becker -- President and Chief Executive Officer

Well, I mean, labor hours, it's really interesting. I was looking at this and I'm not answering your question directly right now, but it was interesting, I was looking at the National Fire Sprinkler Association tracks labor hours for the industry. And I was looking at some of that data yesterday and how hours continue to, so to speak, climb and to climb back but haven't achieved, say, where they were at in 2019. And our hours are really tracking in a very similar fashion to that, probably a little bit in front of that.

We have aspects of our business that were more impacted by COVID than others. So like if you look at SK in Europe and Scandinavia, including the U.K. They're just starting to come out of really complete lockdown modes. And so they've been further dampened by COVID than, say, the U.S., Canada, specifically, Ontario and Manitoba, not far behind, just four weeks ago went into complete lockdown.

And as part of that lockdown, I mean they -- even if you were deemed essential, there was even more restrictions from that standpoint. And I felt like our hours held up. Don't take this wrong way, but like surprisingly -- they were surprisingly solid even with the increased lockdowns that we saw in our Canadian business. So our hours are ticking up.

We're not back to where we are in 2019 but we continue to show really good progress.

Markus Mittermaier -- UBS -- Analyst

Great. That's helpful. And then maybe one for Tom. You touched upon this briefly in your prepared remarks around the conversion rates on the cash flow, 38%.

Can you maybe give us a little bit of a finer insight here on the moving pieces? I realize capex is up a bit, working capital swing. But is there anything especially related to Industrials this quarter. Because I would have expected with the positive trends that you've seen in safety and specialty and the short project duration, particularly in safety, that cash would have been maybe a much better in -- but maybe help us out here sort of the moving pieces and then how you see that track maybe early in Q2?

Tom Lydon -- Chief Financial Officer

Yeah. So we generally anticipate that we'll use cash in that first quarter. It is a period where we're taking care of -- our capital expenditures tend to be a little stronger in that first quarter as we get ready for the year and so that we have all the equipment we need for the peaks of second, third and first part of fourth quarter. So really tracked kind of where we thought it would be.

Nothing really surprised us in the quarter related to it, Markus.

Markus Mittermaier -- UBS -- Analyst

OK, got it. I'll get back in queue. Thank you.

Operator

Your next question comes from the line of Andy Wittmann of Baird.

Andy Wittmann -- Baird -- Analyst

Hi, guys and good morning. Thank you for taking my question. I feel like we've talked to you guys a lot with kind of an earnings call, not that long ago investor day. So just maybe a couple of clarifications here today.

And I guess maybe I'll build on the free cash flow. And Tom, specifically in the prepared remarks, you said this is a bit of a hybrid year. I don't know if -- a term of art, but I'm not really familiar with that. Can you just describe what you mean by that? I understand that last year was really, really strong.

I think you -- the adjusted free cash flow conversion was like 115%. Is that basically implying that this year, you're going to kind of equalize out to maybe the long-term 80% target, probably under that 80% target. Maybe just a little bit more detail on what you mean by that comment? Thanks.

Tom Lydon -- Chief Financial Officer

I think that's fair. As we've talked about, as we come back with stronger revenues, as we climb back, we're going to use that building working capital. And so as we've talked, it's kind of an average rate, that 80%. And we were so strong last year, we're going to be on the other side of that this year.

And so we'll be building working capital as we march through the year. We do have activities in place to work to continue to improve our working capital by working on DSO, our inventory, our contract asset and liability processes as well as working with our vendors on our payable terms to help mitigate what will occur there naturally, but it's positive for us that our working capital will grow and put some pressure on free cash flow this year.

Russ Becker -- President and Chief Executive Officer

Yeah, I would -- I'm going to -- Andrew, I'm just going to pile on Tom's comment there, like it's positive. Like to me, for us, we want to be using some cash this year as the business climbs back to a return to, I guess, normalcy. And so like it gets me a little bit excited. When I see -- we monitor cash on a daily basis.

So we see across all aspects of our business, Europe, U.S., Canada and so we see who's using, who's not using, etc. And it's exciting for us when we see a little bit of cash going out the door right now. So you should do that as being positive.

Andy Wittmann -- Baird -- Analyst

Yeah, there's no doubt. I just want to make sure that we are understanding what you're trying to say there. So that makes all the sense in the world. I guess, just a couple of other things just so that I can understand or we kind of all understand the quarter's results a little bit better.

The corporate EBITDA segment result was a little bit lighter than I think we talked to you about -- maybe we talked to you offline, that it was going to be a little bit higher than this. I was wondering Tom, if there's anything in the corporate segment EBITDA coming in $18 million this quarter, that was unusually low this quarter and maybe what your expectations for the corporate expenses are going to be for the year so we can model that correctly?

Tom Lydon -- Chief Financial Officer

Yeah, so we still feel good about that going forward. We had a couple of things in the quarter 1. G&A didn't come back as much as we had budgeted for as COVID stayed stronger on us. Russ mentioned Canada and Europe, in particular, very strong lockdowns.

And we still have some restrictions here in the U.S. So that didn't come back as strong. We also have some open critical needs that we're looking to hire in various aspects here in our corporate cost structure, and we had those budgeted coming in earlier in the quarter. And with COVID, it's made hiring a little bit slower than normal.

And so that didn't come through as wella and so those are the main drivers. And so we expect those to stick around.

Jim Lillie -- Board Co-Chairman

But Andy, that $20 million to $22 million a quarter is a good number. It's just a little bit in our favor. As you pointed out, interest expense was a little bit higher in the quarter. And I think our share count is probably also higher in the quarter than most of you had.

I think consensus is around $197 million, whereas the weighted average for the quarter was $200 million. And I think in Tom's comments, we're projecting that the weighted average share count will be about $205 million at year-end.

Andy Wittmann -- Baird -- Analyst

OK, good. I think that's all I have for now. Thanks a lot guys.

Russ Becker -- President and Chief Executive Officer

You too.

Operator

Our next question comes from the line of Julian Mitchell of Barclays.

Julian Mitchell -- Barclays -- Analyst

Hi. Good morning. Maybe just wanted to understand a little bit the EBITDA margin outlook. So I think in the first quarter, the EBITDA margin was up about 20 bps year on year.

It looks like the guide for the year embeds around that level of increase as well, at least at the midpoint. So just wondered why you wouldn't see a bigger step-up in the balance of the year. You'll have less weather headwind, less of a headwind from Industrial winding down, easier comp because you get into COVID year-on-year comparisons. And it sounds like you're confident on price cost not being a big headwind, so maybe help me understand kind of what the headwinds are versus all those improvements relative to Q1 for the rest of the year?

Tom Lydon -- Chief Financial Officer

Yeah, sure. Great question. You'll recall that we took significant actions last year in quarters 2 and 3 and reduced people's compensation and our 401(k) benefits, etc. And we put those all back in, in Q4.

So we're going to lap those quarters here. And so that's, if you will, the offsetting to all the good news that you spoke about.

Julian Mitchell -- Barclays -- Analyst

I see. And maybe help us understand sort of the scale of that temporary cost reversal because for example, things like T&E expenses, as you said, they were narrower than you thought in Q1, probably narrower in Q2 as well. So maybe help scale that for us?

Tom Lydon -- Chief Financial Officer

Yeah, so I think last year, we had -- in the second quarter, we had about $19 million that we had attributed to the pullback of COVID-19 and in the third quarter, about $13 million.

Julian Mitchell -- Barclays -- Analyst

Thank you. And if we look at the second-quarter guidance, I didn't see much of a reference to that. Do we assume that's unchanged? Or because you had such a tough period in Q1 with weather, I think you had a 60% sequential decremental EBITDA margin. Should we expect kind of super normal sequential incrementals now in Q2 versus what you've guided before?

Tom Lydon -- Chief Financial Officer

I would go with the guidance we gave you. I'm not sure I'm totally understanding the question, I apologize. But the guidance we have has factored in what we believe our total cost structure is this quarter and gives you the good comp to prior year.

Julian Mitchell -- Barclays -- Analyst

I see. So the Q2 guide is exactly the same?

Tom Lydon -- Chief Financial Officer

Yeah. No change in our Q2 guidance.

Julian Mitchell -- Barclays -- Analyst

Great. Thank you.

Russ Becker -- President and Chief Executive Officer

Just to qualify that for our full-year guidance.

Julian Mitchell -- Barclays -- Analyst

Thanks.

Operator

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

Kathryn Thompson -- Thompson Research Group -- Analyst

Hi. Thank you for taking my questions today. First, on supply chain, how are you managing supply chain disruptions and just overall inflation for your businesses?

Russ Becker -- President and Chief Executive Officer

Yeah. Good morning, Kathryn. Thanks for taking the time to join the call today. And so I guess I'm going to start by just referencing the small project size -- average project size that our businesses have.

Safety services on the average project size is $10,000, specialty services is $70,000 and industrial services, which is larger, which is roughly $700,000. For the most part, in industrial services and in specialty services, the client is providing the products for us to install. And so we have very little risk from some of the rising commodity prices. If you look at specialty services -- and I'm not saying that we don't have any exposure because that would be not true.

But if you look at safety services, that average project size, the -- from an inspection and service, those jobs are turning so fast that you don't have great exposure to the inflationary nature of commodity prices that we're seeing today. The other aspect of it is that we track this on a weekly basis, and we've been providing guidance to our businesses on a weekly basis. So we are -- we have been very proactive in protecting ourselves in our proposals and in our contracts to make sure that we do have protection as it relates to rising costs associated with what's going on. We really haven't been overly impacted by availability.

I did see a note from one of our company presidents yesterday that the colonial pipeline packing situation is causing some disruption. There's certain -- as an example, Huntsville, Alabama has put some limitations in that you can only get 10 gallons of gas at a time. And so our people are managing that from an availability standpoint, but that's a very short term situation. But I feel like our communication across the enterprise has been really solid.

And we've done a lot of really positive things to make sure that we're mitigating that risk.

Kathryn Thompson -- Thompson Research Group -- Analyst

OK. Very helpful. And then getting back to the office as companies prepare to come back to the office and the anticipated reconfigurations that will happen. Could you discuss how this is an opportunity for APG? So it could be everything from fire safety to HVAC or other categories that we may not take into consideration? Thank you.

Russ Becker -- President and Chief Executive Officer

Yeah. So from an HVAC perspective, our HVAC services companies are obviously trying to provide additional filtration systems and expanded filtration systems to their different businesses. Like I can use our corporate campus as an example. We have a Minneapolis-based HVAC services company that upgraded the filtration system in both of our corporate office buildings.

We also had one of the largest private companies in the world who's based in Minneapolis recently hire us to upgrade their complete -- their corporate office facility and enhance their filtration system. So there's -- without question, there's opportunities for us in that space, and we're trying to do our best to take advantage of it. You have to also remember, though, with all that being said, that HVAC services is not a huge piece of our business. So those opportunities and the scale of the company are somewhat limited.

There will be some opportunities as people really truly start bringing people back and they are retrofitting the interior layouts of their office facilities. And then that will have an impact on their life safety systems and the fact that their life safety systems will still need to meet code. But we really haven't started to experience and see a tremendous number of those opportunities, but we're anticipating that we will as the -- as people start being more proactive in getting people to work. The governor of Minnesota, just as an example, has just recently changed his stay-at-home order and made it -- and allowed businesses more flexibility to start bringing people back to work.

So at our corporate campus, we have a mandate out that 50% of our employees need to be in the office next week, and then we have a phased plan to bring people back 100% by August 15. Hopefully, that goes smoothly and goes according to plan. We really only have one space that we have significant -- concerns isn't the right way to look at it. But that we feel like we have to configure to make sure that we're providing a truly a safe environment for all of our employees.

So for -- in two buildings, it's a relatively small ask. But we are definitely keeping our eyes on it and we do see some opportunity.

Kathryn Thompson -- Thompson Research Group -- Analyst

OK, great. Thank you very much.

Operator

Our next question comes from the line of Jon Tanwanteng of CJS Securities.

Jon Tanwanteng -- CJS Securities -- Analyst

Hey. Good morning, guys. Thank you for taking my questions. I was wondering what your expectation for the Industrial profitability this year was.

Does it get back to profitability? If so, when? Just kind of what's in the pipeline for that segment.

Russ Becker -- President and Chief Executive Officer

Again, I'm going to start by reminding everybody that industrial services is about 7% of our total revenue. We haven't changed our guidance as it relates to or our expectations and where those businesses are going to be during the course of the year. So do we expect to make money? Of course, we expect to make money. We are -- I guess, I would hope that everybody has seen how proactive we are from leading and managing our businesses.

And we are doing everything we can to ensure that all of the right levers have been pulled to enhance the profitability of every one of those businesses. So -- but we're -- we like the companies. We like the businesses. We're -- and again, I mentioned earlier, we really have one business that we're facing more macro headwinds in the segment and they're getting plenty of attention, trust me.

Jon Tanwanteng -- CJS Securities -- Analyst

OK. Great. Thank you for taht color. Russ or maybe Martin and Jim, the M&A markets have been hot to say the least.

Are you seeing any valuation stretching beyond maybe where you're comfortable, either on the tuck-in side or perhaps the larger and more adjacency transformational side that you've been working on? Do I assume that you're going to pull the trigger now that they've seen other companies go for these higher multiples? And maybe conversely, are you seeing more flow that more people are here to cash in on the trend?

Jim Lillie -- Board Co-Chairman

So Martin, do you want to take that?

Martin Franklin -- Board Co-Chairman

Maybe -- yeah, I'll start. Maybe I think a couple of things. First of all, go back to our history of other companies that we've built with acquisitions over the years. For every deal, people -- the public saw, there were probably 40 deals that didn't happen, most of which would pass because of valuation.

I don't think that will be much different here. This is a very fragmented space. There's a lot of, if you like, merchandise of different kinds out there. Though the gatekeeper for us will always be valuation along our core list of boxes that have to be checked.

But there are always opportunities to find the right things. And what we found over the years is in the frothier markets like we're in now, some of the better companies do become available. So we've bought businesses in both frothy markets and more conservative one. But I think there are plenty of opportunities out there Where The discipline comes in as not overstretching to buy something even if one can afford it.

We are very disciplined, and we'll intend to be that way. It's how we've been for the last 25 years. I don't think it's going to change now.

Jim Lillie -- Board Co-Chairman

And Jon, if I could supplement, at our investor day, we talked about how the weighted average price including the acquisition of APi itself, the average we've paid is about 7.3 times. The larger transactions will cost more. And we hope to balance those out with the more traditional deals that APi has done under Russ' leadership over the last decade or so. So you're going to get some price discrepancy with lower multiples paid for the smaller family owned businesses and higher multiple paid for perhaps assets owned by families or PE firms.

And so our focus is to be opportunistic, keep our eyes open and make the right decisions as we move through things and be as disciplined as always.

Russ Becker -- President and Chief Executive Officer

And just following -- And Jon, just because I need to chime in just to hear myself talk, I guess. The -- when you look at the tuck-in world, if you will, we're not -- it's reasonable. That's just the best way to put it. And so it's a combination of a lot of different things happening in the marketplace.

But as we continue to look at tuck-in acquisitions, we find the multiples to be reasonable. We also think that we have something different and unique to -- that is attractive to many of these family owned businesses, and that creates an opportunity for us.

Jon Tanwanteng -- CJS Securities -- Analyst

Great. That's good to hear. Russ, finally, if you could address just how are you set up to deal with the infrastructure build, assuming one comes -- just from a labor and unit perspective and access to resources such as the things that come to the supply chain. If something big comes down the pipe, are you set up to take advantage of all that at this point?

Russ Becker -- President and Chief Executive Officer

Yeah. So like -- I like our chances Jon. And the reason I say that is that our core purpose of building great leaders expands to the men and the women that are leading our efforts in the field with our customers on a day-to-day basis. And there is very few people in the space that are investing in their field leaders in the same fashion that we're investing in our field leaders.

And why does that matter? It matters because I think we retain our field leaders at a higher level than our peers. And we have created an environment where people want to come and be a part of our team and be part of the APi family, and that's a unique opportunity for us. This is a super people-centered business. And I think the people that are investing in their human capital are going to have a unique advantage as the labor markets continue to tighten up.

And I really truly believe that and I do think that that is something that is unique for our company. And I truly believe that it creates shareholder value.

Operator

Thank you. That was our final question for today. I will now turn the call to Russ Becker for closing comments.

Russ Becker -- President and Chief Executive Officer

Thank you very much. And I would just like to conclude our call today by thanking each and every one of you for your interest in APi. And this is really a great company. We have so many fantastic people.

I look forward to the future for each of you to further get to know us, especially once we get on the backside of the pandemic, and we can see each other face to face because I really believe that when you get a chance to experience the culture and the values of this organization, you will see that this is a great long-term investment. And so again, thank you for taking the time to join us today, and thank you for your interest in APi.

Operator

[Operator signoff]

Duration: 30 minutes

Call participants:

Olivia Walton -- Vice President of Investor Relations

Martin Franklin -- Board Co-Chairman

Russ Becker -- President and Chief Executive Officer

Tom Lydon -- Chief Financial Officer

Jim Lillie -- Board Co-Chairman

Andy Kaplowitz -- Citi -- Analyst

Markus Mittermaier -- UBS -- Analyst

Andy Wittmann -- Baird -- Analyst

Julian Mitchell -- Barclays -- Analyst

Kathryn Thompson -- Thompson Research Group -- Analyst

Jon Tanwanteng -- CJS Securities -- Analyst

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