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 March 31, 2021

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: 201,282,227 shares of Common Stock as of May 5, 2021.

 

 

 


 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

3

 

Item 1. Financial Statements

 

3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

32

Item 4. Controls and Procedures

 

33

 

PART II. OTHER INFORMATION

 

35

 

Item 4. Mine Safety Disclosures

 

35

Item 5. Risk Factors

 

35

Item 6. Exhibits

 

35

 

SIGNATURES

 

36

 

 

 


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

APi Group Corporation

Condensed Consolidated Balance Sheets (Unaudited)

(In millions, except per share data) 

 

 

March 31,

2021

 

 

December 31,

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

745

 

 

$

515

 

Accounts receivable, net of allowances of $4 and $4 at March 31, 2021

   and December 31, 2020, respectively

 

 

595

 

 

 

639

 

Inventories

 

 

66

 

 

 

64

 

Contract assets

 

 

152

 

 

 

142

 

Prepaid expenses and other current assets

 

 

75

 

 

 

77

 

Total current assets

 

 

1,633

 

 

 

1,437

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

353

 

 

 

355

 

Operating lease right of use assets

 

 

106

 

 

 

107

 

Goodwill

 

 

1,077

 

 

 

1,082

 

Intangible assets, net

 

 

931

 

 

 

965

 

Deferred tax assets

 

 

89

 

 

 

89

 

Other assets

 

 

29

 

 

 

30

 

Total assets

 

$

4,218

 

 

$

4,065

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Short-term and current portion of long-term debt

 

$

18

 

 

$

18

 

Accounts payable

 

 

167

 

 

 

150

 

Contingent consideration and compensation liabilities

 

 

34

 

 

 

41

 

Accrued salaries and wages

 

 

124

 

 

 

182

 

Deferred consideration

 

 

69

 

 

 

67

 

Other accrued liabilities

 

 

103

 

 

 

133

 

Contract liabilities

 

 

221

 

 

 

219

 

Operating and finance leases

 

 

45

 

 

 

31

 

Total current liabilities

 

 

781

 

 

 

841

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

 

1,394

 

 

 

1,397

 

Contingent consideration and compensation liabilities

 

 

25

 

 

 

22

 

Operating and finance leases

 

 

81

 

 

 

96

 

Deferred tax liabilities

 

 

43

 

 

 

45

 

Other noncurrent liabilities

 

 

103

 

 

 

106

 

Total liabilities

 

 

2,427

 

 

 

2,507

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred Shares, $0.0001 par value, 7 authorized shares, 4 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

 

 

 

 

Common shares, $0.0001 par value, 500 authorized shares, 201 shares and 168 shares issued at March 31, 2021 and December 31, 2020, respectively (includes 12 shares declared for stock dividend at December 31, 2020)

 

 

 

 

 

 

Additional paid-in capital

 

 

2,102

 

 

 

1,856

 

Accumulated deficit

 

 

(292

)

 

 

(284

)

Accumulated other comprehensive income (loss)

 

 

(19

)

 

 

(14

)

Total shareholders’ equity

 

 

1,791

 

 

 

1,558

 

Total liabilities and shareholders’ equity

 

$

4,218

 

 

$

4,065

 

 

See notes to condensed consolidated financial statements.

3


APi Group Corporation

Condensed Consolidated Statements of Operations (Unaudited)

(In millions, except per share amounts)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Net revenues

 

$

803

 

 

$

858

 

Cost of revenues

 

 

622

 

 

 

696

 

Gross profit

 

 

181

 

 

 

162

 

Selling, general, and administrative expenses

 

 

183

 

 

 

188

 

Impairment of goodwill and intangible assets

 

 

 

 

 

208

 

Operating loss

 

 

(2

)

 

 

(234

)

Interest expense, net

 

 

15

 

 

 

14

 

Investment income and other, net

 

 

(3

)

 

 

(3

)

Other expense, net

 

 

12

 

 

 

11

 

Loss before income taxes

 

 

(14

)

 

 

(245

)

Income tax benefit

 

 

(6

)

 

 

(51

)

Net loss

 

$

(8

)

 

$

(194

)

Net loss per common share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.04

)

 

$

(1.14

)

Diluted

 

$

(0.04

)

 

$

(1.14

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

192

 

 

 

170

 

Diluted

 

 

192

 

 

 

170

 

 

See notes to condensed consolidated financial statements.

4


APi Group Corporation

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

(In millions)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Net loss

 

$

(8

)

 

$

(194

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Fair value change - derivatives, net of tax (expense) benefit ($0 and $9, respectively)

 

 

(1

)

 

 

(27

)

Foreign currency translation adjustment

 

 

(4

)

 

 

(6

)

Comprehensive loss

 

$

(13

)

 

$

(227

)

 

See notes to condensed consolidated financial statements.

5


APi Group Corporation

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(In millions, except share amounts)

 

 

 

Preferred Shares Issued

and Outstanding

 

 

Common Shares Issued

and Outstanding

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance, December 31, 2020

 

 

4,000,000

 

 

$

 

 

 

168,052,024

 

 

$

 

 

$

1,856

 

 

$

(284

)

 

$

(14

)

 

$

1,558

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

 

 

 

(8

)

Fair value change - derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

(4

)

Preferred Share dividend

 

 

 

 

 

 

 

 

12,447,912

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants exercised

 

 

 

 

 

 

 

 

19,994,203

 

 

 

 

 

 

230

 

 

 

 

 

 

 

 

 

230

 

Profit sharing plan contributions

 

 

 

 

 

 

 

 

630,109

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

13

 

Share-based compensation and other, net

 

 

 

 

 

 

 

 

157,979

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

Balance, March 31, 2021

 

 

4,000,000

 

 

$

 

 

 

201,282,227

 

 

$

 

 

$

2,102

 

 

$

(292

)

 

$

(19

)

 

$

1,791

 

 

 

 

Preferred Shares Issued

and Outstanding

 

 

Common Shares Issued

and Outstanding

 

 

Additional

Paid-In

 

 

Accumulated

 

 

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

 

 

See notes to condensed consolidated financial statements.

6


APi Group Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(8

)

 

$

(194

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

19

 

 

 

18

 

Amortization

 

 

31

 

 

 

52

 

Impairment of goodwill and intangible assets

 

 

 

 

 

208

 

Deferred taxes

 

 

 

 

 

(53

)

Share-based compensation expense

 

 

3

 

 

 

1

 

Profit-sharing expense

 

 

3

 

 

 

3

 

Non-cash lease expense

 

 

8

 

 

 

7

 

Other, net

 

 

2

 

 

 

(2

)

Changes in operating assets and liabilities, net of effects of business acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

44

 

 

 

63

 

Contract assets

 

 

(11

)

 

 

(7

)

Inventories

 

 

(2

)

 

 

(2

)

Prepaid expenses and other current assets

 

 

5

 

 

 

9

 

Accounts payable

 

 

17

 

 

 

(4

)

Accrued liabilities and income taxes payable

 

 

(71

)

 

 

(59

)

Contract liabilities

 

 

2

 

 

 

14

 

Other assets and liabilities

 

 

(10

)

 

 

1

 

Net cash provided by operating activities

 

 

32

 

 

 

55

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisitions, net of cash acquired

 

 

(7

)

 

 

(5

)

Purchases of property and equipment

 

 

(18

)

 

 

(11

)

Proceeds from disposals of property, equipment, held for sale assets and businesses

 

 

2

 

 

 

1

 

Net cash used in investing activities

 

 

(23

)

 

 

(15

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net short-term debt

 

 

 

 

 

200

 

Proceeds from long-term borrowings

 

 

 

 

 

1

 

Payments on long-term borrowings

 

 

(6

)

 

 

(6

)

Proceeds from warrant exercises

 

 

230

 

 

 

 

Payments of acquisition-related consideration

 

 

 

 

 

(56

)

Restricted shares tendered for taxes

 

 

(1

)

 

 

 

Net cash provided by financing activities

 

 

223

 

 

 

139

 

Effect of foreign currency exchange rate change on cash and cash equivalents

 

 

1

 

 

 

1

 

Net increase in cash and cash equivalents

 

 

233

 

 

 

180

 

Cash, cash equivalents, and restricted cash beginning of period

 

 

515

 

 

 

256

 

Cash, cash equivalents, and restricted cash, end of period

 

$

748

 

 

$

436

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

12

 

 

$

13

 

Cash paid for income taxes, net of refunds

 

 

2

 

 

 

8

 

 

See notes to condensed consolidated financial statements.

7


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 and Europe.

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, 2020 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 be read in conjunction with the Company’s audited annual consolidated financial statements and accompanying footnotes thereto for the year ended December 31, 2020. Results for interim periods are not necessarily indicative of the results to be expected for a full fiscal year or for any future period.

 

Cash, Cash Equivalents and Restricted Cash: Cash and cash equivalents include cash on hand and highly liquid investments that have a maturity of three months or less when purchased. Restricted cash reflects collateral against certain bank guarantees. Restricted cash is reported as prepaid expenses and other current assets in the unaudited condensed consolidated balance sheets. 

Investments: The Company holds investments in joint ventures which are accounted for under the equity method of accounting as the Company does not exercise control over the joint ventures. The Company’s share of earnings from the joint ventures was $1 and $2 during the three months ended March 31, 2021 and 2020, respectively. The earnings are recorded within investment income and other, net in the unaudited condensed consolidated statements of operations. The investment balances were $9 and $9 as of March 31, 2021 and December 31, 2020, respectively, and are recorded within other assets in the unaudited condensed consolidated balance sheets.

Note 3.Recent Accounting Pronouncements

See the recent accounting pronouncements discussion below for information pertaining to the effects of recently adopted and other recent accounting pronouncements as updated from the discussion in the Company’s 2020 audited consolidated financial statements included in Form 10-K filed on March 24, 2021.

Accounting Standards Issued and Adopted:

In January 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (“ASU 2020-01”) to clarify the interaction in accounting for equity securities under Topic 321, investments accounted for under the equity method of accounting in Topic 323, and the accounting for certain forward contracts and purchased options accounted for under Topic 815. ASU 2020-01 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020 with early adoption permitted. The Company adopted this ASU on January 1, 2021 and it did not have a material impact on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions to the existing guidance for income taxes related to the approach for intra-period tax allocations, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This ASU also simplifies the accounting for income taxes by clarifying and amending existing guidance related to the effects of enacted changes in tax laws or rates in the effective tax rate computation, the recognition of franchise tax, and the evaluation of a step-up in the tax basis of goodwill, among other clarifications. ASU 2019-12 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020 with early adoption permitted. The Company adopted this ASU on January 1, 2021 and it had no impact on its consolidated financial statements.

8


Note 4.Business Combinations

The Company continually evaluates potential acquisitions that strategically fit within the Company’s existing portfolio or expand the Company’s portfolio into a new and attractive business area. Acquisitions are accounted for as business combinations using the acquisition method of accounting. As such, the Company makes a preliminary allocation of the purchase price to the tangible assets and identifiable intangible assets acquired and liabilities assumed. In the months after closing, as the Company obtains additional information about the acquired assets and liabilities and learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. Purchase price is allocated to acquired assets and liabilities assumed based upon their estimated fair values as determined based on estimates and assumptions deemed reasonable by the Company. The Company engages third-party valuation specialists to assist with preparation of critical assumptions and calculations of the fair value of acquired intangible assets in connection with significant acquisitions. The excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed is recorded as goodwill. Goodwill is attributable to the workforce of the acquired businesses, the complementary strategic fit and resulting synergies these businesses bring to existing operations, and the opportunities from the expanded platform in new markets expected to be achieved.  

2021 Acquisitions

During 2021, the Company completed several immaterial acquisitions for consideration transferred of $7, primarily made up of cash paid at closing. The results of operations of these acquisitions are included in the Company’s unaudited condensed consolidated statement of operations from their respective dates of acquisition and were not material.

2020 Acquisitions

During 2020, the Company completed the acquisition of SK FireSafety (“SKG”) within the Safety Services segment and a number of other immaterial acquisitions for consideration transferred of $324, which includes a cash payment made at closing of $319, net of cash acquired, and $5 of deferred consideration that may be paid out in 1-2 years.

SKG is a European market-leading provider of commercial safety services with operations primarily in the Netherlands, Belgium, Sweden, Norway, and the United Kingdom. On October 1, 2020, the Company completed the SKG Acquisition and acquired all of the outstanding stock. Through the acquisition of SKG, APG established a European platform for international organic and acquisition expansion. The other acquisitions were primarily in the Safety Services segment and based in the United States.

The Company has not finalized its accounting for all 2020 acquisitions that occurred during the fourth quarter of 2020. The areas of the purchase price allocation not yet finalized are primarily related to SKG and include the valuation of: i) property and equipment; ii) intangible assets and goodwill; iii) lease-related assets and liabilities and; iv) income tax related matters. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required. Based on preliminary estimates, the total amount of goodwill from the 2020 acquisitions expected to be deductible for tax purposes is $19. See Note 6 – “Goodwill and Intangibles” for the provisional goodwill assigned to each segment.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

Cash paid at closing

 

$

329

 

Deferred consideration

 

 

5

 

Total consideration

 

$

334

 

Cash

 

$

10

 

Other current assets

 

 

76

 

Property and equipment

 

 

12

 

Customer relationships

 

 

71

 

Trade names and trademarks

 

 

15

 

Contractual backlog

 

 

1

 

Goodwill

 

 

223

 

Other noncurrent assets

 

 

14

 

Current liabilities

 

 

(54

)

Noncurrent liabilities

 

 

(34

)

Net assets acquired

 

$

334

 

 

The purchase agreements related to the Company’s previously completed acquisitions typically included deferred payment provisions to the former owners who became employees of the Company. The provisions are made up of two general types of arrangements, contingent compensation and contingent consideration, both of which are contingent on the future performance of the acquired entity. Compensation arrangements are contingent on the former owner’s future employment with the Company. The expense related to contingent compensation arrangements is recognized over the required employment period which is typically three to five years. Contingent consideration arrangements are not contingent on employment and are included as part of purchase consideration at the

9


time of the initial acquisition. Both the compensation type and contingent type consideration arrangements are typically paid over a three to five year period.

The total contingent compensation arrangement liability was $39 at March 31, 2021 and December 31, 2020. The maximum payout of these arrangements upon completion of the future performance periods is $62 and $85, inclusive of the $39 accrued as of March 31, 2021 and December 31, 2020, respectively. The contingent compensation liability is included in contingent consideration and compensation liabilities for all periods presented. The Company primarily determines the contingent compensation liability based on forecasted cumulative earnings compared to the cumulative earnings target set forth in the arrangement. For one of the Company’s contingent compensation arrangements, the liability is determined based on the Monte Carlo Simulation method. Compensation expense associated with these arrangements is recognized ratably over the required employment period.

 

Note 5.     Revenue

Under ASC 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when or as control of promised goods and services is transferred to customers, and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred. Revenue is primarily recognized by the Company over time utilizing the cost-to-cost measure of progress, consistent with the Company’s previous revenue recognition practices. Revenue recognized at a point in time relates primarily to distribution contracts and was not material for the three months ended March 31, 2021 and 2020, respectively.

Contracts with Customers: The Company derives revenue primarily from Safety Services, Specialty Services and Industrial Services contracts with a duration of less than one week to three years (with the majority of contracts with durations of less than six months) which are subject to multiple pricing options, including fixed price, unit price, time and material, or cost plus a markup. The Company also enters into fixed price service contracts related to monitoring, maintenance and inspection of safety systems. The Company may utilize subcontractors in the fulfillment of its performance obligations. When doing so, the Company is considered the principal in these transactions and revenue is recognized on a gross basis.

Revenue for fixed price agreements is generally recognized over time using the cost-to-cost method of accounting, which measures progress based on the cost incurred relative to total expected cost in satisfying the performance obligation. The cost-to-cost method is used as it best depicts the continuous transfer of control of goods or services to the customer. Costs incurred include direct materials, labor and subcontract costs, and indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. These contract costs are included in the results of operations under cost of revenues. Labor costs are considered to be incurred as the work is performed. Subcontractor labor is recognized as the work is performed.

Revenue from time and material contracts is recognized as the services are provided and is equal to the sum of the contract costs incurred plus an agreed upon markup. Revenue earned from distribution contracts is recognized upon shipment or performance of the service.

The cost estimation process for recognizing revenue over time under the cost-to-cost method is based on the professional knowledge and experience of the Company’s project managers, engineers and financial professionals. Management reviews estimates of total contract transaction price and total project costs on an ongoing basis. Changes in job performance, job conditions, and management’s assessment of expected variable consideration are factors that influence estimates of the total contract transaction price, total costs to complete those contracts, and the Company’s profit recognition. Changes in these factors could result in cumulative revisions to revenue in the period in which the revisions are determined, which could materially affect the Company’s consolidated results of operations for that period. Provisions for estimated losses on uncompleted contracts are recorded in the period in which such estimated losses are determined.

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The Company disaggregates its revenue primarily by segment, service type, and country from which revenue is invoiced, as the nature, timing and uncertainty of cash flows are relatively consistent within each of these categories. Disaggregated revenue information is as follows:

 

 

 

Three Months Ended March 31, 2021

 

 

 

Safety

Services

 

 

Specialty

Services

 

 

Industrial

Services

 

 

Corporate and

Eliminations

 

 

Consolidated

 

Life Safety

 

$

368

 

 

$

 

 

$

 

 

$

 

 

$

368

 

Heating, Ventilation and Air Conditioning ("HVAC")

 

 

98

 

 

 

 

 

 

 

 

 

 

 

 

98

 

Infrastructure/Utility

 

 

 

 

 

140

 

 

 

 

 

 

 

 

 

140

 

Fabrication

 

 

 

 

 

82

 

 

 

 

 

 

 

 

 

82

 

Specialty Contracting

 

 

 

 

 

99

 

 

 

 

 

 

 

 

 

99

 

Transmission

 

 

 

 

 

 

 

 

22

 

 

 

 

 

 

22

 

Civil

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Corporate and Eliminations

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

(9

)

Net revenues

 

$

466

 

 

$

321

 

 

$

25

 

 

$

(9

)

 

$

803

 

 

 

 

Three Months Ended March 31, 2020

 

 

 

Safety

Services

 

 

Specialty

Services

 

 

Industrial

Services

 

 

Corporate and

Eliminations

 

 

Consolidated

 

Life Safety

 

$

343

 

 

$

 

 

$

 

 

$

 

 

$

343

 

HVAC

 

 

81

 

 

 

 

 

 

 

 

 

 

 

 

81

 

Infrastructure/Utility

 

 

 

 

 

170

 

 

 

 

 

 

 

 

 

170

 

Fabrication

 

 

 

 

 

38

 

 

 

 

 

 

 

 

 

38

 

Specialty Contracting

 

 

 

 

 

92

 

 

 

 

 

 

 

 

 

92

 

Transmission

 

 

 

 

 

 

 

 

93

 

 

 

 

 

 

93

 

Civil

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Inspection

 

 

 

 

 

 

 

 

37

 

 

 

 

 

 

37

 

Corporate and Eliminations

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

Net revenues

 

$

424

 

 

$

300

 

 

$

137

 

 

$

(3

)

 

$

858

 

 

 

 

Three Months Ended March 31, 2021

 

 

 

Safety

Services

 

 

Specialty

Services

 

 

Industrial

Services

 

 

Corporate and

Eliminations

 

 

Consolidated

 

United States

 

$

383

 

 

$

321

 

 

$

21

 

 

$

(9

)

 

$

716

 

Canada and Europe

 

 

83

 

 

 

 

 

 

4

 

 

 

 

 

 

87

 

Net revenues

 

$

466

 

 

$

321

 

 

$

25

 

 

$

(9

)

 

$

803

 

 

 

 

Three Months Ended March 31, 2020

 

 

 

Safety

Services

 

 

Specialty

Services

 

 

Industrial

Services

 

 

Corporate and

Eliminations

 

 

Consolidated

 

United States

 

$

376

 

 

$

300

 

 

$

131

 

 

$

(3

)

 

$

804

 

Canada and Europe

 

 

48

 

 

 

 

 

 

6

 

 

 

 

 

 

54

 

Net revenues

 

$

424

 

 

$

300

 

 

$

137

 

 

$

(3

)

 

$

858

 

 

The Company’s contracts with its customers generally require significant services to integrate complex activities and equipment into a single deliverable and are, therefore, generally accounted for as a single performance obligation to provide a single contracted service for the duration of the project. For contracts with multiple performance obligations, the transaction price of a contract is allocated to each performance obligation and recognized as revenue when or as the performance obligation is satisfied using the estimated stand-alone selling price of each distinct good or service. The stand-alone selling price is estimated using the expected cost plus a margin approach for each performance obligation. The aggregate amount of transaction price allocated to the performance obligations that are unsatisfied as of March 31, 2021, was $1,530.

When more than one contract is entered into with a customer on or close to the same date, management evaluates whether those contracts should be combined and accounted for as a single contract as well as whether those contracts should be accounted for as one, or more than one, performance obligation. This evaluation requires significant judgment and is based on the facts and circumstances of the various contracts.

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Contracts are often modified through change orders to account for changes in the scope and price of the goods or services being provided. Although the Company evaluates each change order to determine whether such modification creates a separate performance obligation, the majority of change orders are for goods or services not distinct within the context of the original contract and, therefore, not treated as separate performance obligations but rather as a modification of the existing contract and performance obligation.

Variable consideration: Transaction prices for customer contracts may include variable consideration, which comprises items such as early completion bonuses and liquidated damages provisions. Management estimates variable consideration for a performance obligation utilizing estimation methods believed to best predict the amount of consideration to which the Company will be entitled. Variable consideration is included in the transaction price only to the extent it is probable, in the Company’s judgment, a significant future reversal in the amount of cumulative revenue recognized under the contract will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

Changes in the estimates of transaction prices are recognized in revenue on a cumulative catch-up basis in the period in which the revisions to the estimates are made. Such changes in estimates may also result in the reversal of previously recognized revenue if the ultimate outcome differs from the Company’s previous estimate. For the three months ended March 31, 2021 and 2020, there were no significant reversals of revenue recognized associated with the revision of transaction prices. The Company typically does not incur any returns, refunds or similar obligations after the completion of the performance obligation since any deficiencies are corrected during the course of performance.

Contract Assets and Liabilities: The Company typically invoices customers with payment terms of net due in 30 days. It is also common for contracts in the Company’s industries to specify a general contractor is not required to submit payments to a subcontractor until it has received those funds from the owner or funding source. In most instances, the Company receives payment of invoices between 30 to 90 days of the date of the invoice.

The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from the Company’s projects when revenues recognized under the cost-to-cost measure of progress exceed the amounts invoiced to the Company’s customers, as the amounts cannot be billed under the terms of the Company’s contracts. In addition, many of the Company’s time and material arrangements are billed in arrears pursuant to contract terms, resulting in contract assets being recorded as revenue is recognized in advance of billings.

The Company utilizes the practical expedient under ASC 606 and does not adjust for a significant financing component if the time between payment and the transfer of the related good or service is expected to be one year or less. The Company’s revenue arrangements are typically accounted for under such expedient as payments are within one year of performance for the Company’s services. As of March 31, 2021, none of the Company’s contracts contained a significant financing component. Contract liabilities from the Company’s contracts arise when amounts invoiced to the Company’s customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities also include advance payments from the Company’s customers on certain contracts. Contract liabilities decrease as the Company recognizes revenue from the satisfaction of the related performance obligation. Contract assets and liabilities are classified as current in the unaudited condensed consolidated balance sheets as all amounts are expected to be relieved within one year.

The opening and closing balances of accounts receivable, net of allowances, contract assets and contract liabilities from contracts with customers as of March 31, 2021 and December 31, 2020 are as follows:

 

 

 

Accounts

receivable,

net of

allowances

 

 

Contract

Assets

 

 

Contract

Liabilities

 

Balance as of March 31, 2021

 

$

595

 

 

$

152

 

 

$

221

 

Balance as of December 31, 2020

 

$

639

 

 

$

142

 

 

$

219

 

 

The Company did not recognize significant revenue associated with the final settlement of contract value for any projects that were completed in prior periods. In accordance with industry practice, accounts receivable includes retentions receivable, a portion of which may not be received within one year. At March 31, 2021 and December 31, 2020, retentions receivable were $110 and $122, respectively, while the portions that may not be received within one year were $20 and $26, respectively. There were no other significant changes due to business acquisitions or significant changes in estimates of contract progress or transaction price. There was no significant impairment of contract assets recognized during the period.

Costs to Obtain or Fulfill a Contract: The Company generally does not incur significant incremental costs related to obtaining or fulfilling a contract prior to the start of a project. The Company may incur certain fulfilment costs such as initial design or mobilization costs which are capitalized if: (i) they relate directly to the contract; (ii) are expected to generate resources that will be used to satisfy the Company’s performance obligation under the contract; and (iii) are expected to be recovered through revenue

12


generated under the contract. Such costs, which are amortized over the life of the respective project, were not material for any period presented.

Note 6.     Goodwill and Intangibles

Goodwill: The changes in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2021 are as follows:

 

 

 

Safety

Services

 

 

Specialty

Services

 

 

Industrial

Services

 

 

Total

Goodwill

 

Goodwill as of December 31, 2020