APiグループ（APG）2026年第3四半期決算説明会：売上高22.5%増、ガイダンス引き上げ

主要ポイント

• 2026年第3四半期の売上高は前年同期比22.5%増の25億5,000万ドルとなり、15.7%のオーガニック成長を含みます。これはAPi Groupにとって4四半期連続の2桁オーガニック成長となりました。
• 調整後EBITDAは24.6%増加し、調整後EBITDAマージンは20ベーシスポイント拡大して13.7%となりました。調整後希薄化後EPSは22%増の0.50ドルでした。
• セーフティ・サービス部門のオーガニック売上高は、点検・サービス・モニタリング収入、プロジェクト活動、価格改定に支えられ、8.8%増加しました。スペシャルティ・サービス部門は29.9%のオーガニック成長を達成しました。
• APi Groupは2026年の売上高見通しを92億ドル〜92億5,000万ドルに、調整後EBITDA見通しを12億3,500万ドル〜12億5,500万ドルに引き上げました。
• 受注残高は過去最高水準を維持し、前年同期比で2桁の成長ペースを継続しました。経営陣は、データセンター、半導体、先端製造業、ヘルスケア、重要インフラからの需要を強調しました。
• 経営陣は2027年の業績見通しを発表しませんでした。インターナショナル・セーフティ部門については、2027年に過去の1桁台半ばの成長率に戻ると見込んでおり、2028年までに16%の調整後EBITDAマージンを達成する目標を継続しています。

主要財務データ

事業および業績の動向

セーフティ・サービス

セーフティ・サービス部門のオーガニック売上高は8.8%増加しました。点検・サービス・モニタリング収入は1桁台半ばから後半の成長ペースを維持し、プロジェクト活動は加速しました。

北米セーフティ部門は、前年同期の比較対照が高水準であったにもかかわらず、2桁のオーガニック成長を達成しました。点検収入は2桁のペースで増加し、経営陣は大規模プロジェクトのパイプラインにおいて重大な遅延やキャンセルは見られないと報告しました。

インターナショナル・セーフティ部門はオーガニック成長に復帰し、前四半期比で改善しました。受注額および新規顧客数が増加し、プロジェクト受注残高は金額・受注粗利益率ともに過去数年の最高水準に達しました。経営陣は同事業が2027年に過去の1桁台半ばの成長ペースに戻ると見込んでいます。

スペシャルティ・サービス

スペシャルティ・サービス部門のオーガニック売上高は29.9%増加し、6四半期連続の2桁成長となりました。データセンター、国家重要インフラ、ヘルスケアが需要を牽引しました。

部門売上高のほぼ半分は法令対応および継続的なサービスによるものです。当四半期中、サービス収入は2桁ペースで増加しました。また、APi Groupは構造物サービス、HVAC・機械設備工事、防災・生命安全システム、構造化ケーブリングを包括するグループ横断的な提案活動を拡大しています。

受注残高、データセンター、およびM&A

APi Groupは受注残高50億ドル超で下期に入り、経営陣によるとその後も増加を続けています。受注残高は部門、サービスライン、対象エンド市場に分散されており、より高い利益率の案件がパイプラインに加わっています。

データセンター案件は、2026年末から2027年にかけて売上高の約12%またはそれをやや上回る規模になると予想されています。同社は建設工事を継続的な点検・サービス・モニタリング契約に移行させるため、プロジェクト完了前から顧客とのアプローチを開始しています。

APi Groupは2026年最初の9カ月間で13件の買収を完了しました。特に注目される4件（Certicite、Onyx-Fire、Gtech、Evergreen）は、年換算で5億ドルを大幅に超える売上高をもたらします。経営陣は2026年にボルトオン買収へ2億5,000万ドルを投入する計画を順調に進めており、年間3億5,000万ドルのボルトオン買収に対応できる体制を構築しています。

経営陣の業績見通し（ガイダンス）

本ガイダンスは現在の為替レートを前提とし、決算説明会の日までに完了した買収を含んでいます。従来の見通しと比較して、経営陣は売上高で3,000万ドル、調整後EBITDAで500万ドルのマイナスの為替影響を見込んでいます。

APi Groupは2027年の予算および正式なガイダンスを2月に発表する予定です。経営陣は「10, 16, 60-plus」フレームワークのもと、2028年までに16%の調整後EBITDAマージンを達成する目標を継続しています。

リスクと注視事項

• 利益率の高い点検・サービス・モニタリング収入よりもプロジェクト売上高が急速に伸びたため、調整後売上総利益率は低下しました。
• 初期段階のプロジェクト案件は一般に利益率が低い状態で始まりますが、進捗に伴い利益率は改善すると経営陣は予想しています。
• 原材料費、燃料費、その他のコストの上昇が売上総利益率を圧迫しました。APi Groupは、価格調整により金額ベースのコスト上昇分はおおむね回収できているものの、初年度にマージンへの影響を完全に回復できるとは限らないとしています。
• 最近買収した事業は、統合や業務改善の効果が現れるまでに、一時的に利益率が低下する可能性があります。
• 為替変動により、前回のガイダンスと比較して2026年の売上高が3,000万ドル、調整後EBITDAが500万ドル押し下げられる見込みです。
• 経営陣は提案されているデータセンター建設の凍結（モラトリアム）動向を注視しており、計画通り進行すると見込まれるプロジェクトへ選択的にリソースを投入しています。

アナリストQ&Aの要点

• 長期目標：経営陣は、オーガニック成長、買収の通年寄与、および継続的なボルトオンM&Aを通じて、売上高100億ドルへの道筋が見えてきたと述べました。また、16%の調整後EBITDAマージン目標を達成するには、まださらなる取り組みが必要であると強調しました。
• 2027年の見通し：APi Groupは、2027年のオーガニック成長ガイダンスを発表していないことを明らかにしました。正式なガイダンスは2月に予定されています。
• マージンの推移：より好条件な価格の受注残高が売上に転換し、原材料コストの圧迫が和らぐにつれて、経営陣は2026年第4四半期に前四半期比でマージンが改善し、2027年にはさらなる進展があると見込んでいます。
• ストック収入への転換：主要プロジェクトが約50%〜60%完了した段階でチームが顧客との協議を開始し、新規施設を継続的な点検・サービス・モニタリング契約へ転換することを目指しています。
• プロジェクト選択の規律：APi Groupは顧客やプロジェクトを選定するために正式なGo/No-Go（受注判断）プロセスを採用しており、利用可能な人員、実行能力、価格設定、およびプロジェクトの実施確率を重視しています。
• インターナショナル・セーフティ：経営陣は事業再生が初期から中期の段階にあると説明しました。地域のリーダーシップ、サービス受注、プロジェクト受注残高の改善が見られるものの、依然としてさらなる取り組みが必要であるとしています。

決算説明会の全文字起こし

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good morning, ladies and gentlemen, and welcome to APi Group's Third Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note, this call is being recorded. I will be standing by should you need any assistance. I will now turn the call over to Adam Walters, Senior Director of Investor Relations at API Group. Adam, please go ahead.

Adam Walters

Thank you. Good morning, everyone, and thank you for joining our third quarter 2026 earnings conference call. Joining me on the call today is Russ Becker, our President and CEO; and David Jackola, our Executive Vice President and CFO. Before we begin, I would like to remind you that certain statements in the company's earnings press release 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, October 29, and we undertake no obligation to update any forward-looking statement we may make, except as required by law. As a reminder, we have posted a presentation detailing our third 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. Reconciliations and other information regarding these items can be found in our press release and presentation.

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

Russell Becker

Thank you, Adam. Good morning, everyone. Thank you for taking the time to join our call this morning. I would like to thank our 32,000 leaders for their dedication to API. The safety, health and well-being of each of our leaders remains our #1 value. Our culture is foundational to our business and drives results. It differentiates API and allows us to win every day with our customers and in our communities. As we celebrate our 100-year anniversary with the theme of building great leaders who build great communities we have asked all of our teammates to retake our I am a Leader online development course. At API, we believe leadership is the single biggest differentiator between average and excellent.

This investment in our teammates will reinforce the leadership behaviors and culture that have shaped API and will support our next 100 years of growth. I would also encourage those joining us on the call today to take the course by following the link in our earnings presentation. It's a 30-minute commitment, and I am confident you will find it worthwhile.

Our business continues to perform at a high level, and that is reflected in our record third quarter results. Net revenue increased 23% and 16% on an organic basis, our fourth consecutive quarter of double-digit organic growth. Organic growth in Safety Services accelerated meaningfully, up 9% compared to Q3 2025. Our Inspection First strategy continues to deliver, driving consistent mid- to upper single-digit growth in highly recurring and statutorily required inspection service and monitoring revenues while positioning us to capitalize on a robust project environment.

Our backlog remains at record levels. up double digits year-over-year, consisting of high-quality work that is accretive to current gross margins and diversified across a variety of end markets. Adjusted EBITDA margins expanded 20 basis points despite a dynamic inflationary environment. This marks our 16th consecutive quarter of margin expansion and demonstrates our ability to improve profitability regardless of market conditions.

Diving a little deeper into the business. The North American Safety business delivered another outstanding quarter with double-digit organic revenue growth despite a challenging prior year comparison and meaningful margin expansion. Inspection service and monitoring remain at the core of our business. with inspection revenue growing at a double-digit rate in Q3.

The large project environment remains robust. Our record backlog continues to grow. Proposal activity is strong and we have seen no meaningful delays or cancellations. Demand spans multiple end markets, including semiconductors, advanced manufacturing, data centers, health care and warehouse and distribution.

Our large project success demonstrates the strength of our inspection first strategy. These opportunities come from long-standing customers whose relationships began and grew through inspection and service work. We are winning this work at attractive margins, supported by the technical capabilities and scale that few competitors can match. Our national branch network and strong customer relationships position us well to capture recurring inspection and service revenue after project completion.

As expected, international safety improved sequentially and return to organic growth in the third quarter. Inspection, service and monitoring continue to grow and remain at the core of our international business. Leading commercial indicators continue to strengthen. Order intake and customer additions increased, while project backlog reached a multiyear high in both value and booked gross margin. Our playbook emphasizes branch-level fundamentals, recurring revenue and inspections and empowering branch leaders to drive improved business outcomes. It has driven results in North America and we'll do the same in International.

Looking ahead to 2027, we expect international safety to return to its historical mid-single-digit growth rate. Specialty delivered another impressive quarter, with organic net revenue growth of 30%, its sixth consecutive quarter of double-digit growth. The project environment remains robust, driven by demand across targeted end markets including data centers, critical national infrastructure and health care. Our record backlog in this segment continues to grow. Like Safety Services, Specialty is a service business first. Nearly half of its revenues come from required and recurring services provided to long-standing customers. Service revenue grew at a double-digit rate in the quarter, and today's projects create attractive service opportunities across multiple API companies upon completion.

We continue to improve collaboration across API companies, enabling us to offer customers multiple service offerings under 1 proposal. This contributed meaningfully to revenue growth in the quarter. Across our business, our teams remain focused on driving margin expansion, and I'm confident in the work we are doing to continue moving margins. Both North American Safety and Specialty Services drove meaningful segment earnings margin expansion this year, even as elevated project volume was a headwind to gross margin expansion.

We continue to see stronger pricing on new project opportunities with higher-margin work entering the backlog. As this higher-margin project work converts to revenue over the remainder of the year and into 2027, it will become an increasingly meaningful contributor to margin expansion. As international safety continues to gain momentum and returns to normal levels of growth, we expect it to become a stronger contributor to margin expansion as well. We continue to be active on the M&A front. During the quarter, we closed the W Tech acquisition and completed 3 bolt-on acquisitions, including adding evergreen fire and security to the API family.

Evergreen, a systems integrator based in Washington, expands our North American electronic security capabilities, which has been a key strategic area of focus. We have closed 13 transactions year-to-date and remain on track to spend $250 million on bolt-ons -- bolt-on M&A in 2026. Importantly, the multiples paid for both bolt-on and larger platform type transactions remain consistent with historical valuations. The average EBITDA multiple paid for a highly complementary bolt-on acquisition continues to be 5 to 6 times.

For larger strategic or platform acquisitions, we are acquiring businesses at an average EBITDA multiple in the low teens. As always, we will continue to be disciplined in our M&A approach with 5 important criteria that must be met. Geographic fit, the services that are offered, financial profile. This has to have a near-term path to be accretive to our 10, 16, 60-plus targets, our ability to integrate the business, and most importantly, culture, values and fit.

Our M&A pipeline remains robust, and we are building the capabilities to support $350 million of annual bolt-on spend. We see significant opportunity to add fire and life safety, electronic security, elevator and escalator and niche specialty services businesses to the API family. The industries we serve remain highly fragmented and our value proposition as a forever home for sellers and their teams continues to differentiate us and position us well to capture these opportunities.

Before I hand the call to David, I want to step back from the quarter and talk about where this business is heading. 3 quarters into our 100th year, the picture is very consistent, double-digit organic growth, margin expansion, record backlog and disciplined capital deployment. That consistency is not an accident. It is the result of the choices we have made about which customers we serve, which projects we take and which businesses we bring into the API family. And it is why as we look toward 2027, we do so with strength and real confidence.

Momentum. The momentum from the first half continued through the third quarter. We delivered double-digit organic growth in each of the first 2 quarters, raised our full year outlook 3x based on business performance and raised it again following acquisitions. Inspection, service and monitoring revenue continues to grow. Our project businesses continue to win and pricing discipline remains strong. We see no reason for that to change as we turn the calendar.

Backlog and visibility. We entered the second half with backlog exceeding $5 billion for the first time, and it continues to grow. The backlog is diversified across both segments, service lines and targeted end markets, providing meaningful visibility into 2027. It is also weighted toward the work we want, well-selected projects with the right customers and margins that create recurring inspection, service and monitoring opportunities upon completion.

End markets. End markets matter, and we are positioned in the right ones. Semiconductors, advanced manufacturing, data centers, health care, critical national infrastructure, are multiyear builds, not single year events. Our scale, technical expertise and long-standing customer relationships position us to support this build-out across fire and life safety, electronic security, HVAC and mechanical, structured cabling and structural services and then serve these facilities for decades through statutorily required inspection and service. The demand we see today is the recurring revenue we will be serving in 2027 and well beyond.

Margins. Our margin levers remain consistent, and they are not exhausted. First, consistent organic growth, improved inspection service and monitoring revenue mix. disciplined customer and project selection, pricing, branch and field optimization, procurement, systems and scale, including the build-out of our global capability center, accretive M&A and selective business permit. And as I always like to say, we can always just be better. We expanded adjusted EBITDA margin in every quarter this year despite elevated project volumes and rising material costs. We expect continued margin expansion in 2027 with our 2028 adjusted EBITDA margin target of 16% firmly in view.

Acquisitions. 2026 has been one of the most active years in our M&A history. We closed Certicite in February. Onyx-Fire in June, Gtech in July and Evergreen in September, along with several smaller bolt-ons. Together, these acquisitions add well over $500 million of annualized revenue, every 1 of them accretive to our 10, 16 60-plus framework. Importantly, 2026 only reflects a partial year contribution from these businesses. In 2027, we get the full year contribution. We also get the benefit from a full year of ownership and ongoing integration, including cross-selling, inspection and service into their customer bases procurement scale and the operating discipline that has driven margin expansion across API. This creates a built-in tailwind before any new acquisitions and our pipeline remains robust.

In closing, as we look towards 2027, we see a business growing organically at a double-digit rate, a record backlog in the right end markets margins expanding with more to come, 4 acquisitions moving from partial year to full year contribution and a balance sheet and cash flow that allow us to keep investing and keep returning capital to shareholders. We intend to give you our budget and guidance for 2027 in February, as we traditionally do. But I want you to hear it from us now. We are entering next year from a position of strength and our 10, 16, 60-plus framework remains our North Star. With that, I'll turn the call over to David. David?

Glenn Jackola

Thanks, Russ, and good morning, everyone. Reported net revenues for the 3 months ended September 30 were $2.55 billion, a 22.5% increase compared to $2.09 billion in the prior year period. Organic revenue growth of 15.7% was driven by solid growth in inspection service and monitoring revenues, robust growth in project revenues and pricing improvements. .

Adjusted gross profit margin for the 3 months ended September 30 was 30.3%, representing a 120 basis point decrease from the prior year period driven by project and business mix and rising material, fuel and other expenses. Adjusted EBITDA increased by 24.6% for the 3 months ended September 30, and and adjusted EBITDA margin was 13.7%, representing a 20 basis point increase compared to the prior year period.

Adjusted EBITDA margin expansion was driven by strong revenue growth and the resulting favorable SG&A leverage, partially offset by factors impacting adjusted gross profit margin. Adjusted diluted earnings per share for the 3 months ended September 30 was $0.50, representing a $0.09 or 22% increase compared to the prior year period. The increase in adjusted diluted EPS was driven by strong revenue growth and adjusted EBITDA margin expansion, partially offset by increases in interest expense and the adjusted diluted weighted average shares outstanding.

I will now discuss our results in more detail for the Safety Services segment. Safety Services reported net revenues for the 3 months ended September 30 were $1.66 billion, an 18.5% increase from $1.40 billion in Q3 last year. Organic revenue growth of 8.8% was driven by solid growth in both inspection service and monitoring revenues and project revenues as well as pricing improvements. Adjusted gross profit margin for the 3 months ended September 30 was 36.2%, representing a 110 basis point decrease compared to the prior year period. The decrease in adjusted gross profit margin in the quarter was driven by project and business mix and rising material, fuel and other expenses.

Segment earnings increased by 19.1% for the 3 months ended September 30. Segment earnings margin increased 10 basis points to 16.9%, driven by strong revenue growth and favorable SG&A leverage, partially offset by factors impacting adjusted gross profit margin.

Turning to our Specialty Services segment. Specialty Services reported net revenues for the 3 months ended September 30 were $893 million, an increase of 30.7% from $683 million in the prior year period. Organic revenue growth of 29.9% was driven by robust growth in both project and service revenues. Adjusted gross profit margin for the 3 months ended September 30 was 19.4%, representing a 10 basis point increase compared to the prior year period. This increase was driven by disciplined customer and project selection and pricing improvements, partially offset by rising material, fuel and other expenses. Segment earnings increased by 38.3% for the 3 months ended September 30, and segment earnings margin was 12.5%, representing a 60 basis point increase compared to the prior year period.

The increase in segment earnings margin was driven by adjusted gross profit expansion, strong revenue growth and favorable SG&A leverage. Adjusted free cash flow generation remained strong. For the 9 months ended September 30, adjusted free cash flow was $468 million, up $34 million versus the prior year period. representing adjusted free cash flow conversion of 84% on adjusted net income. Free cash flow generation remains a top priority across API, and I am pleased with the improvement in our net working capital rate and our ability to grow free cash flow in a robust organic revenue growth environment.

We ended the third quarter with a net leverage ratio of 2.4x, approaching our stated long-term target of 2.5x to 3x. We have deployed $1.7 billion of capital through the first 9 months of this year. supported by our healthy balance sheet and strong consistent cash flow. As of the end of the third quarter, we repurchased $252 million of shares and have bought back an additional $143 million so far in the fourth quarter, leaving approximately $607 million remaining under our authorized share repurchase program.

Our strong cash flow, liquidity profile and access to credit markets provides us with significant flexibility to pursue attractive capital allocation opportunities, support our growth strategy and create long-term shareholder value.

I will now discuss our 2026 guidance for the full year, which reflects continued momentum across our business and marks our third increase to guidance this year, excluding the impact of acquisitions. As a reminder, our updated guidance is based on current foreign currency exchange rates and includes all acquisitions closed to date. We now expect full year net revenues of $9.20 billion to $9.25 billion, up from our previous guidance of $8.875 billion to $9.025 billion. representing 11% organic revenue growth at the midpoint.

Moving down the P&L. We now expect full year adjusted EBITDA of $1.235 billion to $1.255 billion, up from our previous guidance of $1.205 billion to $1.245 billion, representing an adjusted EBITDA margin of 13.5% and adjusted EBITDA growth of 20% at the midpoint. The increase to our net revenues and adjusted EBITDA guide reflect our improved outlook for the remainder of the year and include estimated unfavorable foreign exchange headwinds of $30 million to net revenue and $5 million to adjusted EBITDA relative to our prior guidance.

Additional information, including bridging our prior guidance to our new guidance can be found in our earnings presentation posted on our Investor Relations website. For 2026, we expect full year adjusted free cash flow conversion of approximately 110% of adjusted net income, which reflects our increased organic revenue growth expectations for the fourth quarter and full year. We anticipate interest expense of $155 million, depreciation of $90 million, capital expenditures of $105 million and adjusted effective tax rate of 23%, corporate expense of $145 million and an adjusted diluted weighted average share count of $437 million, reflecting the year-to-date repurchases during the third and fourth quarter. With that, I will now turn the call back over to Russ.

Russell Becker

Thanks, David. As we head into the fourth quarter and look ahead to 2027, we see sustained momentum across the business and continued demand for our services. Our teams are capitalizing on that demand and are delivering strong organic growth and margin expansion. At the same time, our disciplined approach to capital allocation is driving value for our shareholders. This momentum positions us well to close out the year strong and gives us real confidence in our ability to deliver on our 10, 16, 60-plus targets. With that, I would like to turn the call over to the operator and open the call for Q&A.

Operator

[Operator Instructions]

Your first question is from the line of Jon Tanwanteng with CJS. Please go ahead. .

質疑応答

Jonathan Tanwanteng

Congrats on a really nice quarter and outlook.

Russell Becker

Thanks, John. How are you?

Jonathan Tanwanteng

Good. I was wondering if you could talk a little bit more about your long-term target. I mean you're tracking at this quarter already at the revenue run rate required to achieve that $10 billion admittedly, it's a seasonally strong quarter. But given the strong performance, the backlog that you're generating, the rising margins in backlog, do you think there are other elements of that target that you might be able to hit earlier, maybe from a profit perspective, if not the margin?

Russell Becker

Well, I mean, without getting ahead of ourselves, Jon, and providing guidance into our 2027, you can do some math pretty quickly. to see where we're standing on, say, the $10 billion revenue target. And if you just track out our organic growth rate, you look at the run rate of the acquisitions that I talked about in the script when you annualize that and then you say, "All right, they're going to do another $300 million or so of bolt-on M&A," you can see where that visibility into that $10 billion figure comes into view very, very, very quickly. That math is really pretty simple to do. making the assumption that we're going to be able to continue to push forward with bolt-on M&A and everything else. So we feel really good about that. And obviously, the 60% is a long-term target. And the 16% EBITDA margin target is the one we got work to do on. And we are laser-focused on it. And we have line of sight, and we know what we need to do to get there.

Jonathan Tanwanteng

If I could ask another one, just what is your visibility into larger acquisitions after doing 3 or maybe 4 of them this year? I know you have that $350 million tuck-in target, but I'm wondering if the mid or larger size pipeline looks just as promising?

Russell Becker

Well, I mean, you have really good visibility into what's out there. It's a matter of vetting it and making sure that it's the right opportunity for us. I mean John, every investment bank, I think, in the free world is calling on us on a regular basis and putting different ideas in front of us. And I think that in general, our familiarity with the space helps us kind of know what we think is the right fit to join the API family. And like we're -- our corporate development team and David and I are constantly kind of doing a little bit of work kind of what's the next larger opportunity for the business. And as we're doing that work, it's always around, is it the right fit for us? Does it make sense for -- is it going to be a good fit for our culture and from the API team, and they're going to be meaningful to our shareholders and accretive to the value proposition that we're trying to bring forward to our shareholders every day?

So we have really good visibility, and it's just a matter of like what's the right fit for us. And -- but we're -- you don't see it, but we're always doing something, and we're always churning on something behind the scenes.

Operator

Your next question is from Jason Haas with Wells Fargo.

Jason Haas

Too encouraging to hear you're expecting double-digit organic growth in 2027. Can you just talk about what gives you the confidence to get that target. And then I'm also curious for 4Q, does that framework apply as well that it will be in the double-digit range?

Russell Becker

Yes, Jason, just 1 point on organic revenue growth. So double-digit organic revenue growth for full year 2026. To be clear, we haven't placed guidance out for 2027.

Jason Haas

Okay. I thought in the prepared remarks, there was a comment about double-digit growth for2027 but maybe I misheard.

Russell Becker

What was the second part of your question, sorry?

Yes. I thought in the prepared remarks, there was a comment about double-digit growth in 2027. So what was that referring to.

Glenn Jackola

Jason, we were just saying, as we like look forward to 2027, we've been growing double digits this year. That's what Russ meant in is remarks.

Operator

Your next question is from Jasper Bibb with Truist Securities.

Jasper Bibb

Yes. Really nice acceleration in safety this quarter. I think kind of the last time we heard from you, you were kind of framing a mid-single digit organic pace on safety each quarter of the year. I guess, did anything kind of positively surprised you positive to last quarter? And then if you had any detail on the split of take the organic growth, inspection service versus projects in North America versus international, that would be really helpful. .

Russell Becker

Yes. I'd be happy to answer that for you. Great question. Thanks for joining us this morning. So a great strong quarter from the Safety Services segment. When you think about the breakdown between service inspection monitoring revenue and contract revenue, -- the ISM or inspection service monitoring continues to grow at that mid- to upper single-digit pace, that's been the growth trajectory for the first 2 quarters of the year. That continued into the third, and we expect that to continue into the fourth as well. Project environment continues to remain robust.

And we did see a tick up in the growth rate in the contract side in the third quarter. I would say that excitedly, the international business returned to organic growth in the third quarter. And we feel confident that, that's continuing to move in the right direction with mid- to upper single-digit growth on the inspection service and monitoring and algorithm growth on the project side.

Operator

Your next question is from Stephanie Moore with Jefferies. Please go ahead. .

Stephanie Benjamin Moore

I wanted to maybe touch on the opportunity you see over the medium term in terms of being able to convert some of the specialty project work and specifically once that work is complete, as you're able to maybe migrate those relationships to some of your other services within the API family group and that could provide more so reoccurring business in the future.

So I guess said simply, clearly benefiting right now for our -- some maybe more project-focused work, and then how that can translate into a more so reoccurring revenue stream in the future?

Russell Becker

Well, Stephanie, I'm sorry. And I think what we are seeing is like if you look at some of the project-related work in talking about how does that convert to inspection service and monitoring opportunities after the project work is finished. Number 1 is that -- for the most part, the project-based work that we are winning is with long-standing customers already.

And it's those sticky relationships that came from that inspection service and monitoring relationship that are creating these robust project opportunities for us. So we already have a relationship. And then if you look at the services that we provide in the different segments, they all kind of hit these projects at different periods of time. So like the structural services that we provide are usually on the very, very front end of a project. And I would say the HVAC mechanical is right behind, and then fire life safety comes behind that.

And then the structured cabling component of it is more towards the end of it, if you will. And we have a business development leader that has really taken the point on connecting the dots across all aspects of our business with our customers in these large project opportunities. and has been extremely beneficial in and helping bring multiservice opportunities to our clients on these larger project opportunities.

And also seeing, because of the nature of these large project opportunities, we're also seeing many of our clients wanting us to bundle our services upfront, which creates bigger, more robust opportunities for us. And for us, that's a good thing because it's -- we're not like loading up 1 of our operating companies or operating business units with , so to speak, too much project work. We're spreading the doll across multiple businesses. And that's a really, really positive thing for us.

So there's a lot that goes into how we are collaborating and sharing opportunities and sharing these leads and winning. And there's not just 1 thing that's adding to that. And -- but what I would say is that the concerted effort that we've made from a business development perspective is something that's really aiding that work.

Operator

Your next question is from Tomo Sano with JPMorgan. .

Tomohiko Sano

Maybe just on demand and strategies. Given the strength you're seeing across the business and the growing backlog, how do you think about maintaining discipline of API gets larger? Are there any areas that where you are becoming more selective about the customers and projects or markets you wanted to pursue?

Russell Becker

Well, I think in this environment, customer selection and project selection is key. -- and you have a really great opportunity to be super selective on where you're going to put your people to work. And at API, we consistently talk about our field leaders that they are like precious gems and that we should only put those precious gems to work in places that our clients and customers really value them. and are going to appreciate the amazing work that they do.

And so we have found that the environment that we're in today allows -- affords us that opportunity and people just -- we need to make really good choices about that. We have a really robust kind of go/no-go process checklist that put any of our large not just project opportunities, but our large MSA and service opportunities through to make sure that we are validating that these are the right customers and the right projects and the right customers for us to be putting our people to work on. And so -- this is a -- it's a unique environment, and it's one that being disciplined about the work that you take on is really important, and I feel like we're doing a great job.

Operator

Your next question is from Tim Mulrooney with William Blair. Please go ahead.

Timothy Mulrooney

My question is on the Safety Services gross margin. It looks like it was down about 110 basis points year-over-year. How much of that was from sales mix versus rising material and fuel costs? I guess, I thought you were able to pretty much pass on the material costs in your contracts and inspection obviously doesn't have materials costs. So I'm curious where in the business you're seeing a little bit of impact on the material cost side and what that breakdown is impact?

Glenn Jackola

Yes, thanks for your question. This is David. So focusing on safety gross margins, you nailed it when you mentioned the impact of project mix, and that's the biggest driver of the margin. I would say, margin performance versus last year. There's a couple of elements that I'd kind of point you to. One is the increased growth of project mix relative to service mix in the quarter. But the second, with that acceleration on the contract side comes an increase in projects that are at the early stage, which, as we talked about, a couple of times on these calls tend to start at a lower margin as you work your way through the work they actually become opportunities for gross margin expansion as you get deeper into the work.

And I'd expect that dynamic to play out as we go from the third quarter into the fourth quarter. Material costs, generally, we are able to pass those on and capture the dollar value, but not necessarily the margin value in the first year. And I'd say in the Safety segment, too, we had a little bit of a gross margin hit from near-term M&A, which over the medium term is absolutely accretive to gross margin. But we see this time, time and again that when we buy a business, bring it into API, they've been spending the last few months focused on the sale and then getting accustomed to their new home and the integration, and so margins contain a small step backwards before they take a step forward. That was in play. But underlying everything, I think on the gross margin story is, one, we're continuing to be able to deliver price in the Safety segment, and we're executing the work that we're doing at a very, very high level.

Operator

Your next question is from Curtis Nagle with Bank of America. Please go ahead.

Curtis Nagle

Great. I think you've mentioned this a couple of times on the backlog, improving margin structure and pricing, and that's specifically going to '27. Maybe in terms of just potentially sizing how much of a pricing or a margin tailwind that could be over the next year?

Russell Becker

Next year. I mean, we expect our margins to improve sequentially as we move into the fourth quarter, which is normal for us. Some of it is the improved pricing associated with the project environment that we're in. Some of them is just conservative reporting as it relates to working our way towards to the end of the year and we expect our margins to improve as we move into 2027, and we'll share that with you when we provide our plan and guidance for the full year '27 in February. .

Curtis Nagle

Okay. And then I guess just as a follow-up in terms of just, again, very, very strong acceleration project work. Just by end market, anywhere you saw particular strength relative to the second quarter?

Glenn Jackola

I don't -- I wouldn't point into anything in particular, Curtis. The breadth and the strength that we saw in the business was spread broadly across the end markets that Russ referenced in his open comments or in his opening comments.

Operator

Your next question is from Kathryn Thompson with Thompson Research Group.

Kathryn Thompson

Get a focus on specialty. This has been a great vehicle for growth, 13% growth in that segment. one, broadly is how are you adjusting to that -- managing effectively that growth because particularly when you look at large projects, either in data centers or other very large construction projects. Being on time is even more important. You would argue it is always important, but even more so. And then along with that, I'd appreciate if you could give any color on in particular, your fabrication and distribution really around our structural steel fabrication interaction because that's another area based on our work that is a strong opportunity and but just love a little bit more color in terms of what you're seeing in that segment, which is within our specialty services.

Russell Becker

Well, I agree with you, Kathryn. I mean speed to market on most of these large project opportunities, whether it's advanced manufacturing and semiconductors or data centers matters. And for us, it comes down -- it goes back to this whole project selection, go, no go, checklist. And -- number 1 for us is that if we commit to a project opportunity, we need to have people to do it, to do the work and to lead and properly lead the work. And so we are very selective in which projects and opportunities that we actually pursue and we're only pursuing projects that we know are going forward so that if we make a commitment to put our resources on that opportunity, that we're going to go forward.

So we're making sure that we're not getting out in front of ourselves and taking on more work than we potentially have the capacity and the capability to execute on. So I feel like our team has done actually an amazing job at that. and being very, very smart about where they're putting their field leaders and their leadership teams to work. And I think if you're smart about it, you can navigate that and make sure that you have the resources and people to do the work.

Second part of your question was around the structural manufacturing. That's a relatively small piece of our business. in the overarching scheme. But they're seeing the exact same plethora of opportunities that not only our other specialty services companies seeing, but they're also seeing those opportunities in our Safety Services segment. I would say the 1 end market that's providing them additional opportunities that we didn't talk about would be the aviation space. And I suspect that should include the sports and entertainment end market as well. So they have a broad base of end markets to pursue the right opportunities for and they're just taking advantage of that and doing a great job.

Kathryn Thompson

And to clarify on the aviation, is this airports? Or is it more aviation companies that are repurposing certain parts of the value chain to meet data center demands like mobile modular energy backup services?

Russell Becker

I would say that it's more airports as well as like individual private hangers and things like that, just in the Aviation space, not necessarily tied to the data center space. And more of these -- we're seeing more of these airport projects delivered on a kind of a value-added design build basis. So it's not like the traditional bid, build whatever delivery model that was the worst word in the industry is bid, and so we're staying away from -- we stay away from that. type of delivery model. But some of these best value delivery models where the opportunities are designed, build create a different opportunity for you to actually add value to the process, and they're taking advantage of that. .

Operator

Your next question is from Andrew Wittmann with Robert W. Baird & Co. Inc. Your line is now open. Please go ahead.

Andrew J. Wittmann

Yes. Great. I wanted to just understand a little bit try to investigate the fourth quarter guidance a little bit to try to understand what's happening underneath the business a little bit more. So you beat the third quarter by $20-ish million. The guidance is up by $25 million in the quarter. There's obviously a lot of M&A over $500 million, but most of that had closed by the last -- by the end of the -- by the time you held your conference call. So there's only like $150 million, $180 million of incremental M&A that you announced since now. Evergreen obviously closed at the end of the quarter, but it still feels like there should have been, I don't know, at least $5 million of EBITDA, maybe $10 million that you would have gotten from the acquisition contributing to this year. .

So I understand the revenue guidance is up. And maybe the answer is simple as like you've got the inflation from the materials and the fuel that's hitting in the fourth quarter. That is why the margin rate is down and the margin guidance isn't up more. But if that's -- if there -- David, are there other factors at play that we should be considering? Obviously, you talked about mix. So maybe that's what it is as well. But maybe more importantly, when do you expect that you'll be able to kind of get on the right side of these factors getting the margin back on the material and the fuels as you look at the scheduling of your jobs, when did these ones that you have to carry the cost a little bit more kind of end and the new ones begin. Recognizing also here that you've got some larger projects that probably last a little bit longer. I want to kind of have you specifically talk about that.

Glenn Jackola

Okay. Thanks for the question, Andy. Thanks for being on the call today as well. So in terms of the fourth quarter margin, our fourth quarter margin reflects continued sustained momentum in inspection service and monitoring growth. It includes a project growth rate that's above a long-term algorithm. That's really what drove the increase in the fourth quarter guide. And as you know, early stage project work and project work in general comes at lower margin than inspection service and monitoring. Rising material costs are weighing a bit on the quarter and on the guide. We're doing a great job of getting out and pricing for those and proposals.

I would expect that would become less of a topic as we get into 2027, and the gross margins will continue to move upward from there. Does that help?

Russell Becker

Andy, and I'd also add, there's an element like you under-promise over-deliver and make sure to make sure you can deliver on your commitments. And like we continue like the way I'm looking at it like we're kicking *** and our business is like we're doing some really, really good things, and we continue to raise our guidance. And we really haven't seen the benefits of the M&A come through. We fully expect to, don't get me wrong. We're very excited about the businesses that we brought into the API pool.

But there is a period of the action where they put their heart and soul and they're getting the business sold and, to a certain degree, lose a little bit of focus and their focus is getting the business sold. And so we really haven't -- don't see the full benefits of that for 6 months, 9 months, 12 months after the transaction closes. So like I feel really good about our business and the trajectory of our business and where our business is going.

Operator

Your next question is from Josh Chan with UBS. Please go ahead.

Joshua Chan

David, congrats. I wanted to ask about the data center opportunity. Obviously, new buildings of data centers have been strong for a year or 2 now at least. And are you starting to see some of those completed data centers having ISM opportunity for you in the safety business?

Russell Becker

Yes. No question about it, Josh. I mean -- and I think that our team is doing a good job of -- well, let me take a step back. Number one, all of these firms that we're doing these data center work for. And quite frankly, it doesn't matter if it's a data center, a semiconductor, advanced manufacturing. Like I would say in almost all cases, we already have an inspection service and monitoring relationship with the firm. And so it's just a matter -- and often times, what's happening with some of these, especially in the data center space, is that they're building new campuses. So there is an element where you have to so to speak, make sure that you're converting that new project opportunity into an inspection service and monitoring account.

But our team is engaging at the 50%, 60% level of construction completion to getting engaged with the client at a very early level. So it's our goal is to convert 100% of those. And will we convert 100% of them? Probably not. But I would -- I like our chances and I like the proactive nature that our team is taking about getting out in front of it and engaging with the client at a very early stage.

Operator

Your next question is from Ashish Sabadra with RBC Capital Markets. Please go ahead.

Ashish Sabadra

Good to see the strong top line momentum in the business. A follow-up question on data center. You had expected it to be 10% to 12% of revenue this year with more visibility there. I was just wondering if you have a view on how big data center is going to be a percentage of revenue this year? And any color on how big of a percentage of the bookings it is? Also, there are just some concerns around data center moratorium? Have you seen any pushback? Any color on that front will be helpful.

Glenn Jackola

Yes. Good question. Thanks for joining us this morning. So first part was around how much of our revenue in 2026, do we see coming from the opportunities in the data center world. We've been talking 10% to 12%. It will probably be 12% or a little higher as we go into in 2027 and exit 2026. We see really good opportunities in the backlog. But as Russ mentioned in his earlier comments that the service inspection and monitoring opportunity there is starting to really bear fruit.

Russell Becker

So regarding the moratorium component of your question, again, I'll just go back to my earlier -- like we're watching that for sure, right? And like our home state of Minnesota is 1 of those states. And -- and so we're watching that and to make sure that, again, it goes back to making sure that you're dedicating your teams and your field leaders to opportunities that you know are going to move forward. So there's certain locations, I'll just Iowa, Wyoming. I could keep going that are, so to speak, welcoming these data centers and the hyperscalers into their communities.

And so you just have to be smart about which opportunities? We're not trying to take on the world, and we're trying to make sure that we're looking at the right opportunities that we know that are going to move forward. We're also taking on a different role in that role is in the form of advocacy. And that is being active in the communities where some of these data centers are proposed and demonstrating to those communities that these opportunities can be constructed and constructed in an environmentally safe and a community safe fashion. And so we've actually taken on a broader role from an advocacy perspective and trying to support that work in those opportunities. and that you can do both. And that's a big piece of it as well. And I think that's something that the industry is learning.

Operator

Your next question is from Andy Kaplowitz with Citigroup.

Andrew Kaplowitz

Russ, I just want to go back to your international business. I think you've got a leader in there is focused a little differently than in North American safety, focused on service first and maybe a different and evolving strategy for you guys. So it's good to see it return to growth. And you talked about getting back to mid-single digits next year, but maybe you can update us on the progress that you're making there, given it's, I think, a bit of a different strategy for you guys.

Russell Becker

Yes. And we didn't forget about you, by the way. And so -- but -- so thanks for hanging with us. But Like, so the individual that's leading that business now is a long-standing API teammate. And so this person has seen it tried and true the strategy in service and monitoring first. And I would say that he's having an impact in the business. I'll also tell you that we moved to a kind of a regional leadership structure where we have a leader leading the U.K., Ireland, Spain and France and other individual leading Benelux, the Nordics, the DAK region, then we have another person who is leading Asia Pacific. And so we're getting better touches, if you will, on our country-level leadership and driving this service work strategy forward.

And we are definitely seeing some green shoots, not just on the project side. We alluded to that. We have -- we're seeing increase in -- on our backlog and our project work in the international business, but we're also seeing an increase in orders on the service side. And that mindset takes time and it took time in our North American business. And so where are we at to ultimately answer your question in that journey. I don't know. I'm going to say that we're in the bottom of the fourth, maybe the top of the fifth inning. There's -- and we'll probably never get to the bottom of the ninth. It's just kind of the nature of the beast. And we're all kind of happy that Beras won the World Series. Adams from Wisconsin, so we got to give him a little some props here. But -- but -- so we're gaining on it. We still have a lot of work to do there. We are collaborating at a higher level between the international businesses and the North American business, but we still have a lot of work to do, Andy.

Operator

We have reached the end of the Q&A session. I will now turn the call back to Russ Becker, President and CEO, for closing remarks.

Russell Becker

Thank you. In closing, I would like to thank all our teammates for their continued support of and dedication to API. We believe our people are the foundation on which everything else is built. Without them, we do not exist. I would also like to thank our long-term shareholders as well as those that have recently joined us for their support. We appreciate your ownership of API and look forward to updating you on our progress throughout the remainder of the year. Thank you for taking the time to join the call. I hope everybody has a great day.

Operator

This concludes today's call. Thank you so much for attending. You may now disconnect.