GDI Integrated Facility Services Inc. (GDI.TO) Earnings Call Transcript & Summary

Yes, we got.

I would now ask registered shareholders or Julie appointed proxy holders who are present at this meeting today, who want to vote to withhold their vote for the election of KPMG as auditors of the company to raise their hand. Christian?

The Chair, I hereby confirms that registered shareholders or duly appointed proxy holders present in person at the meeting voted in favor of the motion.

I declare the motion carried. The formal items of business as set out in the notice of meeting have now been dealt with. As there is no further business to come before the meeting, I declare the formal portion of this meeting concluded. I would like to invite Claude Bigras, our President and Chief Executive Officer; and Stéphane Lavigne, our Chief Financial Officer, to provide an overview of the company's operations and financial performance for the 2022 fiscal year. A question-and-answer period will follow.

Good morning, everyone. Just a quick financial overview before Claude addressed, like the room for is a [ location ] for this year. Is the AGM of 2022, it seems a long time ago, but we're a small recap on this. So when you're looking at last year, the company posted more than $2.1 billion of revenue compared to [indiscernible] before. So that was a 26% growth coming from 9% organic growth in 2020 -- 2022. EBITDA also went from $133 million to $153 million last year. Margins were quite stable between 2021 compared to 2022. As we all know, like the COVID that [ positive ] impact on the margins of our business services in Canada mainly. And our technical business is still growing at a great [indiscernible]. In 2000, we just released our Q1 results last night. So our revenue were kind of a record fourth quarter. So we posted $591 million of revenue in the quarter compared to $495 million last year. Technical segment posted the 47% growth, including a 43% organic growth -- so that's definitely a record for the technical segment, thinking that normally, Q1 is a [ stop ] this quarter in the technical business, so a great achievement from this business. Our EBITDA, we posted $33 million of EBITDA last year, we posted $36 million. That was kind of forecasted in the sense that our [ GaN ] business is seeing less of COVID [ extra ]. So last year, we posted $19 million of EBITDA in the first quarter compared to [ $14 ] million this year. But technical has almost doubled its Q1 really offsetting the bulk of the decrease in the -- I'm calling it [ GaN ] services, we just renamed it to business services, Canada. So we're going to get used to it. Lastly, from a balance sheet standpoint, definitely, with GDI has grown a lot by acquisitions over the last few years. Last year, we closed 3 acquisitions, and we also bought IH, which was our largest acquisition on December 31, 2021. So the debt has definitely increased. But when we're looking at our debt-to-EBITDA ratio, we're still like it 3x of debt -- so right now, what we're seeing is a bit of increase in working capital because we need to support and finance the growth of the business. So in Q1, we had $40 million more of debt mostly coming out from AR that has gone up in the first quarter. But we're spending a lot of time on working cap management. On that, I will leave it to Claude for his presentation.

Thank you very much, Stéphane. Is the microphone working? So welcome, thank you very much for taking the time to be here. [Foreign Language]. So I will start just to give a little bit of our DNA, [ film ]. This business has been running on a very specific set of values that we work every day to implement that we publicized that we work with our team to really put them always in the forefront of what we do. Respect people, respect of our planet with everything in [ capacity ]. We're striving for excellence. We are -- we are also driven by innovation -- it's important. The future lies in what you do today to shape your future. Honesty and accountability for contractor, it's a good exercise. So you know what, we work very hard on that. And for sure, I'm always saying that along we're nothing as a team, we can accomplish miracle. Collaborations working together, these are the 5 primary values that we foster and our company. For sure, I'm sorry. Who is -- you have it? I have my own button.

The button for sure. Clicker. Thank you for that.

So our vision, I think it seems cocky, but we do believe into it is to become the world leader in providing facility services and solutions. So we are in the infancy of what we want to accomplish. So like my [ website ] stopped living in the past. So this is what we are aiming for. And our mission, trusted services best meeting the client or exceeding our clients' standards, very important. I think 1 that the secret of the secret sauce, if you allow me, has to be recognized as a premium quality customer focus-driven company. So in the highlights, as Stephane was saying, is [ Jeez ].

I'm good.

So as Stéphane was saying is we completed 3 acquisitions in 2022. And it's not us there, but people -- the team has worked extensively to work with those new partners in the business to incorporate them and encompass them in the family. And it's so far it's going very well. All the business segment delivered very strong financial results. And we continue to execute on our long-term strategy. So we focus on the quarter, but we aim on the [ contingency ] of the long-term achievement of the business. It's a balance of both. So focusing only on 1 cannot be optimal. So we always have to keep our 2 eyes on those 2 [ bars ]. So the acquisitions that we did, we had to talk about IH Services among the other acquisition we did because it actually started January 1, 2022. So the easy job was done prior to December 31, 2021. So you know what, first year, great results, good communication, good response, a sense of ownership into this new venture from both sides of the company. [indiscernible] is our first incursion in the structured energy management and energy-focused construction and project company. So for us, it's part of our long-term strategy to become an energy adviser and energy service providers because I think we are all aware that there are changes happening in this world. So this is 1 of our instruments in which we will collaborate with our clients, our stakeholders to achieve their objectives. Decarbonation, energy management, it's all key elements of the future of our technical service group. NPI. This is actually to reinforce our [ GTA ] presence in the downtown core of Toronto, specialized in [ heavy ] HVAC equipment, repair and install. Great partnership with NTI. It's a good set of talents and technical expertise, very, very happy. And 1 of the last transaction we did in the fall September, [ Cascadian ]. So sometimes, add-on acquisitions permit us to really make a big leap forward in the market. So we doubled our Seattle business. We doubled the expertise, our teams. We combine those 2 offices. Now everybody is working now under our GDI name a new force is in town. And we have seen major result already in what we're doing new contract acquisitions. The customer perception, we moved from a secondary contracting firm in Seattle market to a focus now that everybody looks at our company said, "Oh, we didn't see that coming. So it's about our competitors. So IH -- thank you very much again, but you look like you don't do anything, miracle. So okay. So IH -- so to come back on IH -- it was USD 200 million revenue business acting in several markets in the U.S. Big specialty on what we call distribution centers and industrial facilities, very, very competent team, and it really, really boost our presence in U.S. And there was a high degree of revenue synergies among our us and them in their market. And again, in 2002, they really delivered on the promise. We exceed that. So I'm happy to pay the earnout. Thank you. Financials, I call that a little bit of pumping iron because, yes, so far, for the last, whatever, 20, 25 years, we have been very fortunate to grow this business, top line and bottom line. at a 20%-plus degree. So it's not nice. It sounds good. I think the team is strong. I would say that going forward, again, like my wife was saying, mostly in the past. So we're looking to continue on that trend. But 1 of the beauty as the company is now at a size where we have talent, we have depth. We have expertise in order to be -- in order to grow into the next phase of the company, very important. I'm always saying to be a large company doesn't make you the best, but it gives you the tools and the mean and it attracts the talent to be the best and continue to grow. So I think me my biggest pride for sure, I'd like to see that the company is globally succeeding. But the sum of talents we have now in this organization. I'm still amazed every day. So that's very important. So -- let's talk a little bit about strategy. So what are we cooking? We're still focusing on accretive acquisitions, efficient integration -- acquisition, allow me to say this, acquisition is easy. Acquiring at the right price. It's already a little bit different and integrating those businesses so you can capture the tenant, the synergy, keep people on board and boarding customers and ensuring continuity, that's work. That's the work, and we deal with 2 human people. We deal with excellent amount of constraints. But I can tell you that this has been the key of the success in this company. So great commercial service, quality, competitive pricing, it's all of the above. So on the balance sheet side, to be prudent into how we manage the cash and manage -- we have 30,000-plus people that count on us, so we cannot go crazy with the cash. We need to also provide a good continuity services in the market. People need to keep their job. And we have to be transparent because we are a public company. So we have this duty in many aspects if you allow me, I'm [indiscernible] of the script. So I'm always saying that if you want to win a race, you can have a car and say, who needs a bags -- we don't need that. We're going -- we need to break. I'm pushing on the gas. Who need splashes and light. I don't care about people in the back. You know what, you're going to go fast. But the first curve, you might have a problem. Me I want us to win the race with safety with the belt with the flashers with the brakes because we have 30,000-plus people in this car. So that's very important. It's easy to explain, and it's easy for our team to understand that. For sure, our geographic expansion is an absolute muscle. We're doing both ways. We are increasing the capacity of the company. We're growing our market shares in each of our markets, but we also work into expanding geographically. It's 2, 3 different approach, but we need to balance them and continue to grow our footprint because 1 of the feature of GDI is we are able to service customers in many, many markets in North America. So that's also a key element of our growth. Again, we are there to service our clients. We're not there to indulge ourselves, and we are at the service of our customers and have our stakeholders. This is what we are. So our growth through acquisitions, I think I talked about it. Healthy sustainable business. We're focusing on endearing the markets where we can make a difference. We -- after we do that, we optimize our business operations. We support the people locally in the business because now they have a new set of tools to continue to build. So we leverage that with them, and this is what enables them to grow in their markets. So market density is important for us because it [indiscernible] profitability. If you have a good density in the market, you benefit from the synergy of the size, so we are able to be more competitive and to be more profitable. So the year-end review. So last year, I don't know if you know about it, there was a lot of disturbance for the last couple of years in the world. So I'm going to call it the 10 years of the great disturbance, probably our grandkids will call it this 10 years of great disturbance. But this being said, through all this, I have to congratulate and thanks to the team because they navigate through that successfully. And our adaptability and our resiliency has made us stronger. Now as we exit COVID, now the new reality is there, and we're working and adjusting ourselves to this new reality. So last year, we had a slow start on the technical service, supply chain disturbance, project delays, a mix of mud that we had to deal with. A slow start in the service of the service line because it was [ called ]. So it was not a great start for technical service in Q1. So as you see, there is a big organic growth. I'm saying it's good, but probably the reference time was also very low. So it's a bit of both. We continue to deliver a strong profitability and strong results in our Canadian business because of COVID -- COVID-related service, occupancy. So we had a very positive mix. So we continue to deliver on that. We captured. But again, we captured because we were able to respond to our customer needs. We were equipped to response. If we were not able to respond, we would not have done this achieved those results. So our business -- our business in the U.S. on our service business in the U.S. perform well. We had 2 acquisitions that actually fueled the growth in this business. And unlike Canada, U.S., through our business mix. So we revert back a little bit quicker the post-COVID era because more industrial clients, less office environment. So the mix made them go back to a more normalcy quicker than in Canada. For sure, 2021 was a very, very busy year for our chemical manufacturing and distribution business. Human being human. 2022, there was an oversupply in the market everywhere. People were dumping products and offices were not reoccupied so they had to -- they were facing, I would say, 3-strike headwinds. But you know what, now things are normalizing, but it was not a great year for the team. And I was doing a lot of encouraging with my team that was working very hard. So also since we had the opportunity to generate strong cash flows and the period that we were in, we made the decision as an executive group to invest into our infrastructure for the next phase of the business. So you know what, we were -- we built this business to $2 billion plus with tools, but we were convinced that the 2 to the 5, we need this different set of tools, very, very important. I did not want the ship to start breaking because of our lack of vision into spending on assets that are critical for our future growth. So we took advantage of the timing, and we initiated a significant IT project -- but -- and I'm counting on our usual prudence -- and me, you know what I'm saying is I'm scared by nature. So everything scares me. So IT catastrophes are very scary. So I can tell you that we -- I don't hesitate to put money on it to make sure everything works fine. So we are investing into that. Stéphane and our Head of IT are working hand-in-hand to deliver. We delivered the first phase of our talent management system. Allow me to say this, our resources is our workers. The first tool that we need is our workforce management system that gives you the information that you need that make sure that people are in the right place at the right time, there's no leakage. We know we can make comparison and compensation. We can reward the behaviors. So we were there. When it's 500 people, you can still manage 1 win [indiscernible] had 35,000 whatever, it's a different -- it's a different number -- and in our industry, especially on the business service side, even me, I'm learning the we have -- it's a business that traditionally has high turnover. So better you are into managing your hiring, onboarding better it is, you spend less money, you have a better grasp of how much you have to do to improve your score into retaining our workforce. So first investment was that second investment would be in our ERP systems and the way we control our financial infrastructure. So I would like also to welcome 2 new Board members, where please. You know what? Bob and [indiscernible]. Thank you. Madam Ristic was the former Managing Director of a small law firm in Canada called [ Stikeman ] and Elliot. So says, you know what, if I'm to work with a lawyer, I want to work with an expensive one. We're very fortunate, and she's also our Chair of our HR and Governance Committee. I think we could not get somebody better to take this road and responsibility. And I can tell you this, after 6 months, she's doing our job, I can tell you this. So -- and Bob joined us, Bob is well involved in the investment banking and financial sector for a small American company called JPMorgan Chase. And U.S. station out of the U.K. for 20 years, and it was gracious enough to accept to come with us in this venture. Thank you very much, Bob. So integration, growth, efficiency, value creation, very simple, people understand simple stuff. Next. So in the technical phase integration and the brands. This is what we do. In 2025, we will integrate -- let me resume that because I want to go fast, but not carrying the message. What we have accomplished is we have integrated our [indiscernible] brand over the old Technical Service division. So now it's 1 brand, 1 image, 1 structure -- so this is 1 thing. We are aiming to also do in the next quarters, integrate the brand and the structure of our business services. so that we have a homogeneous and structured approach to our business. So these would be our 2 main business segments. We are aiming at the end of 2025 to further to further integrate our brand into 1 [indiscernible] brand, GDI going forward that would provide a complete facility service solutions. So it's a work in progress. We -- by 2025, the investment in IT, I was talking about, which should be complete. So we would have a fully-integrated financial HR management and performance management systems -- for this new, but not Gunite, but the regroup entity. And we have our 2 segments. That's now going forward. Technical Services and Business Services. This is done. We continue to be acquisitive. We have the means. We have the [indiscernible], we have the depth. We have the expertise to continue. And the beauty, as you see is now we are really looking -- we still contemplate midsize -- midsized business, but we are also ready with the expertise and the depth of our people, our financial means to undertake larger transactions. So we are looking into that. So for sure, energy, again, energy decarbonation would be 1 of our main focus into our organic growth approach to the business. Customer needs it. Customers will need to rely on trustworthy, does a company like us to execute because like anything else, there will be a lot of and competence that will show up, try to make a place in the market. So it's important that we deliver the best solution and that we are recognized as a top energy management and project management business. You see over the last 25 years, there was the emergence of -- I don't want to be [indiscernible], but the middle man. So what I'm saying is, you know what, everybody developed their business. So we have seen the emergence of what we call facility management firms. They are customers of us and what, and they're very active. They grow their business. We try to work along with them, but they address the segment of the market. There is a whole segment of the market, which is not addressed, where customers also want to regroup their service approach to have 1 head to beat up. So what we did is we have -- and we'll talk about it later on -- we have developed our integrated facility service solution to address those Tier 2 markets needs that are not covered by our facility management partners. So efficiency, again, is the -- the third and fourth item, efficiency we always have to be at the lookout of can we do better? Can we be more structured. Can we provide a better service? Can we have a better retention of our -- it's always to be better. And again, 1 of my little comment is it cannot be better only at 1 thing in the business. It says, "Oh, I have the best customer service good. Customers love it, but you cannot only say -- you cannot only be good there. You know what, as a company like we are at the size we are, we're public, we are fiduciaries of your investment. We have to be good and customers pricing, competitivity, managing our people, trying to not be in the paper too much. So -- and what act as a good citizen as good governance, we have to be good in all those sectors. We have to be performing financially. You know what people need to trust our reporting. So it's a job to be good at many, many items. So that's very important. With us personally and the team, we work every day. We want to be good everywhere. That's the key. So we invest in talent, we have promoted people recently from inside. And what I'd love to see is people blooming. When you see people booming and unbelievable how much they can achieve sometimes we don't see the diamonds in our [indiscernible]. So it's important that we seek for diamonds on our chest. 2023, it will be the start of what I call, years of safety. Again, safety is us to be at the forefront of what we do. If I a raise for profit, we hurt our talent, we are our asset. We're not doing the right thing. So unfortunately, accident happened, we work in 30,000-plus locations. We work with several type of clients. We cannot prevent everything. But by spending time, training, monitoring, adjusting, we tend to reduce. And I think that globally, we're reporting significantly rewards this behavior because our score is getting better all the time. So value creation means that you work both on managing your P&L and your balance sheet. You have to optimize your asset, you have to optimize your operations and we need to make sure that the investments we do are the most profitable investment [indiscernible]. So action plan, IT initiatives, [indiscernible] IH platform in 2023, developed the plan for our corporate ERP platforms what we have the infrastructure that we're still managing and that we update because not only I would -- I'm always a little bit teasing my CFO saying I participate in the IT because I don't want only finance to have tools. So we also work very extensively into updating our tool infrastructure for our workforce in the field, better tool to manage their client more information, removing the flow of communication among different levels. We have the technology. We have scope [indiscernible] right in our pocket. So we're working to leverage that to be also a better company. [indiscernible] mobile application implementation, I was just saying our phone systems. It's amazing that in our offices by the end of this year, we have no more phone -- we'll have merely no more phones on our desk. Everything is interconnected. You're calling the company, you put the extension -- ring, I have voice message, again, implementing our tools, disaster recovery planning deepen more -- they do more have guns. They have keyboards -- so if you want to know if I invest in the cybersecurity, and we are on the watch line, I can tell you that I love it. I'm a scared person by nature. So we're working extensively on that. Infrastructure security, I think I just talked about it. So again, $3 billion, $200 million plus EBITDA, enterprise value of $2.2 million. This is a 2025 objective. If [indiscernible] permits, I think we'll do it a little bit before then. And in 2022, we finished at [ $2.172], more toward [ $2.2 ], $150 million of EBITDA enterprise value. So we're 3/4 of the way. So this is how I see it. So we have a big 25% to do. And like anything else, is the hardest [ '25 ], so all hands on bridge -- thank you very much for listening to this little presentation.

[Foreign Language] Thank you, Claude. Thank you, Stephane, and thank you all. As mentioned at the beginning of the meeting, we have now reached the question period. At this point, we would be happy to answer any questions from registered shareholders, duly appointed proxyholders and guests may have. We will answer questions until the end of the meeting. I ask that the persons who would like to take the floor clearly identify themselves by indicating their name, the entity that they represent, if any, and confirm whether they are a registered shareholder, a duly appointed proxyholder or a guest. As mentioned at the beginning of the meeting, questions from registered shareholders and duly appointed proxy shareholders will be answered first, and questions from guests will be answered if time permits. We will start the questions from registered shareholders and duly appointed proxy holders. We would like to remind shareholders that questions may be asked either in English or in French. So let me begin with the room those present. Any questions? [Foreign Language].

[Operator Instructions]

So for our English shareholders is about 8 years ago, were present in the United States was next to nil. So in 8 years, we were able to build almost $1 billion revenue business, which is more or less half of it is business services and half of it is technical services about the same now in Canada. So I'm happy to say that our business now is divided in 2 large geography and 2 large business segments, which is what I call the right balance, the right customer segmentation. So like I said, this is the past, but the future is now we are leveraging that. When you want to develop a franchise system, you need a certain market recognition. You need to have a certain market momentum. We have started to develop our regional franchise. If you remember, just before COVID, I was saying, hey, we're going to start you know what, the master franchise model. And I think we had to start a little bit because of COVID. So now we are working into that. So we're developing our franchise model. Further, you know what, the start-up. Yes, we are actually working to see how we can jump-start our franchise, but not the master franchise model, but the micro franchise model to support the development of GDI in the U.S. because now super regional clients are talking to us. because we cover several markets. We cover about 20 cities in the U.S. So our presence is not significant. So now we talk with multi-region customers. So our franchise model becomes more actuality and this presence will help us to develop our franchise model. So we continue to develop our market segments 1 day after the other, David and team is working actively into acquiring more geography and more density. Hopefully by the end of the year. I don't want to do anything illegal. But hopefully, we're going to have some good news on that front. So I hope I was answering your question.

[Foreign Language]

So we are pursuing both -- and there's a reality in acquisition is it's a little bit opportunistic. So the opportunity -- you know what our priority is to catch the opportunity when it presents itself. And make sure that we do the right acquisition. This is the bulk of our priority. If it's to create more density, so be it, if we can access a market which is sustainable at the right price with the right thing for sure, we do it. But M&A is you have to keep your head cold, you cannot fall in love with your deals. So it's 1 after the other, what is the best deal for the company. This is the priority.

[Foreign Language] Are other questions from the meeting?

[Foreign Language]

[Foreign Language] Are there any other questions from the floor? [Foreign Language] We have people on the phone. [Foreign Language] Do we have any questions from those online.

[Foreign Language] No questions from the phone.

If there are no further questions, I will now move to terminate the meeting. But before I do that, on behalf of management, our Board of Directors and everyone at GDI, I would like to take this opportunity to thank you all for attending. I would also like to thank my colleagues on the Board who are a tremendous group of people the exceptionally gifted management team at GDI and above all the shareholders for your continued commitment to our company. Most of all, I would like to thank our dedicated and loyal employees for the hard effort they put in on a daily basis to make this company what it is. We are lucky to have each and every 1 of you. [Foreign Language] We look forward to seeing you again next year. Thank you.