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

Good morning, ladies and gentlemen, and welcome to the GDI Integrated Facility Services, Inc. Fourth Quarter 2024 Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, March 5th, 2025, I would now like to turn the conference over to Charles Girouard. Please go ahead.

Thank you, operator. [Foreign Language]. Good morning all, and welcome to GDI's Conference Call to discuss our results for the fourth quarter of fiscal 2024. My name is Charles Girouard, Executive Vice President, Finance of GDI. I am with Claude Bigras, President and CEO of GDI; and David Hinchey, Executive Vice President of Corporate Development. Before we begin, I would like to make you aware that this call contains forward-looking information, and we ask listeners to refer to the full description of the forward-looking safe harbor provision that is fully described at the beginning of the MD&A filed on SEDAR last night. I will begin the call with an overview of GDI's financial results for the fourth quarter of fiscal 2024, and we'll then invite Claude to provide his comments on the business. In the fourth quarter, GDI recorded revenue of $634 million an increase of $12 million or 2% over Q4 of last year, which is due to 3% growth from acquisition. 1% growth from [indiscernible] translation, but partially offset by organic decline of 2% in the quarter. We recorded adjusted EBITDA of $38 million in Q4, representing an adjusted EBITDA margin of 6%. Also in the fourth quarter, GDI reported a net operating working capital reduction of $19 million. GDI has also reduced its long-term debt net of cash by $36 million due to business disposal and cash flow generated from operations during the quarter. This decrease would have been $19 million higher if the FX would have remained constant between Q3 and Q4. For the full year, revenue increased by $118 million or 5% to reach $2.56 billion compared to $2.44 billion last year. Revenue growth from acquisition was 5% year-over-year, with currency translation and organic revenue variation offsetting each other. Adjusted EBITDA in 2024 amounted to $137 million, representing an adjusted EBITDA margin of 5%. Moving to our business segments. Business Service Canada reported revenues of $150 million in Q4, an increase of $4 million or 3% all organic compared to Q4, 2023. This segment reported adjusted EBITDA of $12 million compared to $13 million in the fourth quarter of 2023, representing an expected decrease of $1 million. The Q4 adjusted EBITDA margin of 8% was in line with each of the other three previous quarter of this year. Our business service US segment recorded revenues of $217 million in Q4 2024 compared to $215 million in Q4 2023. The overall revenue increase is explained by 9% growth from acquisition and 2% growth from currency translation, which were offset by a large portion by the organic decline of 10%. The organic decline mainly reflects the loss of the segment's largest client, which occurred at the end of the first quarter of 2024. This segment reported adjusted EBITDA of $14 million compared to $16 million in the fourth quarter of 2023, representing a decrease of $2 million. The adjusted EBITDA performance in Q4 was in line with the result of the previous 3 quarters of 2024. Our Technical Services segment recorded revenues of $257 million, an increase of $18 million or 8% compared to Q4 2023 with 4% due to organic growth and 3% due to business acquisition, net of disposals. The segment reported adjusted EBITDA of $18 million representing an adjusted EBITDA margin of 7%, up from $14 million and 6% in Q4 last year. This increase is mainly attributable to higher margins on projects, revenues compared to the previous year. The Q4 2023 was also affected by underperformance on a few large contracts in the U.S. Finally, our segment, Corporate and Other reported revenues of $10 million compared to $22 million in Q4 last year, a decrease of $12 million, where $9 million is due to business disposal and $3 million is due to organic decline. Adjusted EBITDA was negative $6 million in both Q4 2024 and Q4 2023. I would like to turn the call now to Claude, who will provide further comments on GDI performance during the quarter.

Well, thank you, Charles-Etienne and thank you, everyone, for taking the time to listen to our call to discuss GDI's results for the fourth quarter of 2024. GDI performed well during the quarter, generating revenues of $634 million and an adjusted EBITDA of $38 million, representing the margin of 6%. Our Business Service Canada segment delivered very consistent results which is $150 million in revenue, 3% organic growth and an 8% EBITDA margin comparable to what the business delivered each quarter of 2024. As previously discussed, profitability has been normalizing post-=COVID as the commercial real estate industry was experiencing high interest rate and lower office occupancy. I feel that throughout 2024 Business Service Canada clearly demonstrated its ability to deliver strong and stable results. The outlook for the industry in Canada remained a bit hazy with occupancy levels in the class A market below pre-pandemic level. But as always, we remain very vigilant and ready to make the necessary adjustments if and when needed. Our business service US segment performed well despite reporting an organic revenue decline, which is an anomaly for a business that typically generates strong organic growth. As previously announced, our business service USA segment, largest client at the end of Q1 of 2024 purely for pricing reasons. We decided to part also from business that did not meet our minimum gross margin metrics. In the two quarters following this loss, we successfully replaced the lost revenues with new client wins. However, such clients, revenue stream is per -- however, one such client revenue stream is project-based. And Q4 was a new volume quarter for that client, and we expect that Q1 revenue stream will be as well. Additionally, we continue to shed low and low-margin accounts from the Italian acquisition. Despite this, the business performed well in Q4, and it has been continuing to record more new client wins, which have and will be starting up in Q1 and Q2 of 2025. Additionally, quarter-over-quarter revenue comparisons should normalize in Q2, 2025, and I expect that we will return to a more normal organic growth level as the year progresses. I would also like to note that there is one extra working day in Q4 of 2024 compared to the same quarter last year in both our business service segments which represents a total of approximately $3 million in additional labor costs. This should be factored in when making quarter-over-quarter comparisons to get an apples-to-apples perspective. Our Technical Service segment had a very strong quarter with $250 million in revenue and an adjusted EBITDA margin of 7%. This was the segment's highest Q4 EBITDA margin to date, resulting from our focus on increasing margin in the project segments of the business. The structural change should help to support the margin profile of the business going forward. And it brings us closer to our goal of achieving a full year adjusted EBITDA margin of 7% in this business segment. During Q4, we also delivered on our 2 key balance sheet initiatives, namely reducing working cap and reducing debt. In regard to working cap, we reduced it by $19 million in Q4. $7 million of this decrease is related to business divestiture. At the same time, unfavorable foreign exchange effect served to increase working cap by $10 million. As a result, on a normalized basis, the decrease in working cap could have been $22 million, thus validating our cash management initiatives. Since we launched our working capital reduction initiative in Q4 of 2023, we have generated $44 million reduction net of foreign exchange and M&A, which is approximately 90% of our original objectives. Additionally, we reduced GDI long-term debt by $36 million in Q4, primarily from cash flow generation and the business divestiture. This decrease was partially offset by an increase of $19 million from the appreciation of the U.S. dollar relative to the Canadian dollar. On an FX normalized basis, the decrease of debt would have been $55 million. GDI began 2025 on a very optimistic note. All our business segments are performing well, and the outlook for each is positive. We are generating good new client wins in both our business service segments and work backlog is strong and its margin profile has been structurally improved. Our balance sheet is healthy. Leverage is comfortably under 2x, and we are well positioned to continue to execute on our strategic growth plan. Finally, I would like to provide you with our views on the impact of the tariff that are expected to have -- to have on GDI business segment. We have conducted a detailed evaluation of the potential cost increase on equipment and supplies with the intent to mitigate their potential impact. The cost of supply is a small percentage of revenue in both our business segments, and we already worked to mitigate any margin impact on those tariffs that were just announced. GDI Technical Service segment installed and maintenance of equipment that is primarily manufactured in the U.S. and Canada with some raw material imported from China and Mexico. Pricing on certain of this goods may be affected by tariff to some extent. The company expects limited impact as the segment is working with its suppliers and clients to mitigate any negative margin impact, and we expect no short-term effect. We will also remain nimble in supporting our clients that could be affected by these new economic obstacles. Thank you again for your time today. Operator, you can now open the line for questions from analyst.

[Operator Instructions] And your first question comes from Derek Lessard from TD Cowen.

Thanks for taking my questions. I think in your prepared remarks, you talked about Business Services Canada, and I might have missed it, but you said remain vigilance and we'll make adjustments when and if needed. Can you just maybe clarify what you meant by adjustments?

Well, our business is somehow I would say, what can I say, that's not adjustable because you asked me -- about adjusting is we will modulate the business overhead structure according to market obstacle that our clients may have and requires from us. So we can adjust our -- we can adjust the services -- and accordingly, we can adjust also our overall overhead structure to follow. This is what it means. The big point, Derek, is when clients are suffering --we there as -- we want to be a solution, we don't want to be a problem for them. .

In other words, a good partner.

Hopefully. Yes.

Yes. Okay. And maybe just on Business Services U.S. just maybe clarify or talk about how you see that organic growth trending through the year even if it's just directionally, you are lapping sort of a big 10% organic growth in Q1 of last year. So just curious how you see organic growth through the year.

Okay. So you see this is -- last year, if you recall, it was a strong organic growth because we had the last trend of a loss of a large client in the quarter plus a new client kicking in. So it was a double effect. As I said, one of our major new client has a strong project base that fluctuate over quarters. So I don't want to give forward-looking statements. I don't want David to look at me funny. But I can tell you that I'm positive for the rest of the years, because so far, the new client wins are very positive. And this large client already had a big order desk of signed projects. So I'm not optimistic to resume to a more normal growth for Q2 because Q1 still will be a little bit of a challenge. But for the rest of the year, I expect us to win going back to normal. Yes, you know what, we get new clients, but they need to set up and we start as Q2 will occur. That's a normal thing.

Your next question comes from Jonathan Goldman from Scotiabank.

Can you provide some more background on the sale of the Ainsworth Power Construction business? And are you thinking about any more divestitures this year besides the real estate?

Okay. Well, your second question is so far, no, I don't think there's anything. [ APCI ] -- when we acquired Ainsworth, APCI was kind of a very small segment. And it was not exactly core because they do actually public infrastructure and it was the only segment doing it in the company for all the markets. And we had a great business partner in this company, and we sold it to them -- it was somehow a capital-expensive business. So I think it was a great transaction. We know what we sold it within our valuation parameters. Now we have a great partner. We work together into developing more business, and it brings the cash that we put on the debt. So for me, it was a great transaction. For the rest of the year, nothing really to report as we speak.

No, it certainly looks like it. I appreciate the color. And I guess another one on working cap. How are you thinking about working capital investment this year or maybe the cadence of reducing it further.

Well, as you see, when we initiated this project, we were anticipating to do 50 by the end of 2024. We did about 40 something. So I'm satisfied. But again, we are dealing with, I would say, a global economy that is surprising. So our clients, they also have strategies to work on their working cap. So it's a nice exchange. But we're very positive. We continue to put effort into it. I don't know if I can say this, but we also have redesigned our short-term incentive plans toward cash flow management for what all our higher management. So you know what, we're putting the right tools in place to continue to improve on it. But we work in an economy that is full of surprises all the time for the last couple of years.

Definitely a fair comment there. And if I can squeeze one more in our Technical Services, just given all the volatility over the past few years, how are you thinking about a normalized organic growth cadence for that business, both this year and then longer term? .

You know what? I just want to make sure which business segments we are saying?

Technical.

Technical. Okay. I just wanted to make sure. Okay. So technical, I think that I'm very happy to see that the backlog remains strong -- so a strong backlog with -- you know what, and improved margins. For sure, it's really -- you know what, it gives positive pressure on organic growth. I think we can expect the normal growth to say, I don't want to do forward-looking statement, but 5%, 6%, I would be -- I think it would be in this area.

That's for '25 or just more like a long-term type of growth.

Yes, long term. I mean it's year-over-year. But again, I'm not going segment by segment, because segments are some somehow funny, but year-over-year, and I expect 5, 6.

In technical services.

Yes.

And your next question comes from Frederic Tremblay from Desjardin.

Just wanted to dig a bit deeper on this new client and business services U.S.A. given the volatility, I guess, on the project side. I assume this is not an office client, but anything you can tell us about the sector that this client is in or the types of projects that you're taking on there. I'm just trying to better understand the dynamics there because I don't recall ever seen quarter-to-quarter volatility of this magnitude in business services? I'm just trying to gain a better understanding of what's happening there.