GDI Integrated Facility Services Inc.

Good morning, ladies and gentlemen, and welcome to the GDI Integrated Facility Services 4th Quarter 2023 Results Conference Call. At this time, all phone lines are in a listen-only mode. But following the presentation, we will have a question-and-answer session. And if at any time during this call you require immediate assistance, please press star 0 for the operator. Also note that the call is being recorded today, Thursday, February 29, 2024. And I would like to turn the conference over to Stéphane Levigne, Senior VP and Chief Financial Officer. Please go ahead.

Thank you. Good morning to all, and welcome to GDI's conference call to discuss our results for the fourth quarter of fiscal 2023. My name is Stéphane Alling. I'm Senior Vice President and Chief Financial Officer of GDI. I'm with Claude Bigras, President and CEO of GDI, and David Inchi, 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 our MD&E file on CELR last night. I will begin the call with an overview of GDI's financial results for the fourth quarter of fiscal 2023, and then I will invite Lone to provide his comments on the business. In the fourth quarter, GDI recorded revenue of $622 million, an increase of $34 million, or 6%, over Q4 of last year, which is due to organic growth of 2% and 4% growth from acquisition. We recorded adjusted EBITDA of $37 million in the quarter, representing an adjusted EBITDA margin of 6%. In the fourth quarter, GDI delivered a net working capital reduction of $36 million, resulting in long-term debt repayment of $33 million before business acquisition payment. On a year-to-date basis, revenue increased by $265 million, or 12%, to reach $2.4 billion, compared to $2.2 billion last year. Organic growth was 8% year-over-year, and revenue growth from acquisition was 2%. Adjusted EBITDA in 2023 amounted to $143 million, representing an adjusted EBITDA margin of 6%. Moving to our business segment, our Business Service Canada segment recorded revenue of $146 million in Q4, an increase of $2 million, or 1%, compared to the fourth quarter of 2022. This segment reported a adjusted bid of $13 million compared to $16 million in the fourth quarter of 2022, representing an expected decrease of $3 million. Our Business Service USA segment recorded revenue of $215 million in Q4, representing an increase of $39 million when compared to Q4 of 2022, which is attributable to increases in revenue with new customers and the Athalan acquisition in November 2023. This segment reported adjusted bidder of $16 million compared to $14 million in the fourth quarter of 2022, representing an increase of $2 million. Our technical service segment recorded revenue of $239 million an adjusted EBITDA of $14 million, representing an adjusted EBITDA margin of 6%. The segment experienced an organic growth revenue decline of 5%, which is attributable to lower project revenues. Finally, our segment, corporate and auto, reported revenue of $22 million, compared to $18 million in Q4 of 2022, with the difference attributable to organic growth generated by GDI's Integrative Facility Services business, GDI IFS, launched at the beginning of 2022. I would like now to turn the call to Claude, who will provide further comments on GDS performance during the quarter.

Well, thank you, Stéphane, and welcome, everyone, to our fourth quarter conference call. Bienvenue à tous. Merci d'être présents. Overall, I'm pleased with our results in the fourth quarter. Our business service Canada segment was able to deliver modest organic growth while maintaining a 9% adjusted EBITDA margin, despite the challenges we are reading about in the commercial real estate sector. As you know, this segment's principal exposure in commercial real estate is in Class A office towers, which makes up approximately one-third of our Canadian portfolio. Despite all of the negative headlines about commercial real estate, we believe that Class A buildings will not disappear, that facility services will still be required, and that vacancy caused by tenant moving or reducing space requirements will be filled with new tenant demands. Our business service USA segment also had a good quarter, with 10% organic growth and an adjusted growth of 14% over the prior year. During Q4, we completed the acquisition of the U.S. Facility Service business of Italian Global Services, which added approximately 2,000 employees to our team and considerably strengthens our footprint in the Northeast U.S. Acquisition is a turnaround opportunity where we paid the reduced price for a business of this size and have been implementing a business reorganization plan since the closing date to bring margins to our target levels. We have been making good progress in this regard and are on track with our plans. Finally, at the beginning of Q1, we were informed that by one of our large customers, that they will be undergoing a supplier realignment in Q1, which will negatively affect our segment organic growth rate during 2024. Due to our flexible cost structure, we have right-sized our costs, and when paired with our new business wins, we will be able to mitigate almost completely the net impact of this loss. Our ends work technical service segment faced some challenge in Q4, with underperformance on a few large projects in the U.S., that caused the business to deliver results that were below expectations, which we feel may also carry over a bit in Q1 2024 to complete those projects. Hemsworth EBITDA performance was explained by these few large projects. Our Canadian business and the remainder of the U.S. business performed well during the quarter. In 2024, Hemsworth project business grew rapidly, causing a working capital surge and a degradation in some project margins, which we supported with free cash flow. At the end of Q2, we started implementing certain strategies to both reduce working cap requirements and increase overall margins in projects. I am happy to report that these efforts are starting to bear fruit as we were able to reduce working capital by $36 billion since the end of Q3 2023, which helped to increase free cash flow. We're not there yet, but the work is actively, we are working actively towards it. We also have begun to move away from very large projects in some markets and focus on projects globally with a higher margin profile, which, while resulting in short-term revenue pressure, this will ultimately result in a more stable business with a more consistent margin profile. Of that being said, despite the challenging quarter, Hensworth was still able to deliver 14 million of EBITDA, an adjusted margin of 6%, even considering somehow those non-recurring project issues. Also during the first quarter, we announced the sales of our superior solution janitorial product distribution segment, which is expected to close at the end of Q1. We entered this business in 2013, and we're able to grow it into one of the larger genitorial products distribution business in Central and Eastern Canada. Ultimately, we decide to focus on our two main business segments and partnering with the large well-established business in this sphere would be more beneficial to GDI stakeholder and enable us to redeploy the capital in our core businesses where we are achieving attractive returns. Financially, we were able to transact at a very favorable multiple, as in addition to the purchase price, we expect to monetize certain old real estate assets that directly support this business. Additionally, we are retaining our chemical manufacturing business that has recently been realizing positive momentum in its white label manufacturing segment. I'd like to conclude on this by saying how proud I am on the team at Superior. who essentially rebuilt this business from scratch in 2014, turning Superior into a strong business, servicing clients both side and outside, inside and outside of the GDI family. And they were a dependable go-to supplier for all of their clients at the height of the COVID-19 pandemics when many of their competitors were short in supply. I would like to thank all of the team at Superior and feel that they will be transitioning into a good home at Imperial Dade Canada, who will become a strong partner for GDI going forward. Overall, I am happy with how GDI business segments performed in Q4 last year. We faced some challenge, but as always, when that happens, our team shows resilience, develop plans and implement strategies to mitigate, arm, overcome obstacles, and ultimately deliver growth and profitability. Our flexible cost structure enables our business to be resilient. Looking forward to 2024, I feel we are well positioned to deliver growth. Competitively, we are the largest facility service provider in Canada and amongst the largest in North America. Our reputation is excellent and our culture is entrepreneurial and dynamic. Financially, our free cash flow profile is improving due to the working capital management strategy we are implementing. Our leverage ratio are well within our comfort range. Our balance sheet has plenty of room to support our growth through acquisition strategy, and our pipeline is healthy. I look forward to the opportunity to deliver growth and profitability in 2024. Now, operator, please open the call for questions.