GDI Integrated Facility Services Inc.

Good morning, ladies and gentlemen, and welcome to the GDI Integrated Facility Services, Inc. First quarter 2024 results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, May 10, 2024. I would now like to turn the conference over to Mr. Stéphane Neving, Senior VP and Chief Financial Officer. Please go ahead.

Stéphane Neving, Senior VP and Chief Financial Officer. Thank you, Provider. Bon matin à tous. Good morning, all, and welcome to GDI's conference call to discuss our results for the first quarter of fiscal 2024. My name is Stéphane Neving. I'm Senior Vice President and Chief Financial Officer of GDI. I'm with Bill Bigelow, President and CEO of GDI, and David Enchi, Executive Vice President of Corporate Development. Before we begin, I would like to make you aware that this call contains forelooking information, and we ask listeners to refer to the full description of the forelooking safe harbor provision that is fully described at the beginning of our MD&E file on seller last night. We'll begin the call with an overview of GAI's financial results for the first quarter of fiscal 2024, and then we'll let Mike go to provide his comments on the business. In the first quarter, GDI recorded revenue of $644 million, an increase of 53 million or 9% over Q1 of last year, which is due to organic growth of 3% and growth from acquisitions of 6%. We've recorded adjusted EBITDA of $28 million in the quarter, representing an adjusted EBITDA margin of 4%. Moving to our business segment, our business service Canada segment recorded revenue of $145 million in Q1, an increase of 4 million or 3% compared to the first quarter of 2023. This segment reported adjusted EBITDA of 11 million compared to 14 million in the first quarter of 2023, representing a decrease of 3 million. Our Business Service USA segment recorded revenue of 225 million in Q1, representing an increase of 48 million when compared to Q1 of 2023. This increase is mainly due to the revenues from new customers and to the Adelan acquisitions in November 2023. The segment reported adjusted EBITDA of $14 million compared to $12 million in the first quarter of 2023, representing an increase of $2 million. Our technical service segment recorded revenue of $252 million, an adjusted EBITDA of $8 million, representing an adjusted EBITDA margin of 3% due to the past overruns experienced on a few projects in its pre-US operations. Without the cost overrun, the adjusted income margin would have been 5% in the quarter. Finally, our segment profit and order recorded revenue of $22 million compared to $21 million in the first quarter of 2023, attributable to organic growth generated in our U.S. manufacturing operations. I would like now to turn the call to Claude, who will provide further comments on GDI's performance during the quarter.

Thank you, Stephan. Welcome, everyone. And welcome again to our Q1 call, and thank you for your interest in GDI. While I'm relatively satisfied with GDI overall performance in Q1, each of our business segments were weighted down by either seasonal factor or one-time events. Our Business Service Canada segments generated modest organic growth and delivered an EBITDA margin in the highest single digit, despite Q1 being the business's seasonally weakest quarter. We typically have higher costs in January and February in this segment due to the higher service level needed in winter months, which were difficult to see in our results for the past three years because of the disruption caused by COVID. Keep in mind, seasonal effects in our janitorial business are small, but in our world, a single digit world, if the margin shift of 50 base points movement is noticeable. We also have been actively working to improve the performance of our Business Service Canada segment. Mid-last year, we implemented the leadership change in Central and Atlantic business units, and we have been working on improving our operation and go-to-market strategies. This is a multi-quarter initiative that we expect will strengthen our business in Canada and position the segment for long-term success. Our Business Service USA segment As a good quarter, we delivered 27% of revenue growth, 10% of which was organic. And the remainder mostly coming from the Italian acquisition that closed on November 1st. While Italian was somehow a drag on margins during the quarter, we are quite pleased with the result the business has been generating in 2020. Our operations and finance team have been working very closely with their new team mates from Italian to streamline the business. improve margin, and strengthen client relationships. We are advancing our initial integration plan and expect a balanced margin to increase to our target level by mid to end 2024. Finally, the portfolio repositioning of one of our larger clients that we announced in the last quarter took effect in the period at the end of Q1. Our team in the U.S. has worked hard to modify their cost structure, win new business to replace less margin, and we feel it will help mitigate the effect of the business at West Transition. We are also engaged with this client to evaluate opportunities to work together in other regions. Our technical service segment delivered results that were impacted by seasonal factor and one-time events, which were in line with our expectations during the quarter. Q1 is traditionally the weakest quarter for NSWERC as HVAC business volume is very low during the winter months. And instead of laying off our technicians, we keep them on payroll and invest in their development through training programs. Margins in the business typically increase in Q2 and grow progressively through the year. Additionally, as we announced in Q4, There were three projects in our U.S. operation that impacted profitability in Q4 2023 and Q1 of this year. The impact of these projects overall was $5 million in Q1 alone. The last of these projects is the purpose of this past quarter. As work business remains strong and our outlook is quite positive for the remainder of the year, we are still targeting a 6% plus margin in our technical service segments. Subsequent to Q1, we were active in the M&A firm. We successfully closed the sales of our superior solutions and internal distribution business, Aletra First. We structured a transaction that included a mutually beneficial long-term business partnership with the buyer, and one that would enable us to monetize certain own real estate assets that were dedicated to this business. Without consideration included, this sales was an excellent financial success for GDI, and also a strategic win in that we have a strong distribution partner for our Canadian territorial business going forward. Additionally, subsequent to quarter-end, we closed two acquisitions. Hensworth acquired the Atlantic Canada Service Business of Osman Canada, a leading OEM in the global retail display refrigeration market. This acquisition add on a very strong refrigeration service team to Ainsworth's industry-leading platform in Atlantic Canada. Additionally, on May 1st, our business service segment, U.S., segment acquired Paramount Building Solutions with over 500 employees operating through offices in Phoenix, Minneapolis, and Philadelphia. This acquisition represents geographic expansion for our U.S. business and add a seasonal management team led by a well-respected industry veteran. To conclude, while we understand GDR's overall result in Q1, I'm confident that we can do better. The project that waited on end-work results are now closed up, and our outlook for the business for the rest of the year is positive. Our Business Service Canada segment is performing well, and we expect it to deliver a bit of margin at our 100 to 200 basic support over pre-credit level, for the foreseeable future. Our business service U.S. segment is very advanced on the onboarding and optimization of Italian, and we expect to realize margin improvements in the coming quarters. Finally, the working capital reduction initiative that we are implementing since mid-2023 continues to bear fruit. We are able to maintain constant non-working, sorry, constant non-cash working capital despite the 30 million plus reduction in Q4. We are committed to delivering an additional working cut reduction of 30 million through the remainder of 2024. I would like to thank you all again for participating in our conference call this morning and we'll now ask the operator to attend the call for questions.