GDI Integrated Facility Services Inc.

Good morning, ladies and gentlemen, and welcome to the GDI Integrated Facility Services, Inc. Second Quarter 2024 Result 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 Thursday, August 8, 2024. I would now like to turn the conference over to Stefan Leving. Please go ahead.

Thank you, operator. Good morning, everyone. Good morning, everyone, and welcome to GDI's conference call to discuss our results for the second quarter of fiscal 2024. My name is Stéphane Levigne. I'm Senior Vice President and Chief Financial Officer of GDI. I'm here with Claude Bigrat, 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 forelooking information, and we ask listeners to refer to the full description of the Four Looking Safe Harbor provision that is fully described at the beginning in the MD&E file on CEDR at the end of last night. I will begin the call with an overview of GDI's financial results for the second quarter fiscal 24, and then we'll invite Claude to provide his comments on the business. In the second quarter, GDI recorded revenue of $639 million, an increase of $30 million, or 5% over Q2 of last year, comprised of 6% growth from acquisitions, and partially offset by 1% organic decline coming from the technical service segment. We recorded an adjusted EBITDA of $34 million in the quarter, in line with Q2 of last year, and up $6 million compared to our Q1 of 2024. On a year-to-date basis, revenue increased by $83 million, or 7%, to reach $1.3 billion compared to $1.2 billion last year. The overall revenue growth from acquisition was 6%, and organic growth was 1%. Adjusted EBITDA in the first half amounted to $61 million, and a decrease of 6% or 9% over the corresponding period of 2023, mainly due to the cost overrun incurred on the three projects in the U.S. technical service business that negatively impacted the results in Q1 and Q4 last year, and that we were successfully closed last quarter. Moving to our business segment, Business Service Canada recorded revenue $145 million in the second quarter, while generating $12 million in adjusted EBITDA, representing an adjusted EBITDA margin of 8% up by $1 million compared to Q1 of 2024. Our Business Service USA segment recorded revenue of $221 million in Q2, representing an increase of $41 million when compared to Q2 of last year, mainly due to the Italian and Paramount acquisitions. and 1% organic growth, which was generated despite the loss of a major customer that started affecting the segment toward the end of Q1. The segment reported adjusted EBITDA of $14 million in line with Q2-1 of 2024 and $1 million higher than Q2 of last year. Our technical service segment recorded revenue of $259 million compared to $264 million in Q2 last year, mainly due to the organic decline attributable to the strong project revenue generated last year. The segment generated an adjusted EBITDA of $14 million at 5% of adjusted EBITDA margin, which is $2 million higher than Q2 of last year. Finally, our corporate and other segments reported revenue of $14 million compared to $21 million last year, mainly due to the sale of our super distribution and retail business at the beginning of the quarter, partially offset by the 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.

Well, Monsieur Stéphane, bonjour, good morning, and thank you to everyone for taking the time to participate in our Q2 earning call. I'm pleased with GDI's performance during the second quarter. We successfully worked through the insulation issues that impacted our prior year quarters and delivered solid results across all of our business segments. Our Business Service Canada segment had a good quarter with sequential growth in both EBITDA and EBITDA margin over the first quarter of the year. Notably, EBITDA margin is holding in line with our previous guidance of 100 to 200 basics points above the pre-COVID level. And we expect to sustain this over the near mid-term. Occupancy in the Class A office market has been relatively stable, and we believe this will continue for the foreseeable future. Our business service USA segment had a very good quarter. Our team was able to mitigate most of the loss of business from one of our largest clients that we had previously announced. In addition to replacing lost revenue, we also increased EBITDA over Q2 of last year, through a combination of cost reduction, new business win, and acquisition activity. Our work on improving margin in the Italian business that we acquired at the end of 2023 is progressing well. While margins continue to be slightly impacted by Italian in Q2, we expect margin improvement efforts to be completed in the second half of the year. Additionally, the Paramount Building solution acquisition was closed on May 1st, that has substantially onboarded and has been substantially onboarded, and the business is performing in line with expectations. Both our business service segments in Canada and the U.S. remain relatively well insulated from the credit-related challenge we have been seeing in other parts of the real estate industry. We typically work with large to mid-sized buildings with large, well-established clients. While higher costs of capital can cause some clients to try push on payment terms, they do not materially affect the credit profile of most of our client base. That being said, we are cautious by nature and we regularly monitor credit quality and receivable days as a matter of course. Finally, both Q3 and Q4 of this year will have one extra working date than the comparable quarters in the prior year. As a result, this will have an effect on quarter-over-quarter comparisons, as one working day represents approximately $3.5 million in labor costs and benefits in our business service segment on a combined basis. Extra and fewer working days are irregular periodic events that has positive or negative effect when looking at quarter-over-quarter results. Our technical service segment had also a very good quarter. As expected, the three projects in our U.S. business that impacted Q4 of 2023 and Q1 of 2024 results were closed out in Q1. Results in the business rebound in Q2 with an adjusted EBITDA margin back at 5%, which was in line with the prior year's quarter. I will remind you that Nsworth is a seasonality as a business, with Q1 and Q2 traditionally been weaker due to the ramp-up of HVAC season. The margin improvement strategy that we began implementing in 2023 has been progressing well, and we are continuing to operate with a backlog near record level, and we are still seeing good demands for new bookings. On June 1st, Ensworth closed the acquisition of RICOM Corporations. Based in Toronto, RICOM is considered as a leader in smart building technology in Canada. Essentially, they focus on connecting all of the business building system into a single platform so that the data can be analyzed and used to optimize building operations. This will lead to energy optimization, greenhouse gas reduction, and a vast array of new and innovative service to enhance the experience in building occupants. RICOM further solidifies Ainsworth and GDI leadership in technology for the real estate industry sector. Also shortly after quarter, we announced a partnership with the Canadian Infrastructure Bank, CIB, where the CIB has committed up to $100 million over a five-year period to provide our clients with low-cost funding for energy and carbon reduction projects. Enzworth and its Energia subsidiary will provide complete end-to-end Turkey analysis, design-built retrofit service for projects where each building is expected to reduce greenhouse gas emissions by a minimum of 30% annually. GDI has formed a special purpose vehicle to enable our clients to finance the capital cost of the retrofit, which will include the CIB's investment with the remainder funded through an equity investment by GDI and third parties. The CIB funding of the SPV is non-recourse to GDI, subject to certain standard guarantees, and will have no bearing on our debt level or leverage ratio. This initiative with the CIB helps to demonstrate Hemsworth and GDI's leadership in the energy advisory sector in Canada, and will help our business development activity in the space. Finally, following the sales of our Superior Solution distribution business on April 1st, we have successfully moved the majority of our Canadian manufacturing operation to our plant in Kansas. Our manufacturing business is performing quite well in 2024 and has won a number of important contracts. We plan to sell the two remaining facilities through where Superior operated over the next few quarters and expect A combined growth proceeds in the $25 to $30 million range. I am happy with GDI performance in Q2 this year. Our business service team in Canada has been working hard and delivered well in a dynamically challenging office environment and preserved margin and keep our clients satisfied. Our business service team in the USA successfully managed through the loss of a major client by driving revenue growth, implementing cost reduction initiative to mitigate any negative impact and improve EBITDA margin. And our technical service business has been focusing on improving overall profitability while maintaining revenue level despite exceptionally strong growth last year. With recent challenges behind us, I'm very optimistic for the remainder of 2024. Our balance sheets remain healthy with leverage sitting within our comfort zone. We remain focused on reducing our operating working capital in the second half of 2024, which would be used to further reduce debt. And we continue to execute on our growth through acquisition strategy, having completed three acquisitions in the first half of the year. I look forward to GDI's performance for the remainder of the year. I'd like to thank all of you again for participating in this call, and at this time, I will ask the operator to open the line to research analysts for questions.