GDI Integrated Facility Services Inc.

Good morning, ladies and gentlemen, and welcome to the GDI Integrated Facility Services Inc. Third 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 Wednesday, November 13, 2024. I would now like to turn the conference over to Mr. Charles-Étienne Giroir, Senior Vice President and Head of Finance. Please go ahead.

Thank you, Operator. Bon matin à tous. Good morning, all. And welcome to GDI's conference call to discuss our results for the third quarter of Fiscal 2024. My name is Charles-Étienne Giroir. I am Senior Vice President of Finance Operations and Digital Transformation of GDI. I am with Claude Bigrap, President and CEO of GDI, and David Inchie, 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 CEDAR last night. I will begin the call with an overview of GDI financial results. for the third quarter of fiscal 2024, and will then invite Claude to provide his comment on the business. In the third quarter, GDI recorded revenue of $640 million, an increase of $25 million, or 4% over Q3 of last year, comprised of 5% growth from acquisition, 1% growth from the appreciation of the U.S. dollar relative to the Canadian dollar, partially offset by a 2% organic decline. We recorded adjusted EBITDA of 39 million in the quarter, in line with Q3 of last year, and up 5 million compared to Q2 2024. On a year-to-date basis, revenue increased by 108 million, or 6%, all coming from acquisition, to reach 1.9 billion compared to 1.8 billion last year. Adjusted EBITDA year-to-date amounted to 100 million, a decrease of 6 million or 6% over the corresponding period of 2023, mainly due to the cost overruns incurred in the three projects in our U.S. technical service business at the beginning of the year and higher adjusted EBITDA in our Business Service Canada segment in 2023 due to efficiencies coming from COVID-related lower office occupancy rates. Moving to our business segments, Business Service Canada recorded revenue of $145 million in the third quarter, while generating $12 million of adjusted EBITDA for an adjusted EBITDA margin of 8%, which was in line with Q2 2024 and was about 2% lower than Q3 last year. Our Business Service USA segment recorded revenue of $222 million in Q3, representing an increase of $37 compared to Q3 mainly to the Italian and Paramount acquisitions, and 1% organic decline, despite the loss of a major customer in Q1 2024. This segment reported adjusted EBITDA of $14 million, in line with Q2 2024 and Q3 last year. Our technical service segment recorded revenue of $264 million, compared to $269 million in Q3 last year. The organic decline is explained by a decrease in lower margin project revenues this quarter versus the same quarter of last year. This segment, which has generated an adjusted EBITDA of $20 million, representing an adjusted EBITDA margin of 8%, which is $4 million higher than Q3 last year. The third quarter is typically the technical service segment's seasonally strongest quarter. Finally, for corporate and other segments, reported revenue of $9 million compared to $15 million last year, mainly due to the sale of our superior distribution and retail business at the beginning of Q2, which was personally upset by the growth generated by our U.S. chemical manufacturing business. I would like to turn the call to Claude, who will provide further comments on GDI performance during the quarter.

Well, thank you, Charles. It's him. And thanks to all of you who are participating in GDI's third quarter's conference call. I'd like to start by publicly welcoming Charles-Étienne as lead of the finance teams, GDI's finance team. He officially took over from Stéphane Leving on October 1st and is now in charge of finance for GDI. Stéphane is still with GDI in a consulting capacity to support Charles-Étienne in his transition, and he's among us this morning. Thank you, Stéphane. I'm quite pleased with GDI's results in the third quarter. Our Canadian business segments delivered an adjusted EBITDA margin of 8%, which was in line with both Q1 and Q2 of this year. Our Canadian business is seeing a relatively stable level of occupancy in the Class A markets, which is evidenced by a very strong, a very consistent margin profile for the business in 2024. Organic growth in the business was down slightly in Q3, however, This is the result of timing differences between contract wins and losses. And we have the numbers of new contract wins that will start up in Q4 and Q1 of next year. That should help to support our organic growth numbers and targets. Our U.S. business service segment delivered slightly negative organic growth as well, which was driven by the repositioning of the business largest clients, the bulk of which occurred at the end of Q1 this year. We still be experiencing that wins in quarters over quarter organic growth comparisons from this event for the next two quarters. But however, I'm very encouraged that our teams was able to replace almost all the revenue with new business wins in a relatively short period of time. Also during the quarter, we continue to work on margin improvements initiatives at our Italian acquisitions. While it's taking a bit longer than we initially planned, we expect to complete the process by Q1 of next year. When comparing Q3 of 2024 to the Q3 of last year, our U.S. and Canada business service segments were burdened with an additional $3 million of costs on a combined basis because there was an extra workday in this year's quarter. I'm very encouraged that both businesses were able to deliver strong results when compared to the prior year's quarter despite this hurdle. Our technical service segment delivered a very strong quarter with an adjusted EBITDA margin of 8%, the highest recorded in the business since the acquisition of AntsWork in 2015. These results clearly demonstrate that the weakness, the business experience in Q4 of last year and Q1 of this year was driven by one-time factors and now the big business began rebouncing in the second quarter. The margin improvements initiative that we began implementing in Q3 last year have begun to take hold. The backlog remained near record level, and we have increased the average margin within the backlog by roughly 100 to 200 basis point targets. Additionally, we successfully grow service revenue at Ainsworth during the quarter, which are both higher margins and recurring in nature. Recall that this segment is seasonal and Q3 is traditionally the strongest quarter. All business units have been performing well, and we expect this segment to continue to deliver robust results going forward. We are happy to report that we also had success with our initiative to more efficiently manage GDI balance sheets during the third quarter. We delivered a reduction of $25 million in operating working capital compared to Q2 of 2024. Together, with strong free cash flow generation, we were able to reduce GDI's net debt by $41 million. Our debt level is also benefit from the intended sales of the two facilities that were used by our superior solution business, which we expect will generate gross proceeds in the $25 to $30 million range. To conclude, I think that GDI performed very well this quarter. Our business service segment is delivering solid and consistent results. Business Service USA was able to maintain revenue level in the face of this very large client repositioning, and it is focusing on improving margin in the Italian business. Technical service has the strongest quarter in history, and the outlook for the business is robust. Our balance sheets improvement initiatives are gaining traction. We are reducing our debt and expect this to continue in Q4 and Q1 of next year. Our leverage ratios remains well within our comfort zone, and we are well positioned to continue to execute on our growth strategies. Well, that concludes our prepared remarks. Please, operator, feel free to open the calls to analysts for questions.