GDI Integrated Facility Services Inc.

Good morning, ladies and gentlemen, and welcome to the GDI Integrated Facility Services, Inc. 4th 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 0 for the operator. This call is being recorded on Wednesday, March 5, 2025. I would now like to turn the conference over to Charles-Étienne Girouard. Please go ahead.

Thank you, operator. 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-Étienne Girouard, Executive Vice President, Finance of GDI. I am 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 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 fourth quarter of fiscal 2024, and will 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 current 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 cap 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 segment. 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 USA 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 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 three quarters of 2024. Our technical service 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. This 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. Understood 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 remained very vigilant and ready to make the necessary adjustments if and when needed. Our business service USA 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 lost its largest client at the end of Q1 of 2024 purely for pricing reasons. We decide to part also from business that did not meet our minimum gross margin metrics. In the two quarter following this loss, we successfully replaced the lost revenues with new client wins. However, one such client revenue stream is project-based, and Q4 was a low volume quarter for that client, and we expect that Q1 revenue stream will be as well. Additionally, we continue to shed no 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 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 two 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 initiative. Since we launched our working cap 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 objective. Additionally, we reduced GDI long-term debt by 36 million in Q4, primarily from cash flow generation and a 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. Endward backlog is strong. and its margin profile has been structurally improved. Our balance sheet is healthy, leverage is comfortably under three times, 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 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 work to mitigate any margin impact on those tariffs that were just announced. GDI technical service segment install and maintenance of equipment that is primarily manufactured in the US and Canada. with some raw material imported from China and Mexico. Pricing uncertain of this good may be affected by tariffs 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, operators. You can now open the lines for questions from analysts. Thank you.