GDI Integrated Facility Services Inc.

Good morning, ladies and gentlemen, and welcome to the GDI Integrated Facility Services Inc. First Quarter 2025 Results Conference Call. At this time, all lines are in a 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 has been recorded on Friday, May 9, 2025. I would now like to turn the conference over to Charles Etienne Girouard, Executive Vice President of Finance, please go ahead.

Thank you, operator. Good morning, all. Welcome to GDI's conference call to discuss our results for the first quarter of fiscal 2025. My name is Charles-Etienne Giroir. I am Executive Vice President of Finance at GDI. I am with Phil Bigrat, President and CEO of GDI, and David Inchey, 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 CEDAW last night. I will begin the call with an overview of GDI financial results for the first quarter of TISCAL 2025. and will then invite GLOW to provide its comments on the business. In the first quarter, GDI recorded revenue of $616 million, a decrease of $28 million or 4% over Q1 2024. This is mostly due to an organic decline of 7%, partially upset by an increase from the foreign currency translation of 3%. GDI recorded adjusted EBITDA of $34 million in the quarter, representing an adjusted EBITDA margin of 6%, an increase of 6 million and 2% respectively over Q1 of last year. In the first quarter, GDI reported a net operating working capital reduction of $9 million. GDI has also reduced its long-term debt net of cash by $14 million over before 2024. Before moving to our business segment results, I would like to discuss some housekeeping changes that we made in the first quarter. First, we allocate certain IT costs from our corporate and other segments into our operating segments based on usage. The exercise move cost of about $1 million per quarter into our Business Service Canada segment and about $2 million per quarter in our technical service segment. We feel this more accurately depicts profitability in operating segments. Secondly, we have moved reporting for our IFS business unit from corporate and other to technical services as we feel that this is a more appropriate home for this business. The reclass represents about $25 million in revenue and $1 million in adjusted EBITDA annually. Now, the only operating segment business that resides in corporate and other is our chemical manufacturing business. Q1 fiscal 2024 results have been restated to reflect these changes as will future financial reports. Our Business Service Canada segment recorded revenue of $147 million in the first quarter, while generating $11 million in adjusted EBITDA, up $1 million compared to Q1 2024. The adjusted EBITDA margin of 7% was in line with Q1 of last year following the adjustment of the IT cost allocation. Our Business Service USA segment recorded revenue of $217 million in Q1, a decrease of 4% over Q1 2024. The segment experienced an expected organic decline in Q1 2025 due to the loss of the segment's largest client at the end of Q1 2024, and a reduction of low-margin contracts obtained in the Italian acquisition. The organic decline was partially compensated by an increase from foreign currency translation of 6% and by growth from acquisition of 5%. This segment reported adjusted EBITDA of 15 million, representing an adjusted EBITDA of 7%, an increase of 1 million and 1%, respectively, over Q1 of last year. The technical service segment recorded revenue of $246 million compared to $260 in Q1 last year, many due to organic decline of 5%, attributable to lower service call levels and to the timing of project revenues. The segment generated adjusted EBITDA of $12 million, which is $6 million higher than Q1 last year. That last year was negatively affected by cost overrun on three projects in its U.S. operation. The adjusted EBITDA margin of 5% this quarter increased by 3% over Q1 2024. Finally, our corporate and other segments reported revenues of $6 million compared to $14 million last year, mainly due to the sale of our superior distribution and retail business at the beginning of Q2 2024. I would like to turn the call to Claude, who will provide further comments on GDR performance during the quarter.

Thank you, Charles-Etienne. Good morning and thank you for participating in our conference call to discuss GDI's results for the first quarter of 2025. I was very pleased with the results of GDI's this quarter. Each business segment delivered an increase in adjusted EBITDA over the prior year. On a consolidated basis, GDI delivered a 21% increase in adjusted EBITDA and a 6% adjusted EBITDA margin during Q1. which is typically our slowest quarters due to some seasonal factors. Our Business Service Canada segment recorded its fifth quarter in a row with a 7% adjusted EBITDA margin after adjusting its historic results for the IT cost reallocation. This business has been very stable. In 2025, we have been seeing a higher amount of clients going to market, which has increased our returns to less likely. However, We have also been successful in winning new clients. That being said, we are expecting to deliver our historic GDP level organic growth in this segment, depending on the timing of replacing losses with new ones. Our business service US segment had a solid quarter, returning to its historic adjusted EBITDA margin range, as the work to improve profitability of the Italian contracts has now been completed. As previously announced, organic growth in Q1 was impacted by the loss of GDI's largest client in Q1 2024 at the end of 2023. We have replaced most of the lost business and expect organic growth to progressively return to our historic level by Q4 of this year. Apart to the large client loss and the Italian restructuring, our core business is very healthy and has been growing quite well. Our technical services segment at a non-standing quarter with $246 million in revenue and a 5% EBITDA margin. Q1 is traditionally Zensworth's seasonally weakest quarter. To put this in perspective, adjusted EBITDA in Q1 has ranged between 2% to 4% adjusted for DRT recharge since we acquired Zensworth at the end of 2015. Much of the strong performance has resulted in our initiative to increase margin in Ainsworth's project that began in Q3 2023. The outlook for Ainsworth for the remainder of 2025 remains positive. I'm also pleased to report that GDI has continued to successfully execute on its balance sheet improvement initiative during Q1. We reduced net operating working capital by $9 million, which brings the total reduction to 53 million since we launched our initiative in Q3 of 2023. Additionally, the working capital reduction along solid cash flow from operation enabled us to reduce GDI long-term debt by 14 million over Q4 of 2024. This debt reduction coupled with the strong growth in adjusted EBITDA during Q1 has brought GDI's leverage ratio in the mid-2s, which is well below our comfort zone of 3% to 3.5% that time. In summary, all of GDI business segments performed well during the quarter, and our outlook for each is positive for the remainder of 2025. We have been actively evaluating a number of M&A opportunities, and the pipeline is healthy. Our balance sheet is strong. Our leverage ratio is low, and we are in a good position to continue to execute on our growth strategy. I would also like to share that effective today, Charles Etienne is now officially our new SBP and Chief Financial Officer. I would like to congratulate him, and I'm very, very, very excited to see him working and going forward. Thank you, Claude. I would like to thank you for participating in our conference call for Q1 2025 and would now ask the operator to open the lines for questions.

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Derek Lessard with TD Cowan. Your line is now open.

Yeah, good morning, everybody, and congrats, Charlotte, on the promotion. Good morning, guys. Good morning, Derek. I guess I just maybe only a few questions for me. I just want to hit on the organic growth and technical services. I guess, is it fair to say that the guardrails that you put in place to protect profitability are holding back a little bit on the revenue growth temporarily? And if so, when can we, I guess, expect that organic growth to return?

Well, listen, Derek, I would maybe take it the other side. You know what? The organic growth compared, if you remember, we had a lot of growth the year before in revenue. with some of it has caused us to have some road bumps last year. So I'm seeing it as a very positive. Now we are very clear. We are, you know, as you know, I don't want to repeat myself on other calls, but we have reorganized our structure. We have reorganized our validating team. We have also refocused on margin improvements of the backlog. So all of the above, but coupled with also the organic growth that we had the year before was not the healthier, if you allow me to say this.

Yeah, that's fair, Stéphane. And I guess maybe just as a follow-up to that, could you just maybe comment on your backlog?

Okay, well, listen, it's Claude, by the way.

I'm joking. I'm sorry, Claude. It's been your seventh in two days of reporting.

I understand. I see you guys publishing, so it's very nice. So on the back, you know what? It's very healthy. Margin has improved in the area of 10%, not 10% on the revenue, 10% increment in the percentage. So I'm telling you that, well, We cannot deliver a result if the backlog and margins haven't been improved in the sense that I'm very, very happy. In the U.S., we are still working a little bit on some areas where we have a little bit of weakness. It should be behind us very soon. So I'm very, very comfortable with our backlog.

Awesome. Thanks for that, Claude. And maybe one final one. Charlize, I'm getting your name right, I think. Good progress on the working cap initiatives. Do you see any more work to be done in this area? And I guess you did say leverage did come down below your three to three and a half times comfort level. Just curious where you actually fell in the quarter.

The quarter we did a big portion of the working cap decrease came from a change in other financial assets. where we changed the investment strategy that we have in some place with an intercompany loan that we put in place. We feel that there is maybe more room. Now we are present with the current economics. We know that Q2, we have the bonus that we're going to pay out, but we'll do our best to still maximize our balance sheet.

Okay. And on leverage?

Well, it's still at a lower comfort level. We're still actively looking for potential MNAs. We are looking at various WD on that front.

Okay. Thanks, gentlemen.

Your next question comes from Frédéric. Your line is now open.

Thank you. Good morning.

Good morning, Frédéric.

I want to start with technical services as well. I noticed that one of the points you mentioned was lower service calls. Is that just a matter of timing or is there anything in the market structurally with economic environment that's slowing down a little bit there?

No, it's because it's the winter. Q1 is usually our weakest and break-fix and maintenance is our weakest quarter during the winter. So now, you know what, I don't expect any changes actually. If I'm looking at the last quarters, we have been seeing an increase in break-fix and service costs. So it's just, I don't want to say seasonality because it's not that critical, but for sure the Q1 is always our weakest in that particular area of the business.

Okay, great. That's helpful. Thanks for that. Maybe just switching to the M&A. pipeline or your appetite for M&A. I'm just curious if you're still thinking about, you know, the same types of activities in giant total and technical services or if you're also looking at options in something else that would be adjacent to what you're currently offering.

Okay. First of all is we're always very active in our M&A approach to things. Allow me to comment this way. What we're seeing in the market is there was a lot of activities in M&A, you know, in COVID and early after COVID. Unfortunately, but unfortunately for us to start with is we see those activities with other companies that were doing M&A in our sector. They're experiencing very heavy bumps. as maybe the price, they paid too much for it for the businesses. So we still remained very prudent and we still remain very disciplined in our approach. So that's one thing to start with. Secondly, you know, it's a, we have plenty of opportunity in our, you know, two or two of our two main segments, which is so, you know, business service and technical. At this time, you know, and with the economic, I would say not uncertainty, but with the general condition, I would be prudent in order to explore something new to learn. I think we focus on what we're strong, and we will still develop our density. There is still a lot to do in the U.S. So, no, I don't think we will do anything sexy going forward. You know, I think we focus on what we do well.

Yeah, sounds good. Last question for me, nice margin stability in Business Services Canada. Can you talk about the margin outlook or margin opportunities in the other segments, Business Services USA and Technical Services? Do you see, is there opportunities in one more than the other to improve margins going forward, in your opinion, or are they both kind of trending in the right direction?

Well, actually, Frederic, I had a discussion with my colleagues earlier on. For sure, now we have targets, but the targets are not the end by itself. Those targets are alignments. For sure, my wish, my mid-term outlook for technical, I think we can still achieve more I don't know how to say that in English, but I'm working to surpass our targets. On the business service segment, you agree with me that it has been a roller coaster since 1920. I think to be stable, I think it's already a good thing. But yes, again, as we grow, I don't know if I can say that, but I will say it. You know, we have been focusing heavily on acquiring market sector segments such as data centers and life science and food processing, which are traditionally delivering stronger results. So this is where we are focusing, is increasing the EBITDA through an improvement of the margin. Shrink my way to greatness. I'm not a big, strong believer. There's always improvements to do on our overhead. But I think that pursuing activity sectors and developing our sales track, I think, is the way to go in business service.

Great. That's all I have. Merci, Claude.

Have a good day, Frederic.

Ladies and gentlemen, as a reminder, should you have a question, please press star 1. Your next question comes from Zachary Evershay with National Bank Financial. Your line is now open.

Good morning, everyone. Congrats on the quarter and congrats.

Good morning, Zachary. Thank you.

So looking at that Ainsworth organic decline, it did mention project timing. Do you expect any catch-up in the quarters ahead? And what do you think a good pace of organic growth to expect from Ainsworth in 2025 is?

Listen, you know what? Everything trends for us to go back to our normal growth trend by the end of the year. I'm giving you the conclusion of our analysis, but towards the end of the year, we should resume to our normal growth. After the 2023-24 bump in revenue and technical, the loss of the client in 2024, I think with the sales now, our sales structure being there and our backlog, I think that you can expect the next couple of quarters to resume back to our normal and granny growth globally. and in both our segments.

That's helpful. Thanks. And then looking at the reorganization, broadly speaking, what drove it in general? And do you see any specific synergies between Aimsworth and the integrated facility services?

Okay. Actually, this is one of the reasons we made this change is, you know what, I'm happy to report that we acquired another very large facility North American client in IFS, so that's a very good win in Q1. We realized that there is two parts. The first part is we came to realize or we came to a conclusion that the most appealing service in our IFS segment is the technical service segment. And we also have defined that engineering, energy, it's all services that are actually a good trend in our IFS. So we move it into our technical segment because that's the right place for IFS to be. And secondly, and it goes along also with our ideas, I want to have the most clear, clear, clear, corporate overhead lined up. You know what, I don't want to use pure, but in the sense that I want to have pure corporate overhead in this part, so it's easier to trend. And I don't want, you know, I'm trying to, you know, avoid any noise that could mislead And it's the same thing for IT. You know what? Those guys are not in the business unit, so they need to revolve into their original number, including that expense. This will also increase our profitability. So those changes are done to optimize our operations and clarify our numbers.

That's clear. Thanks. Then the last one for me. Does the reorganization affect your plans for ERP unification in any way?

You know what, Zachary? I missed the first couple of words. What did you say?

Does the reorganization affect your plans for ERP unification?

No, actually it simplifies it. No, no, absolutely not. You know what? No, the ERP program is advancing well. We're doing whatever we have to do. There's already a segment that has been put in place in corporate. And simpler is better.

Thank you very much. I'll turn it over.

Your next question comes from Jonathan Goldman with Scotiabank. Your line is now open.

Hi. Good morning, team, and thanks for taking my questions.

No problem, Jonathan. Good morning.

Well, my thing is just maybe a couple of housekeeping ones to start. What would segment margins have been under the old disclosures for each segment?

What? Okay, just repeat the last part.

So if we were to go to the old disclosures before the reclassification, what would the margins be in each segment in this quarter?

Okay, so I think we have restated for your information 2024 Q1. The impact to adjust it would be about like a million per quarter in Business Service Canada and about 2 million in Technical Service per quarter.

Okay, and the revenue was affected too, right, for each of those?

Yeah, so the revenue was affected between corporate and other and technical services. So annually, the IFS business that was transferred between the two segments, it's about $25 million annually in revenue and about $1 million annually in industrial data.

Okay, perfect. And how much did the one fewer working day contribute to Canada and USA margins improvement year on year?

It's about $3 million per working day.

Sales or EBITDA?

EBITDA.

Okay. And then Claude, could you just clarify the comment you made earlier, the 10% increment improvement in backlog? Was that the technical backlog? And you were talking about, I guess, quarter-on-quarter margin improvement. I just wasn't clear on what you were referring to.

Okay. Well, what I'm saying is when we initiate the initiative, we were at what we call the set margins. And this margin has improved by 10% up to today. So let's say, for example, we had a set margin of 19.5. Now we're around 22% margin. So we have increased our margin. It's the set margin by about 10%. And the good news is all our empirical analytics, excluding the premise apps, is very close to set our results. You know, end result is really in line with our set margin and the backlog. So, for us, it's very encouraging. So, we have improved our margin by 10% overall in our backlog. So, you know, and consequently, we are improving our margin of operation and the execution.

What's the base to refer to this 10%? Is it Q1? Is it 2024? Is it LTM?

You know what, I would say Q1 2024, more or less. It took us two, three quarters to really, because don't forget, backlog and executions are maybe two quarters in advance. So we start improving margin and I would say Q2, Q3, Q4, we saw the improvement as the backlog gets executed and new business comes in. So I would say it's about a year.

Perfect.

And it was a plan that we had a year ago. We said that we would improve our margin.

No, definitely. Maybe one more from me. Do you have an update on the timing of the real estate divestitures?

Well, listen, I can tell you that we have two properties in the market. One is well underway. Can I put it this way? I never know exactly what to say to not be illegal, but yes, one of the properties is well underway. The other property is on the market. We have some actions. But, you know, we don't have anything firm up with the second one. But I expect that within the next couple of quarters, it's done.

Okay, perfect. Thanks for the color.

There are no further questions at this time. I will now turn the call over to Claude Bigrat, President and CEO of GDI, for closing remarks.

Well, thank you very much, operators. Well, in conclusion, and, you know, I think that We discussed heavily on the effort that the team is doing. You know, we're talking about it, but there's a lot of work behind the scenes with the teams. I would like to take this time to say kudos because people are all focused to deliver the strongest result, to, you know, keep the business in the best possible shape as possible. Again, it's a marathon. So what I can tell you is all these efforts are done but also in conjunction with making sure the business is on top of its game, that we're efficient, that we're well staffed to execute. There's no, I would say, no game shows. So we are improving. You know what? It's a work in progress, but we don't do it at the detriment of making the business not as strong or as efficient as it's been. So I would like, again, to congratulate the teams on being very, very focused and prudent. Thank you.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating in FAE. Please disconnect your lines.