GDI Integrated Facility Services Inc.

Good morning ladies and gentlemen and welcome to the GDI Integrated Facility Services Inc second quarter 2025 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 has been recorded on Thursday August 7, 2025. I would now like to turn the conference over to Xiao Etienne Giroir, Senior Vice President and Chief Financial Officer. Please go ahead.

Thank you, operator. Good morning, all, and welcome to GDI conference call to discuss our results for the second quarter of fiscal 2025. My name is Etienne Giroir. I am Senior Vice President and Chief Financial Officer of GDI. I am the , President and CEO of GDI, and David and Chief, 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 second quarter of fiscal 2025, and will then invite Claude to provide his comments on the business. In the second quarter, GDI recorded revenue of 610 million, a decrease of 29 million or 5% over 2024. This is mostly due to the organic decline of 4%. GDI recorded adjusted EBITDA 34 billion in the quarter, in line with Q2 2024, which represents an adjusted EBITDA margin of 6%, increasing 1% over Q2 of last year. On a year-to-date basis, Revenue reached $1.23 billion, a decrease of $57 million, or 4% over the same period of 2024. Year-over-year decline was permanently due to an organic decline of 5%. Adjusted EBITDA in the first half of the year amounted to $67 million, an increase of $6 million, or 10% over the corresponding period of 2024. Our Business Service Canada segment. recorded revenue of 147 million in the second quarter, up 1% over Q2 2024, while generating 10 million in adjusted EBITDA, down 1 million compared to Q2 last year. Adjusted EBITDA margin was 7% compared to 8% in Q2 2024. Our business service USA segment recorded revenue of 204 million in Q2, a decrease of 8% over Q2 2024. The segment experienced an expected organic decline of 11% in Q2, which reflects the paring down of low margin accounts from our Italian acquisition, which was carried out through the course of fiscal 2024, as well as the loss in Q1 2025 of the remaining 20% of the large client loss during Q1 of fiscal 24. In addition, revenues are limited by one customer. situated based on the volume of recurring project work, which was lower in the second quarter of 2025 compared to last year. This segment reported adjusted EBITDA of 14 million, representing an adjusted EBITDA margin of 7% and increase of 1% over Q2 last year. The technical service segment recorded revenue of 252 million compared to 264 in Q2 last year. The segment generated adjusted EBITDA of 14 million, which is $2 million higher than Q2 2024, representing an adjusted EBITDA margin of 6% compared to 5% in Q2 2024, the increase being mainly attributable to higher margin in product revenue. Finally, our corporate and other segments reported revenue of 7 million compared to last year, and negative adjusted EBITDA of 4 million compared to 2 million in Q2 2024. I would like to turn the call to Claude who will provide further comments on GDI performance during the quarter.

Thank you, Charles-Etienne. Merci, and thanks to everyone participating in our GDI Q2 25 earning call. I'm relatively pleased with GDI's overall performance in Q2 this year. Our Business Service Canada segment delivered results that were in line with historic performance. However, we began to experience some softness in the business during the quarter. We had a higher than normal degree of churn in our client base, which we believe is due to higher than historic vacancy rate coupled with economic uncertainty from the threat of tariffs. This has caused some of our clients to either bring contract to market or otherwise pressure margins. And in response to this, we have taken strategic action to reduce our cost structure across the business. We also have invested in new sales resources in both Canada and the USA. enhance both client retention and stimulate organic growth we expect continued softness in the business over the next few quarters as the initiatives we have implemented takes hold and will continue to focus on winning business with a margin profile that is sustainable for the long term and the good health of the business our business service us segment had a good quarter as we have previously managed message Organic growth was hampered by the paring down of low margin contracts and some from the Italian acquisition, and that must carry out to 2024. Additionally, as expected, in Q1 2025, we have terminated the remaining 20% of the business from the large client that existed in Q1 2024. Despite this decline in revenue, the business delivered the same level of adjusted EBITDA on a quarter-over-quarter basis, with an increase in EBITDA margin from 6% to 7%, which is the important part of the equation. Our business service USA segment has secured a number of new contract wins that we are expecting to start up in Q3, and we'll continue to expect a return to historic organic growth level towards the end of 2025. In mid-2024, we have implemented and adjusted our sales strategy with a greater focus on higher growth and higher margin and markets and invested in resources in both sales and operations to target these markets. The strategy to grow our business service segment in these stickier markets where cleaning is more technical give us the ability to develop long-term partnership with our clients, And to date, these initiatives have been successful, and we have been realizing new contract wins. GDI technical segment had a very strong quarter, generating $14 million in adjusted EBITDA and a margin of 6%. In what is typically the segment's second weakest quarter. Notably, we delivered this result in a quarter where revenue were under pressure, a slow start to summer, caused lowered and anticipated HVAC service revenue, and due to the economic uncertainty, certain clients delayed the start-up of project work. The outlook for this business remains quite positive, and we are seeing very high temperature across Canada and the U.S. Northwest, which is helping our HVAC service business. Additionally, our project backlog is close to record high, and backlog margin is 100% to 200% Base points higher than historic. Nsworth is currently firing on all cylinders. During Q2, our operation and finance team continued to focus on GDI balance sheet. Working capital was stable in Q2 compared to Q1 2025, and we generated a slight decrease in long-term debt. The structural initiatives that we put in place at the end of 23 and early 24 are bearing fruit, and our team's remaining is remaining focused on cash efficiency. Our balance sheet is strong. Our leverage ratio sits comfortable under three times the data, and we're well positioned to execute on our growth strategy. So that concludes our formal portion of the earning call. Operator, please open the line to analyst 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 touchtone 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 Cheryl Zhang with TD Catwin. Your line is now open.

Good morning, everyone. This is Cheryl calling . Good morning. Good morning. Good morning. So my first question is with regards to Business Service Canada. In the press release, you commented on the softness of that business with higher level of contract churn and margin pressure. Just curious if you can provide more color around what you're seeing in demand and what you're hearing from your customers.

Thank you, Cheryl. What we're looking at the market is there is – and what we're seeing with our customer base is there is definitively a cost, I would say an aggressive cost management approach to business. So we are navigating through that. Our focus remain on customer retention. And, you know, and again, I've been saying it for years, is our focus is always on keeping the margin and having sustainable margin. So, yes, it's a little bit costly on the term. But we are investing instead of cutting margins to a point where it's not sustainable to do business. We are focusing on sales growth and investing in that. But yes, you know, there is a general sense in the business of, you know, savings. And we don't want to get entangled into, you know, a downward spiral of profitability.

Got it. That's very helpful. And maybe one more before I recue. So on Business Services USA, you noted that you have secured several new contract winners to offset the loss of that remaining business of a major client. Just curious, what is the nature of these new contracts? Like what type of industry or what type of work?

Okay. Well, first I would like to say that As you know, about a year and a half ago, two years ago, we started rebuilding a strong sales team. I should not maybe say that, but I'm very happy that we started that some time ago because we would be in a difficult, it would be more difficult or more challenging for us. The team is really delivering, especially in the U.S., and now we're implementing the sales strategy in Canada. So this has been delivering good results. We operate mainly in our traditional sectors, industrial, but like I was saying, the good news is we have invested on operating and business development talent and some very, I would say, higher margin and more technical sector of cleaning. It's a big undertaking, but we have seen very good wind this year so far. So we continue to focus on that. So the idea is You have to sell to cope for what we have lost, keep the margin, and attack and get more business in higher-end markets where the margins are more sustainable. It's a very simple strategy, but it would be proven to be efficient in times where we're doing it.

Got it. That's very helpful. Thanks so much, Albert and Hugh.

Thank you.

Ladies and gentlemen, as a reminder, should you have a question, please press star 1. Your next question comes from Frederic Tremblay with Desjardins. Your line is now open.

Good morning.

Good morning, Frederic.

Just coming back to Canada, you know, in the U.S., we've seen the I walk away from some low margin contracts at Italian, for example. Just trying to gauge the, I guess, your view on Canada. as it relates to the margin pressure, are you willing to also walk away from some agreements and sacrifice a bit of the growth near-term to make sure that you sustain those margins that we've seen in past quarters there?

Well, Frederic, this is, you know what, I would say it like this. This disciplined approach sometimes is costly on ego. But again, you know, this is exactly what we do is we are not, we are really, really working hard with customers. But there's a point where we cannot just reduce it to a point where it will attack either our quality and reputation or the margin. So, yes, it's a costly decision to do on the top line. But on the bottom line, if you look, you know what, the loss of margin is not comparable to the decline in organic growth because we are keeping this disciplined approach to pricing. And that's the only ticket long term. Short-term, you know what, I get beaten up a little bit, but long-term, I think it's the right thing to do.

Yeah, that's really helpful comments. Thanks for that. Maybe switching to Business Services USA. I think last quarter you sort of mentioned that you expected organic growth there to come back to more normalized levels around the late 2025. You know, we're seeing minus 11% organic decline in Q2. is your expectation still to be more at normalized levels towards the end of this year, or has that changed?

Well, the answer, Frédéric, is twofold. There is a mathematical answer. We lost this huge client last year, and you know what? We heard that they would be coming back to the market sooner than later, so that's not a bad thing, but we lost this huge client. So mathematically, as the quarter passes and we keep these numbers and organic growth, you know what, it will do an upswing. And secondly, our very strong sales approach will also pop up these numbers. So this is why we say by the end of 2025, it should all adjust it and back into a normal organic growth. But a little bit of it is mathematical through the client movements for sure.

Yeah, understood. Okay. And then just lastly for me on potential M&A, just wanted maybe to get a few comments on what you're seeing in terms of the flow and I guess number of opportunities. Has that changed lately one way or the other? And similarly, like multiples that sellers are expecting, like are you seeing a good pipeline of transactions that you could potentially complete at similar multiples than what we've seen you do in the past?

Okay. Okay. So, Frédéric, let me do a comment. Again, David will look at me with big eyes, but listen. You know, lately, what we have been seeing is, you know, we've been looking at some businesses that were very aggressive over the last three, four years on acquisitions. And if you remember, I was saying that we have to keep discipline. I can tell you that I'm very happy we kept discipline. So, you know what, you cannot buy everything at any price and be happy and have no debt and, you know, generating cash. So I'm very happy we kept our disciplined approach to that. Secondly, yes, there is a pipeline. We're working hard on it. Again, disciplined approach is the key element. The merge, you know what, the multiple that we were seeing during COVID, a little bit pre-COVID where there was a lot of, I would not say private equity back. I did not say it. Businesses that were actually, I would say, driving the multiple up, I think that it's more quiet on that front. So I think we're reverting back to a more reasonable multiple. And hopefully, I will work with Bear Fruit sooner than later.

Okay, that's helpful. Merci, Claude.

Okay, good.

Your next question comes from Zachary Evershaw with National Bank Financial. Your line is now open.

Good morning, Zachary.

Could you go into more detail on the specific types of contracts that are experiencing the highest churn? Any particular customer type or region?

You know, I would say that it's You know, I don't have my latest report on business segments, but I would say it's more in the traditional B&I businesses, more or less. This is where we experience the largest churn, commercial real estate. So this is where we have to, and these, I would say that these sectors are compressible on service short term. So I think that these clients, as soon as the market, I think, will get to the better place and they realize that there is a cost of reducing their services, will come back to the market. This is what we have seen. And every time, I've been in this for 40 years almost. I've seen it all the time. There is a big contraction in margin pressure. Customer, you know, they do manage differently, and they come back to a more normal sector, and we're happy campers. So, yes, B&I has been primarily the sector.

Gotcha. Thanks. And has that affected your outlook for the sector in the context of hybrid work and downtown office occupancy trends?

But for sure, you know what, we see that there is a reoccupancy that is gradually getting in place. You know, I cannot tell you exactly, you know, I don't have a forecast of occupancy in the next one, two, three quarters, but I do feel like over the next two, three, four quarters, we'll see occupancy to gradually also increase. But this was to be expected at some point.

Gotcha, thanks. And then just one last one for me. Could you give us a refresher on the types of strategic initiatives you're implementing to address that margin pressure and contract churn?

Okay, well, I would say that we are working, well, Zachary, the only, in our book, the only right strategy in those times is to keep focused and focus on sales and business development. You know what? We are focusing on higher margin sectors where we feel it's more sticky, but it is an investment. We invested a couple of millions in resources and technical and expertise and systems, but it's the right thing to do. Secondly, we continue to invest and grow our sales force across both markets because, again, the remedy to churn is not to cut margin. It's to be more aggressive in developing customers. So, this is the two main things we're doing on our strategy. Thirdly, for sure, we have to adjust, and we adjust our operating expenses, but without sacrificing, you know, the sustainability of the company, and, you know, but we are coping with the market volatility. But again, you know what? Shrinking your way to greatness is not the best approach all the time, but we're adjusting to market volatility. So, This is mainly the strategy we're doing to cope with the churn and the market pressure.

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

There are no further questions at this time. I will now turn the call. One moment, please. There's another question from Cheryl Zhang with TD Cowan. Your line is now open.

Hi, thank you. Just a couple follow-ups. One, So is there any update on the timing of the Sandy Solutions building sale?

Okay. Oh, yeah. You know, the Sandy Solutions building, we expect to close probably by the end of September. The building is, as you know, is still under contract. Most of the – I'm sorry to say that my English is bad. I'm going to need help. Conditions? Okay, thank you. Most of the conditions are waived. So we're just expecting to close at the end of, between now and the end of September.

Got it. Thank you. And are there any changes to your expectations for working capital and CapEx for the year?

Okay. You know what, Cheryl? Can I just go back to the first question? You asked me the Sandy Solution building. For me, it's the Quebec building. This is the one you were referring to?

Yes.

Thank you. Can you repeat the question, your second question, please?

Yes. So I was just curious if, like, what your expectations are for working capital and CapEx for the rest of the year.

CapEx, we're very savvy on CapEx, for sure. In those market conditions, we, you know, again, it's cash is king. So we're very savvy. We spend money where we have new projects, new contracts. and where we need to replace some equipment. But we are not overspending. We're keeping our IT transformation program because it's very important. And on cash management, we continue to be very adamant on managing cash. People, it's all hands on bridge on managing the cash, managing our customer DSOs. And so, yeah, this is a first priority all the time. As you see, you know what, we're not depleting cash. We're paying the debt a little bit, and we expect between now and the end of the year, it's going to continue to improve, improve, yeah.

Okay, got it. Great to hear. And just one final one for me. So how is the project volume trending in technical services, and what is the backlog in that business?

Okay, well, you know what – For sure, it's normal. We focus always on, you know, the child that shows a little bit of volatility, but on the technical side, you know what? I think a lot of things have happened over the last year. As you see, even though we had a slower start of the season, even though our revenues were a little bit down, you saw the margin increase, and we're very optimistic between now and the end of the year. So the work we have done there is really breaking, you know, bearing fruit. And the backlog is still very high, almost like our record high. And the SEP margin is about 150 to 200 bps higher. So it's all very good signs. So, yes, the technical business, we're optimistic on it. If we are on the business side, the business service side, we have it a little bit of a piece because of the market volatility. On the technical side, we are doing good. So, you know, I think we'll take anything we can take.

Okay, that is awesome. Sorry, just one final one from me. So in the Business Services USA, you highlighted one of the new customer contractors' volume kind of ebbs and flows between quarters and had low volumes, I think, from Q4 through Q2. I was curious where you see volume trending in the second half of 2025.

You know, it's, again, I think everybody knows what's happening lately in the global geopolitics and everything. So this, I have no control over it. But, again, I can tell you this is, With what we're doing in the U.S., the effort of the sales teams, the wins that we have, the startup we have in Q3, notwithstanding that the clients are still very adamant on savings, I think that by the end of the year, we're going to be back to a normal cruising speed on the business U.S. But again, yes, the top line, but the bottom line, I think it's still pretty acceptable. And again, this is always the focus I'm saying to the team is, You know what, we need to make sure that the business we do is profitable. This is always the key element.

Got it. Thanks so much for answering all my questions.

No problem. My pleasure.

There are no further questions at this time. I will now turn the call over to Claude for closing remarks.

Well, thank you very much, Operator. Thank you, everyone, for participating in our call. As we said, you know, we're spending time and working on the, you know, and improving the business service segment, working on sales growth. And, you know, as we are navigating in some volatility, I do believe that we're doing the right things. And people are focused on the business. And, again, our strategy is based on business sales and business growth. It's on adjusting the business, and it's keeping the margin and optimizing our technical business. This is a simple strategy, but that's a strategy that people understand, and it's a strategy that will make us go through, you know, those times and win, you know. So this is our focus. So thank you again, and I want to thank the team for all the efforts we're doing, and we'll look for the continuity in the next quarters. Thank you very much.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.