GDI Integrated Facility Services Inc.

Thank you, Operator. Bon matin à tous.

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-Etienne Girouard, Executive Vice President, Finance of GDI.

I am with Claude Bigras, President and CEO of GDI; and David Hinchey, 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 SEDAR last night. I will begin the call with an overview of GDI's 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 currency 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 and 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 segments, Business Service Canada recorded 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's 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 project 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 & 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. Adjusted 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 call.

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 quarters 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 decided to part also from business that did not meet our minimum gross margin metrics.

In the two quarters following this loss, we successfully replaced the last 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 comparison 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 I used Q4 EBITDA margin today, 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 and the word 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 installed and maintenance of equipment that is primarily manufactured in the U.S. and Canada with some raw material important from China and Mexico.

Pricing uncertain of this good may be affected by tariff 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 line for questions from analysts. Thank you.

Yes, good morning, everybody, and thanks for taking my questions.

Good morning, Lessard.

Good morning, Claude. I think in your prepared remarks, you talked about Business Services Canada, and I might have missed it, but you said, remain vigilant and we'll make adjustments when and if needed.

Can you just maybe clarify what you meant by adjustments?

Well, where business is somehow, I would say -- how can I say this, not adjustable, because you asked about adjusting, is we will modulate the business overhead structure according to market obstacle that our clients may have and requires from us. So, we can adjust the services, and accordingly we can adjust also our overall overhead structure to follow.

This is what it means.

Oh, okay. Okay, I got it.

Thank you. Thank you for the clarification.

The big point, Derek, is when clients are suffering, we're there as a -- we want to be a solution. We don't want to be a problem for them.

In other words, a good partner.

Hopefully, yes.

Yes, okay. Thanks for that, Claude.

And maybe just on Business Services U.S., just maybe clarify or talk about how you see that organic growth trending through the year, even if it's just directionally. You are lapping sort of a big 10% organic growth in Q1 of last year.

So, just curious how you see organic growth through the year?

Okay. So, you see, this is -- last year, if you recall, it was a strong organic growth because we had the last trail of a loss of a large client in the quarter, plus a new client kicking in.

So, it was a double effect. As I said, one of our major new clients has a strong project base that fluctuates over quarters.

So, I don't want to give a forward-looking statement. I don't want David to look at me funny, but I can tell you that I'm positive for the rest of the years because so far, the new client wins are very positive.

And this large client already have a big order desk of signed projects. So, I'm optimistic to resume to more normal growth after Q2 because Q1 still will be a little bit of a challenge.

But for the rest of the year, I expect us to be going back to normal.

Okay. Thanks for that, Claude.

I'll reach you.

Yes. You know what, we get new clients, but they need to set up and restart as the Q2 will occur.

That's a normal thing.

Got it. Thank you.

Good morning.

Hi, good morning. Thanks for taking my questions.

Good morning, Claude. Can you provide some more background on the sale of the Ainsworth Power Construction business?

And are you thinking about any more divestitures this year besides the real estate?

Okay. Well, your second question is so far, no.

I don't think there's anything. APCI when we acquired Ainsworth, APCI was a kind of a very small segment.

And it was not exactly core because they do actually public infrastructure. And it was the only segment doing it in the company for all the market.

And we had a great business proposal from a partner in this company, and we sold it to them. It was somehow a capital extensive business.

So, I think it was a great transaction. We, you know, what, we sold it within our valuation parameters.

Now we have a great partner. We work together into developing more business.

And it brings the cash that we put on the debt. So, for me, it was a great transaction.

For the rest of the year, nothing really to report as we speak.

No, it certainly looks like it. I appreciate the color.

And I guess another one on working cap, how are you thinking about working cap investment this year or maybe the cadence of reducing it further?

Well, as you see, when we initiated this project, we were anticipating to do 50 by the end of 2024. We did about 40 something.

So, I'm satisfied. But again, we are dealing with, I would say, a global economy that is surprising.

So, our clients, they also have strategies to work on their working cap. So, it's a nice exchange, but we're very positive.

We continue to put effort into it. I don't know if I can say this, but we also have redesigned our short-term incentive plans toward cashflow management for what, all our IR management.

So, we're putting the right tools in place to continue to improve on it. But we work in an economy that is full of surprises all the time for the last couple of years.

Definitely a fair comment there. And if I can squeeze one more in on technical services, just given all the volatility over the past few years, how are you thinking about a normalized organic growth cadence for that business, both this year and then longer term?

Can you, just want to make sure what business segments you were saying? Technical, okay, I just wanted to make sure.

Okay, so technical, I think that I'm very happy to see that the backlog remains strong. So, a strong backlog with improved margins, for sure it really gives a positive pressure on organic growth.

I think we can expect a normal growth to say I don't want to do forward-looking statement, but 5%, 6%, I would be -- I think it would be in this area.

That's for '25 or just more like a long-term type of growth?

Long-term, I mean, it's year-over-year. But again, I'm not going segment by segment because segments are sometimes funny, but year-over-year, I expect 5%, 6%.

In technical services?

Yes.

Okay, perfect. Thanks for the color, Claude.

I'll get back in queue.

No problem, sir.

Good morning, Mr. Frederick.

Good morning, Claude. Just wanted to dig a bit deeper on this new client and Business Services USA, given the volatility, I guess, on the project side.

I assume this is not an office client, but anything you can tell us about the sector that this client is in or the types of projects that you're taking on there? I'm just trying to better understand the dynamics there because I don't recall ever seeing quarter-to-quarter volatility of this magnitude in business services.

So, I'm just trying to gain a better understanding of what's happening there.

Yes, no, no, fair question, Frederick. Listen, me too, actually.

But we start with the last pricing scenario from their largest client. So, that really gives us a challenge to start the year, to start with.

So, that's a very, it was a negative. And the new client that we were able to capture is a client acting in the technology sector, providing projects, structuring in laboratories and chip manufacturing.

So, there is a big dimension of project deliveries. So, we follow them on project deliveries.

And sometimes, example, what, this quarter and next quarter, their delivery schedule is lighter, but going forward, the Q3, Q4, it looks very strong. So, this is not a typical client, to be very honest.

But like I said, other regular strong business, new clients coming in the segment will normalize that aspect. So, we should go back to a normal growth factor.

Plus sometimes peaks, maybe with this client, that this project, a little bit more project focused.

Okay, great. That's very helpful.

Thanks for that. Maybe switching to technical services, you mentioned your services.

You mentioned your current backlog being strong. I was wondering if you had any comments on the bidding environment for future work.

Are you still seeing clients moving forward with projects or is the current environment sort of causing some people to be more in a wait-and-see approach?

Okay, well, Frederick, if you ask me this morning, nothing to report. It's still working as usual.

Now, your guess is as good as mine. I don't know what to take, but we'll monitor it.

But so far, there's no signs on the backlog or on sales and biddings, looking at the numbers. But mind you that the tariff just kicked in yesterday.

So, in three, four, five months I don't know, but so far, nothing.

Okay, great.

But again, as I told you is, if I'm taking the consideration that our cost would be minimal, so as our go-to-market pricing strategy will not change much. It could be probably the client's state of mind or their impact that could affect their buying.

But on our end, there's no big change.

Okay, perfect. And last one for me, given the strong progress on working cap and declining leverage, it feels like the company is in a good position to execute on the acquisition strategy.

Can you maybe talk about your pipeline of potential acquisitions currently?

Well, listen, we are always very active, as you know, and we're looking to several projects. I would say that, I should not maybe say that, but I say it is, we're very savvy on our pricing because interest rates and everything.

So, we're very active, but we are focusing on specific business profiles that we want example, if I say high service and maintenance revenue in technical businesses, more densification projects, or I would say, densification business to support our business segment and business service. So, yes, we're more focused, but we're still very active.

Great. Thank you, Claude.

Good morning, sir.

Good morning, everyone. Congrats on the quarter.

Thank you, sir.

In terms of that lighter delivery schedule for the new customer, is that specific to winter? And so we should expect it next Q4 and Q1, or is it just general variability given the project-based nature of the customer?

No, I know it's a fair question. No, I do not expect, I don't think that seasonality has an effect because it's all interior work.

So, it's really on their backlog. So, we went and we came into a lower delivery and their backlog for a couple of quarters, but no, there's no seasonality.

Got you. Thanks.

And then, if we look at the potential impact of tariffs on technical services, is there any pressure on profitability in the project backlog, or has that all been locked down?

It's all, yes. You're good.

Exactly. Our prices are mainly all locked down.

We have discussed with all our suppliers, there was an extensive work executed. And at this time, we don't forecast any margin decrease with our equipment.

People have stocked equipment already and people will keep their pricing. So, so far so good.

Now, if it lasts a year, a year-and-a-half, but I think the market will normalize itself and we also will normalize our margin as well. I mean, normalized by adjusting.

This is what I said.

Makes sense. Thank you.

And just two quick ones on capital allocation, apologies if I missed this earlier, but did you set another target for working capital in 2025?

No, not yet. Not yet.

I think there's too much happening.

Fair enough. And then, last one for me, any interest in the NCIB share repurchases at these levels?

Okay. Any interest in what?

Buying back shares.

Oh, no, no. But I did not understand the word.

Okay. And then, okay, an NCIB, okay, no, no, no, no.

Perfect. Thank you very much.

I'll turn it over.

It's a big no. We have something else to do with the money.

Yes, thanks, Claude. And maybe just follow up on Zachary's question around technical services.

Could you just maybe tell us what your backlog is in T.S.?

In TS [multiple speakers] -- technical services. Okay.

I'm sorry. Guys, I'm old.

I don't work with those acronyms. Backlog is strong.

It is remaining constant at a very high rate. It does not diminish so far.

We have improved margin by about 10%. So, you know what, I'm very positive on the backlog.

Is it answering your questions? Or, you'd like to have a little bit more colors?

We don't disclose the amounts because we don't do forward looking. But, I can tell you that it's still work at a very strong pace.

Okay, Claude. No, that sounds very positive.

And then, one last one for me on Italian, obviously, you did shed some unprofitable accounts, just curious on where you're at. Is it largely done, or is there more to go?

Well, no, I think it's largely done. Listen, you know what, we pay the very, very aggressive price for it.

And, we knew that we had some homework to do there. I would be very transparent.

I would have thought that we would have increased a little bit more. But some clients, we were not seeing how we could make it better.

So, it was better that we part. So, I think we're done.

But if I -- you know what, I would have loved to have done a little better, but so far so good. Globally, it's okay.

Okay. That's it for me.

Thanks for taking my questions. Have a good day, guys.

Well, again, thank you very much again for taking the time. I can just ensure you that the whole team is focused on the business.

We're focused to work closely with our partners and clients. And there is -- the curve of uncertainty is very high lately.

But we have worked to put to bed as much -- I would say as much forecast in our pricing and our supply chain to be to be as stable as we can be. And, we will stay resilient should things change dramatically in the global economy.

So, this is what we're built for. So, like I said, we'll be nimble to work with our clients.

I want to thank all our people in the business that are able to cope with this ever-changing environment. And I'm sure that at the end of the day, it will be positive for the business.

And thank you again.