GDI Integrated Facility Services, Inc. (GDI) has announced its second-quarter financial results for fiscal 2024, revealing a 5% increase in revenue to $639 million compared to the same period last year. The company's adjusted EBITDA remained stable at $34 million, matching the previous year's second-quarter performance.
Revenue growth was primarily attributed to successful acquisitions, which contributed to a 6% increase, despite a slight 1% dip in organic growth within the Technical Service segment. GDI's CEO, Claude Bigras, expressed a positive outlook for the remainder of the year, focusing on reducing working capital and pursuing a growth strategy through acquisitions.
Key Takeaways
- GDI's second-quarter revenue rose to $639 million, a 5% year-over-year increase.
- Adjusted EBITDA for the quarter was consistent with the previous year at $34 million.
- Acquisitions drove a 6% revenue increase, while organic growth in the Technical Service segment declined by 1%.
- Year-to-date revenue grew by 7%, reaching $1.3 billion.
- The Business Service Canada and USA segments reported revenues of $145 million and $221 million, respectively.
- The Technical Service segment saw a slight revenue decrease to $259 million.
- Initiatives to improve margins and reduce working capital by $30 million by year-end were discussed.
- Charles-Etienne Girouard will take over as CFO in September, succeeding Stephane Lavigne.
- The company is working towards achieving normal margins in janitorial services and a 6-7% EBITDA margin in Technical Services by year-end.
- GDI aims for a long-term organic growth rate of 4-6%.
Company Outlook
- CEO Claude Bigras remains optimistic about the company's strategy and performance for the rest of 2024.
- GDI plans to enhance EBITDA margins in the coming quarters and is targeting a 250 basis point improvement by the end of Q3.
- The company is focusing on reducing operating working capital and executing a growth-through-acquisition strategy.
- GDI's Climate Impact Bond (CIB) program is expected to contribute significantly to the business over the next decade.
Bearish Highlights
- The Technical Service segment experienced a 1% decline in organic growth.
- GDI faces challenges in markets and with customers impacting current organic growth rates.
Bullish Highlights
- Successful resolution of issues in the US Technical Service business has led to a rebound in adjusted EBITDA margin.
- The Atalian acquisition integration is progressing, with expectations for a sustainable margin in the security segment.
- GDI is actively pursuing M&A opportunities, particularly in the US market.
Misses
- Despite overall revenue growth, the company has not seen an increase in adjusted EBITDA year-over-year.
Q&A Highlights
- The company is exploring M&A opportunities with a focus on acquiring businesses at the right price.
- The RYCOM acquisition is aimed at bolstering GDI's objectives in the technology sector rather than significantly increasing revenue.
- GDI's CIB program is designed to provide technology and expertise to clients without adding extra debt on properties.
GDI Integrated Facility Services continues to build on its growth strategy, emphasizing acquisition and margin improvement initiatives. The company's leadership is confident in their approach to overcoming current market challenges and achieving long-term organic growth. With a steady financial performance and strategic plans in place, GDI is poised to maintain its positive trajectory through fiscal 2024.
Full transcript - GDI Integrated Facility Services Inc (GDI) Q2 2024:
Operator: Good morning, ladies and gentlemen, and welcome to the GDI Integrated Facility Services, Inc. Second Quarter 2024 Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct the question-and-answer session. [Operator Instructions] This call is being recorded on Thursday, August 08, 2024. I would now like to turn the conference over to Stephane Lavigne. Please go ahead.
Stephane Lavigne: Thank you, operator. [Foreign Language] Good morning to all and welcome to GDI's conference call to discuss our results for the second quarter of fiscal 2024. My name is Stephane Lavigne, I'm Senior Vice President and Chief Financial Officer of GDI. I'm here 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 our MD&A filed on SEDAR last night. I will begin the call with an overview of GDI's financial results for the second quarter of fiscal 2014, and then we'll invite Claude to provide his comments on the business. In the second quarter, GDI recorded revenue of 639 million, an increase of 30 million or 5% over Q2 of last year comprised of 6% growth from acquisitions and partially offset by 1% organic decline coming from the Technical Service segment. We recorded an adjusted EBITDA 34 million in the quarter in line with Q2 of last year and up 6 million compared to our Q1 of 2024. On a year-to-date basis, revenue increased by 83 million or 7%, to reach 1.3 billion compared to 1.2 billion last year. The overall revenue growth from acquisition was 6% and organic growth was 1%. Adjusted EBITDA in the first half amounted to 61 million and a decrease of 6% or 9% over the corresponding period of 2023, mainly due to the cost overruns incurred on the three projects in the US Technical Service business that negatively impacted the results in Q1 and Q4 last year and that we were successfully closed last quarter. Moving to our business segments, Business Service Canada recorded revenue 145 million in the second quarter while generating 12 million in adjusted EBITDA, representing an adjusted EBITDA margin of 8%, up by 1 million compared to Q1 of 2024. Our Business Service USA segment recorded revenue of 221 million in Q2, representing an increase of 41 million when compared to Q2 last year, mainly due to the Atalian and Paramount acquisitions and 1% organic growth which was generated despite the loss of a major customer that started affecting the segment towards the end of Q1. The segment reported adjusted EBITDA 14 million in line with Q1 of 2024 and 1 million higher than Q2 of last year. Our Technical Service segment recorded revenue of 259 million compared to 264 million in Q2 last year, mainly due to the organic decline attributable to the strong project revenue generated last year. The segment generated an adjusted EBITDA of 14 million at 5% of adjusted EBITDA margin, which is 2 million higher than Q2 of last year. Finally, our Corporate and Other segment reported revenue of 14 million compared to 21 million last year, mainly due to the sale of our Superior distribution and retail business at the beginning of the quarter, partially offset by the growth generated in our US manufacturing operations. I would like now to turn the call to Claude who will provide further comments on GDI performance during the quarter.
Claude Bigras: Well Mr. Stephane, Bonjour, good morning and thank you to everyone for taking the time to participate in our Q2 earnings call. I'm pleased with GDI's performance during the second quarter. We successfully worked through the installation issues that impacted our prior year quarters and delivered solid results across all of our business segments. Our Business Service Canada segment had a good quarter with sequential growth in both EBITDA and EBITDA margin over the first quarter of the year. Notably, EBITDA margin is holding in line with our previous guidance of 100 basis points to 200 basis points above the pre-COVID level and we expect to sustain this over the near mid-term. Occupancy in the Class A office market has been relatively stable and we believe this will continue for the foreseeable future. Our Business Service USA segment had a very good quarter. Our team was able to mitigate most of the loss of business from one of our largest clients that we had previously announced. In addition to replacing lost revenue, we also increased EBITDA over Q2 of last year through a combination of cost reduction, new business win and acquisition activity. Our work on improving margin in the Atalian business that we acquired at the end of 2023 is progressing well. While margins continue to be slightly impacted by Atalian in Q2, we expect margin improvement efforts to be completed in the second half of the year. Additionally, the Paramount Building Solution acquisition was closed on May 1 that has substantially onboarded -- and has been substantially onboarded and the business is performing in line with expectations. Both our Business Service segments in Canada and the US remain relatively well insulated from the credit related challenge we have been seeing in other parts of the real estate industry. We typically work with large to midsize building with large well established clients. While higher cost of capital can cause some clients to try push on payment terms, they do not materially affect the credit profile of most of our client base. That being said, we are cautious by nature and we regularly monitor credit quality and receivable days as a matter of course. Finally, both Q3 and Q4 of this year will have one extra working day than the comparable quarters and the prior year. As a result, this will have an effect on quarter-over-quarter comparisons as one working day represents approximately 3.5 million in labor cost and benefits in our Business Service segment on a combined basis. Extra and fewer working days are irregular periodic events that have positive or negative effect when looking at quarter-over-quarter results. Our Technical Service segment had also a very good quarter. As expected, the trip reject [Phonetic] in our us business that impacted Q4 of 2023 and Q1 of 2024, results were closed out in Q1. Result in the business rebound in Q2 with an adjusted EBITDA margin back at 5%, which was in line with the prior year's quarter. I will remind you that Ainsworth has a seasonality, as a business, with Q1 and Q2 traditionally been weaker due to the ramp up of HVAC season. The margin improvement strategy that we began implementing in 2023 has been progressing well and we are continuing to operate with a backlog near record level and we are still seeing good demand for new bookings. On June 1, Ainsworth closed the acquisition of RYCOM Corporation. Based in Toronto, RYCOM is considered as a leader in smart building technology in Canada. Essentially, they focus on connecting all of the business building system into a single platform so that the data can be analyzed and used to optimize building operations. This will lead to energy optimization, greenhouse gas reduction and a vast array of new and innovative service to enhance the experience and building occupants. RYCOM further solidifies Ainsworth and GDI leadership in technology for the real estate industry sector. Also shortly after quarter, we announced a partnership with the Canadian Infrastructure Bank, CIB, where the CIB has committed up to 100 million over a five year period to provide our clients with a low cost funding for energy and carbon reduction projects. Ainsworth and its subsidiary will provide complete end to end turkey analysis design built retrofit service for projects where each building is expected to reduce greenhouse gas emissions by a minimum of 30% annually. GDI has formed a special purpose vehicle to enable our clients to finance the capital cost of the retrofit, which will include the CIB's investment, with the remainder funded through an equity investment by GDI and third parties. The CIB funding of the SPV is non-recourse to GDI subject to certain standard guarantees and will have no bearing on our debt level or leverage ratio. This initiative with the CIB helps to demonstrate Ainsworth and GDI's leadership in the energy advisory sector in Canada and will help our business development activity in the space. Finally, following the sales of our Superior Solution distribution business on April 1, we have successfully moved the majority of our Canadian manufacturing operation to our plant in Kansas. Our manufacturing business is performing quite well in 2024 and has won a number of important contracts. We plan to sell the two remaining facilities through where Superior operated over the next few quarters and expect a combined gross proceed in the $25 million to $30 million range. I am happy with GDI performance in Q2 this year. Our Business Service team in Canada has been working hard and delivered well in dynamically challenging office environment and preserve margin and keep our clients satisfied. Our Business Service team in the US is successfully managed through the loss of a major client by driving revenue growth, implementing cost reduction initiative to mitigate any negative impact and improve EBITDA margin. And our Technical Service business has been focusing on improving overall profitability while maintaining revenue level, despite exceptionally strong growth last year. With recent challenges behind us, I am very optimistic for the remainder of 2024. Our balance sheets remain healthy with leverage sitting within our comfort zone. We remain focused on reducing our operating working capital in the second half of 2024, which would be used to further reduce debt and we continue to execute on our growth through acquisition strategy, having completed three acquisitions in the first half of the year. I look forward to GDI's performance for the remainder of the year. I'd like to thank all of you again for participating in this call and at this time I will ask the operator to open the line to research analysts for questions.
Operator: Thank you ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] Your first question comes from Gabriel Moreau with Scotiabank. Your line is now open.
Gabriel Moreau: Hi, I'm calling for Jonathan Goldman. My question is on Technical Services. How do you see the segment margins evolving in the second half? Do you expect margins to follow the typical seasonal pattern?
Claude Bigras: Well, actually, as you know, we had to resolve an issue in late 2023 and 2024. Now the business is back to its historical recent year margins. But the focus is to continue to improve margins and we have established initiatives where we enhance our margins and at our contract negotiating level. So I'm positive that we should see further EBITDA margin enhancement over the next quarters.
Gabriel Moreau: Thank you. And on the working cap for this year, are you still expecting to reduce working cap by 30 million through the balance of the year?
Claude Bigras: Yes, sir. We're still focused on achieving it, working hard on it. But we are confident and we aim for to deliver on our target.
Gabriel Moreau: That's my two. Thank you very much.
Operator: Your next question comes from Derek Lessard with TD Cowen. Your line is now open.
Derek Lessard: Yeah. Good morning, everybody. I hope you're doing well.
Claude Bigras: Good morning.
Derek Lessard: Good morning. Stephane, I just want to extend congratulations, I believe, on the retirement. But as a follow up, I just wanted to ask if you could maybe talk about where you guys are in the search for a new CFO.
Claude Bigras: Okay, well, Derek, listen, good news. We have our candidate in house. So we have circulated some news on that front. So the idea is Charles-Etienne Girouard, which our VP of Reporting, will succeed Stephane in September. And Stephane will remain with their organization on a full time basis until the end of the year, and on extended advisory basis for 2024 to help and support Charles-Etienne into his new functions. And so the good news is our talents were inside and we're looking forward to see Charles-Etienne in action. And so, Stephane, like I said, is not going too far. He's staying around us for the next little while.
Derek Lessard: Yes. So, Claude, always good to see strong bench strength. So the plan is for Charles eventually to be appointed CFO?
Claude Bigras: Yeah. And I can tell you this, I've been working with him for the last 30 days. He's very involved and, you know what, visiting all our locations, meeting people. I think he's getting his grasp around it. That's a good news.
Derek Lessard: Very good. Good to hear, too. On the Atalian acquisition, maybe could you just -- I know you touched on it in your prepared remarks, but maybe share some of the updates on the integration and the turnaround there. And when are you expecting for the margins to normalize with the rest of the PSU [Phonetic] segment?
Claude Bigras: Okay, well, listen, we acquired it in November last year, but before January we were not in full control of the organization. I can say that it's evolving well. On the positive notes, our security segment, we negotiate several increases with customers, so our security segment over the next two remaining quarters should deliver a more sustainable margin. On the regular business, cleanings, the janitorial services, we're still working with each of our clients to either improve margins or actually to divest from some clients if we are not able to improve margins. So we are aiming again at the end of the year to work within, what I would call, the normal margin. We still focus on that. I don't see any significant impairment in doing so. So now the business has been integrated, all the name, the brand, the people, the supervision, the organization, organizational structure has been all incorporated in GDI, accounting and finance. So I think we put everything together to be successful this year.
Derek Lessard: Awesome. And maybe one follow up for me on Technical Services, I think you had guided earlier, maybe it was last quarter, to about 6% EBITDA margins by the end of the year. Is that still the target, and are you on track to hit that?
Claude Bigras: Yeah. Well, listen, yeah, exactly. So now I think, to be very precise, I think it was 5.4 in this quarter, maybe my colleagues will look at me with big eyes, but I do believe that our target would be to bring it to 7% at some point. Now but you know one step at the time, we are increasing -- we're working on a working cap, increasing margins, and all this should bring us to the 7% mark at some point.
Operator: Your next question comes from Zachary Evershed with National Bank Financial. Your line is now open.
Zachary Evershed: Good morning, everyone.
Claude Bigras: Good morning, Zachary.
Zachary Evershed: With the record backlog in Technical Services, it'll obviously take some time for contract negotiation initiatives to cycle through to sales. Could you maybe help us pinpoint when you expect that to flow through?
Claude Bigras: Well, actually, Zachary, now, where we stand at this point, our backlog is showing an improvement of about 150 BPs, and we expect it to show 250 BPs probably by the end of Q3. You understand that higher margin at the backlog will deliver higher EBITDA margin at the end. So we are seeing it already because we started this initiative a couple of quarters ago. But like you said, it takes time because all the previous work needs to be executed. But now our backlog is, like I said, 150 BPs over last year, I call, contractual margin. So I'm very positive that it will continue on this route. I would say that if we are able to -- again, I don't want to do guidance, but if we can increase by another 150 BPs by the end of the year, I think it will really support our objectives.
Zachary Evershed: That's great color. Thanks. And then for Business Services, the US -- sorry, the adjusted EBITDA margins have been a little lower than pre-pandemic levels this year. Obviously some turmoil with a major customer loss that you guys are backfilling quite well on organic growth. What's your outlook on the likelihood of bouncing back to the 7% to 8% range in that segment?
Claude Bigras: Okay, well, you know, that's an interesting question. As you know, Zachary, US has been full of not challenges, but full of events. We acquired Atalian with, as you know, that we started with a lower margin. We have our -- this large customer left, now we aggressively what to pick up a large customers with aggressive margins to compensate. And there is the, I would say the office into normalization. So we had a lot to cope with in the US. So as we are growing and now we are rationalizing, and also the good news is we have a very significant one that is starting in Q3. I think we should go back to our traditional 7% probably, I would say, by the end of Q3, maybe Q4, but this is what we are aiming at. Hello?
Operator: Your next question comes from Jeff Fenwick with Cormark Securities. Your line is now open.
Jeff Fenwick: Hi. Good morning, everyone.
Claude Bigras: Good morning, sir.
Jeff Fenwick: Claude, I wanted to ask about organic growth in Business Services, and maybe we'll split it between the US and Canada. And as you said, you've done a lot of work to replace a lost customer in the US. But as that sort of goes into the rearview mirror, like, what are the prospects here for organic growth if we were to normalize now going forward, given that momentum we built there, I imagine that's a pretty good pace of business expansion you've had there. So I'd imagine going forward, organic growth should be a bit stronger when you report it.
Claude Bigras: But listen, I would -- you know, I'm always looking -- you know, my target number for organic growth is always 6% but mind you that we cope with probably a 3% loss year-over-year. So now we have a little bit of inflation revenue increase, but markets are very challenging. So, what we negotiate, the idea is to always keep the margin alive. This is keep the margin is the first priority. And two, in the inflationary periods where customers are challenged, because we have some customers, which have challenges, we don't focus only on increasing revenue, we focus on managing our business partners to keep our margin to a sustainable level so that's the first priority. This being said, we're investing in the sales force and we are seeing good results. My wish is that we have a net organic growth between 4% to 6% every year, so this is what we are aiming for.
Jeff Fenwick: Okay, that's good color. Thank you. And then I wanted to ask about the CIB program that you've announced here. And just trying to understand that a little bit when you put yourself or putting some money into that program, obviously this is an opportunity to drive some business your way, some business development, but does the return profile from those projects look incrementally better, or is the thinking that it would just maybe drive some business beyond the initial work that you're doing with these customers? Or can you just give us a little bit of color about the benefits of that program?
Claude Bigras: Yes. Okay, so let's break it into a couple of parts. The first part is clients; as you know what, everybody is aware of climate changes, everybody is aware of the government's objectives in this matter. So as the main leader in building technologies, it's a must that we offer our clients technology and advisory and expertise into delivering on their objectives. So on the client side, it's not even a second thought, this is one of tomorrow's drivers and we have to be up to par to service our clientele. I hope you agree with that. Secondly, this initiative will generate a substantial amount of work over the next ten years and beyond and for sure we want to capture this work to make sure that our businesses are staying healthy and that we keep strong backlogs. So that's the second part of it. The third part of it is, you see, now we will generate -- I would say we will generate profitability through two parts; one on the Ainsworth execution of contract and projects, and secondly, on return on the investment we do as equity investment into the SPV like I said. So, now, like I said, we will work on the SPV, us as an investor and with external partners. So our participation would be probably in the 20% to 25% range over the whole investment required. This being said, this 20% will be probably also take the form of a fee manage and turn into equity. So it would not probably be a whole cash induction, probably it would be to convert some of our fees into equity in the projects. Hopefully I was able to give you a good portrait of it, but don't hesitate to ask me more questions if you want.
Jeff Fenwick: Yeah, I guess one follow up there is just when I think about a program like this, my assumption is you're offering terms to the end customer for financing that are probably better than they would typically get encouragement to pursue these projects, obviously. So I'm just curious if the lower return potential out of that type of loan.
Claude Bigras: I'm sorry, lower return?
Jeff Fenwick: Well, I mean, if you're effectively lending the customer money, is it being to them the discount to prime or whatever that rate is to encourage them to utilize the program, and therefore the return on a loan is relatively less in that situation. So are you making a good return out of that equity that's going into this?
Claude Bigras: Okay. And you know what, maybe I just want to make sure, you know what, allow me -- my thinking is, as an investor, we have an expectation of return, so we know this is one part. The second part is lower the loan costs, higher the expectation of return at the end is, you know what I'm saying, it's like a reverse communicate. If you have a higher interest rate and the return for the investor would be lower, if you have a lower interest rate on the lending part, the capital part should receive a higher return. Am I saying it properly for you?
Jeff Fenwick: Yeah, I think I get what you're speaking to there, yes.
Claude Bigras: So my point is -- you know what, the point is we're providing the client, and don't forget us, our revenue is based on capturing the savings generated through the initiatives. So actually, what the SPV will receive is the amount of savings generated through the program over a certain period of time. So, yes, the programs, the system modernization is built around providing the equity investor with the fair right amount of return based on the risk level, et cetera and Ainsworth -- the model is based on Ainsworth making as honorable and sustainable margin by executing the project. So CIB is a tool that we use because it enables our clients to not be obliged to put extra debt on their properties, which are sometimes well financed. So I think it's a great, great initiative from the government to support this de-carbonation strategies. Don't you think so?
Jeff Fenwick: Yeah, that's very helpful color. I appreciate that. Thank you. That's all I had.
Claude Bigras: You know, it's hard to say. Bear with me, it's hard to explain the program of this magnitude in three minutes, so bear with me.
Jeff Fenwick: Absolutely. Thank you.
Operator: [Operator Instructions] Your next question comes from Liam Bergevin with Desjardins Capital Markets. Your line is now open.
Claude Bigras: Good morning.
Liam Bergevin: Hi, good morning. This is Liam for Fred. Could you share your observations on the M&A environment more especially on your pipeline in the US, where GDI seems to have a significant expansion potential?
Claude Bigras: Well, listen, as you know, M&A is part of our day bread and butter. David and his teams are always working actively into it. We feel like the environment is normalizing itself a little bit now. We lived the period where everybody was selling their business and their grandmother in the COVID era, so now we're past that. Now the business is getting to a new normal. So yes, we're very active. Again, we don't do forward looking, but I can tell you the team is always very busy exploring opportunities and seeking. But again, the objective is not to buy businesses, it's to buy business at the right price. That's the ticket.
Liam Bergevin: Great, that makes sense. And maybe my second question would be, on the acquisition of RYCOM, would you be able to quantify your expectations for RYCOM's annual revenue generation?
Claude Bigras: Well, RYCOM, on the revenue side, is not a big needle mover of the revenue side. RYCOM is an engineering expert business in providing a layer of expertise and systems that will enable us to go further in our technology approach with our clients. So you know what you should put tag this with my prior answers. So the objective behind RYCOM is really to support our objective in the technology sector to start with. This being said RYCOM is, I don't know exactly -- I don't remember what we disclosed, but you know what, it's not a significantly high revenue generating business.
Liam Bergevin: Understood. Well, that's all for me. Thank you for taking my questions.
Claude Bigras: Thank you.
Operator: There are no further questions at this time. I will now turn the call over to Mr. Bigras for closing remarks.
Claude Bigras: Well, again, thank you very much for taking the time. I would just like to share with you that I'm very happy to have a very, very focused team working on our objectives, working on making this business a better business. I'm always, you see, business is like anything else, a living organism, sometimes we have little things to address. We're working on -- we have worked on it, we're still working on it. And I'm looking forward to see where we are -- where we'll be at the end of the year, but I'm very positive on all the efforts that are deployed. So thank you again for the time.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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