On November 13, 2024, GDI Integrated Facility Services, Inc. (GDI) reported its earnings for the third quarter of 2024, announcing a revenue increase and a focus on margin improvement and growth. Despite a slight organic decline, the company's revenue rose by 4% to $640 million, attributed to acquisitions and currency appreciation.
The company's year-to-date revenue also saw an increase, reaching $1.9 billion, though adjusted EBITDA decreased by 6% to $100 million. GDI's CEO, Claude Bigras, discussed the company's stable market occupancy, operating capital reduction, and debt decrease, alongside positive developments in contract wins and the Technical Services segment.
Key Takeaways
- GDI's Q3 2024 revenue increased by 4% year-over-year to $640 million.
- Acquisitions contributed 5% to revenue growth, while US dollar appreciation added 1%.
- Year-to-date revenue is up 6% at $1.9 billion, with adjusted EBITDA down 6% at $100 million.
- CEO Claude Bigras highlighted a $25 million reduction in operating working capital and a $41 million reduction in net debt.
- GDI anticipates $25 million to $30 million from the sale of two facilities, with cash flows expected in early 2025.
- The company remains interested in M&A, with a disciplined approach to pricing and evaluation.
Company Outlook
- GDI aims for sustained growth and improved margins going forward.
- Margins are expected to continue improving, with a positive outlook for Q4 2023 and 2025.
- The company is in the final stages of marketing two facilities, with expected proceeds contributing to future cash flows.
Bearish Highlights
- Adjusted EBITDA fell by 6% due to project cost overruns and prior year efficiencies.
- The Corporate and Other segments experienced a revenue decline following the sale of the Superior distribution business.
Bullish Highlights
- The Technical Service segment had its strongest quarter since acquiring Ainsworth in 2015.
- Contract wins were primarily in the commercial sector, with a strong backlog expected to support positive organic growth.
Misses
- There was a 2% organic decline in revenue, which was offset by other growth factors.
Q&A Highlights
- Bigras discussed ongoing improvements in accounts receivable and cash generation, with further progress expected in Q4 2023.
- The Security segment made significant margin improvements, and targeted EBITDA levels are expected within the next two to four months.
- Q4 CapEx is projected to align with historical trends, with Technical Services at 1% to 1.25% and Business Services at 0.75% to 1%.
In conclusion, GDI Integrated Facility Services, Inc. is navigating market challenges while leveraging strategic acquisitions and operational improvements to foster growth. The company remains cautiously optimistic about its future performance, with several initiatives underway to enhance profitability and shareholder value.
Full transcript - None (GDIFF) Q3 2024:
Operator: Good morning, ladies and gentlemen, and welcome to the GDI Integrated Facility Services, Inc. Third Quarter 2024 Results Conference C all. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Wednesday, November 13, 2024. I would now like to turn the conference over to Mr. Charles-Etienne Girouard, Senior Vice President and Head of Finance. Please go ahead.
Charles-Etienne Girouard: Thank you, operator. Bon matin à tous. Good morning all and welcome to GDI's conference call to discuss our results for the third quarter of fiscal 2024. My name is Charles-Etienne Girouard, I'm Senior Vice President of Finance Operations and Digital transformation 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 third quarter of fiscal 2024, we'll then invite Claude to provide his comments on the business. In the third quarter, GDI recorded revenue of $640 million, an increase of $25 million or 4% over Q3 of last year, comprised of 5% growth from acquisition, 1% growth from the appreciation of the US dollar relative to the Canadian dollar, partially offset by a 2% organic decline. We recorded adjusted EBITDA of $39 million in the quarter in line with Q3 of last year and up $5 million compared to Q2 2024. On a year-to-date basis, revenue increased by $108 million or 6%, all coming from acquisition, to reach $1.9 billion compared to $1.8 billion last year. Adjusted EBITDA year-to-date amounted to $100 million, a decrease of $6 million or 6% over the corresponding period of 2023, mainly due to the cost overruns incurred in the three projects in our US Technical Service business at the beginning of the year and higher adjusted EBITDA in our Business Service Canada segment in 2023 due to efficiencies coming from COVID-related lower office occupancy rates. Moving to our business segments, Business Service Canada recorded revenue of $145 million in the third quarter while generating $12 million of adjusted EBITDA for an adjusted EBITDA margin of 8%, which was in line with Q2 2024 and was about 2% lower than Q3 last year. Our Business Service USA segment recorded revenue of $222 million in Q3, representing an increase of $37 million compared to Q3 mainly to the Atalian and Paramount acquisition and 1% organic decline despite the loss of a major customer in Q1 2024. This segment reported adjusted EBITDA of $14 million in line with Q2 2024 and Q3 last year. Our Technical Service segment recorded revenue of $264 million compared to $269 million in Q3 last year. The organic decline is explained by a decrease in lower margin project revenues this quarter versus the same quarter of last year. This segment which has generated an adjusted EBITDA of $20 million, representing an adjusted EBITDA margin of 8% which is $4 million higher than Q3 last year. The third quarter is typically the Technical Service segment's seasonally strongest quarter. Finally, our Corporate and Other segments reported revenue of $9 million compared to $15 million last year, mainly due to the sale of our Superior distribution in retail business at the beginning of Q2, which was personally offset by the growth generated by our US chemical manufacturing business. I would like to turn the call to Claude, who will provide further comment on GDI performance during the quarter.
Claude Bigras: Well, thank you, Charles-Etienne, and thanks to all of you who are participating in GDI's third quarter's conference call. I'd like to start by publicly welcoming Charles-Etienne as lead of the finance teams, GDI's finance team. He officially took over from Stéphane Lavigne on October 1st and is now in charge of finance for GDI. Stéphane is still with GDI in a consulting capacity to support Charles-Etienne in his transition, and he's among us this morning. Thank you, Stéphane. I'm quite pleased with GDI's result in the third quarter. Our Canadian Business segments delivered an adjusted EBITDA margin of 8%, which was in line with both Q1 and Q2 of this year. Our Canadian Business is seeing a relatively stable level of occupancy in the Class A markets, which is evidenced by a very strong, a very consistent margin profile for the business in 2024. Organic growth in the business was down slightly in Q3. However, this is the result of timing differences between contract wins and losses, and we had the numbers of new contract wins that will start up in Q4 and Q1 of next year. That should help to support our organic growth numbers and targets. Our US Business Service segment delivered slightly negative organic growth as well, which was driven by the repositioning of the business' largest clients, the bulk of which occurred at the end of Q1 this year. We'll still be experiencing headwinds in quarter-over-quarter organic growth comparisons from this segment for the next two quarters, but however, I'm very encouraged that our teams was able to replace almost all the revenue with new business wins in a relatively short period of time. Also during the quarter, we continue to work on margin improvements initiatives at our Atalian acquisitions. While it's taking a bit longer than we initially planned, we expect to complete the process by Q1 of next year. When comparing Q3 of 2024 to the Q3 of last year, our US and Canada Business Service segment were burdened with an additional $3 million of costs on a combined basis because there was an extra work day in this year's quarter. I'm very encouraged that both businesses were able to deliver strong results when compared to the prior year's quarter despite this hurdle. Our Technical Service segment delivered a very strong quarter with an adjusted EBITDA margin of 8%, the highest recorded in the business since the acquisition of Ainsworth in 2015. These results clearly demonstrate that the weakness, the business experienced in Q4 of last year and Q1 of this year was driven by one-time factors and now the business began rebouncing in the second quarter. The margin improvements initiative that we began implementing in Q3 last year have begun to take hold. The backlog remained near record level and we have increased the average margin within the backlog by roughly 100 basis point to 200 basis point targets. Additionally, we successfully grew service revenue at Ainsworth during the quarter, which are both higher margins and recurring in nature. Recall that this segment is seasonal and Q3 is traditionally the strongest quarter. All business units have been performing well and we expect this segment to continue to deliver robust results going forward. We are happy to report that we also had success with our initiative to more efficiently manage GDI balance sheets during the third quarter. We delivered a reduction of $25 million in operating working capital compared to Q2 of 2024. Together, with strong free cash flow generation, we were able to reduce GDI's net debt by $41 million. Our debt level is also benefit from the intended sales of the two facilities that were used by our Superior Solution business which we expect will generate gross proceeds in the $25 million to $30 million range. To conclude, I think that GDI performed very well this quarter. Our Business Service segment is delivering solid and consistent results. Business Service USA was able to maintain revenue level in the face of this very large client repositioning and it is focusing on improving margin in the Atalian business. Technical Service had the strongest quarter in history and the outlook for the business is robust. Our balance sheets improvement initiatives are gaining traction. We are reducing our debt and expect this to continue in Q4 and Q1 of next year. Our leverage ratios remain well within our comfort zone and we are well positioned to continue to execute on our growth strategies. Well, that concludes our prepared remarks. Please, operator, feel free to open the calls to 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 Derek Lessard with TD Cowen. Your line is now open.
Derek Lessard: Yes, good morning, everybody, and congrats on a solid quarter, Claude.
Claude Bigras: Thank you very much, Derek.
Derek Lessard: My first question is on the Technical Services. I think you alluded to it in your prepared remarks on the record margin there. I'm just curious, again, if you can just maybe give some comfort or some color around how sustainable you think that that margin is and maybe just a little bit more color on the initiatives that you've put in place to improve that margin profile of that business.
Claude Bigras: Well, thank you, Derek. That's a very good question. Our objective as a Technical business is we are aiming at a sustainable 7% overall. This is what we are focusing on. Yes, for sure, we had a very good quarter. Like I said, it's usually our strongest quarter, but the business is really aiming towards achieving the 7% constant margin over time. This is what we expect to deliver, and we're working hard on it. Now, this being said, yes, like I said, we are measuring the improvement margins by the improvements of the margin in the billable work, but also with our backlog estimated margins. So we have seen, now what we have seen is our margin have expanded from about 200 basis points. And I'm sorry, I have a lack of words in English, but on the last 12 months, if we say so, on the continuum basis, now we are over 200 basis points, over. So that's very, very good news. So we continue to improve on that, working very hard on AR, getting our working cap at the best possible situation. So I'm very proud of what the team is achieving for the last two, three quarters there. And again, we were able to complete and go through our bad projects of last year.
Derek Lessard: Okay, thanks for that. Just maybe switching gears to Business Services Canada, you did note that you have a number of contracts that are coming, or contract wins in Q4 and Q1. Maybe could you provide some color on what type of clients or contracts those are, and maybe quantify the size if you're able to?
Claude Bigras: Well, I won't get into every detail, but we mainly have acquired clients in the commercial sector, so shopping centres, light industrials, so very regular clients that we are used to serve, that we serve well. We have a little bit of mid-manufacturing clients that came to us, so there's not a huge client in Business Services Canada that shows up. It's a sum of mid-sized clients that the sales team is working with.
Derek Lessard: Thanks for that, Claude. I’ll re-queue.
Operator: Your next question comes from Frederick Tremblay with Desjardins. Your line is now open.
Claude Bigras: Good morning, Frederick.
Frederick Tremblay: Good morning, Claude. Congrats on the great quarter. How would you characterize the bidding environment for projects in Technical Services? I guess when you look at Ainsworth's backlog and the projects that you're bidding on, do you anticipate that that will be enough to get back to positive organic growth in Technical Services relatively soon, or are we mostly working on the margins in Technical Services and less so, on the top-line growth front?
Claude Bigras: Frederick, the bidding environment is still strong. We still add, if we look at the size of the backlog, so I would say, please, I don't know if I should say that, but I'm very happy to realize that even though we are increasing our margins, we are able to acquire very good and strong clients. Where is my challenge is to make sure that we work within an account receivable parameter which is satisfactory to us. So we're pushing hard on generating the cash in the bank. So while we do both those initiatives, we still capture very good clients. So that's good news for me.
Frederick Tremblay: Great. And you did touch on accounts receivables there. I was wondering, we saw good progression on the working cap front in Q3. Do you feel like there's more to do there in Q4 and into 2025? Maybe if you can get into some of your expectations on that.
Claude Bigras: Well, Frederick, listen, we're working very hard on it. We're very focused on it. Now, we don't have full control of all the buttons, but we're working hard on it and we expect there's still some improvements in Q4. To what level? We still target and focus on what we said for the year, so we're pushing hard on it.
Frederick Tremblay: Okay, great. Maybe if I can squeeze in one more. You did mention the gross proceeds of $25 million to $30 million potentially for the two facilities that you're looking to sell. Any updates sort of on discussions on that or your expectations on timing of getting those proceeds in the bank?
Claude Bigras: Well, are you interested to buy? I can send you book [indiscernible] now. Okay, now, well, listen, we are at the last step of putting the building to markets. Mind you that we sold the Superior business a couple of months ago, and they still occupied the premises. Now, we are shipping up the premises. We are fully engaged with the brokerage firms. So I would say that over the next four weeks, we should have both. There is a little bit of pre-work done on the advertising of it, but probably in the next four weeks, we should be full-blown on the market. We expect maybe three to four months turnaround. So if I were to make a bet, I would say Q1 for most of it, a big part of it, and Q2 maybe for the remaining, the second building. So it should be expected at the 2025 cash flows.
Frederick Tremblay: Okay, great. Thanks for that. I appreciate it.
Operator: [Operator Instructions] Your next question comes from Zachary Evershed with National Bank Financial. Your line is now open.
Claude Bigras: Good morning, Zachary.
Zachary Evershed: Good morning. So just to follow up on Fred's question, maybe you could remind us what you're expecting in terms of magnitude from the building sale proceeds?
Claude Bigras: $25 million to $30 million, net.
Zachary Evershed: Perfect, thanks. And with that hitting the balance sheet and some improvements on working capital, you're dipping under three times net debt-to-EBITDA already. What's your appetite like for M&A at the moment?
Claude Bigras: Well, we're still very focused on our growth through M&A. Mind you that 2024, we work actively in several other areas that we need to focus on, but we're still very engaged. We have done three small acquisitions during the year. I can tell you that the team is focusing on acquiring the right businesses on the Technical Services. We're focusing on where we have original presence, where we have a strong maintenance service line on the Business Service arena. We still are very disciplined in our pricing and our evaluation of the business. So again, the win is not to acquire at any prices, to acquire a sustainable business at the right price.
Zachary Evershed: Got it, thanks. And then you made reference to the Atalian integration and evaluating the lower margin contracts. What's left to do there and how much do you think you can do in short time?
Claude Bigras: I’m sorry, I missed the first part. You said $2 billion?
Zachary Evershed: Atalian?
Claude Bigras: Atalian, my apologies. Okay, okay. But it's a work in progress. I can tell you that if I'm playing like this is on the Security segment side, very interesting, very strong progress. We have increased the margin substantially. We have also, I hate to do this, but we had to depart from some clients where we could not increase the margin, thus contributing a little bit for our little organic decline. But we're working well with the clients. I expect that in another two, three, four months, we should be going with the business at the EBITDA level that we are targeting. So maybe another two, three months and we should be there.
Zachary Evershed: Great, thanks. Then just one quick last one on the Technical Services margins, great progress there. The improvements that you're talking about, will they continue to reflect the seasonal pattern of Q4 dipping a little bit versus Q3, or is the power of the backlog enough to buck that seasonal trend?
Claude Bigras: No, I think that we can expect Q4 to perform as expected. Q3 is our strongest, but Q4 is also a good quarter. So I don't see any major issues there. Backlog is there to support. The team is very focused on delivering. Like I said, the areas where we had some hiccups last year, they're full-blown. I'm looking at their monthly results, the consistency of their results now. So I'm expecting a very positive for Q4. But again, we don't expect to be 8% every quarter, going forward, but our objective and target is a sustainable 7% average year EBITDA. This is where we -- next step is there. After that, we'll see what's next.
Zachary Evershed: This is very clear. Thank you. I'll turn it over.
Operator: Your next question comes from Derek Lessard with TD Cowen. Your line is now open.
Derek Lessard: Yeah, guys, I just have one last one, more of a housekeeping issue. Could you just maybe talk about your CapEx expectations for Q4 and how we should look at that, looking out maybe to 2025 as well?
Claude Bigras: Well, may be to Charles-Etienne.
Charles-Etienne: Well we should have a CapEx in line with our trends that we have since the beginning of the year. Like the one like we have it.
Claude Bigras: Yeah. Well, listen, you have to understand that starting new projects costs money. So there is a little bit of CapEx there. But overall, it's very rare when we get out of our 1% to 1.25% on the Technical side or 0.75% to 1% on the Business Service side. But again, Business Service, they started a lot of new projects. So for sure, it does a little bit of swing, but nothing major.
Derek Lessard: Okay. Thanks, gentlemen. That's all from me.
Operator: There are no further questions at this time. I will now turn the call over to Mr. Claude Bigras for closing remarks.
Claude Bigras: Well, thank you very much, operator. Thank you very much again for listening to this conference call. I'd just like to pass my thanks and my congratulations to everyone that is operating and working in the business. It's a concerted effort, and I can tell you that everybody in their position is swimming in the right directions and they're pushing to get the business continue to develop the success that we have been. And I am very positive for Q4, but I'm also very positive for 2025. So thank you very much again for listening.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and now, please disconnect your lines.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.