Earnings call transcript: Gardner Denver Q4 2024 sees revenue rise 2%

GDi Integrated Facility Services Inc. (GDi), with a market capitalization of $214 million, reported a 2% increase in revenue for the fourth quarter of 2024, reaching $634 million. The full year revenue climbed 5% to $2.56 billion. Despite losing its largest client in the Business Services USA segment, the company managed to secure new clients, particularly in the technology sector. According to InvestingPro data, the company’s impressive 20.42% revenue growth and attractive 7.81% dividend yield suggest strong fundamental performance. The stock price remained stable following the earnings announcement, with analysis indicating the stock is currently undervalued based on InvestingPro’s Fair Value model.

Key Takeaways

• Q4 2024 revenue increased by 2% year-over-year.
• Full year revenue for 2024 rose by 5%.
• Business Services USA lost its largest client but acquired new clients in the tech sector.
• Long-term debt was reduced by $36 million.
• The stock price remained unchanged post-earnings.

Company Performance

GDi’s performance in Q4 2024 demonstrated resilience amid market challenges, with a 2% increase in revenue compared to the same quarter the previous year. The company focused on optimizing its business segments, particularly in Technical Services, which achieved its highest EBITDA margin to date. With a strong Piotroski Score of 7 and a Financial Health Score rated as ’FAIR’ by InvestingPro, GDi maintains solid operational efficiency. Despite the loss of a major client in the Business Services USA segment, GDi quickly replaced it with new wins in the technology sector, showcasing its adaptability. The company’s beta of 1.09 indicates slightly higher market sensitivity than average.

Financial Highlights

• Q4 2024 Revenue: $634 million (2% increase year-over-year)
• Full Year 2024 Revenue: $2.56 billion (5% increase)
• Q4 Adjusted EBITDA: $38 million (6% margin)
• Full Year Adjusted EBITDA: $137 million (5% margin)
• Net operating working capital reduction: $19 million
• Long-term debt reduction: $36 million

Outlook & Guidance

Looking ahead, GDi expects normalized organic growth in its Technical Services segment, estimating a 5-6% increase. The company anticipates a return to normal growth in its Business Services USA segment after the second quarter. With a healthy current ratio of 1.26 and strong analyst consensus recommending a Buy, GDi appears well-positioned for growth. The company plans to continue focusing on working capital management and exploring potential acquisitions that align with its strategic business profiles. For deeper insights into GDi’s growth potential and comprehensive analysis, investors can access the detailed Pro Research Report available on InvestingPro, which covers over 1,400 US equities with expert analysis and actionable intelligence.

Executive Commentary

CEO Claude Digard emphasized the company’s commitment to supporting clients amid economic challenges, stating, "We will remain nimble in supporting our clients that could be affected by these new economic obstacles." He also highlighted the company’s proactive approach to client relationships, saying, "When clients are suffering, we’re there as we want to be a solution. We don’t want to be a problem for them."

Risks and Challenges

• The commercial real estate industry faces high interest rates and low office occupancy levels, which could impact demand for GDi’s services.
• New tariffs on equipment and supplies may increase operational costs.
• The loss of major clients could affect revenue stability, though GDi has shown resilience in replacing them.

Q&A

During the earnings call, analysts inquired about the impact of the client loss in Business Services USA, to which GDi responded with confidence in its new client acquisitions. Questions also addressed the potential effects of tariffs, with executives confirming no immediate plans for additional divestitures.

Full transcript - Gardner Denver Holdings Inc (GDI) Q4 2024:

Conference Operator: Good morning, ladies and gentlemen, and welcome to the GDi Integrated Facility Services Inc. Fourth Quarter twenty twenty four Results Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, 03/05/2025.

I would now like to turn the conference over to Charlethier Giroir. Please go ahead.

Jonathan Gervois, Executive Vice President, Finance, GDi: Thank you, operator. Good morning, all, and welcome to GDi’s conference call to discuss our results for the fourth quarter of fiscal twenty twenty four. My name is Jonathan Gervois, Executive Vice President, Finance of GDi. I am with Claude Digard, President and CEO of GDi and David Inchi, 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 and A filed on SEDAR last night.

I will begin the call with an overview of GDi financial results for the fourth quarter of fiscal twenty twenty four and will then invite Claude to provide his comments on the business. In the fourth quarter, GDi recorded revenue of $634,000,000 an increase of $12,000,000 or 2% over Q4 of last year, which is due to 3% growth from acquisition, 1% growth from parent translation, but partially offset by organic decline of 2% in the quarter. We recorded adjusted EBITDA of $38,000,000 in Q4, representing an adjusted EBITDA margin of 6%. Also in the fourth quarter, GDI reported a net operating working cap reduction of $19,000,000 GDI has also reduced its long term debt, net of cash, by $36,000,000 due to business disposal and cash flow generated from operations during the quarter. This decrease would have been $19,000,000 higher if the FX would have remained constant between Q3 and Q4.

For the full year, revenue increased by $118,000,000 or 5% to reach $2,560,000,000 compared to $2,440,000,000 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 $137,000,000 representing an adjusted EBITDA margin of 5%. Moving to our business segments. Business Service Canada reported revenues of $150,000,000 in Q4, an increase of $4,000,000 or 3% all organic compared to Q4 twenty twenty three.

This segment reported adjusted EBITDA of $12,000,000 compared to $13,000,000 in the fourth quarter of twenty twenty three, representing an expected decrease of $1,000,000 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 $217,000,000 in Q4 twenty twenty four compared to $215,000,000 in Q4 twenty twenty three. 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 largest client, which occurred at the end of the first quarter of twenty twenty four. This segment reported adjusted EBITDA of $14,000,000 compared to $16,000,000 in the fourth quarter of twenty twenty three, representing a decrease of $2,000,000 The adjusted EBITDA performance in Q4 was in line with the result of the previous three quarters of twenty twenty four.

Our Technical Service segment recorded revenues of $257,000,000 an increase of $18,000,000 or 8% compared to Q4 twenty twenty three with 4% due to organic growth and 3% due to business acquisition net of disposals. This segment reported adjusted EBITDA of $18,000,000 representing adjusted EBITDA margin of 7%, up from $14,000,000 and 6% in Q4 last year. This increase is mainly attributable to higher margins on projects revenues compared to the previous year. The Q4 twenty twenty three was also affected by other performance on a few large contracts in The U. S.

Finally, our segment Corporate and Other reported revenues of $10,000,000 compared to $2,022,000,000 dollars in Q4 last year, a decrease of $12,000,000 where $9,000,000 is due to business disposal and $3,000,000 is due to organic decline. Adjusted EBITDA was negative $6,000,000 in both Q4 twenty twenty four and Q4 twenty twenty three. I would like to turn the call now to Claude, who will provide further comments on GDi performance during the quarter.

Claude Digard, President and CEO, GDi: Well, thank you, Charles. It’s Jan. And thank you, everyone, for taking the time to listen to our call to discuss GDi’s results for the fourth quarter of twenty twenty four. GDi performed well during the quarter, generating revenues of $634,000,000 and an adjusted EBITDA of $38,000,000 representing the margin of 6%. Our Business Service Canada segment delivered very consistent results, which is $150,000,000 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 remain very vigilant and ready to make the necessary adjustments if and when needed. Our business service, U.

S. 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 twenty twenty four, 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 lost 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 are and will be starting up in Q1 and Q2 of twenty twenty five. Additionally, quarter over quarter revenue comparisons should normalize in Q2 twenty twenty five, 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 twenty twenty four compared to the same quarter last year in both our business service segments, which represents a total of approximately $3,000,000 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 $250,000,000 in revenue and an adjusted EBITDA margin of 7%. This was the segment highest Q4 EBITDA margin to date, 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 $19,000,000 in Q4. Dollars ’7 million of this decrease is related to business divestiture. At the same time, unfavorable foreign exchange effect served to increase working cap by $10,000,000 As a result, on a normalized basis, the decrease in working cap could have been 22,000,000 thus validating our cash management initiative. Since we launched our working cap reduction initiative in Q4 of twenty twenty three, we have generated $44,000,000 reduction net of foreign exchange and M and A, which is approximately 90% of our original objective. Additionally, we reduced GDI long term debt by $36,000,000 in Q4, primarily from cash flow generation and a business divestiture.

This decrease was partially offset by an increase of $19,000,000 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 $55,000,000 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 install 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 expect limited impact as the segment is working with its suppliers and client 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 lines for questions from analysts. Thank

Conference Operator: you. And your first question comes from Derek Lessard from TD Cowen. Please go ahead.

Derek Lessard, Analyst, TD Cowen: Yes. Good morning, everybody, and thanks for taking my questions.

Claude Digard, President and CEO, GDi: Good morning, Claude.

Derek Lessard, Analyst, TD Cowen: 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?

Claude Digard, President and CEO, GDi: Well, our business is somehow, I would say, how can I say this, not adjustable because you asked me ask about adjusting, is we will modulate the business in our overhead structure according to market obstacles 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. Okay, okay. I got it.

Thank you for the clarification. The big point, Derek, is when clients are suffering, we’re there as we want to be a solution. We don’t want to be a problem for them.

Derek Lessard, Analyst, TD Cowen: In other words, a good partner?

Claude Digard, President and CEO, GDi: Hopefully, yes.

Derek Lessard, Analyst, TD Cowen: 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.

Claude Digard, President and CEO, GDi: 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 client has a strong project base that fluctuates over quarters. So I don’t want to give 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 has 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 win going back to normal. Okay. Thanks for that, Claude.

I’ll Yes. You know what, we get new clients, but they need to set up and we start as the Q2 will occur. That’s a normal thing.

Derek Lessard, Analyst, TD Cowen: Got it. Thank you.

Conference Operator: Your next question comes from Jonathan Goldman from Scotiabank. Please go ahead.

Jonathan Goldman, Analyst, Scotiabank: Hi. Good morning. Thanks for taking my questions. Good morning Claude. Could 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?

Claude Digard, President and CEO, GDi: Okay. Well, your second question is, so far, no. I don’t think there’s anything. APCI, when we acquired Ensworth, APCI was 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. We had a great business 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 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.

Jonathan Goldman, Analyst, Scotiabank: 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?

Claude Digard, President and CEO, GDi: As you see, when we initiated this project, we were anticipating to do 50 by the end of twenty twenty four. 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 towards cash flow management for what our higher management. So, you know what, 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.

Jonathan Goldman, Analyst, Scotiabank: 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?

Claude Digard, President and CEO, GDi: Can you you know what, just want to make sure what business segments you were saying? Technical. Technical, okay. I just wanted to make sure. Okay.

So technical, I think that it’s 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, I don’t want to do forward looking statement, but 5%, six %, I would be, I think it would be in this area.

Jonathan Goldman, Analyst, Scotiabank: That’s for 25% or just more like a long term type of growth?

Claude Digard, President and CEO, GDi: Long term, I mean, it’s year over year. But again, I’m not going segment by segment because segments are somewhat funny. But year over year, I expect five, six.

Jonathan Goldman, Analyst, Scotiabank: In technical services?

Claude Digard, President and CEO, GDi: Yes.

Conference Operator: And your next question comes from Frederic Tremblay from Desjardins. Please go ahead.

Claude Digard, President and CEO, GDi: Good morning, Frederic.

Frederic Tremblay, Analyst, Desjardins: 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.

Claude Digard, President and CEO, GDi: Yes. No, no, fair question, Frederic. Listen, me too, actually. But we start with the last pricing scenario from their largest clients. So that really gives us a challenge to start the year to start with.

So that’s a very 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, Q3, Q4, it looks very strong. So this is not a typical client to be very honest. So but like I said, other regular strong business, new clients coming in this segment will normalize that aspect. So we should go back to a normal growth factor, plus sometime peaks maybe in dupe with this client at this project, a little bit more project focused.

Frederic Tremblay, Analyst, Desjardins: Okay, great. That’s very helpful. Thanks for that. Maybe switching to technical 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?

Claude Digard, President and CEO, GDi: You know what, Frederic, if you ask me this morning, nothing to report, it’s still working as usual. Now your guess is as good as mine. You know what, 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 kick in yesterday.

So, what, in three, four, five months, I don’t know. But so far, nothing.

Frederic Tremblay, Analyst, Desjardins: Okay, good.

Claude Digard, President and CEO, GDi: But again, as I told you is, if I’m taking the consideration that our cost would be minimal, so us, our go to market pricing strategy will not change much. It could be probably the client state of mind or their impact that could affect their buying. But on our hand, there’s no big change.

Frederic Tremblay, Analyst, Desjardins: Okay, perfect. And last one for me. Given the strong progress on working capital 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, Christopher?

Claude Digard, President and CEO, GDi: 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’ll say it is, we’re very savvy on our pricing because interest rate 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.

Conference Operator: Your next question comes from Zachary Evershed from National Bank. Please go ahead.

Claude Digard, President and CEO, GDi: Good morning, sir. Good morning, everyone.

Zachary Evershed, Analyst, National Bank: Congrats on the quarter.

Claude Digard, President and CEO, GDi: Thank you, sir.

Zachary Evershed, Analyst, National Bank: 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?

Claude Digard, President and CEO, GDi: No, yes, 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 what we went and we came into a lower delivery under backlog for a couple of quarters, but no, there’s no seasonality.

Zachary Evershed, Analyst, National Bank: Got you. 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?

Claude Digard, President and CEO, GDi: It’s, yes, you’re good. Exactly. You know what, our prices are mainly all locked down. We have in linked 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 equipments. People have stocked equipment already and people will keep their pricing. So far, so good. Now if it lasts a year, one point five years, but I think the market will normalize itself and we also will normalize our margin as well. I mean, normalize by adjusting, this is what I said.

Zachary Evershed, Analyst, National Bank: Makes sense. 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?

Claude Digard, President and CEO, GDi: No, not yet. I think there’s too much happening.

Zachary Evershed, Analyst, National Bank: Fair enough. And then last one for me. Any interest in the NCIB share repurchases at these levels?

Claude Digard, President and CEO, GDi: Okay. Any interest in what?

Zachary Evershed, Analyst, National Bank: Buying back shares.

Claude Digard, President and CEO, GDi: No, no, but I did not understand the word okay, okay. So and then okay and then CIB, okay. No, no, no, no.

Jonathan Goldman, Analyst, Scotiabank: Perfectly clear. Thank you

Zachary Evershed, Analyst, National Bank: very much. I’ll turn it over.

Claude Digard, President and CEO, GDi: It’s a big no. We have something else to do with the money.

Conference Operator: And we have a follow-up question from Derek Lessard from TD Cowen. Please go ahead.

Derek Lessard, Analyst, TD Cowen: 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 TS?

Claude Digard, President and CEO, GDi: In TS? GenTS. Okay, I’m sorry. Yes, 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 still work at the very strong pace.

Derek Lessard, Analyst, TD Cowen: Okay, cool. 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?

Claude Digard, President and CEO, GDi: Well, no, I think it’s largely done. Listen, we paid a 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 bought.

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.

Conference Operator: At this time, we have no other questions. Please proceed.

Claude Digard, President and CEO, GDi: 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 as stable as we can be. And we will stay resilient should things change dramatically in the global economy.

So this is where 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.

Conference Operator: Ladies and gentlemen, this concludes the conference. You may now disconnect your lines.

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