TSE:GDI GDI Integrated Facility Services Q2 2024 Earnings Report C$31.20 +0.20 (+0.65%) As of 12:58 PM Eastern Earnings HistoryForecast GDI Integrated Facility Services EPS ResultsActual EPSC$0.07Consensus EPS C$0.18Beat/MissMissed by -C$0.11One Year Ago EPSN/AGDI Integrated Facility Services Revenue ResultsActual Revenue$639.00 millionExpected Revenue$648.70 millionBeat/MissMissed by -$9.70 millionYoY Revenue GrowthN/AGDI Integrated Facility Services Announcement DetailsQuarterQ2 2024Date8/7/2024TimeN/AConference Call DateThursday, August 8, 2024Conference Call Time9:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress ReleaseEarnings HistoryCompany ProfilePowered by GDI Integrated Facility Services Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 8, 2024 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen, and welcome to the GDI Integrated Facility Services Inc. 2nd Quarter 2024 Results Conference Call. This call is being recorded on Thursday, August 8, 2024. I would now like to turn the conference over to Stephane Leving. Please go ahead. Speaker 100:00:31Thank you, operator, bon matinee, and good morning all, and welcome to GDI's conference call to discuss our results for the Q2 of fiscal 2024. My name is Stephane Leving. I'm Senior Vice President and Chief Financial Officer of GDI. I'm here with Claude Bighar, 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 the full description of the forward looking Safe Harbor provision that is fully described at the beginning in the MD and A filed on SEDAR at the end of last night. Speaker 100:01:06I will begin the call with an overview of GDI's financial results for the Q2 fiscal 'twenty four, and then we'll invite Claude to provide his comments on the business. In the Q2, GDI recorded revenue of $639,000,000 an increase of $30,000,000 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 of $34,000,000 in the quarter, in line with Q2 of last year and up $6,000,000 compared to our Q1 of 2024. On a year to date basis, revenue increased by $83,000,000 or 7 percent to reach $1,300,000,000 compared to $1,200,000,000 last year. Year over year revenue growth from acquisition was 6% and organic growth was 1%. Speaker 100:01:56Adjusted EBITDA in the first half amounted to 61,000,000 dollars a decrease of 6% or 9% over the corresponding period of 2023, mainly due to the customer runs incurred on the 3 projects in the U. S. 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 $145,000,000 in the second quarter, while generating $12,000,000 in adjusted EBITDA, representing an adjusted EBITDA margin of 8%, up by $1,000,000 compared to Q1 of 2024. Our Business Service USA segment recorded revenue of $221,000,000 in Q2, representing an increase of $41,000,000 when compared to Q2 of last year, mainly due to the Italian and Paramount acquisitions and 1% organic growth, which was generated despite the loss of a major customer that started affecting the segment toward the end of Q1. Speaker 100:02:57The segment reported adjusted EBITDA of $14,000,000 in line with Q2, 1 of 2024 $1,000,000 higher than Q2 of last year. Our Technical Service segment recorded revenue of $259,000,000 compared to 2 $64,000,000 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 $14,000,000 at 5% of adjusted EBITDA margin, which is $2,000,000 higher than Q2 of last year. Finally, our Corporate and Other segment reported revenue of $14,000,000 compared to $21,000,000 last year, mainly due to the sale of our distribution and retail business at the beginning of the quarter, partially offset by the growth generated in our U. S. Speaker 100:03:44Manufacturing operations. I would like now to turn the call to Claude, who will provide further comments on GDI performance during the quarter. Speaker 200:03:52Well, monsie Stephane, 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 Q2. 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 over the Q1 of the year. Notably, EBITDA margin is holding in line with our previous guidance of 100 to 200 basis points above the pre COVID level, and we expect to sustain this over the near midterm. Speaker 200:04:38Occupancy 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 client 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 Italian business that we acquired at the end of 2023 is progressing well. Speaker 200:05:18While margins continue to be slightly impacted by Italian 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 U. S. Remain relatively well insulated from the credit related challenge we have been seeing in other parts of the real estate industry. Speaker 200:05:53We typically work with large to midsize building with a 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 in the prior year. As a result, this will have an effect on quarter over quarter comparisons as one working day represents approximately $3,500,000 in labor costs and benefits in our business service segment on a combined basis. Speaker 200:06:48Extra and fewer working days are irregular periodic events that has positive or negative effect when looking at quarter over quarter results. Our technical service segment had also a very good quarter. As expected, the 3 projects 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 Ensworth has a seasonality as a business with Q1 and Q2 traditionally been weaker due to the ramp up of HVAC season. Speaker 200:07:38The 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, Enzwek closed the acquisition of Rycom Corporation. Based in Toronto, Rycom is considered as a leader in smart building technology in Canada. Especially, 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 in building occupant. Speaker 200:08:25Rycom further solidifies Handsworth 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 $100,000,000 over a 5 year period to provide our clients with a low cost funding for energy and carbon reduction projects. Ensworth and its Energia subsidiary will provide complete end to end analysis, design built retrofit service for projects, where each building is expected to reduce greenhouse gas emission 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. Speaker 200:09:38This initiative with the CIB helps to demonstrate Ensworth 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 2 remaining facilities through which Superior through where Superior operated over the next few quarter and expect a combined growth proceed in the $25,000,000 to $30,000,000 range. I am happy with GDI performance in Q2 this year. Speaker 200:10:30Our business service team in Canada has been working hard and delivered well in the dynamically challenging office environment and preserve margin and keep our clients satisfied. Our business service team in the USA 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'm very optimistic for the remainder of 2024. Our balance sheets remain healthy with leverage sitting within our comfort zone. Speaker 200:11:18We remain focused on reducing our operating working capital in the second half of twenty twenty four, which will be used to further reduce debt, And we continue to execute on our growth through acquisition strategy, having completed 3 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 for to research analysts for questions. Operator00:11:51Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question comes from Gabriel Moreau with Scotiabank. Your line is now open. Speaker 300:12:22Hi. I'm calling for Jonathan Goemon. My question is on Technical Services. How do you see this segment margins evolving in the second half? Do you expect margins to follow the typical seasonal pattern? Speaker 200:12:39Well, actually, as you know, we had to resolve an issue in late 2023 2024. Now the business is back to its, I would say, 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. Speaker 300:13:17Thank you. And on the working cap for this year, are you still expecting to reduce working cap by $30,000,000 through the balance of the year? Speaker 200:13:27Yes, 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. Operator00:13:44Your next question comes from Derek Lessard with TD Cowen. Your line is now open. Speaker 400:13:50Yes, good morning everybody. I hope you're doing well. Good morning. I maybe 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? Speaker 200:14:12Okay. Well, Derek, listen, good news. We have our candidate in house. So we have circulated some news of that front. So the idea is Charlotte Saint Gerard, which are our VP of reporting will succeed Stephane in September. Speaker 200:14:36And Stephan will remain with the organization for on a full time basis until the end of the year and on extended that advisory basis for 2024 to help and support Chardetian into his new functions. And so, the good news is, our talents were insight and we're looking forward to see Charlethian in action. And so and Stephane, like I said, is not going too far. He's staying around us for the next little while. Speaker 400:15:08Yes. So, Claude, always good to see strong bench strength. So the plan is for Vishal eventually to be appointed CFO? Speaker 200:15:21Yes. And I can tell you this, I've been working with him for the last 30 days. He is very involved in the web visiting all our locations, meeting people. I think he's getting his grasp around it. That's a good news. Speaker 400:15:35Very good. Good to hear too. On the Italia 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 BSU segment? Speaker 200:16:00Okay. 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 2 remaining quarters should deliver a more sustainable margin. Speaker 200:16:27On the regular business cleaning, so 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 our aim 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. Speaker 200:17:00All the names, the brand, the people, the supervision, the organizational structure has been all incorporated in GDI, our accounting and finance. So I think we put everything together to be successful this year. Speaker 400:17:17Awesome. 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? Speaker 200:17:39Yes, well, listen, exactly. So now I think that to be very precise, I think it was 5.4 at this quarter. Maybe my colleagues will look at me with big eyes, but I do believe that our target will be to bring it to 7% at some point. Now, but one step at the time, we are increasing we're working on a working cap increasing margins and all this will bring us to the 7% mark at some point. Operator00:18:13Your next question comes from Zachary Evershed with National Bank Financial. Your line is now open. Speaker 500:18:20Good morning, everyone. Speaker 200:18:22Good morning, Zachary. Good Speaker 500:18:25morning. With the record backlog in Technical Services, it will 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? Speaker 200:18:40Well, actually, Zachary, now where we stand at this point, our backlog is showing an improvement of about 150 bps. And we expected to show 250 bps probably by the end of Q3. So you understand that higher margin at the backlog will deliver higher EBITDA margin at the end. So we are seeing it already because we start this initiatives a couple of quarters ago. But like you said, it takes time because all of the previous work, it needs to be executed. Speaker 200:19:18So but now our backlog is, like I said, the 150 bps over last year, I call it 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 100 and 50 bps by the end of the year, I think it will really support our objectives. Speaker 500:19:49That's great color. Thanks. And then for Business Services, the U. S, 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. Speaker 500:20:04What's your outlook on the likelihood of bouncing back to the 7% to 8% range in that segment? Speaker 200:20:13Okay. Well, that's an interesting question. As you know, Zachary, U. S. Has been full of not challenges, but full of events. Speaker 200:20:25We acquired Italian with as you know that we started with a lower margin. We have our this large customer lost. Now we aggressively what pick up a large customers with aggressive margins to compensate and there is the, I would say, the office normalization. So we have a lot to cope with in the U. S. Speaker 200:20:50So as we are growing and now we are rationalizing and also the good news is we have 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. Operator00:21:23Your next question comes from Jeff Fenwick with Cormark Securities. Speaker 600:21:33Claude, I wanted to ask about organic growth in business services and maybe we'll split it between the U. S. And Canada. And as you said, you've done a lot of work to replace a lost customer in the U. S. Speaker 600:21:46But 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 you built there, I imagine that's a pretty good pace of business expansion you've had there. So I would imagine going forward, organic growth should be a bit stronger when you report it. Speaker 200:22:07Well, listen, I would I'm always looking, 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. Speaker 200:22:40So into an inflationary period where customers are challenged because we have some customer which are 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. Speaker 200:23:06My wish is that we have a net organic growth between 4% to 6% every year. So this is usually what we are aiming for. Speaker 600:23:17Okay, that's good color. Thank you. And then I wanted to ask about the CIB program that you've announced here. I'm 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. Speaker 600:23:36But 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 Speaker 100:23:48can you just give us a Speaker 600:23:49little bit of color about the benefits of that program? Speaker 200:23:53Yes. 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. Speaker 200:24:09So as what 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 is this is tomorrow one of tomorrow's drivers and we have to be up to par to service our clientele. I hope you agree with that. Secondly is this initiative will generate a substantial amount of work over the next 10 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. Speaker 200:24:59So that's the second part of it. The third part of it is, you see, now we will probably we will generate, I would say, we will generate profitability through 2 parts. 1, on the end work 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, we like I said is 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. Speaker 200:25:47This being said, this 20% will be probably also take the form of a fee managed and turn into equity. So it will 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, don't hesitate to ask me more questions if you want. Speaker 600:26:16Yes, 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. It's a bit of encouragement to pursue these projects, obviously. Speaker 100:26:30So I'm just curious if you take the Speaker 600:26:32lower return potential out of that type of loan. Speaker 200:26:36I'm sorry, lower return? Speaker 600:26:38Well, I mean, if you're effectively lending the customer money, is it being to them a 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 that equity that's going into this? Speaker 200:26:56Okay. You know what, maybe I just want to make sure. What Alamy, 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 device communica. Speaker 200:27:23If you have a higher interest rate, 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? Speaker 600:27:39Yes, I think I get what you're speaking to there, yes. Speaker 200:27:42So my point is, you know what, the point is, we're providing the clients and don't forget us, our revenue is based on capturing the savings generated through the initiatives. So actually what we what the SPV will receive is the amounts of savings generated through the program over a certain period of time. So yes, the programs, the modelization is built around providing the equity investor with the fair right amount of return based on the risk level, etcetera. And hands worth is the model is based on hands worth making is 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. Speaker 200:28:44So I think it's a great, great initiative from the government to support this, the decarbonation strategies. Don't you think so? Speaker 600:28:54Yes, that's very helpful color. I appreciate that. Thank you. I'll that's all I had. Speaker 200:28:58It's hard to say bear with me, it's hard to explain the program of this magnitude in 3 minutes. So bear with me. Speaker 600:29:05Absolutely. Thank you. Operator00:29:14Your next question comes from Liam Bergeve with Desjardins Capital Markets. Your line is now open. Speaker 200:29:22Hi. Good morning. Good morning. Speaker 700:29:23This is Liam for Fred. Could you share your observations on the M and A environment, more especially on your pipeline in the U. S. Where GDI seems to have a significant extension potential? Speaker 200:29:37Well, listen, as you know, as M and A is part of our day bread and butter. David and his teams are always working actively into it. We feel like the environment has normalized itself a little bit now. We live the period where everybody was selling grandmother in the COVID era. So now we are past that. Speaker 200:30:02Now the business is getting to a new normal. So yes, we are 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 business, it's to buy business at the right price. That's the ticket. Speaker 700:30:28Great. That makes sense. And maybe on the my second question would be on the acquisition of Rycom, would you be able to quantify your expectations for Rycom's annual revenue generation? Speaker 200:30:47Rycom, on the revenue side, is not a big needle mover of the revenue side. Ricom 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 back this with my prior answers. So the objective behind RICOM is really to support our objective in the technology sector to start with. This being said, you know, a Rycon 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. Speaker 700:31:39Understood. Well, that's all for me. Thank you for taking my questions. Speaker 100:31:44Thank you. Operator00:31:48There are no further questions at this time. I will now turn the call over to Mr. Biedra for closing remarks. Speaker 200:31:56Well, again, thank you very much for taking the time. I would just like to share with you that we are 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. Speaker 200:32:23We'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. Operator00:32:40Ladies and gentlemen, this concludes your conference call for today. We thank you for participating in SA. Please disconnect your lines.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallGDI Integrated Facility Services Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release GDI Integrated Facility Services Earnings HeadlinesWith 32% ownership, GDI Integrated Facility Services Inc. (TSE:GDI) has piqued the interest of institutional investorsApril 10, 2025 | uk.finance.yahoo.comInvestors in GDI Integrated Facility Services (TSE:GDI) have unfortunately lost 37% over the last three yearsMarch 3, 2025 | finance.yahoo.comNow I look stupid. Real stupid... I thought what happened 25 years ago was a once- in-a-lifetime event… but how wrong I was. Because here we are, a quarter of a century later, almost to the exact day, and it’s happening again. April 25, 2025 | Porter & Company (Ad)Estimating The Fair Value Of GDI Integrated Facility Services Inc. (TSE:GDI)February 16, 2025 | finance.yahoo.com1 Undervalued TSX Stock Down 42% to Buy and HoldFebruary 15, 2025 | ca.finance.yahoo.comStrike averted as SEIU Local 2 janitors ratify agreement in HalifaxJanuary 26, 2025 | markets.businessinsider.comSee More GDI Integrated Facility Services Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like GDI Integrated Facility Services? Sign up for Earnings360's daily newsletter to receive timely earnings updates on GDI Integrated Facility Services and other key companies, straight to your email. Email Address About GDI Integrated Facility ServicesGDI Integrated Facility Services (TSE:GDI) Inc is engaged in the facility services sector. The company's operating segment includes Janitorial Canada, Janitorial USA, Technical services and Complementary Services. It generates maximum revenue from the Janitorial Canada segment. The Janitorial Canada and Janitorial USA segments provide a wide range of basic janitorial services, such as floor cleaning and finishing, window washing, furniture polishing, carpet cleaning, and dusting, as well as other building services including lawn maintenance, snow removal and other. 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There are 8 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen, and welcome to the GDI Integrated Facility Services Inc. 2nd Quarter 2024 Results Conference Call. This call is being recorded on Thursday, August 8, 2024. I would now like to turn the conference over to Stephane Leving. Please go ahead. Speaker 100:00:31Thank you, operator, bon matinee, and good morning all, and welcome to GDI's conference call to discuss our results for the Q2 of fiscal 2024. My name is Stephane Leving. I'm Senior Vice President and Chief Financial Officer of GDI. I'm here with Claude Bighar, 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 the full description of the forward looking Safe Harbor provision that is fully described at the beginning in the MD and A filed on SEDAR at the end of last night. Speaker 100:01:06I will begin the call with an overview of GDI's financial results for the Q2 fiscal 'twenty four, and then we'll invite Claude to provide his comments on the business. In the Q2, GDI recorded revenue of $639,000,000 an increase of $30,000,000 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 of $34,000,000 in the quarter, in line with Q2 of last year and up $6,000,000 compared to our Q1 of 2024. On a year to date basis, revenue increased by $83,000,000 or 7 percent to reach $1,300,000,000 compared to $1,200,000,000 last year. Year over year revenue growth from acquisition was 6% and organic growth was 1%. Speaker 100:01:56Adjusted EBITDA in the first half amounted to 61,000,000 dollars a decrease of 6% or 9% over the corresponding period of 2023, mainly due to the customer runs incurred on the 3 projects in the U. S. 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 $145,000,000 in the second quarter, while generating $12,000,000 in adjusted EBITDA, representing an adjusted EBITDA margin of 8%, up by $1,000,000 compared to Q1 of 2024. Our Business Service USA segment recorded revenue of $221,000,000 in Q2, representing an increase of $41,000,000 when compared to Q2 of last year, mainly due to the Italian and Paramount acquisitions and 1% organic growth, which was generated despite the loss of a major customer that started affecting the segment toward the end of Q1. Speaker 100:02:57The segment reported adjusted EBITDA of $14,000,000 in line with Q2, 1 of 2024 $1,000,000 higher than Q2 of last year. Our Technical Service segment recorded revenue of $259,000,000 compared to 2 $64,000,000 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 $14,000,000 at 5% of adjusted EBITDA margin, which is $2,000,000 higher than Q2 of last year. Finally, our Corporate and Other segment reported revenue of $14,000,000 compared to $21,000,000 last year, mainly due to the sale of our distribution and retail business at the beginning of the quarter, partially offset by the growth generated in our U. S. Speaker 100:03:44Manufacturing operations. I would like now to turn the call to Claude, who will provide further comments on GDI performance during the quarter. Speaker 200:03:52Well, monsie Stephane, 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 Q2. 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 over the Q1 of the year. Notably, EBITDA margin is holding in line with our previous guidance of 100 to 200 basis points above the pre COVID level, and we expect to sustain this over the near midterm. Speaker 200:04:38Occupancy 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 client 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 Italian business that we acquired at the end of 2023 is progressing well. Speaker 200:05:18While margins continue to be slightly impacted by Italian 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 U. S. Remain relatively well insulated from the credit related challenge we have been seeing in other parts of the real estate industry. Speaker 200:05:53We typically work with large to midsize building with a 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 in the prior year. As a result, this will have an effect on quarter over quarter comparisons as one working day represents approximately $3,500,000 in labor costs and benefits in our business service segment on a combined basis. Speaker 200:06:48Extra and fewer working days are irregular periodic events that has positive or negative effect when looking at quarter over quarter results. Our technical service segment had also a very good quarter. As expected, the 3 projects 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 Ensworth has a seasonality as a business with Q1 and Q2 traditionally been weaker due to the ramp up of HVAC season. Speaker 200:07:38The 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, Enzwek closed the acquisition of Rycom Corporation. Based in Toronto, Rycom is considered as a leader in smart building technology in Canada. Especially, 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 in building occupant. Speaker 200:08:25Rycom further solidifies Handsworth 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 $100,000,000 over a 5 year period to provide our clients with a low cost funding for energy and carbon reduction projects. Ensworth and its Energia subsidiary will provide complete end to end analysis, design built retrofit service for projects, where each building is expected to reduce greenhouse gas emission 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. Speaker 200:09:38This initiative with the CIB helps to demonstrate Ensworth 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 2 remaining facilities through which Superior through where Superior operated over the next few quarter and expect a combined growth proceed in the $25,000,000 to $30,000,000 range. I am happy with GDI performance in Q2 this year. Speaker 200:10:30Our business service team in Canada has been working hard and delivered well in the dynamically challenging office environment and preserve margin and keep our clients satisfied. Our business service team in the USA 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'm very optimistic for the remainder of 2024. Our balance sheets remain healthy with leverage sitting within our comfort zone. Speaker 200:11:18We remain focused on reducing our operating working capital in the second half of twenty twenty four, which will be used to further reduce debt, And we continue to execute on our growth through acquisition strategy, having completed 3 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 for to research analysts for questions. Operator00:11:51Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question comes from Gabriel Moreau with Scotiabank. Your line is now open. Speaker 300:12:22Hi. I'm calling for Jonathan Goemon. My question is on Technical Services. How do you see this segment margins evolving in the second half? Do you expect margins to follow the typical seasonal pattern? Speaker 200:12:39Well, actually, as you know, we had to resolve an issue in late 2023 2024. Now the business is back to its, I would say, 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. Speaker 300:13:17Thank you. And on the working cap for this year, are you still expecting to reduce working cap by $30,000,000 through the balance of the year? Speaker 200:13:27Yes, 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. Operator00:13:44Your next question comes from Derek Lessard with TD Cowen. Your line is now open. Speaker 400:13:50Yes, good morning everybody. I hope you're doing well. Good morning. I maybe 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? Speaker 200:14:12Okay. Well, Derek, listen, good news. We have our candidate in house. So we have circulated some news of that front. So the idea is Charlotte Saint Gerard, which are our VP of reporting will succeed Stephane in September. Speaker 200:14:36And Stephan will remain with the organization for on a full time basis until the end of the year and on extended that advisory basis for 2024 to help and support Chardetian into his new functions. And so, the good news is, our talents were insight and we're looking forward to see Charlethian in action. And so and Stephane, like I said, is not going too far. He's staying around us for the next little while. Speaker 400:15:08Yes. So, Claude, always good to see strong bench strength. So the plan is for Vishal eventually to be appointed CFO? Speaker 200:15:21Yes. And I can tell you this, I've been working with him for the last 30 days. He is very involved in the web visiting all our locations, meeting people. I think he's getting his grasp around it. That's a good news. Speaker 400:15:35Very good. Good to hear too. On the Italia 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 BSU segment? Speaker 200:16:00Okay. 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 2 remaining quarters should deliver a more sustainable margin. Speaker 200:16:27On the regular business cleaning, so 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 our aim 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. Speaker 200:17:00All the names, the brand, the people, the supervision, the organizational structure has been all incorporated in GDI, our accounting and finance. So I think we put everything together to be successful this year. Speaker 400:17:17Awesome. 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? Speaker 200:17:39Yes, well, listen, exactly. So now I think that to be very precise, I think it was 5.4 at this quarter. Maybe my colleagues will look at me with big eyes, but I do believe that our target will be to bring it to 7% at some point. Now, but one step at the time, we are increasing we're working on a working cap increasing margins and all this will bring us to the 7% mark at some point. Operator00:18:13Your next question comes from Zachary Evershed with National Bank Financial. Your line is now open. Speaker 500:18:20Good morning, everyone. Speaker 200:18:22Good morning, Zachary. Good Speaker 500:18:25morning. With the record backlog in Technical Services, it will 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? Speaker 200:18:40Well, actually, Zachary, now where we stand at this point, our backlog is showing an improvement of about 150 bps. And we expected to show 250 bps probably by the end of Q3. So you understand that higher margin at the backlog will deliver higher EBITDA margin at the end. So we are seeing it already because we start this initiatives a couple of quarters ago. But like you said, it takes time because all of the previous work, it needs to be executed. Speaker 200:19:18So but now our backlog is, like I said, the 150 bps over last year, I call it 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 100 and 50 bps by the end of the year, I think it will really support our objectives. Speaker 500:19:49That's great color. Thanks. And then for Business Services, the U. S, 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. Speaker 500:20:04What's your outlook on the likelihood of bouncing back to the 7% to 8% range in that segment? Speaker 200:20:13Okay. Well, that's an interesting question. As you know, Zachary, U. S. Has been full of not challenges, but full of events. Speaker 200:20:25We acquired Italian with as you know that we started with a lower margin. We have our this large customer lost. Now we aggressively what pick up a large customers with aggressive margins to compensate and there is the, I would say, the office normalization. So we have a lot to cope with in the U. S. Speaker 200:20:50So as we are growing and now we are rationalizing and also the good news is we have 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. Operator00:21:23Your next question comes from Jeff Fenwick with Cormark Securities. Speaker 600:21:33Claude, I wanted to ask about organic growth in business services and maybe we'll split it between the U. S. And Canada. And as you said, you've done a lot of work to replace a lost customer in the U. S. Speaker 600:21:46But 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 you built there, I imagine that's a pretty good pace of business expansion you've had there. So I would imagine going forward, organic growth should be a bit stronger when you report it. Speaker 200:22:07Well, listen, I would I'm always looking, 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. Speaker 200:22:40So into an inflationary period where customers are challenged because we have some customer which are 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. Speaker 200:23:06My wish is that we have a net organic growth between 4% to 6% every year. So this is usually what we are aiming for. Speaker 600:23:17Okay, that's good color. Thank you. And then I wanted to ask about the CIB program that you've announced here. I'm 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. Speaker 600:23:36But 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 Speaker 100:23:48can you just give us a Speaker 600:23:49little bit of color about the benefits of that program? Speaker 200:23:53Yes. 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. Speaker 200:24:09So as what 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 is this is tomorrow one of tomorrow's drivers and we have to be up to par to service our clientele. I hope you agree with that. Secondly is this initiative will generate a substantial amount of work over the next 10 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. Speaker 200:24:59So that's the second part of it. The third part of it is, you see, now we will probably we will generate, I would say, we will generate profitability through 2 parts. 1, on the end work 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, we like I said is 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. Speaker 200:25:47This being said, this 20% will be probably also take the form of a fee managed and turn into equity. So it will 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, don't hesitate to ask me more questions if you want. Speaker 600:26:16Yes, 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. It's a bit of encouragement to pursue these projects, obviously. Speaker 100:26:30So I'm just curious if you take the Speaker 600:26:32lower return potential out of that type of loan. Speaker 200:26:36I'm sorry, lower return? Speaker 600:26:38Well, I mean, if you're effectively lending the customer money, is it being to them a 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 that equity that's going into this? Speaker 200:26:56Okay. You know what, maybe I just want to make sure. What Alamy, 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 device communica. Speaker 200:27:23If you have a higher interest rate, 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? Speaker 600:27:39Yes, I think I get what you're speaking to there, yes. Speaker 200:27:42So my point is, you know what, the point is, we're providing the clients and don't forget us, our revenue is based on capturing the savings generated through the initiatives. So actually what we what the SPV will receive is the amounts of savings generated through the program over a certain period of time. So yes, the programs, the modelization is built around providing the equity investor with the fair right amount of return based on the risk level, etcetera. And hands worth is the model is based on hands worth making is 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. Speaker 200:28:44So I think it's a great, great initiative from the government to support this, the decarbonation strategies. Don't you think so? Speaker 600:28:54Yes, that's very helpful color. I appreciate that. Thank you. I'll that's all I had. Speaker 200:28:58It's hard to say bear with me, it's hard to explain the program of this magnitude in 3 minutes. So bear with me. Speaker 600:29:05Absolutely. Thank you. Operator00:29:14Your next question comes from Liam Bergeve with Desjardins Capital Markets. Your line is now open. Speaker 200:29:22Hi. Good morning. Good morning. Speaker 700:29:23This is Liam for Fred. Could you share your observations on the M and A environment, more especially on your pipeline in the U. S. Where GDI seems to have a significant extension potential? Speaker 200:29:37Well, listen, as you know, as M and A is part of our day bread and butter. David and his teams are always working actively into it. We feel like the environment has normalized itself a little bit now. We live the period where everybody was selling grandmother in the COVID era. So now we are past that. Speaker 200:30:02Now the business is getting to a new normal. So yes, we are 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 business, it's to buy business at the right price. That's the ticket. Speaker 700:30:28Great. That makes sense. And maybe on the my second question would be on the acquisition of Rycom, would you be able to quantify your expectations for Rycom's annual revenue generation? Speaker 200:30:47Rycom, on the revenue side, is not a big needle mover of the revenue side. Ricom 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 back this with my prior answers. So the objective behind RICOM is really to support our objective in the technology sector to start with. This being said, you know, a Rycon 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. Speaker 700:31:39Understood. Well, that's all for me. Thank you for taking my questions. Speaker 100:31:44Thank you. Operator00:31:48There are no further questions at this time. I will now turn the call over to Mr. Biedra for closing remarks. Speaker 200:31:56Well, again, thank you very much for taking the time. I would just like to share with you that we are 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. Speaker 200:32:23We'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. Operator00:32:40Ladies and gentlemen, this concludes your conference call for today. We thank you for participating in SA. Please disconnect your lines.Read morePowered by