GDI Integrated Facility Services Extends Opportunities in Canada & North America

We have started coverage on the common shares of GDI Integrated Facility Services Inc. (GDI:CN) Integrated Facility Services Inc. with a “Sector Outperform” rating and a 12 months target of $23.00 per share.

For the six-month period, revenue increased by $51.1 million , or 17.8%, to reach $338.5 million , and the second quarter revenue increased by $23.4 million or 15.5%, to reach $174.3 million .

Revenue growth was primarily generated through acquisitions, organic growth and the appreciation of the U.S. dollar over the Canadian dollar.

For the six-month period, Adjusted EBITDA(1) increased by $0.2 million , or 1.0%, to $17.7 million compared to the corresponding period of fiscal 2014. Second quarter Adjusted EBITDA(1) decreased by $0.7 million , or 7.9%, to $8.7 million compared to the corresponding quarter of fiscal 2014 mainly as a result of additional corporate expenses to support the Company’s debut as a publicly traded entity, margin pressure in the Janitorial – Canada segment due to softer economic conditions and costs related to the start-up of manufacturing operations and the consolidation of distribution infrastructure in the Complementary Services segment in Ontario . As a result, Adjusted EBITDA margin(1) decreased from 6.1% to 5.2% in the six-month period of fiscal 2015 and from 6.2% to 5.0% for the second quarter of 2015. Management expects that operating margins will improve as the one-time initiatives in the Complimentary Services segment are now complete and the additional corporate expenses related to the debut as a public traded entity are absorbed as GDI continues to grow. Further, management believes it can realize operating efficiencies to improve profitability.

For the six-month period, net loss amounted to $10.7 million or $1.16 per share compared to a net loss of $5.9 million or $3.06 per share in fiscal 2014 mainly due to an increase in net finance expense from the fair-value accretion on the puttable and convertible shares and on special units – capital appreciation plan as well as from transaction and reorganisation costs. Second quarter net loss amounted to $1.3 million or $0.04 per share compared to a net loss of $3.7 million or $1.13 per share for the corresponding period in fiscal 2014 mainly stemming from a reduction in net finance expense due to the repayment or conversion into subordinate voting shares of the convertible and puttable shares and a gain on change in fair value of contingent considerations.

On April 13, 2015 GDI entered into an amended and restated agreement in relation with the Senior Secured Credit Agreement to transfer its Term Credit Facility and the Acquisition Credit Facility in a Revolving Credit Facility. The senior Secured Credit Agreement includes a tranche of $140 million and a tranche of US$60 million (with each tranche available in Canadian dollars, U.S. dollars and Euros) with GDI having the ability to further increase said facility by up to $125 million (with availability in Canadian dollars, US dollars and Euros) subject to the lenders agreeing to provide commitments therefor (the “Revolving Facility”). The Revolving Facility matures on May 29, 2020 and GDI has the ability to extend the term for a period of up to one year subject to Lenders’ approval. Further advances under the Revolving Facility can be used by GDI to finance working capital requirements, general corporate purposes and permitted acquisitions.
During the second quarter, GDI completed three acquisitions, one in each of our three segments: Canadian Janitorial, U.S. Janitorial and Complementary services. The aggregate consideration was approximately $19.8 million which was mainly funded through GDI’s Revolving Facility.

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Donna Hendrix, MS in Financial Analysis, is investment analyst and focuses Services, Technology and Healthcare sectors. Prior joining Equities Mogul, Donna Hendrix worked with Goldman Sachs Research. If you have a great story idea for Donna Hendrix, you can write at [donna.hendrix@equitiesmogul.com ].

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