ADENTRA Inc.

Good morning. Welcome to Adentra's first quarter 2026 results conference call. All lines have been placed on mute to prevent background noise. After the speakers' remarks, there will be a question and answer session. With me on the call today are Rob Brown, Adentra's President and Chief Executive Officer, and Fez Kormily, Vice President and Chief Financial Officer. Adentra's earnings release, financial statements, and MD&A for the quarter ended March 31st, 2026 are available on the investor section of our website or and on CDAR+. Before we begin, I'd like to remind listeners that management's comments may include forward-looking statements. Actual results could differ materially due to risks and uncertainties outlined in our violence. All dollar figures mentioned today are in U.S. dollars unless otherwise indicated. I will now turn the call over to Rob Brown. Please go ahead.

Thanks, Operator, and good morning, everyone. We began 2026 with solid performance despite an increasingly uncertain macroeconomic backdrop. This morning, I'll speak to how we are managing near-term conditions and how we're positioning the business to drive longer-term value. Before turning to the quarter, I want to briefly frame the strategic priorities guiding our decisions in 2026. These are areas where we are investing with discipline, where we see clear opportunities to strengthen the business structurally, and importantly, where progress is largely within our control. There are three core areas of focus. First, advancing an AI-enabled operating model. Over the past 18 months, we've built a strong foundation in data governance and systems integration. We're now moving into development of dynamic pricing and sales optimization tools that we believe will help our teams make better, more consistent, data-driven decisions in real time. These capabilities are designed to drive structurally better margins, asset utilization, and generate incremental revenue through continuous compounding improvements across our network. We're taking a disciplined, results-oriented approach, developing tools with clear applications, testing them in targeted environments, and then plan to scale what proves effective. We're focused on speed, accountability, and measurable outcomes with the objective of driving sustained margin improvement, incremental growth, and stronger returns on invested capital over time. Second area of focus is strengthening our global supply chain. We're continuing to diversify our sourcing footprint and build greater flexibility into our supply network, including developing new capabilities in regions where we had little or no presence just a few years ago. This work is about more than cost. It is about reducing risk and increasing optionality in an increasingly complex global trade environment. It also supports profitability through access to differentiated and proprietary products while positioning us to support future growth, including acquisitions. Third area of focus is maintaining a disciplined and active approach to M&A. We continue to nurture a robust pipeline of opportunities and have the balance sheet flexibility to execute when the right business becomes available. A focus remains on transactions that are strategically aligned, operationally actionable, and capable of delivering meaningful synergies. Taken together, these priorities reflect a consistent approach. Investing in areas that strengthen our platform, improve returns on invested capital, durable, longer-term value. At the same time, we are clear-eyed about the macro environment. Demand remains impacted by affordability constraints, and we continue to see pressure from mortgage rates, inflation, and broader geopolitical uncertainty. We're managing the business accordingly, with a strong focus on cost discipline, pricing execution, and working capital efficiency. while continuing to invest in initiatives that will drive longer-term performance. With that context, let me turn to our first quarter performance. In the first quarter, we generated sales of $562.7 million, up 3.7% year over year, driven by a combination of higher volumes and improved pricing. Importantly, this growth was entirely organic, reflecting the strength of our platform and our ability to continue gaining share. We saw particularly strong demand in roofing products, supported by storm-related activity and customer purchasing ahead of expected price increases. Gross margin was 20.2%, remaining above our benchmark of 20.0%, go down from last year, primarily due to product mix. Roofing products carry lower margins, but generate strong returns on invested capital, and we expect mix to normalize. At the same time, we maintained strong cost discipline with operating expenses increasing less than 1% year over year, reflecting the benefits of premise and headcount reductions last year. as well as a continued focus on efficiency across the business. Adjusted EBITDA was $38.3 million and adjusted EPS was $0.38, demonstrating resilience in a softer environment. From a cash flow perspective, we delivered a significant year-over-year improvement driven by working capital management. Our balance sheet remains strong with leverage at 2.4 times versus three times in T1 last year, positioning us well to execute on our capital allocation priorities. Overall, the quarter reflects the resilience of our operating model and our ability to perform in a more challenging environment. With that, I'll turn the call over to Fez to review the financials in more detail.

Thanks, Rob, and good morning, everyone. As a reminder, all figures are U.S. dollars, less otherwise stated. For the three months ended March 31, 2026, Identra generated sales of $562.7 million, an increase of 3.7% year-over-year. This growth was primarily driven by a 2.1% increase in volumes and a 1.3% increase in product pricing. Regionally, U.S. sales increased 3.9%, driven by both volume and pricing improvements. Canadian sales declined 50%, reflecting softer demands and pricing pressures. Gross profit was $113.7 million, or 20.2% of sales, compared to 21.6% last year. The decrease primarily reflects product mix, particularly the increased weighting of lutein products as well as other mixed changes across the portfolio. Operating expenses were $100.4 million, up 0.5% year-over-year. The increase was mainly driven by higher lease premise costs and higher outage expense. These were partially upset by lower personnel costs as a result of ongoing cost control initiatives. Adjusted EBITDA was $38.3 million, down 4.1% year-over-year. Net income was $2 million compared to $4.1 million last year. On an adjusted basis, adjusted net income was $9.3 million compared to $10.8 million, and adjusted EPS was $0.38 compared to $0.42 last year. Cash flow from operations improved significantly. with 6.2 million used compared to 33.5 million used in Q1 2025. This improvement was primarily driven by more efficient working capital management. We ended the quarter with a leverage ratio of 2.4 times, maintaining strong financial flexibility. Our capital allocation priorities remain unchanged and include maintaining a strong balance sheet, investing in organic growth, pursuing M&A, and returning capital to shareholders through dividends and opportunistic share repurchases. With that, I'll turn the call back to Bob.

Thanks, Fez. As we look to the balance of 2026, we're operating in a fluid macroeconomic environment. Higher interest rates, inflationary pressures, and geopolitical dynamics continue to weigh on demand and consumer confidence. Our April sales were modestly lower year over year, and we are managing the business accordingly, maintaining strict cost discipline, actively managing inventory and purchasing, and executing on our price pass-through model to protect margins. At the same time, our long-term value creation framework remains unchanged. we're continuing to advance the strategic priorities I outlined earlier, initiatives that strengthen the business structurally and are largely within our control. In AI and digital optimization, we're building capabilities to drive better decision-making, improve consistency, and support organic growth and structurally higher margins. In supply chain, we're increasing flexibility, reducing risk, and expanding access to differentiated higher margin products. And through disciplined M&A, we're maintaining a pipeline of opportunities to accelerate growth and unlock synergies as conditions allow. These are initiatives that are not dependent on near-term macro improvement. They're designed to compound over time and position the business to perform better across cycles. At the same time, we remain focused on being prudent stewards of capital. We will continue to prioritize balance sheet strength, apply discipline to investment decisions, and ensure capital is deployed in ways that support longer-term returns. We believe this balanced approach, combining operational discipline in the near term with continued investment in longer-term value drivers, positions a denture to navigate uncertainty while building a stronger, more resilient business. Over the longer term, the fundamentals of our end markets remain supportive, and we're confident in our ability to deliver attractive returns on invested capital and create meaningful shareholder value. With that, we'll open the line for questions. Operator?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star button followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star button followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. First question comes from Kyle McPhee of ATB Cormac. Please go ahead.

Hello, everyone. First one from me, just regarding organic volume growth. You posted good performance, you know, absolutely level and also relative, better versus what we're seeing elsewhere throughout the sector. Is there anything specific to highlight here on how you're pulling off this performance? I know you called out some pull forward and roofing products, but roofing isn't, I don't think, really a big category for you. So, I suspect that's maybe not overly meaningful. So, you know, what other sources of this impressive organic growth can you call out for us?

Yeah. Morning, Kyle. A couple comments on the roofing. Typically, that's about a 5% of our overall product mix. It's not a lead category. It's complementary in one of the brands that we have because it services rural markets very well and it positions us with customers. It was a little higher in the first quarter. It was about 8% of the mix. I would probably characterize that piece as not There was an element of pulling forward demand in terms of customers seeking to buy more of that product in advance of price increases that were known to be coming. But I would also say that it's just responding to more demand that came from earlier storm activities. So I wouldn't characterize the level of sales we did in that category differently. really in March as taking us off market from selling that category into Q2. So just would make that distinction. In terms of the performance generally, and I would agree if you look at comps across the sector, generally I think this holds up very well. It's just our continued work on capturing market share with the things I outlined in my opening comments around you know, investing in resilient supply chains and having options for customers, particularly as there's some pricing variability entering into the channel related to geopolitical events, and then investing in other, you know, digital tools, which I think is helping our sales force.

Got it. Thank you for that, Keller. And then second to last one for me just, On the gross margin mix, you know, the lower mix that we saw in Q1, you know, not a surprise, and you highlighted it last quarter, and now we see it in the results. You're calling out kind of roofing products as one thing. Is there anything else kind of worth calling out? Like is there – is part of this, you know, maybe something like trade down into categories where maybe you make less margin, meaning, you know, this mix impact might last beyond Q1? Anything worth highlighting?

There's always going to be some quarter-to-quarter variation in the gross profit margin. We will remain above the benchmark number we've got in our long-term value creation framework of 20%. But, yeah, you've seen us as recently as Q4 into the 22s at times. I think it's going to be within a range. I would maybe say with our April year-over-year sales result that we said was down about 1%, We have already seen some bounce back on margin into the 21s, so I think you can think about it a little bit that way. The other thing, and we try not to talk too much about roofing because, again, this is a 5% product category for us, but I'll just highlight it's a very high return ROIC product category for us simply because We sold a lot of roofing products in March, but they were all predominantly all direct sales. So they went from the manufacturer straight to our customers' yards, meaning it never enters into our inventory. So the working capital investment is very modest. So we're bringing in margin dollars without having to run it through our cost structure. So just highlight that as well.

Okay, so what I'm hearing is kind of this is just normal course gross margin mixed variability for the most part. It has nothing to do with kind of the point in the cycle that we're in here.

Yeah, I think that that's a fair characterization. We've described all along the way that prices will move around, but our model is one that's a price pass-through. There will be a little bit of variability in where the margin falls, a bit of a range, not a specific point, but I think your comment is accurate.

Okay, thank you. I'll pass it on.

Next question is from Hamir Patel from CIBC. Please go ahead.

Hi, good morning. Rob, you talked about your AI initiatives and embracing more dynamic pricing. I realize it's still pretty early days, but do you think there's at least perhaps 100 basis points of gross margin improvement from this initiative, and will that become more apparent later in 26, or is it going to be more of a 2027 story?

Yeah, that's more in the future. It's hard to quantify what it's going to do. I'm not put off by what you're aspiring to. I think that that's a reasonable expectation. The framework or the baseline for doing this work, for those that are familiar with it, is having clean data. And we've been there, done that work, have excellent data governance processes in place, and then the infrastructure to start to harness and put it to work. So we're in build at the moment, which will be followed by pilot, which will be followed by leveraging across the broader system. So I think Further down the line into 2027 is when we will be looking for some of those improvements related to that effort specifically to emerge.

Great. I want to ask about M&A. Last year was both balance sheets in a better position again today. Are there any product categories or geographies where you see the most opportunities today?

Yeah, you're right. We also feel really good about the balance sheet. We're not waiting for further deleveraging. We are just actively working on deals, you know, right price, right fit. And we've got a lot of very good opportunities that we're pursuing in that regard. As I think we've probably discussed in the past, we do cast a really wide net on the M&A. So we are going to look at... all GRF is all product categories because to a certain extent it isn't a numbers game and the more you look at the higher propensity that you can get the one that works for you. That said, you know, we're not out of touch with looking at migration patterns and where higher growth rates may be in the longer term in U.S. markets in particular. So we do, you know, quite like expanding into the South, Southeast, and doing more there if we can. We've really built out our Midwest footprint with the acquisitions we've done most recently. There's still room, frankly, in all geographies to add assets if they're the right ones, however. Fair enough. That's all I had. I'll turn it over. Thanks. Thanks, Samir.

Next question comes from Zachary Ebershed from National Bank Capital Markets. Please go ahead.

Good morning, everyone. Congrats on the quarter. Thanks. So, Rob, I think you mentioned that April gross margins had already hit into the 21s. Could you give us some more color on the normalization that you expect and whether you think we can get back into those mid-21s and 22s that you mentioned?

Yeah, I probably won't start parsing it into 50 basis point increments, Zach, as you understand it. Well, there's always going to be some mixed considerations there, but, yeah, just to put folks at ease because the margin was a little lower for the reasons we noted in the release around the roofing mix. We can confirm that into April it's looking more normal. I probably won't go further as to is it going to be a low 21 or a high 21. I think we just need the rest of the quarter to unfold to understand that better.

Fair enough. Thanks. And then for the higher-term invested capital that you have with the roofing products because they don't enter into inventory, we did notice a bit of a step up in accounts receivable and accounts payable. Was that related to roofing as well or more of the spring mix build?

Hey, Zach. It says here a couple things on that. So the roofing sales, as Rob described earlier, do have a higher return on invested capital Generally, if you look at our inventory days this quarter, compared to the same quarter last year, we improved by nine days, roughly. And I would say about half of that was just related to more of these direct shipments. So that just gives you a sense in terms of capital requirements and return, what that can drive. Your comments around just the gross values of the receivables and the payables being larger, yes, some of it is related to that. The Roofing dynamic, we're talking about the vast majority of that actually happened in March. And so you're just seeing normal timing cycles of collection there as we came to the quarter end. Gotcha.

Thanks. Good call. And then while we're on inventories, you've come down quite a bit from the 90-plus days that you had in 2022 and 2023, but maybe we're still above the pre-pandemic levels, around 70 days. and with the tough environment that you've noted with affordability issues and geopolitical tensions, how are you feeling about where you're in the grocery trend through the year, seasonality allowing?

I think we're in a good spot now, Zach. The kind of low 70 days you're remembering might even have been pre a couple of acquisitions. I'd have to go back and check. We haven't seen that in some time. When you look at where our inventory is relative to sales space, I think it's in a very good place. In fact, it looks a little better because of the dynamic I described around those directs, which is a bit of a unique feature in Q1. But even if you put that aside, we are solidly now into kind of the low 80 days. And once you're kind of at that 80-day number, plus or minus, that's a good level of inventory for our business and the number of SKUs we have today and where our customers sit. So, I think you can expect, again, over – it'll ebb and flow a little on timing, you know, intra-year. But when you look back over a couple of quarters or certainly a year, I think we're at the pace we need to be now, kind of in that 80 days plus or minus on the, you know, on the inventory. Thank you very much. I'll leave it there. Thanks. Thanks, sir.

Next question comes from Ian Gills from Stifle. Please go ahead.

Morning, everyone. Thank you. Is there anything worth highlighting on, call it, the cost improvement initiatives this year that you should be thinking about or you think that might be notable relative to what you've done in prior years to continue to try and push EBITDA margin higher? And I guess the follow-on alongside this, also related to costs, is eventually at some point the housing cycle is going to turn and you have to keep some costs in place for when that term happens. And do you have any sense on how much that might be impinging on margins right now versus where you think you might be able to be with the current cost structure in place?

Those are staring at each other. Yeah, I'm deciding who wants to take that one. That's okay. We'll maybe tag team it in. We were pleased with the first quarter operating costs being held to half percent. That's reflective of the efforts really that we had in 2025 to control premise expense and we did some consolidations and then also managing through our headcount. On the EBITDA margin, Yeah, there's always going to be a quarter-to-quarter seasonality that's going to be included in that. You'll see Q2s and 3s be better than 1s and 4s generally, although Q4 was helped by some year-end true-ups on rebate programs, et cetera. But I think it's going to be the gross profit percentage. The earlier comment from Hamir, how do we continue to move that up, and we're doing things through digital and other efforts where we see expansion opportunities, including mix over time. It was held back a little bit this quarter, as we've talked about, with the roofing component that was a little bit higher. So it's managing that gross profit percentage upward over time, and then it's also what you pointed out, which is eventually we're going to have a little bit more of a demand release trend and we can drive more through the system without adding proportionately costs, which will help the bottom line EBITDA margin. And I probably stole all the good ideas there, but I will look at Fez if there's anything you wanted to add.

No, I think you've covered it, Rob. I was just going to elaborate a little on your last point around scalability of our operating expense base and If you think about our expenses today, just as a reminder, about 50% of that relates to people costs. And as Rob mentioned, through some of our initiatives, we're just becoming more efficient every day with what we're doing in terms of tools for our people and their day-to-day operations. I think we're going to get good scalability out of our people as volumes increase. You'll need some level of additional workforce in the warehouse, but I think it'll be modest. And then from a premise perspective, that's another 20% of our costs. And we have room to scale in our facilities today. So, you know, 70% of the cost base I think is set up quite well to scale as we start to see some of that demand release you noted in the future, Ian.

That's helpful. As it pertains to M&As, you're looking at some of what I would define as both on-targets or tuck-in targets, Can you maybe talk about the delineation you're seeing between a firm of your size and the technology you're using and what you're seeing in some of the smaller firms and how that maybe becomes even more additive from an M&A perspective compared to even maybe five years ago?

Yeah, I think we would describe that as new and it's an increasing gap. So, this will add to the things that we can bring to newly acquired businesses from a synergies perspective. Our observation would be not that, you know, small competitors that we might buy are not doing a good job, but they don't have the scale and the knowledge base to draw on to build some of the tools that we're either building or contemplating building. So, I think this is a theme we've also seen more generally with some of the other large-scale M&A activity kind of in the building product sector that those that are larger feel they can be better positioned in the supply chain and make themselves more attractive to customers as a distributor partner than a smaller regional competitor. So I think that advantage will continue to probably grow and expand over time.

Okay. If I could sneak in one more and this is building products as a space that's been heavily trapped in by private equity for a long time. There's been a lot of private credit up people this year. Have you seen any change in kind of the quantum of deals that might be coming into market from private equity or the manner in which they are coming to market that may be to your advantage?

Nothing I think that we would call out at this point. Yeah, we're aware of the timelines of folks that hold assets that are private equity holders, you know, in our space. I wouldn't call it a super deep pool. Remember, we've got a lot of very well-run and creative family businesses. Sometimes they've gone back for a couple of generations but maybe don't have succession going forward. that are great targets for us. There is some private equity ownership in some assets we'd be interested in, and we'll always be in those conversations. But I wouldn't describe that as, you know, the bulk of the opportunity for our M&A pipeline.

Understood. Thanks very much. I'll turn it back over. Thanks, Ian.

Next question is from Jonathan Goldman out of Scotiabank. Please go ahead.

Hey, good morning, team. Thanks for taking my questions. Something, Ron, if you can talk about the cadence of the spring selling season this year, what have you seen so far? I mean, you obviously gave the April number, but, you know, maybe there's some macro stuff going on there as well. But just on a year-over-year basis, how are you thinking about spring this year?

Yeah, we don't think spring's been canceled. You know, we've We highlighted that April number because we like to be factual, and it's just roughly flattish to a year ago, and we had spring seasonality up last year. So at this point, we're looking at it as a more normalized environment, and albeit it's been a fairly muted one, but nothing out of the ordinary from a seasonal perspective so far, at least from our perspective. We also noted I know there's often revisions, et cetera, but we know that the U.S. new residential starts coming in for March in a very healthy number. So, yeah, that's kind of where we're at in terms of monitoring the spring season.

Okay. Thanks for that, Nidhi. Another one is wondering if you can maybe elaborate on the different dynamics you're seeing between the U.S. and Canada, kind of different sales trends there, and is there any difference in terms of your share game strategy and what you're achieving between those two regions?

No, we definitely are operating as, you know, one company north-south of the border, so any of the business improvement processes we have are equally applied to both Canada and the U.S. businesses. Yeah, I would say that, you know, the economic environments between Canada and the U.S., there's some differentiation there, and there's always been some fundamental differences in the housing market, just in terms of the mix of single-family versus multi, being, you know, more two-thirds, one-third multi to single in Canada, and the reverse is true in the United States. So, yeah, nothing I think that I'd call out specifically in terms of how we're managing those businesses. There's common processes, common vendors and suppliers. We have had a bit more of a regionally challenged housing market, I think, as folks in Ontario would know and BC would know. But we've positioned ourselves with what we consider the full basket of products to serve whatever portions of businesses construction market are working best, whether that's commercial or whether that's repair and remodel or new res, income single to multi and the single. So that's kind of where we're at on that. Okay. That's really good, Collar.

Thanks for taking my questions. I'll get back with you. Thanks, Jonathan.

And that appears to be the questions for today. I will now turn the call over to you guys for some closing remarks.

Okay. Josh, great job. Appreciate you hosting the call for us today. And if anyone has other questions, please reach out to Fez and I directly. We'd love to hear from you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.