Doman Building Materials Group Ltd.

And welcome to the German Sailing Materials Group Limited First Quarter 2025 Financial Results Call. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Ali Madhavi, in best relations. Please go ahead.

Thank you. Good morning everyone. And thank you for joining us this morning for German Sailing Materials First Quarter 2025 Financial Results Conference Call. Joining me this morning are Ammar Doman, Chairman and Chief Executive Officer and James Coe, Chief Financial Officer of the company. If you have not seen the news release which was issued yesterday, it is available on the company's website at domancm.com as well as on Cedar Plus along with our MDNA and financial statements. I would also like to remind you that a replay of this call will be accessible until midnight on May 23, 2025. Following the presentation of the first quarter financial results, we will conduct a Q&A session for analysts only. Instructions will be provided at that time for you to join the queue for questions. Before we begin, we are required to provide the following statements regarding forward-looking information which is made on behalf of German Sailing Materials Group Limited and all of its representatives on this call. Permarket answers to your questions today may contain forward-looking information about future events or the company's future performance. This information is subject to risks and uncertainties that may cause actual eventual results to the firm serially. Any information regarding forward-looking statements is made as of the date of this call and the company does not undertake to update any forward-looking statements. Please read the forward-looking statements and risk factors in the MDNA as these outline the material factors which could cause or would cause actual results to differ. The company will not provide guidance regarding future earnings during today's call and management does not anticipate providing guidance in future quarterly or interim communications with investors. I'll now turn the call over to Omar.

Thanks very much, Eileen. Good morning, everybody. Since speaking to you last during our fourth quarter of year-end 2024 results conference call, very little has changed in that we remain focused and excited with the business across all divisions and on both sides of the border. Despite the impact of macroeconomic and geopolitical noise on demand and pricing volatility, our business units continue to show resilience in volumes while delivering very strong gross margin performance. Our financial and operational performance in the first quarter continues to be a testament to our ability to work through uncertain market conditions and our team's track record on managing the business through these types of cycles. Throughout the quarter, we remain focused as always on gross margin and optimizing our balance sheet. The strength in our first quarter results came from the combination of the impact of our strategic acquisition, steady volumes in certain markets, and continued disciplined inventory management which resulted in strong revenue performance in the quarter. Further, our ongoing cost management focused on operational efficiency and successful integration efforts enabled the company to realize strong gross margin and EBITDA margin performance. Despite the daily uncertainties we all live in, for Goldman, 2025 is off to a strong start. Evidence-spiring career warn, we had revenues coming in at just under $800 million, gross margin at .7% or $132 million, EBITDA amounting to $70 million, net earnings at $23.6 million, and the quarterly dividend of $0.14 per share was declared. The top-line results are evidence of the continued strength of our business platform in Canada and the U.S. However, with more emphasis on our rapid-beginning footprint in the U.S., I am extremely pleased with our financial performance which has resulted in the continued successful unfolding of our own long-term strategy. As always, we remain confident, focused, and disciplined on closely managing our costs and servicing the needs of our customers with the highest level of quality and service as we have done in the past. The cross-border tariff situation between Canada and the U.S. continues to be an evolving and fluid situation, to say the least. To reiterate our current position on this issue, our B2B business model on both sides of the borders is domineeringly positioned to be neutral at large, and we continue to operate accordingly with no direct material impact for our consolidated business. Looking ahead, we remain optimistic as we work through decent levels of demand across the business, managing the pricing environment while we continue to manage our costs, and always looking for growth opportunities. The momentum we have enjoyed in Q1 has kept pace, and so far we have offered a good start in Q2, but we will continue to be cautious as we work through these uncertain times. We are cognizant of external pressures which may come into play not only in our industry, but any others that touch similar end customers. As always, we are confident in our ability to work through challenging markets diligently and serving our customers' needs with the highest level of service. We remain excited about our growth profile and the overall prospects of the business. And with that, I would like to have a takeover, see a photo takeover, and provide a review of the company's first quarter 2025 results in greater detail, and then we will open the call for endless questions. Thank you, Mark.

Good morning, everyone. Sales for Q1 2025 were $793.2 million versus $602.5 million last year, representing an increase of $198.8 million or 31.7%. Driven by positive contributions from the recently acquired Southeast Forest Products and CM Tucker Lumber, as well as followed performance from our legacy operations, demonstrating continued resilience and strong overall end market demand. The company's sales in the quarter were made up of 81% construction materials, compared to 76% during the same period last year. With the remaining balance of sales resulting from specialty and allied products, 15%, and other sources of 4%. Dome and gross margin dollars were $132.5 million in Q1 2025 versus $100.4 million in 2024, an increase of $32.1 million, benefiting from the results achieved by the acquisition, as well as ongoing execution of the company's margin enhancement strategies. Gross margin percentage was .7% this quarter, consistent with 2024. Expenses for Q1 2025 were $87 million compared to $72.3 million, an increase of $14.7 million or 20.3%, few of the factors to be discussed. As a percentage of sales, 2025 expenses were 11% compared to 12% last year. Distribution, selling, and administration expenses increased by $7.7 million, or .1% to $62.5 million this quarter compared to $64.8 million last year, largely reflecting GS&A related to our recent acquisitions. As a percentage of sales, these expenses were .9% compared to .1% in 2024. Depreciation and amortization expenses increased by $7 million, or .8% from $17.5 million to $24.5 million, mainly due to additions of property, plant, and equipment, and intangible assets related to our 2024 acquisitions. Finance costs for the quarter were $19.4 million compared to $10.8 million in the previous quarter, an increase of $8.5 million, largely as a result of the additional finance costs related to the funding of the Tucker-Lumber acquisition. DBA TA for the quarter was $70 million compared to $44.8 million in 2-124, an increase of $25.2 million, or 56.4%. DBA TA in 2-124 was impacted by non-recurring acquisition related costs of $317,000, adjusted even down the prior quarter before these non-recurring costs was $45.6 million, which was $24.4 million less than 2-125. Our provision for income tax was $2.6 million this quarter compared to $2 million last year. Net earnings for the quarter were $23.6 million compared to $14.4 million in 2024, an increase of $9.2 million. Turning now to the statement of cash flows. Operating activities for non-cash working capital changes generated $44.5 million in cash compared to $37.8 million in 2-14. Operating cash flows during the period were positively impacted by our acquisitions as well as continued strong agency contributions. Seasonal changes in non-cash working capital items consumed $170.6 million in cash compared to $167.6 million in 2-14. The increase in cash use for non-cash working capital was largely related to activities of the acquisitions, partially offset by the company's continued efforts to optimize working capital levels in anticipation of potential slowing of market activity. During the three months ended March 31, 2025, we sourced net cash of $121 million from financing activities compared to $153.5 million in 2024. Net advances on the revolving loan facility were $140.8 million this quarter compared to $171.6 million in 2-124. Shares issued, net of transaction costs generated $808,000 in cash compared to $698,000 in the prior year. The company also returned $12.2 million to shareholders through dividends paid during the quarter, largely in line with 2024. Payment of lease liabilities including interest consumed $7.9 million of cash compared to $6.6 million last year. The company's lease obligations generally require monthly installments and these payments are all current. We also note the company was not in breach of any of its lending covenants during the three months ended March 31, 2025. Investing activities generated net cash of $11 million compared to consuming $63.8 million in 2024. Investing activities this quarter included proceeds from the sale of a portion of the company's timberlands for cash proceeds of $14.4 million, whereas investing activities last year included payment for southeast forest acquisition on March 1, 2024. Additionally, we invested $3.5 million in new property, plants, and equipment in 2-125 compared to $1.6 million last year. This concludes our formal commentary and we would now be happy to respond to any questions you may have. Thank you. Operator?

Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question too. You may press star 2 if you'd like to remove your question from the screen. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Tassir Kostetek with 2D Talent. Please proceed to his question.

Hi Eric, good morning everyone. First question is, how much support did currency provide this quarter? Are you able to quantify the impact?

Foreign currency, it's generally been helpful for us this quarter. We're at the top of the week here, Canadian dollar, given that we're 70% US on the top line now. So yeah, there was a good tailwind from the movement foreign exchange this quarter. Thank you.

Anything non-recurring in this non-result that may have also provided support?

No, and as we indicated, we sold a small portion of our timber land law for $14 million. It obviously doesn't affect the P&L, so it's straight operating earnings, good margin performance, good volumes, good takeaway in the US particularly, so just a very good quarter.

So long list of good things, Mark. .7% gross margin, you indicated the margin enhancement. Is there any context you can provide around what those are exactly? Should we be orienting ourselves around still around a more sustainable range of 14% to 16%?

Yeah, you know, I think we'll talk about the range and I'll get into the strategies in a moment here. So the range I think is still intact, you know, this is a higher watermark for us on the quarter. You know, we always, you know, shoot to be in that range. The lumber market can certainly, you know, play havoc with that once in a while, but certainly now over the last number of quarters we've evidenced a nice, steady gross margin performance despite what the lumber market's doing or noise out of the White House. So we've been operating very well under these, you know, different environments. We come back to the margin enhancement strategies that we're doing internally, a couple of things there. One, you know, obviously try to position our lumber with lumber that are track at levels, positioning well on inventories, our buyers are doing a great job of loading the gun as you will when needed. And then second of all, freight optimization all over the, you know, the United States now with our plants, we're rejigging areas, we're looking at how we can optimize using some more third party carriers, getting our freight rates down, getting our costs down, getting our insurance costs down. There's a whole bunch of initiatives now with our scale that are starting to evidence in lower SC&A costs and also increasing margins for optimization. So long answer, but there's a bunch of stuff going into the columnar that's paying off.

I appreciate that context, that's very helpful. Just switching back a little bit, one of your larger treated competitors is talking about pricing pressures and demand being down a low single digit in your term outlook. Is that consistent with what you are seeing?

You know, it really depends on the region. We're not seeing any monster weakness. Canada's been a bit slower, just obviously housing starts sluggish economy, election, you know, here it's been slower, longer winter, so the Northern markets have been a bit slower. I can't say we're feeling price pressures or paying off.

Okay, I don't want to hold airtime, so I'll get back into you for now. Thanks a lot.

Thank

you. Thank you. Our next question comes from Ryan Erdwacher, Air Assurance with National Bank Financial. Please proceed with your question.

Good morning, good afternoon.

Good morning, good afternoon. Thanks,

guys. Would you say we're seeing more volume behind recent lumber prices or is it still kind of floating with not a ton of real volume behind it?

Yeah, you know what, I would say our volumes were decent, you know, compared to 2024, you know, close to in line. Some markets, like I was mentioning, Canada's been a bit slower, offset by, you know, there's been some other growth areas in the US and some of those hurricane damage areas that we're seeing stronger order files coming out of there. So all of the states have been kind of bouncing into a good groove with the backdrop of, you know, not great lumber pricing. Southern Yellow Pine certainly has some strengths compared year over year. The rest of the species are all off or down and are weak, but, you know, really the story here is margin.

Gotcha, thanks. And then when you're dealing with your larger channel partners or utilities, obviously you're doing a great job on the buyer front, which is well been done. What's the pricing discussion like with those larger retail partners?

Yes, with the larger retail partners, we do contract and move with the markets, so we're in lockstep there. But when we can sort of buy under and, you know, mills need to move some volume, we've got that big buying power now with three billion of sales that we can really step in and get a good look here and there and that's when we can buy some extra margin and our guys have been doing that really well. And that's kind of been the story to assist, but really we move with the market, so we're on market with those larger retail partners of ours.

Gotcha, thanks. And then balancing that against that, your is inventory on account receivable has improved noticeably relative to pre-pandemic. Do you think there's more juice left to squeeze there on balancing working capital optimization versus storage?

I would say, Zach, it's Jay here. You know, we've had a tremendous focus on that area as we've said before. I don't see any material improvements in that. We'll just stay on top of it and let's just say we won't see that deteriorate. We're just going to manage that very carefully.

That's clear. And I guess coming from the opposite direction, any concern on the inventory mix that you've stuffed up on and any concerns about moving through the potentially slower housing environment?

No, you know, in fact I think coming out of COVID, now it's kind of way in the rear view mirror, but really we transformed the company's inventory strategies, weekly meetings, all these different things where we're very, very focused on it. So no concerns over inventory slack or overages anywhere. We're in good shape.

Thank you very much. I'll turn it over. Thank

you. Thank you. Our next question comes from the line. Rami Patel, the CIBC Capital Markets. Please take a question.

Hi, good morning. Marvie, newly elected governing candidate has outlined some pretty ambitious housing targets. Do you see any opportunities there for your business? I know it seems like the focus has been on kind of prefab housing.

Yeah, you know, I think we've had 11 years of those promises, so I'm not holding my breath that it comes through. You know, we obviously are in a housing shortage here. I'm not sure you can just set up modular tomorrow morning and, you know, educate builders in five minutes how to figure this stuff out. It's not Lego. It's more complicated. So I hope that, you know, an organized, lower strategy comes in, but saying we're going to build half a million houses real fast, it's just not going to happen. It's not reality. But having said that, if we start somewhere and the government gets involved in the housing market, which I'm not a fan of, but if they do, you know, we'll certainly be participating in some of that, probably more on our distribution side in Canada, more than the pressure-treated side, so that would be our new home construction materials under our home and building materials division in every city in Canada that's large. So that side would certainly get a benefit and also some takeaway on lumber in Canada wouldn't hurt either.

Fair enough. And Mark, do you see any potential, you know, the Section 232 tariffs, if they come in effect, how do you see that affecting your duress operations? And do you think that if they do take effect, they'll just be targeting lumber or potentially all forestry products?

Yeah, hard for me to speculate on that, but, you know, really we, you know, we're pretty much insulated, you know, it'll just be inflation and de-inflation in the products we produce and sell, but really we don't have, you know, a big dog in that fight as far as 232 and what's going to happen. It's really just kind of being the tail of the dog as far as pricing goes and the whipsawing of momentum like the stock market has been, more than the realities of just, you know, hammering going into nails, nails going into the wood and things being built. And for us, our outlook is still pretty decent here. We just, it's just hard to see what that consumer is thinking about more than the 232s and all the noise.

Fair enough. That's all I have. I'll turn it over. Thanks. Thanks,

sir. Thank you. Ladies and gentlemen, as a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from Eli of Eden Jones with SQL. Please proceed to your question.

Morning, everyone.

Are you able to indicate whether you've started to see any volume pull from some of the recent, I guess, disasters in some of the areas that you operate in? It had been thought of as perhaps a tailwind at some point. I'm just curious whether that's showing up yet.

Yeah, we're starting to see that in some of the stores in those areas that have been rebuilt like Ashleyville and the Carolinas, Northern Florida. We are seeing activity and orders come from those stores again where they were pretty much wiped out and slower as those events unfolded last year. So we are seeing that and I think we're going to have multiple years of takeaway in those areas as we slowly rebuild. In some areas we'll rapidly rebuild, but most areas of insurance, you know, issues and things like that, much like California, it takes a bunch of time. But we are seeing those points come back and it's helping us and we're in all those markets. Okay, thanks very much. That's all I had. Thank you.

Thank you. Our next question is a follow-up from the line of Kyle Searcoats with TD Town. Please proceed with your question.

Yeah, thanks a lot. One follow-up for me. Mark, can you talk about if you're seeing anything different on your takeaways at Fox stores versus lumberyards and are you a counter? So talking about a flash year for 2025?

Yeah, by the way, that's a great question. So, you know, number one, we did not expect to see the box store volumes, you know, being very healthy. They've been healthy right into April. And, you know, it's certainly not, you know, completely nuts though, obviously, but it's surprised us in a good way with those volumes at the box stores. And some of the pro-years in lumberyards have been a little bit slower as projects and housing starts have been slowing, but the cash and carry business has been strong right from Hawaii rates to the Carolinas. So I've got to say we're very pleased with the takeaway. And I think lower lumber pricing here, that helps as well. People can afford, you know, the materials that are out there and we're doing projects so very pleased with that.

All right, that's great. All right, thanks for that. That's all I had. Good luck.

Thank

you. Thank you. That concludes our question and answer session. I'll turn the floor back to Mr. Madhavi for any final comments.

Once again, on behalf of the development team, thank you for joining us this morning. Should you have any further questions or inquiries, feel free to reach out. That concludes today's call and we look forward to speaking to you again on our Q2 call. Operator?

Thank you. This concludes today's conference call. If you have any disconnections at this time, thank you for your participation.