Colabor Group Inc.

Good morning ladies and gentlemen and welcome to the Colabal Group incorporated second quarter 2023 results conference call. At this time all lines are in listen only mode. Following the presentation, we will conduct a question and answer session open to analysts only. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, July 26, 2023. Before turning the meeting over to management, I would like to remind listeners that this conference call contains forward-looking information within the meaning of applicable Canadian securities laws and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I refer the audience to the forward-looking statement as detailed in the presentation supporting this conference call. and available on the company's website in the investor section under events and presentation at www.collaball.com. Furthermore, risks are discussed throughout the most recent MD&A under the heading risks. I would now like to turn the conference over to Louis Frenette, President and CEO of Collaball Group. Please go ahead, sir.

Thank you, Eric. Good morning, everyone, and welcome to Collabord Group's second quarter of the fiscal 2023 result conference call. This is Louis Frenette, President and Chief Executive Officer. Last evening, we released our earnings results for the 12th and 24-week period ended June 17, 2023. The press release and the disclosure documents can be found on our website, and on CDAR also. Accompanying presentation can also be accessed online in the investors section on Calabar.com. Joining me today on this call, Pierre Banchet, our Chief Financial Officer, who following my initial remarks will provide an overview of our financial results. I am very pleased with our second quarter's quarter results. For a nine consecutive quarter, our transformation strategy has paid off. Once again, this quarter we are delivering sustained revenue growth and improving profitability. Please refer to slide number four for a snapshot of our performance in the quarter. In the second quarter, Consolidated revenues were up 19%, primarily from our organic and non-organic push in Western Quebec, including the new major accounts we announced in Q4 of last year. Food inflation and sustained demand from our existing customer base. This is also our first full quarter lapping the year-over-year effect of the restrictions that affected the restaurant industry following the COVID-19 pandemic. Gross margin percentage was lower by 30 basis points but increased year-to-year by 50 basis points from improvement to our product and customer mix and from the contribution of our April 2022 acquisitions. Adjusted EBITDA grew by 16.1% from the effect of a growing volume of sales. And our leverage ratio also improved to two times compared to 2.3 times at the end of last year. We are now entering in the second phase of our five-year strategic plan in a strong position with sustained demand in both our existing and coveted markets. Looking ahead to the next phase of growth, our priorities remain on executing the four pillars of our strategic plan as set out on slide number five of the presentation. The first one is generating profitable growth, improving our customer mix and product offering primarily our private label brand and working on our category management practices remains a top profitability driver. Since the start of 2023, these initiatives contributed to 50 basis points improvement to our gross margin and 136 basis points improvement on our adjusted EBITDA margin. Now, the second one is growing our reach from 30 to 90% of the potential HRI market. During the last two years, we have taken a prudent approach to test the Western Quebec market, and the results have been conclusive with street and chain customer wins. We continue to take a prudent approach and are investing to extend our reach in the province. M&A is a key part of our future growth plan. Although our pipeline of opportunities remains strong, we have taken more opportunities opportunistic approach for now, concentrating our resources and prioritizing our capital allocation on our new strategic facility in Saint Bruno. This customer-built state-of-the-art facility will allow us to greenfield our distribution activities in Western Quebec while conducting our wholesale operations from the same facility. providing significant operating and cost synergies. I will provide an update on the progress of the bill in just a few minutes. The third pillar is improving our employer's brand. Attracting and retaining the best talent is key success factor for Calabar and our HR team is highly focused on this objective. Because of our team's efforts, Despite the ongoing tight labor market, we have access to additional temporary workers during the busy summer season, contributing to one of our best summer seasons in recent memory. In the longer term, we believe that the new facility will also help our attractiveness as an employer of choice in the region by providing a stimulating working environment with easy access to public transit. Our fourth pillar is renew and refreshing our brand. Raising the quality and local components of our offering is becoming an important differentiation factor for Carabao and one that our customers appreciate. After obtaining the Blue Fork certification in the first quarter, attesting the quality and local sourcing of our fish and seafood offering, We recently strengthened our partnership with Metzerein by making a minority investment in their business to support their growth and reinforce our commercial agreement. Metzerein is an online marketplace allowing our customers to access locally sourced products and food products. And now for an update on one of our most exciting projects in a long while, Please turn to slide number six. Since the groundbreaking ceremony which took place in May, we have been busy overseeing the construction and planning for our upcoming move to our strategic facility in St. Bruno. We have put together several committees that meet on a regular basis and comprise of key personnel and consultants to ensure that we remain on time and on budget. I am also very happy with our seamless collaboration with the entire team from Montoni, the promoter of the project. I have personally overseen dozens of such projects successfully in my past responsibilities, and I am highly confident that we can seamlessly complete the move and start our new distribution activities as scheduled. Total capex dedicated to this project since the start of the year was immaterial. The pace of disbursement will start accelerating in Q3 and plateau by the end of Q4, beginning of next year. High teens and low 20s remain our target capex range. Yeah, with this, I will turn the call over to you.

Thank you, Louis, and good morning, everyone. I'm pleased to be here today to discuss our key financial results for the second quarter of 2022. Please refer to slides seven, eight, and nine of the presentation available on our website for highlights of our financial performance in the quarter. Second quarter consolidated sales were up 19% to $164.2 million. Sales in the distribution segment increased by 25.6% to $117.5 million. This results from higher sales primarily from new chain customers announced in Q4. Price increases reflecting food inflation of approximately 6% and M&A for one-third of the quarter. Sales in the wholesale segment increased by 1.7% to $57.3 million, primarily from food inflation. Consolidated adjusted EBITDA from continuing operations reached $9.3 million, or 5.7% of sales, compared to $8 million, or 5.8% in the second quarter of last year. Growing sales volumes explain the higher adjusted EBITDA. Net earnings grew by 38.1% to $2.3 million, or two cents per share, up from $1.7 million, or two cents per share, in the second quarter of 2022. Our higher revenue run rate is helping us mitigate the effect of our investment in growth higher amortization, financial, and income tax expenses. Cash flows from operating activities were $11.3 million in the second quarter, primarily resulting from a lower working capital utilization and a higher adjusted EBITDA. This compares to negative $1.2 million in the second quarter of last year. In Q2, our strategic investment amounted to approximately $0.3 million out of a total of $1.2 million in capex. Strategic investment mainly went towards the new St. Louis facility. We ended the second quarter with a slightly lower net debt of $47.3 million, down from $47.8 million at the end of 2022. Our financial leverage ratio improved in the quarter to two times from 2.3 times at the end of fiscal 2022. At the end of Q2, we add $38 million of available borrowing capacity on our credit facility. I would now like to turn the call over to the operator for the Q&A questions.