Colabor Group Inc.

Good morning, ladies and gentlemen, and welcome to COLLABOR first quarter 2024 results conference call. At this time, note that all phone lines are in a 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. Also note that this call is being recorded on Friday, May 3, 2024. 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 the 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 statements 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.calabar.com. Furthermore, risks are discussed throughout the most recent MD&A under the heading risks. And I would like to turn the conference over to Louis Frenette, President and CEO of Calabar Group. Please go ahead, sir.

Thank you, Sylvie. Good morning, everyone, and welcome to Calabar Group's first quarter fiscal year. a 2024 result conference call. This is Louis Frenette, President and Chief Executive Officer. Last evening, we released our earnings results for the 12-week period ended March 23rd, 2024. The press release and disclosure documents can be found on our website at cdarplus.ca and on colabar.com. Joining me today on this call is Pierre Blanchet, our Chief Financial Officer, who, following my initial remarks, will provide an overview of our financial results. I am happy to report that our commercial strategy, which aims to diversify our customer base and develop new territories, is providing resiliency in the current context of weaker demand in restaurant channels. During the first quarter, our distribution revenues remained essentially flat, while revenues from our wholesale activities, which represent approximately one quarter of our business were down 8.7%. By actively managing our product mix, we were also able to maintain our gross margin in line with the first quarter of last year. Although lower revenue affected our adjusted EBITDA level, we improved our cash flow from operations, which amount to $11.7 million, up from $800,000 in the equivalent quarter of last year. These robust cash flows have allowed us to reduce our debt, reflecting our strong financial discipline. Our leverage ratio was 2.3 times at the end of the first quarter, down from 2.4 times at the start of the year. This demonstrates the cash generation capabilities of our platform, especially since we have started scaling our recently completed growth capex. Now for an update on our growth initiative. By the end of 2023 and during the first quarter, we began delivering search and chain customers from our new hybrid distribution facility in Saint-Luno. More recently, we started training our warehouse and delivery employees to prepare them for the upcoming transition of our existing Western Quebec distribution customers to the new facility. Once the transition is completed, It will unlock capacity at our other distribution centers. The startup of the new facility is progressing well, and we are maintaining our target customer service levels. On the M&A side, we disclosed on March 15 the acquisition of certain assets of a food service distributor in Eastern Quebec. The new clients acquired represent an annual revenue run rate of approximately $15 million. Since we closed the transaction about one week prior to the end of the quarter, this had virtually no contribution to our Q1 revenues. We are now almost two months since the close of the transaction and are happy with the pace of the integration. We have successfully integrated our new customers within our distribution activities in Lévis near Quebec City, and this is already providing operational synergies. Now, let's review the evolution of our new key pillars as shown on slide six of the accompanying presentation and our top priorities for the rest of the year. First, generating profitable growth. Our priority remains on further improving our customer mix and product portfolio and raising the penetration rate of our private label to achieve an optimal mix with our national brands. Second, going after a significantly larger addressable HRI market. We are working to scale our distribution business in Western Quebec to onboard new customers later in the second half of the year. We are also looking at accretive non-organic growth initiatives. Third, improving our employer's brand. Our priority is to create an attractive and enjoyable work environment for our employees and for them to thrive. Since we launched our new employee value proposition, improve our communication and training practices, we are in a better position to attract and retain our talent. Our workforce is engaged and motivated and we have the resources necessary to scale our business. Lastly, continue to renew and refreshing our brand. We are focused on building our differentiated offering and service We are prioritizing quality and locally sourced offering and are always working to improve our personalized approach through customer service. As we stand today, we are now more than one month into the second quarter and heading into the busy summer season. Our new distribution facility is running smoothly. Our customers are happy with the service level and our employees are motivated. Although there are still some weaknesses in the restaurant channel, we remain confident that the demand will continue picking up slowly as it's showing at the end of the quarter. We remain dedicated to winning market share in our new market and have the necessary resources to successfully execute our business plan. Diane, 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 first quarter of fiscal 2024. Please refer to slides 7 to 10 of the presentation for highlights of our financial performance in the quarter. As a quick update on our financial disclosure, we are no longer reporting two distinct segments for our distribution and wholesale activities. Our business processes are now unified, such as our procurement and distribution activities. This change better reflects how we now operate as one Calabar. Please refer to note two of our financial statements for more information. In the first quarter of 2024, sales as we now report them under one segment, were down 2% at $131.2 million. As Louis said earlier, revenue from our distribution activities increased by 0.4%, while our wholesale activities were down by 8.7%. Our diversified customer base, market share gains, and the effect of 2.7% price inflation helped mitigate weakness in the higher end segment of our restaurant channel. Consolidated adjusted EBITDA from continuing operation reached 4.9 million or 3.7% of sales compared to 5.6 million or 4.2% in the first quarter of last year. Despite holding steady on our gross margin, our adjusted EBITDA was impacted by lower sales volume. Net loss was $1.8 million compared to net loss of $0.2 million in the first quarter of 2023. Lower adjusted EBITDA and higher amortization and financial charges, mainly lease obligation related to our new facility in St. Louis, explain most of the variance. Cash flows from operating activities were 11.7 million in the first quarter compared to 0.8 million in the equivalent quarter of last year, resulting from lower utilization of working capital this quarter. There were no significant CapEx investment aside from our regular basic maintenance. In 2024, our CapEx will be primarily for maintenance and smaller optimization projects. We ended the quarter with lower net debt of 56.8 million, down from 61.5 million at the end of 2023. We also maintained a conservative financial leverage ratio at 2.3 times versus 2.4 times at the end of last year. At the end of the quarter, we had $25 million of available borrowing capacity on our credit facility. As previously disclosed, we renegotiated the facility during the quarter, extending the maturity by three years until February 2028 and providing more flexibility. It has an authorized amount of $71.8 million, comprised of $50 million revolving loan and $21.8 million term loan and comes with a $35 million accordion. I would now like to turn the call over to the operator for the Q&A period.