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spk03: Good morning, ladies and gentlemen, and welcome to the Calabar Group Inc. second quarter 2024 results. 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 Thursday, July 25, 2024. Before turning the meeting over to management, I would like to remind listeners that this conference call contains forward-looking information within the meeting 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
spk01: section under events and presentation at www.colabal.com.
spk02: Furthermore, risks are discussed throughout the the most recent MD&A under the heading Risks.
spk01: I would now like to turn the conference over to Louis Frenette, President and CEO of Collaborg Group.
spk02: Please go ahead, sir. Thank you, Joëlle. Good morning, everyone, and welcome to Collabord Group's second quarter of fiscal 2024 results. This is Louis Srenette. President and Chief Executive Officer. Last evening, we released our earnings results for the 12th and 24th week period and the June June 16, 2024. The press release and disclosure documents can be found on our website and on the cdarplus.ca. The accompanying presentation, including our statement of forward-looking information and non-IRS performance measure can also be accessed online in the Investors section at carabob.com. Joining me today on this call is Pierre Blanchet, our Chief Financial Officer, who will, following my initial remarks, will provide an overview of our financial results. The efforts dedicated over the last four years at diversifying our customer base and most recently to grow into new markets continue to provide resiliency in current macroeconomic environments.
spk04: Considering the ongoing challenges in the restaurant and retail channels, we achieved excellent results and even gained market share. Higher volume from new and existing distribution customer, the small acquisition we concluded towards the end of last quarter and inflation passed through helped mitigate anticipated weakness in our wholesale channel and headwinds affecting the restaurant industry. A favorable customer and product mix also supported higher gross margin at 18.6 percent of sales versus 18 in the equivalent quarter last year this allowed us to lessen the effect of lower revenues on our just to the dda which grew by
spk02: $400,000 to $9.7 million. We have further reduced our debt, reflecting our dedication to financial disciplines. Our leverage ratio as disclosed is now down from 2.4 times at the start of this year. to 2.1 adjusted EBITDA. 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 initiatives. It has now been more than two quarters since we moved into our our new hybrid distribution facility in Saint-Bruno-des-Monts. The transition of our existing customers to the new facility was completed in May. We are now getting more efficient and we are slowly onboarding new customers. As seen on slide six of the presentation, our top priorities remain aligned with our for 2020-25 plans. Efficiently managing our customer mix and product portfolio has allowed us to raise our gross margin in the past few years.
spk04: As we onboard new clients with varying profitability profiles, our job will be to pull on these levers to raise the lifetime value of a diversified customer base within the HRI and retail market. We also remain focused on growing our distribution platform both organically and with a creative acquisition. We could not have achieved our successful transformation and recent move to our new strategic facility without the dedication and passion of our employees. Our workforce is engaged and motivated, and we want to continue improving our employer brand and HR practices. Lastly, prioritizing quality and locally sourced offering has been hallmark of our differentiated offering and a key pillar of our success.
spk02: We will further nurture our brand and private label and we remain dedicated to raising customer satisfaction as we grow our business. We are We are now in the middle of a busy summer season. Our teams are dedicated to improving the efficiency of our new distribution activities and working to grow our presence in all our territories. With this, I will turn the call over to you. Thank you, Louis, and good morning, everyone. I am pleased to be here today to discuss our key financial results for the second quarter of fiscal year 2024. to slide 7 to 10 of the presentation for highlights of our financial performance in the quarter. Second quarter of 2024, sales were down 1.8% at $161.3 million. Revenues from our distribution activities increased by 0.7% while our wholesale activities were down by 8.4%. Volume growth from new and existing distribution customers, the contribution of 1.5% 5% inflation pass-through and M&A allowed us to mitigate the effects of lower customer spending in the restaurant and retail channels.
spk06: Consolidated adjusted EBITDA from continuing operations reached 9.7 million or 6% of sales, compared to 9.3 million or 5.7% in the second quarter of last year. Despite a small revenue decline, our strong gross margins allowed us to improve our adjusted EBITDA, as Louis mentioned earlier. Net earnings were $1.7 million, down from $3.2 million in the second quarter of 2023, mainly from higher financial charges related to the lease obligation associated with our new facility in St. Louis.
spk02: Cash flows from operating activities were $5 million in the second quarter, down from $11 in the equivalent quarter of last year, resulting from higher utilization of working capital. There were no No significant capex investment aside from our regular basic maintenance. In 2024, we continue to guide our total capex in the range of 1.5 to $2 million, primarily for maintenance and small optimization projects. We ended the quarter with a lower net debt of $56 million. down from $61.5 million at the end of 2023. At the end of the quarter, we had $24.5 million of events. available borrowing capacity . I would now like to turn the call over to the operator for the Q&A period. Thank you, ladies and gentlemen.
spk01: We will now begin the question and answer session. Should you have a question, please press star, followed by the one on your touchtone phone.
spk02: You will hear three-tone prompt acknowledging your request and your questions will be pulled in the order they are received. Should you wish to decline from the polling process please press star followed by the two. If you are using a speakerphone please lift the handset before pressing One moment, please, for your first question.
spk03: Your first question comes from Kyle McPhee with Cormac. Your line is now open.
spk05: Hi, everyone. First, on the topic of new territory development, call boards had sales reps out in the field developing new sales regions in Quebec, similar to the sales efforts that led to the big organic growth wave in 2022 and 23. before you ran out of capacity. I'm curious if the current round of sales reps chasing new clients is delivering similar momentum and client conversions relative to what you experienced in recent years. Or maybe things like revitalized company brand and private labeling and your new local offerings. Is that kind of paying off with better momentum this time around?
spk04: So yes, Kyle, it's Louis. Thank you for the question. Yes, for both part of your question.
spk02: And so... We're continuing to grow organically. We're gaining new customers month after month. after month and we're selling more and more of our private label and our spin is to sell more locally-made products versus our competitors, our emerging competitors. So we're continuing. So the momentum is good, and our plan is working. working. Got it. Okay. And will you be, it sounds like you recently added another round of sales reps. Is that kind of Is that it for now, or will you be adding another round throughout the rest of this? Well, we don't want to divulge our threat plan and our action plan to the whole plan and her action plan to the also relation but telling you it's going well and the we're gaining new territory. So by rebound, yes, we need more people. Okay. Got it. Got it. On inventory, your sales are kind of flat to down right now due to the macro headwinds as expected.
spk05: Feud inflation is muted, but your inventory levels have expanded quarter over quarter. And I think that's despite your inventory turnover, you know, improving with the new facility. So should I read this dynamic as you've stocked up on inventory in support of meaningful new client volume that you've landed? Or I know there's a seasonal dynamic for inventory heading into the summer season, but it seems like you've stocked up beyond just that seasonal dynamic. Any color on that?
spk06: Yes, Kyle, it's Pierre. Thanks for the question again. It's a combination of seasonality, but mainly it's the fact that we have moved the distribution customers from our Levy distribution center to
spk02: distribution center and the distribution center needed the inventory related related to the distribution customers. Mainly a lot of fresh products that products that were not sold to the wholesale or to the distributor. are all selected. Therefore, we expected that increase expected that increase that increase in inventory, it's to serve retail and restaurants from the same building. So our distribution customers from the same building know that's the reason and combined with the seasonality.
spk05: Got it. Okay. On CapEx, Any changes to CAPEX plan versus what you kind of messaged to us on the last conference call? Your filings do mention some efforts to modernize existing facilities, but I suspect that's kind of minor and included in your prior guidance. Can you clarify that?
spk06: Absolutely. So I just said a few minutes ago, between one and a half to two for the year, and the As you know, the St. Bruno facility is new, so it needs really no capex. So, yes, slight change.
spk02: I just announced a few minutes ago, but nothing major. And last one for me. I think I know the answer, but can you confirm whether or not all your Western Quebec distribution clients were being from your new St. Bruno facility during the full Q2 whether you're in the full Q2 period or on pockets still being inefficiently pockets still being inefficiently serviced out of your Eastern Quebec facilities during the quarter. Uh, they're, they're, they're all service from. We know. Well, our. Transfer. So, uh. I mentioned before, so it's ringing up. that we filled with the new acquisition that we made a couple of months ago. But all the customers that were served in Western Quebec from the Quebec CBD plant is now by the distribution center. Okay.
spk05: Thank you for all the answers. That's it for me.
spk03: Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one. Your next question comes from Frédéric Tremblay with Desjardins.
spk01: Your line is now open.
spk02: Thank you. Good morning.
spk07: Good morning. Now that the Saint-Renaud distribution center is serving distribution customers, have you noticed an intensification of discussions with potential customers in Western Quebec? In other words, how has the reception been so far in the market now that Colobor is becoming more and more active in Western Quebec?
spk02: Thank you. Welcome to the panelist meeting. Thank you. The thing is happening that we're gaining customers in western Quebec. New customers. We demonstrated our ability to serve well. well you you some customers so or The word is in the street, and the idea of this distribution from St. Renaud was that we are now able to have access to customers across the province. Small chains. small chains, larger chains,
spk04: and new customers available in the western part of Quebec. So this was the idea. And we did the transition from Levy in distribution to Saint-Bernard step by step. And we're just ending the second step of having an excellent distribution service level. And we'll be able to... to take more customers towards the end of the year, over the second half. And now that we're able to serve, it's proven, it works. Big customers wanted to see that, and it's working. So it's encouraging to be able to gain Quebec customers.
spk02: eventually, and that are in the province of Quebec. That's the idea. OK, great. And have you seen a notable response from competitors to your arrival? in those new territories? Also, we can maybe expand that question to the competitive environment, just given what's happening in the restaurant. Are you in jail? Are you in jail seeing some competitors being more aggressive on pricing or just and things like that. No, it's fairly stable. About pricing and of course they know that we're gaining business and we're gaining market share. So competition there. They have their eyes open and ears and eyes open, and they know what's going on. And so far, it's been good.
spk04: Our batting average to gain new customers, independent restaurants, has been as expected, and we're continuing. the pie is big and we have many opportunities over time.
spk07: Great. Last question for me. You mentioned potential or creative acquisitions in your prepared remarks. Just wondering if you had any comments on your pipeline and if you think that... I'm just curious to see if the current environment in the restaurant channel, if that's generating maybe more opportunities for
spk02: acquisitions in the distribution business? I think right now the answer would be no. Maybe if it drags on, if the you know, for a longer period, maybe. But But currently, we don't feel that bringing additional opportunity. But we have a significant amount of opportunity at different phases. we're looking at. Again, making sure that we are, you know, prudently looking at M&A strategies and making sure that it's going to be when we When we pull the trigger. Thanks for taking the question. Thank you. Thank you.
spk03: There are no further questions at this time. I will now turn the call over to Louis Frenette, CEO, for closing remarks.
spk04: Thanks, Joelle, and thanks, Kyle and Frédéric, for your questions. I'm proud of what our team has achieved in the last few years. Our diversification strategy has provided resiliency in the context of ongoing headwinds affecting the restaurant industry. Improvements made to our customer and product mix, as well as to our operations, have supported higher profitability. Our balance sheet and operational cash flow position us well in the current context and allows us to continue to execute our strategic plan in a proactive and opportunistic manner. Looking ahead, when the restaurant and retail channels gradually return to growth, the investment we've made in our distribution platform will contribute to our continued success. We have worked hard to be in this position, and I'm proud of my team. This concludes our call for the second quarter of fiscal year 2024. Thank you all for joining us and stay safe and healthy.
spk03: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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