Colabor Group Inc.

Good morning, ladies and gentlemen, and welcome to Colorbor's first quarter 2025 results conference call. At this time, note that all participant lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. And 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 2, 2025. At this time, I would like to turn the conference over to Louis Frenette, President and Chief Executive Officer. Please go ahead, sir.

Thank you, Sylvie. Good morning, everyone, and welcome to Carabao Group's fiscal 2025 first quarter results conference call. This is Louis Frenette, President and Chief Executive Officer of Carabao. Last evening, we released our earnings results for the 12-week period ending March 22, 2025. The press release and disclosure documents can be found on our website at cdarplus.ca. The accompanying presentation, including our statement on forward-looking information and non-IFRS performance measures, can also be accessed online in the Investors section on colabar.com. Joining me today is Pierre Blanchet, our Chief Financial Officer, who, following my initial remarks, will provide an overview of our financial results. Our first quarter results demonstrate that we continue to execute against our plan and we are winning market shares. Our diversification strategy within the HRI market and investment made to expand our presence in western Quebec allowed us to offset some of the effect of the ongoing challenging backdrop in the restaurant industry. In the first quarter, total revenues grew by 0.4%. And our distribution sales grew by 3%, resulting from higher volume from new and existing clients, market share gains, as I said, and M&A. This positive trend underlying our distribution activities was mitigated by the effect of the major contract renewal. As for our wholesale revenues, we experienced a slowdown of the pace of decline, with wholesale revenues down by 3.8%. a much lower pace of decline than what we have been experiencing since the start of 2024. On the profitability front, the combination of softness in restaurants industry and the previously announced repricing of a major contract had a significant impact on our adjusted EBITDA margin this quarter. In order to manage the effect of the repricing of this major contract, we have implemented various mitigation measures, including reducing our operating expenses and diligently working to add more products that are outside of our scope of contract. During the first quarter, we also prudently managed our capital allocation and further reimbursed debt. With our demonstrated ability to grow our distribution sales in our new and coveted market, we remain on a solid ground. On February 19, 2025, we announced a highly strategic acquisition, which once concluded, aimed to further consolidate our position as the largest Quebec food distributor and boost our presence in the western part of the province. Our management team is working diligently on the conclusion of the transaction. Looking ahead, our primary focus lies on growing our presence in the Western market, market all while continuing to improve our product and customer mix. We will continue to work on all fronts to improve productivity, raise efficiencies, and tightly control our operating expenses. This will allow us to mitigate the effect of the major contract renewal. Before I turn the call over to Pierre, I would like to discuss the ongoing tariff situation. As we currently stand, food products exported from U.S. into Canada are generally subject to the United States-Mexico-Canada agreement, the USMCA, and remain mostly duty-free and quota-free. Over 90% of all products that Caraval buys from suppliers are from Quebec or the rest of Canada. In addition, the majority of our private label is sourced from Quebec suppliers, manufacturers, and farmers. Because of our strong local supply chain and efforts to promote local brands, we are starting to experience demand tailwind that has started to translate into market share gains with independent restaurants. These trends along with customers looking for value, is also benefiting our private label brand, sales of which continue to grow in Q1. Pierre, on 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 2025. Please refer to the presentation for highlights of our financial performance in the quarter. In the first quarter of 2025, sales were up 0.4% to $131.7 million. Revenues from our distribution activities increased by 3%. Distribution volume growth came from new and existing clients and the contribution of the acquisition of the assets from Baudry-Cadrin concluded in the first quarter of last year. This allowed us to mitigate the effect of the major contract renewal, which took effect in December of 2024. Please note that the effect of inflation was nil in the quarter. Our wholesale activities were down by 3.8%, and as Louis indicated earlier, declining at a lower pace than we have experienced since the start of 2024. Consolidated adjusted EBITDA from continuing operations reached 2.3 million or 1.7% of sales compared to 4.9 million or 3.7% in the first quarter of last year, mainly from the effect of the major contract renewal at the lower margin, which occurred in December of 2024. Our first quarter is always a more sensitive quarter with lower seasonal revenue patterns, limiting our ability to absorb our fixed cost structure. As of note, we managed to reduce our operating expenses this quarter and continue to be an area of focus for the team. Net loss from continuing operation was $4 million, or $0.04 per share, down from a net loss of $1.8 million or $0.01 per share in the equivalent quarter of last year. Cash flow from operating activities were $6.2 million in the first quarter, down from $11.7 million in the equivalent quarter of last year, resulting from higher utilization of working capital and lower adjusted EBITDA. Higher utilization of working capital is to fund inventory buildup ahead of the busy summer season. CAPEX investment amounted to $0.3 million in Q1 and we're part of a regular basic maintenance. For 2025, we expect our maintenance and capital expense to be slightly lower than last year at approximately $2 million. We ended the first quarter of 2025 with a lower net debt of $47.1 million, down from $47.8 million at the end of 2024, and a leverage ratio of 2.8 times adjusted EBITDA, up from 2.4 times at the end of last fiscal quarter, a level at which we remain comfortable. Total available borrowing capacity on our credit facility stood at $36.7 million. I would now like to turn the call over to the operator for the Q&A period.