Colabor Group Inc.

Good morning, ladies and gentlemen, and welcome to the Collabor Group Inc. Collabor Second Quarter 2025 results. Résultats du deuxième trimestre 2025 de Collabor. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, July 25, 2025. I would now like to turn the conference over to Louis Frenette, President and CEO, please go ahead.

Merci, Joël. Thank you, Joël. Good morning, everyone, and welcome to Collabance Group Fiscal 2025 Second Quarter Results Conference. This is Louis Frenette, President and Chief Executive Officer. Last evening, we released our earnings results for the 12th and 24th week period ended June 14, 2025. The press release and disclosure documents can be found on our website and on cdarplus.ca. The accompanying presentation, including statement on forward-looking information and non-IFRS performance measure, can also be accessed online in the Investors section at calabar.com. Joining me today on the call is Yannick Blanchard, our Interim EVP and Chief Financial Officer. Yannick is an Executive Director with over 25 years of experience in the field of corporate finance. Welcome to our team, Yannick. Thank you, Louis.

I'm very happy to be able to lend a hand, and good morning, everyone.

Thank you, Yannick. Welcome. Before I discuss key highlights on the quarter, I would like to address the recent cybersecurity incident. Early this week, on July 21st, we disclosed being the subject of a cybersecurity incident. We quickly hired renowned experts, and we are working day and night to remediate the situation and fully restore relevant systems. At this point in time, the good news is that most of our operations are back online. As we speak, the full impact of this event is not fully known, and our ongoing work with our cyber forensic team will help shed more light on this. I am confident in our internal and external teams and how we have handled this event so far. We are actively engaging with customers and suppliers and are working towards a timely resolution.

There is no doubt that this is an unfortunate distraction.

All ends on deck. to make sure that this is short-lived and that we minimize the impact of cybersecurity incidents. And now for a review of our key operational results in the second quarter of 2025. On June 3rd, less than two weeks before the end of the quarter, we finally announced the closing of Allen Plus Acquisition, which includes the Tupre assets and an important six-year supply agreement for the four Mehran cash and carry stores located in the greater Montreal area. This transaction represents $225 million of annual sales from an attractive mix of clients. 55% are restaurants, mainly independent. 29% from retail customers, which includes the Mehran supply contract. 14% are institutional and 2% are other type of clients. This acquisition is highly strategic and it accelerates our growth plan, solidifies our position as the largest Quebec food service operator in the province and provides important revenues and operating synergies, which we discussed at length on previous calls. Since closing the acquisition on June 3rd, We've been working on aligning our teams, harmonizing processes, and setting the stage for our combined companies, long-term growth, and value creation. The integration of Alimplus and the start of the new Merin Supplier Agreement are going well and progressing as planned. Although it took longer to close the acquisition, the quality of the asset is in line with expectations. and the revenue performance is also tracking well. Because of the acquisition and growth experience with our major accounts, second quarter consolidated revenues grew by 5.1%. This allowed us to mitigate the effect of the renewal of the large institutional contract at a less favorable economic condition in the fourth quarter of 2024, and the macroeconomic headwinds that are still affecting the restaurant channel. We are working gradually to improve this contract contribution to our overall margin. In the coming quarters, we expect to give margin expansion through disciplined management of our products and customer mix, while gradually realizing the expected revenue synergies from the acquisition. The scale that this acquisition creates meaningful opportunities for growth across the province, our commitment to supporting the local food ecosystem gives us a distinct advantage over large international food service operator in Quebec. I remain confident about the potential of this acquisition and in our prospect for continued growth and profitability. Although this has proven a difficult start to the second half of the year, we are fortunate to work with such a dedicated group of individuals who are working tirelessly to make sure that we return to normal as quickly as possible. We are eager to get the cybersecurity incident behind us and reap the benefits of the Allen Plus acquisition along with our growing scale, which is opening the doors to new opportunities. On this, I would like to turn the call over to Yannick.

Thank you, Louis. The following discussion on Calabar's financial performance in the second quarter of 2025 is supported by the presentation made available on our website. Consolidated sales were up 5.1% and amounted to $169,500,000. Revenues from our distribution activities increased by 7.5%, mainly resulting from the acquisition, which contributed $8.8 million. Organic growth from major account clients, including a new major account mentioned by you, and the effect of inflation, which was 1.7% during the period. This allowed us to mitigate the effect of a major contract renewal, which took effect in December of 2024, and ongoing headwinds in the restaurant industry. Revenues from wholesale activities were down by 1.8%, and as Louis indicated earlier, are declining at a slower pace for a second consecutive quarter, but still affected by the restaurant industry slowdown. Consolidated adjusted EBITDA from continuing operations amounted to 5.4 million, or 3.2% margin, compared to 9.7 million, or 6% margin, the second quarter of last year, in large part from the effect of lower margin associated with the contract renewal and softness in the restaurant channels. Net loss was $2.3 million, or a loss of $0.02 per share, down from net earnings of $1.7 million, or profit of $0.02 per share, in the second quarter of 2024. Cash flows from operating activities were $4.5 million in the second quarter, down from $5 million in the equivalent quarter of last year. resulting mainly from a lower adjusted EBITDA, which was mitigated by a lower utilization of working capital from timing of supplier payments. Cap tax amounted to $700,000 in the second quarter and were part of a regular basic maintenance. For the entirety of 2025, we expect our maintenance and capital expenditure to be slightly lower last year and no material spend, for Alimplus. In aggregate, we expect our annual capex to reach no more than $2 million. To finance the acquisition of the assets of Alimplus and Toupre, which we paid $48.5 million, the company amended and restated this senior first-ranking secure credit facility totaling $91.75 million, extended the maturity on its $15 million subordinated debt with Investissement Quebec and entered into a new financing agreement with the leader for a new $15 million highly subordinated debt, the details of which can be found in the company's disclosure documents. This brings the company net debt to $97.3 million, up from $47.8 million at the end of 2024. Consequently, the leverage ratio at the end of Q2 stood at 4.3 times adjusted EBITDA. At the end of fiscal 2024, the company's leverage ratio represented 2.4 times adjusted EBITDA. Over the past few years, Colabar has demonstrated its ability to generate strong cash flow and meaningfully reduce debt. Looking ahead, The company remains committed to further deliveraging and strengthening its balance sheet. At the end of the quarter, total available borrowing capacity in the Chris facility stood at $17 million. I would now like to turn the call over to the operator for a Q&A period.

Thank you. Ladies and gentlemen, 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. You will hear a prompt that your hand has been raised. 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 any keys. Your first question comes from Kyle McPhee with Cormark Securities. Your line is now open.

Hi, everyone. Just the first question, just to make it abundantly clear, because some of the language is confusing in the filings, but this growth from a major account, as you call it, this was a new client that you landed recently, during the quarter. Is that correct?

Hi, Kyle. It's Louis. Thanks for the question. Uh, uh, yes, it's a chain account, uh, in Quebec. Uh, of course we cannot divulge the name, but, uh, uh, the, uh, we started to the sales with them on, uh, June 3rd or 4th, uh, in the month. So only a few days, 12 days, I think in the, uh, and Q2. Yeah. And so that's the same day as we started with LM Plus.

Got it. Okay. And can you help us kind of quantify the revenue impact from this new client going forward?

The revenue impact, that's a key account. It's going to be around $800,000 a month of new business with this account. So that's what we saw so far. So far. Not so far. So far.

Yeah. Okay. And are you their main or only supplier?

Exclusive.

Exclusive. Okay. And was this a... competitive process and you won a bid or was this a less formal process that ended up with you taking this business from, you know, a competitor?

It's a bid. Okay. Okay.

That's helpful.

So that's the good news. We can share the names. We only share the names when they want us to share the names. You understand how it works. Yeah.

Understood. Okay. And then on Alling Plus, in your debt leverage math in your MD&A, you disclosed the trail in your EBITDA of Alling Plus for the first time. It looks like it's around 11 million of EBITDA. But there's a footnote with that that says that EBITDA figure captures some expected synergies. So my question is, what type of synergies are built into this? LTN EBITDA figure you disclosed for LN+. Is it all expected future synergies or just some initial minor stuff like corporate costs and back office?

So the straight answer is that it's conservative and it's not all. So this is a rolling 12-month forecast. As I said, it's conservative, but it reflects the cost savings mainly and operational efficiencies. I'll give you an example such as route optimization. So we can do that as we speak since we're in the high season. Okay, so I cannot – so we'll start doing that and further – opportunities of efficiencies toward the end of the year will start. So that was delayed versus our first intentions of closing the deal, but it took longer, as you noticed. Got it. Okay. So the revenue synergies, Kyle, if you remember, there will be some volume effects. Give us more with... selling across Quebec, bigger in the western part of Quebec where we had very little business and we can do cross-selling of our meat business, our seafood business, of Touprez, the fruit and vegetables division that we bought from Aden Plus that will now be in the sell in the collaboration distribution organization. So there's lots of revenue synergy at the end of the day that we'll look at. And what's great with this deal is that they're long in the restaurant channels, independent restaurant channels with higher margins. So we like that. And maybe a bit of color... if you don't mind. So we're very satisfied with the integration of NM Plus so far. No breakdown, no breakthrough, it's as planned. And yes, for them also, the restaurant business is affected, but some headwinds there, but it's as planned. So we're very happy with the work they're doing, in part with our help, and very satisfied. It looks good.

Okay, appreciate all that color. We'll take anything you can tell us, as usual. One last thing on Alley Plus. So with the acquisition closing in Q2, you disclosed your initial purchase price allocation, and I see that it's a pretty small present value of lease obligations you onboarded to your balance sheet. It looks like maybe you onboarded truck leases, but you did not take over lease obligations of the Alley Plus facilities. Am I interpreting these numbers correctly? Perfect.

We did not onboard the leases of obligations. We have a right to use the facilities, so you're right.

Okay, perfect.

That's very helpful.

I'll pass the line. Thanks for the answers.

Your next question comes from Michael Glenn with Raymond James. Your line is now open.

Hey, good morning. Just to start, I guess I'm just, Louis, I just want to try to understand a couple of comments. So in the, you made reference to the 17.5 million of existing borrowing capacity on the facilities. And then in the MD&A, you indicate that you are having some discussion with your financial partners regarding some amendments to the borrowing terms. So I'm just trying to rectify those two comments like you have the capacity on the existing facilities, but you're also in the process of seeking some amendments. If you can just maybe just give a little more information on that.

Yeah, I understand that I understand. I really understand the question in the Michael. Thanks for your question and good morning. It's a timing effect, okay? The Aladin, sorry, the Aladin Plus acquisition, it came in on June 3rd, okay? And high season, high peak season for all food distributor is starting at the Saint-Jean-Baptiste week around the 24th of June, okay? So we made the acquisition. They have two big warehouses. We have three large warehouses and two smaller ones. And that's when you beef up the inventories for the high season. So it's when we bought on June 3rd. So they didn't have enough inventories or normal inventories. And we had normal inventories. So that's why at the close of the Q2, it was at $17.5 million. But to... To operate efficiently, we had to order for five warehouses to beef up the inventories, like suddenly just to cover the peak season of the week of the Quebec Saint-Jean-Baptiste and the week of the Canada Day. So that's a major change. So we have to be careful, and we work closely with... our financial partners and, uh, we ask for, uh, they understand the business. Okay. And, uh, they, they're, they're, they're, they're willing to help if needed, but yes, we had the room and now we have less room because we had to build up those inventories and, and with the cyber attack, uh, sorry, cyber incident, uh, uh, we may have, uh, A small hit there also. We're working with our partners to help us go through this. The leverage will come back to a normal level over the next year for post-acquisition. It should be like Pierre Blanchet was saying in the previous calls. Our leverage was low. It's going to go high and back to low. We generate lots of cash. So this is a temporary situation. This is not a crisis internally. It's a matter of operating well. And because of the delay of the transaction of Aladin, sorry, we had the synergies that were pushed further towards the end of the year period. beginning of next year versus being started now. So we can't have the synergies we wanted earlier.

So we have to push them. Okay.

So just based on what you're indicating, so third quarter will start working capital heavy. So should we expect then that leverage will tick moderately higher in the third quarter then?

We are in the third quarter, from June 14, and that's what I was explaining. On June 3rd in the second quarter, inventories were where they were supposed to be. Now, with the acquisition and... uh we loaded the the five big warehouses at one point in time so that's in q3 yeah yeah okay so leverage will move above 4.3 times exiting the third quarter that's what we should think about uh i don't know yet it should be uh maybe maybe maybe a bit yeah and are you able to disclose

what is the covenant associated with those facilities, the leveraged covenant?

No.

And of the facilities, the two large and the Colibor three large, which facilities exactly were impacted? Were all of the Colibor legacy facilities impacted by the cyber incident?

Yeah, just the Colabar Legacy. The Alimplus and Tupre operations were not impacted. So it's the distribution and wholesale business and the specialty, to a lesser extent, the specialty businesses were impacted. It's a good thing we had Alimplus up and running so they can cover some of the Colabar Legacy customers, you know.

during the the week yeah and just one more on the cyber were the facilities but like are you able to say were they completely down for a few days with the cyber incident or were you able to ship some product so two answers to that yes and no uh so if you ask my it guys they'll say uh

No, it was all affected, but we were able to do manual orders. So, yes, it took 24 hours to put back the systems, the IT softwares in working conditions, but we were helped with cyber forensic experts saying, don't start back yet. We need to check and verify if the backups were contaminated or not. So they were not. and we were able to restart the business progressively. So through the IT system normal, it starts back Tuesday, and that happened on Sunday. So we started back manual urgent and important orders for hospitals, as an example, on Tuesday night, and then progressively it's increasing and increasing. By Monday, Tuesday next week, we should cover 100%, close to 100%. I don't know, but we're close to that already. So the ramp-up is very quick.

Okay, thank you.

I will pass the line.

Ladies and gentlemen, as a reminder, should you have a question, please press star 1. Your next question comes from Frédéric Tremblay with Desjardins Capital Markets. Your line is now open.

Thank you. Good morning. I just wanted to ask about the large renewed contract and if you can maybe compare Q2 versus Q1 in terms of performance and your efforts to improve margins on that contract and maybe give us a bit of a glimpse of what's been done so far and what you're working on in the coming months for margin improvement there.

Okay. Related to the contract, as I explained in previous calls, So when you bid on a contract like that, you bid at a very low margin. So those are public bids, and we see afterwards what the competitors bid, and we're in the ballpark where we bid. That's my point. So the idea is to take the contract. At first, very, very little margins, and over time, we raise them. Like every month, there's a bit of improvement. So how we do that is that we sell products that were not part of the bid at a normal margin with them, and that's how it works. So it takes time, but some months it's 50 basis points better, and another month it's 25 basis points better, and that's the way it works, and historically that's the way... It was done, and we saw. So second part of your question, the back half is always a – we always have a Q3, Q4, a better margin than Q1, Q2 because of the low season. And Q1, Q2, Q3 is a high season because of – we're in it, it's summer vacation, and – the restaurant business is increasing in that part of the year where we have a better margin than institutional or chain accounts, as you can understand. So that's – it's historically always been like that, and that's what we see. And so far, we don't get guidance at Colabar, but we see – general public information that we have more people taking vacation in Canada this year than before. So that's good for our seasonal business across the province of Quebec and where we are in the Maritimes. So this looks good. So that's why we always project a better margin in the back half, more volume from the restaurants.

Okay. And you think this seasonal effect in Q3 is stronger than the headwind you're going to maybe get from the cyber incident, meaning you would still expect Q3 to be stronger than Q2 from a margin perspective?

Supposed to, yes. Okay. Free cyber, yes, and the people are there on vacation, yeah. So these are the data we have, and so it looks good on that.

Okay. Okay. Maybe just a last question for me. On the M&A front, there's obviously several moving pieces and you just completed a large transaction with Alimplus, but any thoughts on the M&A strategy moving forward? Are you taking a pause or are you still looking for some targets right now?

We have a list of targets. We... We have to manage our finances with the roller coaster strategy, so we have to prepare for the next one. We have a list of inbound calls also for people that want to sell their business to us and part of our strat plan. We have an aggressive strategy on the street business, the distribution business. And we have to grow it, especially that we're not in the western part of Quebec. And now with LM Plus and the leverage power we have, we'll gain more customers there where we're not very well developed. And on the acquisition, we'll make it when we can afford another one. But we're preparing that already, yes.

Okay, thank you.

Your next question comes from Michael Glenn with Raymond James. Your line is now open.

Hey, just a few follow-ons. So maybe, Louis, you spoke about gross margin. in the opening remarks can you give some indications about um how we think how we should think about gross margin for the past two quarters it's been around the 16 percent level uh are you able to indicate what you would hope to see through the next four quarters on gross margin okay so i can explain you the gross margin at 16 that was lower than

than last year, and that's the effect of the institutional contract that we got back at a lower margin. So it's simply that. So the rest of the business is healthy with the margins. And what screwed us, sorry for my English, but what screwed us is the fact that the restaurant channel at headwinds, as you know, across Canada and the States. So that's where we have the better margins and our mix is not as good as it should be. So that's how it is. And as I just responded to Frédéric, the back half is different because of the seasonality, the vacation people thing in Canada and the restaurants business business is much higher in Q2, Q3, year over year. So that's why it will come back to a reasonable place.

Okay, thank you. And then across all your facilities, are you able to indicate what your blended interest rate is right now across all your debt facilities?

No, we're not.

You can do the math with the interest charge we have currently, but we don't have that number, the average number at the bottom line.

Thank you.

Your next question comes from Cal McPhee with Cormark Securities. Your line is now open.

Thanks. A quick follow-up. I think I know the answer. We're going to try anyway. So, Allen Plus, you had an 11-day contribution in Q2. You disclosed it was $8.8 million of revenue for those 11 days. Can you tell us what EBITDA was attached to that revenue contribution?

Okay. First, it was 12 days, Kyle. And the EBITDA contribution was where we thought it would be. So no surprises, as I said. So a food service margin.

Okay. Okay.

And then there's obviously still macro drag in this key high margin restaurant channel for you. Wondering if you can offer any color on, is that macro drag starting to fade at all? I know there's a seasonal lift and you've talked about that a lot already. But at the extent of that year-over-year drag, that macro drag in the restaurant channel, are you seeing any signs it's fading into the back half of the year?

Yeah, exactly. Kind of the pre-seasonal effect. The full restaurant industry is behind across Canada, except for the quick QSR, quick service restaurants. So people, remember, it all came with the effect of, the president of the south of us effect. So that's where it was hit. We saw, we see, we saw at the end of Q2 a bump up in the restaurant business and we saw a greater one with the seasonal. So I cannot predict how it's going to be on November 8th. Okay. But it's encouraging. Like we're starting to get back pre-seasonal.

Got it. Okay. Thank you. That's it for me.

There are no further questions at this time. I will now turn the call over to Louis Frenette for closing remarks.

Thanks, Joël. Thanks, Kyle, Michael, and Frédéric for your questions. Although the past week has been challenging, as you can understand, our team responded swiftly and decisively, implementing the necessary measure to mitigate the impact of the cybersecurity incident. On a personal note, I'm very impressed with this. I'm confident in our ability to resolve the remaining issues in a timely and effective manner. Our focus is to return to high levels of service and personalized service that we have been able to offer to our customers. We are now in the middle of the busy summer season, as I said. Although it winds remains in the restaurant channels, but we are entering in the second half of 2025 confident and optimistic. The business acquired are performing well. Our major accounts customers are growing. and we are growing in our coveted markets. In addition, with the ongoing tariff situation, as I was explaining, we expect more people to spend their summer vacation in Quebec and favor local suppliers. On the profitability front, we still have several levers to enhance margins, including optimizing our product and customer mix and growing scale. This concludes our call for the second quarter of fiscal year 2025. Thank you all for joining us. Have a great summer vacation. Stay safe and healthy. Thank you.

Ladies and gentlemen, this concludes our conference call for today. We thank you for participating and ask that you please disconnect your lines.