Colabor Group Inc.

Good morning, ladies and gentlemen, and welcome to the Colabar's third quarter 2025 results, résultat du troisième trimestre 2025 de Colabar conference call. At this time, all lines are in a 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, October 17, 2025. I would now like to turn the conference over to Danielle Saint-Marie. Please go ahead.

Thank you, Joelle. Good morning, everyone, and welcome to Colabor Group's fiscal 2025 third quarter results conference call. This is Danielle Sainte-Marie. I'm responsible for investor relations at Colabor. Last evening, we released our earnings results for the 12 and 13 week, 36 week periods, ended September 6, 2025. The press release and disclosure documents can be found on our website and on CDAR+. The accompanying presentation, including our statement on forward-looking information and non-IFRS performance measures, can also be accessed online in the investors section at callaboard.com. Last night, we also announced the departure of Louis Frenette and the nomination of Kelly Shipway as the company's president and CEO. On behalf of the board of directors and the management team, I would like to thank Louis for his contribution during the last six years. We wish him success in his future endeavors. With me today is Kelly Shipway and Yannick Blanchard, our interim EVP and CFO, who joined the company last quarter. Before I pass the call on to management, I would like to introduce our new CEO. Some of you might have met Kelly at the company's Investor Day back in May of 2024. Kelly joined Colabar in 2023 as Vice President, Centralized Negotiations, Marketing and Procurement, and took on the role of Vice President of Business Strategy in January 2024, and was most recently promoted to Chief Operating Officer. Kelly has more than 25 years of experience in strategic business execution, operations, acquisitions, and integrations, primarily in the agri-food sector. Since joining Colibor, Kelly has laid the foundations for best practices in revenue management, by aligning business strategy to improve profitability and secure key long-term partnerships with suppliers and customers.

Kelly? Thank you, Danielle, and good morning, everyone. I'd like to start by saying a few words about Warren White, our chairman, who sadly passed away on October 6th. On behalf of our board, management, and all the employees at Carabao, we would like to extend our heartfelt condolences to Warren's family and friends. His leadership and integrity shaped this company in lasting ways. In line with our board succession policy, the board has appointed Denis Mathieu as interim chairman. Monsieur Mathieu is currently president and CEO of Novexco, Canada's leading distributor of office products, and he was previously EVP and CFO of Uniselect. He brings a vast experience in the distribution sector and has been a director of Caraval since 2018. As previously disclosed, Carabao was the target of a cybersecurity incident on July 20th, 2025. I'd like to take this opportunity to thank our teams, both external and internal, who worked relentlessly and contributed to minimizing the impact of the incident, which affected our legacy business only, starting on July 20th. Within days, we managed to regain control of our operations and serve most of our customers. All hands were on deck, working to minimize the impact of this event on our customers' businesses, our operations, and our systems. At this point in time, we can now say that we're confident that the security measures implemented will help reduce risk and strengthen our resiliency. Our operations have now fully recovered and customer attrition was contained. I'm extremely grateful for our clients' and our suppliers' patience during this difficult period. We remain dedicated to offering the industry's most attentive and personalized customer service and we look forward to continue working hand-in-hand with our suppliers. I will now turn the call over to Yannick to review key financial highlights this quarter.

Thank you, Kelly. Good morning, everyone. So, there's been several factors waiting on the company's result for the quarter. Among other things, there was a temporarily increased cost structure due to the time required to ensure the successful integration of Alimplus activities and consequent deferral of the realization of the anticipated synergies resulting from the acquisition. The loss, also the loss of sales associated with the cybersecurity incident, pressure on margins due to the impact and the renewal of the major institutional contract in December 2024, as well as challenging market conditions for the food service sector. These factors have had a significant impact on our working capital and liquidity needs during the quarter. To remedy the situation, since the end of the quarter, we have initiated the first phases of our program to integrate LM Plus acquisition into our Saint-Bruno and Lévis operations. Our priority remains to maintain the highest service rates in the industry during the transition period, and our teams are ready to gradually take over. From the end of November 2025 and the end of January 2026, Alimplus customers will be gradually served from our sites located in Saint-Bruno and Lévis, which will generate operational efficiencies and estimated cost savings of $12 million on an annual basis. We expect a return to stronger profitability next year, mainly driven by the realization of cost-based synergies with LM Plus. As we previously disclosed in our second quarter, following the acquisition, combined with the cybersecurity incident, the company will require additional funds and need to obtain amendments to the borrowing terms to ensure its compliance with existing borrowing arrangements. On September 5, 2025, A first forbearance agreement was reached with our principal lenders in Investments Québec, especially for our forecasted financial covenants breached during Q3 and Q4. Our recent discussion with our lenders in Investments Québec led to an extension of the said forbearance agreement, and it remains in effect until January 30th, 2026. At the same time, the company is actively engaged in further discussion with its lender and financial partners regarding potential amendments to its credit facility and subordinated debt facilities. We're steadfastly dedicated and focused on positioning the company for long-term stability and growth. Our fundamental business plan remains intact. but our near-term focus is to fixing balance sheet and capturing cost savings and synergies from the LM Plus and Touperia acquisition. Those acquisitions at LM Plus and Touperia is highly strategic, accelerating our growth plan and strengthening our position as the largest and unique Ibecoa food service operator in the province. We've also made an important addition to our finance team. I have with me here Marc-Antoine Daou, the VP Finance. He joined us during the third quarter. Marc-Antoine has over 25 years of experience in finance. He's mostly served as VP Finance at Zim Canada, but I had several senior roles at ATAC and also Bombardier Transportation. We've also strengthened other key function focus on our customer and supplier relationships and revenue management. In light of the challenges the company is exposed to, we wish to provide the following outlook. First of all, fiscal 2025 has to be seen as a transition year, will not be representative of our earnings and cash flow generation potential of our platform. The first step, as I mentioned, has already been taken to remediate this situation. As discussed, starting at the end of Q4 2025, beginning of Q1 2026, we will start integrating our businesses with the objective of gradually ramping up our expected cuts synergy starting in the first half of 2026. We expect a return to stronger profitability next year, mainly driven by the realization of cost-based synergies with LM+. As mentioned before, they are expected to represent approximately 12 million on an annual basis. And now for a quick dive into Calabasas financial performance in the third quarter of 2025, I refer you to the accompanying presentation available on the company's website in the investor section. So consolidated sales were up 31.1% and amounted to $212.5 million. Revenue growth came mainly from the acquisition of an implicit which contributed $53.3 million in increase of sales. Organic growth from major account clients and distribution activities and the effect of inflation. Although growth was mitigated by the effect of the cybersecurity incident on our legacy business, which accounted for approximately $8 million of revenue loss, the effect of a major contract renewal, which took effect in December 2024, and ongoing headwinds in the restaurant segment, particularly within the independent restaurant channel. Consolidated adjusted EBITDA, from continuing operation amounted to 5.8 million, 2.7% of sales compared to 9.5 million, 5.9% in the third quarter of last year. Significantly lower margin associated with the specific industrial and institutional contract, lower growth margin contribution from the restaurant sector primarily because of less favorable customer mix, the cybersecurity and also temporary costs associated with delays in integrating LNplus businesses, which we expect will generate annualized cost savings of $12 million. Given the above, and from the effect of a non-cash goodwill impairment of $75 million, net loss from continuing operation was $74.4 million, or $0.73 per share, down from net earnings of $1.2 million, or a profit of $0.01 per share in the third quarter of 2024. Cash flows from operations were negative at $7.7 million in the third quarter, down from a generation of $9.9 million a quarter last year. This results from a lower adjusted EBITDA and higher utilization of working capital from running all Alimplus facilities in parallel with the legacy Collabore facilities. CapEx investments were insignificant in the third quarter and should not expect annual CapEx to reach more than $2 million. Following the acquisition of AlimPlus and working capital requirements, the company's net debt rose to $112.1 million, up from $47.8 million at the end of 2024. Consequently, the leverage ratio at the end of Q4 stood at 7.8 times adjusted EBITDA. At the end of fiscal 2024, the company's leverage ratio represented 2.4 times adjusted EBITDA. At the end of the quarter, total available borrowing capacity and the credit facilities stood at 5.3 million.

I would like now to turn the call over to the operator for the Q&A period.

Thank you, ladies and gentlemen. 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. One moment, please, for your first question. Your first question comes from Michael Glenn with Raymond James. Your line is now open.

Hey, good morning.

I'm just hoping that you can maybe shed a little more information or provide some context to Louis' departure. What were some of the primary reasons the decision was taken for the departure? That would be helpful.

Thank you, Michael. It's Yannick. Obviously, the board has made the decision and has decided that it was time for a CEO change. Kelly was part of a succession planning and has been with the company for three years. She has been in the industry for 25 years and the board has made the decision that it was time to effect that change.

That's what I can see at this stage, Michael.

Were the, were the, were there any, was there any like significant factor that played into that? Like the, the cybersecurity incident, the timing of the LM plus acquisition, like any, any additional color info?

I don't listen. I think that the situation is the situation and the board has made that decision. Unfortunately, I wasn't there and nor was Kelly in part of that decision.

So that's what it is.

Just to look at fiscal fourth quarter quite a bit, I mean, Would you expect, like there's a lot of, I suppose, integration activity that's ongoing in Q4. I'm guessing with that we probably shouldn't be too aggressive with our 4Q adjusted EBITDA margin. Is there any reason to think that the fourth quarter adjusted EBITDA margin would be better than the third quarter, for example?

It's a very good question and there's a couple of important points to answer that question.

The first one is that this is going to be the last quarter where we have a significant impact from the renegotiation of the institutional client contract. So that's the last quarter. So you should, you know, Q1, Q2, Q3 and Q4 will be impacted by that year over year, obviously. That's the first thing. The second thing in terms of The cost savings that are expected when we move out of the two warehouses, the first one being Drummondville, which should be concluded in the next couple of weeks, and the second one, which is Anjou, which will be concluded by the end of January 2026, that's where we will rip 100% of the cost savings because you have to understand, and I don't think we've done a good job in explaining it in the past, but what you have to understand is that when we did this acquisition, we are not responsible of the cost structure. The cost structure that comes with LM Plus remains with the sellers. And so the sellers are charging back all those costs back to us during the transition period, which should end, as I mentioned before, totally by the end of January. And therefore, It's very easy to achieve those cost savings because they stopped charging it back to us because that's their legacy cost structure. It's not ours. So that's the first thing. So for Q4, you're still going to be impacted by the renegotiation of the contract. You're still going to have chargebacks from the seller of Alimplus in terms of the cost structure, so you'll still have, but it's still going to come back down a little bit, but you should expect more in Q1 to have the full benefit of the cost savings.

And then maybe just one more, so the asset-backed facility that you reference

uh in in the mdna that would that's a new facility that would be over and above the subordinated debt yeah so as as you know uh the uh the company uh financial structure uh they have and i'm doing round numbers i don't have the exact number in front of me but round numbers you have 85 million of senior secure debt with the lenders and you have 30 million 1515 of two subordinate tranches with Investissement Québec. The 85 million of first lien secured debt has been based on a cash flow basis. And obviously, with the delay of integrating LIMPLUS and maintaining our EBITDA level to prior levels, during that period from a cash flow standpoint, That's why we're in default from a debt to EBITDA ratio. And therefore, we've agreed to work with our lenders to transform that cash flow loan into an asset-backed loan because really what it is is to finance our working capital. I'm talking about the senior security facilities. So it's not an add-on. it's a replacement of the cash flow loan by an asset-backed loan.

Okay. And you would expect to have that negotiated by mid-December, call it.

Exactly. So we're working on, in terms of forbearance agreement at this stage, because we're looking for a more permanent fix. And in terms of the senior secured debt, the permanent fix, it seems to be to do an ABL and as a back loan as opposed to a cash loan.

Okay. I'll come back with more. Thanks. Bye. Okay.

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

Thanks. Good morning. Maybe staying with the forbearance agreements for a minute here, there's a requirement for Colorboard to come up with a non-binding LOI for a $15 million equity raise. So I'm wondering if you can provide some initial color on that. And, you know, have you started to engage with potential financial partners for that? And what are sort of your expectations in terms of, you know, how this may unfold timing-wise or the types of partners that you'd be looking at for this.

Yeah. So, we've mentioned that in Q2, right, that we were looking for new financing to give us some flexibility. At this stage, with the financial levers we have, obviously, it would be preferable to shore up the balance sheet with equity and not to add on more debt. It could be a structured equity instrument, but ideally it would be an instrument that is passive and that provides us the flexibility and also heading in the right direction in terms of reducing the financial leverage of this company. That's why in discussion with our financial partners, we were, and in the forbearance agreement you pointed to, there is a work that is being done right now to raise, call it structured equity or equity in the amount of 15 million. So one is to reduce leverage. Two, it's to provide a little bit more liquidity cushion. Three is Also, if the asset-backed loan comes in a little bit lower than the $85 million currently approved, we would have money with that structured equity raise to close the gap on the two structures.

Okay, thanks for that. In terms of just the cybersecurity incident, you quantified the lost sales at $8 million. In terms of impact on EBITDA, is there any sort of disclosure that you can make there? And I guess, would you expect any additional costs related to the cybersecurity incident in Q4 or into 2026?

No, we feel we have sufficient insurance coverage to cover the incurred costs and loss of revenues. At this stage, the best estimate in terms of EBITDA would be for you to take the average EBITDA margin and multiply it on the loss of revenues. we were really two days with no sales during the uh and then after the day three and day four there's been a gradual ramp up in terms of sell back to our normal level so uh so that's why we estimated the net uh loss of sales to it to eight million

Okay, yeah, that's helpful. Thanks. And maybe last one for now. Maybe on the 12 million of cost synergies that you expect by the end of next year, how do you envision that unfolding? Meaning, is it going to be a gradual kind of straight line process throughout the year? Or is it more weighted towards the second half of the year? Just to maybe help us with modeling.

Yeah. It's a good question. No, it's really, you have to look at like, there's two warehouses. The first one is the Drummondville one, which by the end of this month, mid-November, it's going to be done. And therefore, the chargeback for that facility will end. We're starting mid-November to work on the Anjou, and there's the Christmas season. There'll be a temporary stop in terms of the transition, but we expect with the Christmas season that by the end of January, the second and last warehouses will be totally transferred into ours by the end of January. And at that point in time, the cost being charged back to us for the transition during, as per the transition agreement with the sellers will end. Okay, and so we'll 100%, I have a caveat for that, but 100% of the cost will start being charged to us back. The only caveat is that for one of the facility we're paying the right of use of the warehouse until the end of June, so for another five months after the end of January. But aside that cost for that period of five months, there will be no more costs charged back to us. So it's not like we have to fire people or incur the additional costs to reduce our cost structure. This is just the seller stopping us to charge us back the transition costs.

And is that the full $12 million? Is there anything else in that $12 million number? No.

The $12 million is strictly the stop of being charged back those costs. Then all the synergies in terms of the upselling of products, revenue synergies, purchasing power, benefits, cost synergies other than the ones that are not being charged back. All that is in addition and above the 12 million. There's revenue synergies, as you know, that are more difficult to concrete and take longer to achieve.

But this is not part of the 12 million we're talking about. This is over and above the 12 million we're talking about.

Okay. Thanks for taking the questions. No further questions at this time.

I will now turn the call over to Kelly Shipway for closing remarks.

Thank you, Joelle, and thanks, everyone, for your questions. We're coming out of a tough quarter for sure, and 2025 will be a transitional year. We have just activated our plan to reestablish profitability and extract cost synergies. We're focused on delivering these synergies, improving cash flow management, and working closely with all of our partners. I want to thank all the dedicated women and men that work at Calabar for their contribution and all of our customers and suppliers for their continued support. This concludes our call for the third quarter of fiscal 2025. Thank you for joining us. Stay safe and healthy.

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