Lassonde Industries Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Lassonde Industries' 2023 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star followed by zero for operator assistance at any time. Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded on Friday, May 12, 2023. I will now turn the conference over to Vince Timpano, President and Chief Operating Officer. Please go ahead, sir.

Good afternoon, ladies and gentlemen. I am here with Eric Jem, Chief Financial Officer of LaSonde Industries. Thank you for joining us for this discussion of the financial and operating results for our first quarter ended April 1st, 2023. Our press release reporting these results was published earlier today. It can also be found on our website, along with our MD&A and financial statements. These documents will be available on CDAR as well. We also posted a presentation supporting this conference call on our website. Let me remind you that all figures expressed on today's call are in Canadian dollars and less otherwise stated. Now let's turn to slide four. Our results show that Lausanne made good progress against its priorities in the first quarter, and we enjoyed solid performance across each of our divisions. Sales increased by 7.5%, reflecting pricing adjustments and the favorable evolution of our U.S. private label portfolio since last year. These actions and efficiency gains led to noticeable improvements in both operating and net earnings. Eric will provide additional details on our financial performance in a few minutes, but first let me focus on a few key elements. Except for the orange concentrate situation, we are noticing some stabilization in the inflation trend on most input costs. Next, our efforts to adjust pricing are yielding benefits, and we are now closing the gap between cost increases and related price increases. And, as mentioned on the previous conference call, we remain laser-focused on executing our multi-year strategy and, more importantly, our plans to revitalize our U.S. operations. Today, I am pleased to report tangible benefits on several fronts which had a measurable effect on our first quarter results. First, recall that we are in the process of simplifying our product portfolio by reducing SKUs sold in the U.S. market by approximately 10% to 15%. In doing so, our goal is to reduce execution complexity by harmonizing packaging formats, consolidating formulas, and eliminating low margin products. While this portfolio rationalization was a factor, partially explaining the quarter one volume decline, the outcome of these measures are many. First, our offering better reflects what we can more efficiently produce as evidenced by an improved mix of private label products this past quarter versus last year. Second, It reduces downtime and costly changeovers, which ultimately improves throughput. And thirdly, we opened up line hour availability from which we could deliver growth at a better margin. Another positive effect is directly related to the implementation of a new transportation management system in the U.S., which we'll refer to as TMS. It provides us with better tools to identify the most optimal routes and carriers for both inbound and outbound freight. We are also seeing benefits from a review of our processes and other supporting tools surrounding logistics management. Overall, we are witnessing improved efficiency in our New Jersey plant and across most of our operations. However, from a US supply chain perspective, there are still a few minor disruptive elements. More specifically, the availability of aseptic production capacity from our co-packers and of aluminum can from our suppliers affected output and sales volume in the quarter. These issues are slowly fading away, which should allow us to regain some of the lost volume and manage our inventory more efficiently in the coming quarters. With that, I turn the call over to Eric for a review of our quarter one results.

Thank you, Vince. Good afternoon, everyone. Let me begin on slide seven with our first quarter top line review. Before starting, please note that most amounts have been rounded to ease the presentation. Sales reached $547 million, up 7.5% from $509 million last year. Excluding a favorable foreign exchange impact, sales increased by 3.7%, mostly due to selling price adjustments and to more favorable sales mixed in our U.S. private label portfolios. Conversely, we experienced a volume decline, mainly in the US, but as Vince mentioned, a good portion of this reduction relates to the streamlining of our product portfolio and to supply chain shortages. Now on slide eight. Cost of sale rose approximately 10% from last year. Excluding foreign exchange variation, the year-over-year increase was 5.4%, mainly reflecting higher input costs, especially apple and orange concentrates, and increase in our conversion costs. As a result, gross profit amounted to $137 million or 25% of sales versus $136 million or 26.6% of sales a year ago. Net of the foreign exchange impact, gross profit decreased by $1.4 million. SG&A expenses were $110 million down from 113 million last year. The reduction reflects lower transportation costs, which, in addition to benefits from the new TMS, is also attributable to the decrease in base rates and fuel surcharges. It was partially upset by higher selling, marketing and administrative expenses, as well as unfavorable FX impact of almost $3 million. Excluding all items that impact comparability, Adjusted EBITDA improved to $43 million, up from $40 million last year. Profit attributable to corporation shareholders came in at $17 million, or $2.51 a share, compared to $15 million, or $2.14 a share last year. On an adjusted basis, Q1 EPS stood at $2.48 versus $2.37 a year ago. Turning over to slide nine, and looking at our balance sheet, we are still not pleased with our working capital situation. The graph in front of you is key and regularly reviewed by management to help us track and manage the evolution of the main working capital components over the years. You will note that this chart not only includes the common working capital indicators, such as day sales outstanding, day inventory outstanding, day payable outstanding, but also reflects an integrated measure labeled number of days invested in the working capital, represented by the blue line. This measure, as the name indicates, represents the number of days of sales tied up as operating working capital. What's evident from that graph is that our inventory holding, the yellow bar, is currently elevated compared to its historical level. This reflects, in part, the impact of our strategy to secure inventory in response to the supply chain challenges. the related implication of the service level to our customers, but also reflects some timing issues between the manufacturing and the shipping of finished goods inventory. We should also note that at the same time, our day's paywall standing, the gray bar, were at the lower end of its historical range when looking at this metric in relation to the inventory it should mostly finance. The combined effect of those two elements resulted in an overall increase of approximately 10 days of sales invested in the working capital over the course of the last 12 months. We expect to progressively reduce inventory levels over the next few quarters. As a result, the day-operating working capital should land near the higher end of its historical range by the end of 2023 and should settle within this range in 2024. On slide 10, we see that our investment net level remains solid with long-term debt including its long current portion of $268 million at the end of the quarter, compared to $249 million at the end of 2022. The increase reflects draws on our revolving credit facility, mostly to finance working capital. Given the higher debt, our net debt to adjusted EBITDA ratio rose slightly to 1.67 to 1 at the end of the first quarter, still well within our objective of maintaining the ratio below 3.25 to 1. Turning to cash flow on slide 11. Cash flow used by operating activities were $5 million compared to 21 million last year. The improvement reflects a better profitability, lower working capital requirement this year versus last, and lower income taxes paid. Finally, capital expenditure for PP&E and intangible assets, mainly IT system, amounted to $13 million compared to 9 million last year. As a reminder, we estimate CapEx to reach up to 4.5% of sales in 2023 to support our multi-year strategy. I now turn the call back to Vince for the outlook. Vince.