Premium Brands Holdings Corporation

Welcome everyone to our 2025 third quarter conference call. Thank you for joining us today. With me here is our CFO, Will Kaludich. Our presentation will follow the deck that was posted on our website this morning. We're now on slide three, which outlines key highlights for the quarter. We delivered industry-leading growth this quarter, driven by the momentum of our core growth initiatives in the U.S., which on a combined basis delivered organic volume growth of over 24%. Our growth is especially noteworthy in the context of the slowing revenue trends for most of our peers. As mentioned in my most recent letter to shareholders titled The Future of Food is in the Past, consumer tastes and lifestyles are changing fast, resulting in shifting purchasing patterns and changing consumer preferences. The investments we have been making in state-of-the-art capacity to produce the products consumers are demanding position us well to capitalize on this changing landscape. Since our founding in early 2000, we have been investing in three major consumer trends, increased protein consumption, premiumization, and convenience. As a result, we're uniquely positioned to offer our customers the healthy and nutritious protein-centric product solutions they're looking for, made in state-of-the-art facilities featuring industry-leading automation, technology, and food safety. We're very excited by what we see in terms of future demand for our products, driven by these major trends, and we believe that this elevated demand will continue to accelerate and gain even more momentum in the future. The third quarter was not without its challenges, and while very high chicken raw material costs subsided as expected, beef raw inputs reached record highs. In addition to the North American cattle herd being at near historic lows, imports from Mexico and Brazil that normally help balance supply and demand were disrupted due to several issues, including cattle disease issues in Mexico and trade-related challenges with Brazil. While we're taking the necessary targeted pricing actions needed to restore our margins, we're also focused on various cost reduction initiatives, through continuous improvement, automation, and capacity expansion and optimization. Overall, we're very pleased with our progress during the third quarter as our various financial performance metrics speak for themselves. We're very well positioned to continue to deliver record top and bottom line results despite the black swan events that occasionally come our way, and we remain steadfast in our conviction on the value we will be creating by leveraging our recent capacity investments to capitalize on the major food trends that are driving demand for our best-in-class products. We will continue to go where the puck is going to be and not where it's been, and correspondingly expect to see our growth and the value we're creating continue to accelerate. This gives us conviction that we will reach or even exceed our five-year targets of $10 billion in revenue and 10% to 12% EBITDA margins by 2027. We look forward to discussing our plan for 2026 early in the new year and presenting you with our next five-year plan in early 2027. We're now on slide four. Although we did not close any acquisitions during the quarter, our acquisition pipeline remains full and we're involved in many active discussions with talented food entrepreneurs and legacy owners that are looking to join our unique ecosystem of best-in-class specialty food companies. This is because they know that we will respect their legacies and company cultures and that we will take a long-term view in investing and in managing our business. I would also like to announce that we have now begun the strategic process of monetizing certain assets and investments. We hope to have some announcements soon in this regard, but we will make no further comments at this time. We're now on slides five and six, which include pictures of two plants, one located in Ontario, Canada, and the other in Washington State. These plants have been significantly expanded in recent years and are both involved in executing the biggest product launch in our history. Both plants use state-of-the-art technology and feature advanced automation and the highest standards of food safety. The launch is in full swing as we speak, and you can now buy these products all across the U.S. Canada will be shipping in December and will be available in stores in January 26. I will now pass it to Will.

Thanks, George. Before I begin, I would like to remind you that some of the statements made on today's call may constitute forward-looking information and our future results may differ materially from what we discussed. please refer to our MV&A for the 13 and 52 weeks ended December 28, 2024, as well as other information on our website for a broader description of the risk factors that could affect our performance. Turning to slide 8, our sales for the quarter were a record $2 billion, up $319 million or 19.1% as compared to the third quarter of 2024. This increase was driven by four factors. The first and largest was our organic volume growth, which accounted for $172 million of the increase. Acquisitions made up another $73 million of our growth. Selling price increases, primarily relating to beef and to a lesser extent chicken-based products, contributed $62 million to our growth. And finally, a currency translation benefit of $12 million resulting from year-over-year weakness in the Canadian dollar made up the balance of the increase. Our organic volume growth in the quarter was driven mainly by the continued success of our U.S. market-focused initiatives in premium protein, sandwich, and artisan bakery products, which generated $146 million in organic volume growth, representing an organic volume growth rate of over 24%. The balance of our organic volume growth was driven by our Canadian protein and seafood distribution businesses, which continue to benefit from the stabilization of consumer behavior in the retail and food service channels. An increase in lobster product revenue resulting from certain sales normally occurring in the second quarter being pushed to the third quarter also contributed to our organic volume growth. Slide 9 shows a breakdown of our core U.S. growth initiatives by group. As you can see, our protein sandwich and bakery groups all generated very solid results for the quarter with organic volume growth rates of 21%, 24%, and 57% respectively. On a year-to-date basis, our core U.S. growth initiatives have generated organic volume growth of $252 million, representing an organic volume growth rate of 13.7%. Looking forward, given the strong and increasing momentum of our U.S. sales initiatives, we expect to see continued improvement in our overall organic volume growth in the coming quarters. Turning to slide 10, our adjusted EBITDA for the quarter was $179.1 million, representing an increase of $19.7 million, or 12.4%, as compared to the third quarter of 2024. The major drivers of this improvement were our organic volume sales growth and improved operating efficiencies. These were partially offset by the impact on our protein group of rising raw material costs, mainly beef, and higher operating overheads associated with new production capacity brought on by our protein sandwich and bakery groups. Normalizing for the impact of raw material cost inflation on our protein group, our adjusted EBITDA for the quarter is $188.1 million, representing an adjusted EBITDA margin of 9.5%. As George discussed earlier, we expect the impact of raw material cost inflation to be temporary, but in the meantime are pursuing a variety of initiatives, including targeted selling price increases, to get the contribution margins on our protein products back to normal levels. Slide 11 shows our startup and restructuring costs for the three most recent quarters. Third quarter costs reached $19 million driven by, one, the ramp-up issues associated with the major product launch George referred to earlier, two, the startup of our new 352,000 square foot sandwich production facility in Cleveland, Tennessee, three, the reconfiguration of a deli beach plant in Waterloo, Ontario, and four, a variety of smaller initiatives implemented to bring on incremental capacity to support our continued growth. Looking forward, we expect the third quarter to be the peak in these costs and should see them steadily decrease over the coming quarters. Turning to slide 12, our adjusted earnings and earnings per share for the quarter were $56.8 million and $1.27 per share, respectively, with both metrics increasing by 14.4% as compared to the third quarter of 2024. The improvement in our profitability is due primarily to the growth in our adjusted EBITDA and, to a much lesser extent, lower interest rates. These factors were partially offset by higher depreciation, interest, and lease costs associated with the major investments we have been making in new production capacity to support our U.S. growth initiatives, which we estimate were approximately 30 cents per share for the quarter. Turning to slide 13, We spent $46 million on capital expenditures in the quarter, consisting of $15 million on major project CapEx, $18 million in smaller project CapEx, and $13 million on maintenance CapEx. We define project CapEx as investments that are expected to generate an unlevered after-tax internal rate of return of 15% or greater. All other capital expenditures are classified as maintenance CapEx. Primarily, all our major Project CapEx expenditures in the quarter were on investments to increase the production capabilities and capacities, and in many cases, operating efficiencies of our protein sandwich and bakery groups. Slide 14 shows our Project CapEx for each of the last 11 quarters. You can see the dramatic downturn in expenditures in recent quarters as we near the end of our most recent major CapEx investment cycle. Looking forward, we expect to spend over the next four quarters another $92 million of major projects, after which these will provide us approximately $2 billion of incremental sales capacity relative to our 2024 sales of $6.5 billion. Slide 15 shows some of the key metrics we used to assess our financial position. Our debt leverage levels increased slightly as compared to last quarter, with our senior debt to EBITDA ratio going from 3.3 to 1 to 3.4 to 1, and our total debt to EBITDA ratio, which includes our subordinate convertible debentures, increasing from 4.2 to 1 to 4.3 to 1. These increases were due to two factors. The first was a rapid weakening of the Canadian dollar relative to the U.S. dollar towards the end of the quarter. This resulted in our U.S. dollar denominated debt being valued much differently than the U.S. dollar denominated cash flows being used to service it. Normalizing for this anomaly, our senior debt TVDA and our total debt TVDA ratios for the quarter are 3.3 to 1 and 4.2 to 1 respectively. The second challenge was excess inventory levels, largely resulting from delayed product launches. This, too, increased our ratios by 0.1 turns. Partially offsetting these factors was growth in our EBITDA, which reduced our debt ratios by 0.1 turns. While our debt ratio levels remain above our midterm targets, they are well within our shorter-term operating parameters. Looking forward, we expect to delever our balance sheet in the coming quarters, driven by growth in our adjusted EBITDA and a variety of other initiatives, including efforts to reduce the amount of inventory held by our businesses as major project launches are completed. In terms of liquidity, we finished the quarter in a strong position with $528 million of unused credit capacity. The next and final slide shows a variety of our free cash flow and dividend metrics over the last 11 plus years. For the quarter, we generated a record $85 million in free cash flow, up $13 million, or 18.2%, as compared to the third quarter of 2024. Similarly, our free cash flow per share for the quarter increased to a record $1.90 per share, representing a 17.3% increase as compared to the third quarter of 2024. These increases reflect the early stages of us generating returns on the investments we have been making in new production capacity in recent years. In terms of dividends subsequent to the quarter, we declared a dividend of $0.85 per share for the fourth quarter of 2024-05. That concludes our presentation. Please join us on our Q&A conference call later today at 10.30 a.m. Vancouver time, 1.30 p.m. Toronto time. Thank you.