Richelieu Hardware Ltd.

Good afternoon, ladies and gentlemen, and welcome to the Research Your Hardware second quarter results conference call. At this time, all lines are in the listening-only mode. Following the presentation, we will conduct a question-and-answer session, which will be restricted to analysts only. And if at any time during this call you require needed assistance, please press star zero for the operator. Also note that this call is being recorded on July 10, 2025. Bonjour, Mesdames et Messieurs, et bienvenue au résultat du deuxième trimestre 2025 de Conquérir Richelieu. Présentement, notez que vos lignes sont en mode écoute seulement. Sous la présentation, nous allons procéder à une période de questions et réponses qui sera restreinte aux analystes seulement. Et si vous avez besoin d'assistance au cours de l'appel, appuyez sur l'étoile E0. Veuillez permettre de noter que cet appel est enregistré le 10 juillet 2025. J'aimerais maintenant céder la parole à M. Richard Locke, Thank you.

Good afternoon, ladies and gentlemen, and welcome to this year's conference call for the second quarter and first act, ended May 31, 2025. With me, Antoine Auclair, CFO and CO. As usual, note that some of today's issues include following information, which is provided with the usual disclaimer, and reported in your financial advice. This was another quarter of good progress for Michigan, both in terms of sales growth and new business acquisition.

And we ended the first half year with a sound financial position. We are pleased with the 6.4% increase in total sales.

We posted a solid performance in the U.S., with sales increase of 11.7% in U.S.

dollars, of which 6.6% coming from internal growth.

In Canada, we had a steady performance despite the more challenging economic conditions during the period, particularly in Ontario, where our favorite manufacturers were banned, offsetting the low performance in eastern Canada. It should also be noted that since May, we had to make steady price adjustments in response to the red tide These adjustments had a minimal upward effect on the 6.6% internal growth we achieved in our U.S.

markets. But we have no impact on our growth audience since it surpassed two.

Recalling our acquisition strategy, which we successfully pursued in the second quarter, after completing four acquisitions in the first quarter, in April, we acquire both ANOIRA architectural products, speculating in the exclusive architectural panels and the laser products in Vineland, New Jersey. This acquisition also gives us the opportunity to extend our collaboration with architects, designers, and high-end architectural woodworkers in the U.S.

Then, on May 1st, we acquire, essentially, CAMCO,

a distributor of industrial wood finishing products in the greater Montreal area. This move strengthens our sales network of finishing products in North America that we have already established over 25 years ago. This means six acquisitions concluded in the first six months, for additional sales of $53 billion. A stronger network, more diversification of our market segments and products, more synergies and even more added value to our service. We also continue to invest in our network, adding over 50,000 square feet to our deploy facility, which gives us the opportunity to add product lines and capture growth opportunities. I will now ask Antoine to review the financial highlights of the period.

Thanks Richard. In the second quarter, sales reached 512.2 million, up 6.4%, representing an increase of 30.8 million, equally driven by internal growth and acquisitions. In Canada, sales totaled 276 million, relatively stable compared to the same quarter of 2024. Despite the decline in sales in Ontario, where the business environment is actually more challenging. Sales to manufacturers amounted to $235 million, up 1.2%, while sales to the hardware retailers totaled $41 million, down 73%, mainly due to timing differences, as year-over-year sales are roughly in line with the same period last year. In the U.S., sales grew to $168 million in U.S. dollar, up 11.7%. sales to manufacturers reached $157 million in U.S. dollars, up 9.9%, with 4.6% coming from internal growth. As of May, a portion of this internal growth reflects selling price adjustments following the introduction of new import tariffs, an increase that offset the additional costs, with no impact on gross margins. In the hardware retailers and renovation super-source market, sales reached $10.9 million, up $3.4 million. In Canadian dollars, total sales in the U.S. reached 236 million, up 15.3%, accounting for 46.2% of total quarterly sales. For the first half, total sales reached nearly 1 billion, up 7.4%, of which 3.9% resulted from internal growth and 3.5% from acquisitions. In Canada, sales reached 517 million, up 1.8%, primarily due to acquisitions. Sales to manufacturers totaled $481 million, up $10 million, or 2.4%. Sales to hardware retailers and innovation superstores were $86.8 million, compared to $87.8 million, down 1.1%. In the U.S., sales amounted to $208 million in U.S. dollar, up 9.8%, with 5.7% from internal growth and 4.1% from acquisitions. They reached $437 million in Canadian dollars, up 14.9%, accounting for 46% of total sales. In US dollars, sales to manufacturers totaled $290 million, an increase of $26.3 million, or 10%, driven by 3.8% in total growth and 6.2% from acquisitions. Sales to hardware retailers and renovations to stores were up 7.1% compared to last year. Second quarter EBITDA reached 55.2 million, up 1.4 million or 2.7% over last year. Growth in EBITDA margins remained under pressure due to the contribution of recent acquisitions, which carry lower margins, as well as to integration costs and network expansion initiatives. Consequently, the EBITDA margin stood at 10.8% compared to 11.2% last year. First asset bid dot rolled $97.6 million, up 3.6%, with the EBITDA margin at 10.2% compared to 10.6% last year. Second quarter net earnings attribute roll to shareholders amounted to $22.5 million, down 3.9%, mainly due to higher amortization expense resulting from capital investment, new leases, and leased renewals related to expansion projects and business acquisitions completed during the previous fiscal year, and the first semester of 2019. Consequently, diluted net earnings per share was 41 cents compared to 42 cents last year. For staff, net earnings attributed to shareholders reached $36.4 million, down 5.9%. Diluted net earnings per share stood at 66 cents compared to 69 cents last year. Second quarter cash flow from operating activities before net change in non-cash working capital were 46.8 million compared to 45.1 million last year. The net change in non-cash working capital items represented a cash inflow of 0.5 million, reflecting a 10.2 million reduction in inventories, while other items required 9.7 million in cash. As a result, operating activities provided a cash inflow of 47.3 million in the quarter, compared to a cash inflow of $55.7 million last year. For the first half, cash flow from operating activities represented a cash inflow of $51 million, compared to a cash inflow of $56.2 million last year. For the second quarter, financing activities used cash flow of $23.3 million, compared to $38.6 million last year. The main variance is explained by the repurchase of common share, which amounted to $18.6 million last year. First act financing activities used cash flow of 44.7 million compared to 57.6 in 2024. In the first act, we invested 36 million including 27.4 million for six business acquisitions and 8.6 million primarily for the purchase of warehouse equipment related to extensions and center consolidation efforts and to maintain and improve operational efficiency. We continue to maintain a robust financial position with working capital of $614.2 million and a current ratio of 2.9 to 1, while holding almost no debt.

I now turn it over to Richard. Thank you, Antoine. In conclusion, over the coming period, we will continue to grow by being creative and by reacting proactively to the changes, building on our strong foundations of strength and remaining firmly connected to our markets. Our business models, well adapted to our freshman year, our outstanding product offering, our solid network, and our talented team have achieved core success. The integration of our recent acquisitions is proceeding efficiently while developing synergies and we remain on the lookout for further growth-generating acquisitions in the short and long term. Our strategic investment in recent years and our acquisitions are generating tangible growth and are key drivers in our long-term value creation.

Thanks, everyone.

Thank you.

Ladies and gentlemen, we will now take questions from analysts. Should you wish to ask a question, please press star followed by one on your Dutch phone phone. You will hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press star followed by two. And if you're using your speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star 1 now if you have any questions. And the first question will be from Nikolai Gorbachev at CIBC World Market.

Please go ahead.

Hi there. Can you provide some more color on the price suggestion? What percent of products you raise prices for and the price impact that had on your organic growth in the U.S.?

Products that were affected by those price increases in the U.S. because of the tariffs They are only for the Chinese products and represent what, between 15 and 20% of our sales. And the effect is minimal because it's only, it was effective only in May. So for the following quarter, those would be, you know, fully applied to the periods.

Okay, I see. And then could you perhaps discuss the price versus volume trends in Canada as well?

Price versus volume in Canada. Price had a minimal impact in Canada, so it's a pretty flat market as we speak, and it's mainly due to volume.

I see, I see. And how is the M&A pipeline looking? Are you seeing any changes in activity or multiples given the recent large deals in the distribution space?

No, no, no change in the network. The pipeline is still healthy. So we've been in a position to close to this quarter. We still have others and then negotiations. So we didn't see any major change in the M&A environment. So pipeline is healthy both in Canada and the U.S.

Okay, perfect. Thanks. Go ahead. I'll turn it over.

Thank you.

Once again, ladies and gentlemen, if you do have any questions, please press star followed by one on your telephone phone.

Next question will be from Allison Lee at National Bank Financial. Please go ahead.

And this is Zach calling in.

Okay, Zach. Circling back on those price increases in May, is it fair to assume that they were about the exact size of the tariffs that were declared on Chinese kits?

Exactly. We only carved the cost of the tariffs. We just passed through the expense to our customers, and it is 100% done regarding the Chinese products. And that's in the U.S. only.

Understood. Thank you. And given what we're seeing in terms of letters coming out from the U.S. administration, Have you been adding any more price increases in June and July from other countries of origin?

We will apply. One of the targets that we'll have that will be tracked will be tracked by customers. No doubt about that. So we follow up the recourse on that. And, you know, nothing is going to be in between. So as soon as we get the charges, we're going to charge the customers.

And do you think you'll be able to cleanly pass those through going forward, or do you expect some pushback from customers and maybe some lost volumes?

I don't expect any pushback, because first of all, short-term customers already have a lot of work. I mean a lot of work. They have some others that they have to finish in order to be paid by their own customers. So basically, they don't have any choice. They have to buy the product that they need to finish those products, those projects. And regarding the tariffs, though, even though with the current tariffs that we have for the Chinese products in the U.S., the Chinese products are still much more less expensive than any similar products coming from any other country. So, basically... We don't expect any change for that. We expect only change because, you know, people might be insecure and the market might slow down. We don't see that so far in the current quarter in the U.S. But in Canada, we already mentioned that in Ontario, the Ontario market has been difficult for the last six months for many reasons. The prices, a lot of condominiums are in venturing, are not sold yet. They're expensive, you know, the interest rate and everything else. And the targets are making the people a little bit more nervous in Ontario than anywhere else because because of the automobile industry. So far, what we've seen in the current quarter, though, we're seeing a slowdown also in BC, because, again, we were reading that some contractors are leaving off their employees because they have a lot of unsold condominiums. So, basically, hopefully, those situations will be temporary. But as we were saying in the previous quarter, we think, as we see in the third quarter, business is still standing compared to the last quarter. But the world always has a threat in Canada that might be a slowdown, maybe not a recession, but a slowdown in the industry. By the way, this country is very well equipped. Whatever happens with the economy, this country is very well equipped, very well positioned. We have our inventory, as you know, is full. We have the best network. We have a product diversity that nobody else can touch. We're unique in the world of hardware. And we have the service, our service system. 24-hour service all over Canada and in the U.S. for the small customers. That's something unique that I think if the press people that have problems, if the prices go down, it would be hopefully for competition. Patricia is very well equipped to continue to be successful, but if the market is less, if the economy is down, our sales might be affected. We just hope that it will not happen.

That's very good, Khaled. Thank you. And if we pivot specifically to retailers, there's a big uptick in the U.S. What shows that in particular? Is that going to be recurring?

In the U.S., you know, we're sometimes dealing with big customers that could place seasonal orders, so that's the case for the U.S., the growth that you see there. In terms of... Go ahead. It's a customer we're used to deal with, but we never receive the orders in the same order.

Gotcha. And just the way that that order was placed, will it straddle Q3 as well, or is that mostly a Q2 effect?

It's mostly a Q2 effect, and it will have some effects in Q3 as well, but not as big as Q2.

Understood. And then looking at the Canadian retailer sales, I was a little surprised to see that that was weaker given the Rona refresh and what we were hoping for from that. So what's the story in Canada?

I think you need to look at it for the first semester. So Rona refresh occurred more in Q1, so that's why you've seen a larger increase in Q1. So the way we look at it is first semester, First semester, the Canadian retail business is stable, so that's more a cyclical effect in Q2.

And we expect the second half to be good. I think it's going to be better than flat. I think we should expect maybe a small increase in the retail market in Canada because we We keep pushing products into the stores. We add products. We see so far in the third quarter, we see Rona growing because of the work that we've done with our display in the stores. We see our sales with Home Depot growing as well. So, basically, I'm rather optimistic with the Canadian digital market for the rest of the year.

That's good news. And then if we move to capital allocation with the network expansion initiatives, where do you see your CapEx budget for the year?

Take what we spent in six months and double it. So you'll end up closer to $20 million, which is more maintenance capex mode. So it's equaling approximately a percent of our sales. So historically, before the last three to four years, we were spending approximately 1% of our sales in maintenance capex. So you should end up around $20 million.

Gotcha, thanks. And then any specific targets for e-capital improvements?

Yeah, we reduced this quarter. We've reduced inventory 10 million. Hopefully, we'll add another 15 for the rest of the year. And for our accounts receivable, they're in pretty good shape. So we're satisfied where it is today.

Understood. Thank you. And this last one for me, we've been seeing home builders lowering their outlooks, and you guys were talking about, you know, the condo market in Toronto and B.C. Are you seeing similar retours for a lower outlook from both manufacturers and retailers, or is there a split in outlooks anywhere?

Well, as I said, I think the retailers are all good to see rather positives. It might not be booming, but what we see so far is it will certainly be better than last year. And I think the rest of the market is the same. Eastern Canada is still very good. They still have some decent construction in Quebec, and the Maritimes are doing pretty well. Ontario, I don't think, can be worse. I think it will be maybe, hopefully, we start to improve. And Alberta is still decently, it's a good market still. And BC is something that we have to keep an eye on for the months to come because of the, you know, those... I think the people, we need some construction. I think we all know that Mr. Carling has promised to make thousands and thousands of new construction that would be an apartment for the purpose of renting, but there is a lot of production, those type of apartments as well. So basically, they have some positive signs, but as we see, as we speak, with what we know, Very good. Thank you. I'll leave it there.

Thank you. Thank you.

Thank you. And at this time, Mr. Long, we have no other questions registered.

Please proceed first.

Okay, there's no more questions, so thank you very much for attending this call. It's always a pleasure to talk to you. Do not hesitate to contact us if you need more information. Thank you very much.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect your lines.