Richelieu Hardware Ltd.

Good afternoon, ladies and gentlemen, and welcome to the Richelieu Hardware third quarter results conference call. At this time, all lines are in the listen-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 immediate assistance, please press star zero for the operator. Also note that this call is being recorded on October 9th, 2025. Hello, ladies and gentlemen, and welcome to the results of the third quarter of 2025 of Kinkairi-Richelieu. Currently, your lines are in listening mode only. Following the presentation, we will proceed to a period of questions and answers that will be limited to analysts only. If you need assistance during the call, please press star 0. Please note that this call was recorded on October 9, 2025. I would now like to give the floor to Mr. Richard Lord, President et Chef de la Direction. La parole est à vous.

Merci. Thank you. Good afternoon, ladies and gentlemen, and welcome to Richer U's Conspiracy Call for the third quarter and first nine months ended August 31, 2025. With me is Antoine Auclair, CFO and COO. As usual, note that some of today's issues include forward-looking information, which is provided with the usual disclaimer, as reported in our financial filings. We had a good third quarter with solid growth and expansion. All our results are on the rise and we successfully pursued our acquisition strategy, closing two additional acquisitions following the quarter. Except for Ontario, all our market segments in Canada and the US performed well, driving our total sales up 6.7%. Our sales in Canada increased by 2.9%, while in the U.S., they rose by 11.4 in U.S. dollar, accounting for 45% of total sales for the quarter. Sales climbed 6.5% in the manufacturer market and 8.6% in the retailers and renovation superstore market. Our margins improved slightly with EBITDA margin of 11.4%, and diluted net earnings per share increased by 4.9% to 43 cents. I would also point out that our operations generated cash flows of 82.7 million in the third quarter. This includes a 16.2 million reduction in inventories. We ended the period with a positive cash position of 12 million and a working capital of 632.7 million, which reflects a solid and healthy financial position and an outstanding balance sheet. I will now ask Antoine to review the financial highlights for the quarter and the first nine months.

Thanks, Richard. In the third quarter, sales reached 499.2 million, up 6.7%, representing an increase of 31.5 million equally driven by internal growth and acquisitions. In Canada, sales totaled $272 million, up 2.9% compared to last year, despite the decline in sales in Ontario, where the business environment is actually more challenging. Sales to manufacturers amounted to $226 million, up 1.9%, while sales to the hardware retailers totaled $46 million, up 8.5%, mainly due to timing differences, as year-over-year sales show a slight increase with the same period last year. In the US, sales grew to $165 million in US dollar, up 11.4%. Sales to manufacturers reached $158 million in US dollar, up 11.6%, with 7.3% coming from internal growth. This internal growth is mainly driven by price increases, partly due to new import tariffs, an increase that offsets the additional cost of the tariff with no impact on gross margin dollar. In hardware retailers and renovation superstores market, sales reached $7.7 million, up 6.9%. In Canadian dollar, total sales in the U.S. reached $227 million, up 11.7%, and accounting for 45% of total quarterly sales. For the first nine months, total sales reached nearly $1.5 billion, up 7.2%, of which 4% resulted from internal growth and 3.2% from acquisitions. In Canada, sales reached $790 million, up 2.2%, primarily due to acquisitions. Sales to manufacturers totaled $657 million, up $14.2 million, or 2.2%. Sales to hardware retailers and renovation superstores were $132.9 million compared to $130.3 million, up 2%. In the U.S., sales amounted to $473 million in U.S. dollar, up 10.4%, with half from internal growth and half from acquisitions. They reached $663 million in Canadian dollar, up 13.8%, accounting for 46% of total sales. In U.S. dollars, sales to manufacturers totaled $447 million, an increase of $42.6 million or 10.5%, driven by 5% internal growth and 5.5% from acquisitions. Sales to hardware retailers and renovation superstores were up 7.9% compared to last year. Third quarter EBITDA reached $57 million, up $4.1 million or 7.7% over last year. This increase reflects higher sales and effective cost management. Growth in EBITDA margins slightly improved with an EBITDA of 11.4%. For the first nine months, EBITDA totaled $154.7 million, up 5.1%, with EBITDA margins at 10.6%. Third quarter net earnings attributable to shareholders amounted to $23.9 million, up 5.2%. This increase mainly reflects higher EBITDA, partly offset by higher amortization and interest expenses resulting from new leases and lease renewals. Consequently, diluted net earnings per share was 43 cents compared to 41 cents last year, an increase of 4.9%, consistent with the improvement in overall profitability. For the first nine months, net earnings attributable to shareholders reached 60.3 million, down 1.8%. Diluted net earnings per share stood at $1.08 compared to $1.09 last year. Third quarter cash flow from operating activities before net change in non-cash working capital reached 48.1 million, up 12.5% from 42.7 million last year. Change in non-cash working capital contributed a cash inflow of 34.6 million, driven by a $16.2 million reduction in inventories. As a result, operating activities generated a cash inflow of $82.7 million for the quarter, reflecting higher net earnings and effective working capital management. For the first nine months, cash flow from operating activities represented a cash inflow of $133.6 million, compared to a cash inflow of $106.4 million last year. The increase highlights the business' ability to generate consistent cash, supporting ongoing investment and shareholder returns. For the third quarter, financing activities used $25.4 million in cash, up from $18.4 million last year, mainly due to the repurchase of common share totaling $3.7 million. For the first nine months, financing activities used cash flow of $70.1 million compared to $76.1 million in 2024. In the first nine months, we invested $39 million, including $27.5 million for six business acquisitions and $11.5 million primarily for equipment required to maintain and improve operational efficiency. We continue to maintain an outstanding balance sheet with working capital of $632.7 million and a positive cash balance. I now turn it over to Richard.

Thank you, Antoine. Subsequent to the quarter, we are pleased to have closed two acquisitions, namely Ideal Security on September 2nd and Finmac Number on October 1st. Specializing in hardware products for doors and windows, Ideal Security is located in the Greater Montreal area and mainly serves Canadian and U.S. retailer markets. This adds up to our existing offering of eight different brand names already present in all retailers and renovation superstores served by Richelieu. It also reinforces our one-stop-shop strategy for this market. Finmac Lumber is a distributor of specialized wood products operating in the Winnipeg area and covering Western Canada, where it serves a customer base consisting mainly of woodworkers, cabinetmakers, and building material retailers, as well as renovation centers. These two acquisitions add additional annual sales of $22 million, and will therefore expand and diversify our offering in markets where we are already present, while creating new sales synergies. Together with the six acquisitions made in the first half, these represent $75 million in additional annual sales. To conclude, I would say that, particularly in the current context of uncertainty related to market conditions, our business model is proving its robustness and flexibility. It also enables us to respond with agility to our customers' needs with our one-stop-shop Canadian and U.S. network, protect our margins, and maintain our leadership position. In these circumstances, our customers will need to protect their cash flows and rely on a trusted supplier like Richelieu. We are continuing on this path with confidence and discipline and expect the end of the financial year with very solid results. Thanks, everyone. We'll now be happy to answer your questions.

Thank you. Merci. Ladies and gentlemen, if you do have any questions, please press star followed by 1 on your touch-tone phone. You will then hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press star followed by 2. And if you're using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star 1 now if you do have a question. First, we will hear from Hameer Patel at CIBC Capital Markets. Please go ahead.

Hi, good afternoon. Richard, are you able to share how your sales fared year over year in the month of October, and if there's any notable differences there, Canada versus U.S., manufacturers versus retailers?

No, we're faring very well, comparable to last year. I think the market is not really strong, but with all the action that we have taken in In the last few months, we see very good results, and we keep capturing more market share and increasing our sales to the same customer that we already have. So basically, I would say it's positive as we speak.

Okay, so maybe in line with the sort of 4% that you delivered in Q3?

Yep, pretty much in line with what you've seen in the third quarter so far.

Okay, great. And Antoine, can you share how much is Ontario as a share of your total sales Because I know it seems like you called that out as maybe the only region that was negative comps.

Yeah, Ontario, just a sec. Ontario represents 18% of our total sales. Okay, great.

And then, Richard, I know it was Q2 of 2024. You had lost some business with a major U.S. retailer customer. Can you speak to maybe any ongoing efforts you have to either replace that business with other customers or potentially even regain share with that customer?

First of all, we're still working with these customers in order to recapture that business. So far, the news are positive, but I don't want to feel like we depend on one customer. We have other projects in the U.S., Many projects, it takes long to get conclusions on many of these projects, but we're working on many, many customers with many projects that could bring some good opportunity for us. And those is just, we'd be, if it's working, okay, that's going to be a nice comeback of that business, but we don't only call on that.

Great. That's all I have for now. I'll get back in the queue. Thanks.

Thank you.

Once again, ladies and gentlemen, if you do have any questions, please press star followed by one on your touchtone phone. Next question will be from Zachary Evershed at National Bank Capital Markets. Please go ahead.

Good afternoon and congrats on the quarter. Good afternoon. Thanks, Zach. Could you describe how much of your internal growth in the U.S. was the pricing passers related to the country-specific tariffs?

Yeah, pretty much all of it is... is price increase. Not necessarily most of it due to tariffs, but most of it is inflation.

Gotcha. Thanks. And when you say that the tariff pass-throughs have no impact on gross margin, are we talking about the gross margin percentage or that you're keeping gross profit dollars stable? Do you get operating leverage off of this? Yeah, dollars. Dollars. Gotcha. Thanks. And then so far this year, how do you think customer backlogs are translating to volumes for RCH? Do you think that they're doing worse than you guys are or that they're picking up and that you'll see those orders translate to your own sales soon?

I think customers have a nice backlog. You know, the book of orders is reasonable, but nothing is booming. So our customers are busy for two or three months, and they don't know after. But we think that the renovation market will remain strong, and basically we don't see any negative impact regarding the book of the orders that our customers have on hand.

Perfect. Thanks. And then if we look historically, Q4 is seasonally stronger than Q3 on the margin front. Is there anything that would stop that from being the case this year, or do you see Q4 rising versus the 11.4% you got in Q3?

No, I think that the trend that you're seeing in Q3 should be pretty much similar in Q4.

Understood. Thank you. And then if we dial out to the macro, we did see the conclusion of the Section 232 investigation, and that resulted in tariffs on kitchen cabinets and bathroom vanities. In your view, what's the impact on Richelieu, your customers, and the overall market?

I like very much that question. I think we have a few information that we can share with you if you have a couple of minutes. First of all, it's important to mention, as you know, that Richerieu is on both sides of the border. So if some business is switched from another country and from Canada to the U.S., fortunately we are very well established with the customer base that we have in the U.S. that could recapture that business. And regarding the sales to residential furniture, It's only 2.8% of our sales. So the kitchen cabinet is higher, but for the residential furniture, it's only 2.8% of our business. So we don't expect any negative impact regarding those sales. It might be even a positive impact. I will explain it a bit later on. The kitchen cabinet exports to the U.S., it's only 12% of the kitchen cabinet being made in Canada. Representing 400 million U.S. dollars. So it's not a huge business, but it's substantial for Richelieu. It could represent, let's say, something like 35, 40 million dollar sales. But what we see is that our customers are working to mitigate the impact of those additional costs. in order to keep up with their sales. So these guys are very smart. They have a way of reducing their costs. And also, they still benefit from the current exchange rate, which is good. And Richelieu is very well positioned to support them in their effort to reduce their costs because we have many product categories at Richelieu. We have products that could reduce their costs. And some of them, the bigger ones, sometimes they buy some products from overseas. They might have an advantage now as we speak, to transfer some of those purchasing to Richelieu instead of buying overseas because then they protect their cash. They have, you know, a just-in-time inventory system with Richelieu, and that could reduce their operating costs. So, basically, there's not much negative. We just have to be careful and make sure that we manage well with our customers. In total, what we see is that U.S. imports for a value of $2 billion of kitchen cabinets of which only 400 million come from Canada. So there is 1.6 billion left that come from other countries. So if some business is recaptured by a U.S. customer, it could be quite material. Regarding the furniture market, we've learned from the Webber report. What's the name of the report, Antoine? It's called Ibis World. Ibis World, which is the reference in the industry. You know, the U.S. imports for $26 billion of furniture of only $650 million come from Canada. So that means there is a billion, 24 billion at least, 25 billion coming from other countries. So basically, we don't expect the U.S. market to switch to U.S. manufacturing. It will take time. But it might be some improvement in the U.S. manufacturing market because of that. So Rishu is well positioned to benefit of that as well. So... Our trend is really to be on both sides of the border. We are extended product range that is unique in North America in order to support our customers and to make sure that we make the right move and benefit whatever is going to be benefited from both sides of the border.

Excellent, Collier. Thank you. Moving on to your inventory, there was a step up in obsolescence. Could you speak to what's driving that?

You've seen the reduction in inventory, Zach, during the quarter. We've been able to reduce inventory by $16 million in the quarter. I'm still expecting a reduction. I would say that I'm hoping around 10 more million dollars in terms of inventory reduction over the next few periods. Helping us to generate 82 million from operation during the quarter.

Gotcha, thank you. And does that come paired necessarily with additional inventory obsolescence?

I would say it's basically excess. So it's a We've been talking about it since over a year, so we've been reducing last year inventory significantly. I've told you guys at the beginning of the year that we're expecting a reduction this year. It took two quarters to happen, so now it's happening, so it should continue towards the next few periods.

Got you. Thanks. Then just the last two CAPEX plans for next year and your M&A pipeline. How's it looking?

M&A pipeline is still strong, so we've closed eight acquisitions this year, as you've seen, and it's still very healthy in both sides of the border, so Canada and the U.S. Regarding CapEx, the main investments are behind us. So the last three years, you've seen the CapEx higher than expected because we were more in an investment mode than in a maintenance mode. We're back to a normal level of CapEx. So we've spent $11 million so far. We should end the year around, I would say, $15 million, $16 million. So regular maintenance capex. I said that maintenance capex is around 1% of sales, so we're going to be slightly below that this year, and you should expect the same next year. So we don't have major projects, and if we do, we'll tell you guys.

Beautiful, thanks. And then I'll actually just sneak one last one in. I've noticed that HLU is completing more panel and hardwood acquisitions recently, like the one in Winnipeg that you guys just announced. Are there any larger targets in that space that could be interesting?

No, we're interested in that type of lumber. So don't forget that we don't sell 2x4 and 2x3. So we sell only sophisticated wood. for the purpose of woodworkers that do fine jobs, fine working jobs. So basically these products are higher margin products and basically they bring constant sales because there is mainly in Ontario and Western Canada, more than Quebec, we see people, the woodworkers using more woods as well as what we call the lumber yards over there. So, basically, it's a good market. And I like the market, like Manitoba, for example. There's not many competitors there. And let me show you, we've bought something that is really well positioned in this market. So, basically, I'm very happy with that acquisition. So, we're going to continue on to answer your question to buy such company when they meet our criteria of EBITDA margin. I would say that the one that we acquire and we pay something, it's a 15% EBITDA margin. So, basically, which is sustainable. So basically, I like that type of deal.

Excellent, Collier. Thank you so much. Really appreciate you guys answering my questions. I'll turn it over.

Thank you. Next question is a follow-up from Amir Patel. Please go ahead.

Hi, Richard. I just wanted to follow up on the M&A side. When you think about the pipeline, and I know it can be lumpy, but is there a sort of annual revenue gap contribution that you'd expect going forward from acquisitions?

We try to make $100 million worth of acquisitions every year. I don't know if we're going to reach that this year. We're going to be very close to. So basically the contribution is positive. We usually buy companies sometimes that make little profit, but that we, when integrated to Richerieu, have huge benefits. Like Ideal, for example, is a perfect example. We buy something that is already in the stores where we are already with our displays and everything else. They share a base of the product that we already have, so we can merge those product lines. We acquire very talented people that are very good at selling. They sell in the U.S. and they sell to Amazon. They have a substantial amount of sales to Amazon, and they have specialists in those types of sales. So we like that very much. That acquisition, you know, the course after integration is going to take, you know, 18 months probably because we have to transfer the warehouses where they have at least where they are. And the purpose is to have a one-stop shop in Kitchener, Ontario, for all the retailers in Eastern Canada. So, basically, the products are going to be transferred there as soon as we can to make sure that the customer might benefit of not only the one-stop shop, but the one delivery for eight different brand names of products. So, basically, these moves are very, very positive, even though sometimes the amount of contribution is little in the year of the acquisition, but the potential for that type of business is great for the future of Richelieu, and it does reinforce our market position And it does prevent the competitors sometimes to get into the store that we are already servicing. So basically, the two purposes of the acquisition is to make sure that we consolidate Richelieu, we reinforce Richelieu, and we bring EBITDA margin as well as much as we can.

Fair enough. I appreciate the call there. And Richard, when you think about the retailer business in Canada, I know Rona's got some ongoing investments. Maybe you could speak to the opportunities you see to drive further growth there.

With all the retailers in Canada, we keep gaining market share because we have an excellent product offering that do answer the need of the consumer as we speak. Because, you know, managing space is a top priority for the retailers. Decorative, otherwise, is a top priority. We keep adding products in each of the stores. Roda is an excellent customer that is a customer that buys something like, you know, it's less than 5% of our sales, but it's substantial, and we work very well. They are very good partners, and we work very well with them, as well as Home Depot. We keep adding product at Home Depot and other hardware stores as well. So, basically, the retailer's market is excellent, for sure, because we have so many products to sell to the pro business. There is a lot of products that are suitable for the consumers, These products are suitable for the consumers, are the products that were introduced to the retailers, you know, with the right prices and the right instructions so the product can be easily installed for consumers. But I'm very positive for the long term that sales to hardware retailers remain substantial, you know, substantial and important for our futures in terms of generating profit as well because we don't have two CFO and five more accountants because we sell to retailers. The only variable cost applies to commission to salespeople and people that work in the warehouse. So basically, this is very beneficial.

Okay, great. Thanks, Richard. And just a final question I had. Antoine, it looks like, you know, if Q4 margins end up being comparable to Q3, you'd probably end the year close to 10.8%. Even in margins, I think 2024, you were at... 11% EBITDA margins. Can you drive further margin growth in 26 if the housing market does not improve? If it's the same housing outlook, is there enough levers to drive some additional margin expansion? And maybe you could, I don't know if you're able to quantify that sort of self-help that is within reach.

I think the trend that you saw in the third quarter could continue in 2026 with a With the current market, of course, to drive a significant increase in EBITDA, we would need a more vigorous market. But let's say that it remains like where we are today. I think the trend that you've seen in Q3 could continue next year.

Okay, great. So sort of in the mid-11s sort of range. Great. Well, that's all I had. I'll turn it over. Thanks.

Thank you. Thank you, Amin.

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

So thank you very much, all of you, for attending. We're already willing to receive your call if you want to contact us. 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 ask that you please disconnect your lines.