Richelieu Hardware Ltd.

Good afternoon, ladies and gentlemen, and welcome to Richard Lieu Hardware Second Quarter Results Conference Call. At this time, all participant lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session, which will be restricted to analysts only. In fact, 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 9, 2026. Bonjour Mesdames et Messieurs et bienvenue au résultat du deuxième trimestre 2025-2026 de Kinkari et Richelieu. Présentement, vos lignes sont en mode d'écoute seulement. Suite à la présentation, nous allons procéder à une période de questions et réponses qui sera restreinte aux analystes seulement. Si vous avez besoin d'assistance au cours de l'appel, s'il vous plaît, appuyez sur l'étoile de zéro. Veuillez prendre note que cet appel est enregistré le 9 juillet 2026. J'aimerais maintenant céder la parole à M. Richard Lord, Président et Chef de la Direction. La parole est à vous.

Merci. Thank you. Good afternoon, ladies and gentlemen, and welcome to Richard Hughes's conference call for the second quarter and first half, ended May 31, 2026. 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 findings. We recorded good growth and positive results during the second quarter. We are really focused on acquisition strategy, completing one new acquisition, followed by two quarter ones after the end of the quarter. Three promising acquisitions leading our criteria and further strengthening our leading position in this high growth market segment. Thanks to steady growth in our main market segment in Canada and the U.S., our sales increased respectively by 5.5 and 4.4% in U.S. dollar for the U.S. sales. Our total sales of 532.1 million, up 3.9%, an increase that would have been 5% on a comparable currency to 2025. Our sales to manufacturers accounted for 8.9% of our total sales, reaching $473.7 million, up 3.8%, driven equally by internal growth and acquisitions. Our sales to retailers and their innovation superstores increased by 4.2% to $58.4 million. We did that, reached $56.1 billion, and net income attributed to shareholders was up 3.2% to $23.2 million. Regarding the execution of our acquisition strategy, since the beginning of the year, we have completed four acquisitions. One in the US during the first quarter, another in Quebec during the second quarter, and two additional acquisitions after the end of the quarter in Canada. On May 1st, we acquired Finium, a distributor and manufacturer based in Frampton, Quebec. Special Agree in premium wall covering panels with high aesthetic, decorative, and acoustic value. These products stand out for their unique design, quality, and installation ease for both residential and commercial applications, and they fit perfectly with our decorative panel offering. On June 26, we completed the acquisition of Solution Acoustics, which operates in the Greater Montreal, and has as a specialized distributor in acoustic solutions known for their performance and architectural design. Then, on July 8, we completed the acquisition of Winnec, a distributor of specialized hardware operating in the GTU area with three distribution centers. This reinforces our position in the free market of Ontario. These four acquisitions, completed since the beginning of the year, have approximately $45 million in annual sales, bring new value expertise, new products, new customers, and further enhance the value we provide to our customers. In fact, the addition of Finium and Solutions Acoustiques strengthens our leadership in decorative and acoustic solutions to high-growth market segments, while further expanding our presence among architects and designers. This strategy builds on the recognition we received earlier this year with our Best of QBIS awards in two different product categories, and reflects our commitment to differentiate ourselves and remain a leader in innovation. I will now ask Antoine to review the financial highlights for the quarter and the first six months.

Thanks Richard. In the second quarter, sales reached $532.1 million, up 3.9%, or $19.9 million, given by 1.8% internal growth and 2.1% from acquisitions. At comparable exchange rates, sales growth would have been 5%. In Canada, sales totaled $291 million, up 5.5%, despite flat sales in Ontario, where the market conditions remain more challenging. Sales to manufacturers amounted to $246 million, up 4.5%, while sales to the hardware retailers totaled $45 million, up 11.6%. In the U.S., sales grew to $175 million in U.S. dollars, up 4.4%. Sales to manufacturers reached $166 million in U.S. dollars, up 5.6%, with 3.1% coming from internal growth. In the hardware retailers and innovation superstores market, sales reached 9.6 million, down 12.7%. In Canadian dollars, total sales in the U.S. reached 241 million, up 1.9% over last year, and accounting for 45% of total sales. Sales to our U.S. manufacturers market now represent 48% of total sales to manufacturers, further reflecting the growing importance of our U.S. operations. For the first half, total sales reached nearly $1 billion, up 4.4%, of which 1.9% resulted from internal growth and 2.5% from acquisition. In comparable exchange rate, sales growth would have been 5.9%. In Canada, sales reached $541 million, up 4.5%, including 2.9% from internal growth and 1.6% from acquisitions. Sales to manufacturers totaled $452 million, up $21.6 million, or 5%. Sales to hardware retailers and renovation super stores were $88.7 million, compared to $86.8 million, up 2.2%. In the U.S., sales amounted to $231 million in U.S. dollars, up 7.5%, with 3.7% from internal growth and 3.8% from acquisitions. They reached $455 million and $10 million, up 4.2%, accounting for 46% of total sales. In US dollars, sales to manufacturers totaled $313 million, an increase of $23.2 million, or 8%, driven by 4.5% internal growth and 3.5% from acquisitions. Sales to hardware retailers and renovation superstores stayed the same compared to last year. Second quarter EBITDA reached 56.1 million, up 1 million or 1.7% from last year. EBITDA margin was 10.6% compared to 10.8% last year. Slight decrease in percentage reflects the impact of tariffs, which proportionately increased both sales and cost of sales. First half EBITDA totaled 99.4 million, up 1.8%, with the EBITDA margin at 10%. Second quarter net earnings attributable to shareholders amounted to $23.2 million, up 3.2%, while diluted net earnings per share increased 2.4% to $0.42 from $0.41 last year. First half net earnings attributable to shareholders reached $37.6 million, up 3.5%. Diluted net earnings per share stood at $0.68 compared to $0.66 last year. Second quarter cash flow from operating activities before net change in non-cash working capital reached $47.9 million, up 2.4% from $46.8 million last year. Change in non-cash working capital used cash flow of $28.5 million, primarily driven by a $14.8 million increase in accounts receivable and $9.4 million increase in inventories. As a result, operating activities generated a cash inflow of $19.4 million for the quarter. For the first half, cash flows from operating activities represented a cash inflow of $36.6 million compared to a cash inflow of $51 million last year. For the second quarter, financing activities used $33.5 million in cash compared to $23.3 million last year, primarily reflecting higher cash returns to shareholders through $7.6 million of common share repurchase, in addition to quarterly dividend payment of $8.6 million. First half financing activities used cash flow of $58.6 million compared to $44.7 million in 2025. In the first half, we invested $26 million, including $15.3 million for two business acquisitions and $10.7 million primarily for equipment required to maintain and improve operation efficiency, including IT equipment. We continue to maintain an outstanding balance sheet with working capital of $629.5 million. I now turn it over to Richard.

Thank you everyone. In conclusion, we are integrating our acquisitions while the current economic environment is creating attractive acquisition opportunities in our target markets. We are evaluating several opportunities and remain well positioned to pursue those that meet our strategic criteria and support our long-term growth. We continue to differentiate ourselves by constantly expanding our product offering and bringing innovative solutions and emerging global design trend to the American market by introducing products that are first to the market and maintain of them exclusive with our own brand names and many of them being exclusive with our own brand name. We have become a trusted partner for architects, designers, woodworking professionals and retailers. This relentless focus on innovation, product leadership and value added service Combined with their strongest team and their strategically located distribution network is what defines Rich Radio. Reinforcing our competitive advantage and help our customers being more successful in their own business. Thank you everyone. We now be happy to answer your questions.

Thank you, Mr. Long. Ladies and gentlemen, if you 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 a handset first before pressing any keys. And a reminder that questions are restricted to analysts only. Thank you. Please go ahead and press star 1 now if you have any questions. First, we will hear from Amir Patel at CIDC. Please go ahead.

Hi, good afternoon. Richard, can you share how sales fared in the month of June and any differences there across categories or geographies? And I know I think last time you kind of highlighted Ontario as being particularly weak, so any signs of turnaround there?

I think the sales performance is probably the same performance as we had in the last quarter. So what we see is Canada is doing well as a whole, except for Ontario, I think. Quebec is doing very well with a sales increase by more than 10%. Western Canada is also very healthy. I think it's over a 5% increase. So basically, except for Ontario, Canada is pretty good. Ontario, I would say, in the U.S., it's about the same everywhere, but we have different market segments, like the specialized market, like the closet market, for example. We continue to experience sales between 15% and 20% increase. for the rest we have basically a performance of 2-3% per market segment. So basically we're satisfied with that. I think what we have decided here in this company is that maybe to invest a little bit more in sales people, mainly in the U.S. in order to gain more customers and to move the market. We think the market is a kind of liturgy as we speak, so I think we have to be more aggressive Richard, how much is Ontario as a percent of your Canadian business? Is that 40, 50 percent? 40, 44 percent.

I make it 17% of total sales.

Right, okay. And then I know, I think, Richard, in the past you highlighted some U.S. box business that was going to resume. You know, I think it was supposed to start in Q2. Is that only playing out here in Q3? Yes.

It has started, so we are in the process of delivering our first order, so basically that's going to create more sales for a couple of quarters, after that it's going to be flat for a couple of, for the next quarters, because once we fill up the stores, it takes a while before they reorder, but after that it's going to be, you can imagine, $10 to $12 million sales, yearly sales. And I made it started in June.

Perfect, okay. And just last question, Antoine, your EBITDA margins averaged 10% in the first half. You know, on the last conference call in April, you're pointing to an 11% average for the year. Is that 11% still looking achievable? And, you know, what type of demand backdrop would you need to get margins to that sort of longer-term 12%, 13% objective?

Yeah, we would need a bit more rigor in the market to – to pump up those margins. But keep in mind, Amir, that the second half is always stronger than the first half. And you understand as well that the very slight decrease, 0.2, is basically due to tariffs, because when we're passing through the tariff, we're passing the dollar, so it has, for sure, a slight dilution on the percentage. We should be able to be close to the 11%, but we would need a bit more rigor in the market.

Thank you.

Next question will be from Zachary Evershed at National Bank Capital Markets. Please go ahead.

Good afternoon, everyone. This is Nate calling in for Zach. Thank you for taking my questions today. I want to ask first on the on the margins. So, was there anything else to call out on the margin compression year over year other than tariffs? Because we noticed your gross margins fell around 200 basis points year over year, but your EBITDA margins only fell 20 basis points.

No, there's nothing else than that. So, especially the same. So, really the tariffs is definitely what has impacted the margins.

I see, okay. And with the aforementioned 11% EBITDA margin goal, how are you feeling about that on top with recent acquisitions now in the mix and the few, I believe several you have currently evaluating in your pipeline?

Yeah, some of the ones we closed last year were were businesses that we acquired that needed some restructuring. The one that we announced this year in the second quarter are businesses that are generating EBITDA already. So we're confident about these acquisitions. So the one we just did will not dilute the EBITDA margin.

Thank you very much. We did notice also that capital expenditures ticked up to $7.5 million this quarter. Are there any plans you can tell us about?

Yeah, basically, there's a $2 million of IT equipment that we have to make every three to four years. So, except that, it's pretty much back to maintenance capex. So, at the end of the year, we should be between $18 million and $20 million. and 20 million like we told you guys earlier. So we should be around that. We're looking at a few projects. So we're looking at increasing our footprint in our Drummondville location. So as you know, we have a building there. We have a land available. So we're going to have some lease coming, expiring, and we're going to be building – in Drummondville, Quebec. So that should occur at the end of the year and the beginning of next year. But other than that, there's nothing else to mention.

Great, Collin. Thank you. And one last one for me. How are you guys feeling about your working capital position, and do you have any targets you'd like to call out for this year or next year?

I think the working cap here is pretty simple. It's accounts receivable and inventory. So I think on the AR side, we're in good shape. We have a day of sales outstanding around 45, 46 days, which is pretty aligned with the historical levels. On the inventory side, you've seen increases in the first two quarters. We've also captured some opportunistic acquisition in terms of inventory. So before price increase, we've closed some deals to bring in the inventory at a lower price. So we've done that. So we should see a reduction in the second half. I'm hoping to see a reduction between $5 million to $10 million in the second half.

Thank you very much. I will turn it over. Thank you.

And at this time, Mr. Lloyd, it appears we have no other questions. Please proceed.

Thank you very much. It's very nice talking to you again. If you have any further questions, do not hesitate to call us. Thank you.

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