Transcontinental Inc.

Thank you. Thank you. Thank you. Thank you. Thank you.

Mesdames et messieurs, merci d'avoir patienté et bienvenue à la conférence téléphonique concernant les résultats du deuxième trimestre de l'exercice 2026 de TSC Transcontinental. Pendant la conférence, tous les participants seront au mode d'écoute seulement. Une période de questions suivra la présentation et des directives vous seront données à ce moment. Nous désirons vous rappeler que cette conférence est enregistrée aujourd'hui le 4 juin 2026. Welcome to the T.C. Transcontinental Second Quarter of Fiscal Year 2026 Results Conference Call. During the presentation, all participants will be in listen-only mode. Afterwards, we will conduct a question-and-answer session. Instructions will be provided at that time. As a reminder, this conference is being recorded today, June 4, 2026. I would like to turn the conference over to Yann Lapointe, Senior Director, Investor Relations and Treasury. Yann Lapointe. Thank you, Joëlle, and good morning, everyone on the call.

Welcome to Transcontinental's second quarter 2026 earnings call. Before we begin, please note that you can find on our website our quarterly report, including financial statements and related notes, as well as the slides supporting management's remarks. A replay of this conference call will also be available We have with us today our Chief Executive Officer, Sam Ben-David, and our Executive Vice President and Chief Financial Officer, Donald LeCavalier. As referenced on slide 2, some of the financial measures discussed over the course of this conference call are non-IFRS. You can refer to the MD&A for a definition and reconciliation of these measures to IFRS. In addition, this conference call might also contain forward-looking statements. These statements are based on the current expectations of management and information available as of today. Forward-looking statements also involve numerous risks and uncertainties, known and unknown. The risks, uncertainties, and other factors that could influence actual results are described in the fiscal 2025 annual MD&A and in the latest annual information form. With that, I will turn the call over to Sam.

Thank you, Yann, and good morning, everyone. I am pleased to join you on this call, my first as CEO of TC Transcontinental, and I look forward to engaging with many of you in the weeks and months ahead. Over the past two months, I visited several of our facilities. What stands out from these visits is the strong energy and engagement across the organization, a solid foundation for what lies ahead. Recent developments have contributed to a sense of momentum across the company. Following the completion of the sale of our packaging business, and I want to congratulate our team for a great job managing all aspects of this complex transaction successfully, our financial reporting structure has evolved. As of Q2, we're now reporting two sectors, the retail services and printing sector, and the book and education sector, which brings together TC Media, and our book printing activities. Let me share a few observations on the momentum I'm seeing, starting with retail services and printing. In our content and business intelligence group, artificial intelligence is transforming how we and our clients work together by driving greater efficiency, deeper insights, and the more personalized solutions AI strengthens the value we deliver. In our marketing and information group, the upcoming nationwide rollout of Radar marks a major milestone. Radar is a cost-effective mass media platform that pairs national scale, roughly 11.6 million copies per week, reaching approximately three in four Canadians with local precision across 537 unique zones. This combination positions Radar as a compelling solution not only for national retailers and brands, but also for small and medium-sized businesses and publishers. Early bookings are encouraging, and we expect a strong start mid-June. We value the quality of our partnership with Canada Post for the distribution of Radar and we welcome the endorsement of collective agreements by postal workers announced on Monday. Our transformation will see Radar evolving into an increasingly tech-enabled platform, layering analytics and data-driven audience targeting, extending into omnichannel touchpoints and applying AI-powered personalization to deliver the right message to the right audience with greater precision. In addition, the multi-year agreements we recently signed with PostMedia and Glacier Media, together with our ongoing cost optimization initiatives, should strengthen the financial performance beginning in the third quarter. In our in-store marketing and specialty group, the integration of our recent acquisitions is progressing well, expanding both our offering and customer portfolio. The additions of MirrorZ and Group PDI have significantly strengthened our presence in Eastern Canada and enhanced our ability to serve national clients. Turning now to books and education sector. In our book printing group, we're facing a challenging year-over-year comparison against our large one-time contract last year. Even so, our sales team has secured several new customers and grown existing accounts, and we expect to deliver a solid year for the platform. In TC books and education, sales momentum should translate into a busy second half of the year. Our education technology efforts are also gaining recognition, most recently with accolades at the US EdTech Awards. Thanks to the initiative we've put in place to improve profitability, we're on track to deliver a solid performance in the second half of the year. Adjusted operating earnings before depreciation and amortization from continuing operations are expected to remain stable relative to fiscal 2025. In conclusion, I am confident in our strategic direction, our momentum, and the strength of our teams.

Donald, over to you. Thank you, Sam, and good morning, everyone. Please note that my comments this morning will focus on our continuing operations. Moving to slide five of the earnings call presentation. For the second quarter of fiscal 2026, revenues were 5% lower versus the same quarter last year, mainly as a result of lower volume in our traditional activities, partially mitigated by our recent acquisitions in ISM, and also from a stronger US dollar. Regarding profitability, Consolidate adjusted EBITDA at 45.4 million was slightly lower than last year. The slight decline was mainly due to lower volume, partially offset by lower incentive compensation and administrative expense, the recent acquisitions, and also a favorable exchange rate. The lower incentive compensation and administrative expense are mainly related to the departure of executives, and the timing of expenses. We don't expect a similar tailwind in the second half of the year. Looking ahead, financial performance is improving. With the recent contracts we announced and the impact of cost reduction initiatives, we expect stronger results in the second half of the fiscal year and remain confident in our outlook. Net financial expenses increased by $2.2 million to $9.9 million. mainly due to the impact of exchange rates despite having a lower debt level following the sale of our packaging activities in March and strong cash flow generation in the last 12 months. Adjusted income tax decreased by $0.6 million to $4 million and represented an effective rate of 20%. This led to adjusted earnings per share from continuing operations at $0.19 compared to $0.20 in Q2 last year. Before turning to slide six for a sector review, I wanted to highlight the change we've made in our sectors following the sale of our packaging activities. The books and education sector now combines our book printing with our educational publishing activities as their products are similar in nature. Our retail services and printing sector serves retailers, brands, and newspaper publishers. Under the marketing and information group, we're combining flyers with our newspaper activities as they use the same platform. Regrouping our ISM activities with specialty products also makes sense as they are similar in nature. In the coming weeks, we will post on our website historical segmented information to help you with your models. On slide six, revenues for the retail service and printing sector, decreased by 3.8% to $219.5 million. Adjusted EBITDA decreased by $8.2 million to $41.1 million. The decrease in revenues and adjusted EBITDA are mainly due to lower volumes for the flyer printing activities, partially mitigated by our recent acquisitions. We expect a stronger performance in the second half of the fiscal year following the impact of the multi-year agreements recently signed with PostMedia and Glacier Media, improved results from our ISM activities, and cost reduction initiatives. Moving to books and education sector on slide seven. As mentioned in our last call, this sector had a very solid performance in the second quarter of fiscal 2025. Despite a tough comparable, the sector delivered good results with revenues of $50.1 million down from $55.9 million the same quarter last year. Adjusted EBITDA decreased by $0.5 million or 6.7% to $7 million. We expect a strong performance of the sector in the last six months of the fiscal year in line with normal seasonality. Now turning to cash flow. In the second quarter of 2026, we had $56.3 million in negative working capital. The unfavorable change was mainly due to accounts payable and accrued liabilities. We expect some of the negative working cap to reverse in the second half of the year. Our capex at $12.9 million were in line with last year, and our target is to be around our guidance of $55 to $60 million for the full year. Finally, we used the proceeds of the sale of our packaging activities for a special distribution of $20 per share to shareholders and also to reduce debt by around $330 million. Our net debt ratio at the end of the second quarter was 2.14 times. If we include a sale of our Boucherville warehouse at the end of April, our net debt ratio will be slightly under two times at the end of the second quarter of fiscal 2026. We expect the strong cash flows in the second half of the year to bring this ratio lower for year-end around 1.75 times, excluding potential acquisitions. Our financial position is solid. The Board has approved yesterday a regular dividend for the new TC at $0.05 per share per quarter. On that note, we will now proceed with the question period.

Merci, Mesdames et Messieurs. Nous allons maintenant procéder à la période de questions-réponses. Si vous avez une question, veuillez appuyer sur les touches étoiles suivies du 1 sur votre téléphone à clavier. Une tonalité se fera en temps confirmant votre demande. Les questions seront plus dans l'ordre qu'elles ont été acheminées. Veuillez également vous assurer de décrocher le récepteur et de votre appareil téléphonique si vous utilisez la fonction main libre Thank you. One moment, please. Ladies and gentlemen, we will now conduct the question and answer session. If you would like to have a question, please press star followed by one on your touch-tone phone. You will hear a tone acknowledging your request. Your questions will be pulled in the order they are received. Please ensure you lift the handset if you are using a speakerphone before pressing any key. One moment, please, for your first question. Your first question comes from Sean Stewart with TD Cowan. Your line is now open.

Thank you. Good morning, everyone. A couple of questions, and I want to start with some of the agreements and initiatives you've announced recently, both the National Radar Rollout and the agreements with PostMedia and Glacier. I'm hoping you can provide some perspective on incremental sale contributions and margin contributions associated with those initiatives, just so we can factor it into our forecast appropriately.

Thank you. The national radar rollout is totally to tell as the deployment is going to be mid-June, so for us, It's hard for us to provide guidance, and we cannot disclose the post-media and glacier media agreement in terms of what they're contributing. Okay.

In terms of sales for your model for the new outsourcing, you can put north of $5 million for the rest of the year, and you can align it with the rest of the margin for that business.

Okay. Thanks for that. I'm hoping you can give some updated perspective on cost inflation and pass-through mechanisms. I suppose for your company, it's ink and paper would be key elements of it. Can you provide some perspective on what you've seen on that front and your perspective on ability to preserve margins as you absorb that inflation?

Sure. So we've got some solid contracts on the paper and ink side. We don't expect any margin erosion due to the increase in raw material, so any increase would really be insignificant.

Okay. That's all I have for now. Thanks very much, and congratulations, Sam, on the opportunity going forward.

Thank you.

Your next question comes from Amir Patel with CIBC Capital Markets. The line is now open.

Hi, good morning. Sam, could you give us some more visibility on how the various initiatives to reduce corporate costs are progressing and how far along you think you are in that process?

Thanks, Amir. So they're progressing very well. We're well on track to establish our on-run rates, with one caveat that we still have a transitional service agreement to render to ProAmpac. So we will complete the plan within the next, let's say, six to 12 months as the TSA tapers off.

Great. And Donald, any update on the other smaller real estate divestitures in the pipeline? I believe one was at St. Hyacinth and Tomah?

Yeah, yeah, you're right. Both are still for sale. I'd say there's some movement on the one on the US side, Tomah. That's not a big impact in terms of dollar, but we're very proactive at that level. And St. I always say it's a little bit quiet right now, so we'll adjust with the market. But we just did a great deal for Boucherville. We were patient, and we're happy with the price we get. So sometimes it's better to wait a bit to make sure you receive the best price.

Fair enough. That's all I had. I'll turn it over. Thanks.

The next question comes from Adam Schein with National Bank Financial. Your next question comes from Adam Schein with National Bank Financial.

Thanks a lot.

Good morning.

Your line is now open. Thanks a lot. Good morning. Seb, maybe starting with the flyers, this might be a bit moot, given that the nature of that business is going to transition quite a bit with the new national scale for radar. But can you talk about what drove some of the stepdowns? in flyer volumes this quarter, and then you talked about new business initiatives on the book side. Can you talk about where that's coming from? Because I know there's been efforts, obviously some success last year, albeit temporarily, on the U.S., uh you know book printing side of the equation i think you were also looking for opportunities perhaps even in europe whether that touched on book and or perhaps more on educational book publishing so if you could talk to you know you know how things are unfolding there and then just lastly For you, Danelle, if you could just maybe update us on what you think corporate costs will be this year, because obviously there were a lot of moving pieces in this Q2. Just curious if there's an update there. Thanks a lot.

Thanks for the question. Let me address first the volume for the retail flyer. This has been a trend we've been witnessing over the past few quarters, the decline in volume. So nothing new here, and this is something we've planned for it. The solution that changes the economic model for us and for our customers is definitely the deployment of Radar, so very happy to have done that with the team. So hopefully that answers your question on the volume side. On the book side, plenty of initiatives by the teams. Number one, when we look at the increased business we get, this comes from From comics and the increase in the comics volume, we are receiving from our customers, current customers and new customers, number one. Number two, there are still opportunities as companies are looking at onshoring some of their printing. We're in discussion with many other publishers to be able to gain some new business there. Still early innings, but progressing.

Okay, thank you very much.

Adam, for your model, I guess the year-to-date costs for corporate represent a better pro forma to you for the rest of the year. Some of the one-timer in Q2 will disappear, but also some of the positive noise we had in Q2 were negative noise in Q1. So this is why, if you look at it right now, it's better to look at year-to-date. Obviously, there will be some cost cutting, as Sam mentioned, but we will be more active on that side close to the rest of the year. So, use the year-to-date for your model will be a better benchmark.

Okay. Thank you very much.

La prochaine question vient de Drew McReynolds avec RBC. Your next question comes from Drew McReynolds with RBC. Your line is now open.

Yeah, thanks very much. Two for me, just on the educational publishing, not something necessarily that gets discussed each quarter, but obviously, you know, now is more explicit in that second segment. Just wondering kind of what your expectations are for this business, not just for fiscal 2026, but just what does the growth outlook look like when you look at a little further? And then second, you know, good to see the tuck in M&A on the ISM side, just an update on that M&A environment and what your pipeline currently looks like. Thank you.

Great. Thanks. Thank you. So on the educational publishing side, as you probably know, the second half of the year is mostly where the activity happens. And we expect a strong second half of the year. Longer term, what we see for this business is marginal growth, GDP style growth on the publishing side. That's number one. Number two, you've mentioned ISM acquisition. We're digesting the current ones we've done in the recent past. The integrations are going well, the synergies are delivering, and we're very happy that this enabled our platform to have national scale. We are looking and still looking to acquire in that space. The pipeline is good, but we will be selective of when and what we acquire to make sure this creates value for us.

Okay. Thanks very much.

La prochaine question vient de Nevin Yoshim with BMO Capital Markets. Your next question comes from Nevin Yoshim with BMO Capital Markets. Your line is now open.

Thank you. Good morning, guys. You have Nevin on for Steve today. Just within the RSMP sector, can you provide some incremental detail on volumes and organic growth for the ISM business this quarter, and as well as discuss your updated expectations for organic ISM growth for the full year?

Yes, thanks for the question. So Q1 was negative organic growth, was a slow Q1. Q2 is relatively flat in terms of growth and that for us turns the page into a strong Q3 and Q4 in terms of bookings and pipelines that we can see. So strong second half of the year for ISM business organically.

Okay, great. And then just nice to see the multi-year contracts with PostMedia and Glacier. Are you able to provide a bit more context on how this opportunity came about and whether you see similar opportunities currently being pursued?

Yes. So we have the most cost-efficient printing platform probably, definitely in Canada, probably in North America. It does make sense for everyone who prints and for every publisher to come to us and outsource. Obviously, they will save tremendous amount of money and it's very profitable for us. So, we are well positioned to capture smaller opportunities. There are some opportunities out there that are smaller in nature. And that we would be, you know, we're going after them. That being said, there is nothing really for us much of scale like the post-mediar glacier that we currently announce. So opportunities, yes, but smaller ones.

Okay, great. Thank you.

The next question comes from David McFadden with ATB Coremark.

Your next question comes from David McFadden with ATB Coremark. Your line is now open.

All right.

Yeah, a couple of questions.

So just on the books and education, so I imagine that the vast majority of that organic decline in Q2 was the U.S. contract that you talk about. When do we or when do you, sorry, expect to lap the impact of that?

Hard to say the full impact of, you know, as Sam mentioned, we're glad that we were able to replace part of that business that we lost. And it's not a business we lost, actually. It's a one-time contract that we had last year. and we were able to compensate part of it with good business, good margin business. So hard to say when we will be able to compensate, but part of the plan is to have a very strong second half of the year for both book and education. So we're catching as we speak and very proactive, especially with the dollar still very weak, the Canadian dollar being very weak as we speak.

Okay, so clearly you've won some new contracts then, right?

Pardon me?

So clearly you've won some new contracts then? To give you your optimism for the second half?

Okay.

And then on the retail services and printing side, I mean, I'm just wondering, so you say in your MD&A that that decline is mainly due to lower volume and flyer printing. I'm just wondering when... When will we lock that one as well?

Well, the flyer business, as you know, it's mostly the rest of Canada except Quebec and BC. And that's the good news with the announcement that we will launch a national platform for radar. As you may recall, that was our intention, you know, to mitigate the decrease in flyer. And right now, part of the reason why We felt that decrease in past quarters, not because the product was not good. It's still an amazing product to bring people in stores. But the cost of distribution and the cost of the recycling was getting way higher for our clients. And the good news with Radar is that we will be able to help our clients to reach even more clients with a cost probably similar to their current cost or even lower. So that's the important thing about radar right now. Hard to say what will be the outlook with radar, but definitely a good news for Councilman Natal in terms of stabilizing the distribution.

Okay. All right. Okay, thanks. Thank you.

Mesdames et messieurs, encore une fois, si vous voulez des questions supplémentaires, veuillez s'il vous plaît appuyer sur les touches étoiles. Si vous utilisez la fonction main libre, veuillez décrocher le récepteur avant d'appuyer sur les touches. Ladies and gentlemen, if there are any additional questions at this time, please press star followed by the one. As a reminder, if you're using a speakerphone, please lift the hands up before pressing any keys. Your next question comes from Mary Yagi with Scotiabank. La prochaine question vient de Mary Yagi avec Scotiabank. Your line is now open.

I wanted to ask you just on capital allocation here going forward. You mentioned that you're heading towards two times net debt ratio. Can you give us maybe some benchmarks as to where do you think the business leverage ratios should be going forward on a steady state basis, where do you think you're comfortable having it, and maybe also how much acquisition capital you can deploy on a yearly basis in retail business going forward on the M&A side. Just trying to figure out the pieces of the puzzle that will account for how you will distribute your cash that you're going to be generating going forward. Thank you.

First, it's a new TEC, but the new TEC is like the old TEC, so we will produce a lot of free cash flow in the future. That's part of the reason why we were confident and happy to announce a dividend payment yesterday. In terms of debt to EBITDA, I would say that we don't fix ourselves any targets, but obviously, apart from acquisition, we definitely prefer to be under two. This is where we will finish by the end of fiscal year. I would say any range between one and two is where we will be comfortable to do M&A. But as I said, you know, in previous calls, when we did COVID, we had no debt on the balance sheet and we were quite happy to have no debt because we put a lot of debt at that time. So it's not like we need to have debt on the balance sheet, but again, we're comfortable between one and two. As far as acquisition, right now, we can make acquisition. In the past, we leveraged ourselves up to three times to do acquisitions. So this is something that's possible. So you can do the math regarding the size of acquisition. But I would say the next 12 months, the size of acquisition, 12 to 24 months, it should be more aligned with acquisition we did in the past. So definitely something.

Okay, and when you step back and you look at the ISM market that you're trying to consolidate in Canada, what is your assessment about its growth opportunity as a whole, as a market segment in general? And does it allow you, you know, when you look back into the past, acquisitions you were doing in the US on the packaging side, the view was that the market itself was growing with GDP and that allowed you to take up the leverage a little bit higher as you can leverage after the acquisition. In ISM, when you think about the organic growth of the market, can it be close to GDP or it's more closer to less than GDP as a segment group.

Thanks for the question. So, a two-part answer. Number one, when we look at the ISM, we should look at ISM and visual solutions. So, we do more than just the in-store within our business. and we're more diversified and a broader offering. That being said, when we look at the ISM, it's a relatively flat market overall. But that being said, our business is over-indexed with the grocers, and that is a forecasted 3% to 4%, 4.5% growth, so probably more in line with JDP growth, and we intend to capitalize on those segments and those sub-markets that are growing.

Okay, and when we hear you talk about doing M&A and ISM, Can you expand or are you specific in terms of, you know, in-store media can include also other media than printing, right? So are you still focused on, you know, I want to call it the paper way of advertising in stores or can you eventually look at

other media that you can deploy inside the store for marketing purposes absolutely and it's not that we're looking at other media we are doing other other media for example screens that are deployed throughout the network or some of our partners distribute the content as well. So this is something we are very much looking forward to that we're deploying and that we have a solution to propose.

Okay. How big is that business for you right now? I assume it's very small in the whole scheme of things.

Versus, absolutely correct, versus the rest of our business is still small and a growing piece. Obviously, we're very well positioned with the retailers and our other customers to be able to offer a complete solution. So that's what they're asking and that's what we're providing.

Is there an intention to get into the hardware business of advertising in stores, electronic hardware?

What do you mean? Can you please specify? Meaning we buy the hardware?

Yeah, like you're in charge of installing the screens and everything.

We do installs. We haven't installed services. So if the retailer requires it, we will provide that service. The purchasing of the hardware screens or the lights is mostly a pass-through, but install services we do provide.

Okay. Thank you very much. Thank you.

Il ne semble plus d'avoir de questions. Mr. Lapointe, there are no further questions at this time.

Thank you, Joanne, and thank you, everyone, for joining us on the call today. Looking forward to speaking to you soon.

Mesdames et messieurs, ceci termine la conférence pour aujourd'hui. Merci de votre participation. Vous pouvez maintenant raccrocher. Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.