K-Bro Linen Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 7, 2024

There are 6 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Cabral Linen, Inc. 1st Quarter 20 24 Results Conference Call. At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session. I would now like to turn the conference over to Kristie Flaquin.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and good morning, everyone. Thank you for joining us today, and welcome to our Q1 results conference call. On the line with me today is Linda McCurdy, President and Chief Executive Officer. Following our remarks today, we will open it up for questions. Before we begin, I'd like to remind everyone that statements made during our prepared remarks or in the question and answer portion of the conference call with respect to management's expectations or our predictions of the future are forward looking statements.

Speaker 1

All statements made today, which are not statements of historical fact, are considered to be forward looking statements. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward looking information. Investors are also cautioned not to place undue reliance on these statements. Actual results could differ materially from those anticipated. Risk factors that could affect the results are detailed in the corporation's public filings.

Speaker 1

I'll now turn the call over to our CEO, Linda McCurdy, who will provide her insights and remarks on the quarter. Linda?

Speaker 2

Thank you, Christie. Good morning, everyone, and thank you for joining us today to review our 2024 Q1 results. As Christy mentioned, I'll focus on the main highlights of our first quarter and then Kristi will provide some details with regards to our financial performance and balance sheet. I'm pleased with our strong Q1 results and our momentum to start the year. In terms of the highlights, we reported Q1 2024 revenue of 80,000,000 dollars and EBITDA of $11,600,000 for the quarter.

Speaker 2

Overall, consolidated revenue increased 13% compared to Q1 2023 with healthcare revenue having increased by 8% and hospitality revenue by 21%. Healthcare revenues represented approximately 59% of consolidated revenue, which is lower compared to approximately 62 percent in 2023 due to strong activity in the Hospitality segment. During the quarter, we announced our new sized $175,000,000 syndicated credit facility, including a further $75,000,000 accordion $1,000,000 accordion, providing further financial flexibility to pursue growth opportunities. Strategic acquisitions of complementary high quality operators continue to be an important contributor to Capers' overall growth profile. On April 30, 2024, we announced the acquisition of Shortridge.

Speaker 2

I'm delighted to welcome the Shortridge team to the Capro family and I'm excited by the potential this acquisition presents in the U. K. Since the 1990s, Shortridge has operated as a family run business specializing in providing high quality laundry services to local independent hospitality businesses including hotels, B and Bs, self catering units and restaurants. Shortridge further diversifies our customer base in the U. K.

Speaker 2

And helps position our combined U. K. Business for more growth as we look to extend Cabro's footprint further south into the U. K. We see a positive outlook for Cabro and are excited about our organic growth prospects and potential future M and A.

Speaker 2

I'll now turn the call over to Christi to discuss our detailed financial results for the quarter, after which I'll return to talk about our outlook. Christi, over to you.

Speaker 1

Thank you, Linda. The information we are discussing today is also highlighted in our 2024 Q1 earnings press release issued yesterday and detailed supplemental financial information can be found on our Investor Relations website under the heading of Financial Documents. As a result of increased activity in the Hospitality segment, price increases and the acquisition of both Parinet and Bill Array, consolidated hospitality revenue for the 3 months ended March 31, the revenue for an overall increase in consolidated revenue of 13.3%. Consolidated EBITDA in the quarter increased to $11,600,000 from $10,300,000 in 2023, which is an increase of 12.3%. The consolidated EBITDA margin decreased to 14.5% in 2024 compared to 14.6% in 2023.

Speaker 1

The decrease in margin is primarily related to $1,500,000 in onetime costs incurred to execute these syndicated credit facility agreement and transaction costs associated with Canadian division, Q1 EBITDA decreased to 15.8% from 16.9% for the comparative quarter of 20 23. For the UK division, Q1 EBITDA margin increased to 9.8% from 6.4% for the comparative quarter of 2023. For the Canadian division, the decrease in margin is again primarily related to the 1.5 $1,000,000 in costs incurred to execute the syndicated credit facility agreement and certain transaction costs associated with the acquisition of Shortridge, which had a negative impact on the Canadian margin in the quarter of 2.4%. For the UK division, the increase in EBITDA margin is primarily related to delivery and labor cost efficiencies and the impact of price increases that were put in place in 2023. Net earnings decreased by $200,000 or 9.7 percent from $2,000,000 in 2023 to $1,800,000 in 2024 and net earnings as a percentage of revenue decreased by 0.5% to 2.3%.

Speaker 1

In 2024, the change in net earnings is primarily related to an increase in depreciation and amortization due to ParaNet and Filray assets acquired. Wages and benefits in the Q1 increased by 3 dollars to $31,600,000 compared to $27,700,000 in the comparative period of 2023 and as a percentage of revenue increased by 0.2 percentage points to 39.3%. The increase as a percentage of revenue is primarily related to temporary inefficiencies during the bill rate transition. Linen in the Q1 increased by $400,000 to $7,800,000 in the Q1 compared to $7,400,000 in the comparative period of 2023 and as a percentage of revenue decreased by 0.8 percentage points to 9.7%. The decrease as a percentage of revenue is primarily related to the change in mix of women and higher hospitality volume process compared to the prior year.

Speaker 1

Utilities in the Q1 increased by $300,000 to $6,300,000 compared to $6,000,000 in the comparative period of 2023 and as a percentage of revenue decreased by 0.7 percentage points to 7.8%. The decrease as a percentage of revenue is primarily related to the impact of price increases secured across various markets coupled with lower gas costs in the Canadian market. Delivery in the Q1 increased by $900,000 to $10,000,000 compared to $9,100,000 in the comparative period of 20 is primarily related to the optimization of high frequency routes resulting in delivery cost efficiencies as well as lower fuel prices. Occupancy costs in the Q1 increased by $100,000 to $1,400,000 compared to $1,300,000 in the period of 2023 and as a percentage of revenue remained constant. Materials and supplies in the Q1 remained constant at $3,100,000 compared to the comparative period of 2023 and as a percentage of revenue decreased by 0.4 percentage points to 3 point 9%.

Speaker 1

The decrease as a percentage of revenue is primarily related to timing. Repairs and maintenance in the Q1 increased by $600,000 to $3,500,000 compared to $2,900,000 in the comparative period of 2023 and as a percentage of revenue increased by 0.4 percentage points to 4.4%. The increase in costs as a percentage of revenue is primarily related to Ville Ray transition costs. Corporate costs in the Q1 increased by $1,800,000 to $4,800,000 compared to $3,000,000 in the comparative period of 2023 and as a percentage of revenue increased by 1.7 percentage points to 6%. Again, the increase of a percentage of revenue is primarily related to the $1,500,000 in costs associated with executing the syndicated credit facility and certain transaction costs associated with the Shortridge acquisition.

Speaker 1

Now looking at our capital resources, distributable cash flow for the Q1 of 2024 was $6,000,000 and our payout ratio was 53 0.2%. The company paid out $0.3 per share in dividends during the quarter for total consideration of 3,200,000 dollars The corporation had net working capital of $36,700,000 at the end of Q1 compared to its working capital position of 41 point $4,000,000 at the end of December 23. With regards to credit and liquidity, we had a strong balance sheet and ample undrawn capacity on our syndicated revolving credit facility, which is an operating line of $175,000,000 and a further $75,000,000 according for growth purposes. At the end of April, after the acquisition of Shortridge, we had an undrawn balance of close to $60,000,000 on our operating line without taking into account the accordion, reinforcing our strong liquidity. This represents a debt to EBITDA ratio excluding leases of 2.2 times.

Speaker 1

I'll now turn things back over to Linda for additional commentary. Linda? Linda?

Speaker 2

Thank you, Christy. So we're excited by our strong start to 2024 and see a positive outlook for the business. Both of Cabro's Healthcare and Hospitality segments continue to experience steady growth and we expect EBITDA margins to follow historical seasonal trends. Our vision for Cabral centers around delivering industry leading service, putting people first and supporting the communities in which we operate. We're proud of our reputation for looking after the interests of our valued customers and being dependable partners to all stakeholders.

Speaker 2

Cabro has a track record of successfully attracting new customers organically and acquiring complementary high quality operators to extend our geographic reach and accelerate growth. We prioritize shared values in our acquisitions and our teams work diligently to exchange best practices and support operations. Parana, Villarey and Shortridge are welcome additions to the Cabral family and we're excited for the potential these acquisitions present for our future. We're excited about our outlook. We see momentum in both healthcare and hospitality and are focusing on our other growth opportunities.

Speaker 2

We continue to have an active M and A pipeline and remain well positioned from a balance sheet and liquidity perspective and will continue to be disciplined as we evaluate acquisitions. I'll now turn it over to answer any questions you have with regards to the Q1 results.

Operator

Thank you. And ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Derek Lessard from TD Cowen. Your line is open.

Speaker 3

Yes. Good morning, Linda and Christy. How are you?

Speaker 2

Good, Derek. Good morning.

Speaker 3

Yes, solid quarter. Congratulations on short, Rich. The first question for me was, I was just hoping to get a sense from you the sort of the organic growth trends in the quarter. And then maybe as a follow-up to that, how much of that was tied to pricing versus volume and maybe new customer additions?

Speaker 2

Sure. Yes. I'd say both on the from a consolidated perspective, about 10% of it is volume and half of it is price driven, with the remainder being increases as the result of volume and revenue from acquisitions.

Speaker 3

Okay. Thanks. That's helpful. And just wanted to hit a little bit on your CapEx. Just wondering if you can maybe give us an update on the Villare transition, how much of the guess, the $5,000,000 of CapEx has been incurred?

Speaker 3

And on your one time investment from your person in the UK, Just curious about the timing of that project.

Speaker 2

Kristine, why don't you Yes, go ahead.

Speaker 1

Yes, for sure. So I guess in terms of the CapEx, the bill rate project is just starting. There's been some of that CapEx spent, probably about $1,000,000 of it, but predominantly the rest of it will be spent over Q2 and Q3. And then in terms of Perth, a good portion of it has already been incurred. I'd say there's maybe $1,000,000 left to be incurred in Q2.

Speaker 3

Okay. And maybe just one final one for me. Just given the new supply agreement on the U. K. Gas hedges, How should we think about, I guess, your utility costs going forward?

Speaker 2

What I'd say to that oh, go ahead, Kristy. No, no, go ahead Linda. So that hedge takes place or comes into effect in 2025. So it will our existing hedge carries throughout 2024. There is some favorable pricing that on a consolidated basis will have a positive impact in the range of 0.5 to 1 percentage points.

Speaker 3

Okay. Thanks. Thanks, everyone.

Speaker 2

Thanks, Derek.

Operator

Thank you. Thank you. Your next question comes from the line of Kyle McPhee from Cormark Securities. Your line is open.

Speaker 4

Hi, everyone. Just first a quick follow-up on the new gas hedge. Can you tell us what price was locked in through that January 'twenty 5 to December 26 period, the pricing in terms of great British pence per kilowatt hour? Or at the very least just confirm if these kind of multiyear hedge contracts are typically pricing in around current spot pricing?

Speaker 2

They're slightly higher than spot pricing. Well, it's changed. It changes week by week, but it's I'd say within the neighborhood of spot pricing, Kyle.

Speaker 4

Okay. Thanks. That helps us quantify the margin gain you should see in 2025. And then nice to see your Q1 margins tracking above 2019 levels when adjusting for the one time costs you disclosed. I have a question about one moving part that may impact this type of margin performance through the rest of this year.

Speaker 4

Multiple provinces have scheduled increases to minimum wages. Historically, I think Cabral has offset this with pricing on a lag basis at contract anniversary dates. Cabral also just went through a period of many out of contract pricing increases. Were you able to proactively offset these upcoming minimum wage increases or will it be a source of minor margin drag throughout this year that's eventually offset on a lag basis?

Speaker 2

I think what how we would how we should look at that is we certainly are well aware of the changes in minimum wage by province, which in some provinces are material. And as we've guided that our margin profile going forward will be close to or at pre pandemic levels, we've taken into account the impact of minimum wage in that guidance.

Speaker 4

Got it. Okay. Thank you. That's it for

Speaker 1

me. Awesome. Thank you.

Operator

Thank you. Your next question comes from the line of Michael Glen from Raymond James. Your line is open.

Speaker 5

Hi, good morning. Just Fred Gattaglia on for Michael Glen. Could you provide any update for the $60,000,000 contract renewals this year? How are discussions progressing? Is this competitive?

Speaker 5

And then maybe you could break down as well the contract renewals across the regional segment? Thanks.

Speaker 2

Sure. Good morning. Of the renewals up this year, I would say about $40,000,000 of it is Canada and $30,000,000 is the UK. We've resigned about 30% of those total and feel confident as the year goes on that we will continue to renew them. Some of them are not yet out of contract.

Speaker 2

They come due as the year unfolds, but we do feel good that we will continue to renew those contracts.

Speaker 5

Okay. And on Shortridge, could you provide some insights into the margins of that transaction and the multiple paid as well as what the pro form a leverage would look like including a shortage?

Speaker 2

So in terms of margins, what we have disclosed and we wouldn't go too much further than this, is to say that the historic margin profile is higher than our consolidated historical margin profile for our consolidated Cabral. And for competitive reasons, we'll leave it at that. Leverage will be after taking into account the acquisition at the 2.2 times debt to EBITDA.

Speaker 5

Okay. Thank you.

Speaker 1

Thank you.

Operator

Thank you. And there are no further questions at this time. I would like to turn it back to Linda McCurdy for closing remarks.

Speaker 2

Well, thank you everyone. Have a great day. And if there's any follow-up questions, please don't hesitate to reach out to Christy or myself.

Operator

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
K-Bro Linen Q1 2024
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