Good morning, ladies and gentlemen, and welcome to Colabor's First Quarter 2025 Results Conference Call. At this time, note that all participant lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session, 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 Friday, May 2nd, 2025. At this time, I would like to turn the conference over to Louis Frenette, President and Chief Executive Officer. Please go ahead, sir.
Thank you, Sylvie. Good morning, everyone, and welcome to Colabor Group's Fiscal 2025 First Quarter Results Conference Call. This is Louis Frenette, President and Chief Executive Officer of Colabor. Last evening, we released our earnings results for the 12-week period ending March 22nd, 2025. The press release and disclosure documents can be found on our website at cedarplus.ca. The accompanying presentation, including our statement on forward-looking information and non-IFRS performance measures, can also be accessed online in the Investors section on colabor.com. Joining me today is Pierre Blanchette, our Chief Financial Officer, who, following my initial remarks, will provide an overview of our financial results. Our first quarter results demonstrate that we continue to execute against our plan, and we are winning market shares.
Our diversification strategy within the HRI market and investment made to expand our presence in Western Québec allowed us to offset some of the effect of the ongoing challenging backdrop in the restaurant industry. In the first quarter, total revenues grew by 0.4%. On our distribution sales, grew by 3%, resulting from higher volume from new and existing clients, market share gains, as I said, and M&A. This positive trend underlying our distribution activities was mitigated by the effect of the major contract renewal. As for our wholesale revenues, we experienced a slowdown of the pace of decline, with wholesale revenues down by 3.8%, a much slower pace of decline than what we have been experiencing since the start of 2024.
On the profitability front, the combination of softness in the restaurants industry and the previously announced repricing of a major contract had a significant impact on our adjusted EBITDA margin this quarter. In order to manage the effect of the repricing of this major contract, we have implemented various mitigation measures, including reducing our operating expenses and diligently working to add more products that are outside of our scope of contract. During the first quarter, we also prudently managed our capital allocation and further reimbursed debt. With our demonstrated ability to grow our distribution sales in our new and competent market, we remain on solid ground. On February 19, 2025, we announced a highly strategic acquisition, which, once concluded, aimed to further consolidate our position as the largest Québec food distributor and boost our presence in the western part of the province.
Our management team is working diligently on the conclusion of the transaction. Looking ahead, our primary focus lies on growing our presence in the western market, all while continuing to improve our product and customer mix. We will continue to work on all fronts to improve productivity, raise efficiencies, and tightly control our operating expenses. This will allow us to mitigate the effect of the major contract renewal. Before I turn the call over to Pierre, I would like to discuss the ongoing tariff situation. As we currently stand, food products exported from the U.S. into Canada are generally subject to the United States–Mexico–Canada Agreement, the USMCA, and remain mostly duty-free and quota-free. Over 90% of all products that Colabor buys from suppliers are from Québec or the rest of Canada. In addition, the majority of our private label is sourced from Québec suppliers, manufacturers, and farmers.
Because of our strong local supply chain and efforts to promote local brands, we are starting to experience demand, tailwind, that has started to translate into market share gains with independent restaurants. This trend, along with customers looking for value, is also benefiting our private label brand sales, which continue to grow in Q1. Pierre, on this, I will turn the call over to you.
Thank you, Louis, and good morning, everyone. I'm pleased to be here today to discuss our key financial results for the first quarter of fiscal 2025. Please refer to the presentation for highlights of our financial performance in the quarter. In the first quarter of 2025, sales were up 0.4% to CAD 131.7 million. Revenues from our distribution activities increased by 3%. Distribution volume growth came from new and existing clients, and the contribution of the acquisition of the assets from Beaudry Cadrin concluded in the first quarter of last year. This allowed us to mitigate the effect of the major contract renewal, which took effect in December of 2024. Please note that the effect of inflation was nil in the quarter. Our wholesale activities were down by 3.8%, and as Louis indicated earlier, declining at a lower pace than we have experienced since the start of 2024.
Consolidated adjusted EBITDA from continuing operations reached CAD 2.3 million, or 1.7% of sales, compared to CAD 4.9 million, or 3.7% in the first quarter of last year, mainly from the effect of the major contract renewal at lower margin, which occurred in December of 2024. Our first quarter is always a more sensitive quarter, with lower seasonal revenue patterns limiting our ability to absorb our fixed cost structure. As of note, we managed to reduce our operating expenses this quarter and continue to be an area of focus for the team. Net loss from continuing operations was CAD 4 million, or CAD 0.04 per share, down from a net loss of CAD 1.8 million, or CAD 0.01 per share, in the equivalent quarter of last year.
Cash flow from operating activities was CAD 6.2 million in the first quarter, down from CAD 11.7 million in the equivalent quarter of last year, resulting from higher utilization of working capital and lower adjusted EBITDA. Higher utilization of working capital is to fund inventory build-up ahead of the busy summer season. CapEx investment amounted to CAD 0.3 million in Q1 and were part of a regular basic maintenance. For 2025, we expect our maintenance and capital expense to be slightly lower than last year at approximately CAD 2 million. We ended the first quarter of 2025 with a lower net debt of CAD 47.1 million, down from CAD 47.8 million at the end of 2024, and a leverage ratio of 2.8 x adjusted EBITDA, up from 2.4 x at the end of last fiscal quarter, a level at which we remain comfortable. Total available borrowing capacity on our credit facility stood at CAD 36.7 million.
I would now like to turn the call over to the operator for the Q&A period.
Thank you, sir. Ladies and gentlemen, if you do have any questions, please press star followed by one on your touch-tone phone. You will then hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. If you are using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star one now if you do have any questions. First, we will hear from Kyle McPhee at Cormark Securities. Please go ahead, Kyle.
Hey, everyone. I want to dig into the impact of the institutional client contract repricing. You had disclosed that this client was 11% of 2024 revenue, but on a quarterly basis, is this client a much higher percentage of revenue in Q1 periods, given the institutional client may not be seasonal, but a lot of your other business is seasonal to the downside in Q1? Can you provide any clarity on that?
Hi, Kyle. It's Louis. Yes, you're right. That client represented 11% last year. Yes, in the Q1, it was a bigger proportion. The proportion of the institutional customers in Q1 is higher because the restaurants have lower volume in that period. The mix is unfavorable on that. The answer is yes, yeah.
Okay. Can you tell us how much of your revenue weight this client was in Q1 of last year?
How much what? Sorry.
How much revenue, percentage of your revenue, this institutional client was in Q1 of 2024? Just quantify it.
I don't have that. In cases, it's fairly similar, okay, year-over-year. I don't know the proportion of that client last year.
Okay. Okay. It looks like us analysts may have kind of underestimated the margin impact simply because of this seasonality dynamic. Now the opposite should be true going forward. Is that correct? This client will be a lower percentage of revenue than 11% in kind of Q2- Q4?
Yeah. The average of last year was 11%. In Q1, it was higher. It will readjust over the year in case of the seasonality, and the golf courses opening, and the campaigns. Yeah, absolutely.
Okay. Your press release and comments mentioned steps taken to mitigate the impact of the repriced institutional contract. It looks like your wages expense line was a favorable moving part that helped in the Q1 you just reported. Was Q1 a full quarter benefit of these cost mitigation efforts with wages, or will we see more progress with that in Q2 to claw back more margin dollars?
Hi, Pierre. The answer to this is that, yes, we've taken actions. It did not hit the full Q1. The full effect has not been seen in Q1. We continue to look at operational efficiencies and any other factor to help us.
Got it. Okay. Beyond wage adjustments and operational efficiencies, are there other mitigation efforts that may start to help in Q2 and beyond, specific to how much margin you can make with this specific institutional client, maybe things like more volume on the truck to this client or shifting around margin mix? Has that begun at all?
Yeah. The answer is yes. As usual, we work to improve our margin mix with all our customers, if you're talking specifically about that customers. The more products we sell that are outside of the contract, that helps the margins. They're very happy to have products from outside the contract, such as our private label. As an example, we're selling more private labels. By definition, it helps raising the margin over time. Other products from meats, proteins, and that we find that are good for them. Yes, it's helping.
Okay. Would any of that have started in Q1, or is that kind of more Q2 and beyond?
Yeah. That contract was renewed, I think, December 1 or 2nd, whatever, of last year. We did add some products. We saw a small improvement, yeah.
Okay. Your press release also mentioned that, beyond this contract repricing dynamic that impacted margins in Q1, there was also some other unfavorable client mix that was margin drag. Can you explain what that means and if this was unique to Q1 or something we should be aware of going forward?
Yeah. I explained the Q1 seasonality by the fact that restaurant sales are lower. The proportion of our institutional clients was higher. That affected directly the mix and the margins, as we understand. To give a bit of color about the market and all of this, I think I should add that our market share in cases is increasing, okay, in the distribution segment. The client mix, as you understand, was unfavorable. The good news is that we keep gaining customers at a faster pace than last year in the quarter, partly due to our push from ourselves in the western part of Québec and the effect of Buy Local or Buy Canada brought on by the tariff war. You know that we're very little affected by the tariffs, but I think that's important to mention.
The mix, talking about the mix and more about the restaurant, that's the one that was hurt. The equivalent of same- store, same- restaurant sales are lower by restaurants versus last year in that quarter. We showed growth. It's only because we gained new customers, and I was saying at a faster pace. That's great. We will continue to develop the business to do the push. It's a good situation. When it comes back, it will be the effect like after COVID. If you remember that we were really hurt, but we gained stores during a difficult period. When it reopened or things got settled, business came over to Colabor.
The growth of that 3% comes from the M&A we did last year, the new customers that we got, okay, which is important, and the sum of the existing customers at growth. I'm talking restaurants here, but very few of them. At least that helped. This result was mitigated in sales by the reduction in pricing at our institutional contract that we talk about, and the poor performance of the restaurant sales per store.
Okay. Appreciate all that color. I'll pass the line.
Thank you. Next question will be from Michael Glenn at Raymond James. Please go ahead, Michael.
Good morning. Just to start off, maybe are you able just to give us some ideas or thoughts surrounding how we should think about gross margin trending through the rest of 2025?
Yes. Good morning. The mix will, by default, adjust, okay, because of seasonality. By definition, it should be better going on forward for the rest of the year, okay. The mix is affected by the seasonality and the new stores that we're getting. You understand that we make more margins when we're getting new independent restaurants. That's what we're doing on a daily basis. Our market shares prove it.
Okay. To think about where you start the year relative to where you were last year on gross margin, are the factors you're speaking about, how much are we thinking about in terms of sequential improvement? Is it 50 basis points? Is it 100 basis points? Is there enough in hand to [move] you up?
We don't give forward-looking, as you know. It will improve. It should not get to the levels we had before last year, as an example, because of the significant impact of the margin reduction on an institutional contract. The more independent restaurants we have, it'll increase, and over time, it'll readjust.
Louise, I would add that the—sorry, Michael—I would add that the industry will also dictate where it goes. If restaurants are picking up faster or not picking up, then it definitely will—it drives the margin as well.
Louis, you spoke about gaining some market share among the independent restaurants, just given your positioning in Québec. I'm just wondering, are there any emerging opportunities with national chains who might be looking to change their sourcing strategy?
Depending on your definition of national, yes, the national Québec, the answer is yes. You understand that we do not ship outside of the western provinces. We ship a little bit in Ontario, and we are good in New Brunswick. The answer is yes. That trend is favorable for us. As I was saying in my comments, the push from our sales organization is working well, plus the inbound calls because of tariffs. We are invited to present our business case because we are a large supplier, a large distributor, and we can compete straight with Sysco and JBS, and we can replace them in the province of Québec as we are organized today.
Okay. Just on the transaction that we're waiting for the closing for, can you provide just some thoughts as to what we should think about for expected closing? Are you able to indicate it feels like it's been a little bit longer than expected to close? Are there some specific items that are delaying the close that you can speak to?
Michael, it's Pierre. We're not going to get into the specifics, but there are closing conditions that we are working on. I agree with you. It's a little bit longer than expected.
Okay. I will leave it there. Thank you.
Thank you.
Next question will be from Frédéric Angers at Desjardins. Please go ahead, Frédéric.
Thanks. Good morning. Just a bit of a follow-up on the last question there. In the financials, we see a note that says that the required closing conditions must be met by May 20, 2025. That's pretty soon. I'm just wondering, what's your level of confidence that the conditions will be met by that date? If they're not, is there a possibility for an extension of the deadline there?
Thanks, Frédéric, for the question. Yes, yes. May 20th is the outside date. Our level of confidence is good. Yet, the possibility of extension could happen. In any contract, everything is negotiable.
Okay. Moving back to the contract renewal, this is a two-year contract with two potential six-month extensions. Given those timelines, I was just curious to know what your internal expectations are in terms of getting the full benefits of your mitigating actions on the margin. Are we talking about a year from now, you would expect the full impact or full benefit from that, or is it sooner or later than that? Just a bit of a timing perspective on implementation of your actions there.
We did have mitigations to absorb the loss of profits on that. It is in part met, but not entirely, okay? The idea is to keep working on productivities. We did adjust our workforce to help mitigate this. The idea is to work on the top line with better margins. Over time, it'll be covered. It takes time. It takes time to do this. I like the pace we're on. Gaining market shares, this is cool, at a same margin with normal customers or better margins. That is cool. As I was saying, we're gaining customers at a faster pace than last year, same quarter, and it's going to be the same thing in Q2. That is the only forward-looking I'm going to give you on that. The trend is good.
Okay. I appreciate that. Last question for me, just on the distribution volume increase. Some of it is from market share gains, obviously. I was just curious, though, on the existing customers. Generally speaking, their volume demand, is it stable, up, down, over a year? We obviously know that the restaurant industry is in a bit of a challenging place right now. In terms of your own clients, what's the general trend that you're seeing with your existing customers?
Yeah. Frédéric, in food service, we don't have access to the same data as retail with AC Nielsen. What we know is that we're a wholesaler, okay? We have around 125 distributors that order from us. We're also a distributor. We all see sales per restaurants did decline versus last year, okay? It's our data, internal data. We have other reports, such as, sorry, as Restaurants Canada and others that show that in March, that's the last data that we have. In March, it improved by a 0. 1% over last year. That's a good sign from -4% in February. That's encouraging. This is not a + 8%- 10% that we should see.
Understood. Thanks for taking the question.
Merci [Foreign language].
Next question will be from Dona ngelo Volpe at Beacon Securities. Please go ahead.
Hey, good morning, everyone. Just looking at the wholesale activities, I noticed it was down as a result of restaurant industry slowdown. I was just looking for any commentary regarding the slowdown you guys are seeing. Is it mostly slowdown across independents, or is it more of a broad-based slowdown? You guys kind of touched on it, I guess, on the last question, but have there been signs of a pickup of activity throughout the first month of the second quarter?
Hi, Dona ngelo, and welcome to the analyst, guys. The answer is yes. There is a slowdown in the—although the pace is better, the decline is not as great as it was in the previous quarters. That is a good sign. Yes, there is a slowdown with the independent restaurants. That is the answer. The second part of your question, I missed you, right?
I guess you guys kind of touched on it with—I guess you guys said the March data was the most recently available, and you did see a little uptick, up 1%. The second part of my question was just relating to if you guys had been seeing signs of a pickup of activity throughout the first month of the second quarter.
Yeah. We don't share that information, so I can't answer that. The market is relatively stable overall, okay?
Okay. Okay. Thank you. I'll hop back in the queue.
Our job is in that pie that shrinks on the restaurant side, we got more market shares, okay? With the M&A and the gain of customers, that's why we look good with a 3% increase on that side. If you take into consideration the effect of the institutional contract that dragged down our sales, we're on the right. I'm very happy with my team and the excitement we have at gaining customers. This is an adjustment period, and it's going—I'm very satisfied with those gains of customers.
Okay. Perfect. Thank you for the color. I'll hop back in the queue.
Once again, ladies and gentlemen, a reminder to press star one if you have any questions. At this time, Monsieur Frenette, it appears we have no other questions. Please proceed.
Thank you, Sylvie. Thank you, Kyle, Frédéric, Michael, and Dona ngelo, for your questions. Our ability to continue gaining market shares, as I said, in a challenging restaurant industry environment is a testament of our diversification strategy and validates our expansion into western Québec. We are about to enter the busy spring and summer season. Our focus remains, as Pierre mentioned, closing and integrating the L.N. Plus acquisition, expanding our presence organically and inorganically in western Québec, promoting our locally sourced offering, including our private label brand, which benefits from the buy local sale win, generating revenues and operating efficiencies, improving our product mix, and leveraging our position as the province's largest locally focused supplier to the food service industry. Again, we're in a good position, and I'm enthusiastic about our position in the marketplace and our ability to continue on the path to profitable growth.
This concludes our call for the first quarter of fiscal 2025. Thank you for joining us. Stay safe and healthy, and see you at our upcoming virtual AGM on May 8th.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.