Greetings, and welcome to Doman Building Materials Group first quarter 2026 financial results conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ali Mahdavi. Thank you. You may begin.
Thank you. Good morning, everyone, and thank you for joining us for Doman Building Materials first quarter 2026 financial results conference call. Joining me this morning are Amar Doman, Chairman and Chief Executive Officer, and Darren Gwozd, our new Chief Financial Officer. Please join me in welcoming Darren to his first conference call at Doman. If you have not seen the news release, which was issued on Friday, it is available on the company's website at domanbm.com, as well as on SEDAR+ , along with our MD&A and financial statements. I would also like to remind you that a re-replay of this call will be accessible until midnight on May 25, 2026. Following the presentation of the first quarter results, we will conduct a Q&A session for analysts only. Instructions will be provided at that time for you to join the queue for questions.
Before we begin, we are required to provide the following statements regarding forward-looking information, which is made on behalf of Doman Building Materials Group Ltd. and all of its representatives on this call. Remarks and answers to your questions today may contain forward-looking information about future events or the company's future performance. This information is subject to risks and uncertainties that may cause actual events or results to differ materially. Any information regarding forward-looking statements is made as of the date of this call, and the company does not undertake to update any forward-looking statements. Please read the forward-looking statements and risk factors in the MD&A as these outline the material factors which could cause or would cause actual results to differ. The company will not provide guidance regarding future earnings during today's call, and management does not anticipate providing guidance in future quarterly or interim communications with investors.
I'll now turn the call over to Amar.
Thanks, Ali. Good morning, everyone, and thank you for joining us today. Before we get into the results, I would like to take a moment to introduce you all to Darren and welcome him to the team. Darren has been in the CFO seat for just over a month, and we are very pleased to have him on board. I also want to acknowledge James Code, who retired last month and will be missed by all of us. We'll always appreciate Jay's dedication to Doman during his many years working closely with the company. On behalf of myself, the board of directors and the entire Doman organization, thank you, Jay. Enjoy your retirement. I'll begin with a summary of our first quarter results, followed by some perspective on market conditions and our outlook for the remainder of the year.
For the first quarter of 2026, Doman delivered revenues of CAD 762 million, compared to CAD 793 million in the same period last year. The year-over-year decline was primarily driven by lower pricing across key construction material categories, including SPF lumber, OSB, and plywood, partially offset by increases later in the quarter in Southern Yellow Pine in the U.S. Despite that pricing pressure, our performance reflects the resilience of our operating model. We maintained strong shipment volumes and continued to execute effectively across our network. Gross margin for the quarter was CAD 130 million, with margin percentage improving to 17%, up from 16.7% last year. This improvement highlights our continued focus on disciplined pricing, procurement, and cost management. EBITDA came in at CAD 68 million compared to CAD 70 million last year.
While slightly lower year-over-year, this represents a solid result given the pricing environment and the macro picture, including fuel. Net earnings for the quarter were CAD 24 million, essentially in line with the prior year. We also remain committed to returning capital to shareholders. During the quarter, we declared a dividend of CAD 0.14 per share, which was paid in April. As we move through the first quarter, we continued to see volatility in commodity pricing, particularly in SPF, OSB, and plywood. While pricing trends were weaker year-over-year, we saw some signs of stabilization in the U.S. market in Q1. That said, the broader macroeconomic environment remains uncertain. Interest rates, housing affordability, and overall construction activity continues to influence demand patterns across our markets.
In this context, our priorities remain clear: maintaining strong cost disciplines, optimizing our product mix, leveraging our scale and distribution capabilities, and preserving balance sheet strength. Our diversified product offering with 83% of revenues from core construction materials and the remainder from specialty and allied products continues to provide stability across cycles. Looking ahead, we expect market conditions to remain dynamic as we move further into 2026. While our early indicators suggest some pricing stability in certain regions, visibility remains limited, and we are planning the business with a cautious and disciplined approach. We believe Doman is well-positioned to navigate this environment. Our experienced team, strong supplier relationships, and focus on operational efficiency give us confidence in our ability to continue delivering solid financial performance. In closing, I'm pleased with our start to the year.
Despite pricing headwinds, we delivered stable earnings, expanded margins, and continue to generate value for our shareholders. We will remain focused on execution and disciplined capital allocation as we move throughout the year. I will now turn the call over to Darren.
Thank you, Amar, and good morning to everyone. Sales for the three months ended March 31, 2026 were CAD 762 million versus CAD 793 million in 2025, representing a decrease of CAD 31 million or approximately 3.9%, largely due to the decreases in year-over-year pricing in certain construction material categories. The company's sales in the year were made up of 83% of construction materials compared to 81% last year, with the remaining balance of sales resulting from specialty and allied products of 14% and other sources of 3%. Doman's gross margins were CAD 129.5 million versus CAD 132.5 million in 2025, a decrease of CAD 3 million as a result of lower sales. Gross margin was 17% during the quarter compared to 16.7% achieved in 2025.
Expenses for the first quarter of 2026 were CAD 85.6 million as compared to CAD 87 million, a decrease of CAD 1.4 million or 1.6%. As a percentage of sales, 2026 expenses were 11.2% compared to 11% in 2025. Distribution, selling and administration expenses decreased by CAD 1.1 million or 1.8% to CAD 61.4 million in the first quarter of 2026 from CAD 62.5 million in the same period of 2025, mainly due to the company's continued efforts to manage costs. As a percentage of sales, these expenses were 8.1% compared to 7.9% in the same quarter in 2025.
Depreciation and amortization expenses decreased by CAD 0.3 million or 1.3% from CAD 24.5 million to CAD 24.2 million and are consistent across periods. Finance costs for the 1st quarter of 2026 were CAD 16.6 million compared to CAD 19.4 million in 2025, a decrease of CAD 2.7 million, largely as a result of lower net debt, including lower utilization of the revolving loan facility and lower unsecured notes balances during the quarter. For the three months ended March 31, 2026, EBITDA was CAD 68.1 million compared to CAD 70 million in the comparative period of 2025, a decrease of CAD 1.9 million or 2.8%. EBITDA during the quarter was impacted by the previously discussed decreases in year-over-year pricing in certain construction material categories.
As a result of the foregoing factors, net earnings for the first quarter of 2026 were CAD 23.9 million compared to CAD 23.6 million for the same period in 2025, an increase of CAD 0.3 million. Now to the statement of cash flows. Operating activities before non-cash working capital changes generated CAD 37.4 million in cash compared to CAD 44.5 million in 2025. Operating cash flows during the period were primarily impacted by the previously discussed declines in construction pricing and materials pricing. The company generated CAD 146.1 million of cash from overall financing activities related to the funding of seasonal working capital compared to CAD 121 million in 2025. Shares issued net of transaction costs generated CAD 1 million of cash compared to CAD 0.8 million in 2025.
The company also returned CAD 12.3 million to shareholders through dividends paid during the three-month period, largely in line with 2025. Repayment of lease liabilities, including interest, consumed CAD 8.8 million of cash compared to CAD 7.9 million in 2025. The company's lease obligations generally require monthly installments, and these payments are all current. The company was not in breach of any of its lending covenants during the three months ended March 31, 2026. Investing activities consumed CAD 10.6 million of cash compared to generating CAD 11 million in 2025. Investing activities in the first three months of the comparative period included the non-recurring sale of a portion of the company's timberlands for total cash proceeds of CAD 14.4 million.
Additionally, the company invested CAD 16.2 million in new property, plant and equipment during the period compared to CAD 3.5 million in 2025. This concludes our formal commentary, and we'd now be happy to respond to any questions that you may have. Thank you.
Thank you. Thank you. Our first question comes from Hamir Patel with CIBC. Please proceed with your question.
Hi, good morning. Amar, your gross profit margins were stronger than we expected in Q1. You know, what sort of normalization would you expect into Q2? When you think on kind of an annual basis, just given the improvements in your mix, should we think of Doman as generating margins north of 16% now, going forward?
Yeah, you know, if I had that crystal ball here, I probably wouldn't be on the call. You know, I'll tell you that right now the lumber market's doing, you know, sort of two different things. You know, Canadian market's doing one thing, the U.S. is doing another. It's all over the map. What's really assisted us in that gross margin 17 in the first quarter was some good astute buying by our company, taking advantage of low lumber pricing in the fall. That executed well as the market rose on, especially on the U.S. side or, you know, part of the first quarter, a very slow quarter as far as volumes go for us as usual. The margin picked up due to us having some nice priced material on the ground at the right time.
Going forward, Hamir, you know, it's anyone's guess. SYP is obviously coming off now. Having said that, we're holding our margins, you know, not too bad. You know, let's hope that the margin trend continues, but it's gonna depend on what the lumber market's up to for the rest of the year.
Okay. Fair enough. Amar, I think last quarter you were highlighting some investments you're making on the fencing side to grow that business. Maybe you can update us how that's progressing.
Yeah. Things are on track in Estill. We're starting to produce trials of fencing there, and by June, we'll have some more new equipment in place to produce a heavy load of fencing on the East Coast. A lot of 1 by 6 pickets for our retail customers out there that we currently import a lot of, which we're gonna eliminate and produce all in the United States. Then we've got a little bit more happening in Texas, and we've purchased some property in Hawaii, which was coming up and available to us. That was all part of that larger CapEx number you saw. We took advantage of those opportunities, and that's kind of the lay of the land there on CapEx tonight .
Great. Thanks. That's all I had. I'll turn it over.
Thanks.
Our next question is from Matthew McKellar with RBC Capital Markets. Your line is now live.
Good morning. Thanks for taking my question. Maybe just to start following up on the purchase of property in Hawaii, can you give us any more kind of sense of what your intentions are there and how significant that was in the quarter?
Just opportunistic. You know, when land becomes available in Hawaii, you know, you'll see us be non-traditional there. We will buy property there because there's just such a scarcity of industrial land opportunities there. Landlord had owned this stuff for a long time. It came available, and we put together a deal directly with the owners, and it'll eliminate rent for us going forward. We quickly moved on that. It's opportunistic. It's not a massive strategy, but as it happens, we took advantage of it.
Okay. Thanks. Moving on, can you speak a bit about the conditions in the U.S. and Canada you're seeing so far in the quarter? Are you seeing an impact of sort of a late spring? Then just also around Q2, could you give us a sense of maybe how we should think about any kind of implications downstream of conflict with Iran, most notably fuel costs and how those may impact your results? Thanks.
Sure. You know, we're having an okay spring, depending on the region. When weather is good, we seem to be moving material, so it's nice to see the consumer is not dead for sure. We're seeing that. You know, lumber pricing being a bit lower, that, you know, definitely makes us more advantageous to other decking opportunities for your top board. Lumber's back in vogue, which is always good. Then we look at the fuel thing. Yeah, we believe fuel's gonna be up here for a while. We're doing the best we can with our customers for fuel surcharges, trying to pass on what we can.
We can't grab all of it, sadly, but we're doing the best we can to take advantage of, you know, recovery if we can, where we can because we're paying for it as soon as it leaves the mill. As soon as we have to haul anything anywhere, there's fuel surcharges on everything. We're doing the best we can to navigate through that. You know, there's nothing super positive or negative about it, but we're just trying to break even if we can on it and push it through.
Perfect. Thanks. Last from me, excuse me. Consumer confidence, I guess, is looking a little soft at the moment. Are you seeing that in your mix at all? Any trade-down going on, consumers looking for maybe lower end ranges of specialty and allied products? Any observations, I guess, you've seen over the past couple of quarters? Thanks.
Yeah. You know, just coming into the second quarter here, the trends don't seem to be too different. The SKUs we're moving are fairly traditional and what we normally sell, but really weather driven. It does seem like, you know, we have some good weather in certain regions. It's great. Other days where it's raining and cool in the spring, like the east coast of Canada where you are, Matthew, it hasn't been great. Sales are sluggish in those particular markets. Really the patterns on volumes of SKUs seem to be fairly traditional.
Great. Thanks for all the color. I'll pass it back.
Thanks.
Our next question is from Zachary Evershed with National Bank Financial. Your line is now live.
Good morning, everyone. Congrats on the quarter.
Thanks, Zach. Good morning.
Wondering if you're seeing any difference in communication from customers on either side of the border around their expectations for the rest of the year?
You know, everybody is fairly cautious just too. I think everyone's, you know, watching this, the Iran thing and, you know, nobody's, you know, that bullish. No one's terribly bearish. I couldn't find you a bull if my life depended on it. Everyone's just kind of in the fog here, hoping the smoke clears over in the Middle East. Having, you know, said that, not just us, but you see earnings, you know, are pretty healthy out there despite all this noise. I think some of that's baked in. Tough to find anyone getting too excited about the economy. You know, rates are kind of creeping up and not much there. Anything you wanna add, Darren?
No, I think that covers it. That's what I'm hearing as well.
Gotcha. Thanks. Where does that leave your thinking on the M&A playbook this year?
No difference there. Economy's up or down, whatever fuel is doing, you know, we're gonna continue on our M&A path and strategy. When those right transactions come over the plate, we're gonna hit them. The balance sheet's primed and ready for anything. You know, we're gonna be very selective, opportunistic, and, you know, buy things of value when it makes sense for us and grow the company and do things that are important for our customers. Nothing's changed there, Zach. It's, we haven't hit the pedal or hit the brakes, just looking for those opportunities to hit the sweet spot.
Beauty. If we think about the new fencing capacity coming online, when do you expect that to start contributing, and what will it do to your overall mix in terms of margin?
Yeah, you know, probably Q3, Q4 will be, you know, in good production there with the new mill. We've upgraded our Gilmer, Texas sawmill, which is, every day, you know, approaching our targets, which is excellent. We're gonna look at upgrading another three or four fence mills that we have in Arkansas and Texas. Stay tuned for those. I can't really give you a margin, increase number, but certainly bringing that manufacturing in-house and avoiding the risks and tariffs coming out of Brazil, where a lot of that material comes from now, is certainly gonna, you know, we hope, not only enhance margins perhaps a little bit, but also give us security of supply. That's what our customers are looking for in the U.S., is U.S.-made, nothing coming over the water that's got tariff risk and other challenges.
We like the strategy. I think you're gonna see us continue to build into that. Q3, Q4, you'll start to see some numbers appear.
Great. Okay, thanks. Just last one for me. With the new capacity ramping up, how are you looking at CapEx for Q2 and Q3, and what's your run rate OpEx with the new capacity online as well?
Yeah, well, I can't give you the exact number because these invoices and stuff come in chunks when we're doing things. That kind of first quarter spend was a little bit heavy because we bought some of that property. That's not traditional. As you know, you followed us for a while, Zach. That was to buy some properties as well, not just CapEx of mills or maintenance CapEx. We'll fall back into the traditional line here as we're in Q2, Q3. It'll lighten up.
For the run rate OpEx on the go forward?
There's not expected to be much change from what we've done historically there. It's pretty flat.
Thank you very much. I'll turn it over.
Thanks.
Our next question comes from Kasia Kopytek with TD Cowen. Your line is now live.
Hi. Good morning. Back to the fencing question. Amar, what percentage of your mix do you expect fencing to ultimately be once you get to your target build-out?
You know, I don't have a percentage, Kasia, you know, let us grow into it and see what happens. I can probably give you a better number in Q3 once we get into production there. You know, I think long, long term, if we can get to 15%-18%, which should be a big number, you know, we like to set big goals here at the company. That would be great in a couple years. A lot of that's gonna come through efficiencies in our current mills that are, you know, a little bit tired. This modern efficiency that we're seeing in Gilmer, Texas is very impressive. We're fine-tuning there and, you know, if things work out the way we think, I think we can achieve those numbers in a couple years. It's gonna be exciting.
Okay. Amar, for the fencing products, correct me if I'm wrong, those are not linked to random lengths, right? Those are on a negotiated list price?
Correct. You know, the trends, you know, the pricing of SYP does tend to move around, directionally, but no, there's no printed, you know, price that we're fixed on on those. They're negotiated.
Right. It'd be similar to, you know, some of the siding list prices that you guys would carry, similar in that sense, the, in terms of pricing dynamics.
Exactly.
Okay. Got it. Amar, can you give some context on the Q1 volume trends and maybe frame it against the adverse weather in the U.S. during the quarter as well as the difficult comp relative to some of the hurricane activity, order volume you guys saw supporting last year's results?
Yeah, hurricanes we haven't had now coming into the second year. Last year we really didn't have any to comp on. You know, I can't look back and blame anything on that, certainly. The volumes in the first quarter, again, when weather was good, we were tracking kind of identical to 2025. You know, we had some days and, you know, we sit here in May, we forget how bad things were. You know, the Carolinas were shut down for certain days. We couldn't ship. California had a ton of rain and, you know, unseasonable rain where there were days that sales were anemic. Having said all that, volumes were just off a couple of points in certain regions. In Canada, our whitewood volumes on OSB panels and lumber were up.
You're not gonna see that in our top line because pricing was down. We actually moved a lot of lumber and material at lower margin. You know, it's basically a fair war going on in Canada for lumber materials right now that are duty exempt, if you will, to stay home.
Got it. For Q1, down low single digits on unit volumes, is that a fair characterization and that carrying into April and May?
Yeah, April, May getting a little bit of a pickup again, as the weather clears. You know, like the weather in Toronto, Montreal, Chicago, like those kind of areas are starting to come to life. We're seeing decent volumes come back as soon as the weather turns on. The issue we have, Kasia, is that, you know, those days that, you know, back in April that were dark and bleak, they don't come back. Having said that, we're pleased with what we're seeing now. Hopefully Q2 will be a little bit of a catch up on some of those, you know, I guess numbers that were just a little bit off on volume, which kind of forecasted for this year with all that's going on.
Okay. Fair enough. Last one for me, back to the M&A deal pipeline. What are you finding to be the biggest obstacles or challenges to getting things over the line at the moment?
You know, it's just the usual stuff. You know, if the pricing is not where we want it to be, we're patient. We're not gonna overpay for industrial assets. It's gotta fit into a cost-saving mode that comes in when we acquire. It also has to fit with our customer needs. I don't think there's any you know, flashing light that's preventing us from doing M&A. It's just right ones at the right time. As you know, we're patient, disciplined. Sometimes we don't do anything for a year or two, then we do three in one year. That's what you're gonna see with us, but you're gonna see us do the right deals.
Okay. Thanks for the thoughts. Appreciate it. I'll turn it over.
Thank you.
Our next question is from Ian Gillies with Stifel.
Morning, everyone.
Morning, Ian.
Over the last number of years, the focus on investment in some of these high added products has been on the U.S. It seems like Canada may actually start to get a bit better here in the next couple of years. Has there been much thought process or have you started considering putting any additional CapEx into any of your Canadian-located facilities to try and take up some of the, I guess, gain from some of these benefits that may or may not show up?
You know, it's a good question. Up here, you know, in Canada, we're doing, you know, different things. We're not as manufacturing-heavy here. We're heavier to distribution, which, you know, doesn't require, you know, a lot of investment in technologies. We have upgraded our treating plants as far as our computer systems go there, so we're doing that. There's a couple left to go in the east. We are investing in that. You know, really, there isn't sort of a new shiny toy in the treated business that's gonna change the dials for us. We need more volume. We need Canadian housing to be healthier than it is. We need the economy to be better than it is here. I'm hoping that, you know, the new Carney regime is gonna deliver on some of the things they're talking about. Let's all hope.
Interest rates are in a good spot, we can't blame that. We're hoping more for the economy to drive better results in Canada. In the U.S., we have a lot of room for efficiencies that, you know, as you mentioned, we're describing, we're investing in, and we're gonna continue to do that over the next several years. That should hit our bottom line nicely.
Thanks very much. All my other questions have been asked. I'll turn it back over.
Thanks, Ian.
Our next question comes from Frederic Tremblay with Desjardins Capital Markets. Your line is now live.
Thank you. Good morning.
Good morning.
Wanted to just come back quickly on the fencing. Just on the growth ambitions you mentioned, I was curious to see if that growth you're envisioning is mainly with your existing customers or serving them across more locations, or does that imply gaining new customers as well?
Yeah, a combination. Certainly, the current customers, we would stop or replace imports, as mentioned, out of South America coming in. That's our number one goal is to be producing on the East Coast, so that will hopefully drive a lot of margin. That'll make sense in volume, I should say. We're looking at that and n umber two, organic growth through our current customers on the mainland U.S. as well. Texas, Arkansas, and North, shipping to some other points that take Southern Yellow Pine, and then driving those efficiencies.
If we can get them out of the mill, which we've seen in Gilmer, Texas, and we start to, you know, cross-pollinate those same efficiencies at other mills that we have, we should be able to extend our reach and more importantly, produce more, you know, for the markets that we're in and go a little bit further on freight. All to say we're gonna continue to focus on that and hopefully execute very well over the next two years.
Yeah, that'd be helpful. Has it been your experience with maybe other products that a Made in U.S.A. product is a meaningful contributor to market share gains? Is that something that you're envisioning for fencing gains as well? Just adding the product produced domestically would be helpful.
I mean, I think it'll add to our bottom line. It'll add additional margin. I think we wanna wait and see how things fall out till before we kind of give you more definitive answers, and you'll see those in our results, and you'll see those kind of starting later this year and into next year.
Okay. That's right. Thank you.
Thanks.
We have a follow-up question from Kasia Kopytek with TD Cowen. Your line is now live.
Hi, everyone. It's Kasia. I just wanted to circle back to operating leverage. You're managing costs down in a subdued environment. I'm just wondering if you're thinking about maintaining enough slack for an eventual upturn, just maintaining that balance between those two push and pull elements. If possible, if you could quantify how much basis points of slack that would represent in your EBITDA, current EBITDA margin or potential slack?
For fencing or for just.
No, sorry. This is for your overhead costs. Selling, distribution, and administrative expenses, you have some fixed costs in there, right?
Oh, yeah.
I am just curious how you're balancing, having to, you know, keep those relatively contained given the current market backdrop, but also giving yourself enough runway for once the market turns so that you're ready and then you're able to respond accordingly. Just curious how much operational slack you have right now built in there?
Yeah. Those costs are largely fixed. I would say kind of I'm a fresh set eyes here on the business. If we do see things moving up, like I'm gonna be kind of looking at things a little closer going forward. If there's kind of some margin points we gotta get back on inflation, I'm hoping to get those kind of back on efficiencies. Generally expecting those to be largely flat. You might see a little bit creepage with CPI, I'm hoping not to do that.
Okay. Thanks, Darren.
Thanks.
We have reached the end of the question and answer session. I'd now like to turn the call back over to Ali Mahdavi for closing comments.
Thank you. Once again, on behalf of the Doman team, we appreciate you joining us today. We look forward to reporting and speaking with you again on our Q2 2026 conference call. That concludes today's call. I'll turn it over back to the operator to close it.
Thank you. This does conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation.