Earnings Call: Q3 2018

Nov 13, 2018

Earnings release

Good afternoon. My name is Sheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Premium Brands Holdings Corporation Third Quarter twenty eighteen Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. On today's call, we have Mr. George Paliologou, CEO and President of Premium Brands and Mr. Will Kalutych, CFO of Premium Brands. Mr. Paliologou, you may begin your conference. Thank you, Cheryl, and good morning, everyone. I would like to welcome you to our twenty eighteen third quarter conference call. I will be turning the presentation over to our CFO, Will Kaludic, for an overview of our financial results for the quarter, after which I will make a few brief comments. This will then be followed by the Q and A segment of the presentation. Will? Thanks, George, and good morning, everyone. Before discussing our results for the quarter, I would like to caution you that to the extent we make forward looking statements during our presentation, our forecasts and assumptions are subject to change and actual results may vary. Please see our 2017 MD and A, which is filed on the SEDAR website, ww.sedar.com, for details on some of the factors that could cause our actual results to differ from our current expectations. Turning to our results. Our revenue for the quarter grew by $277,900,000 or 49.8% to a record $835,500,000 Acquisitions accounted for $238,700,000 of the increase, organic volume growth for 30,300,000 currency translation for $7,000,000 and price inflation for $1,900,000 Our organic volume growth rate for the quarter was 5.5%. However, after normalizing for lost sales resulting from temporary disruptions relating to a new direct material supplier, our growth rate was 6.3%. This is above our long term targeted range of 4% to 6%, but below our expectations for the quarter due mainly to delays in a variety of growth initiatives that George will be giving more details on later in the presentation. Our adjusted EBITDA for the quarter increased by $21,800,000 or 44% to $71,300,000 This was driven by a variety of factors, including acquisitions, organic sales growth and some commodities cost deflation. These were partially offset by increased spending on sales, distribution and administration infrastructure that is needed to support our continued organic growth as well as increased variable compensation accrual. Our adjusted EBITDA margin for the quarter was 8.5% as compared to 8.9% in the 2017. This decrease was primarily due to three factors. The first was recent acquisitions, which in aggregate generated a lower average margin relative to our legacy businesses. We do, however, expect these businesses to be future drivers of our margin expansion as various synergies and growth opportunities are realized. The second was the investments made by a number of our businesses in additional sales, distribution and administration infrastructure, as I mentioned earlier. The third factor was temporarily lower margins on a variety of new product and market expansion growth initiatives due to initial new product run production inefficiencies and introductory pricing promotion that was used to generate incremental consumer demand. In addition to being down on a year over year basis, our adjusted EBITDA margin was below our expectations for the quarter. The single most significant cause of this was lost contribution margin resulting from the delayed sales initiatives that George will be discussing. Secondary causes, which had a much more minor impact, were the transitory lower gross margins on several new growth initiatives and lower than projected cost deflation for certain raw material commodities. During the quarter, we incurred $1,400,000 in start up costs for two projects: the construction of a state of the art 105,000 square foot distribution and custom cutting facility in the Greater Toronto Area and the construction of a new 22,000 square foot culinary plant in Surrey, BC that will be capable of producing a wide variety of fresh salads, soups and sauces. Both of these projects will provide much needed additional production capacity. The GTA facility is expected to be in operation in the relatively near future, while the culinary facility is projected to commence production in the 2019. Our adjusted earnings per share for the quarter was a third quarter record of $0.95 This was up by $0.17 per share or almost 22% on a year over year basis. On a year to date basis, our adjusted earnings per share increased by $0.43 or 19.1% to $2.68 as compared to $2.25 for the 2017. Looking forward, we have decreased our revenue and adjusted EBITDA guidance for 2019 based primarily on the factors that impact our third quarter performance, partially offset by the acquisition of Ready Seafood in September. We are now projecting revenues of between $3,000,000,000 and $3,060,000,000 and adjusted EBITDA of between $255,000,000 and $265,000,000 The adjustment in our expected revenue range was relatively minor due to the Ready Ready Seafood acquisition offsetting the impact of delayed sales initiatives. The adjustment to our EBITDA was, however, more significant due to the contribution margins associated with our delayed organic sales initiatives being much higher than Ready Seafood's adjusted EBITDA margin. In terms of our financial position, we continue to maintain a solid balance sheet and very strong liquidity. Our senior debt to adjusted EBITDA ratio was 2.4:one at the end of the quarter, which was below our term targeted range of 2.5:one to 3.0:one, while our total debt to adjusted EBITDA ratio was 3.7:one, which was below our long term targeted range of 4.0:one to 4.5:one. Turning to our investment activities. During the quarter, we invested $254,000,000 in the acquisitions of Ready Seafood, Yorkshire Valley Farms and Select Foods, bringing our total invested capital this year in new businesses to approximately $740,000,000 We also invested $11,700,000 in project capital expenditures, the most significant of which were the new GTA facility and the culinary facility I mentioned earlier. Turning to dividends. During the quarter, we declared a dividend of $16,000,000 or $0.04 $75 per share, which on an annualized basis works out to $1.9 per share. Our free cash flow for the trailing four quarters was a record $153,900,000 as compared to dividends of $59,500,000 resulting in a payout ratio of 38.7%. Our free cash flow per share for the 2018 also set a record at $3.87 This is up $0.54 per share or 15.8% as compared to $3.41 per share for the 2017. I will now turn the presentation back to George. Will. You said guidance for 2019, you meant $218,000,000 Sorry, was it $2.18 Yes. Thanks, Will. Overall, we feel very good about our performance and the progress we're making towards becoming North America's leading specialty food company. We are especially pleased with our progress in The U. S. And the growth opportunities that we're seeing in all our four platforms there, namely sandwiches, meat snacks and deli, cooked proteins and seafood. Customers love our products, our approach to doing business and our passion for innovation, combined with our proven ability to produce artisan authentic and on trend food products of scale. We're seeing an unprecedented amount of growth opportunities in The U. In all our platforms, and we're growing there aggressively both organically and by acquisition. However, this growth is occurring in an especially robust economy, featuring both full employment and inflationary pressures. Managing this type of growth in the current supercharged economic environment in The U. S. Is not easy as we must balance the upside of the growth opportunities we see with its long term impact on margins in our overall business there. Our objective in this environment is to deliver deliberate and control growth rather than growth at all costs. During the quarter, we felt these stresses in our operations, our plants and in our supply chain, and we reacted accordingly. Despite the fact that it is not in our DNA to pass or delay business growth opportunities, We're doing this more often these days as we try to find more permanent solutions in terms of capacities, skilled labor and automation and freight and logistics. We're very pleased that the NAFTA noise appears to have abated, and we're now expanding and ramping up our Canadian capacity to take advantage of opportunities both in Canada and The U. S. From meat sticks to cooked proteins to seafood to specialty bakery, we're pursuing new opportunities leveraging our U. S.-based best in class platforms. Our results clearly demonstrate how we are continuing to generate significant growth by providing consumers with the high quality food solutions that they're looking for. We have worked hard to be at the forefront of the major food trends as we continue to disrupt the traditional food industry. In line with Will's guidance, we remain on track to deliver another record year of top and bottom line growth in 2018 despite some of the challenges mentioned earlier. 2018 would be the fifteenth year in a row that we deliver record year over year results. We have an impeccable track record in executing our various strategies in Canada and creating long term shareholder value. We're now at the beginning stages of executing the same strategies in The U. S. We have four strong platforms there with best in class management teams, great facilities and iconic brands. The opportunity in this market to grow are many and are sizable. Given the size and amount of the opportunities we see in The U. S, we're confident in stating that we will continue to deliver record earnings, cash flow and growth for many years to come. Our success in Canada did not happen overnight, and it was not easy as it too came with its own bumps on the road. But our conviction to the strength of our business model and our vision that the future belongs to companies producing high quality foods, authentic local brands run by passionate entrepreneurs that think long term has never wavered. Looking forward, I'm pleased to report that we continue to enjoy an especially robust pipeline of acquisition opportunities and fully expect to add to our portfolio of specialty food companies in the future. I will now turn the presentation over to Cheryl for the Q and A part of our presentation. Cheryl? Thank you. Our first question comes from Derek Lessard, TD Securities. Please go ahead. Your line is open. Yes. Good afternoon, everybody. Just wondering if you could touch on your 2019 guidance and more specifically on the on what's implied for EBITDA margins. In 2017, I guess margins were roughly 8.7%. And in 2018, they're now expected to come in roughly at the same level or down if you're looking at the midpoint and just up a little bit in 2019. So just wondering if you could help connect the dots on how you think of the margin evolution for the rest of 2018 and 2019? Yes. So Derek. Originally, our objective for this year was sort of closer to the nine percent, 9.5% range. A lot of that was being driven by new sales growth. Because of the delay in the sales growth, it sort of bumped our plans off roughly a year. So where we wanted to be this year, we're going to be in that range next year, and this year sort of put us back to levels similar to last year's. Again, I can't stress enough how it's the increased volume and the higher contribution margins to our overall margins resulting from that volume that's driving our growth. So it's interesting when you look at the expectations around this quarter in the market relative to our actual performance, our sales were in line with expectations. But in fact, internally, we were off our expectations by close to $40,000,000 and that was the revenue that was expected to generate that bump in our EBITDA margin. So now with those initiatives being pushed out into 2019, we expect to see that expansion starting in 2019. Okay. That's fair. And I guess the other question I have is at what point during the quarter did you guys decide to delay those sales initiatives? And I guess what did you see at the time that led to that decision? Again, as I mentioned in my prepared remarks, Derek, we've had some challenges in the supply chain. I think some of the details are given to you. And our fill rates suffered a little bit. And basically, we made some decisions on specific initiatives throughout the quarter. I mean, wasn't one decision at the beginning or in the middle. We basically pulled back on the basis of the challenges that we were seeing with respect to labor shortages and supply chain issues. Okay. And I guess, did any of that tie into winning of new contracts down the road or in new channels? Absolutely. Absolutely. Again, we've made excellent progress in terms of identifying, pursuing and finding opportunities, mainly in the C store channel where a lot of our businesses are underdeveloped. Made some good inroads there. And we're very excited when we launch these listings in products in thousands of stores in The U. S. But if we're going to do it, we need to do it right. And based on some of the challenges, we decided to delay. Our next question comes from George Doumet from Scotiabank. We saw some wage and other inflationary pressures as early as Q4 'seventeen. So I'm just wondering what you guys have done there to mitigate that to date. And also wondering if our 2019 guidance assumes labor pressures persists and perhaps even intensify going forward? Yes. So yes, again, similar to the second quarter, George, freight and labor inflation was, across all of our businesses, less than $1,000,000 impact. And that was in line with our expectations for the quarter. And we continue to expect continuing increases, and that's built into our 2019 expectations. Our businesses are dealing with it in a variety of different ways, everything from being more creative in terms of the benefits they offer their employees to consolidated buying on freight, all sorts of initiatives in place to to counter counter those trends. But the big issue and what's been impacting us more than the actual inflation has just been the availability like George talked about. So it's actual it's been able to actual getting the bodies, not so much as the cost of the bodies that's been impacting the sales initiatives. Okay. You guys mentioned also lower than expected deflation in the cost certain raw materials is the reason for the reduction in the guidance. Can you maybe elaborate on that a little bit? Yes. And that wasn't a big part of it. It was much smaller factor. Big part was the sales variance. But yes, we had expected pork prices to come down a little bit more than they did. They did come off a bit. But the bigger surprise was the beef market. And particularly for our Centennial and C and C businesses, we had expected a fair bit of price deflation in beef in the towards the end of the third quarter and into the fourth quarter. And it's the supply we expected to come on to the market came on to the market, but there was a surprising even more surprising amount of demand out there, both in The U. S. And China. So it resulted in a fairly stable market. Okay. Just one last one, if I may. Looking at your overall guidance that you guys provided for revenues for next year, what would be the implicit assumption for growth in the sandwich platform? Well, we don't break out the specific platforms. But overall, our specialty foods platform, it's close to 10% is the organic growth component. And in terms of our premium food distribution segment, it's high single digits. Again, organic growth. Our next question comes from Sabahat Khan from RBC Capital Markets. Thanks and good afternoon. As we look into 2019, you do have a number of acquisitions that are rolling into numbers through at least the first half of the year. Guess how should we think about, even by half, the cadence of just growth over the next year? Will it be similar to 2018 at all? Any color you can provide there. Are you talking in terms of acquisitions, Saba, or organic? Well, I guess, total top line and organic, just how is the organic going to trend? You said you have large programs rolling out next year. The acquisition stuff, we could just build on top. Yes, yes. So our 2019 guidance does not include any new acquisitions. It's just an annualization of ones completed this year. That is by far the biggest driver of the growth next year is a full year of those acquisitions. And then like I mentioned on the with George, organically wise, we're looking at about 10% growth, close to 10% growth from our Specialty Foods segment and high single digits from our Premium Food Distribution segment. Okay. And then if you look at the trends you've seen over the recent quarters in terms of top line, is there any major variance across Canada versus The U. S? Say that again, Sama? Is there any variance in top line trends across US versus Canada for the last two recent quarters? We're seeing tremendous growth opportunities in both markets on the organic side. Certainly, going forward, The U. S. Is going to be much more of a driver. As George mentioned earlier, we've got some very significant initiatives in The U. S. On the Specialty Foods side. So when we break down those two organic growth rates, the one for Specialty Foods and one for Premium Food Distribution, Premium Food Distribution is being driven probably about fifty-fifty with Canada being a strong driver because of the GTA facility and then The U. S. Being a strong driver with a lot of exciting stuff happening with our Ready Seafoods business. When we look at the Specialty Foods segment, Canada is probably more in line with our long term targets, that four to 6% range, and the big driver is The U. S. I think we've disclosed some of the growth we're getting in The U. S, Abbott, and there's no question that The U. S. Is growing faster than in Canada, although Canada is growing nicely as well. All right. And then one last one for me. As you talk about rolling out new programs next year for your sandwiches business or in your specialty foods business in general, is there should we expect some sort of a ramp up or some inefficiencies in the early quarters? Or should we just expect that as long as the operating facility or the manufacturing facility for the sandwiches business is already ramped up, the margins should be fine? Just trying to understand if the actual programs if there's a cadence to margins there. Yes. And there is a little bit of impact there, Saba. And that was certainly there was a little bit of that impact in Q3, but it's a small factor relative to the key being the contribution margin from the incremental sales. Okay. And then in terms of your commodity cost assumption for 2019, is there any major variances that are baked into this guidance or any key assumptions? No. It's based on a stable commodities market, which is, for most of the commodities at this point is our outlook. All right. Thank you. Thank you. Our next question comes from Stephen MacLeod, BMO Capital Markets. Please go ahead. Your line is open. Just want to just try to drill down a little bit on the I think it was roughly $40,000,000 of delayed sales in the quarter. Can you just give a little bit of color around what these programs are? Like what segment you see them in and sort of specifically what subsegment? And then secondly, what's your level of confidence or visibility into getting those sales back as you talk about them sort of rolling in, in the 2019? Yes. So first of all, Stephen, we didn't lose those sales, we delayed them. I just want to emphasize that. Secondly, in terms of channels, the two major channels that we are talking about would be the club channel. Again, we have some major sandwich initiatives to be launched into the club channel in The U. S. And also the C store channel C store channels in The U. S, mainly with the two largest C store operators in The U. S. And is the C store also sandwiches? No. It's it's a I would say more meat snack type of opportunities and some sandwiches, but it it it would be both. Okay. Yeah. And and to be sort of more specific on that 40,000,000, Steve, roughly half of that was our sandwich initiatives, which George has referred to. Again, traditionally, our meat snack business, mainly Alberto in The U. S, was not focusing very much in the C store channel. They were more like a retail club type of brand. And we have major initiatives to expand them into the C store channel in The U. S, again, as I mentioned earlier. And also some of the meat snacks made by Espresco in Montreal, namely the Pro Stick is being launched across The U. S. In the New Year. So those are major initiatives with the two major C store chains in The U. S. Okay. And is it fair to say that those delayed sales are relatively predictable when you think about the first half of the year in terms of I know you emphasized them being delayed, but I just want to make sure I'm understanding the level of confidence you have in those sales actually coming to fruition. We have a very, very high level confidence in terms of those initiatives materializing in the near future. Okay. And then just so I just want to clarify, just so I'm clear on it. When you talk about the delayed sales, is it fair to say is fair to interpret that the reality behind that was that you just didn't have or you had trouble having people in place in manufacturing and the supply chain? Again, I can't emphasize enough the as Will mentioned, the issue of labor and shortages of labor. This is not an issue about paying higher wages or higher rates. It's just that the situation with labor in The U. S. Is very, very tight. In our thirty five years in the food business, I don't think any of us has seen it the way it is. And basically, we have to make adjustments and try to figure out other ways to meet the demand. And obviously, as I mentioned, we are expanding our Canadian capacity. We don't have these type of challenges in Canada. We do have the benefit of having Canadian capacity unlike others in The U. S. That are, again, very tight with labor issues and don't have this option. So we're expanding or in the process of expanding our Canadian capacity to service The U. S. Market and the growth opportunities we see in that market. We're also partnering with suppliers in Europe to produce for us for the Canadian market, so we can free up more capacity for The U. S. And also, of course, investing in automation as we spoke before. Those are sort of the three initiatives we have in place to deal with some of the labor shortages, specifically in The U. S. Market. Okay. That's helpful. And then just wanted to circle back as well. Will, you mentioned the overall organic growth in Specialty Foods versus PFD. When you talk about those numbers, is that volume? Or is that expected revenues? I'm trying to get a sense as to the breakdown between volume and if there's any price in there as well. That's primarily volume. We've assumed a relatively stable pricing environment for next year. Okay. Okay, that's great. And then just one last one, if I may. Is it I guess just around the issues that you saw in the quarter and the revised guidance, is any of it a symptom of growing too fast or doing a large number of acquisitions over a short period of time? No, I wouldn't say that at all. I think it's more about trying to adjust to circumstances, mainly in The U. S. That we we never modeled. You know, we we never modeled the situation where there would be no labor. You know, I was starting to an economist recently who said to me that there is 7,000,000 to $10 vacancies in The U. S. Today. I mean that's not an environment that we've modeled. So again, we are in a very good position of finding excellent growth opportunities in The U. S. We have four excellent platforms with good management teams. We have great innovation pipelines in place and again, lots of opportunities. But labor is an issue. We'll deal with it. And because of the labor issues, we're moderating a little bit how aggressive we are. Yes. Okay. Okay, that's great. Thank you. Thank you. Our next question comes from David Newman, Desjardins. Please go ahead. Your line is open. Good afternoon, gentlemen. Hey, David. Hey, David. Just in terms of your footprint of Canadian, you're talking about European in sourcing or, I guess, outsourcing and The U. S. Do you think you, with the teething issues you've had with respect to labor that you have enough of the footprint? If you looked at your overlaid and onion skin over the plants and and the people and you optimize that that you have enough capacity to deal with the challenges and and take advantage of the opportunities? Yes. Capacity is not an issue for us in The U. S, especially with respect to sandwiches and meat snacks. So some of the acquisitions we've made, some of the organic initiatives we've executed there, plus in terms of Oberto's and the acquisition of Oberto's, we've got plenty of capacity in The U. S. Market. So that is not an issue. That's part of the reason why we were so excited with the opportunities that we see in terms of growing in that market. So it's more of a labor issue, David, than anything else. Yes. That's more what I'm referring to, the labor issue. And when you realign production, do you think you have enough of the, I guess, production function to be able to meet everything? And when you realign production, does it imply that the freight cost might increase to a certain degree? I think that as Will mentioned in his remarks, I mean, is a lot of our business is FOB or plants. So we're not exposed to freight inflation as much as some other companies, David. Again, it is an issue, you know, to the extent that our products are specialty products and generally sell on quality rather than on price. We do have the ability to pass those costs on. So not as much of an issue for us, I would say. Okay. And, George, I know you you have some major initiatives underway of retail, c store, QSR, etcetera. And I I would assume that the the channel is wide open with your customers that they have an understanding of, you know, some of the challenges that are that's endemic to the industry and and that this is something that they'll be worked through and they're they're completely supportive of your initiatives? 100%, David. And I I just have to say that I speak to a lot of companies in the food space, of course. And, again, this is not unique to us in any way. Yeah. Yeah. It's this is this is the circumstances that the industry finds itself in. I think it will work itself out. But having said that, as I mentioned earlier, a lot of our supply chain is having similar issues. It's important. I mean, ultimately, we produce product or we assemble product, but we rely on a need, a robust supply chain as well to keep up, right? So they're having their own issues as well. Okay. And last one for me, George, and, Will, is just on QSR opportunities. And we we know I think you talked about retail and c store. I would assume that you're you're still you've got a lot of programs in the QSR channel. Anything that you can highlight to us at all? No. Just that we have plenty of capacity. We have the benefit of capacity. In the press release, we mentioned that our U. S. Business grew by 20%. Again, with the challenges, we grew organically by 20%, 100% including acquisitions. Part of that was new opportunities in the QSR channel and in other channels. Again, very good progress there. Excellent. Thanks, guys. Appreciate it. Thank you, David. Thank you. Our next question comes from Leon Agazarian, National Bank Finance. Please go ahead. Your line is open. Hi, guys. Good afternoon. Just one kind of follow-up quickly on these kind of delayed delayed revenue, delayed sales. Will, I think you mentioned you were mentioning new sales growth. That's kind of what you're expecting in terms of getting the margin expansion. So I guess my question is, if you had assumed the $40,000,000 in revenue kind of materializing as per your budget, what kind of would you have seen in terms of your margin for the quarter? Well, our contribution margins on this business is anywhere from 20% to 25% plus. So like I say, that in terms of the expectations of the market relative to our performance, that alone is the single biggest factor. Okay. Helps. You also mentioned kind of part of the reason for lower margins was more promotional activity. So is that because of new products that you're trying to push out there? Just kind of want to see the reception of some of this promotional activity. It's pretty much the first time I hear you guys mentioned that in calls before. Yes. And the promotional activity was more in the sense of feature pricing, promotional pricing on new products. So some of the growth in the quarter was driven by some of these new initiatives being launched. And on those, we're a little more aggressive on the pricing just to generate more consumer interest. So but again, it was a factor, but a relatively small factor in the I think, Leon, it's important to mention that from our point of view, these were investments in terms of future growth in that market. We've demonstrated, we grew by about 20% in The U. S. And we are in the process of launching a number of new products in that market. We're really excited by that. And we are investing effectively in ensuring the success of those launchings. Okay. Fair enough. And then one last question for me would just be on the operations side as well. I mean, you mentioned capacity is obviously not a problem. It's more on the labor side, so that's pretty clear. I'm just wondering in terms of any project CapEx you may have for 2019. I mean, you mentioned the Toronto one, obviously, the one in Surrey, but those are pretty much almost ready. Wondering if there's any other major ones for 2019? And what can we expect for CapEx in terms of, yes, basically 2019 spend? We're looking at some projects at this point, Leon. But the only other major project that we have in the pipeline that's approved and proceeding is the Ready Foods, seafood expansion. They're building a new processing facility in Maine. The investment in that is around 6,000,000 to 7,000,000, I believe, on our side that the building itself will be a leased facility. Outside of that, there's nothing else definitive at this point. And then your maintenance CapEx would be similar to what we saw this year, which is a 15,000,000 to $20,000,000 range? Yes. Our next question comes from John Zambaro, CIBC. I wanted to dive a bit deeper on that discounted introductory pricing. Can you give a bit more color on what regions are or what these products are? And is this typically something you've done in the past? Or is this a new strategy for you? I think that if we had not pulled back on some of the larger initiatives during the quarter, this would not have been as much of a factor. As I said earlier, we're really working hard to grow into the C store channel and the club store channel. So basically, in the end, it is what it is. We've managed through some severe labor issues, which meant that we've, let's say, overinvested given the volume that we got out of these initiatives. But again, when you think about those costs long term, we're very comfortable that they're investments in the future and again, obviously, of our growth strategy going forward. Okay. And just a follow-up on the delay of the launch of certain products. You mentioned the status of your supply chain. Can you add some commentary here? Is this different from the other reasons you're referring to, mainly The U. S. Labor market? Is there anything else at play here? Not at all. In general terms, what you've got is you've got all kinds of suppliers that we rely on, and we've relied on to support our growth having similar challenges to us. And basically, we're trying to work with them in some cases to help them justify investments in automation or find other suppliers to support the growth. Again, as you if you grow as we are, you need the entire supply chain to be robust and labor in our segment anyway is very challenging these days. And John, just to add to that, if your question was with respect to that specific issue we identified in the MD and A, the $5,000,000 in shorted product, that was a specific supplier related issue. We've worked with that supplier now. It's close to being resolved. It has carried over a bit into Q4. But it was a new supplier, and it was sort of the traditional kind of just start up of dealing with a new supplier. Okay, understood. Just taking it back a step, I would say we've seen a challenging environment for retailers to pass on price increases to consumers. How would you guys characterize the pricing environment right now? And what would you say about the sentiment of consumers at the moment? I would say, John, that the biggest issue we have collectively as a business is keeping up with demand. When we get together with our different management groups, we don't talk about generating demand. We talk about how do we meet demand based on some of the challenges that we've mentioned before. Consumers love our products. They respond to our products. They buy our products. Our products are not sold on price. They're sold on their attributes. And again, pricing is not an issue for us. It's never been an issue. Again, is a very, very significant point of difference for premium brands relative to of the other players in the industry. Okay. And last one for me. On the M and A environment, is it fair to say that the opportunities you're seeing are coming with higher multiples maybe than you've seen in the past two to three years on an EBITDA basis? Again, it depends on the size, John, of those opportunities. I think some of the larger opportunities, I would say, there's more competition for them. From our perspective, I don't see us doing anything large in the in the near future. We're very pleased with the four platforms we have in The US today. We deliberately, pursued those platforms. We've got great partners, great management teams. We're looking at acquisitions that are tuck in, I would say, or bolt on acquisitions to those platforms, and we're going to grow those platforms. That's sort of our perspective at this point. Thank you. Our next question comes from Alex Diacon from Canaccord Genuity. Please go ahead. Your line is open. Yeah. Hi, guys. Thanks for taking my question. I just really have one quick one here. And kind of it's already talked about the last point, but just given the highly inflationary environment, did you maybe pass through any more pricing or take in more pricing this year than you may have in previous years? Actually, it's been a fairly stable environment. And you saw in our third quarter results, there was only about $1,900,000 in inflationary impact. Certainly, the more inflationary impact in our business has actually been the Canadian dollar and its weakness, which was $7,000,000 the impact in Q3. So overall, it's been a relatively stable environment. Okay. Okay, cool. I think maybe one more, if I could. But I know you mentioned the CapEx guidance. I'm just kind of curious, do you expect to invest in more capacity expansion initiatives looking out to 2019 than you have kind of 2018 so far and maybe back into 2017? Or is it it could be a little bit lower next year than what we've seen? Again, there's several projects in the works right now. The timing of those and some of them are larger than others. So the timing is going to be the key factor of how much it hits 2018 or sorry, 2019 versus 2020. And at this point, we just don't have enough clarity to give specific guidance. Okay. Okay. That's fair. Thank you very much. I appreciate that. Our next question comes from Dmitry Kaliminski from Veritas. How much spare capacity, either in dollars or in units, do you have across the sandwich platform companywide? We have two facilities currently, both acquired recently, that are operating at about, I would say, slightly below 50%. And then the larger Phoenix facility, I would say, is operating around probably around 60% capacity. So there are plenty of capacity in the sandwich system. I see. Okay. And can you be maybe a little bit more specific about the C store opportunity? So you are trying to partner with Couche Starde and seven Eleven, it seems like it. Would you be able to quantify the realistic revenue opportunity within this subchannel? Again, think that most C store operators these days are trying to upgrade their food offerings, and it is very, very natural that they would be speaking to companies like us that are producing premium quality products. So again, no surprises there. I think that opportunities for us with respect to products would be, as you would expect, obviously, sandwiches and meat snacks and cooked protein type of items as consumers are leaning more towards protein these days rather than sugar snacks. Obviously, we produce a lot of those and we make a lot of those. And we do very well in Canada with those and growing in The U. S. As well. In terms of dollars, I think our modeling is projecting modest growth in that channel, but the opportunities are massive. If our products catch on, and I believe they will in The U. S, it would be well over $100,000,000 But this would not be for next year. This would be for the future. Mhmm. Well over a $100,000,000 per year for the entire C Store initiative that included includes sandwiches and meat snacks? Yes. Yes. I see. But less than 100,000,000 for 02/2019? Yes. I see. Okay. Are you trying to partner are you looking to partner with smaller chains? There is the large chains controlling the in relatively small portion of the C store market in The U. S, how do you think about the smaller chains and if it even makes sense to expand there? Again, Demetrius, we mentioned earlier, we're mainly focusing on the larger chains right now mainly because of the challenges we're having with labor availability. Again, there's no point for us to pursue business that ultimately we're not going to prioritize and not be able to execute on. So right now, we're just focusing on the bigger opportunities. I see. I see. And can you provide some details in terms of your customer concentration in 2019, including the pro form a for 2018 deals in respect of your core customer? Is your is it consistent with 2017? Or is that share declined? And by how much? Well, think to the extent that the we made a number of acquisitions and also have grown organically, you can assume that percentage in terms of our overall revenues will come down. But is it significantly lower than last year for the core customers' potential total sales? Or is it are we talking one or two percentage points? It will be significantly lower, Dmitry. And our next question comes from Stephen MacLeod, BMO Capital Markets. I just had a quick follow-up question. Obviously, lots of talk around the labor market impacting the quarter and, I guess, for the outlook as well. I'm just curious, when you look to 2019, what are you assuming in terms of labor potentially constricting growth in 2019? I mean, I guess, it doesn't seem like a transient issue. It seems more like a structural issue. I'm just curious how you're approaching that as you head into the next year. Well, I think you have to remember that and again, maybe people forget that easily is that during this quarter, also went through the NAFTA negotiation process. And we were a little bit nervous with some of our businesses manufacturing in Canada and crossing the border and sort of the long term implications of that business in terms of fill rates and service to our customers. So we're thankfully, we're through that. And we were a little bit shy, I would say, in terms of relying on Canadian capacity to service The U. S. Market. Hopefully, that's behind us now. I did sort of comment on our three initiatives in place today to deal with some of the structural issues with respect to labor. Okay. That's great. Thank you, George. Thank you. And this concludes our question and answer session. I will now turn the call back to Mr. Peliologo and Mr. Kalutych for closing remarks. Yes. I'd just like to say that the fact is that we've never been more excited about our future and our growth prospects. As you know, we manage for the long term and we'll continue to manage for the long term. And we're confident that we'll emerge stronger from some of these challenges. So I'd like to thank everybody for attending today. Thank you very much. Thank you very much, ladies and gentlemen, for your involvement in today's conference. You may now disconnect.