Good morning. My name is Angeline. I will be your conference operator today. At this time, I would like to welcome everyone to the Decisive Dividend Q1 2026 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. We remind you that today's remarks may include forward-looking statements and non-IFRS financial measures that are subject to important risks and uncertainties. For more information of these risks and uncertainties, please see the applicable sections of the Decisive Dividend's news release and MD&A, which are on their website and are filed on SEDAR.
I would like to turn the conference over to Jeff Schellenberg, Chief Executive Officer, Rick Torriero, Chief Financial Officer, and Chris Goodchild, Chief Operating Officer. Please go ahead.
Thank you, operator. Hello, and good morning, everyone. This is Jeff Schellenberg. I want to welcome everyone to our Q1 2026 earnings conference call. The Q1 of 2026 was another testament to the resilience of Decisive portfolio of manufacturing businesses in the face of ongoing trade and economic volatility. The benefits of diversification in our portfolio of businesses were demonstrated in Q1 2026 as strength in agriculture and wear parts businesses helped buffer the impact of the decline in demand from certain commercial vehicle and oil and gas customers, as well as the seasonality for the company's hearth businesses.
Relative to Q1 2025, Q1 2026 sales of CAD 37.9 million were 3% lower despite the commercial vehicle and oil and gas customer specific declines that we have discussed in the last couple of quarters and lower year-over-year wastewater evaporator sales that resulted in a 26% decline in industrial product sales between these two quarters. Having other businesses mitigate the impact of these declines the way they have reinforces the benefits of the diversified nature of the portfolio of businesses we own and the differentiated products these businesses produce, even though business activities does not always progress in a straight line. I'll quickly walk through how each business vertical performed in the quarter relative to Q1 2025.
The agricultural businesses, Slimline's orchard and vineyard sprayer product and IHT, generated a 17% increase in sales relative to Q1 2025 based on the continued strong order activity at IHT as well as increases in sprayer sales for Slimline. Our group of wear parts businesses, namely Unicast, Procore, and Techbelt, performed extremely well and achieved a 49% increase in wear part sales over Q1 2025, driven by continued strong belting demand and a significant increase in sales of Unicast cast steel wear parts and valves. The hearth businesses, Blaze King and ACR, realized a 9% decrease in sales compared to Q1 2025. The decrease appears to be timing related based on relatively lower inventory levels at the end of March 2026 compared to March 2025.
Current backlogs are well ahead relative to this time in 2025, and interest in the newly launched products in this segment are encouraging, which should bode well as the hearth businesses approach heating season later in the year. Similarly, the 8% decrease in merchandising sales versus Q1 2025 also appears to be temporary given to date quoting and order activity in the vertical. Lastly, as mentioned earlier, the industrial products businesses, which includes Northside, Hawk, Capital I, and Slimline's evaporators, continue to be impacted by demand declines from certain commercial vehicle and oil and gas customers that began in the H2 of 2025. Although that impact has been less than originally expected, as well as lower wastewater evaporator sales relative to Q1 2025.
The overall decrease in sales resulted in a 7% decrease in Adjusted EBITDA compared to Q1 2025 and a 3% decline in Free Cash Flow less maintenance CapEx, which is our key metric in measuring our dividend payout ratio. However, our trailing 12-month dividend payout ratio of 80% remains consistent with our 2025 payout ratio of 79% and improved relative to the 82% reported in Q1 2025. This performance continues to illustrate the sustainability of the current dividend level. Our trailing 12-month EBITDA performance, combined with the L6 private placement we completed in early April, has our pro forma leverage ratio at 2.4 times and leaves us with well over CAD 40 million of availability under our credit facility to fund both organic growth opportunities and support our M&A program, which I will turn to next.
In terms of acquisitions, with the continued progression of M&A opportunities within our pipeline, we expect to complete an on-strategy acquisition in the near term funded by the increased available capacity under our credit facility supported by the recent capital raise. Our strategy remains unchanged from what I discussed in March and continues to emphasize acquisitions within our existing verticals. The verticals we are most immediately focused on investing further in are the verticals where we've had the most success, namely hearth and wear parts. Verticals where we feel there is strong industry economic backdrop and policy support, namely energy, critical infrastructure, and mineral development.
Verticals where we feel we are best positioned to support acquisition integration and post-transaction success, which is merchandising and industrial. This approach will allow us to step into best practice deployment more rapidly, supporting operational efficiency improvements while investing in sales organizations that can support the methodical growth of the businesses we acquire. Investing in areas that reduce our exposure to potential tariff and trade headwinds in North America is part of our near-term focus as well. A number of the opportunities currently in front of us are of increased size relative to the deals completed in recent years, which drives more material accretion to our critical Free Cash Flow less maintenance CapEx metric, which we use to calculate our dividend payout ratio, and therefore is a key determinant of our ability to grow our dividend.
I want to emphasize again how M&A can support dividend increases in my comments here. Given that we buy businesses at 3.5 - 5.5 times average historical EBITDA, trade at around 9 times forward EBITDA and have a CAD 175 million credit facility that has a 5.1% coupon rate on it, adding earnings through M&A is highly accretive to our free cash flow less maintenance CapEx metrics per share, which will support a return to our targeted payout ratio, which opens the door to future dividend increases. In terms of our outlook for the remainder of 2026, we expect to benefit from the investments we have made in new products, sales capabilities, facility capacity and productivity over the last number of quarters.
Higher energy prices and uncertainty tend to drive strength in our hearth businesses, which provide us a source of alternative, low-cost, secure energy and where we have new products poised to more meaningfully penetrate the market. Strong metal and mineral pricing and investment in critical infrastructure supports activity in our wear parts and industrial businesses. We are encouraged by the quoting and order activity within our agriculture and merchandising businesses. Q2 is off to a good start with overall sales and orders in April 2026 ahead of April 2025.
While we are facing some ongoing uncertainty, especially in the near term, including the potential CUSMA renegotiation and global upheaval in different regions, and continue to see specific challenges in a few of our subsidiaries, we have a track record of being able to respond to challenges in a way that improves business performance in the long term and are building more case studies as we speak. We also continue to anticipate a meaningful increase in acquisition and activity in 2026, as discussed earlier, as our buy, build and hold model continues to resonate with existing legacy-minded business owners who value our long-term approach.
This anticipated acquisition activity, combined with the resilience of the current portfolio, is expected to drive improvement in our results and per share financial metrics that we believe will help support a return to our target payout ratio levels and allow us to pursue dividend growth. Driving long-term improvement in our per share financial metrics is a core priority that we believe will reward shareholders over the long- term through the capacity it will create to support a growing and sustainable dividends, as well as value enhancement through share price appreciation. With that, I will now open up the call for questions.
Thank you. In a moment, we will open the call to questions. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll the questions. The first question comes from Russell Stanley with Beacon Securities. Please go ahead.
Good morning and thanks for the question. Just for some of the on the hearth business and the weakness there associated with timing, to clarify the push that you saw and the indicators you have that you're going to pick that up in Q2, was the underlying driver related to the timing of the product launches? If not, what was, I guess the cause of the push that you saw? Thanks.
Yeah. As Jeff mentioned, the push there in Q1 wasn't a timing on the launch of products relative to what we talked about last quarter. There is still a delay in the U.S. with respect to receiving EPA certification just with the slowdown in that agency. We are well into the queue and expect to have that product launched here in before heating season. Really what the decline was, and it's temporary, was just available inventory at the end of the, end of the quarter that was fulfilled here in April.
You know, another element of, you know, timing that drives our comments around, you know, moving into Q2 and it being a timing issue is with respect to some of the success they've had in their early buy program, especially in Canada, where order levels are up pretty significantly in that business. You know, anticipation around as we move to heating season, if energy prices remain elevated and uncertainty persists, you know, that has historically had a very high level of correlation to increased activity levels in that business. That, you know, all those factors combined drive some of our commentary around that segment, Russell.
Thanks. That's helpful color. Maybe just for the broader, the component manufacturing business, if you look, you know, quarter over quarter revenue down a little. I think gross margin's steady, but Adjusted EBITDA margins ticked up a bit from 23%-26% for the, for the segment. I'm just wondering, is that related to cost control efforts? Perhaps specifically at Hawk and Northside, or are there some other drivers there? Perhaps Q4 had some kind of year-end true-ups. Any color on the driver behind that segment, EBITDA margin improvement would be helpful. Thanks.
For sure, Russ. There'd be definitely cost control measures there at Hawk and some of the reorganization activities that have been undertaken there. The other impact would be product mix. Unicast drove a large portion of the sales increase and they had higher margins than the other businesses. Especially year-over-year, that's a big reason for the increase in margins there.
That's great. That's all for me. I'll get back in the queue. Thank you.
Once again, if you would like to ask a question, please press star one on your telephone keypad. We have reached the end of the question- and- answer session. I would now like to turn the call over to Jeff Schellenberg, Chief Executive Officer. Please go ahead.
Thanks everyone for attending our Q1 2026 conference call. We continue to believe that Decisive's business model, grounded in the acquisition of profitable, low capital intensity manufacturing businesses who produce low obsolescence products distributed through channels that support reoccurring revenue at disciplined valuation levels, supports long-term stewardship and positions the company well for sustained growth and yield performance. We look forward to updating you on our progress continuing into the next quarter and beyond.
Thank you. This concludes today's conference, and you may now disconnect your lines. Thank you all for your participation.