Good morning. My name is John. I will be your conference operator today. At this time, I would like to welcome everyone to the Decisive Dividend third q uarter 2026 results conference call. All lines have been placed on mute to prevent background noise. After the speaker's remarks, there will be a question- and- answer session. If you would like to ask a question during this time, simply press star, then followed by 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 on these risks and uncertainties, please see the applicable sections on Decisive Dividend's news release and MD&A, which are on their website and have been filed on SEDAR.
I would now like to turn the conference over to Jeff Schellenberg, Chief Executive Officer. Please go ahead, sir.
Thank you, operator. Hello and good morning, everyone. This is Jeff Schellenberg. I want to welcome everyone to our Q3 2026 earnings conference call. Overall, we were quite pleased with the level of sales in the quarter, as the CAD 40.8 million in sales generated was 20% higher than Q3 2025 and represented the second-highest sales quarter in Decisive's history. The Q3 2026 sales growth was a result of both organic efforts in hearth, agriculture, merchandising, and industrial product sales, as well as the contributions from the businesses Decisive has acquired over the last 12 months, and resulted from increases in sales from existing customers, new customers, and sales in new geographies. Be Fire sales were consistent with pre-acquisition Q3 sales for that business in 2025, while the early stages of the integration of that business progressed well in the quarter.
Venger, which was acquired to the merchandising vertical in August 2025, also contributed to the overall revenue growth with a strong quarter of activity in Q3. I will provide a bit more detail on how each business vertical performed in the quarter relative to Q3 2025. The hearth businesses realized a 38% increase in sales compared to Q3 2025, with 18% of that increase a result of our organic sales growth from Blaze King and ACR, and the remainder generated by Be Fire in its first full quarter post-acquisition. The agricultural businesses, namely Slimline's orchard and vineyard sprayer product and IHT, generated a 14% increase in sales relative to Q3 2025 based on continued strong order activity at IHT, as well as increases in sprayer sales for Slimline.
Merchandising product sales increased by 80% in the quarter compared to Q3 2025, with about two-thirds of the increase attributable to organic growth in sales, while Venger contributed the remainder of the growth in this vertical, both on the back of ramped-up lead generation activity over the last few months. Industrial product sales increases of 10% compared to Q3 2025 were driven primarily by increased demand from a commercial vehicle customer Northside, onboarded in 2025, its second major OEM commercial vehicle customer. Our group of wear parts businesses, namely Unicast, Procore, and Techbelt, saw a sales decrease of 17% relative to Q3 2025, as Unicast, in particular, was impacted by delayed order activity. The growth in sales witnessed amid a volatile economic environment is encouraging. Further, we have not seen a material direct impact from increases in tariffs on Canadian products.
However, inflationary pressures did affect our quarterly results, as increased input costs, especially with respect to material costs, have been meaningful. This inflationary pressure, combined with the effect of product mix, including the increase in lower-margin merchandising product sales, led to decreased gross profit percentages. From an adjusted EBITDA perspective, while we saw growth in the quarter, it lagged revenue growth. This was a result of the compression in gross margin percentages along with the investments that have been made by Decisive subsidiaries.
These investments, while boosting sales and undertaken to strengthen the future position of the organization, including with respect to acquisition costs and succession planning, have resulted in additional operational expenditures and growth capital expenditures. Even with the decrease in margins and the increase in operating costs driven from these investments, the overall increase in sales translated to a 3% increase in adjusted EBITDA compared to Q3 2025.
While further benefits from certain of these investments will be realized over time, other investments may not have yielded sufficient returns, and as a result, management is taking steps to reduce the cost structure in certain of its businesses in order to improve the operational returns in those businesses. In addition, several subsidiaries are working to increase pricing to combat the impact inflation has had on margins. The appointment of Mark Burleigh into the role of COO is also expected to yield positive future results, as he leverages his hands-on experience as a successful subsidiary president who navigated his business unit through significant challenges to top-tier performance to help drive improved revenue, gross margin, adjusted EBITDA, and, as a result, operational returns at Northside.
We have already seen examples of Mark helping support various initiatives across the portfolio prior to taking on this role, and look forward to him getting into the seat once a new president is hired at Northside. In the quarter, we generated a 6% increase in free cash flow, less maintenance CapEx, compared to Q3 2025, due primarily to the increase in adjusted EBITDA. The trailing 12-month dividend payout ratio of 83% at the end of Q3 2026 remained consistent with the trailing 12-month dividend payout ratio in Q2 2026. As operating return improvement initiatives, along with cash flow contributions from Be Fire, ramp up in the coming quarters, we expect this ratio to improve.
From a debt perspective, we exited the quarter with CAD 40.9 million in available capacity under our credit facility, and the Q3 2026 debt-to-EBITDA ratio of 3.4x remains below the expanded covenant threshold of 4.0x , despite making a sizable investment in working capital through Q3 2026. This increase in working capital was partly due to inventory builds to support the seasonal strong heating season for the hearth businesses, especially in the last two months of Q3 due to the impact of warm weather in our hearth operating regions through July. Sales in the quarter for all areas of the business really ramped up partway through August and into September after a slower start to the quarter, including a material increase in merchandising sales, which carry longer payment terms standard in the grocery industry, and which, as a result, contributed to the increase in working capital.
As with the investments in operating expenses highlighted previously, management's efforts are focused on improving the returns generated on all of the company's investments, including in growth CapEx, which have been directed primarily towards new facilities and product development, along with investments in working capital. In terms of our outlook for the remainder of 2026 and into 2027, we expect to benefit from the investments we are making in inventory, 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 a source of alternative low-cost secure energy, and where we have new products poised to more meaningfully penetrate the market. In late September, we received EPA approval for a new, smaller, and, as a result, lower-cost North American hearths product that launched in Canada earlier this year.
Now that we are positioned to sell the product in the U.S., it should provide a meaningful tailwind to Blaze King in the coming quarters, as should higher energy prices in the U.K. and Europe, as well as the sales of ACR products into Europe through Be Fire that had begun in Q4. In addition, Blaze King is developing a new fireplace product aimed more at the new construction market and is also working with ACR to bring a version of its European-styled and sized Tempus product into North America, with an aim of getting both products into the queue for regulatory approval, positioning them both for a 2027 launch.
In other businesses, the recently launched Orchard IQ product at Slimline, which further increases the efficiency of its Turbo-Mist sprayer product, and continued progress on cooling mats at IHT, which are expected to be launched for sale in 2027, should be positive for agricultural sales activity in 2027. Marketing Impact is taking steps to ensure recent sales momentum continues to progress, but that profitability is enhanced through some cost reduction measures that are underway. We are encouraged by recent quoting and order activity within the industrial and wear parts businesses as well. There have been some changes in leadership, both at the DDC level, as referenced in my comments about Mark Burleigh earlier, and at our subsidiaries, driven by succession planning, focus on profitability improvement, as well as a focus on building more proprietary deal sourcing capabilities for our M&A program.
We continue to face some ongoing uncertainty, including with respect to inflationary pressures, trade negotiations and changing tariff levels, conflicts in different regions of the globe, and rising interest rates. As a result, the steps management is taking towards cost reduction, the pricing increases being pursued in our subsidiaries, and ongoing efficiency improvements will be critical in the coming quarters. We also continue to attract numerous acquisition opportunities as our buy, build, and hold model continues to resonate with exiting legacy line of business owners who value our long-term approach. With that, I now open up the call to questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. As a reminder, for those who want to ask a question, please press star and one on your telephone keypad and wait for your name to be announced. Once again, star and one if you wish to ask a question. Please stand by while we compile the Q&A roster. Thank you for waiting. We now have our first question, and this comes from Robert Murphy from Raymond James. Your line is now open. Please go ahead.
Oh, hi, guys. Yeah, thanks for the time. Just wanted to quickly ask on the finished products' margins on the quarter. Obviously, impressive revenue growth, but margins were down a bit year-over-year. I was just hoping you could kind of help us unpack how much of this pressure was driven by product mix versus the investments you've been making, and then kind of how we should see these margins progressing into 4Q as well as into 2027, please?
Probably a pretty close mix there. The merchandising product sales, if you look at the quarter-over-quarter increase relative to Q3 last year, was pretty substantial. And those products definitely carry lower margins, as well as the operating cost comments that Jeff made. From an EBITDA margin perspective, the merchandising segment definitely had an impact overall to the finished product segment. But input costs, whether that's freight and shipping costs or material costs, primarily steel, has seen pretty substantial increases. We've seen anywhere from kind of 5%-20%, depending on the type of steel and the type of product relative to Q3 of last year.
Okay, great. Thanks. That's great color. I just want to switch to the U.S. midterms quickly. With that behind us, has that outcome changed your thinking around the demand outlook for any of your business segments? Do you see the potential for greater policy clarity to unlock some deferred customer spending, particularly across the industrial and wear parts segments?
Yeah, that's a great question, Robert. I think it's challenging to completely see a path to unlocking. It feels like things maybe actually be a little more locked up for a time period. I mean, I think we're encouraged by the commentary that discussions are ongoing between Canada and the U.S., and talks are ramping up, so that's encouraging. I would say, as pointed out during the comments, and we had a press release a little while back too that made some comments on that overall, tariffs, we've been fortunate that tariffs have not had a significant impact on our business. Even though we're paying for them, we're taking steps to actually offset the cost of the tariffs in our business. So that's been extremely fortunate. It has been on the demand side, just like you articulated.
I think the market, and especially the industrial, the non-data center- focused industrial market, is really seeking kind of a clear path forward around the idea of being able to make committed spend. I think in the aftermath of kind of the immediate aftermath of an election, it's maybe hard to see that, but we hope that over time, those types of players can take advantage of that, or that can be seen so they can take advantage of it. I would say, for instance, in the commercial vehicle sector, as we've seen it play out here over this year, the decline in demand in that unit has been much less than we anticipated, and we're actually seeing some strength and hearing from our customers that we should expect to see some strength in demand for those types of products.
Energy prices remain strong, and as do overall commodity prices, which should support the mining and energy spaces, although there's still kind of maybe some reticence to invest capital in the energy spaces in North America. But we're seeing some signs of strength in that. Then the hearth marketplaces, I think, we're also really encouraged about some of the positive impacts, some of these factors that are driving inflation in other areas are how it's hitting us. So, not totally clear, don't expect clarity for some time. Probably some period of disruption still here as the changeover takes place, but some encouraging signs of life and activity in the areas that we operate in.
Okay, great. Thanks for the color. I will pass the line. Thanks.
Thanks, Robert.
Thank you. Once again, for those who want to ask a question, please press star and one on your telephone keypad. The next question comes from Russell Stanley from Beacon Securities. Your line is now open. Please go ahead and ask your question.
Good morning, and thanks for the question. With respect to the cost- structure efforts to take that down, can you elaborate on what you are planning there and where those efforts are focused? It sounds like Marketing Impact is a focal point, but any other detail you can provide would be great. Thank you.
Yeah. Hey, Russ, for sure. We did highlight Marketing Impact as an area. We do have some other succession-type planning that we'll see some roll-off there, as we've had duplicate people in the positions in a number of our businesses, including in Techbelt, Blaze King, IHT. So we'll see some of that kind of naturally roll off over the next couple of quarters, with some targeted efforts in Marketing Impact. We've also had some pretty targeted efforts in other businesses, including Hawk, Slimline, and Capital I, that took place kind of partway through Q3, that'll continue to impact future quarters as well.
I think the other point to mention around that is pricing increases, which we're seeing in quite a number of our businesses, as their cost of materials especially. If you look at our steel fabrication businesses, we're seeing anywhere from 7%-20% type of increases in steel costs in those businesses. So a lot of activity to increase prices in those businesses to reflect the fact that we're seeing these types of increased costs. So that's also an activity that obviously directly supports gross margin as well. And we see that kind of across our business portfolio.
Thanks for that color. Maybe if I could on the Be Fire acquisition or the integration rather, sounds like efforts are well underway. I'm wondering if you can kind of put a pin or a rough estimate as to when you expect to be substantially done, and maybe elaborate on how the cross-selling efforts have performed to date, understanding sales of ACR products haven't just started. Thanks.
Rick, do you want to touch on integration, and then I'll touch on cross-selling?
Yeah, for sure. For the most part, we have worked through the integration efforts. We still have a bit more to go on the reporting side that is just getting ramped up there. Different language in terms of it being a French operation has prolonged things a little bit longer than they normally do, but proceeding really well there. The teams are working really well together between ACR, Blaze King, and Be Fire, so that is very encouraging. So, feel like we are a lot of the way there and should have the integration wrapped up here this quarter.
Yeah. Then, from a cross-selling perspective, I think we are really encouraged that the area that we thought would be most immediately impactful that we are actually in the market in that area, and that is with respect to selling ACR units into Europe through Be Fire's European dealers. The benefit we had there, and it was part of the thesis for the investment, was the fact that Be Fire produces insert models, like insert units into wall structures, so they did not actually have freestanding or cast iron stove, freestanding cast iron or steel products that it could sell through its distribution network. ACR has that, and ACR has the benefit of having the required regulatory approvals for those products in place as well.
For us, closing the acquisition in June and being in market with those products in Q4, they actually shipped them in Q3, and they are actually selling them in Q4 is really encouraging. The signs from our dealers around interest and demand for that product is really strong. They like the cast iron product and the steel standalone products, as well as our long-burn product that we brought to market, the Tempus unit. We think there is a really interesting marketplace for that in Europe here. So, we are encouraged by it. I think there is a lot of optimism around taking advantage of this different product into that existing dealer network. So, yeah, that we are pleased with.
I think that we anticipate will be for the Be Fire units, the insert units into the U.K. will be more of an early 2027 activity, and we are very clear direction around the design changes necessary for the Be Fire insert units to meet what change to the design needs to be made to meet the North American environmental standards. I think with that, then that allows us to progress on the creating the units that will then need to go to testing and do all that stuff to be able to access the North American market.
That is a really important step that probably a lot of work will be done on that through 2027, so that we can position to hopefully achieve some, at least in the Canadian market, the ability to go to market sometime in 2028, and then work our way through the U.S. approval process, which with the EPA is a more extended type of timeline. Yeah, pleased with the progress, and we are actively moving forward on all those things, which is really encouraging.
Yeah. Thanks. Maybe one last one for me, just on the hearth business overall. You are in your seasonal stronger period, and we have got the energy price volatility. It is usually a tailwind. I am wondering if you can characterize the seasonal ramp relative to your expectations given those tailwinds.
Yeah, I think in terms of the ramp, it started a little bit later, just with the warm July, like Jeff mentioned. When the temperatures are really warm, and that was across Europe and North America, people are not walking into the stores to buy fireplaces or wood stoves. But saw a real nice pickup in activity in August and September, and early numbers here on Q4, but Blaze King just had its highest October sales it has ever had here. So, definitely encouraging signs that the hearth market into the heating season here is going to be pretty strong for us.
That is all for me. I will hop back in the queue. Thanks for the color.
Yeah. Thanks, Russ.
Thank you. We have a follow-up question from Robert Murphy. Your line is now open. Please go ahead.
Yeah. Hi, guys. Thanks for the follow-up here. Just quickly on M&A, following the Be Fire acquisition, just wondering if pursuing additional transactions is still a near-term priority. After that as well, can you just give us a sense for the quality of opportunities you are seeing today, including how multiples are progressing across the various key verticals? Thanks.
Mm-hmm. Yeah. So, obviously, Be Fire, that has been a big focus of ours in 2026. I think the flow of opportunities continues to come. We have a strong order flow from the broker channel that I think we have done a lot of work to educate the broker channel about the types of businesses we are looking at, so we continue to be fed a lot of opportunities, and directly from people within the spaces we operate in reaching out. We are really pleased with that. The latter, I think, is really an important focus I want to highlight, is really the importance of pushing to stand up more proprietary deal flow. We really think our business model, with respect to our buy, build, and hold approach, the long-term legacy preservation element of our model, resonates really well with certain types of vendors.
And who often will choose us as the preferred buyer as a result of the model, more so than the fact that we're the highest payer. As we can tell that story directly to business owners, I think our likelihood of success and our ability to, with a longer sales cycle, have access to those types of opportunities is really critical. That's something we're very focused on in terms of our overall growth of our organization. That's an important step. With respect to multiples, I think over the year we've seen the deal we closed with Be Fire was kind of within the range we've historically paid, so good comfort around that. Saw some deals, I think, throughout the year that were quite competitive, especially in mobile warehouse space.
I think that's a space that we've seen very kind of a high level of focus on different types of buyers who have a lot of interest in kind of the reoccurring streams of revenue and are willing to pay up for those types of businesses. We've definitely noticed an increase in multiples around that. But I think when you have a rising interest rate environment and some economic uncertainty, that also can put some downward pressure on multiples, right? Yeah. I guess, I think for us, we look at it as we're going to be consistent with our model.
We have a very clear mandate as to the way we think about value in a business, and we're going to stick to that, which means we just need to have a lot of at-bats and look at a lot of different businesses that, if they don't fit our criteria, we just move on to the next one, right? Because there are lots of these types of businesses for sale. Yeah, those, that would be my comments on that.
Okay, great. Thanks for the color. I'll pass the line again.
Thank you. There are no further questions that came through at this time. I will now hand the call over back to Jeff Schellenberg for closing remarks. Please go ahead, sir.
Thank you to all for attending our Q3 2026 conference call. We continue to believe that our business model, driving 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 our conference call for today. Thank you all for participating. You may now disconnect.