K-Bro Linen Inc Q3 2023 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Lessard Derek - TD Securities - Analyst : Good morning. This is Cheryl calling for Derek. Thanks for taking our questions and congrats on a strong quarter.

Question: Lessard Derek - TD Securities - Analyst : So our first question is on the outlook. So in the press release, you noted that you expect margins to follow historical seasonally adjusted trends going forward. Just wondering if you could clarify that for us. Is it fair to interpret it as you see yourself going back to the 2019 margin level starting Q4?

Question: Lessard Derek - TD Securities - Analyst : Okay, that's very helpful. And our second question is on hospitality segment. Obviously, very strong performance, here today. I'm curious how much more momentum do you see in both leisure and business travel, given the macro backdrop? And my follow-up to that is, if we look at business travel specifically, industry data sensors suggest that it's still down versus 2019. Just wondering, like, if you feel there's more recovery in business travel, and if you expect that to get fully back to pre-pandemic? Thank you.

Question: Lessard Derek - TD Securities - Analyst : Okay, that's very helpful. Thank you. I'll recue. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Kyle McPhee - Cormark Securities - Analyst : Hello, everyone. First question, regarding the facility consolidation, moving your Montreal site into the Deloray facility, do you expect that to trigger any disruption for your adjusted EBITDA margin in the first half of next year when you're doing the consolidation? You know, beyond the half million of costs, one-time costs, that I assume won't hit adjusted EBITDA margins? And then, looking out to the back half of next year, should we expect to see noticeable synergies that maybe you can help quantify for us?

Question: Kyle McPhee - Cormark Securities - Analyst : Got it. Is it, you know, fair to say with all these synergies in hand, kind of back half of next year, that you should be, you know, starting to push over the, 2019 margin profiles.

Question: Kyle McPhee - Cormark Securities - Analyst : Thank you. And then, do you have more site consolidation plans, specifically in the Quebec City area? Because I think you now have two sites out there after the Paranet deal. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Kyle McPhee - Cormark Securities - Analyst : Okay. Thank you. And then, last one, your CapEx jumped in in Q3, specifically the project CapEx. Can you provide some color on what that was for?

Question: Kyle McPhee - Cormark Securities - Analyst : Okay, thank you. That's it from me.

Question: Michael Glen - Raymond James - Analyst : Okay, just to go back on to the CapEx, because the number that you give in the MD&A is $8 million for the year. So what would be the expectation for Q4 then for CapEx? Because I guess if you're spending on Villeray, are you spending on Villaray then in Q4, or that all falls into the first half of next year?

Question: Michael Glen - Raymond James - Analyst : Okay, and for the Paranet and the Villeray acquisitions, can you, if I'm looking, if I'm thinking about both of those on a combined basis, are you are you able to give like a rough idea of the split between health care and hospitality revenue from both of those? Or either one, however?

Question: Michael Glen - Raymond James - Analyst : Okay, and for the organic growth that you're seeing in Canada so far this year on health care, I'm just trying to back into what the number might look like. It does look like it's been, it was up on an organic basis in Q3. I'm just wondering, is that the case, and I'm just wondering what's underlying that, if it is the case?

Question: Michael Glen - Raymond James - Analyst : Okay, and then new business wins next year, is there a good pipeline there?

Question: Michael Glen - Raymond James - Analyst : Okay, thank you.

Question: Justin Keywood - Stifel Nicolaus Canada Inc., - Analyst : Good morning, thanks for taking my call.

Question: Justin Keywood - Stifel Nicolaus Canada Inc., - Analyst : On the proposed dismantling of AHS, is that expected to have an impact for the Alberta business?

Question: Justin Keywood - Stifel Nicolaus Canada Inc., - Analyst : So no change to the recently expanded contract, I guess it was about a year and a half ago?

Question: Justin Keywood - Stifel Nicolaus Canada Inc., - Analyst : Okay, understood. And then, just with the two acquisitions in the Quebec or Montreal region, just trying to understand if there's a broader strategy here, any particular attributes that are compelling for the area, and if there's opportunity for additional M&A.

Question: Justin Keywood - Stifel Nicolaus Canada Inc., - Analyst : And is the pipeline pretty broadly based as far as geographies? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Justin Keywood - Stifel Nicolaus Canada Inc., - Analyst : Okay. Thanks. And then a question for Kristie. I think I heard 1.5 times leverage, if you can verify that, and then also the pro forma, net debt to EBITDA, and capacity post the recent transactions.

Question: Justin Keywood - Stifel Nicolaus Canada Inc., - Analyst : What's the comfort level?

Question: Justin Keywood - Stifel Nicolaus Canada Inc., - Analyst : Okay. Great. Thank you for taking my questions.

Question: Lessard Derek - TD Securities - Analyst : Hi. Thanks, Linda, and Kristie. I just wanted to circle back on labor. You noted that some markets are stabilizing. And just wondering if you could highlight any sequential improvements from last quarter and any markets that you are particularly seeing the improvements and those that you feel are still under pressure? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Lessard Derek - TD Securities - Analyst : Awesome. And then last one from me is on pricing. Just given where your costs are trending, do you expect any additional pricing actions from here?

Question: Lessard Derek - TD Securities - Analyst : Okay, that's very helpful. Thanks again.

Question: Michael Glen - Raymond James - Analyst : Hey, so coming off, of the Q3 in the hotel business, Q4 is always seasonally slower in that segment, but for example, I'm just going to ask you to get a little bit specific with the guidance for Q4. Like the $18.4 million in Canada in hotel, like what's realistic to think about for Q4, just thinking about everything that's going on?

Question: Michael Glen - Raymond James - Analyst : Okay. So it's pretty much the same between both Canada and the UK, I guess. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Kyle McPhee - Cormark Securities - Analyst : So you guys have some pretty expensive UK natural gas hedges rolling off, exiting next year. Based on where gas prices are now, I think that means a good amount of margin expansion for you heading into 2025, just from that one moving part. Do you guys consider, you know, locking in the lower gas prices over a longer period of time at this point, given all the turmoil on that side of the world?

Question: Kyle McPhee - Cormark Securities - Analyst : Okay. Thanks for confirming that.