Colabor Group Inc Q3 2024 Earnings Call Transcript

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

Question: Kyle Mc Phee - Cormark Securities - Analyst : Everyone, Thanks for taking my questions to start. So your, your filings mentioned that your distribution platform has added volume in new territories. I'm trying to better understand the size of that moving part so far. It sounds like you're adding independent restaurants. Can you ballpark quantify that the year over year volume impact from these new wins and new territories or just broadly, you know, are we over under 1% range?

Question: Kyle Mc Phee - Cormark Securities - Analyst : Got it. Okay. And like are you continuing to see these, these new independent restaurant wins kind of snowball into Q4 or, or is the macro environment, you know, creating a headwind for you to be winning new business? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 18, 2024 / 1:30PM, GCL.TO - Q3 2024 Colabor Group Inc Earnings Call

Question: Kyle Mc Phee - Cormark Securities - Analyst : Got it. Okay. And, and you, you mentioned, you know, a volume benefit from one of your clients is increasing purchasing volume. What, what do you, what do you mean by that? Can you explain that?

Question: Kyle Mc Phee - Cormark Securities - Analyst : Okay. So the clients themselves are just gaining chair and they happen to be your client. So that's what you meant by that.

Question: Kyle Mc Phee - Cormark Securities - Analyst : Okay. Shifting over to operating costs, you know, most of the moving parts in your operating costs were perfectly as expected. So great. Cost control from, from all of you during this tough macro period. But the line item that you referred to as other operating costs was, was higher than I thought higher than recent quarters. Can you explain the source of the increase for, for that line item? Is it, is it marketing costs that are buried in there? And you know, as you put your growth.

Question: Kyle Mc Phee - Cormark Securities - Analyst : Got it. Okay. Okay. Yeah, I understand that moving part. It's good to know that that's what it was. And then last, last one for me here on, on your gross margin percentage. So there was a, there was a minor year over year decline in Q3. I just want to make sure I understand that the moving parts that may be triggering this. So, am I correct to assume that independent restaurants are experien the biggest macro hit within your distribution business? And that also happens to be the highest margin, margin portion of the, of your volume. Is that what's going on here?

Question: Kyle Mc Phee - Cormark Securities - Analyst : Got it. Okay. I'll pass the line. Thanks for all the answers.

Question: Frederic Tremblay - Desjardins Bank - Analyst : Thank you. Good morning. First of all, congrats on renewing the large contract with the institutional customer in the in the press release, there's a mention about the, and you spoke about it as well about the contract having lower margins than the, than the current contract. Is there any way for you to maybe clarify a little bit? The the magnitude of the, the margin decline initially? And provide a bit of color on some of the opportunities that you may have going forward to bring that margin up over time.

Question: Frederic Tremblay - Desjardins Bank - Analyst : Okay. No, that's fair. The symptoms of the mitigating measures then does that include things like, you know, private label products or are we talking about something else? And like typically in a, in a situation like this, how long would it take for those mitigating measures to have an impact on the contract's margin?

Question: Frederic Tremblay - Desjardins Bank - Analyst : Okay. Yeah, that's really helpful. Thank you for that. Maybe the last one for me. Has there been one category in particular in Western Quebec where you've been more successful in driving new business lately and just maybe provide a bit of color in terms of where you're at, in terms of your, you know, volumes being gained there versus initial expectations. I know it's a diff difficult environment in the restaurant space. So has that had an impact on your initial volume ramp up in Saint-Bruno or are you on track with the, with what you're expecting?

Question: Frederic Tremblay - Desjardins Bank - Analyst : That's very helpful. Thank you very much. Thank you,

Question: Michael Glen - Raymond James - Analyst : Hey, good morning. Just on the cost mitigated mitigation that you're looking at. Should I, I think we should probably think about that more on the SG&A line. Is that a fair assumption? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 18, 2024 / 1:30PM, GCL.TO - Q3 2024 Colabor Group Inc Earnings Call

Question: Michael Glen - Raymond James - Analyst : Yeah, it, it would be, if you're referencing, you're going to have, you're going to take some cost mitigation effect to offset the pressure from the new contracts. Would that predominantly be SG&A initiatives that you're looking at?

Question: Michael Glen - Raymond James - Analyst : And then like just stepping back and looking at some of the challenging situation facing the industry right now as you're onboarding, I'm just trying to get a sense like how do you assess some of the credit risk element associated with the independent restaurant space when you're thinking about adding these new clients on.

Question: Michael Glen - Raymond James - Analyst : Okay. Is, look excellent. Just the lease payments on the cash flow statement are, are coming in, I guess lower than I would have thought it was one point liability payment was $1.8 million in the quarter. Is that the good run rate or should we expect that number two step higher at some point in the future?

Question: Michael Glen - Raymond James - Analyst : And are you able to say what the, like the call it, let's call it $2 million average year-to-date in quarterly, quarterly lease liability payments. Is that, are you able to say, like, is it, is it up a million dollars or something like that on a quarterly basis? Just trying to get a sense of how, how much the increase could be. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 18, 2024 / 1:30PM, GCL.TO - Q3 2024 Colabor Group Inc Earnings Call

Question: Michael Glen - Raymond James - Analyst : Okay. And any thoughts on working capital from here, you, you had a small inflow in the quarter which was positive, like from here, should we think that working capital is in the right place or should we expect some further?

Question: Michael Glen - Raymond James - Analyst : And then just the update on the capex spending we're looking at for the year and maybe an early read on next year.

Question: Michael Glen - Raymond James - Analyst : Okay. Excellent. Thank you for taking the questions.

Question: Kyle Mc Phee - Cormark Securities - Analyst : That's just one follow up for me. I'm just trying to better understand the margin impact on this contract renewal. I know you're not going to quantify it for us, but is it fair to say that that client would have already been a much lower gross margin percentage type client versus, you know, the, the average for call as a whole given, you know, big clients typically have lower gross margin attached to the client. Like, is that a reasonable starting point? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 18, 2024 / 1:30PM, GCL.TO - Q3 2024 Colabor Group Inc Earnings Call

Question: Kyle Mc Phee - Cormark Securities - Analyst : Got it. Okay. So I think I understand all those moving parts, but I guess that one last final challenge to check is it fair to say that these types of institutional clients would be lower gross margin than let's say an independent restaurant?

Question: Kyle Mc Phee - Cormark Securities - Analyst : Okay. Okay. Thank you.