Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Adentra Inc (HDIUF, Financial) successfully completed a $73 million equity offering, reinforcing its balance sheet and positioning the company for future acquisitions.
- The acquisition of Woolf Distributing for $130 million is expected to be immediately accretive to both adjusted earnings per share and adjusted EBITDA margin.
- Adentra Inc (HDIUF) reported a 130 basis point increase in gross margin to 21.7%, marking the 13th consecutive quarter of gross margin above 20%.
- The company generated strong cash flow, with 79% of adjusted EBITDA converting into operating cash flow before changes in working capital.
- Adentra Inc (HDIUF) ended the quarter with a leverage ratio of 2.2 times, at the lower end of its target range, providing flexibility for future growth initiatives.
Negative Points
- Adentra Inc (HDIUF) experienced a 6.2% decline in sales compared to the same period last year, primarily due to product price deflation.
- The US operations saw a 6.7% decrease in sales, driven by a 6% decrease in product prices and a slight decline in volumes.
- The company faced softer pricing and muted spring seasonal activity in North American construction markets.
- Cash flows from operating activities decreased to $26.8 million from $52.8 million in the same period last year due to working capital investments.
- Adentra Inc (HDIUF) anticipates moderate impacts on the residential repair and remodel and commercial construction markets due to inflation and elevated interest rates.
Q & A Highlights
Q: Can you provide some visibility on pricing by product category? Have you seen prices begin to stabilize in certain categories? And overall, when do you expect to lap negative pricing comps?
A: Robert Brown, President and CEO: We have a broad SKU mix with different pricing dynamics. The rate of product price deflation is slowing, from 9% in Q1 to 6% in Q2 year-over-year. Some categories like MDF mouldings and doors have stabilized with modest upticks. We believe the downward pressure on pricing is nearing its end.
Q: Regarding the Woolf acquisition, can you provide insight on the expected magnitude of synergies and the timeframe for these synergies to materialize?
A: Robert Brown, President and CEO: We haven't disclosed specific synergy numbers due to caution during the HSR process. Immediate cost savings are expected within months, while cross-selling synergies may take up to a year. Historically, we've improved EBITDA multiples through these efforts.
Q: What are your expectations for Q3 and the second half of 2024? How has your outlook evolved in the last few months?
A: Robert Brown, President and CEO: We expect Q3 to be similar to Q2, with steady performance. The seasonal uptick was muted, and while we haven't specified Q4, it's typically slower. Our outlook remains steady as we proceed through the year.
Q: What kind of adjusted EBITDA contribution are you expecting from Woolf in August and September?
A: Faiz Karmally, CFO: Woolf is accretive to our adjusted EBITDA margin, which is around 9%. We expect solid EBITDA contribution, with about 45% occurring in H2 2024. Woolf's contribution will be for five months of 2024, with Q3 seeing two to three months of contribution.
Q: How would you describe your macro outlook compared to three months ago?
A: Robert Brown, President and CEO: Single-family residential is performing well, though not as robustly as expected. Multifamily has normalized from a high, and repair and remodel is softer than anticipated. Despite this, our performance remains decent, particularly in the millwork aisle.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
