K-Bro Linen Inc. - Third Quarter 2026 Results - DEFI TECHNOLOGIES INC

Good morning, ladies and gentlemen, and welcome to the KBRO Linen Incorporated 3rd Quarter 2026 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. Please note this call is being recorded on Friday, November 13, 2026. I would now like to turn the conference over to Christy Quacklin. Thank you, Operator, and good morning, everyone. Thank you for joining us today, and welcome to our third quarter results conference call. On the line with me today is Linda McCurdy, President and Chief Executive Officer. Before we begin, I'd like to remind everyone that statements made during our prepared remarks to the conference call with reference to management's expectations or predictions of the future or forward-looking statements. All statements made today, which are not statements of a specific fact, are considered to be forward- looking statements. Certain characters or assumptions were applied in drawing a conclusion or making a forecast or projection. Pardon me, just to make you aware, you are cutting out. From those anticipated, risk factors that affect the results are detailed in the corporation's public filings. will provide her insights and remarks on the quarter. Thank you, Christy, and good morning to everyone. Thank you for joining us today. today to review our 2026 third quarter results. I will touch on some of the highlights of the third quarter, and Christy will provide more details on our financial performance and balance sheet. So overall, we're very pleased with our third quarter result, which were consistent with our expectations. Revenue for the quarter was $160 million, and adjusted EBITDA was $33.5 million. Consolidated total revenue for the third quarter increased by 2.6% compared to 2025 with healthcare revenue having increased by approximately 7% and hospitality revenue by approximately 2%. In the quarter, we were successful at renewing several healthcare customers for three to five-year terms. Healthcare revenues represented approximately 55% of consolidated revenue, which is higher compared to approximately 53% in 2025 due to the acquisition of Stellar. Our Stellar integration is progressing as expected, and we continue to anticipate run rate cost synergies will be realized over the contemplated 24-month time horizon. Over the past year, we've implemented various improvements, including planning towards the adoption of seven-day operations at certain facilities uh insourcing the maintenance workflow optimizations realigning compensation structures and changing certain roles through the end of q3 we estimate we've achieved approximately half of the anticipated synergies amid a more volt volatile global backdrop we're pleased with our q3 results underscoring our resilient growth model and business performance as always our experience team is focused on disciplined operations i'll now turn this all over to christy to discuss our detailed financial results for the quarter uh after which i'll return to talk about our outlook and answer any questions christy over to you thank you linda the information we are discussing is still highlighted in our 2026 quarter earnings press release issued yesterday and detailed supplemental financial information can be found on our Investor Relations website under the heading financials. ABE's consolidated revenue for Q3 2020 increased year-over-year by 2.6% to $160.1 million. In Canadian dollars, quarterly revenue from both the Canadian and the UK divisions were roughly equal, with Canada at 48.3%, UK at 51.7%. The increase in consolidated revenue is primarily due to the acquisition of Stellar Mine in June, as well as the impact of price increase implemented when you consider year-to-date revenues. Consolidated adjusted EBITDA in the third quarter of 26 was $33.5 million, which was flat year-over-year. Consollidated adjusted margin decreased half a percent year over year to 20.9 percent largely due to higher fuel costs 2026 particularly in the uk we face significant volatility in energy costs due to current geopolitical issues this risk has been mitigated by hedges we have in place for both diesel and natural gas, of which the U.K. hedges expire at the end of 26. For Q3 of 26, the impact of adjusted EBITDA in diesel prices was a decrease of 0.7%. For the Canadian region, adjusted EBIDDA margin in the third quarter slightly decreased to 22.4% in 26 compared to 22% in 25, relative again to higher fuel costs. For the UK division, the adjusted net margin in the third quarter decreased by 0.7% to 19.6% in 2026. The decrease is again related primarily to higher fuel costs adjusted net earnings increased in the third quarter of 26 to 13 million from 12 million in 2025 and included adjusted items of $2.5 million. The adjusting items in the quarter include transaction costs, transition costs, and the fair value adjustment of derivative financial instruments, non-reoccurring losses, and intangible asset amortization related to the acquisition of Stellar Mayan. Cabro has strong cash flow generation profile and a disciplined approach to capital allocation, which allows us to both invest in growing the business and return capital to shareholders. Distributable cash flow for Q3 2026 was $21.6 million, and our payout ratio was 18.1%. Our trailing 12-month payout ration was 26.4%. The company paid out $0.3 per share in dividends during the quarter for total consideration of $3.9 million. For the nine months ended September 30th, 26, CABRA has repurchased and canceled approximately 67,000 common shares under the NCIB. Post-acquisition debt and leverage levels have been consistent with our expectations. We have a strong balance sheet with ample undrawn capacity on our syndicated revolving credit facility with an operating line of $175 million and an amortizing term loan of $134.3 million, with a further $50 million accordion available for growth purposes. At the end of the third quarter of 26, we had an undrawn balance of close to $76 million on our operating line without taking into account the accordion, which reinforces our strong liquidity. This represents a pro forma debt to EBITDA ratio excluding leases of just under two and a half times. Debt to total capitalization for the period that ended September 30th was 45.3%, and total debt net of cash was $211.7 million. I'll now turn things back over to Linda for additional commentary. Linda? Great, Christy. Thank you so much. Again, I'd just like to emphasize that we are very pleased with our third quarter results, and we see a positive outlook in the context of an evolving macro landscape. We are the largest healthcare and hospitality laundry and linen processor in Canada and one of the largest in the UK with coast-to-coast national geographic footprints in each country. We're able to deliver industry-leading service to healthcare and hospitality customers from our network of strategically located facilities. Our services are essential to the continuity of our customers' operations. We have a highly experienced team and we're focused on disciplined operational performance. We are a valued partner to our healthcare and hospitality customers. As an essential service provider, we have strong customer contract retention with five-year average retention rates of 97%. In Q3, we were successful in renewing several healthcare contracts for three to five-years terms, including our largest customer in the UK, which represents approximately 3% of consolidated revenues. For the hospitality segment, we expect solid activity will continue long-term, reflecting historical seasonal trends. However, while we expect all of activity levels to continue, there has been recent competitive market dynamics and softness in volume amid the evolving macro landscape, particularly in the UK. Going forward, we expect combined adjusted EBITDA margins will remain at similar levels to seasonally adjusted combined historical margins. In line with our expectations due to the lower EBITDA margin profile of Stellar, the consolidated UK divisional adjusted margins will be lower than seasonally-adjusted historical margins, we continue to monitor the volatile energy pricing environment and the impact of diesel on our margins. In the UK, 50% of our diesel usage is heads and 50% floating. In Canada, our diesel uses is floating. As Christy mentioned, our Q3 26 adjusted EBITDA margins were negatively impacted by approximately 0.7% due to prevailing diesel rates. During the month of September, we saw further large diesel rate increases. If current diesel prices were to continue, we anticipate the consolidated adjusted EBITDA margins would be negatively impacted by 1% for Q4 of 2026 relative to historical margins. We're excited about our outlook and focused on completing the stellar integration pursuing organic growth opportunities and potential M&A opportunities. Strategic acquisitions of high quality operators continue to be an important contributor to our overall growth profile we're pleased with the early contribution of our recent acquisitions and believe they'll further enhance our growth profile we evaluate potential strategic acquisitions that may complement our platform and we look to leverage our strong liquidity position balance sheet and access to capital to execute on these opportunities when they arise. Putting people first, being dependable partners, and embracing environmental stewardship have always been part of our culture. We believe long-term value creation is guided by strong governance, disciplined operations, commitment to a sustainable future, and effective enterprise-wide risk management. We continue to embed sustainability practices across our business including aligning practices within stellar by the end of the year we will publish our fourth annual sustainability report which provides further details on our progress across environmental social and governance topics i'll now open up the mic for any questions that you would have as it relates to our third quarter results thank you ladies and gentlemen we will now begin the question and answer session should you have a question please press the star followed by the one on your touch tone phone you will hear a prompt that your hand has been raised should you wish to decline from the polling process please press the star by the two if you're using a speakerphone please lift the handset before pressing any keys and we have our first question from Michael Glenn with Raymond James. Hey, good morning. Linda, I'm just hoping that you can give some more insight into the cost pressure. So you're talking about diesel. I'm, I've just not clear. Is that, we have the hedges rolling off in the UK too. Are you able to give some indication about, say both of those items together, the natural gas and the diesel, how they may impact 27 margins in total? Yes, Christy. Actually, I'm going to pass that over to you. Yeah, absolutely. I seem to be having an issue this morning. So overall, just in terms of diesel, should the current rates prevail with the fact that the impact we're seeing next year and the disclosure we've provided related to the impact for Q4, which is 1%, would carry forward into 2027, acknowledging that some of that impact would already be reflected because we would have already experienced some of the higher gas prices in 2026. On top of that, we will have our UK hedges roll off for both natural gas and for diesel as we've disclosed previously it'll half of our diesel is hedged in the uk for 2026 so then that we would expect um margins to be negative to be negatively impacted as a result to the percent pulling off given the amount of the vote. I would anticipate about a 1% impact to the margins in 2020. Kristi, you're going to have to just repeat the last two sentences. Oh, I'm very sorry. I clearly am having a significant phone issue today. Apologies. To summarize, natural gas would be about a negative impact of about 1%, Michael. And the diesel impact would continue into 2027 with a further 0.3 or 0.4 impact as the hedge rolls off. Okay. Okay. Okay. So, in aggregate, call it like 1.3. As things stand today, if we're looking at margins, what we're forecasting for margins at the end of this year consolidated, we should be thinking about a 1.4% cost headwind associated with these two items. Correct. Okay. Recognizing that that does, but Michael, I would also caveat that that doesn't include some, include price increases, Christy, correct? Correct, correct. That's at a point in time, and to the extent we are successful, which we believe we will be successful to pass some of those on, that will be mitigated throughout the year. But just specifically from a cost perspective, that would be the impact. Okay. And on the renewals in the health care that were indicated, are you able to say whether or not you were able to pick up any incremental volume with those awards, Linda? I would say that, you know, the incremental volume, Michael, will come from conversion to reusable. I would Say that we have been able to secure price increases that have covered the cost increases. So we're very happy with the renewal and not to get into too much detail for competitive reasons but i would say the renewals from a pricing perspective have been positive okay and then just my last one the competitive dynamic that you described that's really specific to the hospitality in the uk can you say that that's regionally is it is it concentrated say at fishers or one of the regions as well I would say most of the impact has been in the north. Okay. Okay. Thank you. We have our next question from Ahmed Abdullah with National Bank of Canada. Yeah. Hi. Good morning. Thanks for taking my question. On the health care renewals, I presume that those renewals were primarily in the U.K. given the duration you quoted, which is the three to five years, were you able to kind of negotiate to preserve profitability and perhaps improve protection against energy and labor inflation in those new contracts? So, answer to the two-part question is yes. The renewals have been in the UK on the healthcare front. And from a price increase going forward, it's tied to the National Textile Index, which weights natural gas and diesel more appropriately to the cost structure of a laundry. So I would say there's just less risk of increased costs not being passed on appropriately. So, the mechanisms are a little bit different in the UK. Okay, that's helpful. And just on touching on the synergies, I apologize if it was mentioned during the prepared remarks, but I could barely hear part of the section. You mentioned a 40%, you know, capture so far. Where do we stand today? And when do you expect the first seven-day conversions to begin meaningfully contributing to that run rate? I would say that we anticipate that half of the synergies have been achieved by the end of the year. The first conversion to seven- day working is live now of one of the four plants. I would say we're working through the operating issues that go along with that. I'd say the benefits will start accruing at the beginning of next year, and it's work in progress. But the first transition has happened. The next three, one will be in December, two will be the new year. Okay, that's helpful. And just finally, any updates on the Canadian kind of outsourcing pipeline? Any updates on The Health Care Contract in Vancouver renewal or Ontario? In terms of the West, work in progress. The contract does not expire until April of 2027. We feel very well positioned. Nothing new to report there other than things continue to move in a positive direction. And I would say as it relates to other outsourcing opportunities, you know, we remain confident that over the next, you now, one to three years, there will continue to be additional opportunities. All right. Thanks for the call. I'll pass the line. We have our next question from Sheryl Zhang with TD Cowen. Hey, good morning, Linda and Christy. Great to hear from you. Good morning, Sheryl. Good morning. Our first question is on, just to double-click on hospitality, I'm wondering how the demand trended over the course of Q3 and maybe into early Q4. seeing major differences between the UK and Canadian performance. And I wonder if you could also elaborate on what you mean by competitive market dynamics. That would be great. So I would say definitely Q3 was a soft quarter relative to our historical experience. I would say it was softer in the UK than it was in Canada. There was some hangover in Canada from FIFA, which also impacted Q3. Competitive dynamics in the UK on the hospitality front, I would say that we've seen some aggressive behavior by certain market participants. We're very equipped and able to respond given our national platform, and we expect it to be, you know, a temporary impact and are confident in our ability to secure new hospitality business in the UK. But it certainly has been a little more competitive, but we're well positioned to withstand the competitive environment. That's great, Carla. Thank you. And then just to follow up on that, is the volume softness mostly seen in leisure travel or are you seeing a bit of both leisure and business? I'd say it's more leisure, recognizing that in the UK, more of our volume is geared towards leisure versus Canada, where we operate mostly in the large cities that have a large business travel component. So I would say that is why we are more impacted in the U.K. Okay. Understood. And then lastly, before I recue, are there any notable update or progress that you might share with us in terms of gaining conversion on reusable linen products in the UK? I would say that, you know, it takes time. The sales cycle is, it just takes time, but we are getting positive responses and feedback from our customers. I wouldn't say there's anything meaningful to date. Okay, helpful. Thank you, Ariku. Our next question is from Justin Keywood with Stifel. Good morning. Thanks for taking my call. Nice to see the results. So it sounds like there's a few kind of tailwinds and headwinds. How should we look at organic growth going into next year? I believe the target has been mid-single digit at one point, although that was at a lower scale in the business? Is that something that could be achievable in the next 12 months or so? Justin, good morning and thank you for your question. I do. I think that some of the software we're seeing in Q3 and likely into Q4 will be temporary. We're confident in the pipeline for 2027 especially given the fact that we have a geographic reach across all of the uk um so i think that this is very temporary and we feel confident um based on the bids that we have out the outreach we have to our national customers um and some positive feedback that we're seeing so i think that's a fair enough number great uh good to hear and then uh with the bc provincial government change does that impact your outlook uh for the business um as far as the the current contract negotiations but also just um provided uh health care is a big focus of the new incumbent government and there's set to be several new hospital projects we believe but interested in your opinion on that i mean i think that we'll see a much friendlier uh business environment to operate in i don't think it'll have a meaningful impact on the existing contracts we have given the timing of a new government, given the timing of where we're at in the various processes. But I think longer term, you know, who knows what that could look like. I think it is a friendlier business environment, however. That's great. Thank you for taking my questions. Thank you, Beth. There are no further questions at this time. I will now turn the call over to Linda McCurdy for closing remarks. Thank you everyone for joining this morning. We do apologize for any of the technical issues and will be available to answer any follow-up questions should they arise. Happy Friday to everyone and I'll leave it to everyone to be able to go answer their very full inboxes, which I'm sure we all have now. Have a great weekend. Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.