First quarter 2023 sales at US$579.9 million and earnings per share of
US$0.43
Cash flow from
operations grows by US$100.0 million
year-over-year
Declares dividend of C$0.13 per share
LANGLEY,
BC, May 11, 2023 /CNW/ - ADENTRA Inc.
("ADENTRA" or the "Company") today announced financial results for
the three months ended March 31, 2023. ADENTRA is one of
North America's largest
distributors of architectural building products to the residential,
repair and remodel, and commercial construction markets. We
currently operate a network of 86 facilities in the United States and Canada. All amounts are shown in United States dollars ("U.S. $" or "$"),
unless otherwise noted.
Financial Highlights for Q1 2023
- Generated sales of $579.9 million
(C$783.6 million), a 10.1% decrease
from Q1 2022. The change in sales includes a 13.8% decrease in
organic sales primarily driven by lower volumes, partially offset
by a 4.1% contribution from acquisitions
- Gross profit was $117.0 million,
representing a gross margin percentage of 20.2%
- Operating expenses as a percentage of sales were 15.9%, and
grew by just $3.4 million
organically, or 4.0%, despite higher inflationary conditions
prevalent in the economy
- Adjusted basic earnings per share were $0.48 (C$0.65), and
Adjusted EBITDA was $42.9 million
(C$58.0 million)
- Cash flow from operating activities was $69.8 million (C$94.3
million). Net bank debt decreased $42.9 million
- Ended the quarter with a strong balance sheet and a Leverage
Ratio of 2.6 times
"We achieved a solid start to our 2023 year as we demonstrated
the strength of our strategies and business model in a more
challenging economic environment," said Rob
Brown, ADENTRA's President and CEO. "Our positive first
quarter results were supported by our balanced business platform,
which includes significant diversification of end-markets, customer
channels, product categories, and geographic coverage. These
attributes we believe have generally supported pricing for our
products, which is flat year-on-year."
"We also continued to demonstrate our business's ability to
generate significant cash flows, both from the predictable
conversion of Adjusted EBITDA to operating cash flow before changes
in working capital, and from the release of working capital during
periods of reduced economic activity. First quarter cash flow from
operating activities grew to $69.8
million, representing a year-over-year increase of
$100.0 million, and supported by a
decrease in inventory in the first quarter of $49.1 million. We put this capital to work to
enhance shareholder value, including financing the purchase of Rojo
Distributors, repurchasing almost 2% of our issued and outstanding
shares, announcing a quarterly dividend of C$0.13 per share, and paying down net bank debt
by $42.9 million in the quarter."
"As we move forward, we will continue to closely monitor
changing economic conditions and the impacts that recent price
inflation, rising interest rates, and other factors can have on our
business. We benefit from an experienced team with a long track
record of successfully managing our operations and controlling
costs through changing markets. We continue to see a long runway of
growth and value creation as we benefit from our leading market
position, the long-term fundamentals underpinning the North
American buildings products market, and our proven strategies for
achieving profitable growth," said Mr. Brown.
Outlook
Previous inflation and interest rate hikes are expected to have
a continued near-term negative impact on economic activity.
This, in turn, is resulting in a moderation of demand for our
products and could lead to softer product pricing and volumes as
compared to our 2022 experience. As a result we expect our 2023
financial performance will not be as strong as the record-setting
levels achieved last year.
As we have demonstrated in previous business cycles and most
recently in Q1 2023, we are adept at managing our business and cash
flows effectively in challenging market conditions. Our size and
scale, together with the diversity in our product categories,
customer channels and end-markets, provide important stability
while reducing our exposure to any one geography or segment of the
industry. Our strong balance sheet provides financial stability as
we move through periods of changing market conditions, and our
business model will continue to convert a high proportion of EBITDA
to operating cash flows before changes in working capital. In
addition, our investment in working capital typically decreases
during periods of reduced activity, resulting in an additional
source of cash.
Over the longer term we anticipate a return to
robust demand levels, supported by strong fundamentals in our end
markets. We continue to see a multi-year runway for growth in the
repair and remodel, residential, and commercial markets we
participate in.
Outlook for our end-markets
Growth rates in the repair and remodel market (~40% of
sales) are expected to moderate this year following two years
of higher-than-normal growth. The Joint Center for Housing Studies
of Harvard University anticipates a
decrease of 2.8% for the U.S. repair and remodel market by the
fourth quarter of 2023. Market fundamentals are well supported by
record levels of home equity in the U.S. and a median home age of
over 40 years. Disaster repairs and mitigation projects following
Hurricane Ian are also expected to support the home remodeling
market in fiscal 2023.
In the residential construction market (~40% of sales),
new building starts decreased 17% in March
2023 as compared to March 2022
as affordability headwinds weigh on consumers. Over the longer
term, leading indicators for the residential construction market
remain favorable. Housing starts have meaningfully lagged
population growth this past decade and this supply deficit,
combined with positive demographic factors, is expected to underpin
long-term demand for new housing.
The demand outlook for U.S. commercial markets (~15% of
sales) is mixed, with some sectors showing strength and others
recovering at a slower pace. Commercial market participation is
highly diverse for ADENTRA and includes construction activity in
healthcare, education, public buildings, hospitality, office,
retail facilities and recreational vehicles. We expect this market
to be flat in 2023.
As we move forward, we are well positioned with an
industry-leading, world-class platform for architectural
products that supports the continued growth and profitability of
our business. This includes continued opportunities for
acquisition-based growth in a highly fragmented industry. Although
we are one of the largest distributors in our industry, our market
share amounts to approximately 6%. We see significant market share
opportunities, both organic and acquisitions based, which we intend
to capture. Our goal is to grow sales to $3.5 billion by 2026 (run-rate). Further details
on our goals and financial KPI's can be found in the investor
presentation on our website.
Q1 2023 Investor Call
ADENTRA will hold an investor call on Friday May 12, 2023 at 8:00 am Pacific (11:00
am Eastern). Participants should dial 1-888-664-6392 or
(416) 764-8659 (GTA) at least five minutes before the call begins.
A replay will be available through May 26,
2023 by calling toll free 1-888-390-0541 or (416) 764-8677
(GTA), followed by passcode 233854.
Summary of Results
|
|
|
|
|
Three
months
|
|
Three
months
|
|
ended March
31
|
|
ended March
31
|
|
2023
|
|
2022
|
Total sales
|
$
579,857
|
|
$
644,883
|
Sales in the
US
|
536,184
|
|
591,222
|
Sales in Canada
(CAD$)
|
59,068
|
|
68,067
|
Gross profit
|
116,993
|
|
147,781
|
Gross profit
%
|
20.2 %
|
|
22.9 %
|
Operating
expenses
|
(92,428)
|
|
(84,772)
|
Income from
operations
|
$
24,565
|
|
$
63,009
|
Add: Depreciation and
amortization
|
17,018
|
|
15,205
|
Earnings before
interest, taxes, depreciation and
|
|
|
|
amortization
("EBITDA")
|
$
41,583
|
|
$
78,214
|
EBITDA as a % of
revenue
|
7.2 %
|
|
12.1 %
|
Add
(deduct):
|
|
|
|
Depreciation and
amortization
|
(17,018)
|
|
(15,205)
|
Net finance
expense
|
(12,219)
|
|
(5,382)
|
Income tax
expense
|
(2,749)
|
|
(14,140)
|
Net income for the
period
|
$
9,597
|
|
$
43,487
|
Basic earnings per
share
|
$
0.43
|
|
$
1.83
|
Diluted earnings per
share
|
$
0.42
|
|
$
1.82
|
Average US dollar
exchange rate for one Canadian dollar
|
$
0.739
|
|
$
0.790
|
|
|
|
|
|
Three
months
|
|
Three
months
|
|
ended March
31
|
|
ended March
31
|
|
2023
|
|
2022
|
Earnings before
interest, taxes, depreciation and
|
|
|
|
amortization
("EBITDA"), per table above
|
$
41,583
|
|
$
78,214
|
LTIP expense
|
1,286
|
|
695
|
Transaction
expense
|
—
|
|
892
|
Adjusted
EBITDA
|
$
42,869
|
|
$
79,801
|
Adjusted EBITDA as a
% of revenue
|
7.4 %
|
|
12.4 %
|
|
|
|
|
Net income for the
period, as reported
|
$
9,597
|
|
$
43,487
|
Adjustments, net of
tax
|
1,172
|
|
1,250
|
Adjusted net income for
the period
|
$
10,769
|
|
$
44,737
|
|
|
|
|
Basic earnings per
share, as reported
|
$
0.43
|
|
$
1.83
|
Net impact of above
items per share
|
0.05
|
|
0.05
|
Adjusted basic earnings
per share
|
$
0.48
|
|
$
1.88
|
|
|
|
|
Diluted earnings per
share, as reported
|
$
0.42
|
|
$
1.82
|
Net impact of above
items per share
|
0.05
|
|
0.05
|
Adjusted diluted
earnings per share
|
$
0.47
|
|
$
1.87
|
Results from Operations - Three Months Ended March 31,
2023
For the three months ended March 31, 2023, we generated
total sales of $579.9 million, as
compared to $644.9 million in the
same period in 2022. The $65.0
million, or 10.1%, decrease in sales was primarily the
result of a $88.7 million reduction
in organic sales, partially offset by $26.4
million of incremental revenue contribution from a full
three months of Mid-Am's results in Q1 2023, as compared to just
under two months' contribution in the same period last year.
An unfavorable foreign exchange impact related to the translation
of Canadian sales to US dollars for reporting purposes accounted
for the remaining $3.0 million of
sales impact.
First quarter sales from our U.S. operations were $536.2 million, as compared to $591.2 million in the same period in 2022. The
$55.0 million, or 9.3%, decrease
reflects a primarily volume-driven $81.7
million reduction in organic sales, partially offset by
$26.4 million in incremental revenue
from a full quarter of Mid-Am's results and $0.3 million of sales contributed from our recent
acquisition of Rojo.
In Canada, first quarter sales
of C$59.1 million were C$9.0 million, or 13.2%, lower than the same
period in 2022. The year-over-year change in Canadian sales
primarily reflects a decrease in volumes.
We generated first quarter gross profit of $117.0 million, as compared to $147.8 million in the same period last year. The
$30.8 million, or 20.8%,
year-over-year decrease reflects lower organic sales and a gross
profit percentage of 20.2%, as compared to 22.9% in Q1 2022. Our
gross profit percentage from the prior-year period was temporarily
elevated due to favorable market dynamics, including strong demand
and tight supply.
For the three months ended March 31, 2023, operating
expenses increased by $7.7 million to
$92.4 million, from $84.8 million in the same period last year. As a
percentage of sales, operating expenses were 15.9%, as compared to
13.1% in the same period last year.
The $7.7 million increase in
operating expenses includes $3.3
million related to incremental operating expenses from the
inclusion of a full quarter's results of Mid-Am, $1.0 million of amortization on intangible assets
acquired in connection with the Mid-Am acquisition, and
$3.4 million relating to organic
increase in operating expenses.
For the three months ended March 31, 2023, depreciation and
amortization increased to $17.0
million, from $15.2 million in
Q1 2022. This $1.8 million increase
primarily relates to the operations of the Mid-Am business for a
full quarter and is comprised of $1.0
million of amortization for acquired intangible assets and
$0.5 million from depreciation
related to operations during the period.
For the three months ended March 31, 2023, net finance
expense increased to $12.2 million,
from $5.4 million in the same period
last year. This increase was primarily driven by higher interest
rates on bank indebtedness.
For the three months ended March 31, 2023, income tax
expense was $2.7 million compared to
$14.1 in the same period in 2022,
primarily reflecting lower taxable income and the benefit of tax
restructuring.
We generated Adjusted EBITDA of $42.9
million in Q1 2023, as compared to $79.8 million during the same period in 2022. The
$36.9 million, or 46%, change was
driven primarily by the $30.8 million
decrease in gross profit and the $6.1
million increase in operating expenses (before changes in
depreciation and amortization, LTIP expense, and transaction
expenses).
Net income for the first quarter of 2023 was $9.6 million, as compared to $43.5 million in Q1 2022. The $33.9 million, or 78%, decrease primarily
reflects $36.6 million lower EBITDA,
the $1.8 million increase in
depreciation and amortization, and the $6.8
million increase in net finance expense, partially offset by
the $11.4 million decrease in income
tax expense.
For the three months ended March 31, 2023, we generated
basic earnings per share of $0.43, as
compared to $1.83 in Q1 2022.
Adjusted net income was $10.8
million, as compared to $44.7
million in Q1 2022, and Adjusted diluted earnings per
share were $0.47, as compared to
$1.87 in Q1 2022.
About ADENTRA
ADENTRA is one of North
America's largest distributors of architectural building
products to the residential, repair and remodel, and commercial
construction markets. The Company currently operates a network of
86 facilities in the United States
and Canada. ADENTRA's common
shares are listed on the Toronto Stock Exchange under the symbol
ADEN.
Non-GAAP and other Financial Measures
In this news release, reference is made to the following
non-GAAP financial measures:
- "Adjusted EBITDA" is EBITDA before long term incentive plan
("LTIP") expense, professional fees and transaction expenses. We
believe Adjusted EBITDA is a useful supplemental measure for
investors, and is used by management, for evaluating our ability to
meet debt service requirements and fund organic and inorganic
growth, and as an indicator of relative operating performance.
- "Adjusted net income" is net income before LTIP expense,
professional fees and transaction expenses. We believe adjusted
profit is a useful supplemental measure for investors, and is used
by management, for evaluating our profitability, our ability to
meet debt service and capital expenditure requirements, our ability
to generate cash flow from operations, and as an indicator of
relative operating performance.
- "EBITDA" is earnings before interest, income taxes,
depreciation and amortization, where interest is defined as net
finance income (expense) as per the consolidated statement of
comprehensive income. We believe EBITDA is a useful supplemental
measure for investors, and is used by management, for evaluating
our ability to meet debt service requirements and fund organic and
inorganic growth, and as an indicator of relative operating
performance.
- "Organic growth" and "acquisition-based growth" consists of
quantifying the change in total sales as either related to organic
growth or acquisition-based growth, or the impact of foreign
exchange related to the translation of Canadian sales to U.S.
dollars. Total sales earned by acquired companies in the first 12
months following an acquisition is reported as acquisition-based
growth and thereafter as organic growth. Organic growth excludes
the impact of acquisitions and foreign exchange impact related to
the translation of Canadian sales to U.S. dollars. From time to
time, we also quantify the impacts of certain unusual events to
organic growth to provide useful information to investors to help
better understand our financial results.
In this news release, reference is also made to the following
non-GAAP ratios: "adjusted basic earnings per share", "adjusted
diluted earnings per share", "Adjusted EBITDA margin" and "Leverage
Ratio". For a description of the composition of each non-GAAP ratio
and how each non-GAAP ratio provides useful information to
investors and is used by management, see "Non-GAAP and Other
Financial Measures" in the Company's management's discussion and
analysis for the year ended December 31,
2022 (which is incorporated by reference herein).
Such non-GAAP financial measures and non-GAAP ratios are not
standardized financial measures under International Financial
Reporting Standards ("IFRS") and might not be comparable to similar
financial measures disclosed by other issuers. For reconciliation
between non-GAAP measures and the most directly comparable
financial measure in our financial statements, please refer to the
"Summary of Results".
Forward-Looking Statements
Certain statements in this press release contain forward-looking
information within the meaning of applicable securities laws in
Canada ("forward-looking
information"). The words "anticipates", "believes", "budgets",
"could", "estimates", "expects", "forecasts", "intends", "may",
"might", "plans", "projects", "schedule", "should", "will", "would"
and similar expressions are often intended to identify
forward-looking information, although not all forward-looking
information contains these identifying words.
The forward-looking information in this press release includes,
but is not limited to: our goal to grow sales to $3.5 billion by 2026 (run-rate); our intention is
to build a highly sustainable future for ADENTRA and our
stakeholders; our expectations regarding our ability to deliver
growth and profitability; our expectations regarding future
economic conditions and industry trends; our ability to generate
cash flow; we expect reduced financial performance in 2023 as
compared to the record setting levels achieved in 2022; our
intention to effectively manage our business and cash flows;
expected demand for our products; our plans to grow our business
through organic growth and acquisitions; and, expected future
dividends and considerations as to the payment of any future
dividends.
The forecasts and projections that make up the forward-looking
information are based on assumptions which include, but are not
limited to: there are no material exchange rate fluctuations
between the Canadian and U.S. dollar that affect our performance;
the general state of the economy does not worsen; we do not lose
any key personnel; there is no labor shortage across multiple
geographic locations; there are no circumstances, of which we are
aware that could lead to the Company incurring costs for
environmental remediation; there are no decreases in the supply of,
demand for, or market values of our products that harm our
business; we do not incur material losses related to credit
provided to our customers; our products are not subjected to
negative trade outcomes; we are able to sustain our level of sales
and earnings margins; we are able to grow our business long term
and to manage our growth; we are able to integrate acquired
businesses; there is no new competition in our markets that leads
to reduced revenues and profitability; we can comply with existing
regulations and will not become subject to more stringent
regulations; no material product liability claims; importation of
components or other innovative products does not increase and
replace products manufactured in North
America; our management information systems upon which we
are dependent are not impaired; we are not adversely impacted by
disruptive technologies; an outbreak or escalation of a contagious
disease does not adversely affect our business; and, our insurance
is sufficient to cover losses that may occur as a result of our
operations.
The forward-looking information is subject to risks,
uncertainties and other factors that could cause actual results to
differ materially from historical results or results anticipated by
the forward-looking information. The factors which could cause
results to differ from current expectations include, but are not
limited to: exchange rate fluctuations between the Canadian and
U.S. dollar could affect our performance; our results are dependent
upon the general state of the economy; impacts of COVID-19, further
mutations thereof or other outbreaks of disease, could have
significant impacts on our business; we depend on key personnel,
the loss of which could harm our business; a labour shortage across
multiple geographic locations could harm our business; decreases in
the supply of, demand for, or market values of hardwood lumber or
sheet goods could harm our business; we may incur losses related to
credit provided to our customers; our products may be subject to
negative trade outcomes; we may not be able to sustain our level of
sales or earnings margins; we may be unable to grow our business
long term or to manage any growth; we are unable to integrate
acquired businesses; competition in our markets may lead to reduced
revenues and profitability; we may fail to comply with existing
regulations or become subject to more stringent regulations;
product liability claims could affect our revenues, profitability
and reputation; importation of components or other innovative
products may increase, and replace products manufactured in
North America; disruptive
technologies could lead to reduced revenues or a change in our
business model; we are dependent upon our management information
systems; disruptive technologies could lead to reduced revenues or
a change in our business model; our information systems are subject
to cyber securities risks; our insurance may be insufficient to
cover losses that may occur as a result of our operations; an
outbreak or escalation of a contagious disease may adversely affect
our business; our credit facility affects our liquidity, contains
restrictions on our ability to borrow funds, and impose
restrictions on distributions that can be made by us and certain of
our subsidiaries; the market price of our Shares will fluctuate;
there is a possibility of dilution of existing Shareholders; and,
other risks described in our annual information form and in our
management's discussion and analysis for the year ended
December 31, 2022, each of which are
available on the Company's profile at www.sedar.com.
This news release contains information that may constitute a
"financial outlook" within the meaning of applicable securities
laws. The financial outlook has been approved by management as of
the date of this news release. The financial outlook is provided
for the purpose of providing readers with an understanding of the
Company's anticipated financial performance. Readers are cautioned
that the information contained in the financial outlook may not be
appropriate for other purposes.
All forward-looking information in this news release is
qualified in its entirety by this cautionary statement and, except
as may be required by law, we undertake no obligation to revise or
update any forward-looking information as a result of new
information, future events or otherwise after the date
hereof.
Third-Party Information
Certain information contained in this news release includes
market and industry data that has been obtained from or is based
upon estimates derived from third-party sources, including industry
publications, reports and websites. Although the data is believed
to be reliable, we have not independently verified the accuracy,
currency or completeness of any of the information from third-party
sources referred to in this news release or ascertained from the
underlying economic assumptions relied upon by such sources. We
hereby disclaim any responsibility or liability whatsoever in
respect of any third-party sources of market and industry data or
information.
SOURCE ADENTRA Inc.