Q2 2024 Premium Brands Holdings Corp Earnings Call - Q&A

Good morning ladies and gentlemen and welcome to the Premium Brands Holdings Corporation second quarter 2024 earnings conference call question and answer session.

Operator: 2nd Quarter 2024 Earnings Conference Call, Question and Answer Session. At this time, all lines are in a listen-only mode. If at any time during this call you require immediate assistance, please press star 0 for the operator. This call is being recorded on Thursday, August 8, 2024. Our speakers today are George Paleologou, CEO and President of Premium Brands, and Will Kalutycz, CFO of Premium Brands. I would now like to turn the conference over to George. Please go ahead.

Operator: If at any time during this call your core admitted assistance, please press zero for the operator.

Speaker Change: At this time, all lines are in a listen-only mode. If at any time during this call you require immediate assistance, please press star zero for the operator.

Operator: This call is being recorded on Thursday, August 8, 2024. Our speakers today are George Paleologou, CEO and President of Premium Brands, and Will Kalutycz, CFO of Premium Brands.

Speaker Change: This call is being recorded on Thursday, August 8, 2024. Our speakers today are George Paleologou, CEO and President of Premium Brands, and Will Kalutycz, CFO of Premium Brands. I would now like to turn the conference over to George. Please go ahead.

Lee Wei: I would not like to surrender conference, all words are George, please go ahead. Thank you, Lee Wei.

George Paleologou: Thank you, Li Wei. Good morning, and welcome everyone to our 2024 second quarter conference call. With me here today is our CFO, Will Kalutycz. Hopefully, you've had a chance to listen to a pre-recorded call posted on our website this morning. Also, if you haven't done it already, please take the time to read through my most recent annual letter to shareholders on our website, titled "Transformational Growth." The title and narrative capture and describe the next stage of our journey as we begin to accelerate our growth in the U.S. and, to a lesser extent, in overseas markets. We will now take your questions.

George Paleologou: Good morning and welcome everyone to our 2024 second quarter conference call. With me here today is our CFO, Will Kalutycz. Hopefully you've had a chance to listen to a pre-recorded call posted on our website this morning.

George Paleologou: Thank you, Li Wei. Good morning and welcome everyone to our 2024 second quarter conference call.

Speaker Change: With me here today is our CFO , Will Kalutycz.

Speaker Change: Hopefully, you've had a chance to listen to our pre-recorded call posted on our website this morning.

George Paleologou: Also, if you haven't done it already, please take the time to read through my most recent annual letter to shareholders on our website titled "Transformation of Growth." The title and narrative capture and describe the next stage of our journey as we begin to accelerate our growth in the US and, to a lesser extent, in overseas markets.

Speaker Change: Also, if you haven't done it already, please take the time to read through my most recent annual letter to shareholders on our website, titled Transformational Growth.

Speaker Change: They title a narrative, capture and describe the next stage of our journey as we begin to accelerate our growth in the U.S. and, to a lesser extent, in overseas markets. We will now take your questions. Li Wei.

Lee Wei: We will now take your questions, Lee Wei. Thank you so much, and ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press on followed by the number one on your touch-tone phone. You will hear a prompt as your hand has been raised, and should you wish to decline from the polling process, please press the star followed by the number two.

Operator: And ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press on, followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised, and should you wish to decline from the polling process, please press the star followed by the number two. One moment, please, for your first question. Our first question comes from the line of Martin Landry of Stifel. Your line is now open.

Speaker Change: Thank you so much.

Speaker Change: And ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press the star followed by the number two. One moment please for your first question.

Lee Wei: One moment. First question comes from the line of Martin Landry of Stiffle. Your line is now open.

Speaker Change: Our first question comes from the line of Martin Landry of Stifel. Your line is now open.

Martin Landry: Hi, good morning, guys. Good morning, Martin. My first question: I would like to talk about your guidance and your cautious tone. You highlight some startup issues and longer onboarding for new businesses than expected. So I was wondering if there's any way for you guys to quantify what's the revenue impact of these delays versus your original assumption at the beginning of the year? And is there any spillover into 25? I think there may be some as you've put in your press release. So, you know, can you quantify as well? Why could be the revenue impact headwind that you may feel in 25 due to these delays?

Martin Landry: Hi. Good morning, guys. Hey Martin!

Martin Landry: Hi. Good morning, guys.

Martin Landry: My first question is about your guidance and your cautious tone. You highlight some startup issues and longer onboarding for new businesses than expected. So I was wondering if there's any way for you guys to quantify what the revenue impact of these delays is versus your original assumption at the beginning of the year. Is there any spillover into 2025? I think there may be some, as you've put in your press release. Can you quantify, as well, what could be the revenue impact headwind that you may feel in 2025 due to these delays? Yeah, certainly the

Speaker Change: Morning Martin. Hey Martin.

Martin Landry: My first question, I would like to talk about your guidance and your cautious tone.

Speaker Change: highlight some startup issues and longer onboarding for new businesses than expected.

Speaker Change: I was wondering if there's any way for you guys to quantify what's the revenue impact of these delays versus your original assumption at the beginning of the year?

Speaker Change: Is there any spillover into 2025? I think there may be some, as you've put in your press release. Can you quantify as well what could be the revenue impact headwind that you may feel in 2025 due to these delays?

George Paleologou: Yeah, certainly the bigger of the two factors, Martin, is the onboarding and new business. You know, it's large pieces of businesses we're pursuing. They tend to be fairly lumpy, and it can take a little bit longer than sort of your traditional smaller listings to get the program set up and launch. And so that's been the big factor. Like you see, start up issues and some of the plans is contributed to as well, but nowhere by any means as significantly as that. In terms of the quantification of it, it's really going to be the timing of when these products actually launch.

Will Kalutycz: Yeah, certainly the bigger of the two factors, Martin, is onboarding new business. You know, it's large pieces of businesses we're pursuing, they tend to be fairly lumpy, and it can take a little bit longer than sort of your traditional smaller listings to get the program set up and launched. And so that's been the big factor. Like I say, startup issues in some of the plants have contributed as well, but nowhere by any means as significantly as that.

Speaker Change: Yeah, certainly the bigger of the two factors, Martin, is the onboarding of new business.

Speaker Change: You know, it's large pieces of businesses we're pursuing, they tend to be fairly lumpy.

Speaker Change: And it can take a little bit longer than sort of your traditional smaller listings to get the...

Speaker Change: The program set up and launched, and so that's been the big factor. Like I say, startup issues in some of the plants has contributed to as well, but nowhere by any means as significantly as that.

Will Kalutycz: In terms of the quantification of it, it's really going to be the timing of when these products actually launch. It could be late Q3, it could be Q4, it could be early 2025. We've taken a cautious approach and assumed the launches are later in the schedule than we're hoping to achieve, and that's the rationale for guiding towards the bottom end of our guidance. But ultimately, it's going to be when the timing of those carries through.

Speaker Change: In terms of the quantification of it, it's really going to be the timing of when these

George Paleologou: It could be late Q3; it could be Q4; it could be early 2025. We've taken the cautious approach and assumed the launches are later in the schedule than we're hoping to achieve. And that's the rationale for guiding towards the bottom end of our guides. But ultimately, it's going to be when the timing of those fall arm carries through.

Speaker Change: These products actually launch. It could be late Q3, it could be Q4, it could be early 2025.

Speaker Change: We've taken the cautious approach and assumed that the launches are later in the schedule than we're hoping to achieve, and that's the rationale for guiding towards the bottom end of our guidance, but ultimately it's going to be when the timing of those launches

Speaker Change: Full-on carries through.

George Paleologou: Okay, just so I understand clearly, you know, is this a delay from your customer, or is it a delay on your end to onboard that new customer or that new product? Well, in terms of the ones relating to plant capacity, obviously, that's on us. In terms of working with our customers, it's generally going through the customer's processes. You know, sometimes there's several layers of approvals, and so it's just working through those processes, getting sign-off on labels and packaging sizes and attributes. And so it's just a process of going through that, so on that side of things, it's more customer-related.

Martin Landry: Just so I understand clearly, is this a delay from your customer, or is it a delay on your end to onboard that new customer or that new product?

Speaker Change: Okay, just so I understand clearly, is this a delay from your customer or is it a delay on your end to onboard that new customer or that new product?

Will Kalutycz: Well, in terms of the ones relating to plant capacity, obviously that's on us. In terms of working with our customers, it's generally going through the customer's processes. Sometimes there are several layers of approvals, and so it's just working through those processes, getting sign-off on labels and packaging sizes and attributes, and so it's just a process of going through that. So on that side of things, it's more customer-related

Speaker Change: Well, in terms of the ones relating to plant capacity, obviously that's on us.

Speaker Change: In terms of working with our customers, it's generally going through the customer's processes. Sometimes there's several layers of approvals.

Speaker Change: And so, it's just working through those processes, getting sign-off on.

Speaker Change: labels and packaging sizes and attributes and and so it's just a process of going through that so on that side of things it's more customer related.

Martin Landry: Okay, and maybe just my last question would be on overseas markets. You know, you talk about maybe lobster sales being a little slower.

Martin Landry: Okay, and maybe just my last question would be on overseas markets. You know, you talk about maybe lobster sales being a little slower. I don't know if it's shipments or demand, but I was wondering if you could talk a little bit more high level about the level of demand you see in overseas markets and what... What's the pace of your, and what's the percentage of your sales now that I realize are outside of North America?

Speaker Change: Okay.

Speaker Change: My last question would be on overseas markets.

Speaker Change: You know, you talk about maybe lobster sales being a little slower, I don't know if it's shipments or demand, but I was wondering if you could talk a little bit more high level about

George Paleologou: I don't know if it's shipments or demand, but I was wondering if you could talk a little bit more high-level about the level of demand you see in overseas markets, and what's the pace of your, what's the percentage of your sales amount of the realized upside of North America? Well, so, you know, premium brands proper excluding our clear water business, you know, the vast, when you look at our two segments, the premium foods distribution segment, all of their exports focus around live lobster to China, or primarily live lobster to China, which is what we called out in the quarter.

Speaker Change: the level of demand you see in overseas markets, and what's the pace of your, what's the percentage of your sales now that I realize outside of North America?

George Paleologou: Well, so, you know, Premium Brands proper, excluding our Clearwater business, you know, we, you know, the large part, the vast majority, when you look at our two segments, The premium foods distribution segment, all of their exports focus around live lobster to China, or primarily live lobster to China, which is what we called out in the quarter. That's really just the economic situation in China.

Speaker Change: Well, so, you know, Premium Brands proper, excluding our Clearwater business, you know, we, you know, the large part, the vast, when you look at our two segments,

Speaker Change: The premium foods distribution segment, all of their exports focus around

Speaker Change: Live Lobster to China, or primarily Live Lobster to China, which is, you know, what we called out in the quarter. And that's really just the economic situation in China, you know, as that turns and that improves, we should see that volume coming back.

George Paleologou: And that's really just the economic situation in China. You know, as that turns and that improves, we should see that volume coming back. In terms of our specialty food segment, you know, we've got a number of initiatives in mainly in the Asian area, and those are going really well, and we're seeing really good glows. And then, in fact, that's one of the issues that contribute to the delays: we've got a key customer in Asia that we've got a number of new product launches coming on with. We had expected them to happen in Q2; most of them are now happening in Q3, so we're making really good progress there on the specialty food side.

George Paleologou: As that turns and that improves, we should see that volume coming back. In terms of our specialty foods segment, we've got a number of initiatives, mainly in the Asian area, and those are going really well. We're seeing really good growth.

Speaker Change: In terms of our specially food segment...

Speaker Change: And we've got a number of initiatives in...

Speaker Change: mainly in in the Asian area and those are going really well and we're seeing really good glows and in fact that's one of the

George Paleologou: In fact, that's one of the issues that contributes to the delays, because we've got a key customer in Asia that we've got a number of new product launches coming out with. We had expected them to happen in Q2, but most of them are now happening in Q3. We're making really good progress there on the specialty foods side. I think that answers your question.

Speaker Change: Issues that contribute to the delays is we've got a key customer in Asia that we've got a number of new product launches coming on with.

Speaker Change: We had expected them to happen in Q2, most of them are now happening in Q3, so we're making really good progress there on the specialty foods side.

George Paleologou: In terms, I think that answers your question, Martin.

Speaker Change: I think that answers your question, Martin.

Will Kalutycz: Yeah, I mean, I was just trying to see if you could qualify your sales internationally, but if it's too small. Oh, right. In terms of sales internationally, you know, I... I don't have that number off the top of my head, but in general terms, you know, probably in the specialty foods group, you know, George, I'd guess what, $10 to $20 million range?

Martin Landry: Yeah, I mean, I was just trying to see if you could quantify your sales internationally, but if it's too small. Oh, right. In terms of sales internationally, you know, I don't have that number off the top of my head, but in general terms, you know, probably in the specialty foods group. You know, Georgia, I guess, what, 10 to 20 million dollar range?

Martin Landry: Yeah, I mean, I was just trying to see if you could qualify your sales internationally, but if it's too small... Oh, right. In terms of sales internationally, you know, I...

Speaker Change: I don't have that number off the top of my head, but in general terms, you know, probably in the specialty foods group.

George Paleologou: Yeah, yeah, that's about right, and I'm just reminding you, Martin, that we're starting at zero, right? So we've got a lot on the go, as Will said, we've launched a few products recently and a few more in the pipeline across most of our platforms.

George Paleologou: Yeah, yeah, that's about right, and I'm just reminding you, Martin, that we're starting at zero, right? So we've got a lot on the go, as Will said. We've launched a few products recently, and a few more in the pipeline across most of our platforms. Super.

George Paleologou: George, I'd guess, what, $10 million to $20 million range? Yeah, yeah, that's about right, and I'm just reminding you, Martin, that we're starting at zero, right? So we've got a lot on the go, as Will said. We've launched a few products recently.

George Paleologou: and a few more in the pipeline across most of our platforms.

Martin Landry: Super. Okay, thank you, and best of luck.

Martin Landry: Okay, thank you, and best of luck. Thanks, Mark. Thank you, Mark.

Speaker Change: Super. Okay, thank you and best of luck.

Lee Wei: Thank you so much. Our next question comes from the line of Derek Lessard of TD Collin.

Operator: Thank you so much. Our next question comes from the line of Derek Lessard of TD Common. Your line is now open.

George Paleologou: Thanks Martin. Thank you Martin.

Speaker Change: Thank you so much. Our next question comes from the line of Derrick Lessard of TD Common. Your line is now open.

Derek Lessard: Your line is now open. Yeah, good afternoon, gentlemen. Hey, Derek. Hey, well, and I just so I understand that in the US because you guys are winning you customers and contracts. It's hard for you to see the direct impact on any potential, I guess, weaker consumer spending. But I just, you know, I am curious if there is a weaker consumer than if it's had any impact on you guys.

Derek Lessard: Yeah, good afternoon, gentlemen. Hey, Derek. Hey, Abel. And I just, so I understand that in the U.S., because you guys are winning new customers and contracts, it's hard for you to see the direct impact on any potential, I guess, weaker consumer spending, but it's just, you know, I am curious if there is a weaker consumer there and if it's had any impact on you guys.

Derrick Lessard: Yeah, good afternoon, gentlemen. Hey, Derek. Hey, Will. So, I understand that in the U.S.

Speaker Change: because you guys are winning new customers and contracts.

Derrick Lessard: It's hard for you to see the direct impact on any potential, I guess, weaker consumer spending, but it's just, you know, I am curious if there is a weaker consumer there and if it's had any impact on you guys.

Will Kalutycz: Yeah, well, you'll have noticed that on our slide where we break down the organic volume growth rates by the three groups, protein, bakery, and sandwich, protein was a little lower than we expected in the quarter. Part of that was product launches, but we have seen in some of our really high-end products, we have seen a little bit of softening in terms of legacy markets. Now, when they go into new markets, that's all new business, and that's done well, but in the legacy markets, we have seen a little bit of softening.

George Paleologou: Yeah, well, you'll have noticed that when in our slide where we break down the organic volume growth rates by the three groups, protein, bakery, and sandwich, you know, protein was a little lower than we expected in the quarter. Part of that was product launches. But we have seen in some of our really high-end products, we have seen a little bit of softening in terms of legacy markets. Now, when they go into new markets, that's all new business, and that's that well. But in the legacy markets, we have seen a little bit of softening, but it's interesting in the US. Derek is and we're not very big in the food service segment in the US.

Speaker Change: Yeah, well you'll have noticed that when in our slide where we break down the organic volume growth rates by the three groups protein, bakery, and sandwich

Speaker Change: You know, protein was a little lower than we expected in the quarter. Part of that was product launches, but we have seen in some of our really high-end

George Paleologou: products we have seen a little bit of softening in terms of legacy markets. Now when they go into new markets that's all new business and that's done well.

George Paleologou: But in the legacy markets, we have seen a little bit of softening. But it's interesting in the U.S., Derek is, and we're not very big in the food service segment in the U.S.

Will Kalutycz: But it's interesting, in the U.S., Derek is, and we're not very big in the food service segment in the U.S., but we have seen, to the extent we've got products going into that, that's been relatively stable, and where we have seen, like I said, a little bit of softness has been in the retail channel. I think in terms of channels, Derek, in particular...

George Paleologou: But, you know, we have seen, to the extent we've got products going in, that that's been relatively stable; and where we have seen it, like I said, a little bit of softness has been in the retail channel. I think in terms of channels, Derek in particular, there is no question that both the Canadian consumer and the US consumer are looking for more value. They're trying to stretch their dollar, so they're generally shopping more in discount and club, as opposed to traditional retail. And to a lesser extent in food service, they're going to QSR rather than fast casual.

George Paleologou: But, you know, we have seen, to the extent we've got products going in that, that's been relatively stable, and where we have seen, like I said, a little bit of softness has been in the retail channel. I think in terms of channels, Derek, in particular...

George Paleologou: There's no question that both the Canadian consumer and the U.S. consumer are looking for more value. They're trying to stretch their dollar. So they're generally shopping more at discount and club stores as opposed to traditional retail.

Derek: There's no question that both the Canadian consumer and the U.S. consumer are looking for more value. They're trying to stretch their dollar, so they're generally shopping more in discount and club as opposed to traditional retail.

George Paleologou: to a lesser extent in food service. They're going to QSRs rather than fast casual. So that's what we're seeing. Not that overall demand is down; it's that the channel that consumers choose to shop at is different.

George Paleologou: and

Derek: To a lesser extent in food service.

Speaker Change: They're going to QSR rather than fast casual. So that's what we're seeing. Not that overall demand is down, it's that the channel that the consumers choose to shop at is different.

George Paleologou: So that's what we're seeing.

Derek Lessard: Not that overall demand is down; is that the channel that the consumers choose to shop at is different. Yeah, George, and maybe to your point, I know you guys are indexed in sort of that in the discount channel, but you are stepping up efforts, I think, in club.

Derek Lessard: Yeah, George, and maybe to your point, I know you guys are indexed and sort of that in the discount channel, but you are stepping up efforts, I think, in the club. Are there any plans going forward to maybe even step up those efforts or increase those efforts more to get into those channels?

George Paleologou: Yeah, George, and maybe to your point, I know you guys are indexed and sort of that in the Discount Channel, but you are stepping up efforts, I think, in Club. Are there any plans going forward to maybe even step up those or increase those efforts more to get into those channels?

George Paleologou: Are you, are there any plans going forward to maybe even step up those or increase those efforts more to get into those channels? Absolutely, absolutely. I think overall, Derek, we do very well in club and in retail. We're an under index would be QSR fast casual and see store chains. And we are really focusing on those three channels right now in the US, as we'll said earlier. A lot of those customers are national. They don't have 1,000 stores. They have 10,000 stores. The launches are bigger. They take more planning. And again, we have a lot of businesses in the pipeline to launch.

George Paleologou: Absolutely. Absolutely.

George Paleologou: You know, I think overall, Derek, we do very well in clubs. And in retail, where we're under-indexed would be, you know, QSR, Fast Casual, and C-Store chains. And we are really focusing on those three channels right now in the U.S. As Will said earlier, a lot of those customers are national, you know, they don't have, you know, 1,000 stores; they have 10,000 stores. The launches are bigger, they take more planning, and again, we have a lot of... business in the pipeline to launch.

Speaker Change: Absolutely. Absolutely. You know, I think overall, Derek, we do very well in club.

Speaker Change: and in retail, you know, where we're under-indexed would be...

Speaker Change: QSR, Fast, Casual, and C-Store chains, and we are really focusing on those three channels right now in the U.S. As Will said earlier, a lot of those customers are national, you know, they don't have

Will Kalutycz: You know, a thousand stores, they have 10,000 stores, the launches are bigger, they take more planning, and again, we have a lot of businesses in the pipeline to launch.

Derek Lessard: Okay, thanks for that. And maybe switching gears more towards M&A, I guess on your slide deck, you note that there are three acquisition opportunities in the advanced stages and probably another billion dollars of potential sales sort of in advanced active discussions, and that's changed, or that's up materially from last quarter. So, I was curious about how you guys are thinking about funding given where your leverage currently stands.

Derek Lessard: Okay, thanks for that.

Derek Lessard: And maybe switching gears more towards M&A. I guess on your slide deck, you note that there are three acquisition opportunities in the advanced stages and probably another billion dollars of potential sales in that active discussion. That's changed or that's materially from last quarter.

Speaker Change: Okay, thanks for that and maybe switching gears more towards...

Speaker Change: To M&A, I guess on your slide deck you note that there are three acquisition opportunities in the advanced stages and probably another billion dollars of potential sales sort of in the advanced active discussions and that's

George Paleologou: So I was curious, like how you guys are thinking about funding, given where your leverage currently stands. Yeah, so Derek, yeah, a couple of things.

Speaker Change: That's changed or that's up materially from last quarter, so I was curious, like, how you guys are thinking about funding, given where your leverage currently stands?

George Paleologou: So Derek, yeah, a couple of things. I'll just make a couple of comments and then pass them on to Will. I would say that today the valuation environment is very rational. And that's why we are, you know, we've signed three LOIs recently, and we're in various stages of due diligence. We hope to sign a few more because we work on deals over a long period of time, and obviously, at some point, the valuation has to make sense.

Will Kalutycz: So, Derek, yeah, a couple of things, I'll just make a couple of comments and then pass it on to Will.

George Paleologou: I'll just make a couple of comments and then pass it on to Will. I would say that today, the valuation environment is very rational. And that's why we're, you know, we've signed three LOIs recently, and we're in various stages of due diligence. We hope to sign a few more because we work on deals over a long period of time, and obviously, at some point, the valuation has to make sense. I think in the past, we've talked about the fact that no acquisition that we're going to make is going to stretch the balance sheet more than it is today.

Speaker Change: I would say that today the valuation environment is very rational.

Speaker Change: And that's why we are, you know, we've signed three LOIs recently and we're in various stages of due diligence.

Will Kalutycz: We hope to sign a few more because we work on deals over a long period of time and obviously at some point the valuation has to make sense.

George Paleologou: I think in the past we've talked about the fact that no acquisition that we're going to make is going to stretch the balance sheet more than it is today, so that's still the case, and I'm going to let Will explain the strategy there. Will

Speaker Change: I think in the past we've talked about the fact that no acquisition that we're going to make

Will Kalutycz: It's going to stretch the balance sheet more than it is today. So that's still the case, and I'm going to let Will explain the strategy there. Will? Yeah, so Derek, we're committed to any acquisition we're doing.

William Kalutycz: So that's still the case, and I'm going to let kind of Will explain the strategy there. Will. Yeah, so Derek, you know, we were committed to any acquisition we're doing being any debt issue associated with it being within our targeted debt senior debt PBDAR ratio, you know, the two and a half to three times target. And so what we've been doing in the three transactions that are in that advanced stage is there are a combination of obviously some debt will raise the cash component of the transaction, which will be within those parameters. And then we're using other structures like contingent consideration that's based on future Castro growth, some equity.

Will Kalutycz: Yeah, Derek, you know, we're committed to any acquisition we're doing having any debt issue associated with it being within our targeted debt, senior debt, TBDA ratio, you know, the two and a half to three times target. And so what we've been doing in the three transactions that are in that advanced stage is there is a combination of, obviously, some debt we'll raise, and a cash component of the transaction, which will be within those parameters.

Will Kalutycz: Being any debt issue associated with it, being within our targeted debt, senior debt TBDOT ratio, you know, the two and a half to three times target.

Will Kalutycz: And so what we've been doing in the three transactions that are in that advanced stage is...

Will Kalutycz: There are a combination of, obviously, some debt we'll raise, a cash component of the transaction, which will be within those parameters. And then we're using other structures like contingent consideration that's based on future cash flow growth.

Will Kalutycz: And then we're using other structures like contingent consideration that's based on future cash flow growth, and some equity. And whenever we use equity in the valuation of an acquisition, we price the equity in our modeling at its intrinsic value. We don't use market value, which we see as a discount to the intrinsic value today. And so we're making sure there's no sort of dilution effect built into the acquisition modeling. And you know, based on that, we're very confident that, in fact, acquisitions will strengthen our balance sheet from the perspective of our senior debt TBDA ratio.

William Kalutycz: And whenever we use equity in the valuation of an acquisition, we price the equity in our modeling at its intrinsic value. We don't use the market value, which we see as a discount to the intrinsic value today. And so we're making sure there's no sort of delusion effect built into the acquisition modeling. And you know, through that, we're very confident that, in fact, acquisitions will strengthen our balance sheet from the perspective of our senior debt PBDAR ratio.

Speaker Change: some equity

Speaker Change: And whenever we use equity in the valuation of an acquisition, we price the equity in our modeling at its intrinsic value. We don't use the market value, which we see as a discount to the intrinsic value today. And so we're making sure there's no sort of...

Speaker Change: Dilution effect built into the acquisition modeling and you know through that we were very confident that in fact acquisitions will strengthen our balance sheet from the perspective of our senior debt TBD ratio.

Derek Lessard: Okay, and does, I guess you did have some, you had talked about some sale leasebacks. Is that part of any potential funding, and maybe just a comment on when you expect the timing of those to be complete?

William Kalutycz: Okay. And does, I guess you did have some; you had talked about some sale leasebacks. Is there, is that is that part of any potential funding?

Speaker Change: Okay, and I guess you did have some, you had talked about some sale of these SPACs.

Speaker Change: Is that part of any potential funding, and maybe just a comment on when you expect the timing of those to be complete.

William Kalutycz: And maybe just a comment on when you expect those, the timing it owes to be complete. Yeah, so, so we've got a pipeline of sale leasebacks of about four hundred million dollars associated with three major initiatives properties, two in the US and one in Canada. The sale leasebacks are being tied to the completion of the projects. And so right now, we're actively negotiating on one completed project, which we hope to close this year. And then we've got two more for next year.

Will Kalutycz: Yeah, so we've got a pipeline of sale and leasebacks of about $400 million associated with three major initiatives, properties, two in the U.S. and one in Canada. The sale and leasebacks are being tied to the completion of the projects, and so right now, we're actively negotiating on one completed project, which we hope to close this year, and then we've got two more for next year. But absolutely, that's a part of our general balance sheet strategies.

Speaker Change: Yeah, so we've got a pipeline of sale and leasebacks of about $400 million associated with three major initiatives, properties.

Speaker Change: Two in the U.S. and one in Canada. The sale lease backs are being tied to the completion of the projects.

Speaker Change: And so right now we're actively negotiating on one completed project.

Speaker Change: which we hope to close this year, and then we've got two more for next year. But yes, absolutely, that's a part of our general balance sheet strategies. You know, we've talked in the past, we're a food company, not a real estate company.

William Kalutycz: But yes, absolutely, that's a part of our general balance sheet strategies. You know, we've talked in the past; we're a food company, not a real estate company. And hence it, it doesn't make sense for us to sit on a lot of valuable real estate. Having said that, we, you know, all three of these transactions, we intend to use our retype structure, where we continue to own, you know, 25% roughly of the equity in the property and benefit from the, you know, long-term value growth of the real estate that way. So what you have to remember, Derek, as well is that we have a substantial base of business in the US, as we speak.

Will Kalutycz: We've talked in the past; we're a food company, not a real estate company. And hence, it doesn't make sense for us to sit on a lot of valuable real estate. Having said that, for all three of these transactions, we intend to use our REIT-type structure where we continue to own 35% roughly of the equity in the property and benefit from the long-term value growth of the real estate that way. So what you have to remember, Derek, as well, is that we...

Speaker Change: And, hence, it doesn't make sense for us to sit on a lot of valuable real estate.

Speaker Change: Having said that, all three of these transactions we intend to use our REIT type structure, where we continue to own 35% roughly of the equity in the property.

Speaker Change: and benefit from the long-term value growth of the real estate that way. So, what you have to remember, Derek, as well, is that we have a substantial base of business in the U.S. as we speak.

George Paleologou: So, what you have to remember, Derek, as well, is that we have a substantial base of business in the U.S. as we speak. And any of these acquisitions are going to be accretive, there will be synergies, etc. So they'll be very, very synergistic and very accretive to our numbers, based on the fact that their valuations are very...

William Kalutycz: And any of these acquisitions are going to be accretive. There'll be synergies, etc. So they'll be very, very synergistic and very accretive to our numbers. Based on the fact that our valuations are good.

Speaker Change: And any of these acquisitions are going to be accretive, there will be synergies, etc. So they'll be very, very synergistic and very accretive to our numbers, based on the fact that their valuations are very reasonable.

Derek Lessard: Thank you so much.

Derek: Thanks for that answer.

Kyle McPhee: And our next question comes from the line off, Kyle McPhee of Cormorant Security; your line is now open. I draw, General, just quickly on that, about 400 million sale leaseback. Is that your expected net proceeds from all three transactions? Yes. Okay. And then, so timing has shifted out for some of your U.S. specialty foods growth programs. Should we still see the kind of pace of new volume wins ramp up, like it kind of did from Q1 to Q2? Does that still happen into Q3? Or the next kind of leg up is now delayed until later in the year?

Operator: And our next question comes from the line of Kyle McPhee of Cormark Security. Your line is now open.

Derek: Thank you so much.

Speaker Change: And our next question comes from the line of Kyle McPhee of Cormark Security. Your line is now open.

Kyle McPhee: Hi George and Will, just quickly on that $400 million sale leaseback, is that your expected net proceeds from all three transactions? Yes.

Kyle McPhee: Hi George and Will, just quickly on that $400 million sale leased back, is that your expected net proceeds from all three transactions?

Kyle McPhee: And then, so timing has shifted out for some of your U.S. specialty foods growth programs. Should we still see the kind of pace of new volume winds ramp up like it kind of did from Q1 to Q2? Does that still happen into Q3, or is the next kind of leg up now delayed until later?

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: And then, so timing has shifted out for some of your U.S. specialty foods growth programs.

Speaker Change: Should we still see the kind of pace of new volume winds ramp up like it kind of did from Q1 to Q2? Does that still happen into Q3 or the next kind of leg up is now delayed until later in the year?

William Kalutycz: Yes. Q3, again, as I mentioned earlier, it's really going to be the final timing of these initiatives. How much falls in Q3 versus Q4? From a conservative perspective, we would expect the U.S. growth rate to maybe dip a little bit in Q3 from Q2 just because Q2 had some major channel fills from product launches that helped their sandwich group. You'll notice the sandwich group posted a very strong growth rate for the quarter. But then Q4 absolutely ramping up significantly well ahead of Q2 and Q3. So overall, we're looking at an annual rate probably close to or better than what we did in Q2.

Will Kalutycz: Yeah, so Q3, you know, again, as I mentioned earlier, it's really going to be the final timing of these initiatives, how much falls in Q3 versus Q4. From a conservative perspective, we would expect the U.S. growth rate to maybe dip a little bit in Q3 from Q2 just because Q2 had some major channel fills from product launches that helped our sandwich group. You'll notice the sandwich group posted a very strong growth rate for the quarter.

Speaker Change: Yeah, so Q3, you know, again, as I mentioned earlier, it's really going to be the final timing of these initiatives, how much falls in Q3 versus Q4. You know, from a conservative perspective, we would expect

Speaker Change: The U.S. growth rate to maybe dip a little bit in Q3 from Q2 just because

Speaker Change: Q2 had some major channel fills from product launches that helped their sandwich group.

Speaker Change: You'll notice the sandwich group posted a very strong growth rate for the quarter.

Will Kalutycz: But then, you know, Q4 absolutely ramped up significantly well ahead of Q2 and Q3. So overall, you know, we're looking at an annual rate probably close to or better than what we did in Q2.

Speaker Change: But then Q4 absolutely ramping up significantly well ahead of Q2 and Q3. So overall, we're looking at an annual rate probably close to or better than what we did in Q2.

William Kalutycz: So again, just a key message there, as we'll set earlier, Kyle, is that the growth is going to be lumpy, strictly because the customers are so big. So it's just a message you'll need to remember as we go forward. Right? The nature of the U.S. market is very different than in Canada. Right? Customers don't have a thousand stores; they have 10,000 stores. So the growth will come; we're certain it'll come, but it'll be lumpy depending on the timing of the launch. Okay, understood. And it sounds like none of the business you're expecting is lost. It's just a lumpy timing.

George Paleologou: So, again, just a key message there, as Will said earlier, and Kyle said, growth is going to be lumpy. Strictly because the customers are so big. So it's just a message you'll need to remember as we go forward, right? The nature of the U.S. market is very different than in Canada, right? Customers don't have 1,000 stores; they have 10,000 stores. So the growth will come; we're certain it will come, but it'll be lumpy depending on the time.

Speaker Change: So, again, just a key message there, as Will said earlier, Kyle, is that the...

Will Kalutycz: Growth is going to be lumpy.

Kyle McPhee: Strictly because the customers are so big.

Speaker Change: So, it's just a message you'll need to remember as we go forward, right? The nature of the U.S. market is very different than in Canada.

Kyle McPhee: Right? Customers don't have a thousand stores. They have ten thousand stores. So the growth will come. We're certain it'll come, but it'll be lumpy depending on the timing of the launch.

Kyle McPhee: Okay, understood. And it sounds like none of the business you were expecting is lost. It's just a slumpy time. Absolutely. Absolutely. And so the mix of U.S. specialty foods and organic growth programs impacts your margins, given the programs across protein, bakery, and sandwich all have different contribution margin profiles. Which categories are kind of seeing the timing pushed out, just so we can better understand how your margins will evolve?

Speaker Change: Okay, understood. And it sounds like none of the business you were expecting is lost. It's just a slumpy timing.

William Kalutycz: Absolutely. Correct. And so the mix of U.S.

Speaker Change: Can you confirm that? Absolutely, correct.

William Kalutycz: specialty foods, organic growth programs, it impacts your margins given the programs across protein, bakery and sandwich all of different contribution margin profiles. which categories are kind of seen that timing pushed it just so we can better understand how your margins really both because of this. It's definitely the protein and bakery groups, which we called out in the MDA for the quarter. Okay.

Speaker Change: Okay.

Speaker Change: And so the mix of U.S. specialty foods, organic growth programs, it impacts your margins given the programs across protein, bakery, and sandwich all have different contribution margin profiles. Which categories are kind of seeing the timing pushed at just so we can better understand how your margins will evolve because of this?

At this time, all lines are in a list and only mode. If at any time during this call your core admitted assistance, please press on zero for the operator.

Will Kalutycz: It's definitely the protein and bakery groups, which we called out in the MD&A for the quarter.

Speaker Change: It's definitely the protein and bakery groups, which we called out in the MD&A for the quarter.

Operator: This call is being recorded on Thursday, August 8, 2024. Our speakers today are George Paleologou, CEO and President of Premium Brands and Will Kalutycz, CFO of Premium Brands. I would not like to surrender conference, all words are George, please go ahead. Thank you Lee Wei.

Kyle McPhee: Okay, and then the last one you've called out, it's not the biggest issue, but startup issues at some of your plants. What exactly is the issue?

Speaker Change: Okay.

William Kalutycz: Okay, and then last one, just you've called out, it's not the biggest issue, but startup issues that some of your plants. What exactly is the issue? It's just a normal ramp-up cowl and nothing unusual. As we've stated before, we're leveraging new technologies, automation, robotics, all of those things; nothing unusual, just a normal ramp up. New equipment, new concepts, new technology, and it just takes people time to get the feel and the settings for all the equipment. Right? Chris.

Speaker Change: Okay, and then last one. You've called out, it's not the biggest issue, but startup issues at some of your plants. What exactly is the issue?

Will Kalutycz: It's just a normal ramp-up, Kyle, nothing unusual. You know, we're, as we've stated before, leveraging new technologies, automation, robotics, all of those things, nothing unusual, just a normal ramp-up.

Speaker Change: It's just a normal ramp-up Kyle and nothing unusual.

George Paleologou: Good morning and welcome everyone to our 2024 second quarter conference call. With me here today is our CFO Will Kalutycz. Hopefully you've had a chance to listen to a pre-recorded call posted on our website this morning.

Speaker Change: As we've stated before, we're leveraging new technologies, automation, robotics, all of those things. Nothing unusual, just a normal ramp up.

Will Kalutycz: It's new equipment, new concepts, new technology, and it just takes people time to get the feel and the settings for all the equipment right.

George Paleologou: Also, if you haven't done it already, please take the time to read through my most recent annual letter to shareholders on our website titled Transformation of Growth. The title and narrative capture and describe the next stage of our journey as we begin to accelerate our growth in the US and to a lesser extent in overseas markets. We will now take your questions Lee Wei.

Kyle McPhee: It's new equipment, new concepts, new technology, and it just takes people time to get the feel and the settings for all the equipment right.

Kyle McPhee: Okay, thanks for the answers. That's it for me.

Operator: Thanks Kyle. Thanks Kyle.

Kyle: Okay, thanks for the answers. That's it for me.

Operator: Thank you so much. Our next question comes from the line of Chris D. of Beirutin. Your line is now open.

Kyle McPhee: Thanks, Kyle. Thanks, Kyle.

Speaker Change: Thank you so much. Our next question comes from the line of Christie of Beirutin. Your line is now open.

Chris D.: Oh, morning, George and all. Hope you guys are doing well. Hey Chris. Hey Chris. Hi there.

Christopher Li: Hey Chris. I think maybe just a quick I'll follow up to the first question from Martin in terms of quantifying the revenue impact for the delay in the product launches. The way I think about it, please let me know if that's not right. So the midpoint of your revenue guide is around 6.75 billion. Now you're guiding towards maybe the lower end to about 6,500. So that's about 100 million reduction. Is that roughly the amount of what's causing from the delay in part of launches in terms of the impact on revenue? Again, you've just done some math, Chris, that I can't disagree with.

Operator: Thank you so much and ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press on followed by the number one on your touch tone phone. You will hear a prompt as your hand has been raised and should you wish to decline from the polling process, please press the star followed by the number two.

Christie: Oh, morning, George and Will. Hope you guys are doing well. Hey, Chris.

Chris D.: Maybe just a follow-up to the first question from Martin. In terms of quantifying the revenue impact of the delay in product launches, the way I think about it, and please let me know if that's not right. So the midpoint of your revenue guide is around $6.75 billion. Now you're guiding towards maybe the lower end, about $6.50 billion. So that's about a $100 million reduction. Is that roughly the amount of what's caused by the delay in product launches in terms of the impact on revenue?

Speaker Change: Hi there. May we take a follow-up to the first question from Martin?

Speaker Change: In terms of quantifying the revenue impact from the delay in the product launches.

Speaker Change: The way I think about it, and please let me know if that's not right, so the midpoint of your revenue guide is around $6.75 billion.

Speaker Change: Now you're guiding towards maybe the lower end, about six.

Operator: One moment first question comes from the line of Martin Landry of Stiffle.

Speaker Change: So, that's about $100 million reduction. Is that roughly the amount of what's causing from the delay in product launches in terms of the impact on revenue?

Martin Landry: Your line is now open.

William Kalutycz: Hi, good morning guys. Good morning, Martin. My first question, I would like to talk about your guidance and your cautious tone. You highlight some startup issues and longer onboarding for new businesses than expected. So I was wondering if there's any way for you guys to quantify what's the revenue impact of these delays versus your original assumption at the beginning of the year? And is there any spill over into 25? I think there may be some as you've put in your press release.

William Kalutycz: So, you know, can you quantify as well? Why could be the revenue impact headwind that you may feel in 25 due to these delays? Yeah, certainly the bigger of the two factors, Martin, is the onboarding and new business. You know, it's large pieces of businesses we're pursuing. They tend to be fairly lumpy and it can take a little bit longer than sort of your traditional smaller listings to get the program set up and launch.

Will Kalutycz: Again, you've just done some math, Chris, that I can't disagree with, but in terms of you guiding to the bottom end on a cautious basis just because of that lumpy nature that launches have, we're not saying we're going to be at the bottom end. Again, if things go well, then we could easily be in the midpoint or even possibly higher. It really depends on how the timing of these plays out. There are two parties involved, and we don't 100% control the process.

William Kalutycz: And so that's been the big factor. Like you see, start up issues and some of the plans is contributed to as well but nowhere by any means as significantly as that. In terms of the quantification of it, it's really going to be the timing of when these these products actually launch. It could be late Q3, it could be Q4, it could be early 2025. We've taken the cautious approach and assumed the launches are later in the schedule than we're hoping to achieve.

Speaker Change: Again, what you...

William Kalutycz: But in terms of you were guiding to the bottom end on a cautious basis just because of that lumpy nature of the launches. We're not saying we're going to be at the bottom end. You know, again, if things go well, then we could easily be in the midpoint or even possibly higher. It really depends on how the timing of these play out. And you know, there's two parties involved, and we don't 100% control the process.

Speaker Change: You've just done some math, Chris, that I can't disagree with, but in terms of you were guiding to the bottom end on a cautious basis.

William Kalutycz: And that's the rationale for guiding towards the bottom end of our guides. But ultimately it's going to be when the timing of those fall arm carries through. Okay, just so I understand clearly, you know, is this a delay from your customer or is it a delay on your end to onboard that new customer or that new product? Well, in terms of the ones relating to plant capacity, obviously, that's on us. In terms of working with our customers, it's generally going through the customer's processes.

Chris: Just because of that lumpy nature of the

Chris: that launches.

Chris: We're not saying we're going to be at the bottom end, you know, again if things go well then we could easily be in the midpoint or even possibly higher. It really depends on how the timing of these play out and, you know, there's two parties involved and we don't 100% control the process.

Chris D.: Okay, understood. And then a related one is just, again, with respect to your four-year guidance. Do you have sort of high visibility on that? And what I mean is, you know, if the consumer pulls back even more than you're expecting, especially in the U.S., do you have other levers that you can pull to still achieve your guidance?

William Kalutycz: Okay, understood. And then a related one is just again, with respect to your for your guidance, do you have sort of high visibility on that? And what I mean is, you know, the consumer pulls back even more than what you're expecting, especially in the US. Do you have other levers and can pull to still achieve your guidance? Yeah, the interesting thing is a lot of our initiatives are with retail in the US, are with retailers who are benefiting from those trends. And we're going into new markets. And so, you know, as I mentioned earlier, like we have seen in legacy markets a little bit of softness in some of our really premium products.

Speaker Change: Okay, understood. And then a related one is just, again, with respect to your four-year guidance, do you have sort of high visibility on that? And what I mean is, you know, if the consumer pulls back even more than what you're expecting, especially in the U.S., do you have other levers that you can pull to still achieve your guidance?

George Paleologou: The interesting thing is a lot of our initiatives in the U.S. are with retailers who are benefiting from those trends. And we're going into new markets, and so, you know, as I mentioned earlier, we have seen in legacy markets a little bit of softness in some of our really premium products. But they're still being successfully launched into new markets, so we don't really see that as a big factor in terms of our growth outlook or expectations.

Speaker Change: The interesting thing is a lot of our initiatives in the U.S. are with retailers who are benefiting from those trends.

Speaker Change: And we're going into new markets, and so, you know, as I mentioned earlier, like, we have seen in legacy markets a little bit of softness in some of our really premium products.

William Kalutycz: But they're still being successfully launched into new markets. So, yeah, we don't really see that as a big factor in terms of our growth outlook or expectations. The other part, Chris, that you have to remember again is that, as I mentioned earlier, we're not talking about $5 million opportunities here, right? We're talking about $50 million opportunities or more. So, really, for us, we have to plan out the capacity, right? Yes, we're working on a few of those. We have a few in the pipeline. We have very good visibility with respect to them. But ultimately, we have to budget the capacity for them, right?

Speaker Change: But they're still being successfully launched into new markets, so we don't really see that as a big factor in terms of our growth outlook or expectations.

George Paleologou: The other part, Chris, that you have to remember again is that, as I mentioned earlier, we're not talking about $5 million opportunities here, right? We're talking about $50 million opportunities or more.

Chris: The other part, Chris, that you have to remember again is that, as I mentioned earlier, we're not talking about $5 million opportunities here, right? We're talking about $50 million opportunities or more. So really, for us, we have to plan out the capacity.

George Paleologou: So really, for us, we have to plan out the capacity. Yes, we're working on a few of those. We have a few in the pipeline. We have very good visibility with respect to them, but ultimately, we have to budget the capacity for them, right? It's a really important part to understand. It's a very different market. That's why we called it transformational growth in my letter to Sheryl.

Speaker Change: Yes, we're working on a few of those. We have a few in the pipeline. We have very good visibility with respect to them. But ultimately, we have to budget the capacity for them.

Christopher Li: It's a really important part to understand. It's a very different market. That's why we called it transformational growth in my letter to shareholders. Yeah, got it. No, I read the letter to it. No, that's that's that's good.

Chris: Right? It's a really important part to understand. It's a very different market. That's why we called it transformational growth in my letter to shareholders.

Chris D.: Yeah, got it. No, I read the letter too. No, that's good.

William Kalutycz: You know, sometimes there's several layers of approvals, and so it's just working through those processes, getting sign-off on labels and packaging sizes and attributes. And so it's just a process of going through that, so on that side of things, it's more customer-related.

Chris: to

Speaker Change: Yeah, got it. No, I read the letter too. No, that's good. And then maybe another one on just on balance sheet, you guys were talking about sort of funding earlier. I just want to ask about, you know, what is your view on the more mature or lower growth part of your distribution business?

George Paleologou: And then maybe another one on just on balance. You guys were talking about sort of funding earlier. I just want to ask about, you know, what is your view on the more mature or lower growth part of your distribution business? Would you consider selling at the right price? Do you still get a lot of interest in that business these days? Well, we don't comment on our plans in general, Chris, but what I'll say is that, you know, ultimately, if we deem an asset or a business to be in a core, we don't have an issue selling it, right?

Chris D.: And then maybe one on just the balance sheet, you guys were talking about sort of funding earlier. I just want to ask about the more mature or lower growth part of your distribution business. Would you consider selling it at the right price? Do you still get a lot of interest in that business these days?

Speaker Change: Would you consider selling at the right price, do you still get a lot of interest in that business these days?

George Paleologou: Well, we don't comment on our plans in general, Chris, but what I'll say is that, you know, ultimately, if we deem an asset or a business to be non-core, we don't have an issue selling it. Right?

Speaker Change: Well, we don't comment on our plans in general, Chris, but what I'll say is that ultimately if we deem an asset or a business to be non-core, we don't have an issue.

George Paleologou: And that's sort of the key message.

Speaker Change: selling it, right? And that's sort of the key message.

George Paleologou: Okay, no, that's where George.

Chris D.: Gotcha. Okay. No, that's fair, George.

William Kalutycz: And my last one is just in terms of capital expenditure. I think the first half of the year, you've spent about 200 million in the first half. Well, sort of what is your outlook for second half is going to be similar, and then maybe a similar question, what is your capital outlook for 2025? Yeah, so we outline in the MDNA all of our active approved projects, and that's the vast majority of our capital over the next several years. So right now, we've got about $230 million left to spend on those projects. And the timing is, again, whether it's in 24 or 25, it's going to just depend on how things proceed.

Chris: Gotcha. Okay. No, that's fair, George. And my last one is just in terms of capital expenditure, I think the first half of the year, you spent about $200 million in the first half. Well, what is your outlook for the second half? It's going to be similar. And then maybe a similar question, what is your CapEx outlook for 2025?

Martin Landry: Okay, and maybe just my last question would be on overseas markets. You know, you talk about maybe lobster sales being a little slower.

Chris D.: And my last one is just in terms of capital expenditure; I think in the first half of the year, you've spent about $200 million in the first half. Well, sort of what is your outlook for the second half? It's going to be similar. And then maybe a similar question: what is your CapEx outlook for 2025?

Will Kalutycz: We outline in the MD&A all of our active approved projects, and that's the vast majority of our capital over the next several years. So, right now, we've got about $230 million left to spend on those projects. And the timing is, again, whether it's in 2024 or 2025, it's going to just depend on how things proceed. But in general terms, I would suspect about $120M to $130M of that will be in the back half of this year and then the balance in next year on those major projects. And then we always have, we generally have about, you know, 10 to 15 million dollars a quarter for smaller little sort of add-ons to capacity on lines or little automation projects and stuff like that.

William Kalutycz: I don't know if it's shipments or demand, but I was wondering if you could talk a little bit more high-level about the level of demand you see in overseas markets, and what's the pace of your, what's the percentage of your sales amount of the realized upside of North America? Well, so, you know, premium brands proper excluding our clear water business, you know, the vast, when you look at our two segments, the premium foods distribution segment, all of their exports focus around live lobster to China, or primarily live lobster to China, which is what we called out in the quarter.

Speaker Change: We outline in the MD&A all of our active approved projects, and that's the vast majority of our capital over the next several years.

Speaker Change: So right now we've got about $230 million left to spend on those projects.

Chris: And the timing is, again, whether it's in 2024 or 2025, you know, it's going to just depend on how things proceed. But in general terms, you know, I would suspect about $120M to $130M of that will be in the back half of this year and then the balance in next year on those major projects.

William Kalutycz: But in general terms, you know, I would suspect about 120 to 130 million of that will be in the back half of this year and then the balance in next year on those major projects. And then we always have; we generally have about $10 to $50 million a quarter for smaller little sort of add-ons to capacity on lines or little automation projects and stuff like that on top of that.

Speaker Change: And then we always have, we generally have about, you know, 10 to 15 million dollars a quarter for smaller little sort of add-ons to capacity on lines or little automation projects and stuff like that on top of that.

William Kalutycz: And that's really just the economic situation in China, you know, as that turns and that improves, we should see that volume coming back. In terms of our specialty food segment, you know, we've got a number of initiatives in mainly in the Asian area, and those are going really well, and we're seeing really good glows. And then in fact, that's one of the issues that contribute to the delays is we've got a key customer in Asia that we've got a number of new product launches coming on with. We had expected them to happen in Q2, most of them are now happening in Q3, so we're making really good progress there on the specialty food side.

William Kalutycz: Okay, great.

William Kalutycz: Thanks, guys.

Operator: Okay. Great. Thanks guys. Okay. Thanks Drew. Thank you so much. And our next question comes from the line of Stephen MacLeod of BMO Capital Markets. Your line is now open.

Lee Wei: Okay, thanks, Chris. Thank you so much.

Speaker Change: Okay. Great. Thanks, guys. Okay. Thanks, Drew.

Stephen Macleod: And our next question comes from the line of Stephen McLeod of BMO Capital Markets. Your line is now open. Thank you. Good afternoon, guys, or just good morning for you. Hi Steve. Hi, lots of lots of good colors so far. So thanks for that. A couple of follow-up questions that I had. Just looking at the, you know, achieving your even the low end of the revenue guidance for 2024, you know, still implies some pretty healthy growth in the back half of the year. You gave some color around the specialty food business, but just wondering about the PFD.

Speaker Change: Thank you so much. And our next question comes from the line of Stephen MacLeod of BMO Capital Markets. Your line is now open.

Stephen Macleod: Thank you. Good afternoon, guys, or I guess it's good morning for you. Hi, Steve.

Stephen Macleod: Thank you. Good afternoon, guys, or just good morning for you.

Stephen Macleod: Lots of good color so far, so thank you for that. There are a couple of follow-up questions that I had. Just looking at achieving even the low end of the revenue guidance for 2024 still implies some pretty healthy growth in the back half of the year. You gave some color around the specialty foods business, but I was just wondering about the PFD. Are you still expecting that to sort of remain on organic sales drag as we get to the back half of the year?

Stephen Macleod: All right, lots of good color so far. So thank you for that.

Stephen Macleod: A couple of follow-up questions that I had.

Stephen Macleod: Just looking at the, you know, achieving your, even the low end of the revenue guidelines for 2024, you know, still implies some pretty healthy growth.

William Kalutycz: In terms, I think that answers your question, Martin. Yeah, I mean, I was just trying to see if you could quantify your sales internationally, but if it's too small. Oh, right. In terms of sales internationally, you know, I don't have that number off the top of my head, but in general terms, you know, probably in the specialty foods group. You know, Georgia, I guess, what, 10 to 20 million dollar range? Yeah, yeah, that's about right, and I'm just reminding you, Martin, that we're starting at zero, right? So we've got a lot on the go as Will said. We've launched a few products recently, and a few more in the pipeline across most of our platforms. Super.

Speaker Change: In the back half of the year, you gave some color around the specialty foods business, but just wondering about the PFD. Are you still expecting that to sort of remain an organic sales drag as you get to the back half of the year?

William Kalutycz: Are you still expecting that to sort of remain on organic sales drag as you get to the back half of the year? Yeah, no. In fact, we're expecting a little bit of growth, Steve. And you see that going from Q1 to Q2, right? Like, PFD in the first quarter had about five, five and a half percent volume contraction. In the second quarter, it was around two percent. And then in the back half of the year, a couple of things happen. But one is we start lapping some of the challenges we had back in 2023, the back half of 2023, as well as we have seen some stability and expect that to continue in some parts of their businesses, their business.

Will Kalutycz: Yeah, no, in fact, we're expecting a little bit of growth, Steve, and you see that going from Q1 to Q2, right? PFD in the first quarter had about 5, 5.5% volume contraction. In the second quarter, it was around 2%. And then in the second half of the year, a couple of things happened. One is that we start lapping some of the challenges we had back in 2023, the back half of 2023, as well as we have seen some stability and expect that to continue in some parts of their businesses. So yeah, so Q3, probably flat, maybe a little bit of growth, and then improving in Q4, some actual decent volume growth.

Speaker Change: Yeah, no, in fact, we're expecting a little bit of growth, Steve, and you see that going from Q1 to Q2, right?

Speaker Change: PFD in the first quarter had about 5-5.5% volume contraction.

Speaker Change: In the second quarter, it was around 2%.

Speaker Change: And then in the back half of the year, a couple of things happen. One is we start lapping some of the challenges we had back in 2023, the back half of 2023.

Martin Landry: Okay, thank you and best of luck. Thanks, Mark. Thank you, Mark.

Operator: Thank you so much.

Operator: Our next question comes from the line of Derek Lessard of TD Collin. Your line is now open.

Speaker Change: As well as we have seen some stability and expect that to continue in some parts of their businesses, their business. So yeah, Q3 probably flat, maybe a little bit of growth and then improving in Q4.

Derek Lessard: Yeah, good afternoon, gentlemen. Hey, Derek. Hey, well, and I just so I understand that in the US because you guys are winning you you customers and contracts. It's hard for you to see the direct impact on any potential, I guess, weaker consumer spending. But I just, you know, I am curious if there is a weaker consumer than if it's had any impact on you guys. Yeah, well, you'll have noticed that when in our slide where we break down the organic volume growth rates by the three groups, protein, bakery and sandwich, you know, protein was a little lower than we expected in the quarter.

William Kalutycz: So, yeah, so, you know, Q3, probably flat, maybe a little bit of growth, and then improving in Q4. Some actual decent volume growth.

George Paleologou: Okay, that's great. And then just coming back to some of the delayed onboarding initiatives, and George, I appreciate that it's lumpy. You know, I guess it's fair to say that, you know, absent the onboarding challenges. I mean, these are, these are programs that are coming. It's just a matter of when. So we should. I didn't see them. I mean, if we don't see them in Q3 and maybe we don't see them in Q4, or maybe we see parts of them, you know, these are projects that you have confidence that we're going to see in 2025.

Speaker Change: Some actual decent volume growth.

Stephen Macleod: Okay, that's great. And then just coming back to some of the delayed onboarding of the new initiatives, and George, I appreciate that it's lumpy. You know, I guess it's fair to say that, you know, absent the onboarding challenges, I mean, these are programs that are coming. It's just a matter of when. So we should see them. I mean, if we don't see them in Q3, and maybe we don't see them in Q4, or maybe we see parts of them, you know, these are projects that you have confidence that we're going to see in 2025. Is that right?

Speaker Change: Okay, that's great. And then just coming back to some of the delayed onboarding of the new initiatives, and George, I appreciate that, it's lumpy.

Speaker Change: You know, I guess, is it fair to say that...

George Paleologou: You know, absent the onboarding challenges, I mean, these are programs that are coming. It's just a matter of when. So we should see them. I mean, if we don't see them in Q3 and maybe we don't see them in Q4.

Derek Lessard: Part of that was product launches. But we have seen in some of our really high end products, we have seen a little bit of softening in terms of legacy markets. Now when they go into new markets, that's all new business and that's that well. But in the legacy markets, we have seen a little bit of softening, but it's interesting in the US Derek is and we're not very big in the food service segment in the US.

Speaker Change: Or maybe we see parts of them. You know, these are projects that you have confidence that we're going to see in 2025, is that right?

George Paleologou: Is that right? Absolutely, Stephen. Again, you have to remember, as I said earlier, we have a substantial business base in the US today, as we speak. A lot of these are national rollouts with existing customers or new customers. And we have very high visibility with regards to the business.

George Paleologou: Absolutely, Stephen. Again, you have to remember, as I said earlier, we have a substantial business base in the U.S. today as we speak. A lot of these are national rollouts with existing customers or new customers, and we have very high visibility with regard to the business.

Speaker Change: Absolutely, Stephen. Again, you have to remember, as I said earlier, we have a substantial business base in the U.S. today as we speak.

George Paleologou: A lot of these are national rollouts with existing customers or new customers and we have very high visibility with regards to the business.

Derek Lessard: But, you know, we have seen to the extent we've got products going in that that's been relatively stable and where we have seen it, like I said, a little bit of softness has been in the retail channel. I think in terms of channels Derek in particular, there is no question that both the Canadian consumer and the US consumer are looking for more value. They're trying to stretch their dollar so they're generally shopping more in discount and club as opposed to traditional retail.

Stephen Macleod: Okay, no, that's that's really helpful. Okay, okay, that's great.

Stephen Macleod: Okay, no, that's really helpful. Okay, that's great.

George Paleologou: Okay, now that's up.

George Paleologou: And then just let me do one other question. Just on the margin profile. You know, the midpoint of guidance still implies 9.5% margins. You've talked about 10% being the long-term target. In the past, you've said, you know, that 10% target could potentially be achieved in 2025. Is that something that you still think is possible? Yeah, no, absolutely, Steve. Yeah, okay, that's great. Thanks, guys. Appreciate it. Thank you. Thank you, Steve.

Stephen: That's really helpful.

Derek Lessard: And to a lesser extent in food service, they're going to QSR rather than fast casual. So that's what we're seeing. Not that overall demand is down is that the channel that the consumers choose to shop at is different. Yeah, George, and maybe to your point, I know you guys are indexed in sort of that in the discount channel, but you are stepping up efforts I think in club. Are you, are there any plans going forward to maybe even step up those or increase those efforts more to get into those channels? Absolutely, absolutely.

Stephen Macleod: And then maybe one other question, just on the margin profile, you know, the midpoint of guidance still implies nine and a half percent margins. You've talked about 10% being the long-term target. In the past, you've said that the 10% target could potentially be achieved in 2025. Is that something that you still think is possible?

Speaker Change: Okay, okay, that's great. And then just maybe one other question, just on the margin profile, you know, the midpoint of guidance still implies

Speaker Change: 9.5% margins. You've talked about 10% being the long-term target. In the past, you've said, you know, that 10% target could potentially be achieved in 2025. Is that something that you still think is possible?

Will Kalutycz: Yeah, no, absolutely not, Steve. Yeah.

Stephen Macleod: Yeah. Okay. That's great. Thanks, guys. I appreciate it.

Steve: Yeah, no, absolutely, Steve.

Steve: Yeah. Okay. That's great. Thanks, guys. Appreciate it. Thanks, Steve.

Lee Wei: Thank you so much. And again, if you would like to ask a question, please press star one.

Operator: Thank you so much. And again, if you would like to ask a question, please press star 1. And your next question comes from the line of Mark Petry of CITC. Your line is now open.

Speaker Change: Thank you so much. And again, if you would like to ask a question, please press star 1. And your next question comes from the line of Mark Petry of CIPC. Your line is now open.

Mark Petrie: And your next question comes from the line of Mark Petrie of CIPC. You'll have to sound open. Yeah, thanks. Thanks, guys. Good afternoon. Good morning.

Mark Petry: Yeah, thanks, guys. Good afternoon or good morning.

Mark Petry: I actually just have two follow-up questions on two questions that Chris asked. First, could you just help me with regard to sort of the portfolio and, you know, M&A or potential divestitures? Could you just help me understand how you would define non-core? And is that just a matter of lining up with your stated vision, or are there other considerations that we should be aware of?

Mark Petrie: I actually just have two follow-up questions to a few questions that Chris has actually. First, could you just help with regards to sort of the portfolio and you know, M&A or potential divestitures? Could you just help me understand how you would define non-core? And is that just simply a matter of lining up with your stated vision, or are there other considerations that we should be aware of? Well, again, Mark, I mean, we're executing our strategies. Every year, we assess the performance of the various businesses: short-term, long-term. We see ourselves as allocators of capital. And you know, we act rationally, right?

Mark Petry: Thanks, guys. Good afternoon or good morning. I actually just have two follow-up questions to two questions that Chris asked, actually. First,

Mark Petry: Could you just help with regards to sort of the portfolio and...

Mark Petry: And, you know, M&A or potential divestitures, could you just help me understand how you would define non-core? And is that just simply a matter of lining up with your stated vision, or are there other considerations that we should be aware of?

William Kalutycz: I think overall Derek, we do very well in club and in retail. We're and under index would be QSR fast casual and see store chains. And we are really focusing on those three channels right now in the US as we'll said earlier. A lot of those customers are national. They don't have 1000 stores. They have 10,000 stores. The launches are bigger. They take more planning.

George Paleologou: Well, again, Mark, I mean, we're executing our strategies. Every year we evaluate. The performance of the various businesses, short-term, long-term; we see ourselves as allocators of capital, and we act rationally, right? If we see opportunities to unlock value from one area and employ the capital in another area, that ultimately gives us a higher return. We'll do that. We've done that in the past, but we can't speak more specifically than that.

Mark Petry: Well, again, Mark, I mean, we're executing our strategies.

Mark Petry: Every year we assess

Speaker Change: The performance of the various businesses, short-term, long-term, we see ourselves as allocators of capital and we act rationally, right? If we see opportunities to unlock value.

George Paleologou: If we see opportunities to unlock value from one area and employ the capital in another area that ultimately gives us a higher return, we'll do that.

George Paleologou: And again, we have a lot of businesses in the pipeline to launch.

Mark Petry: from one area and employ the capital in another area that ultimately gives us a higher return. We'll do that. We've done that in the past, but we can't speak more specifically than that.

Derek Lessard: Okay, thanks for that.

Mark Petrie: We've done that in the past, but we can't speak more specifically than that. Okay. Fair enough. That's all very helpful. Thank you.

Derek Lessard: And maybe switching gears more towards M&A. I guess on your slide deck, you note that there are three acquisition opportunities in the advanced stages and probably another billion dollars of potential sales in that active discussion. That's changed or that's materially from last quarter.

Mark Petry: Okay, fair enough. That's all very helpful. Thank you.

Mark Petry: And maybe another follow-up is just on the CapEx spend specifically. So, I heard about $120 to $130 of the $230 that will be in the second half, plus $10 to $15 million a quarter for smaller projects. And is there another component? Like, is there sort of a baseline maintenance number that we should factor into that, or how should we think about it?

William Kalutycz: And maybe another follow-up is just on the CapEx and specifically. So I heard about the 1.1 to 1.30 of the 2.30 that'll be in the second half plus 10 to 15 million a quarter for smaller projects. And is there another component? Like, is there a sort of a baseline maintenance number that we should factor into that, or how should we think? Yeah, no, absolutely, Mark. Our guidance on maintenance capex for this year is about 50 to 55 million. And we feel pretty good with that. So, I think in the first half of the year we spent roughly 20 to 25 million, so we're on track with that range.

Speaker Change: Okay. Fair enough. That's still very helpful. Thank you. And maybe another follow-up is just on the CapEx spend specifically. So I heard about the $120 million to $130 million of the $230 million that will be in the second half, plus $10 million to $15 million a quarter for smaller projects. And is there another component? Like, is there sort of a baseline maintenance number that we should factor into that, or how should we think of those?

George Paleologou: So I was curious like how you guys are thinking about funding, given where your leverage currently stands. Yeah, so Derek, yeah, a couple of things. I'll just make a couple of comments and then pass it on to Will. I would say that today, the valuation environment is very rational. And that's why we're, you know, we've signed three LOIs recently and we're in various stages of due diligence. We hope to sign a few more because we work on deals over a long period of time and obviously at some point the valuation has to make sense.

Will Kalutycz: Yeah, absolutely Mark. Our guidance on maintenance capex for this year is about $50-55 million, and we feel pretty good with that. So I think in the first half of the year we spent... Roughly $20 to $25 million, so we're on track with that range.

Speaker Change: Yeah, no absolutely Mark. Our guidance on maintenance capex for this year is about $50-55 million and we feel pretty good with that. So, I think in the first half of the year we spent...

Mark Petry: Roughly $20 to $25 million, so we're on track with that range.

Mark Petrie: Okay, perfect.

Mark Petry: Okay, perfect. And actually, one other question, just to clarify: I know you called out weaker consumer spending as a headwind on revenue, but I'm not sure I saw it as an issue for profitability at all. And so, is that to say that consumer spend is an impact because it's affecting your volumes, but is there any change to sort of how you are pricing or promoting or what you're sort of seeing your customers require from you in terms of contribution?

Mark Petrie: And actually one other question, just to clarify, you called a weaker consumer spending as a headwind on revenue. But I'm not sure I thought of an issue for profitability at all. And so, is that to say that the consumer spend is an impact because it's affecting your volumes? But is there any change to sort of how you are pricing or promoting, or what you're sort of seeing your customers require from you in terms of contribution? Yeah, Mark, I think that your observation is correct. I think it's more in terms of trying to focus our sales efforts into the channels where the consumer is actually going and shopping.

Stephen: Okay, perfect. And actually, one other question, just to clarify.

Speaker Change: I know you called out weaker consumer spending as a headwind on revenue, but I'm not sure I saw it as an issue for...

Speaker Change: Follow us on Twitter and Facebook at storyifherrado.com. I see a lot of questions about volume. Is there any change to how you are pricing or promoting?

George Paleologou: I think in the past, we've talked about the fact that no acquisition that we're going to make is going to stretch the balance sheet more than it is today. So that's still the case and I'm going to let kind of Will explain the strategy there. Will. Yeah, so Derek, you know, we were committed to any acquisition we're doing being any debt issue associated with it being within our targeted debt senior debt PBDAR ratio, you know, the two and a half to three times target.

Speaker Change: Seeing your customers require from you in terms of contribution.

George Paleologou: Yeah, Mark, yeah, I think that your observation is correct. I think it's more in terms of trying to focus our sales efforts into the channels where the consumer is actually going and shopping, right? And as I mentioned earlier, they're tending to frequent more discount banners and clubs as we speak, as opposed to traditional channels. That was kind of the comment.

Stephen: Yeah Mark, yeah I think that your observation is correct. I think it's more in terms of trying to focus our sales efforts into the channels where the consumer is actually going and shopping.

George Paleologou: Right? And as I mentioned earlier, they're tending to frequent more discount banners and club as we speak, as opposed to traditional channels. That was kind of the comment, right?

Speaker Change: And as I mentioned earlier, they're tending to frequent more discount banners and club as we speak as opposed to traditional channels. That was kind of the comment.

George Paleologou: And so what we've been doing in the three transactions that are in that advanced stage is there are combination of obviously some debt will raise the cash component of the transaction which will be within those parameters. And then we're using other structures like contingent consideration that's based on future Castro growth, some equity. And whenever we use equity in the valuation of an acquisition, we price the equity in our modeling at its intrinsic value.

George Paleologou: And Mark, you know, the biggest impact of consumer weakness really was in our premium food distribution group. It's a lower margin group; it's more stable margins. And so, you know, from a margin percentage perspective, relatively little overhead, so contribution margins reflect gross margins. So, you kind of don't see that margin impact like you would if it was an issue in our specialty foods group. Okay, yeah, that makes a lot of sense. Okay, thanks for all the comments. I really appreciate it. Thank you, Mark. Thanks, Mark. Thank you so much.

Will Kalutycz: And Mark, you know, the biggest impact of consumer weakness really was in our premium food distribution group, which, you know, it's a lower margin group; it's more stable margins. And so, from a margin percentage perspective, relatively little overhead, so contribution margins reflect gross margins, so you kind of don't see that margin impact like you would if it was an issue in our specialty foods group.

Mark: And, Mark, you know, the biggest impact of consumer weakness really was in our premium food distribution group, which, you know, it's a lower margin group, more stable margins.

Mark Petry: And so, you know, from a margin percentage perspective, you know, relatively little overhead, so contribution margins reflect gross margins, so you kind of don't see that margin impact like you would if it was an issue in our specialty foods group.

George Paleologou: We don't use the market value, which we see as a discount to the intrinsic value today. And so we're making sure there's no sort of delusion effect built into the acquisition modeling. And you know, through that, we're very confident that in fact, acquisitions will strengthen our balance sheet from the perspective of our senior debt PBDAR ratio.

Mark Petry: Okay, yeah, that makes a lot of sense. Okay. Thanks for all the comments, guys. Really appreciate it. All the best. Thank you.

Mark Petry: Okay, yeah, that makes a lot of sense. Okay. Thanks for all the comments, guys. Really appreciate it. All the best.

Operator: Thank you, Mark. Thank you, Mark.

Derek Lessard: And our next question comes from the line of Derek Lesserit. Your line is now open. Yeah, guys, I just have one follow-up, more of a housekeeping will mostly on a working cap. So, how should we be thinking about that working capital for, I guess, for 2024 and any plans to lower it or for the reductions there. Yeah, yeah, you know, with our inventory, it really seems to be two steps forward, one step back. You know, the reason our inventory levels were higher than we'd like at the end of the second quarter, probably about four to five days' purchases in inventory.

Derek Lessard: And our next question comes from the line of Derek Lessard. Your line is now open.

Mark: Thank you, Mark. Thanks, Mark.

Speaker Change: Thank you so much. And our next question comes from the line of Derek Lessard. Your line is now open.

Derek Lessard: Yeah, guys, I just have one follow-up, more of a housekeeping question. Well, mostly on working capital, just how should we be thinking about that working capital for, I guess, for 2024 and any plans to lower it or further reductions there?

Derek Lessard: I just have one follow-up, more of a housekeeping, mostly on working cap, how should we be thinking about the working capital for 2024 and any plans to lower it or further reductions there?

William Kalutycz: Okay. And does, I guess you did have some, you had talked about some sale leasebacks. Is there, is that is that part of any potential funding? And maybe just a comment on when you expect those, the timing it owes to be complete. Yeah, so, so we've got a pipeline of sale leasebacks of about four hundred million dollars associated with three major initiatives properties, two in the US and one in Canada. The sale leasebacks are being tied to the completion of the projects.

Will Kalutycz: Yeah, yeah. You know, with our inventory, it really seems to be two steps forward, one step back. You know, our inventory levels were higher than we'd like at the end of the second quarter, probably about four to five days' worth of purchases in inventory. But the fact is, it was for very good reasons. One of the biggest challenges in the second half of last year was the shortage of lobsters. The boats just couldn't get out because of poor weather.

William Kalutycz: And so right now, we're actively negotiating on one completed project, which we hope to close this year. And then we've got two more for next year. But yes, absolutely, that's a part of our general balance sheet strategies. You know, we've talked in the past, we're a food company, not a real estate company. And hence it, it doesn't make sense for us to sit on a lot of valuable real estate. Having said that, we, you know, all three of these transactions, we intend to use our retype structure, where we continue to own, you know, 25% roughly of the equity in the property and benefit from the, you know, long-term value growth of the real estate that way.

Speaker Change: Yeah, yeah. With our inventory, it really seems to be two steps forward, one step back. Our inventory levels were higher than we'd like at the end of the second quarter, probably about four to five days' purchases in inventory.

William Kalutycz: But the fact is, it was for very good reasons. You know, one of the biggest challenges in the second half of last year was the shortage of lobsters. The boats just couldn't get out for poor weather. We had a really good, strong Canadian spring fishery this year. We're really well positioned with lobster inventory process, lobster inventory going into the back half of the year at favorable prices. So that, that was a big driver of the inventory level. You know, we've been talking a lot about product launches and the lumpiness of them. You know, we had some big builds, inventory builds associated with some product launches going out in Q2 and Q3, sorry, Q3, Q4.

Speaker Change: But, the fact is, it was for very good reasons. One of the biggest challenges in the second half of last year was the shortage of lobsters. The boats just couldn't get out for poor weather.

Will Kalutycz: We had a really good, strong Canadian spring fishery this year. We're really well positioned with processed lobster inventory going into the back half of the year at favorable prices. That was a big driver of the inventory level. We've been talking a lot about product launches and the lumpiness of them. We had some big inventory builds associated with some product launches going out in Q2 and Q3, and Q4. There were some good reasons for the higher inventories, but ideally, they are still high, and we are still looking to have lower, normalized run rates.

Speaker Change: We had a really good strong Canadian spring fishery this year.

Speaker Change: We're really well positioned with processed lobster inventory going into the back half of the year at favorable prices.

Speaker Change: So, that was a big driver of the inventory level. We've been talking a lot about product launches and the lumpiness of them. We had some big inventory builds associated with some product launches going out in

Speaker Change: In Q2 and Q3, sorry Q3, Q4, so you know there were some good reasons for the higher inventories but ideally they still are high and we are still looking to have lower sort of normalized run rates.

William Kalutycz: So, you know, there were some good reasons for the higher inventories, but ideally that they still are high and we are still looking to have lower sort of normalized run rate.

William Kalutycz: So what you have to remember, Derek, as well is that we have a substantial base of business in the US, as we speak. And any of these acquisitions are going to be accretive. They'll be synergies, etc. So they'll be very, very synergistic and very accretive to our numbers. Based on the fact that the our valuations are good.

Derek Lessard: Thanks for that answer.

Operator: Thank you so much.

Derek Lessard: Thanks. Thanks, Tyler.

Speaker Change: Thanks, Hector. Well, appreciate it.

Lee Wei: Thank you so much, and we don't have any questions.

Operator: Thank you so much, and we don't have any questions. I would like to turn it over to George for closing remarks.

Hector: No problem, Jared.

George Paleologou: I would like to turn the call over to George for closing remarks. Yeah, I'd like to thank everybody for attending. Have a great summer. Thanks everyone.

Speaker Change: Thank you so much and we don't have any questions. I would like to turn it over to George for closing remarks.

George Paleologou: Yeah, I'd like to thank everybody for attending. Have a great summer. Thanks, everyone.

Kyle McPhee: And our next question comes from the line off, Kyle McPhee, of Cormorant Security, your line is now open. I draw, General, just quickly on that, about 400 million sale lease back. Is that your expected net proceeds from all three transactions? Yes. Okay. And then so timing has shifted out for some of your U.S, specialty foods growth programs. Should we still see the kind of pace of new volume wins ramp up, like it kind of did from Q1 to Q2?

George Paleologou: Yeah, I'd like to thank everybody for attending. Have a great summer.

Operator: Thank you, everyone. Thank you so much, ladies and gentlemen. You may now disconnect. Have a good day.

Operator: Thank you so much, Susan Sutherland. You may now disconnect. Have a good day.

Speaker Change: Thanks everyone. Thank you so much ladies and gentlemen. You may now disconnect. Have a good day.

Speaker Change: © The Bulletproof Executive 2013

Kyle McPhee: Does that still happen into Q3? Or the next kind of leg up is now delayed until later in the year? Yes. Q3, again, as I mentioned earlier, it's really going to be the final timing of these initiatives. How much falls in Q3 versus Q4? From a conservative perspective, we would expect the U.S, growth rate to maybe dip a little bit in Q3 from Q2 just because Q2 had some major channel fills from product launches that helped their sandwich group.

Kyle McPhee: You'll notice the sandwich group posted a very strong growth rate for the quarter. But then Q4 absolutely ramping up significantly well ahead of Q2 and Q3. So overall, we're looking at an annual rate probably close to or better than what we did in Q2. So again, just a key message there as we'll set earlier, Kyle, is that the growth is going to be lumpy, strictly because the customers are so big. So it's just a message you'll need to remember as we go forward.

Kyle McPhee: Right? The nature of the U.S, market is very different than in Canada. Right? Customers don't have a thousand stores, they have 10,000 stores. So the growth will come, we're certain it'll come, but it'll be lumpy depending on the timing of the launch. Okay, understood. And it sounds like none of the business you're expecting is lost. It's just a lumpy timing. Absolutely. Correct. And so the mix of U.S, specialty foods, organic growth programs, it impacts your margins given the programs across protein, bakery and sandwich all of different contribution margin profiles, which categories are kind of seen that timing pushed it just so we can better understand how your margins really both because of this.

Kyle McPhee: It's definitely the protein and bakery groups, which we called out in the MDA for the quarter. Okay. Okay, and then last one, just you've called out, it's not the biggest issue, but startup issues that some of your plants, what exactly is the issue? It's just a normal ramp up cowl and nothing unusual. As we've stated before, we're leveraging new technologies, automation, robotics, all of those things, nothing unusual, just a normal ramp up. New equipment, new concepts, new technology, and it just takes people time to get the feel and the settings for all the equipment. Right?

William Kalutycz: Chris. Hey Chris. I think maybe just a quick I'll follow up to the first question from Martin in terms of quantifying the revenue impact for the delay in the product launches. The way I think about it, please let me know if that's not right. So the midpoint of your revenue guide is around 6.75 billion. Now you're guiding towards maybe the lower end to about 6500. So that's about 100 million reduction. Is that roughly the amount of what's causing from the delay in part of launches in terms of the impact on revenue?

William Kalutycz: Again, you've just done some math Chris that I can't disagree with. But in terms of you were guiding to the bottom end on a cautious basis just because of that lumpy nature of the launches. We're not saying we're going to be at the bottom end. You know, again, if things go well, then we could easily be in the midpoint or even possibly higher. It really depends on how the timing of these play out. And you know, there's two parties involved and we don't 100% control the process.

William Kalutycz: Okay, understood. And then a related one is just again, with respect to your for your guidance, do you have sort of high visibility on that? And what I mean is, you know, the consumer pulls back even more than what you're expecting, especially in the US. Do you have other levers and can pull to still achieve achieve your guidance? Yeah, the interesting thing is a lot of our initiatives are with retail in the US, are with retailers who are benefiting from those trends.

William Kalutycz: And we're going into new markets. And so, you know, as I mentioned earlier, like we have seen in legacy markets a little bit of softness in some of our really premium products. But they're still being successfully launched into new markets. So, yeah, we don't really see that as a big factor in terms of our growth outlook or expectations. The other part, Chris, that you have to remember again is that, as I mentioned earlier, we're not talking about $5 million opportunities here, right?

William Kalutycz: We're talking about $50 million opportunities or more. So, really, for us, we have to plan out the capacity, right? Yes, we're working on a few of those. We have a few in the pipeline. We have very good visibility with respect to them. But ultimately, we have to budget the capacity for them, right? It's a really important part to understand. It's a very different market. That's why we called it transformational growth in my letter to shareholders. Yeah, got it. No, I read the letter to it. No, that's that's that's good.

George Paleologou: And then maybe another one on just on balance. You guys were talking about sort of funding earlier. I just want to ask about, you know, what is your view on the more mature or lower growth part of your distribution business? Would you consider selling at the right price? Do you still get a lot of interest in that business these days? Well, we don't comment on our plans in general, Chris, but what I'll say is that, you know, ultimately, if we deem an asset or a business to be in a core, we don't have an issue selling it, right? And that's sort of the key message.

George Paleologou: Okay, no, that's where George.

William Kalutycz: And my last one is just in terms of capital expenditure. I think the first half of the year, you've spent about 200 million in the first half. Well, sort of what is your outlook for second half is going to be similar, and then maybe a similar question, what is your capital outlook for 2025? Yeah, so we outline in the MDNA all of our active approved projects, and that's the vast majority of our capital over the next several years.

William Kalutycz: So right now, we've got about $230 million left to spend on those projects. And the timing is, again, whether it's in 24 or 25, it's going to just depend on how things proceed. But in general terms, you know, I would suspect about 120 to 130 million of that will be in the back half of this year and then the balance in next year on those major projects. And then we always have, we generally have about $10 to $50 million a quarter for smaller little sort of add-ons to capacity on lines or little automation projects and stuff like that on top of that. Okay, great.

Derek Lessard: Thanks, guys.

Operator: Okay, thanks, Chris.

Stephen Macleod: Thank you so much. And our next question comes from the line of Stephen McLeod of BMO capital markets. Your line is now open.

Stephen Macleod: Thank you. Good afternoon, guys, or just good morning for you. Hi Steve. Hi, lots of lots of good colors so far. So thanks for that. A couple of follow-up questions that I had. Just looking at the, you know, achieving your even the low end of the revenue guidance for 2024, you know, still implies some pretty healthy growth in the back half of the year. You gave some color around the specialty food business, but just wondering about the PFD.

Stephen Macleod: Are you still expecting that to sort of remain on organic sales drag as you get to the back half of the year? Yeah, no. In fact, we're expecting a little bit of growth, Steve. And you see that going from Q1 to Q2, right? Like, PFD in the first quarter had about five, five and a half percent volume contraction. In the second quarter, it was around two percent. And then in the back half of the year, a couple of things happen.

Stephen Macleod: But one is we start lapping some of the challenges we had back in 2023, the back half of 2023, as well as we have seen some stability and expect that to continue in some parts of their businesses, their business. So, yeah, so, you know, Q3, probably flat, maybe a little bit of growth, and then improving in Q4. Some actual decent volume growth.

George Paleologou: Okay, that's great. And then just coming back to some of the delayed onboarding initiatives, and George appreciate that it's lumpy. You know, I guess it's fair to say that, you know, absent the onboarding challenges. I mean, these are, these are programs that are coming. It's just a matter of when. So we should. I didn't see them. I mean, if we don't see them in Q3 and maybe we don't see them in Q4 or maybe we see parts of them, you know, these are projects that you have confidence that we're going to see in 2025.

George Paleologou: Is that right? Absolutely, Stephen. Again, you have to remember, as I said earlier, we have a substantial business base in the US today, as we speak. A lot of these are national rollouts with existing customers or new customers. And we have very high visibility with regards to to to the business.

William Kalutycz: Okay, no, that's that's really helpful. Okay, okay, that's great. And then just let me do one other question. Just on the margin profile. You know, the midpoint of guidance still implies 9.5% margins. You've talked about 10% being the long-term target. In the past, you've said, you know, that 10% target could potentially be achieved in 2025. Is that something that you still think is possible? Yeah, no, absolutely Steve.

Stephen Macleod: Yeah, okay, that's great.

Operator: Thanks guys. Appreciate it. Thank you. Thank you, Steve. Thank you so much.

Operator: And again, if you would like to ask a question, please press star one.

Mark Petrie: And your next question comes from the line of Mark Petrie of CIPC. You'll have to sound open. Yeah, thanks. Thanks guys. Good afternoon. Good morning. I actually just have two follow-up questions to few questions that Chris has actually.

George Paleologou: First, could you just help with regards to sort of the portfolio and you know, M&A or potential divestitures? Could you just help me understand how you would define non-core? And is that just simply a matter of lining up with your stated vision or are there other considerations that we should be aware of? Well, again, Mark, I mean, we're executing our strategies. Every year, we assess the performance of the various businesses, short-term, long-term.

George Paleologou: We see ourselves as allocators of capital. And you know, we act rationally, right? If we see opportunities to unlock value from one area and employ the capital in another area that ultimately gives us a higher return, we'll do that. We've done that in the past, but we can't speak more specifically than that. Okay. Fair enough. That's all very helpful. Thank you.

Mark Petrie: And maybe another follow-up is just on the CapEx and specifically. So I heard about the 1.1 to 1.30 of the 2.30 that'll be in the second half plus 10 to 15 million a quarter for smaller projects. And is there another component?

William Kalutycz: Like is there a sort of a baseline maintenance number that we should factor into that or how should we think? Yeah, no, absolutely Mark. Our guidance on maintenance capex for this year is about 50 to 55 million. And we feel pretty good with that. So, I think in the first half of the year we spent roughly 20 to 25 million, so we're on track with that range.

Mark Petrie: Okay, perfect. And actually one other question, just to clarify, you called a weaker consumer spending as a headwind on revenue. But I'm not sure I thought as an issue for profitability at all. And so, is that to say that the consumer spend is an impact because it's affecting your volumes? But is there any change to sort of how you are pricing or promoting or what you're sort of seeing your customers require from you in terms of contribution?

Mark Petrie: Yeah, Mark, I think that your observation is correct. I think it's more in terms of trying to focus our sales efforts into the channels where the consumer is actually going and shopping. Right? And as I mentioned earlier, they're tending to frequent more discount banners and club as we speak as opposed to traditional channels.

William Kalutycz: That was kind of the comment, right? And Mark, you know, the biggest impact of consumer weakness really was in our premium food distribution group. It's a lower margin group, it's more stable margins. And so, you know, from a margin percentage perspective, relatively little overhead, so contribution margins reflect gross margins. So, you kind of don't see that margin impact like you would if it was an issue in our specialty foods group.

Mark Petrie: Okay, yeah, that makes a lot of sense.

Mark Petrie: Okay, thanks for all the comments. I really appreciate it. Thank you, Mark. Thanks, Mark.

Operator: Thank you so much.

Derek Lessard: And our next question comes from the line of Derek Lesserit. Your line is now open. Yeah, guys, I just have one follow up more of a housekeeping will mostly on a working cap.

William Kalutycz: So, how should we be thinking about that working capital for, I guess, for 2024 and any, any plans to lower it or for the reductions there. Yeah, yeah, you know, with our inventory, it really seems to be two steps forward, one step back. You know, the reason our inventory levels were higher than we'd like at the end of the second quarter, probably about four to five days purchases in inventory. But the fact is it was for very good reasons.

William Kalutycz: You know, one of the biggest challenges in the second half of last year was the shortage of lobsters. The boats just couldn't get out for poor weather. We had a really good strong Canadian spring fishery this year. We're really well positioned with lobster inventory process, lobster inventory going into the back year, back half of the year at favorable prices. So that that was a big driver of the inventory level. You know, we've been talking a lot about product launches and the lumpiness of them.

William Kalutycz: You know, we had some big builds, inventory builds associated with some product launches going out in Q2 and Q3, sorry, Q3, Q4. So, you know, there were some good reasons for the higher inventories, but ideally that they still are high and we are still looking to have lower sort of normalized run rate. Thanks, my fellow, we appreciate it. No problem, Derek.

Operator: Thank you so much, and we don't have any questions.

George Paleologou: I would like to turn the call over to George for closing remarks. Yeah, I'd like to thank everybody for attending.

Operator: Have a great summer. Thanks everyone. Thank you so much, Susan Sutherland. You may[inaudible]