Q1 2025 K-Bro Linen Inc Earnings Call

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Operator: Star Mayan conference call. 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.

Anytime during this call you had acquired immediate assistance. Please press star zero for the operator.

This call is being recorded today may 13 2025.

Operator: This call is being recorded today, May 13, 2025.

I would now like to turn the conference over to Linda Mccurdy. Please go ahead.

Linda McCurdy: I would now like to turn the conference over to Linda McCurdy. Please go ahead.

Thank you operator, and thank you everyone for joining us for our web cut webcast to discuss <unk> acquisition of Star mine and to highlight <unk> Q1 2025 results.

Linda McCurdy: Thank you operator and thank you everyone for joining us for our webcast to discuss K-Bro's acquisition of Star Mayan and to highlight K-Bro's Q1 2025 results.

Presenting today are myself, Linda Mccurdy, President and Chief Executive Officer, and Christi <unk> CFO before we begin we'd like to remind everyone that this webcast contains forward looking information and we would draw your attention to page two of the investor presentation for additional details on forward looking statements.

Linda McCurdy: Presenting today are myself, Linda McCurdy, President and Chief Executive Officer, and Christy Plaquin, CFO. Before we begin, we'd like to remind everyone that this webcast contains forward-looking information, and we would draw your attention to page 2 of the investor presentation for additional details on forward-looking statements.

We're thrilled to announce the transformative acquisition of Star Man <unk> largest acquisition in our history. Our webcast agenda includes strategic rationale for the acquisition an overview of star Mayan highly.

Linda McCurdy: We're thrilled to announce the transformative acquisition of Star Mayan, K-Bro's largest acquisition in our history. Our webcast agenda includes strategic rationale for the acquisition, an overview of Star Mayan, highlights of combined business mix, a summary of the transaction, and financing details.

Highlights of combined business mix, a summary of the transaction and financing details.

Before we discuss the acquisition, we'd like to highlight <unk> Standalone Standalone results for Q1 2025, we're very pleased with our strong first quarter results and see a positive outlook going forward.

Linda McCurdy: Before we discuss the acquisition, we'd like to highlight K-Bro's stand-alone results for Q1 2025. We're very pleased with our strong first quarter results and see a positive outlook going forward. Both of K-Bro's healthcare and hospitality segments continue to experience steady growth trends. Overall, consolidated revenue increased by 13% in Q1 2025 to $91 million, compared to $80 million in 2024. Adjusted EBITDA increased to $15 million in Q1 2025 compared to $13.4 million in 2024. EBITDA increased to $12.4 million in Q1 2025 compared to $11.6 million in 2024. Adjusted net earnings decreased to $3.4 million in Q1 2025 from $3.6 million in 2024.

Both of <unk> healthcare and hospitality segments continued to experience steady growth trends.

Overall consolidated revenue increased by 13% in Q1, 2000 $25 million to $91 million compared to $80 million in 2024.

Adjusted EBITDA increased to $15 million in Q1, 2025 compared to $13 4 million in 2024, EBITDA increased to $12 4 million in Q1 2025 compared to $11 6 million in 2024, adjusted net earnings decreased to $3 4 million in Q1.

<unk> 25 from $3 6 million in 2024 net earnings for the quarter decreased to <unk> $8 million and 25 from $1 8 million and 24 for additional details on the quarter. Please refer to the Q1 press release dated may 13th interim financial statements and MD&A moves.

Linda McCurdy: Net earnings for the quarter decreased to $0.8 million in 2025 from $1.8 million in 2024.

Linda McCurdy: For additional details on the quarter, please refer to the Q1 press release dated May 13th, Interim Financial Statements and MD&A.

Back to our acquisition Star mine and capable of shared values and putting people first being dependable partners and environmental stewardship.

Linda McCurdy: Moving back to our acquisition, Star Mayan and K-Bro have shared values in putting people first, being dependable partners, and environmental stewardship.

We're excited to welcome the team to the <unk> family and look forward to further supporting existing and new customers.

Linda McCurdy: We're excited to welcome the team to the K-Bro family and look forward to further supporting existing and new customers. Dharmayan, doing business as Synergy, Grosvenor and AeroServe is a leading UK healthcare and hospitality laundry and linen processor which acquired, which K-Bro acquired for 107 million pounds or 199 million Canadian dollars.

<unk> doing business as synergy Grosvenor in Aerostar is a leading UK health care and hospitality laundry and linen processor, which acquired which caper acquired for 107 million pounds or 199 million Canadian dollars.

Were particularly proud to be announcing the largest acquisition in <unk> history. During the <unk> 20th anniversary as a public company. This represents the start of a new and exciting chapter for K Bruce next leg of growth.

Linda McCurdy: We're particularly proud to be announcing the largest acquisition in K-Bro's history during K-Bro's 20th anniversary as a public company. This gives K-Bro.

As a backdrop, we initially entered the U K market through the acquisition of fissures in 2017 with the vision of building a national platform for further consolidation in a highly fragmented attractive market.

Linda McCurdy: As a backdrop, we initially entered the UK market through the acquisition of Fishers in 2017, with the vision of building a national platform for further consolidation in a highly fragmented, attractive market. We continued on that strategy through the acquisition of Shortridge in 2024. This transformative acquisition of Star allows K-Bro to further achieve that vision. going forward. Combined with Star, this creates a top three commercial laundry platform in the UK with a strategic national presence. This establishes coast-to-coast health care and hospitality platforms in Canada and now the UK. Star Mayan's healthcare-focused platform enhances K-Bro's pro-forma revenue diversification by mix in geography and is highly complementary to the existing fishers and short-range businesses, which allows K-Bro to drive significant synergies.

We continued on that strategy through the acquisition of short Ridge in 2020 for this transformative acquisition of Star allows <unk> to further achieve that vision.

Going forward.

Combined with store Star this creates a top three commercial laundry platform in the U K with a strategic national presence. This establishes coast to coast health care and hospitality platforms in Canada and now the U K.

<unk> health care focused platform enhances <unk> pro forma revenue diversification by mix and geography and is highly complementary to the existing fishers and short rich businesses, which allows cable to drive significant synergies. This acquisition offers an attractive pro forma financial profile while mean.

Linda McCurdy: This acquisition offers an attractive pro-forma financial profile while maintaining commitment to our existing long-term leverage target of less than three times and supporting continued growth. As a leading UK commercial laundry, Star's operations are strategically located across the Northwest, Midlands and South of England. It operates under the national Synergy LMS brand and the local niche brands of Grosvenor Contracts and Arrowthorpe Linen Services. It's a healthcare-focused business with stable recurring revenue that indices to cost inflation. 69% of revenues come from healthcare, while 35% come from hospitality and mark. It maintains a highly diversified blue-chip customer base with no customer representing more than 8% of revenue.

Training commitment to our existing long term leverage target.

Of less than three times and supporting continued growth.

As a leading UK commercial laundry starz operations are strategically located across the north West Midlands and South of England. It operates under the National synergy LMS brand and the local niche brands of Grosvenor contracts in Aero serve lentils linen services, it's a health care focused business.

With stable recurring revenue.

Indices to cost inflation, 69% of revenues come from health care, while 35% come from hospitality end markets.

Maintains a highly diversified blue chip customer base with no customer representing more than 8% of revenue custom.

Customers include hospitals health care facilities, NHS trusts community trusts airline Marine ferries and hospitality providers Star has a track record of top line growth and ability to drive profitability on a 12 month basis ended March 2025 Star mine generated 94.

Linda McCurdy: Customers include hospitals, healthcare facilities, NHS trusts, community trusts, airline, marine ferries, and hospitality providers. STAR has a track record of top-line growth and ability to drive profitability. On a 12-month basis, and in March 2025, STAR Mayan generated £94 million of revenue and £14.2 million of adjusted EBITDA. This includes the impact of the IFRS lease.

Pounds of revenue and $14 2 million pounds of adjusted EBITDA. This includes the impact of the <unk> leases.

Delighted with the experienced operational management team with leadership depth across business segments and brands covering 200 employees from local communities.

Linda McCurdy: We're delighted with the experienced operational management team with leadership depth across business segments and brands covering 1,200 employees from local communities. For form of the acquisition, K-Bro is expected to have 10% market share of the 1.6 billion pound total UK market. We will truly have a footprint that allows K-Bro to provide coast-to-coast coverage through the combined 14 laundry facilities in the UK. This complementary footprint enables synergy, realization, and continued profitable growth through the opportunity to grow healthcare, hospitality, and workwear nationally. strong positioning to execute on various growth opportunities in what constitutes to be a highly fragmented market in the UK is also a significant opportunity for us.

Pro forma the acquisition <unk> expect it to have 10% market share of the $1 6 million billion pound total UK market. We will truly have a footprint that allows <unk> to provide coast to coast coverage through the combined 14 laundry facilities in the U K.

This complementary footprint enables synergy realization and continued profitable growth through the opportunity to grow healthcare hospitality and workwear nationally.

Strong positioning to execute on various growth opportunities in what constitutes to be a highly fragmented market in the U. K is also a significant opportunity for us.

Christy: Christy I'll turn it over to you.

Christy Plaquin: Christy, I'll turn it over to you. Thanks, Linda. With the combination of Starman, K-Bro's business profile was transformed on a pro forma basis represented by combined trailing 12-month March 2025 revenue of $551 million and adjusted EBITDA including IFRS 16 leases of $99 million. and an expanded footprint with a combined 25 energy and water efficient operating facilities and 4,000 employees company-wide. The coast-to-coast platform in Canada and the UK provides K-Bro with a leading national platform spanning two continents to drive continued growth. The addition of Starmain's healthcare-focused business enhances K-Bro's revenue mix towards stable, reoccurring healthcare revenue and greater exposure to the UK market.

Christy: Thanks, Linda with the combination of Star Man <unk> business profile has transformed on a pro forma basis represented by combined trailing 12 month March 2025 revenue of $551 million and adjusted EBITDA, including <unk> 16 leases of 99 million.

Christy: And an expanded footprint with a combined 25 energy and water efficient operating facilities and 4000 employees companywide the coast to coast platform in Canada, and the U K provides <unk> with a leading national platforms spanning two continents to drive continued growth.

Christy: The addition of Star means health care focused business enhances <unk> revenue mix towards stable reoccurring healthcare revenue and greater exposure to the U K market for the trailing 12 month period ended March 2025, <unk> pro forma consolidated revenue mix would have been.

Christy Plaquin: For the trailing 12-month period ended March 2025, K-Bro's pro-forma consolidated revenue mix would have been as follows. Geographic revenue mix would shift from 70% Canada and 30% UK to a more even geographic mix of 49% Canada and 51% UK, representative of having two leading coast-to-coast national platforms. Business revenue mix would shift from 52% healthcare and 48% hospitality to 57% healthcare and 43% hospitality. For the trailing 12-month period ended March 2025, K-Bro's pro-forma UK business revenue mix would shift from 6% healthcare and 94% hospitality to significantly more balanced mix of 43% healthcare and 57% hospitality. Dhar Mayan is highly complementary to our existing UK businesses.

Christy: As follows.

Christy: Geographic revenue mix would shift from 70%, Canada, and 30% U K to more.

Christy: More even graphic geographic mix of 49%, Canada, and 51% UK representative of having two leading post to coast national platforms.

Christy: Business revenue mix would shift from 52% health care, and 48% hospitality to 57% health care and 43% hospitality for the trailing 12 month period ended March 2025, <unk> pro forma U K business revenue mix would shift from 6% health care and <unk>.

Christy: 94% hospitality to significantly more balanced mix of 43% health care and 57% hospitality.

Christy: <unk> is highly complementary to our existing UK businesses, we anticipate 2 million pounds of synergies that we believe are highly achievable and comprised of three baskets.

Christy Plaquin: We anticipate £2 million of synergies that we believe are highly achievable and comprised of three baskets. Half a million of cost synergies achievable within 6 to 12 months comprised of corporate costs and overhead reductions, three-quarters of a million pounds of near-term operational efficiencies within 24 months comprised of supplier savings and improved productivity, and three-quarters of a million pounds achieved through platform optimizations within 24 months, which will be comprised of implementing a national hospitality strategy and facility volume optimizations across all UK facilities. In terms of an integration plan, we have a fulsome strategy to integrate STAR into our existing UK businesses.

Christy: $4 million of cost synergies achievable with in six to 12 months comprised of corporate costs and overhead reductions three quarters of 1 million pounds of near term operational efficiencies within 24 months comprised of supplier savings and improved productivity and three quarters of 1 million pounds achieved through platform optimizations.

Christy: Within 24 months, which will be comprised of implementing a national hospitality strategy and facility volume optimizations across all UK facilities.

Christy: In terms of an integration plan, we have a fulsome strategy to integrate star into.

Speaker Change: Into the U K, our existing UK businesses, we will action several initiatives on day, one Michael Jones will lead all U K operations through the newly created role of UK managing director. He has a long tenured kaypro executive who joined the Cairo team following the acquisition of Fisher's back in 2000.

Christy Plaquin: We will action several initiatives on day one. Michael Jones will lead all UK operations through the newly created role of UK Managing Director. He is a long-tenured K-Bro executive who joined the K-Bro team following the acquisition of Fishers back in 2017. He will be supported by regional lead direct reports across the UK footprint, all of which have significant leadership experience in the UK operations. A dedicated transition team will be established comprised who will be critical to executing the 100-day plan. will begin evaluation of opportunities to optimize the Proforma footprint relative to the combined portfolio of existing customer contracts using a combined team of operational leads from Canada and the UK.

Speaker Change: 17, youll be supported by regional lead direct reports across the UK footprint, all of which have significant leadership experience in the U K operations.

Speaker Change: Dedicated transition team will be established comprised.

Speaker Change: Who will be critical to executing the 100 day plan.

Speaker Change: We'll begin evaluation of opportunities to optimize the pro forma footprint relative to the combined portfolio of existing customer contracts using our combined team of operational leads from Canada and the U K.

Speaker Change: We will also make strategic near term investments in the amount of 5 million pounds to support the integration of store in Miami and execution of the go forward business plan, including to expand capacity and enhance operational efficiencies of the combined U K business.

Christy Plaquin: We will also make strategic near-term investments in the amount of £5 million to support the integration of StormIon and execution of the Go Forward business plan, including to expand capacity and enhance operational efficiencies of the combined UK business.

Speaker Change: Onto slide 11, we believes that KBR was well positioned to leverage our experience and expertise in health care laundry to drive long term growth and margin up side for star. We're a leader in health care and laundry with 50 years of 50 plus years of experience, we have best in class healthcare accreditations extra.

Christy Plaquin: On to slide 11. We believe that K-Bro is well-positioned to leverage our experience and expertise in healthcare laundry to drive long-term growth and margin upside for STAR. We're a leader in healthcare and laundry with 50 plus years of experience. We have best-in-class healthcare accreditations, expertise in hygiene capabilities, and a sterling healthcare customer base. Most importantly, we have a deep senior team with significant experience serving healthcare customers. We intend to bring this collective experience and track record of operational excellence to support, evaluate, and grow both existing and new customer relationships at STAR and across our newly formed national business.

Speaker Change: Courteous and hygiene capabilities, and a sterling health care customer base. Most importantly, we have a deep senior team with significant experience serving health care customers. We intend to bring this collective experience and track record of operational excellence to support evaluate and grow both existing and new customer relationships.

Speaker Change: <unk> chips out start and across our newly formed national business.

Speaker Change: Yeah.

Speaker Change: The financial merits of the transaction are highly attractive and value creating for our shareholders.

Christy Plaquin: The financial merits of the transaction are highly attractive and value-creating for our shareholders. The 107 million purchase price, 107 million pound purchase price, represents a 7.6 TTM adjusted EBITDA, including the impact of IFRS 16 and anticipated run rate synergies of 2 million pounds. The transaction is mid to high single-digit accretive to K-Bro's EPS, including anticipated run rate synergies of two million pounds. K-Bro's pro-forma UK healthcare revenue grows to become 43% versus 6% of total UK revenue with multiple avenues to drive margin upside through optimization of the platform. Our pro-forma funded debt to trailing 12-month EBITDA will be approximately 3.3 times at closing, excluding the impact of IFRS 16 leases, with de-levering below long-term target of less than three times within 12 months.

Speaker Change: 107 million purchase price 107 million pound purchase price represents a seven six TTM adjusted EBITDA, including the impact of Ifr 16, and anticipated run rate synergies of 2 million pounds.

Speaker Change: The transaction is mid to high single digit accretive to <unk>, EPS, including anticipated run rate synergies of 2 million pounds.

Speaker Change: <unk> pro forma U K healthcare revenue growth to become 43% versus 6% of total U K revenue with multiple avenues to drive margin upside through optimization of the platform. Our pro forma funded debt to trailing 12 month EBITDA will be approximately three three times at closing.

Speaker Change: Excluding the impact of <unk> 16 leases with Delevering below long term target of less than three times within 12 months.

Speaker Change: We have maintained clear acquisition criteria over time and believe that Star man achieved all aspects of our stated acquisition criteria. The company as an essential service provider to diversified customers, which total to 120 plus we.

Christy Plaquin: We have maintained clear acquisition criteria over time and believe that Star Man achieves all aspects of our stated acquisition criteria. The company is an essential service provider to diversify customers which total to 120 plus. We expect margin upside from the synergies and platform optimization of £2 million of anticipated run rate synergies through the combination of a complementary platform. This transaction enhances business mix diversification towards greater healthcare weighting in the UK. It grows our existing UK footprint to a national scale which would comprise 51% of pro forma TTM March 2025 revenue. We will retain all operational management and facility staff to support continued growth.

Speaker Change: That margin upside from the synergies and platform optimization of 2 million pounds of anticipated run rate synergies through the combination of a complementary platform.

Speaker Change: The transaction enhances business mix diversification towards greater health care weighting in the U K. It grows our existing UK footprint to a national scale, which would comprise 54, 1% of pro forma TTM March 2025 revenues.

Speaker Change: We will retain all operational management and facility staff to support continued growth. This represents an attractive purchase multiple and EPS accretion for an asset of transformational scale.

Christy Plaquin: This represents an attractive purchase multiple in EPS accretion for an asset of transformational scale. The transaction will be financed through a financing package which includes $70 million Canadian dollars of bought subscription receipts offering led by TD Security. $140 million dollar amortizing term loan with a four-year maturity led by TD Securities Inc. K-Bro's existing committed revolving credit facility is unchanged at $175 million, with an additional uncommitted accordion of $50 million. Of this amount, $121 million was drawn on March 31. Despite slightly elevated leverage at close, we remain confident in the ability to de-lever below our long-term target of less than three times within 12 months.

Speaker Change: The transaction will be financed through a financing package, which includes 70 million Canadian dollars of bought subscription receipt receipts offering led by TD Securities.

Speaker Change: $140 million amortizing term loan with a four year maturity led by TD Securities Inc.

Speaker Change: The existing committed revolving credit facility is unchanged at $175 million with an additional uncommitted accordion up now $50 million.

Speaker Change: The amount of $121 million was drawn at March 31st despite slightly elevated leverage at close we remain confident in the ability to delever below our long term target of less than three times within 12 months cable remains committed to its monthly dividend and its temporary but has temporarily pausing its normal course issuer bid which expires.

Christy Plaquin: K-Bro remains committed to its monthly dividend, but is temporarily pausing its normal course issuer bid, which expires on May 20, 2025. We will continue to assess our capital allocation priorities to balance the leveraging in the near term while maintaining a flexible capital structure to support future acquisitions, organic growth, and the return of capital.

Speaker Change: On may 20th 2025.

Speaker Change: We will continue to assess our capital allocation priorities to balance deleveraging in the near term, while maintaining a flexible capital structure to support future acquisitions organic growth and the return of capital I'll turn it back to <unk> for closing remarks.

Linda McCurdy: I'll turn it back to you, Linda, for closing remarks. As we wrap up the formal presentation, we want to remind investors of the strong 20-plus year history of growth at K-Bro, characterized by a 13% revenue CAGR since IPO and Proforma, the acquisition of Starmine. Underpinned by strong organic growth and a successful track record of over 10 acquisitions. We maintain an active M&A pipeline in North America, Europe, and similar geographies that remain highly fragmented. By leveraging our proven capabilities on integration and synergies realized, we believe in our ability to continue to deliver accretive transaction economics for K-Bro shareholders.

Speaker Change: As we wrap up the formal presentation, we want to remind investors of the strong 20, plus year history of growth at cable characterized by a 13% revenue CAGR since IPO and pro forma the acquisition of Star mine underpinning underpinned by strong organic growth and our success.

Speaker Change: Full track record of over 10 acquisitions.

Speaker Change: We maintain an active M&A M&A pipeline in North America, Europe, and similar geographies that remain highly fragmented.

Speaker Change: By leveraging our proven capabilities on integration and synergies realized we believe in our ability to continue to deliver accretive transaction economics for kaypro shareholders. We're very excited about the transformative acquisition of star and the growth potential for <unk> going forward. Thank you very much.

Linda McCurdy: We're very excited about the transformative acquisition of STAR and the growth potential for K-Bro going forward.

Linda McCurdy: Thank you very much.

Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.

Operator: You may now disconnect.

Speaker Change: Okay.

Speaker Change: Okay.