Q1 2026 K-Bro Linen Inc Earnings Call

May 6, 2026

Operator: Good morning, ladies and gentlemen, and welcome to the K-Bro Linen Inc. Incorporated Q1 2026 Results Conference Call. At this time, all lines are in listen-only mode. If at any time during the call you require immediate assistance, please press star zero for an operator. This call is being recorded on Wednesday, 6 May 2026. I would now like to turn the conference over to Kristie Plaquin. Please go ahead.

Operator: Good morning, ladies and gentlemen, and Welcome to the K-Bro Linen Inc. Q1 2026 Results Conference Call. At this time, all lines are in listen-only mode. If at any time during the call you require immediate assistance, please press star zero for an operator. This call is being recorded on Wednesday, 6 May 2026. I would now like to turn the conference over to Kristie Plaquin. Please go ahead.

Speaker #2: If at any time during the call you require immediate assistance, please press star 0 for an operator. This call is being recorded on Wednesday, May 6th, 2026, and I would now like to turn the conference over to Christy Pakwin, Plaquin, please go ahead.

Speaker #2: Thank you, operator, and good morning, everyone. Thank you for joining us today, and welcome to our first quarter results conference call. On the line with me today is Linda McCurdy, president and chief executive officer.

Kristie Plaquin: Thank you, operator. Good morning, everyone. Thank you for joining us today and welcome to our Q1 results conference call. On the line with me today is Linda McCurdy, President and Chief Executive Officer. Before we begin, I'd like to remind everyone that statements made during our prepared remarks to the conference call with reference to management's expectations or our predictions of the future are forward-looking statements. All statements made today, which are not statements of historical fact, are considered to be forward-looking statements. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Investors are also cautioned not to place undue reliance on these statements. Actual results could differ materially from those anticipated. Risk factors that can affect the results are detailed in the corporation's public filings.

Speaker #2: Before we begin, I'd like to remind everyone that statements made during our prepared remarks to the conference call with reference to management's expectations or our predictions of the future are forward-looking statements.

Speaker #2: All statements made today, which are not statements of historical fact or considered to be forward-looking statements. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information.

Kristie Plaquin: All statements made today, which are not statements of historical fact, are considered to be forward-looking statements. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Investors are also cautioned not to place undue reliance on these statements. Actual results could differ materially from those anticipated. Risk factors that can affect the results are detailed in the corporation's public filings.

Speaker #2: Investors are also cautioned not to place undue reliance on these statements. Actual results could differ materially from those anticipated. Risk factors that can affect the results are detailed in the corporation's public filings.

Speaker #2: I'll now turn the call over to our CEO, Linda McCurdy, who will provide her insights and remarks on the quarter. Linda.

Kristie Plaquin: I'll now turn the call over to our CEO, Linda McCurdy, who will provide her insights and remarks on the quarter. Linda.

Speaker #3: Thank you very much, Christy, and good morning to everyone. Thank you for joining us today to review our 2026 first quarter results. I'll touch on some of the highlights of the first quarter.

Linda McCurdy: Thank you very much, Christy, and good morning to everyone. Thank you for joining us today to review our 2026 Q1 results. I'll touch on some of the highlights of the Q1. I'll hand it over to Christy, who will provide more details on our financial performance and the balance sheet. We are delighted to have reported our eighth consecutive quarter of record results with revenue of CAD 139 million and adjusted EBITDA of CAD 22.6 million. We have steady trends in both our healthcare and hospitality segments, and volumes for the quarter were generally in line with our expectations. Our Q1 results highlight the benefits of our strategic national platforms in both Canada and the UK.

Speaker #3: I'll then hand it over to Christy, who will provide more details on our financial performance and the balance sheet. So we are delighted to have reported our eighth consecutive quarter of record results with revenue of $139 million and adjusted EBITDA of $22.6 million.

Speaker #3: We have steady trends in both our healthcare and hospitality segments, and volumes for the quarter were generally in line with our expectations. Our Q1 results highlight the benefits of our strategic national platforms in both Canada and the UK.

Linda McCurdy: We have steady trends in both our healthcare and hospitality segments, and volumes for the quarter were generally in line with our expectations. Our Q1 results highlight the benefits of our strategic national platforms in both Canada and the UK.

Speaker #3: Stellar Mayan, which we acquired in June 2025, is highly complementary to our existing UK businesses, futures, and short-range, and creates a top-three national UK healthcare and hospitality platform.

Linda McCurdy: Stellar Mayan, which we acquired in June 2025, is highly complementary to our existing UK businesses, Fishers and Shortridge, and creates a top three national UK healthcare and hospitality platform. As our Stellar Mayan first anniversary approaches, we're pleased with the progress of our ongoing integration efforts. We continue to anticipate run rate cost synergies will be realized over the contemplated 24-month timeframe, and we've seen great results so far. We estimate that we've achieved 30% of the anticipated synergies. Consolidated total revenue for Q1 increased by 53% compared to 2025, with healthcare revenue having increased by 67% and hospitality revenue by 35%. Healthcare revenues represented approximately 61% of consolidated revenue, which is higher compared to approximately 56% in 2025 due to the acquisition of Stellar Mayan.

Speaker #3: As our Stellar Mayan first anniversary approaches, we're pleased with the progress of our ongoing integration efforts. We continue to anticipate run rate cost synergies will be realized over the contemplated 24-month timeframe.

Linda McCurdy: As our Stellar Mayan first anniversary approaches, we're pleased with the progress of our ongoing integration efforts. We continue to anticipate run rate cost synergies will be realized over the contemplated 24-month timeframe, and we've seen great results so far. We estimate that we've achieved 30% of the anticipated synergies. Consolidated total revenue for Q1 increased by 53% compared to 2025, with healthcare revenue having increased by 67% and hospitality revenue by 35%. Healthcare revenues represented approximately 61% of consolidated revenue, which is higher compared to approximately 56% in 2025 due to the acquisition of Stellar Mayan.

Speaker #3: And we've seen great results so far. We estimate that we've achieved 30% of the anticipated synergies. Consolidated total revenues for the first quarter increased by $53% compared to 2025, with healthcare revenue having increased by $67% and hospitality revenue by $35%.

Speaker #3: Healthcare revenues represented approximately $61% of consolidated revenue, which is higher compared to approximately $56% in 2025 due to the acquisition of Stellar. Amid a more volatile global backdrop, we're pleased with our Q1 results underscoring our resilient growth motto: growth model, and business performance.

Linda McCurdy: Amid a more volatile global backdrop, we're pleased with our Q1 results, underscoring our resilient growth model and business performance. I'll now turn the call over to Christy to discuss our detailed financial results for the quarter. After which I'll return to talk about our outlook, and of course, we'll open it up to any questions. Christy, over to you.

Speaker #3: I'll now turn the call over to Christy to discuss our detailed financial results for the quarter after which I'll return to talk about our outlook and, of course, we'll open it up to any questions.

Speaker #3: Christy, over to you.

Speaker #2: Thank you, Linda. The information we are discussing today is also highlighted in our 2026 first quarter earnings press release issued yesterday and details supplemental financial information can be found on our investor relations website under the heading financials.

Kristie Plaquin: Thank you, Linda. The information we are discussing today is also highlighted in our 2026 Q1 earnings press release issued yesterday, and detailed supplemental financial information can be found on our investor relations website under the heading Financials. K-Bro's consolidated revenue for Q1 of 2026 increased by 52.9% year over year to CAD 139.1 million. Quarterly revenue for both the Canadian and UK divisions were roughly equal. 90% of the increase in consolidated revenue was due to the acquisition of Stellar Mayan in June 2025, and the remaining portion was made up of price increases and volume increases. Strategic acquisitions of high-quality operators with leading market positions in key regions continues to be an important contributor to K-Bro's overall growth profile.

Speaker #2: K-Bro's consolidated revenue for Q1 of 2026 increased by $52.9% year over year to $139.1 million. In Canadian dollars, quarterly revenue for both the Canadian and UK divisions were roughly equal.

Speaker #2: 90% of the increase in consolidated revenue was due to the acquisition of Stellar Mayan in June 2025, and the remaining portion was made up of price increases and volume increases.

Speaker #2: Strategic acquisitions of high-quality operators with leading market positions in key regions continue to be an important contributor to K-Bro's overall growth pile. And as we actively pursue these growth opportunities, we will continue to encourage certain transaction transition and financing costs.

Kristie Plaquin: As we actively pursue these growth opportunities, we will continue to incur certain transaction, transition, and financing costs. In this context, we believe adjusted EBITDA before these adjusting items will assist investors to assess our performance on a consistent basis as it is an indication of our capacity to generate income from operations. Consolidated adjusted EBITDA for Q1 of 2026 increased by 50.4% year over year to CAD 22.6 million. Consolidated adjusted EBITDA margin decreased 0.3% year over year to 16.2%, largely due to the combination of the Stellar Mayan margin profile, offset by labor efficiencies and the elimination of the Canadian carbon tax in Q2 of 2025. For the Canadian division, the adjusted EBITDA margin for Q1 of 2026 increased by 2.2% year over year to 20.1%.

Speaker #2: In this context, we believe adjusted EBITDA before these adjusting items will assist investors to assess our performance on a consistent basis as it is an indication of our capacity to generate income from operations.

Speaker #2: Consolidated adjusted EBITDA for Q1 of 2026 increased by $50.4% year over year to $22.6 million. Consolidated adjusted EBITDA margin decreased 0.3% year over year to $16.2%.

Speaker #2: Largely due to the combination of the Stellar Mayan margin profile, offset by labor efficiencies, and the elimination of the Canadian carbon tax in Q2 of 2025.

Speaker #2: For the Canadian division, the adjusted EBITDA margin for Q1 of 2026 increased by 2%, $2.2% year over year, to $20.1%. The increase in adjusted EBITDA margin is largely due to labor efficiencies and the elimination of the Canadian carbon tax in Q2 of 2025.

Kristie Plaquin: The increase in adjusted EBITDA margin is largely due to labor efficiencies and the elimination of the Canadian carbon tax in Q2 of 2025. As a reminder to all, Q1 of 2026 will be the last quarter where we see the year-over-year benefit due to the elimination of the carbon tax, which again was eliminated in Q2 of 2025. For the UK division, the adjusted EBITDA margin for Q1 of 2026 was relatively flat, decreasing by 0.1% year over year to 12.4%. Adjusted net earnings increased in Q1 of 2026 to CAD 4.3 million from CAD 3.4 million in 2025 and included adjusting items of CAD 2.3 million. The adjusting items in the quarter include transaction costs, transition costs, and intangible asset amortization related to the acquisition of Stellar Mayan.

Speaker #2: As a reminder to all, Q1 of 2026 will be the last quarter where we see the year-over-year benefit due to the elimination of the carbon tax, which again was eliminated in Q2 of 2025.

Speaker #2: For the UK division, the adjusted EBITDA margin for Q1 of 2026 was relatively flat, decreasing by 0.1% year over year to $12.4%. Adjusted net earnings increased in the first quarter of 2026 to $4.3 million from $3.4 million in 2025, and included adjusting items of $2.3 million.

Speaker #2: The adjusting items in the quarter include transaction costs, transition costs, and intangible asset amortization related to the acquisition of Stellar Mayan. K-Bro has a strong cash flow generation profile and a disciplined approach to capital allocation, which allows us to both invest in growing the business and return capital to shareholders.

Kristie Plaquin: K-Bro has a strong cash flow generation profile and a disciplined approach to capital allocation, which allows us to both invest in growing the business and return capital to shareholders. Distributable cash flow for Q1 of 2026 was CAD 9.4 million, and our payout ratio was 41.5%. Our trailing 12-month payout ratio was 29.7%. The company paid out CAD 0.3 per share in dividends during the quarter for total consideration of CAD 3.9 million. Post-acquisition debt and leverage levels have been consistent with our expectations. We have a strong balance sheet with ample undrawn capacity on our syndicated revolving credit facility, with an operating line of CAD 175 million and an amortizing term loan of CAD 134.3 million, and a further CAD 50 million accordion for growth purposes.

Speaker #2: Distributable cash flow for Q1 of 2026 was $9.4 million and our payout ratio was 41.5%. Our trailing 12-month payout ratio was 29.7%. The company paid out $0.3 per share in dividends during the quarter for total consideration of $3.9 million.

Speaker #2: Post-acquisition debt and leverage levels have been consistent with our expectations. We have a strong balance sheet with ample undrawn capacity on our syndicated revolving credit facility, with an operating line of $175 million, and an amortizing term loan of $134.3 million, and a further $50 million accordion for growth purposes.

Speaker #2: At the end of the first quarter of 2026, we had an undrawn balance of close to $68.2 million on our operating line, without taking into account the accordion.

Kristie Plaquin: At the end of Q1 2026, we had an undrawn balance of close to CAD 68.2 million on our operating line without taking into account the accordion, reinforcing our strong liquidity. This represents a pro forma debt to EBITDA ratio, excluding leases of approximately 2.5x on a pro forma basis. Debt to total capitalization for the period ended 31 March 2026 was 49.5%. Total debt net of cash decreased from CAD 214.2 million to CAD 204.5 million, primarily attributable to the timing of business activities and the acquisition of Stellar. I'll now turn things back over to Linda for additional commentary. Linda?

Speaker #2: Reinforcing our strong liquidity, this represents a pro forma debt-to-EBITDA ratio excluding leases of approximately 2.5 times on a pro forma basis. Debt-to-total capitalization for the period-ended March 31, 2026, with $49.5%.

Speaker #2: Total debt net of cash decreased from $214.2 million to $204.5 million, primarily attributable to the timing of business activities and the acquisition of Stellar.

Speaker #2: I'll now turn things back over to Linda for additional commentary. Linda?

Speaker #3: Thank you very much, Christy. So we're very pleased with our start to 2026, and we see a positive outlook in the context of an evolving macro landscape.

Linda McCurdy: Thank you very much, Christy. We're very pleased with our start to 2026, and we see a positive outlook in the context of an evolving macro landscape. We've built national platforms with coast-to-coast coverage in Canada and the UK. We're able to deliver industry-leading service to healthcare and hospitality customers from a network of strategically located facilities. Our services are essential to the continuity of our customers' operations, and we're embodying sustainable practices to support them for the long term. We have a highly experienced team, and we're focused on disciplined operational performance. We're making good progress on our UK integration efforts following our acquisition of Stellar in June 2025. Our Canadian and UK platforms are roughly the same size in terms of employees and Canadian dollar revenues.

Speaker #3: We've built national platforms with coast-to-coast coverage in Canada and the UK. We're able to deliver industry-leading service to healthcare and hospitality customers from a network of strategically located facilities.

Speaker #3: Our services are essential to the continuity of our customers' operations, and we're embodying sustainable practices to support them for the long term. We have a highly experienced team, and we're focused on disciplined, operational performance.

Speaker #3: We're making good progress on our UK integration efforts following our acquisition of Stellar in June 2025. Our Canadian and UK platforms are roughly the same size in terms of employees and Canadian dollar revenues.

Speaker #3: Over the past year, we've implemented various improvements at Stellar, including adopting seven-day operations at certain facilities, in-sourcing maintenance that was previously outsourced, workflow optimization, realigning compensation structures, changing certain managers, and leveraging K-Bro's bedrock strength of talent.

Linda McCurdy: Over the past year, we've implemented various improvements at Stellar, including adopting seven-day operations at certain facilities, insourcing maintenance that was previously outsourced, workflow optimization, realigning compensation structures, changing certain managers, and leveraging Sabra's deep bench strength of talent. Our national UK platform is a top three player, we're well-positioned for long-term growth in healthcare and hospitality. On a consolidated basis, we continue to monitor the evolving global, economic, and political forces. From where we stand today, both healthcare and hospitality segments continue to experience stable volume trends. Going forward, we expect combined adjusted EBITDA margins will remain at similar levels to seasonally adjusted combined historical margins. In line with management's expectations, due to the lower EBITDA margin profile of Stellar, the consolidated UK divisional adjusted EBITDA margins will be lower than seasonally adjusted historical margins.

Speaker #3: Our national UK platform is a top-three player, and we're well-positioned for long-term growth in healthcare and hospitality. On a consolidated basis, we continue to monitor the evolving global economic and political forces.

Speaker #3: From where we stand today, both healthcare and hospitality segments continue to experience stable volume trends. Going forward, we expect combined adjusted EBITDA margins will remain at similar levels to seemingly adjusted combined historical margins.

Speaker #3: In line with management's expectations due to the lower EBITDA margin profile of Stellar, the consolidated UK divisional adjusted EBITDA margins will be lower than seasonally adjusted historical margins.

Speaker #3: We continue to monitor the volatile energy pricing environment and the impact on diesel prices and our margins. In the UK, 50% of our diesel usage is hedged and 50% is floating.

Linda McCurdy: We continue to monitor the volatile energy pricing environment and the impact on diesel prices and our margins. In the UK, 50% of our diesel usage is hedged and 50% is floating. In Canada, our diesel usage is floating. If current diesel prices were to continue, management anticipates the anticipated impact to adjusted EBITDA margins would be a decrease of 0.5% to consolidated margins. Putting people first, being dependable partners, and embracing environmental stewardship have always been part of our culture. We're committed to a sustainable future, and we're proud of our talented, diverse, and motivated team of over 4,500 employees that share our values and represent our local communities. We're working to integrate our recently acquired businesses, as always, we collaborate with our stakeholders to appreciate their priorities, solicit and receive feedback, and align around common goals.

Speaker #3: In Canada, our diesel usage is floating. If current diesel prices were to continue, management anticipates the anticipated impact to adjusted EBITDA margins would be a decrease of 0.5% to consolidated margins.

Speaker #3: Putting people first, being dependable partners, and embracing environmental stewardship have always been part of our culture. We're committed to a sustainable future, and we're proud of our talented, diverse, and motivated team of over 4,500 employees that share our values and represent our local communities.

Speaker #3: We're working to integrate our recently acquired businesses and, as always, we collaborate with our stakeholders to appreciate their priorities, solicit and receive feedback, and align around common goals.

Speaker #3: We'll now open it up to any questions you might have regarding our first quarter results.

Linda McCurdy: We'll now open it up to any questions you might have regarding our Q1 results.

Speaker #2: Excellent. Thank you, Linda. Ladies and gentlemen, we'll now begin the question-and-answer session. Should you have a question, please press star followed by one on your touch-tone phone.

Operator: Excellent. Thank you, Linda. Ladies and gentlemen, we'll now begin the question-and-answer session. Should you have a question, please press star followed by 1 on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to remove your hand from the queue, please press star followed by 2. If you're using a speakerphone, please lift the handset before pressing any keys. Just a moment for our first question. Our first question comes from Ahmed Abdullah with National Bank of Canada. Please go ahead.

Speaker #2: You will hear a prompt that your hand has been raised. Should you wish to remove your hand from the queue, please press star followed by two.

Speaker #2: If you're using a speakerphone, please lift the handset before pressing any keys. Just a moment for our first question. And our first question comes from Ahmed Abdullah with National Bank of Canada.

Speaker #2: Please go ahead.

Speaker #4: Yeah, good morning. Thank you for taking my question. On the UK margins, it seems that the dilution is less than we had anticipated. Can you give us a bit more color on how the integration is going for Stellar Mayin?

Ahmed Abdullah: Yeah, good morning. Thank you for taking my question. On the UK margins, it seems that the dilution is less than we had anticipated. Can you give us a bit more color on how the integration is going for Stellar Mayan? Last time you mentioned a 25% realization of synergies. Where are we today? Was that the main contributor of kind of the stable margin profile versus last year?

Speaker #4: Last time, you mentioned a 25% realization of synergies; where are we today? And was that the main contributor to the stable margin profile versus last year?

Linda McCurdy: Great. Morning, Ahmed. Thank you for your questions. I would make the comment that while on the surface it looks like there is not a lot of dilution on the margin as the result of Stellar, it is also the seasonally weakest quarter for Fishers last, Shortridge. That will be a more dramatic impact as we enter into the higher-margin Stellar Shortridge periods where the hospitality, part of the business for Q2 and Q3, which are the strongest. We didn't see it in Q1, but it will be greater impact we'll see in Q2 and Q3. In terms of integration, it has been a lot of heavy lifting, all the heavy lifting that we knew, created opportunities for us. As I mentioned, we've made changes in management.

Speaker #3: Great, morning Ahmed. Thank you for your questions. So, I would make the comment that, well, on the surface, it looks like there is not a lot of dilution on the margin as a result of Stellar.

Speaker #3: It is also the seasonally weakest quarter. For FIFRA's last short run. So that will be a more dramatic impact as we enter into the higher margin Stellar short-range periods where the hospitality part of the business for Q2 and Q3, which are the strongest.

Speaker #3: So we didn't see it in Q1, but it will be greater impact. We'll see in Q2 and Q3. In terms of the integration, it has been a lot of heavy lifting.

Speaker #3: All the heavy lifting that we knew created opportunities for us. As I mentioned, we've made changes in management. We've moved to seven-day working in certain of our operations.

Linda McCurdy: We've moved to 7-day working in certain of our operations. We haven't done it yet in all of them. That is in the works and requires notice periods and working with staff schedules. All are unfolding as planned. We have brought maintenance back in-house, which has gone very, very well. We're very pleased with the progress. It has been a lot of heavy lifting, however. There's more to come. We feel or we're achieving and experiencing about and seeing the impact of about 30% of the savings in our results.

Speaker #3: We haven't done it yet in all of them. That is in the works and requires notice periods and working with staff schedules. But all are unfolding as planned.

Speaker #3: We have brought maintenance back in-house. We are have gone very, very well. So we're very pleased with the progress. It has been a lot of heavy lifting, however.

Speaker #3: There's more to come. We feel or we're achieving and experiencing about and seeing the impact of about 30% of the savings in our results.

Speaker #4: Okay. That's great color. Just on the comment around the diesel price impacts, how have discussions been progressing with your customers? We're seeing it across a lot of industries where fuel surcharges are becoming more of a acceptable discussion point with customers.

Ahmed Abdullah: Okay. That's great color. Just on the comment around the diesel price impacts, how have discussions been progressing with your customers? We're seeing it across a lot of industries where fuel surcharges are becoming more of a acceptable discussion points with customers. Is that 0.5% impact net of adding fuel surcharges, or could you offset that 0.5% with fuel surcharges?

Speaker #4: Is that 0.5% impact net of adding fuel surcharges, or could you offset that 0.5% with fuel surcharges?

Speaker #3: Sure, Ahmed. Good question. We are sort of priming the customer base to know that this could be coming down the pike. We in some of our contracts have the ability to pass it on.

Linda McCurdy: Ahmed, good question. We are sort of priming the customer base to know that this could be coming down the pipe. We in some of our contracts have the ability to pass it on. In many of them, we don't. It is factored in in our annual price increase, through depending on what the mechanism is. In the UK that cost increase is reflected in the textile rental index, which is generally used as the base for our price increases. However, there is some lag in that being reflected in an actual price increase because they're generally annual. Having said that, we have historically worked very closely with our customers to pass some of these dramatic increases on whether it's natural gas or diesel. I would say it's something that is on our radar.

Speaker #3: In many of them, we don't. It is factored in in our annual price increase through depending on what the mechanism is. But in the UK, that cost increase is reflected in the textile rental index, which is generally used as the base for our price increases.

Speaker #3: However, there is some lag in that being reflected in an actual price increase because they're generally annual. Having said that, we have historically worked very closely with our customers to pass some of these dramatic increases on, whether it's natural gas or diesel.

Speaker #3: So I would say it's something that is on our radar. It's something that we work towards. But in a lot of cases, there's no automatic no automatic increase that happens as a result of it.

Linda McCurdy: It's something that we work towards, but in a lot of cases, there's no automatic increase that happens as the result of it.

Speaker #4: Okay. That's good color. I'll cue up. Thank you.

Ahmed Abdullah: Okay. That's good color. I'll queue up. Thank you.

Speaker #3: Thanks, Ahmed.

Linda McCurdy: Thanks, Ahmed.

Speaker #2: Your next question comes from Cheryl Zhang with TD Cowen. Please go ahead.

Operator: Your next question comes from Cheryl Zhang with TD Cowen. Please go ahead.

Speaker #5: Hey, good morning, Linda and Christy. Thank you for taking a cautious and congrats on the great quarter.

Cheryl Zhang: Hey, good morning, Linda and Kristie. Thank you for taking our questions, and congrats on a great quarter.

Speaker #3: Thank you. Morning, Cheryl.

Linda McCurdy: Thank you. Morning, Cheryl.

Speaker #5: Morning. So first, on Stellar Mayin, just some back of the envelope math. It appears that Stellar Mayin revenue growth was in the high single-digit range year over year.

Cheryl Zhang: Morning. First on Steriline, just some back-of-the-envelope math, it appears that Steriline revenue growth was in the high single-digit range year over year, if my math makes sense. I'm curious what's driving the strong growth there. Was there any, like, market share gains or penetration growth that you can point out?

Speaker #5: If my math makes sense, I'm curious what's driving the strong growth there. Was there any market share gains or penetration growth that you can point out?

Speaker #3: I think from a revenue perspective—and I'll ask Christy to weigh in—it was somewhat as advertised. It was in line with our expectations. We have certainly refined a number of our contracts with anticipated CPI-type increases.

Linda McCurdy: I think from a revenue perspective, and I'll ask Kristy to weigh in, it was somewhat as advertised. It was in line with our expectations. We have certainly refined a number of our contracts with anticipated CPI-type increases. I would say it's as expected with no significant major wins. Kristy, do you have any additional color to add?

Speaker #3: So I would say it's as expected, with no significant major wins. Christy, do you have any additional color to add?

Speaker #5: No, Linda, I think you've characterized it well as being really in line with where we thought it would be. Okay, thank you for that.

Kristie Plaquin: No, Linda. I think you've characterized it well as being really in line with where we thought it would be.

Cheryl Zhang: Okay. Thank you for that. That's helpful. Just curious on the hospitality side, just given where fuel costs are trending and also the geopolitical uncertainties, curious if you have seen or heard any impact on businesses, sorry, business and leisure travel demand or any early reads from your hospitality customers. Thank you.

Speaker #5: That's helpful. And then just curious on the hospitality side, just given where fuel costs are trending and also the geopolitical uncertainties, curious if you have seen or heard any impact on businesses—sorry, business and leisure travel demand—or anything you've any early reads from your hospitality customers.

Speaker #5: Thank you.

Speaker #3: Yeah, I'd say Canada is a little more insulated, certainly. We do have a part of our business, of course, in the UK. It is airline—that is, airline business.

Linda McCurdy: I'd say Canada is a little more insulated, certainly. We do have a part of our business, of course, in the UK. That is airline business. Having said that, it is a small percent of our business. We have definitely seen some impact on flights that are going from Heathrow to the Middle East. No surprise there, but it is not material in terms of overall revenue impact. I would say that we have not, we're not anticipating a dramatic impact on rooms sold from our hospitality customers, but there is definitely a general awareness and concern about jet fuel and the impact potentially on summer travel. All that to say, there's no alarm bells yet, but it is on people's radar, and there's a general awareness of it.

Speaker #3: Having said that, it is a small percent of our business. We have definitely seen some impact on flights that are going from C3 to the Middle East.

Speaker #3: So, no surprise there. But it is material in terms of overall revenue impact. I would say that we have not—we have not—we're not anticipating a dramatic impact on rooms sold from our hospitality customers.

Speaker #3: But there is definitely a general awareness and concern about jet fuel and the impact potentially on summer travel. So, all that to say, there's no alarm bells yet, but it is on people's radar and there's a general awareness of it.

Speaker #5: Okay. That's helpful. That's helpful. Thank you. I'll read to you.

Cheryl Zhang: Okay.

Speaker #3: Of the impact.

Linda McCurdy: Of the impact.

Cheryl Zhang: That's helpful. That's helpful. Thank you. I'll read queue.

Speaker #3: Thank you, Cheryl.

Linda McCurdy: Thank you, Cheryl.

Speaker #2: Your next question comes from Kyle McPhee with ATB Coremark. Please go ahead.

Operator: Your next question comes from Kyle McPhee with ATB Cormark. Please go ahead.

Speaker #6: Hello. To start, just to follow up on the diesel cost exposure discussion we already had, that 50 basis points margin hit, when would that start to show in your results?

Kyle McPhee: Hello. To start, just to follow up on the diesel cost exposure discussion we already had. That 50 basis points margin hit, you know, when would that start to show in your results? Is that when the hedges roll off, or is that kind of right away into Q2 here if prices don't alleviate?

Speaker #6: Is that when the hedges roll off, or is that kind of right away into Q2 here if prices don't alleviate?

Speaker #3: Pretty quickly. Kyle, because of the 50% that are unhedged in the UK. So we're certainly seeing the impact and there is a little bit of an impact in Canada, but the all wrapped in to the 50 basis points.

Linda McCurdy: Pretty quickly, Kyle, because of the 50% that are unhedged in the UK. We're certainly seeing the impact. There is a little bit of an impact in Canada, but all wrapped into the 50 basis points. We're experiencing that now.

Speaker #3: But we're experiencing that now.

Speaker #6: Got it. And can you provide any color on the lengths of these hedges that are in place?

Kyle McPhee: Got it. Can you provide any color on the lengths of these hedges that are in play?

Speaker #3: Yeah. So we're not hedged in Canada on diesel. We are hedged until the end of '26 in the UK.

Linda McCurdy: Yeah. We're not hedged in Canada on diesel. We are hedged until the end of 2026 in the UK.

Speaker #6: Got it. Okay. And then just to follow up on the UK organic growth, we talked about it already. By my math, it was 6.1%, so very strong again.

Kyle McPhee: Got it. Okay. Just to follow up on the UK organic growth. We talked about it already. You know, by my math, it was 6.1%, so very strong again. Keeps tracking ahead of what I thought. You indicated it was mostly pricing gains. Was there any organic volume gains in the UK that's feeding into that 6%?

Speaker #6: Keep tracking ahead of what I thought. You indicated it was mostly pricing gains. Was there any organic volume gains in the UK that's feeding into that 6%?

Speaker #3: Yeah. I'd say certainly there was it's half and half, to be fair. It's half price, half volume. More so existing customers a few new wins, but nothing material.

Linda McCurdy: Yeah, I'd say, you know, it's half and half, to be fair. It's half price, half volume. More so, existing customers. A few new wins, but nothing material. It is half and half.

Speaker #3: But it is half and half.

Speaker #6: Got it. Okay. Thank you. And then last one from me, I'd like to discuss the natural gas price exposure. Your UK business, I think, is fully hedged through this year, but exposed into 2027 to whatever prices may be at that time.

Kyle McPhee: Got it. Okay, thank you. Last one from me. I'd like to just discuss the natural gas price exposure. You know, your UK business I think is fully hedged through this year, but exposed into 2027 to whatever prices may be at that time. Canada has some exposure as well, I think. Can you help us just understand the margin at risk in 2027, you know, if, for instance, natural gas's prices stay at these levels? You know, kind of similar to the math you're doing on the diesel exposure, if it's not too early.

Speaker #6: Canada has some exposure as well, I think. Can you help us just understand the margin at risk in 2027 if, for instance, natural gas is prices stay at these levels?

Speaker #6: Kind of similar to the math you're doing on the diesel exposure if it's not too early to do that here with natural gas?

Linda McCurdy: Yeah

Kyle McPhee: to do that here with natural gas.

Speaker #3: Yeah. So what I would say is if we look out at what pricing is into 2027 well, I'm going to say it differently. The impact is likely a 1% to just over a 1% increase overall.

Linda McCurdy: Yeah. You know, what I would say is if we look out at what pricing is into 2027. Well, I'm gonna say it differently. The impact is likely a 1% to just over a 1% increase overall if we had to hedge at today's rates. Of course, if we were looking at re-hedging into 2027, those rates come down. If we actually had to pay today's prices for natural gas and diesel, it would be about a 1.2% increase. Christy, you agree with that number?

Speaker #3: If we had to hedge at today's rate, but of course, if we were looking at rehedging into 2027, those rates come down. But if we actually had to pay today's prices for natural gas and diesel, it would be about a 1.2% increase.

Speaker #3: Christy, you agree with that number?

Speaker #5: Yes, I do.

Kristie Plaquin: Yes, I do.

Speaker #6: Got it. And is that.

Kyle McPhee: Got it. Is that.

Speaker #3: And of course, but that doesn't take into account, however, any price increases that would offset that, obviously.

Linda McCurdy: That doesn't take into account, however, any price increases that would offset that, obviously.

Speaker #6: Got it. That was my next question. Can you you have so much lead time here in this energy category, so can you proactively kind of deal with it?

Kyle McPhee: Got it. That was my next question. You have so much lead time here in this energy category, so can you proactively kinda deal with it? Is any of that automatic in this category, kinda contrasting the diesel?

Speaker #6: And is any of that automatic in this category, kind of contrasting the diesel?

Speaker #3: Well, most of our price increases come either at the beginning of the year or in April if. So certainly, the increased cost will be reflected in the percent increase we get.

Linda McCurdy: Well, most of our price increases come either at the beginning of the year or in, you know, April-ish. Certainly if the increased cost will be reflected in the percent increase we get, it will reduce the 1.2% impact if we had to re-hedge at today's prices.

Speaker #3: So it will reduce the 1.2% impact if we had to rehedge at today's prices.

Speaker #6: Got it. Okay. Appreciate your time.

Kyle McPhee: Got it. Okay.

Linda McCurdy: And yes-

Kyle McPhee: Appreciate the color.

Speaker #3: And yes, we will signal to all of you. And just a final point on your question: yes, we absolutely are telegraphing to our customers that energy is having an impact on the business.

Linda McCurdy: Just a final point on your question. Yes, we absolutely are telegraphing to our customers that energy is having an impact on the business, and they know that.

Speaker #3: And they know that.

Speaker #6: Okay. Thank you. That's it.

Kyle McPhee: Okay, thank you. That's it.

Speaker #3: Thanks, Kyle.

Linda McCurdy: Thanks, Kyle.

Speaker #2: Your next question comes from Michael Glenn with Raymond James. Please go ahead.

Operator: Your next question comes from Michael Glen with Raymond James. Please go ahead.

Speaker #7: Hey, Linda, are you able to update us at all? I know that you've spoken about this disposable conversion opportunity in the UK. Is there anything that you can share with those conversations at this point in time?

Michael Glen: Hey, Linda, are you able to update us at all? I know that you've spoken about this disposable conversion opportunity in the UK. Is there anything that you can share with those conversations at this point in time?

Linda McCurdy: You know, we really are just getting started on that. We've been very focused on the synergy, achieving the synergy target. You know, we're moving some volume from a relocation from a small plant. Yes, it is in the works, but I would say it is, in terms of priorities, kind of secondary on the list. We still see it as a significant opportunity, Michael.

Speaker #3: We really are just getting started on that. We've been very focused on the synergy achieving the synergy target. We've moved we're moving some volume from a relocation from a small plant.

Speaker #3: So yes, it is in the works, but I would say it is in terms of priorities. Kind of secondary on the list. But we still see it as a significant opportunity.

Speaker #3: Michael.

Speaker #7: Okay. And then, are you able to provide us— is there any update that you are able to share with respect to the Lower Mainland renewal process?

Michael Glen: Okay. Is there any update that you are able to share with respect to the Lower Mainland renewal process?

Speaker #3: I would say that their process is unfolding, and there wouldn't be any real meaningful news until I think at the very earliest Q4 and possibly Q1.

Linda McCurdy: I would say that, you know, their process is unfolding, and there wouldn't be any real meaningful news until, I think at the very earliest Q4 and possibly Q1.

Speaker #7: Okay. And maybe just on your capital allocation, thoughts or updates you're deleveraging I think faster than I think you're characterizing it as in line, but it feels like it's faster than I was certainly expecting down at two and a half now pro forma.

Michael Glen: Okay. Maybe just on your capital allocation thoughts or updates, you're de-leveraging, I think, faster than, I think you're characterizing it as in line, but it feels like it's faster than I was certainly expecting, down at 2.5 now pro forma. Are you able to speak to how we should think about capital allocation in H2 of the year?

Speaker #7: So, are you able to speak to how we should think about capital allocation in the second half of the year?

Speaker #3: Absolutely. So we continue to look at the various alternatives with the highest priorities being growth through acquisition in our existing markets. And of course, we don't depend we don't control timing on that front.

Linda McCurdy: Absolutely. We continue to look at the various alternatives, with the highest priorities being, you know, growth through acquisition in our existing markets. Of course, we don't control timing on that front. A very close second priority would be reactivating the NCIB that we had put in place several years ago but stopped to preserve balance sheet flexibility for the Stellar acquisition. I would say that we're pleased with how it's de-leveraged and that those two priorities remain the top priorities, which we'll continue to focus on.

Speaker #3: But very close second priority would be reactivating the NCIBs that we had put in place several years ago but stopped. To preserve balance sheet flexibility for the stellar acquisition.

Speaker #3: So I would say that we're pleased with how it's deleveraged and that those two priorities remain the top priorities. Which we'll continue to focus on.

Speaker #7: Okay. Thank you for taking the questions.

Michael Glen: Okay. Thank you for taking the questions.

Speaker #3: Thanks, Michael.

Linda McCurdy: Thanks, Michael.

Operator: Your next question comes from Justin Keywood with Stifel. Please go ahead.

Speaker #2: Your next question comes from Justin Keywood with Stifel. Please go ahead.

Speaker #8: Good morning. Thanks for taking my call.

Justin Keywood: Good morning. Thanks for taking my call.

Speaker #3: Good morning, Justin.

Linda McCurdy: Morning, Justin.

Speaker #8: Thanks. Nice to see the big step up in growth. Are we able to parse out the organic contribution both in Canada and the UK?

Justin Keywood: Thanks. Nice to see the big step up in growth. Are we able to parse out the organic contribution, both in Canada and the UK? Kristie, do you wanna address that?

Speaker #3: Christy, do you want to address that?

Speaker #5: Yeah, absolutely. So Justin, again, most of the revenue growth, about 90% of it, would have come from the stellar acquisition. The remaining 10% would be split approximately evenly between price and volume growth.

Kristie Plaquin: Yeah, absolutely. Justin, most of the revenue growth, about 90% of it would have came from the Stellar acquisition. The remaining 10% would be split approximately evenly between price and volume growth.

Speaker #8: And the split Canada versus UK, would that be roughly half?

Justin Keywood: The split Canada versus UK, would that be roughly half?

Speaker #5: Yeah. Yeah. That would be a fair assumption.

Kristie Plaquin: Yeah. That would be a fair assumption.

Speaker #8: Would it be fair to assume mid-single-digit organic growth for the rest of 2026?

Justin Keywood: Would it be fair to assume mid-single digit organic growth for the rest of 2026?

Speaker #5: Yeah. That would be sorry, mid-single. Yeah, we would say kind of in the 5 to 5-ish percent range would be a mid would be reasonable.

Kristie Plaquin: Yeah, that would be. Sorry, mid-single? Yeah, we would say kinda in the, in the 5% to 5-ish% range would be a reasonable, like mid would be reasonable.

Speaker #8: Okay. Great. And then we understand that there's several competitive RFPs that have been ongoing for quite a while in Ontario. Are we able to get an update on the stages of those opportunities?

Justin Keywood: Okay, great. We understand that there's several competitive RFPs that have been ongoing for quite a while in Ontario. Are we able to get an update on the stages of those opportunities?

Speaker #3: Thanks, Justin. I wouldn't expect anything meaningful to be out to the market at the earliest until end of Q3. And/or by Q4. We know that there are various health organizations considering alternatives.

Linda McCurdy: Thanks, Justin. I wouldn't expect anything, meaningful to, you know, be out to the market at the earliest until end of Q3 and or by Q4. We know that there are various health organizations considering alternatives. There wouldn't be anything until that point in time.

Speaker #3: But there wouldn't be anything until that point in time.

Speaker #8: And are these are they a couple of RFPs, like 5 to 10 or more?

Justin Keywood: Are they a couple of RFPs, like 5 to 10 or more?

Linda McCurdy: You know, it's hard to determine Well, each hospital or health system somewhat acts on their own behalf and would use a group purchasing organization. Each of them would determine their own path forward. It is a little hard to tell. We know there will be some, but they don't act together as a consolidated group. You know, there's at least 10 health organizations that would be impacted by that minimum. Probably 15, actually.

Speaker #3: It's hard to determine well, each hospital or health system somewhat acts on their own behalf. And would use a group purchasing organization. But each of them would determine their own path forward.

Speaker #3: So it is a little hard to tell what each of them has in their hands. We know there will be some but they don't act together as a consolidated group.

Speaker #3: And there's at least 10 health organizations that would be impacted by that minimum. Probably 15, actually.

Speaker #8: So that's.

Justin Keywood: That's.

Speaker #3: Ranging from very large ranging from very large to very small.

Linda McCurdy: Ranging from very large-

Justin Keywood: Yeah.

Linda McCurdy: Ranging from very large to very small.

Speaker #8: Quite substantial. If this gets pushed a little farther is it fair to assume that most of these RFPs will come to market in 2027?

Justin Keywood: Quite substantial. Like, if this gets pushed a little farther, is it fair to assume that most of these RFPs will come to market in 2027?

Speaker #3: I would say that some will. Some may opt not to go to RFP. And look for short-term extensions. It really I would say will become much more in focus in the back half of the year.

Linda McCurdy: I would say that some will. Some may opt not to go to RFP and look for short-term extensions. It, you know, it really, I would say, will become much more in focus in the H2.

Speaker #8: Okay. Interesting. And just finally, for Christy, what do you anticipate the exit leverage ratio to be for 2026?

Justin Keywood: Okay. Interesting. Just finally, for Kristie, what do you anticipate the exit leverage ratio to be for 2026?

Speaker #5: Justin, I would say somewhere in the mid-2s would be a reasonable leverage exit ratio. Based on where we're at today.

Kristie Plaquin: Justin, I would say somewhere in the mid-2s would be a reasonable leverage exit ratio based on where we're at today.

Speaker #8: So would that if I understand we're at 2.5 right now? Or is that already an.

Justin Keywood: Would that, If I understand, we're at 2.5 right now, or is that already in it?

Kristie Plaquin: Yeah, we're around 2.5 now. Yeah. Kind of in the mid-twos would be reasonable.

Speaker #5: Yeah, we're around 2.5 now. Yeah. So kind of in the mid-2s would be reasonable.

Speaker #8: So relatively flat then? Would be the way to look at it?

Justin Keywood: Relatively flat then, would be the way to look at it?

Speaker #5: Probably lower than slightly lower than we are right now. We would anticipate free cash flow before dividends of about 45 million. So there will still be some repayment of debt.

Kristie Plaquin: slightly lower than we are right now. We would anticipate free cash flow before dividends of about CAD 45 million. There will still be some repayment of debt, so mid to, like in the, you know It'll come down a little bit throughout the quarters.

Speaker #5: So mid-2 in the it'll come down a little bit throughout the quarters.

Speaker #8: Okay. Thank you. Very helpful. Appreciate it.

Justin Keywood: Okay. Thank you. Very helpful. Appreciate it.

Speaker #2: Thank you. There are no further questions at this time. I would like to turn the call back over to Linda McCurdy.

Operator: Thank you. There are no further questions at this time. I would like to turn the call back over to Linda McCurdy.

Speaker #3: Thank you, everyone. Look forward to any follow-up if you have it. Feel free to reach out to Christy and I. And have a great day.

Linda McCurdy: Thank you, everyone. Look forward to any follow-up. If you have it, feel free to reach out to Kristie and I, and have a great day.

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

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Q1 2026 K-Bro Linen Inc Earnings Call

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Q1 2026 K-Bro Linen Inc Earnings Call

Wednesday, May 6th, 2026 at 12:00 PM

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