Q2 2026 Transcontinental Inc Earnings Call

June 4, 2026

Operator: Mesdames et Messieurs, merci d'avoir patienté et bienvenue à la conférence téléphonique concernant les résultats du Q2 de l'exercice 2026 de TC Transcontinental. Pendant la conférence, tous les participants seront en mode d'écoute seulement. Une période de questions suivra la présentation et des directives vous seront données à ce moment. Nous désirons vous rappeler que cette conférence est enregistrée aujourd'hui, le 4 June 2026. Welcome to the TC Transcontinental Q2 Fiscal Year 2026 Results Conference Call. During the presentation, all participants will be in listen only mode. Afterwards, we will conduct a question and answer session. Instructions will be provided at that time. As a reminder, this conference is being recorded today, 4 June 2026. I would like to turn the conference over to Yan Lapointe, Senior Director, Investor Relations and Treasury. J'aimerais maintenant céder la parole à Yan Lapointe, Directeur, Relations avec les investisseurs et Trésorerie.

Operator: [Foreign language] Welcome to the TC Transcontinental Q2 Fiscal Year 2026 Results Conference Call. During the presentation, all participants will be in listen only mode. Afterwards, we will conduct a question-and-answer session. Instructions will be provided at that time. As a reminder, this conference is being recorded today, 4 June 2026. I would like to turn the conference over to Yan Lapointe, Senior Director, Investor Relations and Treasury. [Foreign language]

Speaker #2: Pendant la conférence, tous les participants seront en mode d'écoute seulement. Une période de questions suivra la présentation, et des directives vous seront données à ce moment.

Speaker #2: Nous désirons vous rappeler que cette conférence est enregistrée aujourd'hui, le 4 juin 2026. Welcome to the TC Transcontinental Second Quarter Fiscal Year 2026 Results Conference Call.

Speaker #2: During the presentation, all participants will be in listen-only mode. Afterwards, we will conduct a question-and-answer session. Instructions will be provided at that time. As a reminder, this conference is being recorded today, June 4, 2026.

Speaker #2: I would like to turn the conference over to Yan Lapointe, Senior Director, Investor Relations and Treasury. J’aimerais maintenant céder la parole à Yan Lapointe, Directeur, Relations avec les Investisseurs et Trésorerie.

Speaker #2: Monsieur Lapointe, please go ahead. Thank you, Joëlle, and good morning, everyone on the call. Welcome to Transcontinental's Second Quarter 2026 Earnings Call. Before we begin, please note that you can find on our website our quarterly report, including financial statements and related notes, as well as the slides supporting management's remarks.

Operator: Monsieur Lapointe, please go ahead.

Yan Lapointe: Thank you Joëlle. Good morning everyone on the call. Welcome to Transcontinental's Q2 2026 earnings call. Before we begin, please note that you can find on our website our quarterly report, including financial statements and related notes, as well as the slides supporting management's remarks. A replay of this conference call will also be available on our website shortly after the call. We have with us today our Chief Executive Officer, Sam Bendavid, and our Executive Vice President and Chief Financial Officer, Donald LeCavalier. As referenced on slide two, some of the financial measures discussed over the course of this conference call are non-IFRS. You can refer to the MD&A for a definition and reconciliation of these measures to IFRS. This conference call might also contain forward-looking statements. These statements are based on the current expectations of management and information available as of today.

Speaker #2: A replay of this conference call will also be available on our website shortly after the call. We have with us today our Chief Executive Officer, Sam Ben-David, and our Executive Vice President and Chief Financial Officer, Donald LeCavalier.

Speaker #2: As referenced on slide two, some of the financial measures discussed over the course of this conference call are non-IFRS. You can refer to the MD&A for a definition and reconciliation of these measures to IFRS.

Speaker #2: In addition, this conference call might also contain forward-looking statements. These statements are based on the current expectations of management and information available as of today.

Speaker #2: Forward-looking statements also involve numerous risks and uncertainties, both known and unknown. The risks, uncertainties, and other factors that could influence actual results are described in the fiscal 2025 annual MD&A and in the latest Annual Information Form.

Yan Lapointe: Forward-looking statements also involve numerous risks and uncertainties, known and unknown. The risks, uncertainties, and other factors that could influence actual results are described in the fiscal 2025 annual MD&A and in the latest annual information form. With that, I will turn the call over to Sam.

Speaker #2: With that, I will turn the call over to Sam. Thank you, Yan, and good morning, everyone. I am pleased to join you on this call.

Sam Bendavid: Thank you Yan, and good morning everyone. I am pleased to join you on this call, my first as CEO of Transcontinental Inc., and I look forward to engaging with many of you in the weeks and months ahead. Over the past two months, I visited several of our facilities. What stands out from these visits is the strong energy and engagement across the organization, a solid foundation for what lies ahead. Recent developments have contributed to a sense of momentum across the company. Following the completion of the sale of our packaging business, and I want to congratulate our teams for a great job managing all aspects of this complex transaction successfully, our financial reporting structure has evolved. As of Q2, we're now reporting two sectors: the Retail Services and Printing sector and the Book and Education sector, which brings together TC Media and our book printing activities.

Speaker #2: This is my first as CEO of TC Transcontinental, and I look forward to engaging with many of you in the weeks and months ahead. Over the past two months, I visited several of our facilities.

Speaker #2: What stands out from these visits is the strong energy and engagement across the organization—a solid foundation for what lies ahead. Recent developments have contributed to a sense of momentum across the company.

Speaker #2: Following the completion of the sale of our packaging business—and I want to congratulate our teams for a great job managing all aspects of this complex transaction successfully—our financial reporting structure has evolved.

Speaker #2: As of Q2, we're now reporting two sectors: the Retail Services and Printing sector, and the Book and Education sector, which brings together TC Media and our book printing activities.

Speaker #2: Let me share a few observations. On the momentum I'm seeing, starting with retail services and printing. In our Content and Business Intelligence group, artificial intelligence is transforming how we and our clients work together.

Sam Bendavid: Let me share a few observations on the momentum I'm seeing, starting with Retail Services and Printing. In our content and business intelligence group, artificial intelligence is transforming how we and our clients work together. By driving greater efficiency, deeper insights, and the more personalized solutions, AI strengthens the value we deliver. In our marketing and information group, the upcoming nationwide rollout of raddar marks a major milestone. raddar is a cost-effective mass media platform that pairs national scale. Roughly 11.6 million copies per week, reaching approximately three in four Canadians with local precision across 537 unique zones. This combination positions raddar as a compelling solution, not only for national retailers and brands, but also for small and medium-sized businesses and publishers. Early bookings are encouraging, we expect a strong start mid-June.

Speaker #2: By driving greater efficiency, deeper insights, and a more personalized solution, AI strengthens the value we deliver. In our Marketing and Information Group, the upcoming nationwide rollout of radar marks a major milestone.

Speaker #2: Radar is a cost-effective mass media platform that pairs national scale—roughly 11.6 million copies per week, reaching approximately three in four Canadians—with local precision across 537 unique zones.

Speaker #2: This combination positions Radar as a compelling solution not only for national retailers and brands but also for small and medium-sized businesses and publishers. Early bookings are encouraging.

Speaker #2: And we expect a strong start in mid-June. We value the quality of our partnership with Canada Post for the distribution of RADAR, and we welcome the endorsement of collective agreements by postal workers announced on Monday.

Sam Bendavid: We value the quality of our partnership with Canada Post for the distribution of raddar. We welcome the endorsement of collective agreements by postal workers announced on Monday. Our transformation will see raddar evolving into an increasingly tech-enabled platform, layering analytics and data-driven audience targeting, extending into omnichannel touchpoints and applying AI-powered personalization to deliver the right message, the right audience with greater precision. In addition, the multi-year agreements we recently signed with Postmedia and Glacier Media, together with our ongoing cost optimization initiatives, should strengthen the financial performance beginning in Q3. In our in-store marketing and specialty group, the integration of our recent acquisitions is progressing well, expanding both our offering and customer portfolio. The additions of Mirazed and Groupe PDI have significantly strengthened our presence in Eastern Canada and enhanced our ability to serve national clients.

Speaker #2: Our transformation will see Radar evolving into an increasingly tech-enabled platform, layering analytics and data-driven audience targeting. We are extending into omnichannel touchpoints and applying AI-powered personalization to deliver the right message to the right audience with greater precision.

Speaker #2: In addition, the multi-year agreements we recently signed with Postmedia and Glacier Media, together with our ongoing cost optimization initiatives, should strengthen the financial performance beginning in the third quarter.

Speaker #2: In our in-store marketing and specialty group, the integration of our recent acquisitions is progressing well, expanding both our offering and customer portfolio. The additions of MirrorZ and Group PDI have significantly strengthened our presence in Eastern Canada and enhanced our ability to serve national clients.

Speaker #2: Turning now to the books and education sector. In our book printing group, we're facing a challenging year-over-year comparison against our large one-time contract last year.

Sam Bendavid: In our Work Printing group, we're facing a challenging year-over-year comparison against a large one-time contract last year. Even so, our sales team has secured several new customers and grown existing accounts, and we expect to deliver a solid year for the platform. In TC Books and Education, sales momentum should translate into a busy H2 of the year. Our education technology efforts are also gaining recognition, most recently with accolades at the US EdTech Awards. Thanks to the initiative we've put in place to improve profitability, we're on track to deliver a solid performance in the H2 of the year. Adjusted operating earnings before depreciation and amortization from continuing operations are expected to remain stable relative to fiscal 2025. In conclusion, I am confident in our strategic direction, our momentum, and the strength of our teams. Donald, over to you.

Speaker #2: Even so, our sales team has secured several new customers and grown existing accounts, and we expect to deliver a solid year for the platform.

Speaker #2: In TC Books and Education, sales momentum should translate into a busy second half of the year. Our education technology efforts are also gaining recognition.

Speaker #2: More recently, with accolades at the US EdTech Awards. Thanks to the initiatives we've put in place to improve profitability, we're on track to deliver a solid performance in the second half of the year.

Speaker #2: Adjusted operating earnings before depreciation and amortization from continuing operations are expected to remain stable relative to fiscal 2025. In conclusion, I am confident in our strategic direction, our momentum, and the strength of our teams.

Speaker #2: Donald, over to you. Thank you, Sam, and good morning, everyone. Please note that my comments this morning will focus on our continuing operations. Moving to slide five of the earnings call presentation.

Donald LeCavalier: Thank you, Sam. Good morning, everyone. Please note that my comments this morning will focus on our continuing operations. Moving to slide five of the earnings call presentation. For Q2 of fiscal 2026, revenues were 5% lower versus the same quarter last year, mainly as a result of lower volume in our traditional activities, partially mitigated by our recent acquisitions in ISM, and also from a stronger US dollar. Regarding profitability, consolidated adjusted EBITDA at CAD 45.4 million was slightly lower than last year. The slight decline was mainly due to lower volume, partially offset by lower incentive compensation and administrative expense, the recent acquisitions, and a favorable exchange rate. The lower incentive compensation and administrative expense are mainly related to the departure of executives and the timing of expenses. We don't expect a similar tailwind in H2 of the year.

Speaker #2: For the second quarter of fiscal 2026, revenues were 5% lower versus the same quarter last year, mainly as a result of lower volume in our traditional activities.

Speaker #2: Partially mitigated by our recent acquisitions in ISM and also by a stronger US dollar. Regarding profitability, consolidated adjusted EBITDA at $45.4 million was slightly lower than last year.

Speaker #2: The slight decline was mainly due to lower volume, partially offset by lower incentive compensation and administrative expense, the recent acquisitions, and also a favorable exchange rate.

Speaker #2: The lower incentive compensation and administrative expense are mainly related to the departure of executives and the timing of expenses. We don't expect a similar tailwind in the second half of the year.

Speaker #2: Looking ahead, financial performance is improving. With the recent contracts we announced and the impact of cost reduction initiatives, we expect stronger results in the second half of the fiscal year and remain confident in our outlook.

Donald LeCavalier: Looking ahead, financial performance is improving. With the recent contracts we announced and the impact of cost reduction initiatives, we expect stronger results in the H2 of the fiscal year and remain confident in our outlook. Net financial expenses increased by CAD 2.2 million to CAD 9.9 million, mainly due to the impact of exchange rates, despite having a lower debt level following the sale of our packaging activities in March and strong cash flow generation in the last 12 months. Adjusted income tax decreased by CAD 0.6 million to CAD 4 million and represented an effective rate of 20%. This led to adjusted earnings per share from continuing operations at CAD 0.19 compared to CAD 0.20 in Q2 last year. Before turning to slide six for a sector review, I wanted to highlight the change we've made in our sectors following the sale of our packaging activities.

Speaker #2: Net financial expenses increased by $2.2 million to $9.9 million, mainly due to the impact of exchange rates, despite having a lower debt level following the sale of our packaging activities in March.

Speaker #2: And strong cash flow generation in the last 12 months. Adjusted income tax decreased by $0.6 million to $4 million, and represented an effective rate of 20%.

Speaker #2: This led to adjusted earnings per share from continuing operations at $0.19, compared to $0.20 in Q2 last year. Before turning to slide six for the sector review, I wanted to highlight the change we've made in our sectors following the sale of our packaging activities.

Speaker #2: The books and education sector are now combined with our book printing and our educational publishing activities, as their products are similar in nature.

Donald LeCavalier: The Books and Education sector now combines our book printing with our educational publishing activities, as their products are similar in nature. Our Retail Services and Printing sector serves retailers, brands, and newspaper publishers. Under the Marketing and Information Group, we're combining flyers with our newspaper activities as they use the same platform. Regrouping our ISM activities with specialty products also makes sense, as they are similar in nature. In the coming weeks, we will post on our website historical segmented information to help you with your models. On slide six, revenues for the Retail Services and Printing sector decreased by 3.8% to CAD 219.5 million. Adjusted EBITDA decreased by CAD 8.2 million to CAD 41.1 million. The decrease in revenues and adjusted EBITDA are mainly due to lower volumes for the flyer printing activities, partially mitigated by our recent acquisitions.

Speaker #2: Our retail services and printing sector serves retailers, brands, and newspaper publishers. Under the marketing and information group, we're combining flyers with our newspaper activities, as they use the same platform.

Speaker #2: Regrouping our ISM activities with specialty products also makes sense, as they are similar in nature. In the coming weeks, we will post on our website historical segmented information to help you with your models.

Speaker #2: On slide six, revenues for the Retail Service and Printing sector decreased by 3.8% to $219.5 million. Adjusted EBITDA decreased by $8.2 million to $41.1 million.

Speaker #2: The decrease in revenues and adjusted EBITDA are mainly due to lower volumes for the flyer printing activities, partially mitigated by our recent acquisitions. We expect a stronger performance in the second half of the fiscal year following the impact of the multi-year agreements recently signed with Postmedia and Glacier Media, improved results from our ISM activities, and cost reduction initiatives.

Donald LeCavalier: We expect a stronger performance in H2 of the fiscal year, following the impact of the multi-year agreements recently signed with Postmedia and Glacier Media, improved results from our ISM activity, and cost reduction initiatives. Moving to Books and Education sector on slide seven. As mentioned in our last call, this sector had a very solid performance in Q2 of fiscal 2025. Despite a tough comparable, the sector delivered good results with revenues of CAD 50.1 million, down from CAD 55.9 million the same quarter last year. Adjusted EBITDA decreased by CAD 0.5 million or 6.7% to CAD 7 million. We expect a strong performance of the sector in H2 of the fiscal year, in line with normal seasonality. Now turning to cash flow. In Q2 of 2026, we had CAD -56.3 million in working capital.

Speaker #2: Moving to the books and education sector on slide seven. As mentioned in our last call, this sector had a very solid performance in the second quarter of fiscal 2025.

Speaker #2: Despite a tough comparable, the sector delivered good results, with revenues of $50.1 million, down from $55.9 million in the same quarter last year. Adjusted EBITDA decreased by $0.5 million, or 6.7%, to $7 million.

Speaker #2: We expect a strong performance of the sector in the last six months of the fiscal year, in line with normal seasonality. Now, turning to cash flow.

Speaker #2: In the second quarter of 2026, we had $56.3 million in negative working capital. The unfavorable change was mainly due to accounts payable and accrued liabilities.

Donald LeCavalier: The unfavorable change was mainly due to accounts payable and accrued liabilities. We expect some of the negative working cap to reverse in the H2 of the year. Our CapEx, at CAD 12.9 million, were in line with last year, and our target's to be around our guidance of CAD 55 to 60 million for the full year. Finally, we used the proceeds of the sale of our packaging activities for a special distribution of CAD 20 per share to shareholders, and also to reduce debt by around CAD 330 million. Our net debt ratio at the end of the Q2 was 2.14 times. If we include a sale of our Boucherville warehouse at the end of April, our net debt ratio will be slightly under two times at the end of the Q2 of fiscal 2026.

Speaker #2: We expect some of the negative working capital to reverse in the second half of the year. Our CapEx at $12.9 million was in line with last year.

Speaker #2: And our targets are to be around our guidance of $55 million to $60 million for the full year. Finally, we used the proceeds from the sale of our packaging activities for a special distribution of $20 per share to shareholders, and also to reduce debt by around $330 million.

Speaker #2: Our net debt ratio at the end of the second quarter was 2.14 times. If we include a sale of our Boucherville warehouse at the end of April, our net debt ratio will be slightly under 2 times at the end of the second quarter of fiscal 2026.

Speaker #2: We expect the strong cash flows in the second half of the year to bring this ratio lower for year-end, around 1.75 times, excluding potential acquisitions.

Donald LeCavalier: We expect the strong cash flows in H2 to bring this ratio lower for year-end around 1.75 times, excluding potential acquisitions. Our financial position is solid. The board has approved yesterday a regular dividend for the TC at CAD 0.05 per share per quarter. On that note, we will now proceed with the question period.

Speaker #2: Our financial position is solid. The Board has approved yesterday a regular dividend for the new TC at $0.05 per share per quarter. On that note, we will now proceed with the question period.

Speaker #1: Merci, mesdames et messieurs. Nous allons maintenant procéder à la période de questions et réponses. Si vous avez une question, veuillez appuyer sur les touches étoile, suivies du 1, sur votre téléphone à clavier.

Operator: Merci, mesdames et messieurs. Nous allons maintenant procéder à la période de questions-réponses. Si vous avez une question, veuillez appuyer sur la touche étoile suivie du un sur votre téléphone à clavier. Une tonalité se fera entendre confirmant votre demande. Les questions seront prises dans l'ordre qu'elles ont été acheminées. Veuillez également vous assurer de décrocher le récepteur de votre appareil téléphonique si vous utilisez la fonction mains libres avant d'appuyer sur les touches. Un moment, s'il vous plaît, pour la première question. Thank you. One moment, please. Ladies and gentlemen, we will now conduct the question and answer session. If you would like to ask a question, please press star followed by one on your touch-tone phone. You will hear a tone acknowledging your request. Your questions will be pulled in the order they are received.

Speaker #1: Une tonalité se fera entendre confirmant votre demande. Les questions seront prises dans l'ordre dans lequel elles ont été acheminées. Veuillez également vous assurer de décrocher le récepteur de votre appareil téléphonique si vous utilisez la fonction mains libres avant d'appuyer sur les touches.

Speaker #1: Un moment, s'il vous plaît, pour la première question. Thank you. One moment, please. Ladies and gentlemen, we will now conduct the question-and-answer session.

Speaker #1: If you would like to ask a question, please press star, followed by a tone acknowledging your request. Your questions will be taken in the order they are received.

Speaker #1: Please ensure you lift your hands up if you are using a speakerphone before pressing any key. One moment, please, for your first question. Your first question comes from Sean Stuart with TD Cowen.

Operator: Please ensure you lift the handset if you are using a speakerphone before pressing any key. One moment please, for your first question. Your first question comes from Sean Steuart with TD Cowen. Your line is now open.

Speaker #1: Your line is now open.

Sean Steuart: Thank you. Good morning, everyone. A couple of questions. I want to start with some of the agreements and initiatives you've announced recently, both the national raddar rollout and the agreements with Postmedia and Glacier Media. I'm hoping you can provide some perspective on incremental sales contributions and margin contributions associated with those initiatives, just so we can factor it into our forecast appropriately.

Speaker #3: Thank you. Good morning, everyone. A couple of questions. I want to start with some of the agreements and initiatives you've announced recently: both the national radar rollout, and the agreements with Postmedia and Glacier.

Speaker #3: I'm hoping you can provide some perspective on the incremental sales contributions and margin contributions associated with those initiatives, just so we can factor them into our forecast appropriately.

Speaker #2: Thank you. The national radar rollout is totally to tell, as the deployment is going to be mid-June. So for us, it's hard for us to provide guidance.

Sam Bendavid: Thank you. The national raddar rollout is too early to tell as the deployment is going to be mid-June. For us, it's hard for us to provide guidance, and we cannot disclose the Postmedia and Glacier Media agreement in terms of what they're contributing.

Speaker #2: And we can all disclose the Postmedia and Glacier Media agreements in terms of what they’re contributing. In terms of sales, in terms of sales for your model for the new outsourcing, you can put north of $5 million for the rest of the year.

Sean Steuart: Okay.

Donald LeCavalier: In terms of sales for your model for the new outsourcing, you can put north of CAD 5 million for the rest of the year. It can be aligned with the rest of the margin for that business.

Speaker #2: That way, you can be aligned with the rest of the margin for that business.

Speaker #3: Okay, thanks for that. I'm hoping you can give some updated perspective on cost inflation and pass-through mechanisms. I suppose for your company, ink and paper would be key elements of that.

Sean Steuart: Okay, thanks for that. Hoping you can give some updated perspective on cost inflation and pass-through mechanisms. I suppose for your company, it's ink and paper would be key elements of it. Can you provide some perspective on what you've seen on that front and your perspective on ability to preserve margins as you absorb that inflation?

Speaker #3: Can you provide some perspective on what you've seen on that front, and your perspective on the ability to preserve margins as you absorb that inflation?

Speaker #2: Sure. So we've got some solid contracts on the paper, and inside, we don't expect any margin erosion due to the increase in raw material.

Sam Bendavid: Sure. We've got some solid contracts on the paper and ink side. We don't expect any margin erosion due to the increase in raw material. Any increase would really be insignificant.

Speaker #2: So, any increase would really be insignificant.

Speaker #3: Okay, that's all I have for now. Thanks very much, and congratulations, Sam, on the opportunity going forward.

Sean Steuart: Okay, that's all I have for now. Thanks very much, and congratulations, Sam, on the opportunity going forward.

Speaker #2: Thank you.

Sam Bendavid: Thank you.

Speaker #1: Votre prochaine question vient d'Amir Patel avec CIBC Capital Markets. Your next question comes from Amir Patel with CIBC Capital Markets. Your line is now open.

Operator: Votre prochaine question vient de Hamir Patel avec CIBC Capital Markets. Your next question comes from Hamir Patel with CIBC Capital Markets. Your line is now open.

Speaker #4: Hi. Good morning. Sam, could you give us some more visibility on how the various initiatives to reduce corporate costs are progressing, and how far along you think you are in that process?

Hamir Patel: Hi, good morning. Sam, could you give us some more visibility on how the various initiatives to reduce corporate costs are progressing and how far along you think you are in that process?

Speaker #2: Thanks, Amir. So they’re progressing very well. We’re well on track to establish our run, caveat that we still have a transitional service agreement to render to ProAmpac.

Sam Bendavid: Thanks, Amir. They're progressing very well. We're well on track to establish our run rates with one caveat that we still have a transitional service agreement to render to ProAmpac. We will complete the plan within the next, let's say, six to 12 months as the TSA tapers off.

Sam Bendavid: Thanks, Hamir. They're progressing very well. We're well on track to establish our run rates with one caveat that we still have a transitional service agreement to render to ProAmpac. We will complete the plan within the next, let's say, six to 12 months as the TSA tapers off.

Speaker #2: So, we will complete the plan within the next 6 to 12 months as the TSA tapers off.

Hamir Patel: Great. Donald, any update on the other smaller real estate divestitures in the pipeline? I believe one was at Saint-Hyacinthe and Thomas.

Speaker #4: Great. And Donald, any update on the other smaller real estate investors in the pipeline? I believe one was Sennheiser and Thoma.

Speaker #5: Yeah, yeah. You're right. Both are still for sale. I'd say there's some movement on the one on the US side, Thoma. That's not a big impact in terms of dollars, but we're very proactive at that level.

Donald LeCavalier: Yeah, you're right. Both are still for sale. I'd say there's some movement on the one on the US side, Thomas. That's not a big impact in terms of dollar, but we're very proactive at that level. Saint-Hy, I would say it's a little quiet right now, so we'll adjust with the market, but we just did a great deal for Boucherville, where we're patient, and we're happy with the price we get. Sometime it's better to wait a bit to make sure you receive the best price.

Speaker #5: And Sennheiser, I would say, is a little bit quiet right now. So we'll adjust with the market, but we just did a great deal for Boucherville.

Speaker #5: We were patient, and we're happy with the price we got. Sometimes, it's better to wait a bit to make sure you receive the best price.

Speaker #4: Okay, fair enough. That's all I had. I'll turn it over. Thanks.

Hamir Patel: Okay. Fair enough. That's all I had. I'll turn it over. Thanks.

Speaker #1: La prochaine question vient d'Adam Shine, de la Banque Nationale Financière. Your next question comes from Adam Shine, with National Bank Financial.

Operator: La prochaine question vient de Adam Shine avec National Bank Financial. Your next question comes from Adam Shine with National Bank Financial.

Speaker #4: Thanks a lot. Good morning.

Adam Shine: Thanks a lot. Good morning.

Operator: Your line is now open.

Speaker #1: Your line is now open.

Speaker #4: Thanks a lot. Good morning. Sam, maybe starting with the flyers. This might be a bit moot, given that the nature of that business is going to transition quite a bit with the new national scale for RADAR.

Adam Shine: Thanks a lot. Good morning. Sam, maybe starting with the flyers. This might be a bit moot given that the nature of that business is going to transition quite a bit with the new national scale for raddar. Can you talk about what drove some of the step down in flyer volumes this quarter? You talked about new business initiatives on the book side. Can you talk about where that's coming from? I know there's been efforts, obviously some success last year, albeit temporarily on the US book printing side of the equation. I think you were also looking for opportunities, perhaps even in Europe, whether that touched on book and/or perhaps more on educational book publishing. If you could talk to how things are unfolding there.

Speaker #4: But can you talk about what drove some of the step-down in flyer volumes this quarter? And then you talked about new business initiatives on the book side?

Speaker #4: Can you talk about where that's coming from? Because I know there have been efforts—obviously some success last year, albeit temporarily—on the U.S. book printing side of the equation.

Speaker #4: I think you were also looking for opportunities, perhaps even in Europe—whether that touched on book and/or perhaps more on educational book publishing? So if you could talk to how things are unfolding there.

Speaker #4: And then just lastly for you, Donald, if you could maybe update us on what you think corporate costs will be this year, because obviously there were a lot of moving pieces in this Q2.

Adam Shine: Just lastly for you, Donald, if you could just maybe update us on what you think corporate costs will be this year, because obviously there were a lot of moving pieces in this Q2. Just curious if there's an update there. Thanks a lot.

Speaker #4: Just curious if there's an update there. Thanks a lot.

Speaker #2: Great, thanks. Thanks for the question. Let me address first the volume for the retail flyer. This has been a trend we've been witnessing over the past few quarters.

Sam Bendavid: Great. Thanks for the question. Let me address first the volume for the retail flyer. This has been a trend we've been witnessing over the past few quarters, the decline in volume. Nothing new here, and this is something we've planned for it. The solution that changes the economic model for us and for our customers is definitely the deployment of raddar. We're very happy to have done that, to have addressed that for the team. Hopefully that answers your question on the volume side. On the book side, plenty of initiatives by the teams. Number one, when we look at the increased business we get, this comes from comics and the increase in the comics volume we are receiving from our current customers and new customers. Number two, there are still opportunities as companies are looking at onshoring some of their printing.

Speaker #2: That's the decline in volume, so nothing new here. And this is something we've planned for. The solution that changes the economic model for us and for our customers is definitely the deployment of radar.

Speaker #2: So, very happy to have done that, to have done just that with the team. So, hopefully that answers your question on the volume side.

Speaker #2: On the book side, there are plenty of initiatives by the teams. Number one, when we look at the increased business we get, this comes from comics and the increase in the comics volume.

Speaker #2: We are receiving from our customers, current customers, and new customers. Number one. Number two, there are still opportunities as we as companies are looking at onshoring some of the air, some of their printing.

Speaker #2: We're in discussion with many other publishers to be able to gain some new business there. Still early—still early innings—but progressing.

Sam Bendavid: We're in discussion with many other publishers to be able to gain some new business there. Still early innings, but progressing.

Speaker #4: Okay. Thank you very much.

Adam Shine: Okay. Thank you very much.

Speaker #2: And Adam, yes, for your model, I guess the year-to-date cost for corporate represents a better pro forma to you for the rest of the year.

Donald LeCavalier: Adam, for your model, I guess the year-to-date cost for corporate represents a better pro forma to use for the rest of the year. Some of the one-timer in Q2 will disappear, but also some of the positive noise we had in Q2 were negative noise in Q1. This is why, if you look at it right now, it's better to look at year-to-date. Obviously, there will be some cost cutting, as Sam mentioned, but we will be more active on that side close to the rest of the year. Use the year-to-date for your model will be a better benchmark.

Speaker #2: Some of the one-timers and Q2 will disappear, but also, some of the positive noise we had in Q2 were negative noise in Q1. So this is why, if you look at it right now, it's better to look at year-to-date.

Speaker #2: Obviously, there will be some cost cutting, as Sam mentioned, but we will be more active on that side through the rest of, close to the rest of the year.

Speaker #2: So, using the year-to-date for your model will be a better benchmark.

Speaker #4: Okay. Thank you very much.

Adam Shine: Okay. Thank you very much.

Speaker #1: La prochaine question vient de Drew McReynolds avec RBC. Your next question comes from Drew McReynolds with RBC. Your line is now open.

Operator: Your next question comes from Drew McReynolds with RBC. Your line is now open.

Speaker #4: Yeah, thanks very much. For me, just on the educational publishing—not something that necessarily gets discussed each quarter, but obviously now is more explicit in that second segment.

Drew McReynolds: Thanks very much. Two for me. Just on the educational publishing, not something necessarily that gets discussed each quarter, but obviously now is more explicit in that second segment. Just wondering what your expectations are for this business, not just for fiscal 2026, but just what does the growth outlook look like when you look out a little further? Second, good to see the tuck-in M&A on the ISM side. Just an update on that M&A environment and what your pipeline currently looks like. Thank you.

Speaker #4: Just wondering, kind of, what your expectations are for this business—not just for fiscal 2026—but what does the growth outlook look like when you look out a little further?

Speaker #4: And then, second, good to see the talk on M&A on the ISM side. Just an update on that M&A environment and what your pipeline currently looks like.

Speaker #4: Thank you.

Speaker #2: Great, thanks. Thank you. So, on the educational publishing side, as you probably know, the second half of the year is mostly where the activity happens.

Sam Bendavid: Great. Thanks. Thank you. On the educational publishing side, as you probably know, the H2 of the year is mostly where the activity happens. We expect a strong H2 of the year. Longer term, what we see for this business is marginal growth, GDP-style growth on the publishing side. That's number 1. Number 2, you've mentioned ISM acquisition. We're digesting the current ones we've done in the recent past. The integrations are going well. The synergies are delivering. We're very happy that this enabled our platform to have national scale. We are looking and still looking to acquire in that space. The pipeline is good, but we will be selective of when and what we acquire to make sure this creates value for us.

Speaker #2: And we expect a strong second half of the year. Longer-term, what we see for this business is marginal growth—GDP-style growth—on the publishing side.

Speaker #2: That's number one. Number two, you've mentioned the ISM acquisition. We're digesting the current ones we've done in the recent past. The integrations are going well.

Speaker #2: The synergies are delivering, and we're very happy that this has enabled our platform to have national scale. We are looking, and still looking, to acquire in that space.

Speaker #2: The pipeline is good, but we will be selective about when and what we acquire to make sure this creates value for us.

Speaker #4: Okay. Thanks very much.

Drew McReynolds: Okay. Thanks very much.

Speaker #1: La prochaine question vient de Nevin Yoshim avec Guillermo Capro Markets. Your next question comes from Nevin Yoshim with Guillermo Capro Markets. Your line is now open.

Operator: Your next question comes from Neven Yoshan with BMO Capital Markets. Your line is now open.

Operator: Your next question comes from Nevan Yochim with BMO Capital Markets. Your line is now open.

Speaker #4: Thank you. Good morning, guys. You have Nevin on for Steve today. Just within the RS&P sector, can you provide some incremental detail on volumes and organic growth for the ISM business this quarter?

Operator: Thank you. Good morning, guys. You have Neven on for Steve today. Just within the RS and P sector, can you provide some incremental detail on volumes and organic growth for the ISM business this quarter, as well as discuss your updated expectations for organic ISM growth for the full year?

Nevan Yochim: Thank you. Good morning, guys. You have Neven on for Steve today. Just within the RS and P sector, can you provide some incremental detail on volumes and organic growth for the ISM business this quarter, as well as discuss your updated expectations for organic ISM growth for the full year?

Speaker #4: And as well, please discuss your updated expectations for organic ISM growth for the full year.

Speaker #2: Yes, thanks for the question. So Q1 was negative organic growth—it was a slow Q1. Q2 is relatively flat in terms of growth. And that, for us, turns the page into a strong Q3 and Q4 in terms of bookings and pipelines that we can see.

Sam Bendavid: Yes. Thanks for the question. Q1 was negative. Organic growth was a slow Q1. Q2 is relatively flat in terms of growth. That for us turns the page into a strong Q3 and Q4 in terms of bookings and pipelines that we can see. Strong H2 of the year for our ISM business organically.

Speaker #2: So, strong second half of the year for our ISM business organically.

Speaker #4: Okay, great. And then it's just nice to see the multi-year contracts with Postmedia and Glacier. Are you able to provide a bit more context on how this opportunity came about, and whether you see similar opportunities currently being pursued?

Sam Bendavid: Okay, great. Just nice to see the multi-year contracts with Postmedia and Glacier. Are you able to provide a bit more context on how this opportunity came about and whether you see similar opportunities currently being pursued?

Nevan Yochim: Okay, great. Just nice to see the multi-year contracts with Postmedia and Glacier. Are you able to provide a bit more context on how this opportunity came about and whether you see similar opportunities currently being pursued?

Speaker #2: Yes. So we have the most cost-efficient printing platform—probably definitely in Canada, and probably in North America. It does make sense for everyone who prints, and for every publisher, to come to us and outsource, obviously.

Sam Bendavid: Yes. We have the most cost-efficient printing platform, definitely in Canada, probably in North America. It does make sense for everyone who prints, for every publisher to come to us and outsource, obviously they will save tremendous amount of money, and it's very profitable for us. We are well-positioned to capture smaller opportunities. There are some opportunities out there that are smaller in nature, and we're going after them. That being said, there is nothing really for us, much of scale, like the Postmedia or Glacier that we currently announced. Opportunities, yes, but smaller ones.

Speaker #2: They will save a tremendous amount of money, and it's very profitable for us. So, we are well positioned to capture smaller opportunities. There are some opportunities out there that are smaller in nature.

Speaker #2: And we would be—we're going after them. That being said, there is nothing really for us much of scale like the Postmedia or Glacier that we currently announced.

Speaker #2: So, opportunities—yes, but smaller ones.

Speaker #4: Okay. Great. Thank you.

Sam Bendavid: Okay, great. Thank you.

Nevan Yochim: Okay, great. Thank you.

Speaker #1: La prochaine question vient de David McFadden avec ATB Coremark. Your next question comes from David McFadden with ATB Coremark. Your line is now open.

Operator: David McFadgen with ATB Cormark. Your next question comes from David McFadgen with ATB Cormark. Your line is now open.

Speaker #5: All right. Yeah, a couple of questions. So, just on the Books and Education segment, I imagine that the vast majority of that organic decline in Q2 was the US contract that you talked about.

David McFadgen: All right. Yeah, a couple of questions. Just on the books and education. I imagine that the vast majority of that organic decline in Q2 was the US contract that you talk about. When do you expect to lap the impact of that?

Speaker #5: When do we—or when do you, sorry—expect to lap the impact of that?

Speaker #2: Hard to say the full impact of, as Sam mentioned. We're glad that we were able to replace part of the business that we lost.

Donald LeCavalier: Hard to say the full impact. As Sam mentioned, we're glad that we were able to replace part of the business that we lost. It's not a business we lost actually, it's a one-time contract that we had last year, and we were able to compensate part of it with good business, good margin business. Hard to say when we will be able to compensate, but part of the plan is to have a strong H2 of the year for both book and education. We're catching as we speak, and very proactive, especially with the Canadian dollar being very weak as we speak.

Speaker #2: a one-time contract that we have. And last year, we were able to compensate part of it with good business, good margin business. So, it's hard to say when we will be able to compensate, but part of the plan is to have a very strong second half for the year for both book and education.

Speaker #2: So we're catching up as we speak, and being very proactive, especially with the dollar still very weak—the US dollar and Canadian dollar both being very weak as we speak.

Speaker #5: Okay. So clearly, you've won some new contracts then, right? So clearly, you've won some new contracts then, to give you your optimism for the second half.

David McFadgen: Okay, clearly you've won some new contracts then, right?

Sam Bendavid: Pardon me?

David McFadgen: Clearly you've won some new contracts then to give you your optimism for the H2?

Speaker #5: Okay. And then on the retail services and printing side, I mean, I’m just wondering—so I get you saying in your MD&A that that decline is mainly due to lower volume in flyer printing. I’m just wondering, when will we lap that one as well?

Sam Bendavid: Yes.

David McFadgen: Okay. Then on the Retail Services and Printing side, I'm just wondering, you say in your MD&A that decline is mainly due to lower volume and flyer printing, just wondering when will we lap that one as well?

Speaker #2: Well, if you won the flier business, as you know, it's mostly the rest of Canada except Quebec and BC. And that's the good news with the announcement that we will launch a national platform for radar.

Sam Bendavid: Well, the flyer business as you know, it's mostly rest of Canada except Quebec and BC. That's the good news with the announcement that we will launch a national platform for raddar. As you may recall, that was our intention to mitigate the decrease in flyer. Right now, part of the reason why we felt that decrease in past quarter is not because the product was not good. It's still an amazing product to bring people in stores, but the cost of distribution and the cost of the recycling was getting way higher for our clients. The good news with raddar is that we will be able to help our clients to reach even more clients with a cost probably similar to their current cost or even lower. That's the important thing about raddar right now.

Speaker #2: As you may recall, that was our intention—to mitigate the decrease in flyer. And right now, part of the reason why we felt that decrease in the past quarter is not because the product was not good.

Speaker #2: It's still an amazing product to bring people in stores, but the cost of distribution and the cost of recycling were getting much higher for our clients.

Speaker #2: And the good news with RADAR is that we will be able to help our clients reach even more clients, with a cost probably similar to their current cost, or even lower.

Speaker #2: So that's the important thing about radar right now. Hard to say what will be the outlook with radar, but definitely good news for Transcontinental in terms of stabilizing the distribution.

Sam Bendavid: Hard to say what will be the outlook with raddar, but definitely a good news for Transcontinental in terms of stabilizing the distribution.

Speaker #5: Okay. All right. Okay. Thanks.

David McFadgen: Okay. All right. Okay, thanks.

Speaker #2: Thank you.

Sam Bendavid: Thank you.

Speaker #1: Permettez-moi de mentionner encore une fois : si vous avez des questions supplémentaires, veuillez, s'il vous plaît, appuyer sur les touches étoile. Si vous utilisez la fonction main libre, veuillez décrocher le récepteur avant d'appuyer sur les touches.

Speaker #1: Ladies and gentlemen, if there are any additional questions at this time, please press star, followed by the number one. As a reminder, if you're using a speakerphone, please lift the handset before pressing any keys.

Operator: Ladies and gentlemen, if there are any additional questions at this time, please press star followed by the one. As a reminder, if you are using a speakerphone, please lift the handset before pressing any key. Your next question comes from Maher Yaghi with Scotiabank. Maher Yaghi with Scotiabank. Your line is now open.

Speaker #1: Your next question comes from Maryagi with Scotiabank. La prochaine question vient de Maryagi avec Scotiabank. Your line is now open.

Speaker #3: Yes, hello. Thank you for taking my questions. When it comes to capital allocation going forward, you mentioned that you're trying to head towards a two times net debt ratio.

Maher Yaghi: I wanted to ask you, just on capital allocation here going forward, you mentioned that you're heading towards 2x net debt ratio. Can you give us maybe some benchmarks as to where do you think the business leverage ratios should be going forward on a steady state basis? Where do you think you're comfortable having it? Maybe also how much acquisition capital you can deploy on a yearly basis in retail business going forward on the M&A side? Just trying to figure out the pieces of the puzzle that will account for how you will distribute your cash that you're going to be generating going forward. Thank you.

Speaker #3: Can you give us maybe some benchmarks as to where you think the business leverage ratios should be going forward on a steady-state basis?

Speaker #3: Where do you think you're comfortable having it? And maybe also, how much acquisition capital can you deploy on a yearly basis in the retail business going forward on the M&A side?

Speaker #3: I'm just trying to figure out the pieces of the puzzle that will account for how you will distribute the cash that you're going to be generating going forward.

Speaker #3: Thank you.

Speaker #2: Yes. First, it's a new TC, but the new TC is like the old TC. So we will produce a lot of free cash flow in the future.

Sam Bendavid: Yeah. First, it's a new TC, but the new TC is like the old TC, we will produce a lot of free cash flow in the future. That's part of the reason why we were confident and happy to announce a dividend payment yesterday. In terms of debt to EBITDA, I will say that we don't fix ourselves any targets, but obviously, apart from acquisition, we definitely prefer to be under 2, and this is where we will finish by end of fiscal year. I would say any range between 1 and 2 is where we will be comfortable to do M&A. As I said in previous calls, when we did Coveris, we had no debt on the balance sheet, and we were quite happy to have no debt because we put a lot of debt at that time.

Speaker #2: That's part of the reason why we were confident and happy to announce a dividend payment yesterday. In terms of debt to EBITDA, I will say that we don't fix ourselves any targets, but obviously, apart from acquisition, we definitely prefer to be under two.

Speaker #2: And this is where we will finish by the end of the fiscal year. I would say any range between one and two is where we will be comfortable to do M&A.

Speaker #2: But as I said in previous calls, when we did COVID, we had no debt on the balance sheet, and we were quite happy to have no debt because we had put a lot of debt at that time.

Speaker #2: So it's not like we need to have debt on the balance sheet, but again, we're comfortable between one and two. As far as acquisitions, right now, we can make acquisitions.

Sam Bendavid: It's not like we need to have debt on the balance sheet, again, we're comfortable between one and two. As far as acquisition, right now, we can make acquisition. In the past, we leveraged ourselves up to three times to do acquisition. This is something that's possible. You can do the math regarding the size of acquisition. I will say the next 12 months, the size of acquisition, 12 to 24 months, it should be more aligned with acquisition we did in the past. Definitely something that we can do with our current balance sheet.

Speaker #2: In the past, we leveraged ourselves up to three times to do acquisitions. So this is something that's possible. You can do the math regarding the size of an acquisition.

Speaker #2: But I will say the next 12 months, the size of acquisition, 12 to 24 months, it should be more aligned with acquisition we did in the past.

Speaker #2: So, that's definitely something we can do with our current balance sheet.

Speaker #3: Okay. And when you step back and you look at the ISM market that you're trying to consolidate in Canada, where is your assessment about its growth opportunity as a whole, as a market segment in general?

Maher Yaghi: Okay. When you step back and you look at the ISM market that you're trying to consolidate in Canada, what is your assessment about its growth opportunity as a whole, as a market segment in general? When you look back into the acquisitions you were doing in the US on the packaging side, the view was that the market itself was growing with GDP, and that allowed you to take up the leverage a little bit higher, as you can deleverage after the acquisition. In ISM, when you think about the organic growth of that market, can it be close to GDP or it's more closer to less than GDP as a segment group?

Speaker #3: And does it allow you, when you look back into the acquisitions you were doing in the U.S. on the packaging side, the view was that the market itself was growing with GDP, and that allowed you to take up the leverage a little bit higher, as you can deleverage after the acquisition.

Speaker #3: In ISM, when you think about the organic growth of the market, is it can it be close to GDP, or it's more closer to less than GDP as a segment group?

Speaker #2: Thanks. Thanks for the question. So, two parts—a two-part answer. Number one, when we look at the ISM, and now we should look at ISM and visual solutions.

Sam Bendavid: Thanks for the question. A two-part answer. Number one, when we look at the ISM, and now we should look at ISM and Visual Solutions, we do more than just the in-store within our business. We're more diversified and a broader offering. That being said, when we look at the ISM, it's a relatively flat market overall. That being said, our business is over-indexed with the grocers, and that is a forecasted 3% to 4.5% growth, probably more in line with the GDP growth, we intend to capitalize on those segments and those sub-markets that are growing.

Speaker #2: So we do more than just the in-store within our business. And we're more diversified than a broader offering. That being said, when we look at the ISM, it's relatively flat market overall.

Speaker #2: But that being said, our business is over-indexed with the grocers, and that is a forecasted 3% to 4%, four and a half percent growth.

Speaker #2: So probably more in line with the JDP growth. And we intend to capitalize on those segments and those sub-markets that are growing.

Speaker #3: Okay. And when we think when we hear you talk about doing M&A in ISM, can you expand or are you specific in terms of in-store media can include also other media than printing, right?

Maher Yaghi: Okay. When we hear you talk about you doing M&A in ISM, can you expand, or are you specific in terms of in-store media can include also other media than printing, right? Are you still focused on the, I want to call it the paper way of advertising in stores, or can you eventually look at other media that you can deploy inside the store for marketing purposes?

Speaker #3: So are you still focused on the I want to call it the paper or way of advertising in stores? Or can you eventually look at other media that you can deploy inside the store for marketing purposes?

Sam Bendavid: Absolutely, it's not that we're looking at other media. We are doing other media. For example, screens that are deployed throughout the network of some of our partners, where we produce the content, distribute the content as well. This is something we are very much looking forward to, that we're deploying and that we have a solution to propose.

Speaker #2: Well, absolutely. And it's not that we're looking at other media; we are doing other media. For example, screens that are deployed throughout the network or some of our partners, where we produce the content and distribute the content as well.

Speaker #2: So this is something we are very much looking forward to that we're deploying and that we have a solution to propose.

Speaker #3: Okay. How big is that business for you right now? I assume it's very small in the whole scheme of things.

Maher Yaghi: Okay. How big is that business for you right now? I assume it's very small in the whole scheme of things.

Speaker #2: Versus absolutely correct. Versus the rest of our business is still small and a growing piece obviously. We're very well positioned with the retailers and our other customers.

Sam Bendavid: Absolutely correct, versus the rest of our business is still small and a growing piece. Obviously, we're very well positioned with the retailers and our other customers to be able to offer a complete solution. That's what they're asking and that's what we're providing.

Speaker #2: To be able to offer a complete solution. So that's what they're asking, and that's what we're providing.

Speaker #3: Is there an intention to get into the hardware business of advertising in stores? Electronic hardware?

Maher Yaghi: Is there an intention to get into the hardware business of advertising in stores, electronic hardware?

Sam Bendavid: What do you mean? Can you please specify? Meaning we buy the hardware?

Speaker #2: What do you mean? Can you please specify? Meaning we buy the hardware?

Speaker #3: Yeah. You're in charge of installing the screens and everything.

Maher Yaghi: Yeah, like you're in charge of installing the screens and everything.

Speaker #2: We do installs. We have it installed services. So if the retailer requires it, we will provide that service the purchasing of the hardware, screens, or the like is mostly a pass-through, but install services, we do provide.

Sam Bendavid: We do installs. We have an install services. If the retailer requires it, we will provide that service. The purchasing of the hardware, screens, or devices is mostly a pass-through, but install services, we do provide.

Speaker #3: Okay. Thank you very much.

Maher Yaghi: Okay. Thank you very much.

Speaker #2: Thank you.

Sam Bendavid: Thank you too.

Speaker #1: In the sample d'avoir des questions, Monsieur Lapointe, there are no further questions at this.

Operator: Mr. Lapointe, there are no further questions at this time.

Speaker #2: Thank you, Joanne. And thank you, everyone, for joining us on the call today. Looking forward to speaking to you soon.

Sam Bendavid: Thank you, Joanne, and thank you, everyone, for joining us on the call today. Looking forward to speaking to you soon.

Yan Lapointe: Thank you, Joanne, and thank you, everyone, for joining us on the call today. Looking forward to speaking to you soon.

Speaker #1: Mesdames et messieurs, ceci termine l'appel conférence pour aujourd'hui. Merci de votre participation. Vous pouvez maintenant raccrocher. Ladies and gentlemen, this concludes the conference call for today.

Operator: Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.

Q2 2026 Transcontinental Inc Earnings Call

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