Le Lézard
Classified in: Health, Business, Covid-19 virus
Subjects: TNM, ERN

K-BRO REPORTS RECORD Q3 RESULTS AND STEADY VOLUME TRENDS IN HEALTHCARE AND HOSPITALITY


(TSX: KBL)

EDMONTON, AB, Nov. 13, 2024 /CNW/ - K-Bro Linen Inc. ("K-Bro" or the "Corporation") today announces its Q3 2024 financial and operating results.

Q3 2024 Financial and Operating Highlights

Linda McCurdy, President & CEO of K-Bro, commented that "I'm delighted with our record third quarter results which reflect the benefits of our acquisitions in our seasonally strongest quarter. Both of K-Bro's healthcare and hospitality segments continue to experience steady volume trends and we remain focused on delivering industry-leading service to our existing and new customers.  The volatility we encountered from energy prices, local labour market shortages and cost inflation throughout the pandemic has stabilized and, in turn, Adjusted EBITDA margins have stabilized.  Going forward, we expect annual Adjusted EBITDA margins will remain at similar levels, following historical seasonal trends.

We're pleased with the early contributions of our acquisitions and are excited about our organic growth prospects and potential future M&A.  We remain well positioned from a balance sheet and liquidity perspective and will continue to be disciplined as we evaluate acquisitions.

Highlights and Significant Events for Q3 2024

Business Acquisition - Villeray

On November 1, 2023, the Corporation completed the acquisition of 100% of the share capital of Buanderie Villeray and its affiliate Buanderie La Relance (the "Villeray Acquisition"), a private laundry and linen services company incorporated in Canada and operating in Montréal, Quebec. The Villeray Acquisition was completed through a share purchase agreement consisting of existing working capital, fixed assets, customer relationships and an employee base. Villeray operates in the hospitality and healthcare sector, which complements the existing business of the Corporation. As part of the transaction, the Corporation closed its Granby facility and consolidated existing volumes into Villeray. Based on the Corporation's evaluation of the Villeray Acquisition and the criteria in the identification of a business combination established in IFRS 3, the Villeray Acquisition has been accounted for using the acquisition method, whereby the purchase consideration is allocated to the fair values of the net assets acquired.

The Corporation financed the Villeray Acquisition and transaction costs from existing loan facilities.

The purchase price allocated to the net assets acquired, based on their estimated fair values, is as follows:



Cash  consideration

$         11,204

Contingent consideration

$              500

Total purchase price

$          11,704

The assets and liabilities recognized as a result of the Villeray Acquisition are as follows:

Net Assets Acquired:


Accounts receivable

907

Prepaid expenses and deposits

187

Income tax receivable

69

Accounts payable and accrued liabilities (2)

(807)

Lease liabilities

(2,706)

Deferred income taxes

(1,416)

Property, plant and equipment(1,2)

7,161

Intangible assets

2,530

Net identifiable assets acquired

5,925

Goodwill

5,779

Net assets acquired

$          11,704



1)

Includes ROUA from the Canadian Division of $2,706 related to buildings

2)

Includes provision of $97 for asset retirement obligation

The provisional intangible assets acquired are made up of $2,530 related to customer relationships. The goodwill is attributable to the workforce, and the efficiencies and synergies created between the existing business of the Corporation and the acquired business. Goodwill will not be deductible for tax purposes.

Contingent consideration

In the event that a certain EBITDA target is achieved by Villeray for the twelve month period ended October 31, 2024, additional undiscounted consideration ranging from $500 to $1,000 would be payable in cash during the first quarter of 2025. At the end of September 2024, the former owner-operator of Villeray retired from the business and was replaced by a new Montreal General Manager. Amid the leadership transition, the Corporation has determined that the target will not be achieved given the proximity to October 31, 2024. Therefore, no payment is expected to be made.

During the first two quarters of 2024, the estimated fair value of the possible payment was classified as contingent consideration. The fair value of the contingent consideration was estimated by considering the probability-adjusted future expected cash flows in regards to Villeray achieving the target that would result in consideration being paid. The impact of discounting these future cash flows was not considered because the impact would be nominal. Given that the EBITDA target will not be achieved for the twelve month period ended October 31, 2024, the contingent consideration amount of $500 has been derecognized and a gain on settlement of contingent consideration has been recorded in Consolidated Statement of Earnings and Comprehensive Income for the three and nine month periods ended September 30, 2024.

Acquisition related costs

For the six months ended June 30, 2024, $108 in professional fees associated with the Villeray Acquisition has been included in Corporate expenses.

Business Acquisition - Shortridge

On April 30, 2024 the Corporation completed the acquisition of 100% of the share capital of Shortridge Ltd. ("Shortridge Acquisition"), a private hospitality laundry provider based in the North West of England, expanding K-Bro's geographic footprint in the UK.  The Shortridge Acquisition was completed through a share purchase agreement consisting of existing working capital, fixed assets, contracts and an employee base. The contracts acquired are in the hospitality sector in England and Scotland, which complements the existing business of the Corporation. Based on the Corporation's evaluation of the Shortridge Acquisition and the criteria in the identification of a business combination established in IFRS 3, the Shortridge Acquisition has been accounted for using the acquisition method, whereby the purchase consideration is allocated to the fair values of the net assets acquired.

At the time the financial statements were authorized for issue, and due to the timing of the Acquisition, the Corporation has not yet completed the accounting for the Shortridge Acquisition. This includes the accounting for the amounts attributable to property, plant and equipment, intangible assets and the associated goodwill.

The Corporation financed the Shortridge Acquisition and transaction costs from the syndicated revolving credit facility.

The preliminary purchase price allocated to the net assets acquired, based on their estimated fair values, is as follows:



Cash  consideration

35,426

Contingent consideration

9,275

Total purchase price

44,701

The assets and liabilities recognized as a result of the Shortridge Acquisition are as follows:

Net Assets Acquired:


Accounts receivable

2,698

Prepaid expenses and deposits

912

Linen in service

1,943

Accounts payable and accrued liabilities

(5,134)

Lease liabilities

(57)

Deferred income tax asset

8

Property, plant and equipment (1)

8,986

Intangible assets

15,181

Net identifiable assets acquired

24,537

Goodwill

20,164

Net assets acquired

$            44,701


1) Includes ROUA from the UK Division of $57 related to buildings

The provisional intangible assets acquired are made up of $13,149 related to customer relationships and $2,032 related to the brand. The goodwill is attributable to the workforce, and the efficiencies and synergies created between the existing business of the Corporation and the acquired business. Goodwill will not be deductible for tax purposes.

Contingent consideration

The contingent consideration consists of amounts related to achieving certain profitability and operational targets.

An amount of $7,684 was funded in cash on April 30, 2024 and is held in trust with a third party escrow agent. The remaining $1,591 will be payable in cash.

The estimated fair value of the payments has been classified as contingent consideration by exercising significant judgment as to whether it should be classified as such, or as remuneration to the former owners, who will be employed subsequent to the close of the transaction. The Corporation has determined by considering all relevant factors included in the agreements as it pertains to employment terms, valuation of the business, and other relevant terms that the additional consideration is most appropriately reflected as contingent consideration.

For the contingent consideration, it was determined that the profitability target was met at September 30, 2024. As such, this portion of the contingent consideration will be released from escrow in Q4 2024. In the event that certain operational targets are achieved by Shortridge, additional undiscounted consideration will be released from escrow or paid in cash before December 31, 2025. 

The fair value of the contingent consideration of $9,275 was estimated by considering the probability-adjusted future expected cash flows in regards to Shortridge achieving the targets that would result in consideration being paid.

Acquisition related costs

For the nine months ended September 30, 2024, $508 in professional fees associated with the Shortridge Acquisition has been included in Corporate expenses.

Revenue and profit information

The acquired business contributed revenues of $12,129 to the Corporation for the period from April 30, 2024 to September 30, 2024. If the Acquisition had occurred on January 1, 2024, consolidated pro-forma revenue for the period ended September 30, 2024 would have been $284,145.

The acquired business contributed net earnings of $2,056 to the Corporation for the period from April 30, 2024 to September 30, 2024. If the Acquisition had occurred on January 1, 2024, consolidated pro-forma net earnings for the period ended September 30, 2024 would have been $14,907.

Business Acquisition - Buanderie C.M.

On June 21, 2024 the Corporation completed the acquisition of 100% of the share capital of Buanderie C.M. Inc. ("C.M. Acquisition"), a private laundry and linen operator located in Montréal serving the healthcare market. The acquisition will enable K-Bro to operate with two facilities in Montreal to service its growing healthcare and hospitality business. Based on the Corporation's evaluation of the C.M. Acquisition and the criteria in the identification of a business combination established in IFRS 3, the C.M. Acquisition has been accounted for using the acquisition method, whereby the purchase consideration is allocated to the fair values of the net assets acquired.

At the time the financial statements were authorized for issue, and due to the timing of the Acquisition, the Corporation has not yet completed the accounting for the C.M. Acquisition. This includes the accounting for the amounts attributable to property, plant and equipment, intangible assets and the associated goodwill.

The Corporation financed the C.M. Acquisition and transaction costs from the syndicated revolving credit facility.

The preliminary purchase price allocated to the net assets acquired, based on their estimated fair values, is as follows:

Cash  consideration

$           11,795

Total purchase price

$           11,795

The assets and liabilities recognized as a result of the C.M. Acquisition are as follows:

Net Assets Acquired:


Accounts receivable

742

Prepaid expenses and deposits

20

Linen in service

201

Accounts payable and accrued liabilities

(377)

Deferred income taxes

(511)

Property, plant and equipment

7,055

Intangible assets

1,800

Net identifiable assets acquired

8,930

Goodwill

2,865

Net assets acquired

$           11,795

The provisional intangible assets acquired are made up of $1,800 related to customer relationships. The goodwill is attributable to the workforce, and the efficiencies and synergies created between the existing business of the Corporation and the acquired business. Goodwill will not be deductible for tax purposes.

Acquisition related costs

For the nine months ended September 30, 2024, $677 in professional fees associated with the C.M. Acquisition has been included in Corporate expenses.

Revenue and profit information

The acquired business contributed revenues of $2,019 to the Corporation for the period from June 21, 2024 to September 30, 2024. If the Acquisition had occurred on January 1, 2024, consolidated pro-forma revenue for the period ended September 30, 2024 would have been $283,620.

The acquired business contributed net earnings of $105 to the Corporation for the period from June 21, 2024 to September 30, 2024. If the Acquisition had occurred on January 1, 2024, consolidated pro-forma net earnings for the period ended September 30, 2024 would have been $14,099.

Revolving Credit Facility

On August 31, 2023, the Corporation completed an amendment to its existing revolving credit facility to extend the agreement from July 31, 2026 to July 31, 2027, as previously amended on July 18, 2022. In addition, the agreement expanded the revolving credit facility from $100,000 to $125,000 plus a $25,000 accordion. 

On March 26, 2024, the Corporation entered into a three-year committed Syndicated Credit Facility Agreement from March 26, 2024 to March 25, 2027. The new agreement consists of a $175,000 revolving credit facility plus a $75,000 accordion.

The Corporation's incremental borrowing rate under its existing credit facility is determined by the Canadian prime rate plus an applicable margin based on the ratio of Funded Debt to EBITDA as defined in the credit agreement.

Capital Investment Plan

For fiscal 2024, the Corporation's planned capital spending is expected to be approximately $17.0 million on a consolidated basis, including the expenditures associated with the Villeray acquisition. This guidance includes both strategic and maintenance capital requirements to support existing base business in both Canada and the UK. We will continue to assess capital needs within our facilities and prioritize projects that have shorter term paybacks as well as those that are required to maintain efficient and reliable operations.

Economic Conditions

The Corporation's Credit Facility is subject to floating interest rates and, therefore, is subject to fluctuations in interest rates which are beyond the Corporation's control. Changes in interest rates, both domestically and internationally, could negatively affect the Corporation's cost of financing its operations and investments.

Uncertainty about judgments, estimates and assumptions made by management during the preparation of the Corporation's consolidated financial statements related to potential impacts of the COVID-19 pandemic, geopolitical events and changing interest rates on revenue, expenses, assets, liabilities, and note disclosures could result in a material adjustment to the carrying value of the asset or liability affected.

Financial Results


For The Three Months Ended September 30,



(thousands, except per share amounts
and percentages)

Canadian
Division
2024

UK
Division
2024

2024

Canadian
Division
2023

UK
Division
2023

2023

$ Change

% Change










Revenue

$             69,610

$             34,859

$           104,469

$              63,379

$              23,513

$             86,892

17,577

20.2 %

Expenses included in EBITDA

55,229

26,397

81,626

50,455

18,744

69,199

12,427

18.0 %

EBITDA(1)

14,381

8,462

22,843

12,924

4,769

17,693

5,150

29.1 %

EBITDA as a % of revenue

20.7 %

24.3 %

21.9 %

20.4 %

20.3 %

20.4 %

1.5 %

7.4 %



















Adjusted EBITDA(1)

14,510

8,462

22,972

13,288

4,769

18,057

4,915

27.2 %

Adjusted EBITDA as a % of revenue

20.8 %

24.3 %

22.0 %

21.0 %

20.3 %

20.8 %

1.2 %

5.8 %

Net earnings

3,659

4,470

8,129

4,169

2,498

6,667

1,462

21.9 %










Basic earnings per share

$                0.350

$                0.428

$               0.778

$                0.392

$                0.235

$                0.627

$                0.151

24.1 %

Diluted earnings per share

$                0.347

$                0.424

$                0.771

$                0.389

$                0.233

$                0.622

$                0.149

24.0 %

Dividends declared per diluted share



$                 0.30



$                0.300

$                      -

0.0 %



















Adjusted net earnings (1)

3,788

4,470

8,258

4,533

2,498

7,031

1,227

17.5 %

Adjusted basic earnings per share (1)

$                0.363

$                0.428

$                0.791

$                0.426

$                0.235

$               0.660

$                0.131

19.8 %

Adjusted diluted earnings per share (1)

$                0.359

$                0.424

$               0.783

$                0.422

$                0.233

$               0.655

$                0.128

19.5 %

Total assets



452,077



341,662

110,415

32.3 %

Long-term debt (excludes lease liabilities)



135,875



55,162

80,713

146.3 %







-



Cash provided by  operating activities



18,384



22,758

(4,374)

-19.2 %

Net change in non-cash working capital items



603



8,344

(7,741)

-92.8 %

Share-based compensation expense



443



438

5

1.1 %

Maintenance capital expenditures



464



379

85

22.4 %

Principal elements of lease payments



2,670



2,360

310

13.1 %

Distributable cash flow



14,204



11,237

2,967

26.4 %

Dividends declared



3,174



3,228

(54)

-1.7 %

Payout ratio



22.3 %



28.7 %

-6.4 %

-22.3 %




















For The Nine Months Ended September 30,



(thousands, except per share amounts
and percentages)

Canadian
Division
2024

UK
Division
2024

2024

Canadian
Division
2023

UK
Division
2023

2023

$ Change

% Change










Revenue

$           196,979

$              81,184

$           278,163

$            178,039

$              60,381

$            238,420

39,743

16.7 %

Expenses included in EBITDA

161,732

65,410

227,142

145,052

50,841

195,893

31,249

16.0 %

EBITDA(1)

35,247

15,774

51,021

32,987

9,540

42,527

8,494

20.0 %

EBITDA as a % of revenue

17.9 %

19.4 %

18.3 %

18.5 %

15.8 %

17.8 %

0.5 %

2.8 %



















Adjusted EBITDA(1)

38,372

16,282

54,654

33,559

9,540

43,099

11,555

26.8 %

Adjusted EBITDA as a % of revenue

19.5 %

20.1 %

19.6 %

18.8 %

15.8 %

18.1 %

1.5 %

8.3 %

Net earnings

7,113

7,357

14,470

9,243

4,115

13,358

1,112

8.3 %










Basic earnings per share

$                0.679

$                0.703

$               1.382

$               0.865

$                0.385

$                1.250

$                0.132

10.6 %

Diluted earnings per share

$                0.675

$               0.698

$                1.373

$               0.860

$                0.383

$                1.243

$                0.130

10.5 %

Dividends declared per diluted share



$                 0.90



$               0.900

$                      -

0.0 %



















Adjusted net earnings (1)

10,238

7,865

18,103

9,815

4,115

13,930

4,173

30.0 %

Adjusted basic earnings per share (1)

$                0.978

$                0.753

$                1.731

$                0.920

$                0.385

$                1.305

$                0.426

32.6 %

Adjusted diluted earnings per share (1)

$                0.970

$                0.747

$                 1.717

$                0.914

$                0.383

$                1.297

$                0.420

32.4 %

Total assets



452,077



341,662

110,415

32.3 %

Long-term debt (excludes lease liabilities)



135,875



55,162

80,713

146.3 %







-



Cash provided by  operating activities



38,939



33,188

5,751

17.3 %

Net change in non-cash working capital items



(2,298)



(2,665)

367

13.8 %

Share-based compensation expense



1,497



1,386

111

8.0 %

Maintenance capital expenditures



1,915



2,458

(543)

-22.1 %

Principal elements of lease payments



7,969



6,844

1,125

16.4 %

Distributable cash flow



29,856



25,165

4,691

18.6 %

Dividends declared



9,520



9,696

(176)

-1.8 %

Payout ratio



31.9 %



38.5 %

-6.6 %

-17.1 %


(1)    See "Terminology" for further details

 

Dividends

The Board of Directors has declared a monthly dividend of $0.10 per common share for the period from November 1 to November 30, 2024, to be paid on December 13, 2024 to shareholders of record on November 30, 2024. The Corporation's policy is for shareholders of record on the last business day of a calendar month to receive dividends during the fifteen days following the end of such month. K-Bro designates this dividend as an eligible dividend pursuant to subsection 89(14) of the Income Tax Act (Canada) and similar provincial and territorial legislation.

OUTLOOK

The Corporation's healthcare and hospitality segments continues to experience steady volume trends. For the healthcare segment, management expects activity levels to remain stable at current levels.  For the hospitality segment, management expects solid activity levels from both business and leisure travel reflecting historical seasonal trends.

The volatility we encountered from energy prices, local labour market shortages and cost inflation throughout the pandemic has stabilized and, in turn, EBITDA margins have stabilized. In April 2022, to support more predictable energy costs, the Corporation locked in natural gas supply rates in the UK until December 2024. In April 2024, the Corporation's UK division extended their natural gas supply commitment until December 2026.  Management expects EBITDA margins will remain at similar levels going forward, following historical seasonal trends.

Throughout 2023, EBITDA margins benefited from stronger client activity, price increases that we have secured to offset inflation-related costs, the completion of the AHS transition, operating efficiencies, and lower delivery costs.  As K-Bro actively pursues its growth opportunities, the Corporation will continue to incur certain non-recurring or one-time transaction, transition and syndication/structural financing costs.  In this context, management believes Adjusted EBITDA, before non-recurring or one-time costs, assists investors to assess our performance on a consistent basis as it is an indication of our capacity to generate income from operations. Adjusting items include non-recurring transaction, transition and syndication/structural financing costs, as detailed in the tables within "Terminology". Going forward, management expects Adjusted EBITDA margins will remain at similar levels, following historical seasonal trends. 

With continued momentum in existing operations, management has refocused attention on strategic acquisitions, such as the acquisitions of C.M., Shortridge, Villeray and Paranet, to accelerate growth in North America, Europe, and similar geographies which remain highly fragmented. K-Bro's upsized $175 million syndicated credit facility, with a further $75 million accordion, provides further financial flexibility to pursue growth opportunities. K-Bro will look to leverage its strong liquidity position, balance sheet and access to the capital markets to execute on these opportunities, should they arise. For further information about the impact of other economic factors on our business, see the "Summary of Interim Results and Key Events". 

CORPORATE PROFILE

K-Bro is the largest owner and operator of laundry and linen processing facilities in Canada and a market leader for laundry and textile rental services in Scotland and the North of England. K­­­?Bro and its wholly-owned subsidiaries operate across Canada and the UK, providing a range of linen services to healthcare institutions, hotels and other commercial accounts that include the processing, management and distribution of general linen and operating room linen.

The Corporation's operations in Canada include ten processing facilities and two distribution centres under two distinctive brands: K?Bro Linen Systems Inc. and Buanderie HMR. The Corporation operates in ten Canadian cities: Québec City, Montréal, Toronto, Regina, Saskatoon, Prince Albert, Edmonton, Calgary, Vancouver and Victoria.

The Corporation's operations in the UK include Fishers, which was acquired by K?Bro on November 27, 2017. Fishers was established in 1900 and is a leading operator of laundry and linen processing facilities in Scotland, providing linen rental, workwear hire and cleanroom garment services to the hospitality, healthcare, manufacturing and pharmaceutical sectors. The Corporation operates five UK sites located in Cupar, Perth, Newcastle, Livingston and Coatbridge.

Additional information regarding the Corporation including required securities filings are available on our website at www.k-brolinen.com and on the Canadian Securities Administrators' website at www.sedarplus.ca; the System for Electronic Document Analysis and Retrieval ("SEDAR").

TERMINOLOGY 

Throughout this news release and other documents referred to herein, and in order to provide a better understanding of the financial results, K-Bro uses the terms "EBITDA", "adjusted EBITDA", "adjusted net earnings", "adjusted net earnings per share", "debt to total capital", "distributable cash" and "payout ratio". These terms do not have any standardized meaning under International Financial Reporting Standards ("IFRS") as set out in the CICA Handbook. Therefore, EBITDA, adjusted EBITDA, adjusted net earnings, adjusted net earnings per share, distributable cash and payout ratio may not be comparable to similar measures presented by other issuers. Specifically, the terms "EBITDA", "adjusted EBITDA", "adjusted net earnings", "adjusted net earnings per share", "distributable cash", and "payout ratio" have been defined as follows:

EBITDA

EBITDA (Earnings before interest, taxes, depreciation and amortization) comprises revenues less operating costs before financing costs, capital asset and intangible asset amortization, and income taxes.

EBITDA is a sub?total presented within the statement of earnings in accordance with the amendments made to IAS 1 which became effective January 1, 2016. EBITDA is not considered an alternative to net earnings in measuring K?Bro's performance. EBITDA should not be used as an exclusive measure of cash flow since it does not account for the impact of working capital changes, capital expenditures, debt changes and other sources and uses of cash, which are disclosed in the consolidated statements of cash flows. 



Three Months Ended
September 30,


Nine Months Ended
September 30,

(thousands)

2024


2023


2024


2023



















Net earnings

$             8,129


$             6,667


$           14,470


$            13,358

Add:









Income tax expense

2,481


2,294


4,175


4,256


Finance expense

3,322


1,860


8,129


4,917


Depreciation of property, plant and equipment

7,823


6,719


22,110


19,626


Amortization of intangible assets

1,088


153


2,137


370










EBITDA

$          22,843


$            17,693


$           51,021


$            42,527

Non-GAAP Measures

Adjusted EBITDA

K?Bro reports Adjusted EBITDA (Earnings before interest, taxes, depreciation and amortization) as a key measure used by management to evaluate performance. Adjusted EBITDA is utilized to make decisions related to dividends to Shareholders. We believe Adjusted EBITDA assists investors to assess our performance on a consistent basis as it is an indication of our capacity to generate income from operations before taking into account management's financing decisions and costs of acquiring tangible and intangible capital assets.  The Corporation has modified its definition for Adjusted EBITDA and has updated its comparative quarters to reflect the modified definition. "Adjusted EBITDA" is defined as EBITDA (defined above) with the exclusion of certain non-recurring or one-time costs, expenses, gains, losses, charges or any changes in fair value that are non-operating in nature that the Corporation believes are not reflective of ongoing business performance and operational profitability. The Corporation believes these non-GAAP definitions provide more meaningful reflections of normalized financial performance from operations and will enhance period-over-period comparability. 



Three Months Ended September 30,



Canadian
Division

UK
Division


Canadian
Division

UK
Division


(thousands)

2024

2024

2024

2023

2023

2023









EBITDA

$            14,381

$             8,462

$          22,843

$            12,924

$             4,769

$            17,693

Add non-recurring items:








Transaction Costs 1

139

-

$               139

364

-

364


Syndication/Structural Finance Costs

-

-

$                    -

-

-

-


Transition Costs 3

490

-

$               490

-

-

-


Gain on settlement of contingent consideration 4

(500)

-

$              (500)

-

-

-






-

-

-

Adjusted EBITDA

$           14,510

$             8,462

$           22,972

$            13,288

$             4,769

$           18,057








Relates to legal, professional and consulting fee expenditures made related to acquisitions.






Relates to costs incurred for initial syndication of the Corporation's Credit Agreement.  These costs are one time in nature and not anticipated to be incurred frequently.



Relates to transition costs incurred as a result of the Corporation's acquisitions.



Relates to derecognition of contingent consideration for the Villeray acquisition. This gain is a non-cash item outside of core operations.

 



Nine Months Ended September 30,



Canadian
Division

UK
Division


Canadian
Division

UK
Division


(thousands)

2024

2024

2024

2023

2023

2023









EBITDA

$            35,247

$            15,774

$           51,021

$            32,987

$             9,540

$            42,527

Add non-recurring items:






-


Transaction Costs 1

$                 822

$                508

$             1,330

572

-

572


Syndication/Structural Finance Costs

$              1,892

$                    -

$             1,892

-

-

-


Transition Costs 3

$                 911

$                    -

$                 911

-

-

-


Gain on settlement of contingent consideration 4

$               (500)

$                    -

$              (500)

-

-

-






-

-

-

Adjusted EBITDA

$            38,372

$            16,282

$           54,654

$           33,559

$             9,540

$           43,099








Relates to legal, professional and consulting fee expenditures made related to acquisitions.






Relates to costs incurred for initial syndication of the Corporation's Credit Agreement.  These costs are one time in nature and not anticipated to be incurred frequently.



Relates to transition costs incurred as a result of the Corporation's acquisitions.







Relates to derecognition of contingent consideration for the Villeray acquisition. This gain is a non-cash item outside of core operations.

Adjusted Net Earnings and Adjusted Earnings per Share

Adjusted Net Earnings and Adjusted Earnings per Share are non-GAAP measures. These non-GAAP measures are defined to exclude certain non-recurring or one-time costs, expenses, gains, losses, charges or any changes in fair value that are non-operating in nature that the Corporation believes are not reflective of ongoing business performance and operational profitability. The Corporation believes these non-GAAP definitions provide more meaningful reflections of normalized financial performance from operations and will enhance period-over-period comparability. 



Three Months Ended September 30,



Canadian
Division

UK
Division


Canadian
Division

UK
Division


(thousands)

2024

2024

2024

2023

2023

2023









Net Earnings

$             3,659

$             4,470

$             8,129

$             4,169

$             2,498

$             6,667

Add non-recurring items:








Transaction Costs 1

139

-

$                139

364

-

364


Syndication/Structural Finance Costs

-

-

$                     -

-

-

-


Transition Costs 3

490

-

$                490

-

-

-


Gain on settlement of contingent consideration 4

(500)

-

$              (500)

-

-

-






-

-

-

Adjusted Net Earnings

$              3,788

$             4,470

$            8,258

$              4,533

$             2,498

$              7,031








Relates to legal, professional and consulting fee expenditures made related to acquisitions.






Relates to costs incurred for initial syndication of the Corporation's Credit Agreement.  These costs are one time in nature and not anticipated to be incurred frequently.



Relates to transition costs incurred as a result of the Corporation's acquisitions.







Relates to derecognition of contingent consideration for the Villeray acquisition. This gain is a non-cash item outside of core operations.

 



Nine Months Ended September 30,



Canadian
Division

UK
Division


Canadian
Division

UK
Division


(thousands)

2024

2024

2024

2023

2023

2023









Net Earnings

$              7,113

$              7,357

$           14,470

$              9,243

$              4,115

$            13,358

Add non-recurring items:




-

-

-


Transaction Costs 1

$                 822

$                508

$             1,330

572

-

572


Syndication/Structural Finance Costs

$              1,892

$                    -

$             1,892

-

-

-


Transition Costs 3

$                 911

$                    -

$                 911

-

-

-


Gain on settlement of contingent consideration 4

$               (500)

$                    -

$              (500)

-

-

-






-

-

-

Adjusted Net Earnings

$            10,238

$             7,865

$           18,103

$             9,815

$              4,115

$            13,930



1

Relates to legal, professional and consulting fee expenditures made related to acquisitions.

2

Relates to costs incurred for initial syndication of the Corporation's Credit Agreement.  These costs are one time in nature and not anticipated to be incurred frequently.

3

Relates to transition costs incurred as a result of the Corporation's acquisitions.

4

Relates to derecognition of contingent consideration for the Villeray acquisition. This gain is a non-cash item outside of core operations.

 



Three Months Ended September 30,



Canadian
Division

UK
Division


Canadian
Division

UK
Division


(thousands)

2024

2024

2024

2023

2023

2023









Basic Earnings per Share

0.350

0.428

0.778

0.392

0.235

0.627

Add non-recurring items:








Transaction Costs 1

0.014

-

0.014

0.034

-

0.034


Syndication/Structural Finance Costs

-

-

-

-

-

-


Transition Costs 3

0.047

-

0.047

-

-

-


Gain on settlement of contingent consideration 4

(0.048)

-

(0.048)

-

-

-






-

-

-

Adjusted Basic Earnings per Share

0.363

0.428

0.791

0.426

0.235

0.661








Relates to legal, professional and consulting fee expenditures made related to acquisitions.






2  Relates to costs incurred for initial syndication of the Corporation's Credit Agreement.  These costs are one time in nature and not anticipated to be incurred frequently.



Relates to transition costs incurred as a result of the Corporation's acquisitions.


Relates to derecognition of contingent consideration for the Villeray acquisition. This gain is a non-cash item outside of core operations.

 



Nine Months Ended September 30,



Canadian
Division

UK
Division


Canadian
Division

UK
Division


(thousands)

2024

2024

2024

2023

2023

2023









Basic Earnings per Share

0.679

0.703

1.382

0.865

0.385

1.250

Add non-recurring items:








Transaction Costs 1

0.080

0.050

0.130

0.055

-

0.055


Syndication/Structural Finance Costs

0.180

-

0.180

-

-

-


Transition Costs 3

0.087

-

0.087

-

-

-


Gain on settlement of contingent consideration 4

(0.048)

-

(0.048)

-

-

-






-

-

-

Adjusted Basic Earnings per Share

0.978

0.753

1.731

0.920

0.385

1.305

1  Relates to legal, professional and consulting fee expenditures made related to acquisitions.

2  Relates to costs incurred for initial syndication of the Corporation's Credit Agreement.  These costs are one time in nature and not anticipated to be incurred frequently.                            

3  Relates to transition costs incurred as a result of the Corporation's acquisitions.                

4  Relates to derecognition of contingent consideration for the Villeray acquisition. This gain is a non-cash item outside of core operations.

 



Three Months Ended September 30,



Canadian
Division

UK
Division


Canadian
Division

UK
Division


(thousands)

2024

2024

2024

2023

2023

2023









Diluted Earnings per Share

0.347

0.424

0.771

0.389

0.233

0.622

Add non-recurring items:








Transaction Costs 1

0.013

-

0.013

0.033

-

0.033


Syndication/Structural Finance Costs

-

-

-

-

-

-


Transition Costs 3

0.047

-

0.047

-

-

-


Gain on settlement of contingent consideration 4

(0.048)

-

(0.048)

-

-

-






-

-

-

Adjusted Diluted Earnings per Share

0.359

0.424

0.783

0.422

0.233

0.655








Relates to legal, professional and consulting fee expenditures made related to acquisitions.






2  Relates to costs incurred for initial syndication of the Corporation's Credit Agreement.  These costs are one time in nature and not anticipated to be incurred frequently.



Relates to transition costs incurred as a result of the Corporation's acquisitions.







Relates to derecognition of contingent consideration for the Villeray acquisition. This gain is a non-cash item outside of core operations.

 



Nine Months Ended September 30,



Canadian
Division

UK
Division


Canadian
Division

UK
Division


(thousands)

2024

2024

2024

2023

2023

2023









Diluted Earnings per Share

0.675

0.698

1.373

0.860

0.383

1.243

Add non-recurring items:








Transaction Costs 1

0.077

0.049

0.126

0.054

-

0.054


Syndication/Structural Finance Costs

0.179

-

0.179

-

-

-


Transition Costs 3

0.086

-

0.086

-

-

-


Gain on settlement of contingent consideration 4

(0.047)

-

(0.047)

-

-

-






-

-

-

Adjusted Diluted Earnings per Share

0.970

0.747

1.717

0.914

0.383

1.297



1

Relates to legal, professional and consulting fee expenditures made related to acquisitions.

2

Relates to costs incurred for initial syndication of the Corporation's Credit Agreement.  These costs are one time in nature and not anticipated to be incurred frequently.

3

Relates to transition costs incurred as a result of the Corporation's acquisitions.

4

Relates to derecognition of contingent consideration for the Villeray acquisition. This gain is a non-cash item outside of core operations.  

Distributable Cash Flow

Distributable cash flow is a measure used by management to evaluate the Corporation's performance. While the closest IFRS measure is cash provided by operating activities, distributable cash flow is considered relevant because it provides an indication of how much cash generated by operations is available after capital expenditures. It should be noted that although we consider this measure to be distributable cash flow, financial and non?financial covenants in our credit facilities and dealer agreements may restrict cash from being available for dividends, re?investment in the Corporation, potential acquisitions, or other purposes. Investors should be cautioned that distributable cash flow may not actually be available for growth or distribution from the Corporation. Management refers to "Distributable cash flow" as to cash provided by (used in) operating activities with the addition of net changes in non?cash working capital items, less share?based compensation, maintenance capital expenditures and principal elements of lease payments.




Three Months Ended
September 30,


Nine Months Ended
September 30,

(thousands)


2024

2023


2024

2023









Cash provided by  operating activities


$          18,384

$            22,758


$          38,939

$            33,188

Deduct (add):








Net changes in non-cash working capital items


603

8,344


(2,298)

(2,665)


Share-based compensation expense


443

438


1,497

1,386


Maintenance capital expenditures


464

379


1,915

2,458


Principal elements of lease payments


2,670

2,360


7,969

6,844

Distributable cash flow


$           14,204

$            11,237


$          29,856

$           25,165

Payout Ratio

"Payout ratio" is defined by management as the actual cash dividend divided by distributable cash. This is a key measure used by investors to value K-Bro, assess its performance and provide an indication of the sustainability of dividends. The payout ratio depends on the distributable cash and the Corporation's dividend policy.




Three Months Ended
September 30,


Nine Months Ended
September 30,

(thousands)


2024

2023


2024

2023










Cash dividends


3,174

3,228


9,520

9,696


Distributable cash flow


14,204

11,237


29,856

25,165









Payout ratio


22.3 %

28.7 %


31.9 %

38.5 %

Debt to Total Capital

"Debt to total capital" is defined by management as the total long?term debt (excludes lease liabilities) divided by the Corporation's total capital. This is a measure used by investors to assess the Corporation's financial structure.

Distributable cash flow, payout ratio, debt to total capital adjusted EBITDA, adjusted net earnings, and adjusted net earnings per share are not calculations based on IFRS and are not considered an alternative to IFRS measures in measuring K?Bro's performance. Distributable cash Flow, payout ratio, adjusted EBITDA, adjusted net earnings, and adjusted net earnings per share do not have standardized meanings in IFRS and are therefore not likely to be comparable with similar measures used by other issuers.

FORWARD LOOKING STATEMENTS 

This news release contains forward?looking information that represents internal expectations, estimates or beliefs concerning, among other things, future activities or future operating results and various components thereof. The use of any of the words "anticipate", "continue", "expect", "may", "will", "project", "should", "believe", and similar expressions suggesting future outcomes or events are intended to identify forward?looking information. Statements regarding such forward?looking information reflect management's current beliefs and are based on information currently available to management.

These statements are not guarantees of future performance and are based on management's estimates and assumptions that are subject to risks and uncertainties, which could cause K-Bro's actual performance and financial results in future periods to differ materially from the forward-looking information contained in this news release. These risks and uncertainties include, among other things: (i) risks associated with acquisitions, including (a) the possibility of undisclosed material liabilities, disputes or contingencies, (b) challenges or delays in achieving synergy and integration targets, (c) the diversion of management's time and focus from other business concerns and (d) the use of resources that may be needed in other parts of our business; (ii) K-Bro's competitive environment; (iii) utility costs, minimum wage legislation and labour costs; (iv) K-Bro's dependence on long-term contracts with the associated renewal risk and the risks associated with maintaining short term contracts; (v) increased capital expenditure requirements; (vi) reliance on key personnel; (vii) changing trends in government outsourcing; (viii) changes or proposed changes to minimum wage laws in Ontario, British Columbia, Alberta, Quebec, Saskatchewan and the United Kingdom (the "UK"); (ix) the availability and terms of future financing; * textile demand; (xi) the adverse impact of the COVID-19 pandemic on the Corporation, which has been significant to date and which we believe will continue to be significant for the short to medium term; (xii) availability and access to labour; (xiii) rising wage rates in all jurisdictions the Corporation operates and (ix) foreign currency risk. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information include: (i) volumes and pricing assumptions; (ii) expected impact of labour cost initiatives; (iii) frequency of one-time costs impacting quarterly and annual financial results; (iv) foreign exchange rates; (v) the level of capital expenditures and (vi) the expected impact of the COVID-19 pandemic on the Corporation. Although the forward-looking information contained in this news release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Certain statements regarding forward-looking information included in this news release may be considered "financial outlook" for purposes of applicable securities laws, and such financial outlook may not be appropriate for purposes other than this news release. Forward looking information included in this news release includes the expected annual healthcare revenues to be generated from the Corporation's contracts with new customers, calculation of costs, including one-time costs impacting the quarterly financial results, anticipated future capital spending and statements with respect to future expectations on margins and volume growth.

All forward?looking information in this news release is qualified by these cautionary statements. Forward?looking information in this news release is presented only as of the date made. Except as required by law, K?Bro does not undertake any obligation to publicly revise these forward?looking statements to reflect subsequent events or circumstances.

This news release also makes reference to certain measures in this document that do not have any standardized meaning as prescribed by IFRS and, therefore, are considered non?GAAP measures. These measures may not be comparable to similar measures presented by other issuers. Please see "Terminology" for further discussion.

Web: www.k-brolinen.com

SOURCE K-Bro Linen Inc.


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