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Good morning, ladies and gentlemen, and welcome to the Colabor's Third Quarter 2022 Results Conference Call. [Operator Instructions] This call is being recorded on Friday, October 14, 2022.
Before turning the meeting over to management, I would like to remind listeners that this conference call contains forward-looking information within the meaning of applicable Canadian securities laws, and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I refer the audience to the forward-looking statements as detailed in the presentation regarding this conference call and available on the company's website in the Investors section on the Events and Presentation at www.colabor.com.
Furthermore, risks are discussed throughout the most recent MD&A under the heading Risks. I would now like to turn the conference over to Louis Frenette, President and CEO of Colabor Group. Please go ahead, sir.
Yes. Thank you, Julie. Good morning, everyone, and welcome to Colabor Group's 2022 Third Quarter Results Conference Call. This is Louis Frenette, President and Chief Executive Officer. Last evening, we released our earnings results for the 12- and 36-week period ended September 3, 2022. The press release and disclosure documents can be found on the website and at sedar.com.
Joining me today on this call is Pierre Blanchette, our Chief Financial Officer, who will -- who, following my initial remarks, we'll provide an overview of our financial results. I'm very happy with our third quarter results. They represent a sixth consecutive quarter of revenue growth and our highest adjusted EBITDA in the last 2 years. These results continue to demonstrate that we are well positioned to manage ongoing headwinds currently faced by many industries while continuing to profitably grow our business and generate strong cash flow.
In the third quarter, consolidated revenues grew by 10.4% from our ability to pass through food inflation, the contribution of our recent acquisition and the easing of restrictions resulting in the normalization of volume in the restaurant channel. Gross margin were up by 7.5% year-over-year to represent 18.1% of sales. This is the result of our consistent and dedicated effort to enhance our customer and product mix. Adjusted EBITDA also grew to 6.1% of sales from 5.9% in the equivalent quarter of last year, representing a 13.7% improvement.
Furthermore, cash flow from operations increased year-over-year by $1.4 million to $8.8 million and $19 million in the last -- since the beginning of the year. We also maintained a very conservative leverage ratio at 1.6x at the end of Q3, down from 1.9x at the end of the previous fiscal year.
In the last 2 years, we invested to profitably grow our Distribution business and develop new territories. We made significant improvements to our private label offering focused on improving our category management practices and finding ways to leverage our specialty offerings to bring more value to our customers.
In April of 2022, we were -- we reinitiated our M&A strategy to grow our distribution footprint in the province. Both business continued to perform well and are contributing to our top and bottom line. All these measures have contributed to improving our competitiveness in the marketplace, leading to strong and consistent financial results.
Our diversification strategy and ability to dynamically manage the effect of rising input costs, is positioning us well in the current macro environment. Looking ahead, our diversified customer base with the restaurant and institutional channel remains a key attribute of our resiliency. We believe that there is significant demand and room for Colabor to grow, both organically and through acquisition in the province of Quebec. To that effect, at the end of September, we announced that we will be moving our Boucherville head office and warehouse to a new strategic and state-of-the-art facility.
The facility will be located in the new Ecopark Saint-Bruno project, a multi-rental, industrial Ecopark located less than a few kilometers away. Our facility will be customized to better suit our growing distribution activities and provide our employees with a better working environment. The owner of the premise intend for all building to obtain LEED and net zero carbon certifications. This move marks a new chapter in our history and provides a stronger base for us to grow in Western Quebec.
Scheduled for the fourth quarter of 2023, the relocation of our facility is an ambitious and strategically significant project for Colabor. We are already engaged in a rigorous and structured planning process to ensure a seamless transition for everyone. I am very excited about this move, and what it means for our employees, our customers and our partners. Pierre, with this I will turn the over to you.
Thank you, Louie, and good morning, everyone. I am pleased to be here today to discuss our key financial results for the third quarter of 2022.
Third quarter consolidated sales were up 10.4% to $145.7 million. Sales in the Distribution segment increased by 10% to $99.9 million. This results from higher volume, normalizing in the restaurant channel price increases reflecting food inflation pass-through of approximately 6% and customer list acquired in the Ottawa and Laurentian regions.
Sales in the Wholesale segment increased by 10.7% to $57.8 million. This results primarily from food inflation pass-through which was somewhat mitigated by the effect of the weak long strike at our Boucherville wholesale facility. By proactively working with our clients, we were successful at limiting the collateral effect of the strike on our sales volume and on our customer service.
Consolidated adjusted EBITDA from continuing operations reached $8.9 million or 6.1% of sales compared to $7.8 million or 5.9% in the third quarter last year. Growing sales volume and improving gross margin from an improving product and customer mix, help mitigate higher input costs continued investment in our private label brand and the impact of a weak long strike at our wholesale operations.
Net earnings were $2.8 million or $0.03 per share compared to $2.3 million or $0.02 per share. Higher profitability was mitigated by higher depreciation and amortization, primarily from our M&A activity. Cash flow from operating activities amounted to $8.8 million in the third quarter compared to $7.4 million in the equivalent quarter of last year. Higher cash flow from operations results from a lower utilization of working capital and a higher adjusted EBITDA. Cash on hand at the end of the quarter represented $0.5 million with $47 million of available borrowing capacity on our credit facility.
At September 3, 2022, our net debt amounted to $41.4 million, down from $48.4 million at the end of fiscal 2021. Our financial leverage ratio stands at 1.6x versus 1.9x at the end of fiscal 2021.
I would now like to turn the call over to the operator for the Q&A period.
[Operator Instructions] Your first question comes from Kyle McPhee from Cormark.
Thanks for pointing out the food price inflation that was passed on in price of 6%. I'm wondering heading into Q4, are you seeing any pockets of price deflation in any of your category? And is this being passed on?
Kyle, thanks for the question. No, no. We don't see price deflation for Q4.
Okay. And then the pace of food inflation we've been getting, has that continued to accelerate at all implying more pricing gain? Or is it kind of tapered off peak [indiscernible]
Kyle, it's Louie. Yes, the -- as we said, the inflation is at 6%, and it's slowing down the inflation versus previous quarter. and we cannot predict how it's going to go. But the increase we have 6% comes from the inflation and the rest is the organic growth, the pass-through, of course [indiscernible]
The M&A activities.
M&A activities. Yes, exactly.
Got it. Okay. Just maybe a progress update on the development of new territories, the new sales hires you did. Are you gaining any meaningful momentum yet? And when do you think this might show a noticeable growth in your results?
Yes. As I said in the last few reports, it's going very well. We have to adapt the growth with the availability of the workers. And the -- so during that quarter, we had to slow down the growth to fulfill the high seasonality period. But now we're pressing on the gas pedal is going very well. And as we had mentioned 1.5 years ago or something like that, like the breakeven should happen this new -- sorry, in the Q4 quarter, but it's going very well.
So good to hear. And then another progress update. On the private label program? Are you pleased with what's been going on there now that you're a year into the relaunch? And can you quantify for us how much your private label sales have grown?
It's going very well, a bit better than the plan we had. And the idea was to grow the share of our private label that was normally very low compared to the rest of the market. And the ambition was to make a significant improvement, which we're doing. So our sales volume and dollar sales are higher than the average of the rest of our sales.
So we're very happy with this. And we'll continue to invest in these brands, the brand is called Menu. And we'll keep adding products and if we can, especially products that are sourced locally.
Got it. Okay. On gross margin percentage is to outperform expectations. Wondering if there's room for it to move even higher based on what you know about your mix in private label. Or is the current gross margin percentage kind of a good representation of your normalized business?
It's Pierre. I'd say it's a good representation right now.
Okay. Okay. Is the gross margin performance like the gain year-over-year, would there be a -- would a meaningful contribution be from private label? Or is it mostly kind of the reopening of [indiscernible]
It's a combination of several things. Yes, obviously, the private brand is, but as well the mix of clients. So you know the more we have independent restaurants it helps. So it's a mix of several things. Absolutely.
Okay. Just regarding the state of the economy, everyone's key question, can you offer any anecdotes on what you're seeing in Quebec? Are there any pockets of demand destruction starting to show up in the channel [indiscernible]?
Kyle, what we're seeing in Quebec is -- represents what is also happening in Canada. And we just got a report from restaurants, Canada annual report that was just published. So the -- in nominal terms, restaurant sales were back to pre-pandemic levels by -- will be back to the pre-pandemic level at the end of 2022, okay? So it's a possibility. It's still 11% below than pre-pandemic levels, so -- in volume. So what you see is that the -- in dollars reached 2019. But in volume, it's still 11% below and that's what we're looking at. And 90% of the restaurants have reopened their dining room. So what's happening in Canada is what we're seeing in Quebec.
And the chance we have, remember, is that our diversified customer base where we have institution as an example, is helping us protect our business.
Got it. Okay. And then last 1 for me. Can you guys offer any guidance on what the total CapEx spend will be for this year? And what's in the plan for next year?
Yes, Kyle. It's our CapEx for this year, we don't expect much more in Q4. So we're a little bit lower than what we had expected for the year. And the main reason is the upcoming move of our head office. We don't invest in this -- in the place where we are now currently. So obviously, 2023, 2024, there will be lower CapEx in terms of maintenance being a new facility, but much higher in terms of onetime investment in the new location where we expect to have innovation, productivity, investments involved in the -- with the move.
Got it. And any color on what that spend will be next year, including that onetime stuff?
We have those numbers. We're not ready to disclose yet, but -- yes, obviously, we have all of those in our plan.
Kyle, if I can add, you were talking about color. The -- we're moving because of the strategic plan, and we want to be better to serve the Western part of Quebec and it's going to be served in the new facility. If not, we would have to invest a lot in the old place where we are now in Boucherville and [indiscernible] responsible the CapEx is right. We would have to invest in the new place, of course, so that will raise over time, but we would if we will have stayed where we are, we would have to increase the CapEx also.
So the new facility is very strategic and very important for attraction and retention of our employees that worked very hard, and this place will be a better looking a nicer place for employees to work, have very good access to the highway very strategic locations. So we're happy with this. And yes, we'll spend more CapEx to manage.
And as part of the move net-net, you end up with more capacity to support growth?
More the -- because of the layout of the place, there will be -- the new facility will be effectively more productive and the warehouse will be hybrid to serve to serve our distributors through our wholesale business and to do distribution ourselves. So it will be more performance space -- use of space more productive in that new facility.
Louie, there are no further questions at this time. Please proceed.
Okay. Thank you, Julia and thanks Kyle for your questions. So once again, we're very happy with our financial results. We have consistently demonstrated our ability to successfully manage headwinds while executing our growth and profitability plan. This is in large part due to the dedication of our employees who work very hard, especially in the context of a tight labor market and during a busy summer quarter. As discussed in this previous call, our focus for the second half of 2022 remains on the execution of our strategic plan, driving profitability growth tightly manage costs and optimally allocating capital to drive shareholder value. We remain on the lookout for accretive acquisitions and are excited by the potential that lies in the relocation of our new strategic and state-of-the-art facility in the Saint-Bruno Ecopark at the end of the year. This concludes our account for the third quarter of 2022. Thank you for joining us and stay safe and healthy.
Ladies and gentlemen, this concludes your conference call for today. We thank you for joining and ask you that you please disconnect your lines. Thank you.