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Good morning, ladies and gentlemen, and welcome to Colabor's Fourth Quarter 2023 Results Conference Call. [Operator Instructions] Also note that this call is being recorded on Friday, March 1, 2023. 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 statement as detailed in the presentation supporting this conference call and available on the company's website in the Investors section under Events and Presentation at www.colabor.com. Furthermore, risks and discussed -- furthermore, risks are discussed through the most recent MD&A under the heading Risks. And I would like to turn the conference over to Louis Frenette, President and CEO of Colabor Group. Please go ahead, sir.
Thank you, Suzie. Good morning, everyone, and welcome to Colabor Group Fourth Quarter Fiscal 2023 Results Conference Call. This is Louis Frenette, President and Chief Executive Officer. Last evening, we released our earnings results for the 16- and 52-week period ended December 30, 2023. The press release and disclosure documents can be found on our website and at sedarplus.ca. The accompanying presentation can now be accessed online in the Investors section at colabor.com. Joining me today on this call is Pierre Blanchette, our Chief Financial Officer, who, following my initial remark, will provide an overview of our financial results. I am happy to report another strong quarter for Colabor for an 11th consecutive quarter where transformation strategy has provided consistent revenue growth and sustained improvement to our profitability. We are ending the year on a positive note with available growth runway and a strong balance sheet. In the fourth quarter of fiscal 2023, we achieved 1.6% consolidated revenue growth or 5.8% when adjusting for last year additional week driven by 9.1% revenue growth in our Distribution segment or 14.2% adjusted for the additional week last year. We also achieved a 70 basis point improvement to our gross margin in the quarter, resulting from sustained improvement to our product and customer mix. Together, revenue growth and above-mentioned improvement led to 8.2% adjusted EBITDA growth in the fourth quarter. By the end of the year, we also completed an important milestone in our transformation and growth strategy with the relocation of our Wholesale activity and the head office. The move to our new custom-built strategic facility in St-Bruno was completed successfully on time and on budget. I am proud to see that we achieved this significant endeavor while maintaining our level of customer service. We didn't achieve this impressive CapEx and move alone. I would like to take this opportunity to express my gratitude to everyone involved from our employees, who demonstrated their unwavering engagement by supporting us during this operation; to our consultant; and Montoni, our builder and landlord, who accompanied us along this journey to ensure a smooth transition. This facility will unlock significant growth potential for our Distribution platform, tripling the size of our addressable market in the province of Quebec. Prior to this new distribution center, we could only efficiently reach 1/3 of the addressable HRI market. With our new hybrid facility, we can now effectively reach 90% of our total addressable distribution market in the province. The facility was custom-built to provide optimal freezing and refrigeration capabilities. It allows us to perform both our Wholesale and Distribution activities on the same footprint. It provides us with the ability to maximize our inventory turnover and productivity and improve our operating cost efficiency. And as Pierre Blanchette will further discuss in his remarks, because of our improving profitability and strong cash flows, we were able to complete this important investment program without materiality (sic) [ materially ] affecting our leverage ratio, which stands at 2.4x adjusted EBITDA, barely up from 2.3x at the beginning of the year. You can see a picture of the new facility on Page 5 of the accompanying presentation. As we stand today, we are now entering year 4 of our 5-year strategic plan. We have everything on hand to continue successfully executing our growth and profitability objectives and deliver further shareholder value. As seen on Slide 6 of the presentation, our top priorities in 2024 will remain on, first, generating profitability growth. We will continue improving our customer mix and product portfolio. We will focus on our private label brand and further improve our category management practices to obtain the optimal mix of private and national brands. Second, growing our reach from 30% to 90% of the addressable HRI market. Our recent move to our new strategic facility in St-Bruno will play a pivotal role in accelerating our growth in Western Quebec. Once we move in at the end of 2023, we started serving our existing wholesale clients and major distribution accounts out of this new facility. This is running smoothly, and we will gradually start serving new Western Quebec distribution clients out of this facility in the second half of 2024. Now that the strategic CapEx is completed, we are also more comfortable looking at small accretive M&A opportunities, always while striving to maintain a healthy level of leverage and flexibility for future projects. In yesterday's earnings press release, we also disclosed the acquisition of certain assets related to foodservice activities of Groupe Beaudry. These activities generated an annual revenue run rate of approximately $15 million. This acquisition will provide operational synergies to Colabor and cross-selling potential. These newly acquired clients, mainly located in Eastern Quebec, will be served out of our facility located in Saint-Nicolas, Lévis close to Quebec City. There has been a long-standing relationship with Groupe Beaudry, and they will continue to be clients of Colabor on the wholesale side. Third, improving our employer's brand. Attracting and retaining the best talent is a key success factor for Colabor. The facility in St-Bruno and recent launch of our new employer brand will continue to this effort as being an employer of choice in our industry and in the communities where we operate. We are also keeping an eye out of the evolving ESG disclosure landscape with a new -- with a view of integrating our ESG objectives and our financial disclosure next year. Fourth and last pillar, renew and refreshing our brand. Enhancing the quality and incorporating locally sourced component into our offering will continue to be a priority for Colabor. Our identity as a Quebec-based business and our personalized approach to customer service is an important differentiator from other larger distributor operating within the province. Before I turn the call over to Pierre, for those who have followed our transformation story over the last 3 years, you have seen us prudently manage through the pandemic and even emerge in a much stronger position. I'm very proud of what our team has achieved in the last 3 years. We are entering 2024 with a resilient business and capacity for growth. We are in a good position to face the current macroeconomic environment. Even as we are feeling some pockets of weakness in the higher end of -- higher-end segment of the restaurant channel, our diversification within the HRI market and strong cash flows have allowed us to derisk our business and balance sheet. Over the last few years, we also -- we have also significantly improved our product offering and raised our level of customer service. As a result, our focus on quality, service and locally sourced offering are positioning us well in the market and helping us attract and retain customers. And our new facility allows us to significantly expand our total addressable market in Quebec.
Pierre, with this, I will turn the call over to you.
Please unmute.
Sorry, strike one for me. Thank you, Louis, and good morning, everyone. I'm pleased to be here today to discuss our key financial results for the fourth quarter of fiscal 2023. Please refer to Slide 7 to 10 of the presentation for highlights of our financial performance in the quarter. I would like to remind the listeners that we are comparing the fourth quarter of 2023, which had 16 weeks in the period, with the fourth quarter of last year, which had 17 weeks in the period. Fourth quarter consolidated sales were up 1.6% or 5.8% when adjusting for the additional week in 2022, landing at $192.3 million. Sales in the Distribution segment increased by 9.1% or 14.2% adjusted for last year's additional week to $144.9 million. This results from higher sales volume, including from the new chain customers that we started servicing entering 2023 and estimated price increases reflecting food inflation pass-through of 4.8%. Sales in the Wholesale segment declined by 19% or 17% on an adjusted basis to $59.2 million from lower internal sales from our Wholesale segment to the Distribution segment resulting from a supply optimization project between our warehouses and from lower external sales volume driven in part by the 2 weeks shutdown of our Wholesale operation to allow the move to the new facility, mitigated by the impact of inflation. Consolidated adjusted EBITDA from continuing operation reached $11.7 million or 5.9% of sales compared to $9.9 million or 5.1% in the fourth quarter of last year. Growing sales volume and improving customers and product mix explain the higher adjusted EBITDA. Net earnings were $400,000 or $0 per share in Q4 compared to $1.7 million or $0.02 per share in Q4 of last year. The effect of higher adjusted EBITDA was mitigated by higher amortization from our lease renewal and CapEx program, approximately $0.8 million of nonrecurring expenses associated with the move to the new facility and higher financial expenses. Cash flows from operating activities were $8.9 million in the fourth quarter compared with negative cash flows of $0.7 million in Q4 of last year. This results from lower utilization of working capital this year and higher adjusted EBITDA. In Q4, our CapEx investment amounted to $7.1 million, of which the vast majority went to the preparation of our new strategic facility in St-Bruno. This almost completes our CapEx program associated with the new facility. At the end of Q4, we had approximately $1.5 million of outstanding cash payment left on this program. In 2024, we expect the total CapEx to be approximately in the range of $3 million to $4 million primarily for maintenance and smaller optimization projects. We ended the year with higher net debt of $61.5 million, up from $47.8 million at the end of 2022. Because of our growing profitability, we maintained a conservative financial leverage ratio at 2.4 compared with 2.3 at the start of fiscal 2022. At the end of the quarter, we had $22 million of available borrowing capacity on our credit facility. I would now like to turn the call over to the operator for the Q&A period.
[Operator Instructions] And your first question will be from Kyle McPhee at Cormark Securities.
Just to start on the revenue line, your Distribution segment revenue was very strong, but that was paired with some weakness from the Wholesale segment. Can you try to isolate that revenue impact for the Wholesale segment from the facility move disruption? What was the lost revenue dollars during that period?
Okay. Kyle, it's Louis. Thanks for the question. So the decline was around $14 million in the Wholesale segment. And we estimate that 1/3 is due to a combination of 2 weeks disruption due to our move. And last year, there were 17 weeks versus 16 this year. So that's 1/3. Another 1/3 is due to the wholesale customer volume decline. We did experience some pockets of softness in Q4 in our restaurant channel, mainly in the white-tablecloth segment and -- leading to the start of the year. And some of that could have been related to a 4-week strike also in Quebec, where you had almost 0.5 million people on strike and not going in restaurants. Third and last, from our internal reduction -- sales reduction from our optimization program, we started implementing this program in Q3 of last year. So to give you an idea, we now order directly in our different warehouses versus shipping them to the Wholesale business and reshipping to our distribution centers. So to optimize -- we do this to optimize our overall cost and make us more efficient.
Okay. That was great color. On CapEx, you said for 2024, it would be $3 million to $4 million. Does that include the remaining $1.5 million for the new facility?
Kyle, it's Pierre. Thanks for the question. The -- no, it does not. But the -- I tried to clear up the explanation. We've accrued what we believe is necessary for the facility, but it's really a cash payment. That's why I mentioned that $1.5 million is cash payment. But the CapEx are, I would say, almost, if not all, completed for in the -- for the new facility. So the $3 million to $4 million is really related to the ongoing maintenance and small optimization in the different areas of our distribution -- specialized Distribution business as well.
Got it. And is that $3 million to $4 million kind of maintenance level a good number beyond 2024 as well? Or is there anything abnormal about 2024?
Well, as I said, there's some optimization in there we might have. But it's not -- it's a little bit lower because right now, we have one of our largest warehouse, the largest one, is brand-new. So maintenance CapEx won't be high in St-Bruno because it's all brand-new. So this year, we expect in the $3 million to $4 million that some is optimization, some is maintenance. So I'd say $3 million to $4 million is the high end for the ongoing maintenance.
Got it. Okay. And then regarding the onetime cost for the facility move in Q4, it's small and as expected in Q4. Is there any more onetime costs left into Q1 this year?
There might be, but they would be very, very immaterial.
Okay. Now this new facility obviously gives you a lot of new capacity in Western Quebec. Is it also opening up more capacity in Eastern Quebec to support growth in that region and easily absorb -- also easily absorb the new volume you just acquired with the small acquisition you announced yesterday? Or do you need to invest in Eastern Quebec capacity?
No, we don't need to invest in Quebec capacity. So yes, we have a lot of new available capacity in Western Quebec, but we are still serving most of our clients that are in Western Quebec or Montreal area from our Eastern Quebec site. So we'll gradually start serving them out of the new facility in the coming weeks. We will start unlocking the capacity in Lévis, as an example, in Quebec City. And as regard of the new acquired business from Beaudry, these are -- the customers are located in Eastern Quebec and will be served out from our lead distribution center. So many any of these clients are located on routes that we already serve before that will help improve the route efficiencies in that area. So we will start serving these customers towards the end of Q1.
Got it. Okay. And then, I guess, beyond kind of route optimization on the back of the small acquisition you did, can you just speak kind of higher level or expand on the strategic rationale and opportunities from a deal like this? Is this similar to the reason you did the 2 small deals in 2022?
Similar. And as we've told you, we're very prudent with acquisitions. So we look for -- we tried to make sure that these deals will be accretive, that we'll have synergies. As I mentioned, the routes, productivities in the distribution center are important. And it will also provide us market share gains by acquiring a list of customers like that. It's easy tuck-in for us. That's the business we're in. And we did great in the -- with the last 2 acquisitions. We did great with them, and the transition was smooth. So we expect the same thing from this acquisition of customers.
Okay. Good to hear. And then last one, can you provide some color on the working capital investment needs, inventory needs in Q1 of this year, which I suspect might be larger than normal as you kind of build up inventory to support onboarding of new clients now that your new Western Quebec facility is up and running?
Yes. Kyle, you're right that we will have to invest, but it won't be significant. And it's going to be, I would say, early in Q2. So it won't affect much the Q1. But the investment in the inventory for like -- as you mentioned, transferring the client to -- from Eastern to Western, it's going to be -- but it's not going to be -- we don't expect a material impact as well.
And at this time, we have no other questions registered. Please proceed.
Thank you, Suzie, and thanks, Kyle, for your questions. Once again, I'm happy with our financial results of 2023 and the successful completion of our move to our new strategic facility in Western Quebec. Looking ahead, I'm confident in our growth trajectory and ability to continue improving our business, leading to sustained long-term operational leverage, strong cash flows and increasing shareholder value. Our new management team has demonstrated a clear track record of prudently managing our business and extracting value from our recent organic and nonorganic initiatives. As such, we are in a good position to capitalize on opportunities for growth and market share gains, and we look forward to serving our new clients in Eastern Quebec from our just recently announced acquisition. This concludes our call for the fourth quarter of full year 2023. Thanks for joining us, and be safe and healthy.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask you to please disconnect your lines. Have a good weekend.