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Operator: Good afternoon, ladies and gentlemen, and welcome to the Richelieu Hardware Third Quarter Results Conference Call. [Operator Instructions] Also note that this call is being recorded on October 9, 2025. [Foreign Language]
Richard Lord: Thank you. Good afternoon, ladies and gentlemen, and welcome to Richelieu's conference call for the third quarter and first 9 months ended August 31, 2025. With me is Antoine Auclair, CFO and COO. As usual, note that some of today's issue include forward-looking information, which is provided with the usual disclaimer as reported in our financial filings. We had a good third quarter with solid growth and expansion. All our results are on the rise, and we successfully pursued our acquisition strategy, closing two additional acquisitions following the quarter. Except for Ontario, all our market segments in Canada and the U.S. performed well, driving our total sales up 6.7%. Our sales in Canada increased by 2.9%, while in the U.S., they rose by 11.4% in U.S. dollar, accounting for 45% of total sales for the quarter. Sales climbed 6.5% in the manufacturer market and 8.6% in the retailers and renovation superstore market. Our margins improved slightly with EBITDA margin of 11.4%, and diluted net earnings per share increased by 4.9% to $0.43. I would also point out that our operations generated cash flows of $82.7 million in the third quarter. This includes a $16.2 million reduction in inventories. We ended the period with a positive cash position of $12 million and a working capital of $632.7 million, which reflects a solid and healthy financial position and an outstanding balance sheet. I will now ask Antoine to review the financial highlights for the quarter and the first 9 months.
Antoine Auclair: Thanks, Richard. In the third quarter, sales reached $499.2 million, up 6.7%, representing an increase of $31.5 million, equally driven by internal growth and acquisitions. In Canada, sales totaled $272 million, up 2.9% compared to last year, despite the decline in sales in Ontario, where the business environment is actually more challenging. Sales to manufacturers amounted to $226 million, up 1.9%, while sales to the hardware retailers totaled $46 million, up 8.5%, mainly due to timing differences as year-over-year sales show a slight increase with the same period last year. In the U.S., sales grew to USD 165 million, up 11.4%. Sales to manufacturers reached USD 158 million, up 11.6% with 7.3% coming from internal growth. This internal growth is mainly driven by price increases, partly due to new import tariffs, an increase that offset the additional cost of the tariff with no impact on gross margin dollar. In hardware retailers and renovation superstores market, sales reached $7.7 million, up 6.9%. In Canadian dollars, total sales in the U.S. reached $227 million, up 11.7% and accounting for 45% of total quarterly sales. For the first 9 months, total sales reached nearly $1.5 billion, up 7.2%, of which 4% resulted from internal growth and 3.2% from acquisitions. In Canada, sales reached $790 million, up 2.2%, primarily due to acquisitions. Sales to manufacturers totaled $657 million, up $14.2 million or 2.2%. Sales to hardware retailers and renovation superstores were $132.9 million compared to $130.3 million, up 2%. In the U.S., sales amounted to USD 473 million, up 10.4%, with half from internal growth and half from acquisitions. They reached CAD 663 million, up 13.8%, accounting for 46% of total sales. In U.S. dollars, sales to manufacturers totaled $447 million, an increase of $42.6 million or 10.5%, driven by 5% internal growth and 5.5% from acquisitions. Sales to hardware retailers and renovation superstores were up 7.9% compared to last year. Third quarter EBITDA reached $57 million, up $4.1 million or 7.7% over last year. This increase reflects higher sales and effective cost management. Growth in EBITDA margins slightly improved with an EBITDA of 11.4%. For the first 9 months, EBITDA totaled $154.7 million, up 5.1% with EBITDA margins at 10.6%. Third quarter net earnings attributable to shareholders amounted to $23.9 million, up 5.2%. This increase mainly reflects higher EBITDA, partly offset by higher amortization and interest expenses resulting from new leases and lease renewals. Consequently, diluted net earnings per share was $0.43 compared to $0.41 last year, an increase of 4.9%, consistent with the improvement in overall profitability. For the first 9 months, net earnings attributable to shareholders reached $60.3 million, down 1.8%. Diluted net earnings per share stood at $1.08 compared to $1.09 last year. Third quarter cash flow from operating activities before net change in noncash working capital reached $48.1 million, up 12.5% from $42.7 million last year. Change in noncash working capital contributed a cash inflow of $34.6 million, driven by a $16.2 million reduction in inventories. As a result, operating activities generated a cash inflow of $82.7 million for the quarter, reflecting higher net earnings and effective working capital management. For the first 9 months, cash flow from operating activities represented a cash inflow of $133.6 million compared to a cash inflow of $106.4 million last year. The increase highlights the business' ability to generate consistent cash supporting ongoing investments and shareholder returns. For the third quarter, financing activities used $25.4 million in cash, up from $18.4 million last year, mainly due to the repurchase of common shares totaling $3.7 million. For the first 9 months, financing activities used cash flow of $70.1 million compared to $76.1 million in 2024. In the first 9 months, we invested $39 million, including $27.5 million for six business acquisitions, and $11.5 million primarily for equipment required to maintain and improve operational efficiency. We continue to maintain an outstanding balance sheet with working capital of $632.7 million and a positive cash balance. I now turn it over to Richard.
Richard Lord: Thank you, Antoine. Subsequent to the quarter, we are pleased to have closed two acquisitions, namely Ideal Security on September 2 and Finmac Lumber on October 1. Specializing in hardware products for doors and windows, Ideal Security is located in the Greater Montreal area and mainly serves Canadian and U.S. retailer market. This adds up to our existing offering of eight different brand names, already present in all retailers and renovation superstores served by Richelieu. It also reinforced our one-stop shop strategy for this market. Finmac Lumber is a distributor of specialized wood products operating in the Winnipeg area and covering Western Canada, where it serves a customer base consisting mainly of woodworkers, cabinet makers and building material retailers as well as innovation centers. These two acquisitions add additional annual sales of $22 million and will, therefore, expand and diversify our offering in markets where we are already present, while creating new sales synergies. Together, with the six acquisitions made in the first half, this represents $75 million in additional annual sales. To conclude, I would say that, particularly, in the current context of uncertainty related to market conditions, our business model is proving its robustness and flexibility. It also enables us to respond with agility to our customers' needs with our one-stop shop Canadian and U.S. network, protect our margin and maintain our leadership position. In these circumstances, our customers will need to protect their cash flows and rely on a trusted supplier like Richelieu. We are continuing on this path with confidence and discipline and expect the end of the financial year with very solid results. Thanks, everyone. We'll now be happy to answer your questions.
Operator: [Operator Instructions] First, we will hear from Hamir Patel at CIBC Capital Markets.
Hamir Patel: Richard, are you able to share how your sales fared year-over-year in the month of October? And if there's any notable differences there, Canada versus U.S., manufacturers versus retailers?
Richard Lord: We're feeling very well comparable to last year. I think we -- the market is not really strong, but we -- with all the actions that we have taken in the last few months, we see very good results, and we keep capturing more market share, and increasing our sales to the same customers that we already have. So basically, I would say it's positive as we speak.
Hamir Patel: Okay. So maybe in line with the sort of 4% that you delivered in Q3, organic.
Antoine Auclair: Yes. Pretty much in line with what you've seen in the third quarter so far.
Hamir Patel: Okay. Great. And Antoine, are you able to share how much is Ontario as a share of your total sales? Because I know it seems like you called that out as maybe the only region that was negative comps.
Antoine Auclair: Yes, Ontario, just a second. Ontario represents 18% of our total sales.
Hamir Patel: And then, Richard, I know, I think it was Q2 of 2024, you had lost some business with a major U.S. retailer customer. Can you speak to maybe any ongoing efforts you have to either replace that business with other customers or potentially even regain share with that customer?
Richard Lord: First of all, we're still working with these customers in order to recapture that business. So far, the news are positive. I don't want to feel like we depend on one customer. We have other projects in the U.S., many projects, it takes -- it's long, [ though, ] to get conclusion on many of these projects, but we're working on many, many customers with many projects that could bring some good opportunity for us. And those is, just would be -- if it's working, okay, that's going to be a nice comeback of that business, but we don't only count on that.
Operator: [Operator Instructions] Next question will be from Zachary Evershed at National Bank Capital Markets.
Zachary Evershed: Congrats on the quarter. Could you describe how much of your internal growth in the U.S. was the pricing pass-throughs related to the country-specific tariffs?
Antoine Auclair: Yes. Pretty much all of it is price increase, not necessarily most of it due to tariffs, but from -- most of it is inflation.
Zachary Evershed: Got you. And when you say that the tariff pass-throughs have no impact on gross margin, are we talking about the gross margin percentage or that you're keeping gross profit dollars stable? Do you get operating leverage off of this?
Antoine Auclair: Yes, dollars.
Zachary Evershed: Dollars. Got you. And then so far this year, how do you think customer backlogs are translating to volumes for RCH? Do you think that they're doing worse than you guys are or that they're picking up, and that you will see those orders translate to your own sales soon?
Richard Lord: I think, our customers, they have a nice backlog. They have -- the book of orders is reasonable, but nothing is booming. So our customers are busy for 2 or 3 months, and they don't know after. But we think that the renovation market will remain strong. And basically, we don't see any negative impact regarding the book of the orders that our customers have on hand.
Zachary Evershed: Perfect. And then if we look historically, Q4 is seasonally stronger than Q3 on the margin front. Is there anything that would stop that from being the case this year? Or do you see Q4 rising versus the 11.4% you got in Q3?
Antoine Auclair: No, I think that the trend that you're seeing in Q3 should be pretty much similar in Q4.
Zachary Evershed: Understood. And then if we dial out to the macro, we did see the conclusion of the Section 232 investigation, and that resulted in tariffs on kitchen cabinets and bathroom vanities. In your view, what's the impact on Richelieu, your customers and the overall market?
Richard Lord: I like very much that question. I think, we have a few information that we can share with you if you have a couple of minutes. First of all, it's important to mention, as you know, that Richelieu is on both sides of the border. So we see if some business is switched from other country and from Canada to the U.S., fortunately, we are very well established with the customer base that we have in the U.S. that could recapture that business. So -- and regarding the sales to residential furniture, it's only 2.8% of our sales. So with the kitchen cabinet, it's higher, but for the residential furniture, it's only 2.8% of our business. So we don't expect any negative impact regarding those sales. It might be even a positive impact. I will explain a little bit later on. The kitchen cabinet only represent -- the kitchen cabinet exported to the U.S., it's only 12% of the kitchen cabinet being made in Canada, representing USD 400 million. So it's not a huge business. But it's substantial for Richelieu. It could represent, let's say, something like $35 million, $40 million of sales. But what we see is that our customers are working to mitigate the impact of these -- of -- the impact of those additional costs in order to keep up with their sales. So these guys are very smart. They have a way of reducing their costs. And also, they still benefit from the current exchange rate, which is good. And Richelieu is very well positioned to support them in their effort to reduce their cost because we have many product category at Richelieu, we have product that could reduce their costs. And some of them, the bigger ones -- sometimes they buy some product from overseas. They might have an advantage now as we speak to transfer some of those purchasing to Richelieu instead of buying overseas because then they protect their cash, they have a just-in-time inventory system with Richelieu, and that could reduce their operating costs. So basically, there's not much negative. We just have to be careful and make sure that we manage well with our customers. In total, what we see is that U.S. imports for a value of $2 billion of kitchen cabinet, of which only $400 million come from Canada. So there is $1.6 billion left that come from other countries. So if some business is recaptured by our U.S. customer, it could be quite material. Regarding the furniture market, we've learned from the web report -- what's the name of the report, that one?
Antoine Auclair: It's called IBISWorld.
Richard Lord: IBISWorld, which is the reference in the industry. U.S. imports for $26 billion of furniture of only $650 million come from Canada. So that means there is billions in U.S., $24 billion at least -- $25 billion coming from other countries. So basically, we don't expect the U.S. market to switch to U.S. manufacturer. It will take time. But it might mean some improvement in the U.S. manufacturing market because of that. So Richelieu is well positioned to benefit of that as well. So our plan is really to be on both sides of the cover -- of the border with extended product range that is unique in North America in order to support our customers and to make sure that we make the right move and benefit whatever is going to be benefited from both sides of the border.
Zachary Evershed: Excellent color. Moving on to your inventory. There was a step-up in obsolescence. Could you speak to what's driving that?
Antoine Auclair: You've seen the reduction in inventory, Zach, during the quarter. So we've been able to reduce inventory by $16 million in the quarter and still expecting a reduction. I would say that I'm hoping around $10 more million in terms of inventory reduction over the next few periods, helping us to generate $82 million from operations during the quarter.
Zachary Evershed: Got you. And does that come paired necessarily with additional inventory obsolescence?
Antoine Auclair: No, it's basically excess. So we've been talking about it since over a year. So we've been reducing last year inventory significantly. I've told you guys at the beginning of the year that we're expecting a reduction this year. It took 2 quarters to happen. So now it's happening. So it should continue towards the next few periods.
Zachary Evershed: Got you. And just the last two, CapEx plans for next year and your M&A pipeline, how is it looking?
Antoine Auclair: M&A pipeline is still strong. So we've closed eight acquisitions this year, as you've seen, and it's still very healthy in both sides of the border, so Canada and the U.S. Regarding CapEx, the main investments are behind us. So the last 3 years, you've seen the CapEx higher than expected because we were more in an investment mode than in maintenance mode. We're back to a normal level of CapEx. So we've spent $11 million so far. We should end the year around, I would say, $15 million, $16 million. So regular maintenance CapEx. We always said that maintenance CapEx is around 1% of sales. So we're going to be slightly below that this year, and you should expect the same next year. So we don't have major projects that -- and if we do, we'll tell you guys.
Zachary Evershed: Beautiful. And then I'll actually just sneak one last one in. I've noticed that Richelieu is completing more panel and hardwood acquisitions recently, like the one in Winnipeg that you guys just announced. Are there any larger targets in that space that could be interesting?
Richard Lord: No, we are interested in that type of lumber. So don't forget that we don't sell 2x4 and 2x3. So we sell only the sophisticated wood for the purpose of woodworkers that do a fine job -- fine working jobs. So basically, these products are higher-margin products. And basically, they bring constant sales because there is mainly in Ontario and Western Canada, more than Quebec, we see people -- the woodworkers using more woods as well as the -- what we call the lumber yards over there. So basically, it's a good market. And I like the market like Manitoba, for example, there's not many competitors there. And Richelieu, we've bought something that is really well positioned in this market. So basically, I'm very happy with that acquisition. So we're going to continue on, to answer your question, to buy such company when they meet our criteria of EBITDA margin. I would say that the one that we acquired, and we pay something, it's a 15% EBITDA margin. So basically -- which is sustainable. So basically, I like that type of deal.
Operator: Next question is a follow-up from Hamir Patel.
Hamir Patel: Richard, I just wanted to follow up on the M&A side. When you think about the pipeline, and I know it can be lumpy, but is there a sort of annual revenue contribution that you'd expect going forward from acquisitions?
Richard Lord: We try to make $100 million worth of acquisition every year. I don't know if we're going to reach that this year. We're going to be very close to. So basically, the contribution is positive. We usually buy companies sometimes that make little profit, but that we -- when integrated to Richelieu, have a huge benefit. Like Ideal, for example, is a perfect example. We buy something that is already in the stores where we are already with our displays and everything else. They share a base of the product that we already have, so we can merge those product lines. We acquire very talented people that are very good at selling, they sell in the U.S., and they sell to Amazon. They have a substantial amount of sales to Amazon, and they have specialists in those type of sales. So we like that very much. So that acquisition within the course after integration is going to take 18 months probably because we have to transfer the warehouses. We already have a lease where they are. And the purpose is to have a one-stop shop in kitchen in Ontario for all the retailers in Eastern Canada. So basically, the products are going to be transferred there as soon as we can to make sure that the customer might benefit of the -- not only the one-stop shop, but the one delivery for eight different brand name of products. So basically, these moves are very, very positive, even though sometimes the amount of contribution is little in the year of the acquisition, but the potential for that type of business is great for the future of Richelieu. And it does reinforce our market position, and it does prevent our competitors sometimes to get into the store that we are already servicing. So basically, the two purpose of the acquisition is to make sure that we consolidate Richelieu, we reinforce Richelieu, and we bring EBITDA margin as well as much as we can.
Hamir Patel: Okay. Fair enough. I appreciate the color there. And Richard, when you think about the retailer business in Canada, I know RONA has got some ongoing investments. Maybe you could speak to the opportunity you see to drive further growth there.
Richard Lord: With all the retailers in Canada, we keep gaining market share because we have an excellent product offering that do answer the need of the consumer as we speak, because, let's say, managing space is a top priority for the retailers. Decorative otherwise is a top priority, but we keep adding products in each of the store. RONA is an excellent customer that is a customer that buys something like -- it's less than 5% of our sales, but it's substantial, and we work very well. They are very good partners, and we work very well with them as well as Home Depot. We keep adding product at Home Depot and other hardware stores as well. So basically, the retailers market is excellent for Richelieu, because we have so many products to sell to the pro business. There is a lot of products that are suitable for the consumers. These products suitable for the consumers are the product that we introduce to the retailers. With the right prices and the right instruction, so the product can be easily installed for consumers. But I'm very positive for the long term that sales to hardware retailers remain substantially important for our future in terms of generating profit as well because we don't have two CFO and five more accountants because we sell to retailers. The only variable cost applies to commission to salespeople and people that work in the warehouse. So basically, this is very beneficial.
Hamir Patel: Okay. Great. And just a final question I had. Antoine, looks like with -- if Q4 margins end up being comparable to Q3, you probably end the year close to 10.8% EBITDA margins. I think, 2024, you were at 11% EBITDA margins. Can you drive further margin growth in '26 if the housing market does not improve? If it's the same housing outlook, is there enough levers to drive some additional margin expansion? And maybe you could -- I don't know if you're able to quantify that sort of self-help that is within reach.
Antoine Auclair: I think, the trend that you saw in the third quarter could continue in 2026 with the current market. Of course, to drive a significant increase in EBITDA, we would need a more vigorous market. But let's say that it remains like where we are today, I think, the trend that you've seen in Q3 could continue next year.
Hamir Patel: Okay. So sort of in the mid-11s sort of range.
Operator: And at this time, Mr. Lord, we have no other questions registered.
Richard Lord: So thank you very much to all of you for attending. We all are willing to receive your call if you want to contact us. Thank you very much.
Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.