Transcript: Adentra Q2 2026 Earnings Conference Call

On Thursday, Adentra (TSX: ADEN ) discussed second-quarter financial results during its earnings call. The full transcript is provided below. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

7 million, driven by higher volumes and improved pricing, with strong demand in roofing products. The company is focusing on three strategic priorities: advancing an AI-enabled operating model, strengthening the global supply chain, and maintaining a disciplined approach to M&A. 0% benchmark. 38, with a noted improvement in cash flow from operations due to efficient working capital management.

Future outlook includes managing through macroeconomic challenges such as high interest rates and inflation, while continuing investments in strategic initiatives and maintaining cost discipline. 4 times, indicating strong financial flexibility for capital allocation priorities. Management expressed confidence in their strategic direction, emphasizing long-term value creation through AI, supply chain flexibility, and M&A opportunities. Full Transcript OPERATOR Good morning.

Welcome to Adentra's first quarter 2026 results conference call. All lines have been placed on mute to prevent background noise. After the speakers' remarks, there will be a question and answer session. With me on the call today are Rob Brown, Adentra's President and Chief Executive Officer, and CA Faiz Karmally, Vice President and Chief Financial Officer.

Adentra's earnings release, financial statements and MD&A for the quarter ended March 31, 2026 are available on the Investor section of our website and on SEDAR Plus. Before we begin, I'd like to remind listeners that management's comments may include forward-looking statements. Actual results could differ materially due to risks and uncertainties outlined in our filings. S.

dollars unless otherwise indicated. I will now turn the call over to Rob Brown. Please go ahead. Rob Brown, Chief Executive Officer Thanks, operator, and good morning everyone.

We began 2026 with solid performance despite an increasingly uncertain macroeconomic backdrop. This morning I'll speak to how we are managing near-term conditions and how we're positioning the business to drive longer-term value. Before turning to the quarter, I want to briefly frame the strategic priorities guiding our decisions in 2026. These are areas where we are investing with discipline, where we see clear opportunity to strengthen the business structurally and, importantly, where progress is largely within our control.

There are three core areas of focus. First, advancing an AI-enabled operating model. Over the past 18 months we've built a strong foundation in data governance and systems integration. We're now moving into development of dynamic pricing and sales optimization tools that we believe will help our teams make better, more consistent, data-driven decisions in real time.

These capabilities are designed to drive structurally better margins, asset utilization, and generate incremental revenue through continuous, compounding improvements across our network. We're taking a disciplined, results-oriented approach, developing tools with clear applications, testing them in targeted environments, and then plan to scale what proves effective. We're focused on speed, accountability and measurable outcomes with the objective of driving sustained margin improvement, incremental growth and stronger returns on invested capital over time. Second area of focus is strengthening our global supply chain.

We're continuing to diversify our sourcing footprint and build greater flexibility into our supply network, including developing new capabilities in regions where we had little or no presence just a few years ago. This work is about more than cost, it is about reducing risk and increasing optionality in an increasingly complex global trade environment. It also supports profitability through access to differentiated and proprietary products while positioning us to support future growth, including acquisitions. Third area of focus is maintaining a disciplined and active approach to M&A.

We continue to nurture a robust pipeline of opportunities and have the balance sheet flexibility to execute when the right business becomes available. Our focus remains on transactions that are strategically aligned, operationally actionable and capable of delivering meaningful synergies. Taken together, these priorities reflect a consistent approach: investing in areas that strengthen our platform, improve returns on invested capital and position Adentra to generate durable longer-term value. At the same time, we are clear-eyed about the macro environment.

Demand remains impacted by affordability constraints and we continue to see pressure from mortgage rates, inflation and broader geopolitical uncertainty. We're managing the business accordingly with a strong focus on cost discipline, pricing execution and working capital efficiency, while continuing to invest in initiatives that will drive longer-term performance. With that context, let me turn to our first quarter performance. 7% year over year, driven by a combination of higher volumes and improved pricing.

Importantly, this growth was entirely organic, reflecting the strength of our platform and our ability to continue gaining share. We saw particularly strong demand in roofing products, supported by storm-related activity and customer purchasing ahead of expected price increases. 0%, though down from last year primarily due to product mix. Roofing products carry lower margins but generate strong returns on invested capital, and we expect mix to normalize.

At the same time, we maintained strong cost discipline, with operating expenses increasing less than 1% year over year, reflecting the benefits of premises and headcount reductions last year, as well as a continued focus on efficiency across the business. 3 million and adjusted EPS was 38 cents, demonstrating resilience in a softer environment. From a cash flow perspective, we delivered a significant year-over-year improvement driven by working capital management. 4 times versus 3 times in Q1 last year, positioning us well to execute on our capital allocation priorities.

Overall, the quarter reflects the resilience of our operating model and our ability to perform in a more challenging environment. With that, I'll turn the call over to Faiz to review the financials in more detail. CA Faiz Karmally, Vice President and Chief Financial Officer Thanks, Rob, and good morning everyone. S.

dollars unless otherwise stated. 7% year over year. 3% increase in product pricing. S.

9%, driven by both volume and pricing improvements. Canadian sales declined 3%, reflecting softer demand and pricing pressures. 6% last year. The decrease primarily reflects product mix, particularly the increased weighting of roofing products, as well as other mix changes across the portfolio.

5% year over year. The increase was mainly driven by higher leased premises costs and higher... expense. These were partially offset by lower personnel costs as a result of ongoing cost control initiatives.

1% year over year. 1 million last year. 42 last year. 5 million used in Q1 2025.

This improvement was primarily driven by more efficient working capital management. 4 times, maintaining strong financial flexibility. Our capital allocation priorities remain unchanged and include maintaining a strong balance sheet, investing in organic growth, pursuing M&A and returning capital to shareholders through dividends and opportunistic share repurchases. With that, I'll turn the call back to Rob.

Rob Brown, Chief Executive Officer Thanks, Faiz. As we look to the balance of 2026, we are operating in a fluid macroeconomic environment. Higher interest rates, inflationary pressures and geopolitical dynamics continue to weigh on demand and consumer confidence. Our April sales were modestly lower year over year and we are managing the business accordingly, maintaining strict cost discipline, actively managing inventory and purchasing, and executing on our price pass-through model to protect margins.

At the same time, our long-term value creation framework remains unchanged. We're continuing to advance the strategic priorities I outlined earlier—initiatives that strengthen the business structurally and are largely within our control. In AI and digital optimization, we're building capabilities to drive better decision-making, improve consistency and support organic growth and structurally higher margins. In supply chain, we're increasing flexibility, reducing risk and expanding access to differentiated, higher-margin products.

And through disciplined M&A, we're maintaining a pipeline of opportunities to accelerate growth and unlock synergies as conditions allow. These are initiatives that are not dependent on near-term macro improvement. They're designed to compound over time and position the business to perform better across cycles. At the same time, we remain focused on being prudent stewards of capital.

We will continue to prioritize balance sheet strength, apply discipline to investment decisions, and ensure capital is deployed in ways that support longer-term returns. We believe this balanced approach—combining operational discipline in the near term with continued investment in longer-term value drivers—positions Adentra to navigate uncertainty while building a stronger, more resilient business over the longer term. The fundamentals of our end markets remain supportive and we're confident in our ability to deliver attractive returns on invested capital and create meaningful shareholder value. With that, we'll open the line for questions.

OPERATOR Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press the star button followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised.

Should you wish to decline from the polling process, please press the star button followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. First question comes from Kyle McPhee of ATB Capital Markets.

Please go ahead. Kyle McPhee, Analyst at ATB Capital Markets Hello everyone. First one from me. Just regarding organic volume growth.

You posted good performance, absolute level and also relative—better versus what we're seeing elsewhere throughout the sector. Is there anything specific to highlight here on how you're pulling off this performance? I know you called out some pull-forward in roofing products, but roofing isn't, I don't think, really a big category for you, so I suspect that's maybe not overly meaningful. So, you know, what other sources of this impressive organic growth can you call out for us?

Yeah. Rob Brown, Chief Executive Officer Morning, Kyle. Couple comments on the roofing. So typically that's about 5% of our overall product mix.

It's not a lead category. It's complementary in one of the brands that we have because it services rural markets very, very well and it positions us with customers. It was a little higher in the first quarter. It was about 8% of the mix.

I would probably characterize that piece as not pulling. There was an element of pulling forward demand in terms of customers seeking to buy more of that product in advance of price increases that were known to be coming. But I would also say that it's just responding to more demand that came from earlier storm activities. So I wouldn't characterize the level of sales we did in that category really in March as taking us off market from selling that category into Q2.

So just would make that distinction in terms of the performance generally. And I would agree, if you look at comps across the sector generally, I think this holds up very well. It's just our continued work on capturing market share with the things I outlined in my opening comments around investing in resilient supply chains and having options for customers—particularly as there's some pricing variability entering into the channel related to geopolitical events—and then investing in other digital tools, which I think is helping our sales force. UNKNOWN Analyst Got it.

Thank you for that color. The second-to-last one for me, just on the gross margin mix, the lower mix that we saw in Q1 — not a surprise, you highlighted it last quarter and now we see it in the results. You're calling out roofing products as one thing. Is there anything else worth calling out?

Is part of this maybe something like trade-down into categories where you make less margin, meaning this mix impact might last beyond Q1? Anything worth highlighting? Rob Brown, Chief Executive Officer There's always going to be some quarter-to-quarter variation in the gross profit margin. We will remain above the benchmark number we've got in our long-term value creation framework of 20%.

But yes, you've seen us as recently as Q4 into the 22s at times. I think it's going to be within a range I would maybe say with our April year-over-year sales result that we said was about down about 1%, we have already seen some bounce back on margin into the 21. So I think you can think about it a little bit that way. The other thing — and we try not to talk too much about roofing because, again, this is a 5% product category for us — but just to highlight, it's a very high-return ROIC product category for us, simply because we sold a lot of roofing products in March, but they were predominantly all direct sales.

So they went from the manufacturer straight to our customers' yards, meaning it never enters into our inventory. So the working capital investment is very modest. So we're bringing in margin dollars without having to run it through our cost structure. So just highlight that as well.

UNKNOWN Analyst Okay, so what I'm hearing is this is just normal-course gross margin mix variability for the most part, and has nothing to do with the point in the cycle that we're in here. Rob Brown, Chief Executive Officer Yeah, I think that's a fair characterization. We've described all along the way that prices will move around, but our model is one that's a price pass-through. There will be a little bit of variability in where the margin falls — a bit of a range, not a specific point — but I think your comment is accurate.

UNKNOWN Analyst Okay, thank you. I'll pass it on. OPERATOR Next question is from Amir Patel from CIBC. Please go ahead.

Amir Patel, Analyst at CIBC Hi, good morning, Rob. You talked about your AI initiatives and embracing more dynamic pricing. I realize it's still pretty early days, but do you think there's at least perhaps 100 basis points of gross margin improvement from this initiative, and will that become more apparent later in 2026 or is it going to be more of a 2027 story? Rob Brown, Chief Executive Officer Yeah, that's more in future.

It's hard to quantify what it's going to do. I'm not put off by what you're aspiring to — I think that's a reasonable expectation. The framework or the baseline for doing this work, for those that are familiar with it, is having clean data, and we've been there, done that work, have excellent data governance processes in place, and then the infrastructure to start to harness it and put it to work. So we're in build at the moment, which will be followed by pilot, which will be followed by leveraging across the broader system.

So I think further down the line into 2027 is when we will be looking for some of those improvements related to that effort specifically to emerge. Amir Patel, Analyst at CIBC Great. More or less about M&A: its last deal was Wolf, balance sheet's in a better position again today. Product categories or geographies where you see the most opportunities?

Rob Brown, Chief Executive Officer Yeah, you're right. We also feel really good about the balance sheet. We're not waiting for further deleveraging — we are just actively working on deals: right price, right fit. And we've got a lot of very good opportunities that we're pursuing in that regard.

As I think we've probably discussed in the past, we do cast a really wide net on the M&A. So we are going to look at all geographies, all product categories, because to a certain extent it is a numbers game, and the more you look at, the higher propensity that you may get the one that works for you. S. markets in particular.

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