Full Transcript: K-Bro Linen Q2 2026 Earnings Call

On Wednesday, K-Bro Linen (TSX: KBL ) discussed second-quarter financial results during its earnings call. The full transcript is provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

4 million CAD, attributed primarily to the acquisition of Stellar and price increases. 2% year-over-year due to Stellar's margin profile and higher fuel costs. Healthcare revenue grew by 50%, now representing 58% of total revenue, while hospitality revenue increased by 15%. The company is progressing with the integration of Stellar, achieving 40% of the anticipated synergies, with plans to realize full synergies over the next 12 months.

5 times. Management anticipates stable combined adjusted EBITDA margins going forward, despite ongoing challenges like fluctuating energy prices. K-Bro Linen's strategic focus includes completing Stellar's integration, pursuing organic growth, and exploring M&A opportunities. The company continues to monitor opportunities for strategic RFPs and acquisitions in both Canada and the UK, with no specific target ratio between healthcare and hospitality sectors.

Management remains optimistic about future growth potential, particularly in the UK market due to its fragmentation and acquisition opportunities. Full Transcript OPERATOR Good morning, ladies and gentlemen, and welcome to the K-Bro Linen Systems Incorporated Second Quarter 2026 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session.

If at any time during this call you require immediate assistance, please press star-zero for the operator. This call is being recorded on Wednesday, August 5, 2026. I would now like to turn the conference over to Kristi Plaquin. Please go ahead.

Kristi Plaquin, Investor Relations Thank you, operator, and good morning, everyone. Thank you for joining us today and welcome to our second quarter results conference call. On the line with me today is Linda McCurdy, President and Chief Executive Officer. Before we begin, I'd like to remind everyone that statements made during our prepared remarks of the conference call with reference to management's expectations or our predictions of the future are forward-looking statements.

All statements made today which are not statements of historical fact are considered to be forward-looking statements. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Investors are also cautioned not to place undue reliance on these statements. Actual results could differ materially from those anticipated; risk factors that could affect the results are detailed in the corporation's public filings.

I'll now turn the call over to our CEO, Linda McCurdy, who will provide her insights and remarks on the quarter. Linda McCurdy, President and CEO Thank you very much, Kristi, and good morning to everyone, and thanks for joining us today to review our 2026 second quarter results. I'll touch on some of the highlights of our second quarter, and then Kristi will provide some details on our financial performance and our balance sheet. We are pleased with our strong second quarter results, which are consistent with our expectations.

8 million. We've seen steady trends in both our healthcare and hospitality segments. Our Q2 results highlight the benefit of our strategic national platform in both Canada and the UK. We have just passed our first anniversary of owning Stellar, which was on July 11th, and we are pleased with the progress of our ongoing integration efforts.

We continue to anticipate run-rate cost synergies will be realized over the contemplated 24-month time horizon. Through the end of Q2, we estimate we've achieved roughly 40% of the anticipated synergies. Consolidated total revenue for the quarter increased by 33% compared to 2025, with healthcare revenue having increased by 50% and hospitality revenue by 15%. Healthcare revenues represented approximately 58% of our consolidated revenue, which is higher compared to approximately 51% in 2025 due to the acquisition of Stellar.

Amid a more volatile global backdrop, we're pleased with our Q2 results, underscoring our resilient growth model and business performance. As always, our experienced team is focused on disciplined operations. I'll now turn the call over to Kristi to discuss our detailed financial results for the quarter, after which I'll return and talk to you about the outlook. Thanks so much.

Kristi, over to you. Kristi Plaquin, Investor Relations Thanks, Linda. The information we are discussing today is also highlighted in our 2026 second quarter earnings press release issued yesterday, and detailed supplemental financial information can be found on our Investor Relations website under the heading Financials. 4 million in Canadian dollars.

2%. The increase in consolidated revenue is primarily due to the acquisition of Stellar in June 2025, as well as the impact of price increases implemented. 8 million. 8%, largely due to the combination of the Stellar margin profile and higher fuel costs.

1%. 6% in 2026. The decrease is primarily related to the combination of the Stellar margin profile and higher fuel cost. 5 million.

The adjusted items in the quarter include lower transaction costs and structural financing costs related to the acquisition of Stellar, transition costs, fair value adjustment on interest rate derivatives, non-recurring gains, and intangible asset amortization. K-Bro has a strong cash flow generation profile and a disciplined approach to capital allocation, which allows us to both invest in growing the business and return capital to shareholders. 6%. 3%.

9 million. 5 million under the normal course issuer bid. Post-acquisition debt and leverage levels have been consistent with our expectations. 3 million, and a further 50 million accordion for growth purposes.

6 million on our operating line, without taking into account the accordion, which reinforces our strong liquidity. 5 times on a pro forma basis. 5 million. K-Bro is exposed to floating interest rates, and changes in interest rates may impact future cash flows.

To manage the exposure to fluctuations in interest rates, in June K-Bro entered into an interest rate swap in connection with the term loan portion of its syndicated credit facility. Under the terms of the swap, K-Bro economically converts the floating interest rate exposure on the term loan to a fixed rate. The interest rate swap is measured at fair value and recorded as interest rate derivatives on the Consolidated Statement of Financial Position, with changes in fair value recognized in fair value adjustment on interest rate derivatives within operating cost in the Consolidated Statement of Income.

Realized gains and losses on the interest rate swap are recognized in finance expense, consistent with the presentation of interest on the underlying term loan. Fair value adjustment on the interest rate derivatives is included as an adjusted item as detailed in the tables within the Terminology section of our MD&A. I'll now turn things back over to Linda for additional commentary. Linda McCurdy, President and CEO Thank you, Kristi.

We're pleased with our start to 2026, and we see a positive outlook in the context of an evolving macro landscape. Following our acquisition of Stellar in 2025, K-Bro is the largest healthcare and hospitality laundry and linen processor in Canada and one of the largest in the UK. With coast-to-coast national geographic footprints in each country, we're able to deliver industry-leading service to healthcare and hospitality customers from a network of strategically located facilities. Our services are essential to the continuity of our customers' operations.

We have a highly experienced team, and we're focused on disciplined operational performance. Last week we announced the addition of John Lynch to the Board. P. Morgan Asset Management, growing and managing the infrastructure investments and team in Europe.

John brings a range of capital markets experience to the Board, including more than three decades of experience in international finance and investing, all of which will further strengthen K-Bro's Board of Directors. We're very excited about the addition of John. We've made good progress on our UK integration efforts, as we have highlighted before. Over the past year we've implemented various improvements at Stellar, including insourcing the maintenance function, workflow optimizations, realigning compensation structures, changing certain managers, and leveraging K-Bro's deep strength of talent.

Our national UK platform is a top-three player, and we're well positioned for long-term growth in healthcare and hospitality. On a consolidated basis, we continue to monitor the evolving global economic and political forces. From where we stand today, both K-Bro's healthcare and hospitality segments continue to experience steady growth. Going forward, we expect combined adjusted EBITDA margins will remain at similar levels to seasonally adjusted combined historical margins, in line with our expectations.

Due to the lower EBITDA margin profile of Stellar, the consolidated UK divisional adjusted EBITDA margins will be lower than seasonally adjusted historical margins. We continue to monitor the volatile energy pricing environment and the impact on diesel prices and our margins. In the UK, 50% of our diesel usage is hedged and 50% is floating. In Canada, our diesel usage is floating.

Management estimates that Q2 2026 adjusted EBITDA margins were impacted negatively by half a percentage point due to diesel rates. Should diesel rates stay consistent, management anticipates that the adjusted EBITDA margin for the remaining quarters in 2026 will continue to be impacted by this same magnitude. As we celebrate Stellar's first anniversary, we're focused on completing the integration, pursuing organic growth opportunities, and potential M&A opportunities. Strategic acquisitions of high-quality operators continue to be an important contributor to our overall growth profile and strategy.

We're pleased with the early contribution of our recent acquisitions and believe they'll further enhance our growth profile. We evaluate potential strategic acquisitions that may complement our platform and will look to leverage our strong liquidity position, balance sheet, and access to the capital markets to execute on these opportunities as they arise. Putting people first, being dependable partners, and embracing environmental stewardship have always been part of our culture, and we're committed to a sustainable future. I'll now open it up to any questions you may have as it relates to the quarter.

Operator. OPERATOR Thank you, ladies and gentlemen. We will now begin our question-and-answer session. Should you have a question, please press the star followed by the one on your touchtone 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 followed by the two. And if you're using a speakerphone, please lift the handset first before pressing any keys. And we have our first question from Cheryl Zhang with TD.

Cheryl Zhang, Analyst at TD Hey, good morning, Linda and Kristi. Thanks for taking a question. Good morning. I guess I first wanted to ask about the synergy capture.

I'm curious if you could comment on the incremental Stellar synergies that were captured in Q2 and what remains to be achieved. Linda McCurdy, President and CEO Thanks, Carol. So we're quite pleased with the progress we've made. I identified a number of the areas that has been our focus to date.

We estimate that about 40% of the targeted synergies have been achieved with the remaining to be achieved over the next 12 months. The largest piece yet to conquer is to convert to seven-day working in our healthcare plants. We have converted one plant which went well, but the more complicated transition will be in our healthcare planning is well underway and we expect that to happen over the next six months. But it is a significant change in people's work routines and, obviously, their schedules.

You know, most had weekend—well, all had weekends off. So we have to be very careful and mindful in how this is rolled out. But to date, as I mentioned, some of the key accomplishments is bringing the entire engineering function and maintenance function back in-house which has gone exceedingly well. We've made management changes, we've worked with our customers to pursue additional volumes.

So we're very pleased with our progress but certainly more to come. Carol Cheryl Zhang, Analyst at TD Understood. That's very helpful color. Thank you, Linda.

And my next question is around hospitality. 9% this quarter. I'm curious if you could provide some color around that and are you seeing any slowdown in travel activities? And maybe I can ask the same question for UK hospitality as well.

Just curious how the organic growth involving has trended. Linda McCurdy, President and CEO Yes, great question. So I will say that from a hospitality growth perspective, Q2 relative to prior years was definitely behind what we have seen year over year. And one key note would have been which would have impacted both Toronto and Vancouver where we, quite frankly, where occupancies didn't meet what was expected.

I think that a large number of rooms were blocked off by FIFA. They were not secured or not occupied, open to the public, but rates were exceedingly high. Hotel room rates were exceedingly high. So people made choices not to come.

So that impacted both the Toronto and Vancouver market. In the UK, I would say, you know, they experienced extreme heat and volumes and occupancies also were a little weaker than historical norms. A little unclear as to what that means for Q3, but, you know, we're still seeing growth, perhaps just not as high as we've seen historically in Canada. It was very clearly aligned to the impact of under soldiering for FIFA.

It is a little unclear, however, what that means going forward. Cheryl Zhang, Analyst at TD Okay, that's helpful color. Thank you. I'll get back in this queue.

Linda McCurdy, President and CEO Thanks, Cheryl. OPERATOR Thank you. And thank you. We have our next question from Hanzo Sars with ATB Cormark.

Hanzo Sars, Analyst at ATB Cormark Hey, I'm on for Kyle McPhee. We're hoping to get an update on the hedge book specifically for diesel and natural gas. So my main question is, have you entered any new hedges since the last quarterly update that would alter your margin exposure risk in 2027? I know that regardless of how things play out, you can claw back potential margin drag over time with your kind of pricing power, but we just want to understand that transient risk in 2027 if diesel and gas prices don't alleviate.

Thank you. Linda McCurdy, President and CEO Yes, thank you for your question, Christy. I'm going to let you respond to that. Christopher Burrows, Chief Financial Officer & Corporate Secretary Yeah, absolutely.

So we haven't entered any additional hedges since our Q1 call. So really our guidance would still remain relatively consistent. As Linda mentioned, about 50% of our natural gas usage in the UK is hedged and 50% is floating, all floating in Canada. You know, should the diesel rates prevail, we see exposure of about half a percent to the margin.

And from a natural gas perspective, for the most part, our hedges in the Canadian market roll off over several years. We're not seeing huge volatility in natural gas pricing on the Canadian side as of now, especially given we don't have material hedges that roll off in 2027. On the UK front, natural gas costs presently are slightly higher than where our current hedge would fit.