K-BRO REPORTS RECORD Q3 RESULTS AND STEADY VOLUME TRENDS IN HEALTHCARE AND HOSPITALITY

Nov 13 2024 23:00 GMT

(TSX: KBL)

EDMONTON, AB , Nov. 13, 2024 /CNW/ - K-Bro Linen Inc. ("K-Bro" or the "Corporation") today announces its Q3 2024 financial and operating results.

Q3 2024 Financial and Operating Highlights

Consolidated revenue increased 20.2% compared to Q3 2023, with healthcare revenue having increased by 6.0% and hospitality revenue by 36.8%.
Adjusted EBITDA, Adjusted EBITDA Margin & Adjusted Net Earnings
- Adjusted EBITDA increased in the third quarter of 2024 by $4.9 million to $23.0 million compared to $18.1 million over the comparable 2023 period, a 27.2% increase.
- Adjusting items include costs of $0.6 million in the quarter related to non-recurring transaction and transition costs, offset by a gain on settlement of contingent consideration of $0.5 relating to Villeray.
- Adjusted EBITDA margin increased to 22.0% from 20.8% in the comparable period.
- Adjusted net earnings in the third quarter increased by $1.3 million to $8.3 million compared to $7.0 million in the comparative period of 2023.
EBITDA, EBITDA Margin & Net Earnings
- EBITDA increased in the third quarter of 2024 by $5.1 million to $22.8 million compared to $17.7 million over the comparable 2023 period, a 29.1% increase.
- EBITDA margin increased to 21.9% from 20.4% in the comparable period as the result of the EBITDA contribution from the acquisition of Shortridge, as well as non-recurring transaction and transition costs in the third quarter of 2023.
- Net earnings in the third quarter of 2024 increased by $1.4 million to $8.1 million compared to $6.7 million in the comparative period of 2023, and as a percentage of revenue increased by 0.1% to 7.8%.
For the third quarter of 2024, K-Bro declared dividends of $0.300 per common share.
Long-term debt at the end of Q3 2024 was $135.9 million compared to $70.2 million at the end of fiscal 2023 due to the acquisitions of Shortridge and C.M.
K-Bro entered into a three-year, $175 million committed, syndicated revolving credit facility on March 26, 2024. The facility includes access to a further $75 million accordion.

Linda McCurdy, President & CEO of K-Bro, commented that "I'm delighted with our record third quarter results which reflect the benefits of our acquisitions in our seasonally strongest quarter. Both of K-Bro's healthcare and hospitality segments continue to experience steady volume trends and we remain focused on delivering industry-leading service to our existing and new customers. The volatility we encountered from energy prices, local labour market shortages and cost inflation throughout the pandemic has stabilized and, in turn, Adjusted EBITDA margins have stabilized. Going forward, we expect annual Adjusted EBITDA margins will remain at similar levels, following historical seasonal trends.

We're pleased with the early contributions of our acquisitions and are excited about our organic growth prospects and potential future M&A. We remain well positioned from a balance sheet and liquidity perspective and will continue to be disciplined as we evaluate acquisitions.

Highlights and Significant Events for Q3 2024

Business Acquisition - Villeray

On November 1, 2023, the Corporation completed the acquisition of 100% of the share capital of Buanderie Villeray and its affiliate Buanderie La Relance (the "Villeray Acquisition"), a private laundry and linen services company incorporated in Canada and operating in Montréal, Quebec. The Villeray Acquisition was completed through a share purchase agreement consisting of existing working capital, fixed assets, customer relationships and an employee base. Villeray operates in the hospitality and healthcare sector, which complements the existing business of the Corporation. As part of the transaction, the Corporation closed its Granby facility and consolidated existing volumes into Villeray. Based on the Corporation's evaluation of the Villeray Acquisition and the criteria in the identification of a business combination established in IFRS 3, the Villeray Acquisition has been accounted for using the acquisition method, whereby the purchase consideration is allocated to the fair values of the net assets acquired.

The Corporation financed the Villeray Acquisition and transaction costs from existing loan facilities.

The purchase price allocated to the net assets acquired, based on their estimated fair values, is as follows:


Cash consideration	$ 11,204
Contingent consideration	$ 500
Total purchase price	$ 11,704

The assets and liabilities recognized as a result of the Villeray Acquisition are as follows:

Net Assets Acquired:
Accounts receivable	907
Prepaid expenses and deposits	187
Income tax receivable	69
Accounts payable and accrued liabilities ⁽²⁾	(807)
Lease liabilities	(2,706)
Deferred income taxes	(1,416)
Property, plant and equipment^(1,2)	7,161
Intangible assets	2,530
Net identifiable assets acquired	5,925
Goodwill	5,779
Net assets acquired	$ 11,704


1)	Includes ROUA from the Canadian Division of $2,706 related to buildings
2)	Includes provision of $97 for asset retirement obligation

The provisional intangible assets acquired are made up of $2,530 related to customer relationships. The goodwill is attributable to the workforce, and the efficiencies and synergies created between the existing business of the Corporation and the acquired business. Goodwill will not be deductible for tax purposes.

Contingent consideration

In the event that a certain EBITDA target is achieved by Villeray for the twelve month period ended October 31, 2024, additional undiscounted consideration ranging from $500 to $1,000 would be payable in cash during the first quarter of 2025. At the end of September 2024, the former owner-operator of Villeray retired from the business and was replaced by a new Montreal General Manager. Amid the leadership transition, the Corporation has determined that the target will not be achieved given the proximity to October 31, 2024. Therefore, no payment is expected to be made.

During the first two quarters of 2024, the estimated fair value of the possible payment was classified as contingent consideration. The fair value of the contingent consideration was estimated by considering the probability-adjusted future expected cash flows in regards to Villeray achieving the target that would result in consideration being paid. The impact of discounting these future cash flows was not considered because the impact would be nominal. Given that the EBITDA target will not be achieved for the twelve month period ended October 31, 2024, the contingent consideration amount of $500 has been derecognized and a gain on settlement of contingent consideration has been recorded in Consolidated Statement of Earnings and Comprehensive Income for the three and nine month periods ended September 30, 2024.

Acquisition related costs

For the six months ended June 30, 2024, $108 in professional fees associated with the Villeray Acquisition has been included in Corporate expenses.

Business Acquisition - Shortridge

On April 30, 2024 the Corporation completed the acquisition of 100% of the share capital of Shortridge Ltd. ("Shortridge Acquisition"), a private hospitality laundry provider based in the North West of England, expanding K-Bro's geographic footprint in the UK. The Shortridge Acquisition was completed through a share purchase agreement consisting of existing working capital, fixed assets, contracts and an employee base. The contracts acquired are in the hospitality sector in England and Scotland, which complements the existing business of the Corporation. Based on the Corporation's evaluation of the Shortridge Acquisition and the criteria in the identification of a business combination established in IFRS 3, the Shortridge Acquisition has been accounted for using the acquisition method, whereby the purchase consideration is allocated to the fair values of the net assets acquired.

At the time the financial statements were authorized for issue, and due to the timing of the Acquisition, the Corporation has not yet completed the accounting for the Shortridge Acquisition. This includes the accounting for the amounts attributable to property, plant and equipment, intangible assets and the associated goodwill.

The Corporation financed the Shortridge Acquisition and transaction costs from the syndicated revolving credit facility.

The preliminary purchase price allocated to the net assets acquired, based on their estimated fair values, is as follows:


Cash consideration	35,426
Contingent consideration	9,275
Total purchase price	44,701

The assets and liabilities recognized as a result of the Shortridge Acquisition are as follows:

Net Assets Acquired:
Accounts receivable	2,698
Prepaid expenses and deposits	912
Linen in service	1,943
Accounts payable and accrued liabilities	(5,134)
Lease liabilities	(57)
Deferred income tax asset	8
Property, plant and equipment ⁽¹⁾	8,986
Intangible assets	15,181
Net identifiable assets acquired	24,537
Goodwill	20,164
Net assets acquired	$ 44,701

1) Includes ROUA from the UK Division of $57 related to buildings

The provisional intangible assets acquired are made up of $13,149 related to customer relationships and $2,032 related to the brand. The goodwill is attributable to the workforce, and the efficiencies and synergies created between the existing business of the Corporation and the acquired business. Goodwill will not be deductible for tax purposes.

Contingent consideration

The contingent consideration consists of amounts related to achieving certain profitability and operational targets.

An amount of $7,684 was funded in cash on April 30, 2024 and is held in trust with a third party escrow agent. The remaining $1,591 will be payable in cash.

The estimated fair value of the payments has been classified as contingent consideration by exercising significant judgment as to whether it should be classified as such, or as remuneration to the former owners, who will be employed subsequent to the close of the transaction. The Corporation has determined by considering all relevant factors included in the agreements as it pertains to employment terms, valuation of the business, and other relevant terms that the additional consideration is most appropriately reflected as contingent consideration.

For the contingent consideration, it was determined that the profitability target was met at September 30, 2024. As such, this portion of the contingent consideration will be released from escrow in Q4 2024. In the event that certain operational targets are achieved by Shortridge, additional undiscounted consideration will be released from escrow or paid in cash before December 31, 2025.

The fair value of the contingent consideration of $9,275 was estimated by considering the probability-adjusted future expected cash flows in regards to Shortridge achieving the targets that would result in consideration being paid.

Acquisition related costs

For the nine months ended September 30, 2024, $508 in professional fees associated with the Shortridge Acquisition has been included in Corporate expenses.

Revenue and profit information

The acquired business contributed revenues of $12,129 to the Corporation for the period from April 30, 2024 to September 30, 2024. If the Acquisition had occurred on January 1, 2024, consolidated pro-forma revenue for the period ended September 30, 2024 would have been $284,145.

The acquired business contributed net earnings of $2,056 to the Corporation for the period from April 30, 2024 to September 30, 2024. If the Acquisition had occurred on January 1, 2024, consolidated pro-forma net earnings for the period ended September 30, 2024 would have been $14,907.

Business Acquisition - Buanderie C.M.

On June 21, 2024 the Corporation completed the acquisition of 100% of the share capital of Buanderie C.M. Inc. ("C.M. Acquisition"), a private laundry and linen operator located in Montréal serving the healthcare market. The acquisition will enable K-Bro to operate with two facilities in Montreal to service its growing healthcare and hospitality business. Based on the Corporation's evaluation of the C.M. Acquisition and the criteria in the identification of a business combination established in IFRS 3, the C.M. Acquisition has been accounted for using the acquisition method, whereby the purchase consideration is allocated to the fair values of the net assets acquired.

At the time the financial statements were authorized for issue, and due to the timing of the Acquisition, the Corporation has not yet completed the accounting for the C.M. Acquisition. This includes the accounting for the amounts attributable to property, plant and equipment, intangible assets and the associated goodwill.

The Corporation financed the C.M. Acquisition and transaction costs from the syndicated revolving credit facility.

The preliminary purchase price allocated to the net assets acquired, based on their estimated fair values, is as follows:

Cash consideration	$ 11,795
Total purchase price	$ 11,795

The assets and liabilities recognized as a result of the C.M. Acquisition are as follows:

Net Assets Acquired:
Accounts receivable	742
Prepaid expenses and deposits	20
Linen in service	201
Accounts payable and accrued liabilities	(377)
Deferred income taxes	(511)
Property, plant and equipment	7,055
Intangible assets	1,800
Net identifiable assets acquired	8,930
Goodwill	2,865
Net assets acquired	$ 11,795

The provisional intangible assets acquired are made up of $1,800 related to customer relationships. The goodwill is attributable to the workforce, and the efficiencies and synergies created between the existing business of the Corporation and the acquired business. Goodwill will not be deductible for tax purposes.

Acquisition related costs

For the nine months ended September 30, 2024, $677 in professional fees associated with the C.M. Acquisition has been included in Corporate expenses.

Revenue and profit information

The acquired business contributed revenues of $2,019 to the Corporation for the period from June 21, 2024 to September 30, 2024. If the Acquisition had occurred on January 1, 2024, consolidated pro-forma revenue for the period ended September 30, 2024 would have been $283,620.

The acquired business contributed net earnings of $105 to the Corporation for the period from June 21, 2024 to September 30, 2024. If the Acquisition had occurred on January 1, 2024, consolidated pro-forma net earnings for the period ended September 30, 2024 would have been $14,099.

Revolving Credit Facility

On August 31, 2023, the Corporation completed an amendment to its existing revolving credit facility to extend the agreement from July 31, 2026 to July 31, 2027, as previously amended on July 18, 2022. In addition, the agreement expanded the revolving credit facility from $100,000 to $125,000 plus a $25,000 accordion.

On March 26, 2024, the Corporation entered into a three-year committed Syndicated Credit Facility Agreement from March 26, 2024 to March 25, 2027. The new agreement consists of a $175,000 revolving credit facility plus a $75,000 accordion.

The Corporation's incremental borrowing rate under its existing credit facility is determined by the Canadian prime rate plus an applicable margin based on the ratio of Funded Debt to EBITDA as defined in the credit agreement.

Capital Investment Plan

For fiscal 2024, the Corporation's planned capital spending is expected to be approximately $17.0 million on a consolidated basis, including the expenditures associated with the Villeray acquisition. This guidance includes both strategic and maintenance capital requirements to support existing base business in both Canada and the UK. We will continue to assess capital needs within our facilities and prioritize projects that have shorter term paybacks as well as those that are required to maintain efficient and reliable operations.

Economic Conditions

The Corporation's Credit Facility is subject to floating interest rates and, therefore, is subject to fluctuations in interest rates which are beyond the Corporation's control. Changes in interest rates, both domestically and internationally, could negatively affect the Corporation's cost of financing its operations and investments.

Uncertainty about judgments, estimates and assumptions made by management during the preparation of the Corporation's consolidated financial statements related to potential impacts of the COVID-19 pandemic, geopolitical events and changing interest rates on revenue, expenses, assets, liabilities, and note disclosures could result in a material adjustment to the carrying value of the asset or liability affected.

Financial Results

	*For The Three Months Ended September 30,*
*(thousands, except per share amounts* *and percentages)*	*Canadian* *Division* *2024*	UK *Division* *2024*	2024	*Canadian* *Division* *2023*	UK *Division* *2023*	2023	$ Change	% Change

Revenue	$ 69,610	$ 34,859	$ 104,469	$ 63,379	$ 23,513	$ 86,892	17,577	20.2 %
Expenses included in EBITDA	55,229	26,397	81,626	50,455	18,744	69,199	12,427	18.0 %
EBITDA⁽¹⁾	14,381	8,462	22,843	12,924	4,769	17,693	5,150	29.1 %
EBITDA as a % of revenue	20.7 %	24.3 %	21.9 %	20.4 %	20.3 %	20.4 %	1.5 %	7.4 %


Adjusted EBITDA⁽¹⁾	14,510	8,462	22,972	13,288	4,769	18,057	4,915	27.2 %
Adjusted EBITDA as a % of revenue	20.8 %	24.3 %	22.0 %	21.0 %	20.3 %	20.8 %	1.2 %	5.8 %
Net earnings	3,659	4,470	8,129	4,169	2,498	6,667	1,462	21.9 %

Basic earnings per share	$ 0.350	$ 0.428	$ 0.778	$ 0.392	$ 0.235	$ 0.627	$ 0.151	24.1 %
Diluted earnings per share	$ 0.347	$ 0.424	$ 0.771	$ 0.389	$ 0.233	$ 0.622	$ 0.149	24.0 %
Dividends declared per diluted share			$ 0.30			$ 0.300	$ -	0.0 %


Adjusted net earnings ⁽¹⁾	3,788	4,470	8,258	4,533	2,498	7,031	1,227	17.5 %
Adjusted basic earnings per share ⁽¹⁾	$ 0.363	$ 0.428	$ 0.791	$ 0.426	$ 0.235	$ 0.660	$ 0.131	19.8 %
Adjusted diluted earnings per share⁽¹⁾	$ 0.359	$ 0.424	$ 0.783	$ 0.422	$ 0.233	$ 0.655	$ 0.128	19.5 %
Total assets			452,077			341,662	110,415	32.3 %
Long-term debt (excludes lease liabilities)			135,875			55,162	80,713	146.3 %
						-
Cash provided by operating activities			18,384			22,758	(4,374)	-19.2 %
Net change in non-cash working capital items			603			8,344	(7,741)	-92.8 %
Share-based compensation expense			443			438	5	1.1 %
Maintenance capital expenditures			464			379	85	22.4 %
Principal elements of lease payments			2,670			2,360	310	13.1 %
Distributable cash flow			14,204			11,237	2,967	26.4 %
Dividends declared			3,174			3,228	(54)	-1.7 %
Payout ratio			22.3 %			28.7 %	-6.4 %	-22.3 %


	*For The Nine Months Ended September 30,*
*(thousands, except per share amounts* *and percentages)*	*Canadian* *Division* *2024*	UK *Division* *2024*	2024	*Canadian* *Division* *2023*	UK *Division* *2023*	2023	$ Change	% Change

Revenue	$ 196,979	$ 81,184	$ 278,163	$ 178,039	$ 60,381	$ 238,420	39,743	16.7 %
Expenses included in EBITDA	161,732	65,410	227,142	145,052	50,841	195,893	31,249	16.0 %
EBITDA⁽¹⁾	35,247	15,774	51,021	32,987	9,540	42,527	8,494	20.0 %
EBITDA as a % of revenue	17.9 %	19.4 %	18.3 %	18.5 %	15.8 %	17.8 %	0.5 %	2.8 %


Adjusted EBITDA⁽¹⁾	38,372	16,282	54,654	33,559	9,540	43,099	11,555	26.8 %
Adjusted EBITDA as a % of revenue	19.5 %	20.1 %	19.6 %	18.8 %	15.8 %	18.1 %	1.5 %	8.3 %
Net earnings	7,113	7,357	14,470	9,243	4,115	13,358	1,112	8.3 %

Basic earnings per share	$ 0.679	$ 0.703	$ 1.382	$ 0.865	$ 0.385	$ 1.250	$ 0.132	10.6 %
Diluted earnings per share	$ 0.675	$ 0.698	$ 1.373	$ 0.860	$ 0.383	$ 1.243	$ 0.130	10.5 %
Dividends declared per diluted share			$ 0.90			$ 0.900	$ -	0.0 %


Adjusted net earnings ⁽¹⁾	10,238	7,865	18,103	9,815	4,115	13,930	4,173	30.0 %
Adjusted basic earnings per share ⁽¹⁾	$ 0.978	$ 0.753	$ 1.731	$ 0.920	$ 0.385	$ 1.305	$ 0.426	32.6 %
Adjusted diluted earnings per share⁽¹⁾	$ 0.970	$ 0.747	$ 1.717	$ 0.914	$ 0.383	$ 1.297	$ 0.420	32.4 %
Total assets			452,077			341,662	110,415	32.3 %
Long-term debt (excludes lease liabilities)			135,875			55,162	80,713	146.3 %
						-
Cash provided by operating activities			38,939			33,188	5,751	17.3 %
Net change in non-cash working capital items			(2,298)			(2,665)	367	13.8 %
Share-based compensation expense			1,497			1,386	111	8.0 %
Maintenance capital expenditures			1,915			2,458	(543)	-22.1 %
Principal elements of lease payments			7,969			6,844	1,125	16.4 %
Distributable cash flow			29,856			25,165	4,691	18.6 %
Dividends declared			9,520			9,696	(176)	-1.8 %
Payout ratio			31.9 %			38.5 %	-6.6 %	-17.1 %

(1) See "Terminology" for further details

Dividends

The Board of Directors has declared a monthly dividend of $0.10 per common share for the period from November 1 to November 30, 2024, to be paid on December 13, 2024 to shareholders of record on November 30, 2024. The Corporation's policy is for shareholders of record on the last business day of a calendar month to receive dividends during the fifteen days following the end of such month. K-Bro designates this dividend as an eligible dividend pursuant to subsection 89(14) of the Income Tax Act (Canada) and similar provincial and territorial legislation.

OUTLOOK

The Corporation's healthcare and hospitality segments continues to experience steady volume trends. For the healthcare segment, management expects activity levels to remain stable at current levels. For the hospitality segment, management expects solid activity levels from both business and leisure travel reflecting historical seasonal trends.

The volatility we encountered from energy prices, local labour market shortages and cost inflation throughout the pandemic has stabilized and, in turn, EBITDA margins have stabilized. In April 2022, to support more predictable energy costs, the Corporation locked in natural gas supply rates in the UK until December 2024. In April 2024, the Corporation's UK division extended their natural gas supply commitment until December 2026. Management expects EBITDA margins will remain at similar levels going forward, following historical seasonal trends.

Throughout 2023, EBITDA margins benefited from stronger client activity, price increases that we have secured to offset inflation-related costs, the completion of the AHS transition, operating efficiencies, and lower delivery costs. As K-Bro actively pursues its growth opportunities, the Corporation will continue to incur certain non-recurring or one-time transaction, transition and syndication/structural financing costs. In this context, management believes Adjusted EBITDA, before non-recurring or one-time costs, assists investors to assess our performance on a consistent basis as it is an indication of our capacity to generate income from operations. Adjusting items include non-recurring transaction, transition and syndication/structural financing costs, as detailed in the tables within "Terminology". Going forward, management expects Adjusted EBITDA margins will remain at similar levels, following historical seasonal trends.

With continued momentum in existing operations, management has refocused attention on strategic acquisitions, such as the acquisitions of C.M., Shortridge, Villeray and Paranet, to accelerate growth in North America, Europe, and similar geographies which remain highly fragmented. K-Bro's upsized $175 million syndicated credit facility, with a further $75 million accordion, provides further financial flexibility to pursue growth opportunities. K-Bro will look to leverage its strong liquidity position, balance sheet and access to the capital markets to execute on these opportunities, should they arise. For further information about the impact of other economic factors on our business, see the "Summary of Interim Results and Key Events".

CORPORATE PROFILE

K-Bro is the largest owner and operator of laundry and linen processing facilities in Canada and a market leader for laundry and textile rental services in Scotland and the North of England. K–Bro and its wholly-owned subsidiaries operate across Canada and the UK, providing a range of linen services to healthcare institutions, hotels and other commercial accounts that include the processing, management and distribution of general linen and operating room linen.

The Corporation's operations in Canada include ten processing facilities and two distribution centres under two distinctive brands: K–Bro Linen Systems Inc. and Buanderie HMR. The Corporation operates in ten Canadian cities: Québec City, Montréal, Toronto, Regina, Saskatoon, Prince Albert, Edmonton, Calgary, Vancouver and Victoria.

The Corporation's operations in the UK include Fishers, which was acquired by K–Bro on November 27, 2017. Fishers was established in 1900 and is a leading operator of laundry and linen processing facilities in Scotland, providing linen rental, workwear hire and cleanroom garment services to the hospitality, healthcare, manufacturing and pharmaceutical sectors. The Corporation operates five UK sites located in Cupar, Perth, Newcastle, Livingston and Coatbridge.

Additional information regarding the Corporation including required securities filings are available on our website at www.k-brolinen.com and on the Canadian Securities Administrators' website at www.sedarplus.ca; the System for Electronic Document Analysis and Retrieval ("SEDAR").

TERMINOLOGY

Throughout this news release and other documents referred to herein, and in order to provide a better understanding of the financial results, K-Bro uses the terms "EBITDA", "adjusted EBITDA", "adjusted net earnings", "adjusted net earnings per share", "debt to total capital", "distributable cash" and "payout ratio". These terms do not have any standardized meaning under International Financial Reporting Standards ("IFRS") as set out in the CICA Handbook. Therefore, EBITDA, adjusted EBITDA, adjusted net earnings, adjusted net earnings per share, distributable cash and payout ratio may not be comparable to similar measures presented by other issuers. Specifically, the terms "EBITDA", "adjusted EBITDA", "adjusted net earnings", "adjusted net earnings per share", "distributable cash", and "payout ratio" have been defined as follows:

EBITDA

EBITDA (Earnings before interest, taxes, depreciation and amortization) comprises revenues less operating costs before financing costs, capital asset and intangible asset amortization, and income taxes.

EBITDA is a sub–total presented within the statement of earnings in accordance with the amendments made to IAS 1 which became effective January 1, 2016. EBITDA is not considered an alternative to net earnings in measuring K–Bro's performance. EBITDA should not be used as an exclusive measure of cash flow since it does not account for the impact of working capital changes, capital expenditures, debt changes and other sources and uses of cash, which are disclosed in the consolidated statements of cash flows.

		Three Months Ended September 30,		Nine Months Ended September 30,
(thousands)		2024	2023	2024	2023


Net earnings		$ 8,129	$ 6,667	$ 14,470	$ 13,358
Add:
	Income tax expense	2,481	2,294	4,175	4,256
	Finance expense	3,322	1,860	8,129	4,917
	Depreciation of property, plant and equipment	7,823	6,719	22,110	19,626
	Amortization of intangible assets	1,088	153	2,137	370

EBITDA		$ 22,843	$ 17,693	$ 51,021	$ 42,527

Non-GAAP Measures

Adjusted EBITDA

K–Bro reports Adjusted EBITDA (Earnings before interest, taxes, depreciation and amortization) as a key measure used by management to evaluate performance. Adjusted EBITDA is utilized to make decisions related to dividends to Shareholders. We believe Adjusted EBITDA assists investors to assess our performance on a consistent basis as it is an indication of our capacity to generate income from operations before taking into account management's financing decisions and costs of acquiring tangible and intangible capital assets. The Corporation has modified its definition for Adjusted EBITDA and has updated its comparative quarters to reflect the modified definition. "Adjusted EBITDA" is defined as EBITDA (defined above) with the exclusion of certain non-recurring or one-time costs, expenses, gains, losses, charges or any changes in fair value that are non-operating in nature that the Corporation believes are not reflective of ongoing business performance and operational profitability. The Corporation believes these non-GAAP definitions provide more meaningful reflections of normalized financial performance from operations and will enhance period-over-period comparability.

		Three Months Ended September 30,
		Canadian Division	UK Division		Canadian Division	UK Division
(thousands)		2024	2024	2024	2023	2023	2023

EBITDA		$ 14,381	$ 8,462	$ 22,843	$ 12,924	$ 4,769	$ 17,693
Add non-recurring items:
	Transaction Costs ¹	139	-	$ 139	364	-	364
	Syndication/Structural Finance Costs ²	-	-	$ -	-	-	-
	Transition Costs ³	490	-	$ 490	-	-	-
	Gain on settlement of contingent consideration ⁴	(500)	-	$ (500)	-	-	-
					-	-	-
Adjusted EBITDA		$ 14,510	$ 8,462	$ 22,972	$ 13,288	$ 4,769	$ 18,057


	¹Relates to legal, professional and consulting fee expenditures made related to acquisitions.
	²Relates to costs incurred for initial syndication of the Corporation's Credit Agreement. These costs are one time in nature and not anticipated to be incurred frequently.

	³Relates to transition costs incurred as a result of the Corporation's acquisitions.
	⁴Relates to derecognition of contingent consideration for the Villeray acquisition. This gain is a non-cash item outside of core operations.

		Nine Months Ended September 30,
		Canadian Division	UK Division		Canadian Division	UK Division
(thousands)		2024	2024	2024	2023	2023	2023

EBITDA		$ 35,247	$ 15,774	$ 51,021	$ 32,987	$ 9,540	$ 42,527
Add non-recurring items:							-
	Transaction Costs ¹	$ 822	$ 508	$ 1,330	572	-	572
	Syndication/Structural Finance Costs ²	$ 1,892	$ -	$ 1,892	-	-	-
	Transition Costs ³	$ 911	$ -	$ 911	-	-	-
	Gain on settlement of contingent consideration ⁴	$ (500)	$ -	$ (500)	-	-	-
					-	-	-
Adjusted EBITDA		$ 38,372	$ 16,282	$ 54,654	$ 33,559	$ 9,540	$ 43,099


	¹Relates to legal, professional and consulting fee expenditures made related to acquisitions.
	²Relates to costs incurred for initial syndication of the Corporation's Credit Agreement. These costs are one time in nature and not anticipated to be incurred frequently.

	³Relates to transition costs incurred as a result of the Corporation's acquisitions.
	⁴Relates to derecognition of contingent consideration for the Villeray acquisition. This gain is a non-cash item outside of core operations.

Adjusted Net Earnings and Adjusted Earnings per Share

Adjusted Net Earnings and Adjusted Earnings per Share are non-GAAP measures. These non-GAAP measures are defined to exclude certain non-recurring or one-time costs, expenses, gains, losses, charges or any changes in fair value that are non-operating in nature that the Corporation believes are not reflective of ongoing business performance and operational profitability. The Corporation believes these non-GAAP definitions provide more meaningful reflections of normalized financial performance from operations and will enhance period-over-period comparability.

		Three Months Ended September 30,
		Canadian Division	UK Division		Canadian Division	UK Division
(thousands)		2024	2024	2024	2023	2023	2023

Net Earnings		$ 3,659	$ 4,470	$ 8,129	$ 4,169	$ 2,498	$ 6,667
Add non-recurring items:
	Transaction Costs ¹	139	-	$ 139	364	-	364
	Syndication/Structural Finance Costs ²	-	-	$ -	-	-	-
	Transition Costs ³	490	-	$ 490	-	-	-
	Gain on settlement of contingent consideration ⁴	(500)	-	$ (500)	-	-	-
					-	-	-
Adjusted Net Earnings		$ 3,788	$ 4,470	$ 8,258	$ 4,533	$ 2,498	$ 7,031


	¹Relates to legal, professional and consulting fee expenditures made related to acquisitions.
	²Relates to costs incurred for initial syndication of the Corporation's Credit Agreement. These costs are one time in nature and not anticipated to be incurred frequently.

	³Relates to transition costs incurred as a result of the Corporation's acquisitions.
	⁴Relates to derecognition of contingent consideration for the Villeray acquisition. This gain is a non-cash item outside of core operations.

		Nine Months Ended September 30,
		Canadian Division	UK Division		Canadian Division	UK Division
(thousands)		2024	2024	2024	2023	2023	2023

Net Earnings		$ 7,113	$ 7,357	$ 14,470	$ 9,243	$ 4,115	$ 13,358
Add non-recurring items:					-	-	-
	Transaction Costs ¹	$ 822	$ 508	$ 1,330	572	-	572
	Syndication/Structural Finance Costs ²	$ 1,892	$ -	$ 1,892	-	-	-
	Transition Costs ³	$ 911	$ -	$ 911	-	-	-
	Gain on settlement of contingent consideration ⁴	$ (500)	$ -	$ (500)	-	-	-
					-	-	-
Adjusted Net Earnings		$ 10,238	$ 7,865	$ 18,103	$ 9,815	$ 4,115	$ 13,930


¹	Relates to legal, professional and consulting fee expenditures made related to acquisitions.
²	Relates to costs incurred for initial syndication of the Corporation's Credit Agreement. These costs are one time in nature and not anticipated to be incurred frequently.
³	Relates to transition costs incurred as a result of the Corporation's acquisitions.
⁴	Relates to derecognition of contingent consideration for the Villeray acquisition. This gain is a non-cash item outside of core operations.

		Three Months Ended September 30,
		Canadian Division	UK Division		Canadian Division	UK Division
(thousands)		2024	2024	2024	2023	2023	2023

Basic Earnings per Share		0.350	0.428	0.778	0.392	0.235	0.627
Add non-recurring items:
	Transaction Costs ¹	0.014	-	0.014	0.034	-	0.034
	Syndication/Structural Finance Costs ²	-	-	-	-	-	-
	Transition Costs ³	0.047	-	0.047	-	-	-
	Gain on settlement of contingent consideration ⁴	(0.048)	-	(0.048)	-	-	-
					-	-	-
Adjusted Basic Earnings per Share		0.363	0.428	0.791	0.426	0.235	0.661


	¹Relates to legal, professional and consulting fee expenditures made related to acquisitions.
	² Relates to costs incurred for initial syndication of the Corporation's Credit Agreement. These costs are one time in nature and not anticipated to be incurred frequently.

	³Relates to transition costs incurred as a result of the Corporation's acquisitions.
	⁴Relates to derecognition of contingent consideration for the Villeray acquisition. This gain is a non-cash item outside of core operations.

		Nine Months Ended September 30,
		Canadian Division	UK Division		Canadian Division	UK Division
(thousands)		2024	2024	2024	2023	2023	2023

Basic Earnings per Share		0.679	0.703	1.382	0.865	0.385	1.250
Add non-recurring items:
	Transaction Costs ¹	0.080	0.050	0.130	0.055	-	0.055
	Syndication/Structural Finance Costs ²	0.180	-	0.180	-	-	-
	Transition Costs ³	0.087	-	0.087	-	-	-
	Gain on settlement of contingent consideration ⁴	(0.048)	-	(0.048)	-	-	-
					-	-	-
Adjusted Basic Earnings per Share		0.978	0.753	1.731	0.920	0.385	1.305

¹ Relates to legal, professional and consulting fee expenditures made related to acquisitions.

² Relates to costs incurred for initial syndication of the Corporation's Credit Agreement. These costs are one time in nature and not anticipated to be incurred frequently.

³ Relates to transition costs incurred as a result of the Corporation's acquisitions.

4 Relates to derecognition of contingent consideration for the Villeray acquisition. This gain is a non-cash item outside of core operations.

		Three Months Ended September 30,
		Canadian Division	UK Division		Canadian Division	UK Division
(thousands)		2024	2024	2024	2023	2023	2023

Diluted Earnings per Share		0.347	0.424	0.771	0.389	0.233	0.622
Add non-recurring items:
	Transaction Costs ¹	0.013	-	0.013	0.033	-	0.033
	Syndication/Structural Finance Costs ²	-	-	-	-	-	-
	Transition Costs ³	0.047	-	0.047	-	-	-
	Gain on settlement of contingent consideration ⁴	(0.048)	-	(0.048)	-	-	-
					-	-	-
Adjusted Diluted Earnings per Share		0.359	0.424	0.783	0.422	0.233	0.655


	¹Relates to legal, professional and consulting fee expenditures made related to acquisitions.
	² Relates to costs incurred for initial syndication of the Corporation's Credit Agreement. These costs are one time in nature and not anticipated to be incurred frequently.

	³Relates to transition costs incurred as a result of the Corporation's acquisitions.
	⁴Relates to derecognition of contingent consideration for the Villeray acquisition. This gain is a non-cash item outside of core operations.

		Nine Months Ended September 30,
		Canadian Division	UK Division		Canadian Division	UK Division
(thousands)		2024	2024	2024	2023	2023	2023

Diluted Earnings per Share		0.675	0.698	1.373	0.860	0.383	1.243
Add non-recurring items:
	Transaction Costs ¹	0.077	0.049	0.126	0.054	-	0.054
	Syndication/Structural Finance Costs ²	0.179	-	0.179	-	-	-
	Transition Costs ³	0.086	-	0.086	-	-	-
	Gain on settlement of contingent consideration ⁴	(0.047)	-	(0.047)	-	-	-
					-	-	-
Adjusted Diluted Earnings per Share		0.970	0.747	1.717	0.914	0.383	1.297


¹	Relates to legal, professional and consulting fee expenditures made related to acquisitions.
²	Relates to costs incurred for initial syndication of the Corporation's Credit Agreement. These costs are one time in nature and not anticipated to be incurred frequently.
³	Relates to transition costs incurred as a result of the Corporation's acquisitions.
⁴	Relates to derecognition of contingent consideration for the Villeray acquisition. This gain is a non-cash item outside of core operations.

Distributable Cash Flow

Distributable cash flow is a measure used by management to evaluate the Corporation's performance. While the closest IFRS measure is cash provided by operating activities, distributable cash flow is considered relevant because it provides an indication of how much cash generated by operations is available after capital expenditures. It should be noted that although we consider this measure to be distributable cash flow, financial and non–financial covenants in our credit facilities and dealer agreements may restrict cash from being available for dividends, re–investment in the Corporation, potential acquisitions, or other purposes. Investors should be cautioned that distributable cash flow may not actually be available for growth or distribution from the Corporation. Management refers to "Distributable cash flow" as to cash provided by (used in) operating activities with the addition of net changes in non–cash working capital items, less share–based compensation, maintenance capital expenditures and principal elements of lease payments.

		Three Months Ended September 30,		Nine Months Ended September 30,
(thousands)		2024	2023	2024	2023

Cash provided by operating activities		$ 18,384	$ 22,758	$ 38,939	$ 33,188
Deduct (add):
	Net changes in non-cash working capital items	603	8,344	(2,298)	(2,665)
	Share-based compensation expense	443	438	1,497	1,386
	Maintenance capital expenditures	464	379	1,915	2,458
	Principal elements of lease payments	2,670	2,360	7,969	6,844
Distributable cash flow		$ 14,204	$ 11,237	$ 29,856	$ 25,165

Pay out Ratio

"Payout ratio" is defined by management as the actual cash dividend divided by distributable cash. This is a key measure used by investors to value K-Bro, assess its performance and provide an indication of the sustainability of dividends. The payout ratio depends on the distributable cash and the Corporation's dividend policy.

		Three Months Ended September 30,		Nine Months Ended September 30,
(thousands)		2024	2023	2024	2023

	Cash dividends	3,174	3,228	9,520	9,696
	Distributable cash flow	14,204	11,237	29,856	25,165

Payout ratio		22.3 %	28.7 %	31.9 %	38.5 %

Debt to Total Capital

"Debt to total capital" is defined by management as the total long–term debt (excludes lease liabilities) divided by the Corporation's total capital. This is a measure used by investors to assess the Corporation's financial structure.

Distributable cash flow, payout ratio, debt to total capital adjusted EBITDA, adjusted net earnings, and adjusted net earnings per share are not calculations based on IFRS and are not considered an alternative to IFRS measures in measuring K–Bro's performance. Distributable cash Flow, payout ratio, adjusted EBITDA, adjusted net earnings, and adjusted net earnings per share do not have standardized meanings in IFRS and are therefore not likely to be comparable with similar measures used by other issuers.

FORWARD LOOKING STATEMENTS

This news release contains forward–looking information that represents internal expectations, estimates or beliefs concerning, among other things, future activities or future operating results and various components thereof. The use of any of the words "anticipate", "continue", "expect", "may", "will", "project", "should", "believe", and similar expressions suggesting future outcomes or events are intended to identify forward–looking information. Statements regarding such forward–looking information reflect management's current beliefs and are based on information currently available to management.

These statements are not guarantees of future performance and are based on management's estimates and assumptions that are subject to risks and uncertainties, which could cause K-Bro's actual performance and financial results in future periods to differ materially from the forward-looking information contained in this news release. These risks and uncertainties include, among other things: (i) risks associated with acquisitions, including (a) the possibility of undisclosed material liabilities, disputes or contingencies, (b) challenges or delays in achieving synergy and integration targets, (c) the diversion of management's time and focus from other business concerns and (d) the use of resources that may be needed in other parts of our business; (ii) K-Bro's competitive environment; (iii) utility costs, minimum wage legislation and labour costs; (iv) K-Bro's dependence on long-term contracts with the associated renewal risk and the risks associated with maintaining short term contracts; (v) increased capital expenditure requirements; (vi) reliance on key personnel; (vii) changing trends in government outsourcing; (viii) changes or proposed changes to minimum wage laws in Ontario, British Columbia, Alberta, Quebec, Saskatchewan and the United Kingdom (the "UK"); (ix) the availability and terms of future financing; * textile demand; (xi) the adverse impact of the COVID-19 pandemic on the Corporation, which has been significant to date and which we believe will continue to be significant for the short to medium term; (xii) availability and access to labour; (xiii) rising wage rates in all jurisdictions the Corporation operates and (ix) foreign currency risk. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information include: (i) volumes and pricing assumptions; (ii) expected impact of labour cost initiatives; (iii) frequency of one-time costs impacting quarterly and annual financial results; (iv) foreign exchange rates; (v) the level of capital expenditures and (vi) the expected impact of the COVID-19 pandemic on the Corporation. Although the forward-looking information contained in this news release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Certain statements regarding forward-looking information included in this news release may be considered "financial outlook" for purposes of applicable securities laws, and such financial outlook may not be appropriate for purposes other than this news release. Forward looking information included in this news release includes the expected annual healthcare revenues to be generated from the Corporation's contracts with new customers, calculation of costs, including one-time costs impacting the quarterly financial results, anticipated future capital spending and statements with respect to future expectations on margins and volume growth.

All forward–looking information in this news release is qualified by these cautionary statements. Forward–looking information in this news release is presented only as of the date made. Except as required by law, K–Bro does not undertake any obligation to publicly revise these forward–looking statements to reflect subsequent events or circumstances.

This news release also makes reference to certain measures in this document that do not have any standardized meaning as prescribed by IFRS and, therefore, are considered non–GAAP measures. These measures may not be comparable to similar measures presented by other issuers. Please see "Terminology" for further discussion.

Web: www.k-brolinen.com

SOURCE K-Bro Linen Inc.