Ladies and gentlemen, and welcome to the Premium Brands Holdings Corporation First Quarter 2025 Earnings Conference Call question-and-answer session. At this time, all lines are in listen-only mode. 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, May 7, 2025. Our speakers will be George Paleologou, CEO and President of Premium Brands, and Will Kalutycz, CFO of Premium Brands. I would now like to turn the conference over to George Paleologou. Please go ahead. Thank you, Allen. Good morning and welcome everyone to our 2025 First Quarter Conference Call. With me here today is our CFO, Will Kalutycz. Hopefully, you had a chance to listen to our pre-recorded call posted on our website this morning. We will now take your questions. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star 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 star two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Martin Landry of Stifel Financial Corp. Your line is already open. Hi. Good morning, George and Will. Good morning, Martin. My first question is it pertains to the U.S. It's more of a macro question. I'm wondering what you're seeing in terms of end consumer demand in the U.S. There's kind of decreasing consumer confidence. We've seen some QSR reporting slower traffic. I was wondering if you're seeing at retail and with some of your clients any kind of weakness more recently. Again, Martin, I think it's important to look at the food space in terms of categories, right? Because when you look at the entire food space, there's a lot going on there. Definitely, demand for protein is up. I've looked at some statistics recently, and demand for protein is very strong for the reasons that we've discussed in the past. It's a major, major macro trend as consumers are maybe consuming less carbohydrates and are consuming more protein. That is still continuing, and obviously, we're benefiting from that. In terms of consumers overall in North America, there's no question that consumers are looking for more value. They're still eating the same products, but they're changing the channel that they buy from. In some cases, they'll switch from retail to club. These are trends that we've been observing in Canada for a while. You're seeing a little bit of that in the U.S. Not entirely in the U.S., but state by state, I'd say it differs. Anyway, I hope I kind of covered your question. Okay. So overall, not much weakness to report so far at your end customers. Yeah. The only thing I would qualify that on, Martin, is we have seen a little weakness in the C-store channel. Now, it's not a big component of our business in the U.S. at this point. It is an area we're looking to grow. It is the one area we have seen some softness consistent with the industry statistics. Again, we need to be. Yeah. We need to be careful, Martin, with generalizations, right? Because different categories are performing differently based on the macro trends, right? The reason we've had a good quarter and reported a good quarter is because we're focusing in the categories that are in demand, right? So it's important to understand that. Yeah. Okay. And then just a second question. Will, you reiterated your annual guidance. It It calls for a revenue growth of 11%-14% this year. I was wondering if you could provide some color on the cadence you expect in terms of revenue growth throughout the remainder of the year. Yeah. It is definitely weighted heavily to the back half, Martin. We've got a lot of new initiatives coming on. It's interesting. A couple of quarters ago, we shared a pipeline of opportunities. In the first quarter, we realized about $132 million of that pipeline with a lot of that sort of coming on over the course of Q2. You should still see some growth in Q2, but really the much stronger growth being increased Q3, Q4. Which, again, Martin, will also be driven by capacity coming on board as well throughout the ecosystem. Okay. Understood. Thank you and best of luck. Thanks. Thank you, Martin. Your next question comes from Derek Lessard of TD Securities. Your line is already open. Yeah. Good morning, George and Will. I'm glad to see you guys coming in with some good momentum into the year. Thank you, Derek. Thanks. I just want to maybe take Martin's question one step further and talk about your five-year target. It's going to take some healthy compounded annual growth to get there. I'm just wondering, I guess, how you guys are thinking about the drivers of that growth, particularly as we kind of look at longer term and how you're thinking about the cadence of that. Yeah. It really is it goes back to George's previous comment around capacity. First, you got to build the capacity before you can start pursuing the opportunities. The opportunities have been there for a while now. We called that out earlier. I think our pipeline at that point was about CAD 1.2 billion of sales opportunities we were pursuing, and it has since grown. It is really the capacity is now in place. We are now sort of working with our customers on launches and specifics around product design. You really should see that pick up over the course of 2025 and then continue to accelerate in 2026. Once we finish Tennessee, the Tennessee facility, which is actually now in commercial production, and then when our GTA facility comes on in 2026, starting from the 2024 sales of about CAD 6.5 billion, that gives us about CAD 1.7 billion of capacity from these new projects, incremental to any other capacity that was in the system. It is really now leveraging that capacity, accelerating that growth. You are going to see some good strong growth in the back half of this year, continue to accelerate in 2026, and then 2027 sort of come down a bit. Our internal organic target of that CAD 10 billion in sales is roughly CAD 9.2-CAD 9.5 billion, and then we expect some acquisitions to figure it out. We are nicely on track for that. Derek, the only thing I would add to that is that, as Will said, obviously, we're doing a lot of good things in the U.S. market. We still think that we're in the early innings in terms of although that business has grown a lot for us. Historically, the only reason we haven't grown more is access to capacity. A good example of that is what happened this quarter with our specialty bakery group, right? Basically, we've invested in two plants, one in Canada and one in the U.S. Both of them really focused on the U.S. market, and they're getting a lot of traction now because they have capacity. Very helpful, and that's great color on that. Maybe just two housekeeping questions for me before I recue. More on the corporate cost. It's fluctuated between, I guess, around $4 million-$10 million in recent quarters, just wondering what's the best way to think about the corporate cost. Maybe on the investment income, it jumped a little bit to $15 million this quarter. Just wondering what the run rate should be. Yeah. Our corporate costs fluctuate. Generally, Q4 is when we adjust a lot of our bonus accrual. Given that last year did not quite meet our expectations, you saw a larger adjustment in Q4, which brought it down. Generally, our corporate run rate should be around $10 million-$10.5 million in a normal situation. In terms of the bump in the interest on the interest income, that really came when we referred to an advance to Clearwater. We did do a temporary advance to them early in the quarter, and that drove our interest costs up a little higher. Okay. Thank you. Thanks, Derek. Your next question comes from Kyle McPhee of Cormark Securities. Your line is already open. Hi, everyone. Just a little bit more, hi, guys. Just a little bit more on this U.S. organic volume growth that keeps turning on. So we can kind of annualize the U.S. growth that's turned on and get a picture for what a contribution would look like in 2026 from a full year of all this new stuff. Can you maybe give us a picture for what that annualized run rate of all this new U.S. growth turning on might look like exiting this year? Presumably, it's a much bigger number than we're at now. Yeah. We haven't given guidance on 2026 at this point, Kyle. So I'm going to hold off speaking to the specifics around that. Okay. Is it fair to say in that old pipeline project they had $700 million of highly likely revenue turning on, that's still very highly likely to turn on this year? Sorry, say that again, Kyle? You had that pipeline side of U.S. organic volume growth programs turning on. It was $700 million turning on this year from highly likely stuff. Will that all be on by the end of this year? That should all be on by the end of this year, yeah. Got it. Okay. Your Tennessee sandwich plant sounds like it's all tracking as expected. We'll be branching up later this year. Can you give us any comments on utilization targets for all that new capacity by the end of this year, end of next year? How visible is that for you? Yeah. When we build the IRRs on these projects, we generally use a five-year period for the filling of the capacity, but we expect to be a lot quicker than that for this first phase. First phase is about $280 million in sales capacity. And based on the pipeline of opportunities we're looking at, that could be filled next year. Got it. Okay. That's helpful. Last one from me. In recent quarters, you've been carving out the impact of a major food service channel sandwich client. It's been a pocket of drag, a partial offset to otherwise very impressive U.S. organic volume growth. Can you give us any color on the impact of this client in your year-over-year trend for the sandwich platform? What was their impact in your U.S. sandwich organic volume growth of 8% that you posted this quarter? Yeah. We had a pretty solid quarter with them. I would comment, though, it was a little off-trend. We had a couple of new product launches that sort of channel fill and those sorts of elements created some additional sales. The reality is their business is improving, and we're sort of seeing our core SKUs improving. Q1 was a bit off-trend, a bit above trend. I wouldn't expect to see that strong for Q2. Okay. So there's still drag with this client, but probably diminishing drag is kind of. Yeah. I wouldn't call it a drag. I would say stable. I would say stable. Drag was not. Stable to growing. Yeah. Yeah. Stable to growing based on the innovation we have in the pipeline. Got it. Okay. I'll pass the line. Thanks for the comment. Thanks, Kyle. Your next question comes from Stephen McLeod of BMO Capital Markets. Your line is already open. Great. Thank you, guys. Good morning and good afternoon from the East Coast. Hey. Hi, Stephen. Good morning. Hi. Lots of great color. Actually, a couple of my questions have already been answered, but I just wanted to confirm one thing with respect to the pipeline of sales growth. When you talk about that $700 million highly likely, is that still on a pipeline of $1.4 billion, or did I hear correctly that you said that that has actually expanded from where it was before? No. As I mentioned earlier, about 130 of that 700 is now realized and in play. Most of that incremental stuff is in the likely or 2026 bucket. Okay. How do we think about the total pipeline? The pipeline, Stephen, continues to expand all the time because we're working on a lot of projects with a lot of larger customers, right? I've made comments before that the business will become lumpy as we get bigger and bigger in the U.S. because, again, we're working on a lot of major projects with very large customers. Yeah. Okay. Okay. That's great. Maybe just turning to the PFD segment. Lobster continues to be a drag. You cited kind of higher prices and obviously the tariff or the trade war impact of lower exports to China. Is it fair to assume that most of that drag is from the lower exports? Actually, it's the reverse. Most of it is from the higher price environment. We're finding that demand at certain price levels, both in the food service and retail channel, gets impacted quite dramatically. We're cautiously optimistic in that the new fisheries are starting. We're expecting reasonably strong fisheries, and that should help address that and reverse that trend through the course of Q2. Okay. That's helpful. Okay. Thanks for the call, guys. Thanks so much. Thanks, Stephen. Your next question comes from Ty Collin of CIBC World Markets. Your line is already open. Hey, good morning, George and Will. Thanks for taking my question. It seems like. Hey, good morning. It seems like some of your M&A conversations based on your slide deck have moved from the active category to early stage since last quarter. Can you maybe just provide some more context behind that? Was that a deliberate decision given where leverage is at, or is that something to do with the market and the opportunities that are out there? I think what we said earlier, Ty, is that you shouldn't pay a lot of attention to that. You should pay attention to the three categories to the left of the page because a lot of times, again, this is a relatively small industry, and if we report something advanced, then people kind of speculate as to who it is. We're in a lot of robust discussions with regards to our M&A pipeline. As we've indicated in December of last year and in January, when we want to move on them, we we're able to do that. Obviously, we had urgency to move on them given the tariff situation and us wanting to manage that situation and potentially minimize the impact of any potential tariffs, right? Again, the bottom line is that we're in a lot of very, very good discussions with regards to M&A. Okay. Got it. Thanks. That's helpful. I just wanted to circle back to Clearwater and the advance that you made to them. Can you maybe just provide a little more color around that dynamic and that decision, why you felt that was necessary? Is this kind of a one-time thing, or does that business potentially need more funding going forward? Yeah. Clearwater, their core Canadian operations, which is the heart of the business, their most profitable part of their business, they're at the low point in the number of their species and sort of natural commodity cycles, natural cash cycles. It has been an unusual low in that normally these sort of are offset, different species at different times, but it was kind of a worst-case scenario where almost all the species were hit at once. That hit their cash flows pretty hard, and their available credit is a function of their cash flow. Their availability of credit is impacted by that as well. This is a temporary advance. We're cautiously optimistic. We're not only going to get this back this year, but they'll actually resume interest payments. There's a lot of positives happening in the Clearwater business. We are starting to see cashes come back. We've seen some really optimistic signs in the second quarter. We are cautiously optimistic about the back half of the year. Also, the management team at Clearwater has done an incredible job identifying some underperforming assets and are looking at some strategic alternatives around those. Lots of good things happening in the business. We are at a temporary low, but we truly do see that as temporary. That's helpful color. Thanks, Will. Yeah. No problem, Kyle. Your next question comes from Michael Glen of Raymond James. Your line is already open. Thanks a lot. Will, I just want to pin you down maybe a little bit on how to think about Q2 because Q1 organic volume growth was quite good, and then you had this back half acceleration. You indicated that you are launching some programs in Q2. Is Q2 somewhere in between something better than Q1, but not quite as strong as the back half of the year? Is that how we think about OVGR in Q2? Yeah. It is a little tricky too, right, Michael, because Q1 is a seasonally slow quarter. When you're looking at percentages, things can get a little distorted. You shouldn't expect to see the same percentages necessarily, but you should still continue to see some good strong growth. The other comment I would make is the fact that the key QSR customer we're talking about earlier, again, we're not expecting to see the same strong sales growth in Q2 that we saw in Q1. It is a reasonable good growth for the quarter, but much more heavily weighted to Q3 and Q4 as we go to our guidance for 2025 of that CAD 7.2 billion-CAD 7.4 billion. The only other thing that I would add is that we do expect to launch some major programs with key customers, large programs. The timing of the launch will play a role in terms of what we show for growth in the Q2. Anyway, just because these programs are very large. Yeah. Okay. During the call from this morning, you did provide a three-step plan to reducing leverage. Just on two of those, the inventory levels, are you able to indicate how much you potentially see coming out of inventory? Number two, can you remind us of the amounts associated with the sale-leaseback that you're pursuing? Yeah. On the inventory, when we tore apart our inventory increase for that first quarter, CAD 40 million of it was just sort of very temporary related. We had some businesses taking some major positions in beef just to hedge against inflation and protect pricing with their customers. We also had a couple of product launches we were building inventory for. We expect that to normalize out in Q2 because Q2 is the big quarter for a lot of launch of these beef programs with summer months coming. CAD 40 million of it is fairly simple. There is probably another CAD 40 million of just work to be done to get our day sales, our day purchases, and inventory back to a more normal level. Of the sale-leaseback amounts? Oh, and the sale-leaseback, we're preliminarily estimating about CAD 230 million-plus on the sale-leaseback. Again, we're just starting. The plant is just sort of starting. Commercial production has just finished. We are now starting the process of the sale and leaseback transaction process. Okay. So that might be back half of the year as well. No, we're pushing to get it done in this quarter, but it could possibly get pushed to Q3 depending on timing. We are pushing to get it done in Q2. Okay. Thank you so much. Thanks, Michael. Thanks, Mike. Your next question comes from Ian Liu of Scotiabank. Your line is already open. Hi. Thanks for taking my question. Good morning, George and Will. Hi. So my first question is the person we called out no material impact from trade developments and tariffs for Q1. Unnecessarily, but what have you seen quarter to date in Q2? Again, consistent with Q1, Ian, certainly lots of noise. As I've said earlier, our companies have been trying to plan and game and create capacity, find capacity just in case, but really no changes. Thankfully, there hasn't been any major tariff-related disruptions in our business. Okay. Thank you. You called out over 30% growth in the U.S. bakery in the quarter. Can you say approximately what percent of capacity your bakery division operates at? We still have a lot of capacity that we've added, particularly in our facility in San Leandro, California. The Canadian bakery, based on the business they've lined up, they're no longer looking for new business. They're doing extremely well, getting excellent traction, great margins. Anyway, probably they're out there looking to acquire more capacity as we speak. Great. Thank you. That's awesome. Thanks. Great. Thanks, Ian. Your next question comes from Vishal Shreedhar of National Bank Financial. Your line is already open. Hi. This is Anshu in for Vishal Shreedhar. We wanted to come back on the discussion on protein in specialty foods. PBH previously expected stability in beef jerky demand in 2025, yet the category was reported to be challenged. Should we continue to expect weakness in beef jerky through 2025? Could you give us a sense of how big the category is for PBH? Yeah. When we talk about the sensitivity, it's mainly on the U.S. component of our jerky business. It's being impacted, as we talked about earlier, the C-store channel softness, and then as well as beef is at absolute record highs right now. You put those two together, and it is quite challenging. The impact in the quarter was nominal. Sales are down $2 million-$3 million. Not very much. The key is it's not a growing category. Overall, the category risk on a quarterly basis is probably about $40 million-$50 million in sales. It's nice, but it's not a core part of our growth strategies. Understood. Thank you. Okay. Ladies and gentlemen, as a reminder, if you have a question, please press star one. Your next question comes from Ryland Conrad of RBC Capital Markets. Your line is already open. Hey. Good morning, guys. Good morning, guys. Hey, Ryland. Hey. Good morning, guys. Thanks for taking my questions. Just to start off, I believe you called out just raw material inflation as being about an 80 basis point headwind to margins in the quarter. Then just some timing lags on mitigating that through price increases. Could you speak a bit to just your expectations around commodity input cost inflation for the year and just whether we should see any kind of sequential improvement to that headwind as costs are passed through? Yeah. We expect it to continue to be a headwind in Q2. Chicken prices are continuing to rise. Beef is continuing to hit new record highs. We are expecting some stability in the second half of the year, which by that point, then our price increases will start catching up with the commodity and maybe even on the chicken side see some—and again, no one knows—but the possibility of some easing of costs. The chicken has really been an avian influenza story. It has really hit the U.S. flocks hard. You are starting to see some improvement in terms of things come back. That leads to our expectations around Q3. In summary, some continuing headwinds in Q2, but sort of neutral to maybe even slightly positive in Q3-Q4. Okay. Got it. That's helpful. Could you just provide an update on the integration of some of the recent acquisitions? I believe some of those were around getting additional capacity to offset some of the tariff exposures. Just how are you progressing with that plan as well? Yeah. A lot of work is going into coordinating the different capital investments we need to make in order to create more capacity for some of our core products. Yeah. It's going well. We're on target. We're really pleased with the progress we're making. Obviously, we need to introduce some best practices in those companies and are in the process of doing that. We're really excited by having access to that capacity. Great. Thanks, Ian. Great. Thank you. Thanks, Ryland. Your next question comes from Kyle McPhee of Cormark Securities. Your line is already open. Just a couple of quick follow-ups. I mean, maybe to just wrap up the discussion around leverage, when you include your sale-leaseback proceeds and these working capital dynamics, can you kind of guide us to what your hopeful total leverage target is exiting this year? Excluding M&A. Yeah. We're pushing to get within our targeted range by the end of the year. Depending on how the EBITDA comes out and how we make out with the inventory levels, that could get pushed out to early 2026. Okay. And presumably, you mean kind of landing at the high end of your target range or otherwise? Oh, yeah. Okay. Okay. And then just quickly, can you kind of quantify the weight of your exports into China? I know it's a pretty small amount, but can you quantify it? In terms of our core consolidated business, it's nominal. It doesn't move the needle, Kyle. The major exporter to China within our group would be Clearwater, which we do not consolidate. And what would their sales, George? I would guess maybe $100 million-ish. Yeah. Yeah. How about that? Got it. Okay. So the lobster dynamic in your PFD segment is largely North American retail. Yeah. It is. Particularly over the last couple of years, our Canadian lobster businesses are strictly North American focused. Our U.S. business already does some exports to China. With the challenges in the main fishery in recent years and some of the disputes with China, that has really sort of become a much smaller number. Got it. Okay. Thank you. That's it. Okay. Your next question comes from Stephen McLeod of BMO Capital Markets. Your line is already open. Thank you. Just a quick follow-up question from me. Just putting together, I guess, reading between the lines on the commodity price discussion, would you sort of assume that you'd expect sort of ongoing margin pressures continuing in Q2, but maybe to a lesser degree? Yeah. No, that's a fair statement. See, we are, as we talked about in our opening comments, we are putting through selling price increases, but we're always playing catch-up in these inflationary cycles. Ideally, what'll happen is in Q2, we catch up towards the end of the quarter. Then my earlier comment about seeing some stability or even tailwinds in the third quarter. Okay. That's helpful. Thanks a lot. Okay. There are no further questions at this time. I would hand over the call to George Paleologou for closing remarks. Please go ahead. Thank you, Allen. I'd like to thank everybody for attending today. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.