Good afternoon, ladies and gentlemen, and welcome to Richelieu Hardware second quarter results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session which will be restricted to analysts only. If at any time during this call you require any assistance, please press star zero for the operator. This call is being recorded on July 8th, 2021. [Non-English content] [Non-English content] Thank you. Good afternoon, ladies and gentlemen, welcome to Richelieu's conference call for the second quarter and six-month period ended May 31st, 2021. With me is Antoine Auclair, CFO. As usual, note that some of today's issues contain forward-looking information, which is provided with the usual disclaimer, as depicted in our financial filings. We are very pleased with our second quarter. Our results show strong growth. Our financial position remains sound and solid. For comparison, it should be noted that during the same period last year, our sales were negatively impacted by a general decline in business due to the pandemic. Both in the U.S. and in Canada, all our market segments have done very well, whether it be the kitchen cabinet manufacturers, architectural millwork, and the residential and office solutions. We are particularly proud of the solid growth in markets where we recently made acquisitions and product innovation, such as door and window manufacturers, closet manufacturers, and glaziers. Our other retailers market also showed strong growth during the quarter. Thanks to our outstanding website, our one-stop shop approach and our independent network that enables us to make product available to our customers in a timely manner and provide alternatives when needed. As a result, the sales increase combined with cost control has positively impacted our profit margins that we posted an EBITDA margin of 16.4% during the quarter. With the strength of our business model, the quality of our team, and the ability of our organization to carefully adjust to market conditions and be proactive, we were able to provide the best possible support to our customers in the actual circumstances. During the period, we also successfully pursued our acquisition strategy and seized good opportunities meeting our criteria of complementarity, synergy potential, and long-term value growth. We completed three acquisitions in the last three months, the latest on July the 5th. As mentioned in our previous release, on April 5, we acquired the shares of Task Tools, a distributor of power tool accessories and related products serving the hardware retailers market in Canada and in the U.S. We also signed two agreements in principle, one of which was completed with the acquisition of Uscan Industrial Fasteners Limited on June 1st. Uscan is a leading importer and distributor of screws, bolts, and industrial fasteners operating a distribution center in Montreal, from which it supplies hardware retailers mainly in Eastern Canada. On July 5, we acquired 25% of the shares of Inter-Co Inc, the distributor of Division 10 products for the construction industry in Canada and in the U.S., operating two centers in Ontario and three in the U.S. in Illinois, Ohio, and Texas. Interesting to note that this acquisition will be combined to one of our divisions already operating in this sector of activity and covering Western Canada. In addition, we signed another agreement in principle for an acquisition in the U.S. Altogether, these transactions will add sales of CAD 73 million on an annual basis. I will now go to Antoine for the financial review of the period. Thanks, Richard. Second quarter sales reached CAD 371.4 million, up 49.6%, of which 46.8% from internal growth and 2.8% from acquisitions. At comparable exchange rate to last year, sales increase would have been 56%. Those increases are the result of a strong demand in the renovation market compared to last year, where sales had been negatively impacted due to the slowdown in business resulting from the pandemic. In Canada, sales amounted to CAD 248.1 million, up 59.8%, of which 56.7% from internal growth and 3.1% from acquisitions. Our sales to manufacturers reached CAD 203.7 million, up 63.5%, of which 61.7% from internal growth and 1.8% from acquisitions. As for the hardware retailers, sales stood at CAD 44.4 million, up 45.1%, 37.4% from internal growth and 7.7% from acquisitions. In the U.S., sales grew to $99.4 million in U.S. dollar, up 49.5%, 47% from internal growth and 2.5% from acquisitions. As in Canada, the renovation market in the U.S. has been growing strongly. Sales to manufacturers reached $87 million, up 52.6%, 50% from internal growth and 2.6% from acquisitions. In the hardware retailers and renovation superstores market, sales grew by 30.9%, mostly from internal growth. Total sales in the U.S. reached CAD 123.3 million, an increase of 32.6% and representing 33.2% of total sales. For the first half of 2021, sales totaled CAD 669 million, up 34.4%, of which 2.5% from acquisition and 31.9% from internal growth. In Canada, sales reached CAD 421.3 million, up by CAD 129.4 million or 41.5%, of which 39.5% from internal growth and 2% from acquisition. Sales to manufacturers reached CAD 357.3 million, up CAD 104.8 million or 41.5%, mostly from internal growth. Sales to hardware retailers and renovation superstores reached CAD 84 million compared to CAD 59.4 million, up 41.4%. In the U.S., sales amounted to $181.3 million, up 32.5%, of which 28.8% from internal growth and 3.7% from acquisition. They reached CAD 227.7 million, up by 22.6%, accounting for 34% of total sales. Sales to manufacturers totaled CAD 156.1 million, an increase of CAD 38.5 million or 32.7%, of which 28.5% from internal growth and 4.2% from acquisitions. Sales to hardware retailers and renovation superstores were up 31% compared to last year. Second quarter EBITDA reached CAD 61 million, up CAD 27.2 million or 80.5% over last year, resulting from significant increase in sales and continued control of expenses. Gross margin improved slightly and the EBITDA margin stood at 16.4% compared to 13.6% last year. First half EBITDA reached CAD 99.1 million, up 69%. As for the EBITDA margin, it stood at 14.8% compared to 11.8% last year. Second quarter net earnings attributable to shareholders totaled CAD 37.4 million, up 111.4%. Net earnings per share were CAD 0.67 basic and CAD 0.66 diluted compared to CAD 0.31 basic and diluted last year, an increase of 116.1% and 112.9% respectively. First half net earnings attributable to shareholders reached CAD 58.4 million, up 98.1%. Diluted net earnings per share stood at CAD 1.03 compared to CAD 0.52 last year, up 98.1%. Second quarter cash flow from operating activities before net change in working capital balances amounted to CAD 46.5 million or CAD 0.82 per share, an increase of 74% compared to last year, resulting primarily from the net earnings growth. For the first half, they were 63.2%, totaling CAD 76 million or CAD 1.36 per share. For the second quarter of 2021, financing activities used cash flow of CAD 6.7 million compared to CAD 2.8 million last year. Dividends paid to shareholder of the corporation amounted to CAD 3.9 million, while no dividend was paid in the corresponding quarter of 2020. First half financing activities used cash flow of CAD 22.4 million compared to CAD 10.6 million in 2020. Dividends paid to shareholders amounted to CAD 11.6 million compared to CAD 3.8 million last year. In the first quarter of 2021, a special dividend of CAD 0.0667 per share was paid in addition to a quarterly dividend of CAD 0.07 per share. We also repurchased common share for an amount of CAD 3.3 million in the first half of 2021, while no share repurchased in 2020. During the second quarter, we invested CAD 13.9 million and CAD 16.7 million in the first half, of which CAD 9.8 million for business acquisitions and CAD 6.9 million primarily for the purchase of equipment to maintain and improve operational efficiency, including the addition of IT licenses. We continue to benefit from a healthy and solid financial position, cash balance of CAD 89.6 million, almost no debt, a working capital of CAD 416.3 million for a current ratio of 3.7:1, and a return on average equity of 20.4%. I now turn it over to Richard. Thank you, Antoine. In conclusion, our value-added service concept remains the cornerstone of our leadership. It's based on innovation in product offering, the most diversified and complete offering in our market, covering the widest range of specialty product categories. On simple and easy access to our product, whether through our network of one-stop shop centers and through our growing website, richelieu.com. On the quality and reliability of our service and the broad range of unique sales tools in our market that we provide to our customers. Our decision to maintain our inventory level at the beginning of the pandemic proved to be the right decision, and our customers are still benefiting from it. We continue to do our utmost to support them. We expect our manufacturer market continuing to be strong. To this end, in anticipation of strong future growth in the U.S. and in order to meet demand and provide the best possible service, we have several expansion projects on the table for some of our U.S. centers, notably in Detroit, Atlanta, Dallas, Boston, and Orlando. In addition, we will open a new center in Pennsylvania, likely at the end of the third quarter of 2021. As for the sales level retailers market, we do not expect growth in the second half given the exceptional sales in the last two quarters of 2020. Compared to 2019, retailers market should show a very healthy growth and should continue to be strong in the coming quarters. We remain highly vigilant to market conditions and closely monitor prices and worldwide transportation cost increases. If necessary, selling prices will be adjusted accordingly. We are confident in Richelieu's strength and great potential to continue to grow in the coming period and execute its strategy in order to create long-term value. Thanks, everyone, and I'll be happy to answer your questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session for analyst only. Should you have any questions, please press star followed by one on your touchtone phone. You will hear a brief tone acknowledging your request. Your questions will be taken in the order received. Should you wish to decline from the polling process, please press star followed by two. If you are using a speakerphone, please lift your handset before pressing any keys. One moment for your first question. Your first question comes from Hamir Patel with CIBC. Hamir, please go ahead. Hi, good afternoon, and congratulations on the strong strong quarter. Thank you. Richard, I wanted to follow up on a point you made about retailers. I think you said you didn't expect growth, but should still be up healthy versus 2019. Obviously, clearly we'll be year-over-year down, but any sort of order of magnitude on at least compared to the elevated 2020 levels we should expect for the retailer category in the back half of the year? Yes, I think if you remember well, in the two last quarters, the sales level of retailers increased by something like, correct me if I'm wrong, Antoine, something like 14%-15%, so it could be very hard to surpass that. We compare ourselves with 2019, and we expect the growth to be in the high double-digit growth still in the last two quarters compared to 2019. Okay. No, that's very helpful. Then, Richard, anything you share on how June has fared for sales in the manufacturers category? The manufacturers category is still very strong. It continued about the same pace that you've seen in the second quarter. We expect that to continue on at least for a few months because, actually, we think there's a lot of cash in the market. The consumers have been piling up cash in both U.S. and Canada in the last year. Many projects have been delayed because many people that had projects for renovations like kitchen cabinet or closet had to delay their project because they cannot find a contractor to do the job. It's postponing some work. I guess with the cash available in the market and the feeling that we've got from our customers, because we are in constant discussion with our customers, we expect them to be very busy still for a few months. Okay. Richard, just coming back to the retailers market. Other than obviously the tough year-over-year comps, we've seen signs of the DIY segment slowing in recent months. Have you seen something similar for your products or has there been maybe differences in terms of actual product impacts on DIY? Yes, compared to last year, we see it. We also see that some of the retailers, when we had enough stock, They are buying more inventory than really needed in order to secure their business back. It's also creating some billing in the future ordering. You're right, the consumers buy certainly less now than they were buying last year, there's no doubt about that. Great. That's all I have for now. I'll get back in queue. Thanks. Thank you. Your next question comes from Meaghen Annett with TD Securities. Meaghen, please go ahead. Thank you. Good afternoon. Looking at the EBITDA margin, a really strong performance there in the quarter. Are there any one-time benefits that you would call out here? As we think about the rest of this year and fiscal 2022, just on an annual basis, can you maybe update your thoughts on where you see the EBITDA margin trending, maybe relative to 2019? No, Meaghen, there's no one time in there, but definitely the high volume is favorably impacting the EBITDA margin. That's the main impact. We're being very rigorous in terms of cost control, but the strong sales volume is benefiting the EBITDA margin, that's for sure. As for the rest of the year, it should continue to be a high margin versus last year. Looking at the future, if you're using the 2019 EBITDA margin, you should see improvement as well because the 2020 EBITDA margin was not necessarily recurrent. If you use 2019 with improvement on it should be on our target. Okay. Just thinking about input costs and price increases, Richard, I think you touched on this a little bit. I think we're in a fairly unique environment here where we've seen costs rise at a rapid pace, but then we're also seeing some relief now on the cost side. How do you manage pricing with the customer in an environment like this? Do you see any reluctance to purchase from customers in an environment such as this? No, not at all. Our pricing, I think our products, I would say that since 2019, the price has increased by roughly close to 10%, which is far from being the increases that we've seen for lumber, for example. Basically, in the actual situation, we keep a very close eye to whatever is happening to market for our products. The way we manage our pricing is to protect our gross margin as a percentage. If we have cost increases and freight increases that we expect to continue on forever, we change our pricing immediately. As far as the manufacturers are concerned, it takes 24 hours to change our pricing, except for maybe 20% of our customers that are on quotation. For the retailers, usually it takes between 60 days and 90 days, which is normal for that type of customer. Basically, you can be assured that our gross margin as such is very well protected. Okay, just last question. In light of some of those global supply chain challenges, can you just talk about your approach to inventory management? Are you seeing any challenges there in sourcing key products? Then, as we see some of that slowdown take place, or maybe more of a normalization with the retailers, how do you plan for that from an inventory standpoint in terms of your purchases? In today's circumstances, as we speak, getting our product in two days North America, when it comes from Europe and Asia, is a challenge. We have an allocation for containers, for the extra containers, because we have a lot of extra containers. We pay a higher price. Some of it we can transfer to the selling prices, but some we don't. Whatever. We do not neglect any possibility in order to have a better service for our customers. We pay the high price if we have to pay to bring the containers in, and we even pay freight if necessary to maintain whatever it is necessary. Basically, those extra expenses, though, are largely compensated by increased sales, as you can see in our last quarter financials. We expect that to continue on for a few months. I'd say with the actual small decrease that we see as we speak now with our retailers, it will only create an impact in two months, three months from now. We might have a bit more inventory that will be needed, but we don't see that as a problem. For the manufacturers, though, we expect the growth that you see now to continue on for maybe not forever, but for many months. Great. Thank you for all the color. Thank you. We have a follow-on question from Zachary Evershed with National Bank. Zachary, please go ahead. Thank you. Good afternoon, everyone. Congrats on the quarter. Thank you. You've got a great pace of M&A set up thus far in 2021. Can you tell me a little bit about the pipeline and if you think you can keep up that pace? I will let Antoine complete my comments, but we're very proud with the acquisitions made so far. As we already discussed in the previous months, we see that more people are willing to sell their business for whatever reason. I think the pandemic is just another storm in their lives. I think maybe they had enough storms in their life with all the downturn businesses that we had before. Some will sell also because they had a good year. Since they make a profit this year, they said, "Okay, now it's time to sell the business." Because of that, even though the multiple would be basically the same, so we're going to pay a higher price because they do more profit this year. That's not a problem for us because there are natural differences in the price that we would have paid without the pandemic. Antoine, what do you have to add? No, you're right. The pipeline is very healthy in Canada and the U.S. on the retailers market and the manufacturers market as well. We're very busy. We're working on nice opportunities as we speak. You should be hearing from us in the next few months. We have other opportunities coming. Great news. Thanks. You've really got cash burning a hole in your pocket at this point. Any plans for a substantial dividend hike or more significant activity on the NCIB? It's a very good question. We ask ourselves the same question. We don't know. We never did something like that, and it's not the first time that we have a cash position like what we see now. Our priority will remain the acquisition and, Antoine, what would you add to that? Yeah, definitely. Acquisition is the priority. We have a share buyback program in place as well. There are a few options to use this cash. Great. All right, thanks. In terms of the expansion in the U.S., what kind of expenditure do you expect over what timeline? Actually, the expansion, the truck is in process now. It should be completed at the end of August. When I mean completed. If we don't encounter any procurement problems or whatever the racking that we need or that type of thing. We never know what's going to happen these days. Detroit, we're going to go from 50,000 sq ft- 140,000 sq ft. We used to be only 50, but we had to pay for exterior warehouses that we have the possibility to limit now. Atlanta is going to go from 50- 150. Our management team over there, with all the projects that we have, justified to us a good business plan that will largely compensate and increase sales, the investment that will be required to install ourselves in that warehouse. Actually, we're opening a new warehouse. Also, we'll be opening a new warehouse in Pennsylvania. We service the Pennsylvania market from our New Jersey warehouse. Our New Jersey warehouse, actually, is packed to the roof, it's over capacity. That will give a relief to New Jersey and give us the opportunity to expand our sales in Pennsylvania. The other projects are Orlando. Texas is already done. We went from, I don't remember what, Antoine, from 40 to 50 to 80,000 sq ft or something like that. Yes. Dallas, we went from 45 to 70,000 sq ft. Okay. Basically, all these projects are projects that we're working on now and many of them will be completed before the end of the year. That's great. Thanks. Just one last one for you. We've already talked quite a bit about margins on the call. Could you help us break out how much is really torque on the higher top line and how much is a reduction in your overall central cost structure? There's also some gross margin left in there, is that correct? Yeah, slight increase on the gross. Basically, the EBITDA margin on a normal volume would be somewhere between 12.5% and 13%. Makes sense. Thank you very much. I'll turn it over. Thank you. Your next question comes from Robert Currie with Louisbourg Investments. Robert, please go ahead. Hi, guys. Great quarter. Thank you. Just wanted to ask a few questions on some mix changes that may have happened over the past little bit. Just to kind of recalibrate, if you don't mind. When we look at renovation versus new builds, you guys have usually been three-quarters renovation, quarter new builds or something like that. Has that changed at all, or are we kind of seeing it similar in over the past several months as things have ramped up? Not as much as you mentioned. Both the sales to our retailers are related to renovation as well as the kitchen cabinets and the closet manufacturer. We see actually more sales to the new construction. It doesn't change the percentage as such, but we see more and more higher-end houses and condominiums being built. I was reading lately that some statistics saying that on the new construction, the cost for the kitchen cabinet is something like 4%. If you buy a new house for CAD 1 million, which is quite a high-end house, so the kitchen cabinet will be worth CAD 40,000 minimum, while in a new construction for a house that sells for CAD 200,000, including the bathroom, and the kitchen cabinet will account for only 4%, so CAD 12,000. In the CAD 12,000 kitchen cabinet and vanity in your bathroom, at this price, you don't even have anything in your closet except a rod either to hang your clothes. Basically, it's only CAD 12,000 for that. It's really minimal. That does not require many Richelieu products to achieve such a project. Usually, in a new house, even though it's a house that is worth CAD 200,000 or CAD 250,000, people will do renovations five years after they bought the new house. That brings some market for the future for us as well and our customers. Right. That's helpful. Just thinking about your mix. You guys have talked before in the past about how some of your U.S. business is a little more commoditized when compared to your Canadian business in terms of the actual products being sold. You guys mentioned the goal being to try to change that, the attitude in the U.S. to want more premium product. Has that been also playing a part here? Especially for hardware. For the kitchen, we continue to improve, actually, the EBITDA margin in the U.S. is not very far from the one that we have in Canada. Basically, our Richelieu product, as we already said, that 60% of the product that we sell are either Richelieu or distributed brand name products. We see all those products actually being very attractive for the U.S. market. Richelieu is becoming more and more well-known. Also, I think the COVID situation has also made it quite a springboard for Richelieu to attract new customers and new accounts for people that were not contacting us before. Basically, I think the investments that we are making in the U.S. are going to open the growth and look for a more important growth in the future that we've seen in the past. Yeah. That's actually a good segue into the next question on when you think about the U.S. or even Canada as well, but looking at market share versus just torque in general, how would you guys break down your growth in the past few very strong quarters in terms of actually winning market share versus general market growth? Obviously, you don't give any specific numbers, but just kind of general ideas. I would say 60% market growth and 20% new market penetration. Last question I have for you here is just on, I want to paint a scenario for you and I'm curious if you can give me some guidance. I just want to think about the operating leverage within your business, just given the gross margin. If you were to double your business over the next five years in terms of top line, similar gross margin profile, so the products are very similar to the mix you have right now. Where do you think your actual EBITDA margin could go from here? Is it you'll kind of top out at close to 20% or, if you even tripled your business from here, could you actually see your margin getting up higher to that 30% margin? Do you think that, being below 20 is kind of that's really where you're, because it's a capital light business, it's kind of where you're probably going to max out at? Just curious if you could provide any kind of clarity on where the potential margin profile of the business really is. Just seeing this quarter, seeing such a big jump in margin, I'm just trying to understand how much of that is really available as you guys continue to grow over the next 5- 10 years. If we continue to grow, there's no doubt that the EBITDA margin will continue to grow as well. Whether at 20%, that would be It's like, if you have been following up on our earnings for a few years, I keep seeing the investors in my dreams to reach 20% return on, how you call that, as you announced a few minutes ago. Yeah, the return on average equity. Average equity. Basically, I think it's an amazing number, and I think the EBITDA margin, I think if we dream of increasing our sales, depending on the type of investment and added expenses that will be needed to achieve it, I think, yes, the EBITDA margin could be close to 15%. I don't know. It's hard to tell that because let's say if we don't do anything, we just increase our sales, not making any further investment, staying as we are now, we will certainly reach 20%, yes, no doubt. To get that CAD 1 billion additional sale will certainly require extra expenses and acquisition would lower EBITDA margin that we guidance the actual EBITDA margin we are achieving, that type of thing. We are dreaming that all together, if to increase the EBITDA margin, yes, no doubt. Obviously, you guys have been around for a while, and you guys have an excellent track record. You're still relatively small. I'm just assuming that there's still quite a runway left of acquisitions and internal growth just in general. I'm just trying to find out. A lot of companies, it just seems like they can have margin expansion forever, but at one point you've got to stop, and I'm just wondering where that stop is for you guys and where it can really go from here. It sounds like what you're saying is 20% is high, and so you can see it, if you guys get to more 15%, realistically over the next little bit, if you kind of continue to grow in the direction you have been. Is that the way I should interpret it? Does that make sense, Antoine? Yeah, if you look historically, the highest that we've reached historically is 14.5%. We were in that area at some point. Was that pre-IFRS 16, or is that including acquisitions? Pre-IFRS, yes. Pre-IFRS. Okay. Yeah, and that was then before expanding heavily in the U.S. and then doing all the. You guys have done a lot of, I don't know how you want to call it, expansion of your warehouses that have created some headwind on margin. You're exactly right. That's prior to the accelerated growth in the U.S. Now, as you can see, the EBITDA margin is improving year after year. It all depends on the kind of investment we're making with acquisition, for example. Same store sales, the EBITDA margin is always increasing. It's really helpful. Appreciate it. Thanks, guys. Thank you. Thank you. Ladies and gentlemen, as a final reminder, should you have any questions, please press star one. It appears there are no more questions at this time. Mr. Lord, you may proceed. Thank you to all of you. There's no more questions, so we are always be happy to meet you or to talk to you over the phone if you have more questions. Thank you very much and have a very nice day. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.