Hey, everybody. John here. Before we get started today, just a quick disclaimer. We're going to be making some forward-looking statements today. As much as I wish we had a crystal ball, the reality is no one can predict the future. We're also going to talk about a lot of numbers, including some non-GAAP measures such as adjusted EBITDA and adjusted free cash flow. Please take a look at our investor relations site, richardsgroup.com, and all of our filings on SEDAR+ for reconciliations to those measures. Enjoy the show. Welcome to another episode of the "Richards Management Review" podcast. I'm John Glynn, the CEO, here with Enzio Di Gennaro, our CFO, and today we're talking about Q2 results. Enzio, what are the highlights? Sure, John. The quarter could be highlighted by a few significant transactions. We had an acquisition, as we had previously reported. We completed the buyback, so we are now done with the share buyback, 770,000 shares bought at CAD 28.50. That's a significant use of our capital. We also did recognize tariffs in the quarter that we'll talk about later, tariff refunds that we recognized that previously had been putting pressure on our gross margin in the packaging business. Our gross margins consequently have continued to be strong, and we're not seeing that entirely on the EBITDA line because we continue to have OpEx growth because of our acquisitions. Right. Let's get into that summary of results. There's a ton of financials. Our investors are going to read them. Yeah. What sticks out to you? Really, the highlights. We're up 5% again this quarter, not different from the first quarter. Year to date, we're up 5%. Healthcare was up 23% in the quarter. That's led again by aesthetics, where we've got the DPW acquisition numbers. Two months now are included that weren't included last year. We are going to start comping next quarter, full comp. You'll see that in the numbers. We also saw some growth in the pharma business. That's because of our acquisition as well. Partly because of our acquisition, partly organic. It's kind of 50/50 split there. Our other healthcare segment also grew as a result of our surgical business. A really good quarter there. Year to date, same sort of trend there, where we had aesthetics up 50%, pharma up 8%, and our other category up 38% with the inclusion of the first quarter overachievement of NDI, the dental business, the dental acquisition of last year. Really great numbers. As you'd alluded to, that means that our geographic split now is 60% in Canada, which it was before. Rest of the world has gone up to 9%, and the U.S. is down from 36% to 30%. A real big shift there from a revenue geographic segment. We're getting a bit ahead of our strategy here. Our 2027 and 2028 themes were about globalizing. Hopefully investors are seeing the consistency with what we said was coming. That move, I think we were at about 2.5%, maybe 2.6% revenue before. Absolutely Running up to 9% now. That's going to keep growing, right? Absolutely. It's going to keep growing. It's also growing because the packaging business is what's included on the U.S. side, and that is down again. That's a segue into diving deeper into packaging. Packaging is down 12% in total in the quarter. Not as much as we were down in the first quarter. First quarter was 17%. Both cosmetic and food and beverage, John, are down still double digit, 13% and 11% respectively in the quarter. That takes the total packaging segment down 14% year-to-date, and that's also what's driving the U.S. split down. We're still working through how we get those numbers to bottom out. We're still seeing a lot of the macro pressures. Nothing's really changing. It's not as significant as it was in the first quarter. We're hoping that we're going to start to see some back half increase or at least back half stabilization with some of the initiatives we've got going on internally. Yeah. Even underneath the numbers, investors don't see month-to-month, but we know relatively through the quarter, April, May, and June. June was the strongest of the set. It does look like when we look at forward forecasts- Yeah That things are going to level off. With any luck, we can find a few gems in there and find a little bit of growth. Yeah. Let's also talk for a moment about what's going on with free cash flow. Sure. We've got that bit of growth on the revenue line, more growth on the gross margin line because our overall margin's improving. Yeah. EBITDA's been shuffling around, but kind of flattish when you take the healthcare growth and offset it with the packaging decline. Yeah. What's going on with free cash flow? Where's the money going? Yeah. Really, we're converting our free cash now at 67%, which is actually better than last year, quite frankly. A lot of this has to do with, as you alluded to, the EBITDA line is not moving as much as we'd like it to see, but it still is. A lot of that was driven by recognizing those tariffs this quarter. We did get a bump in the conversion rate. Year to date, we're at 65%. It's healthy. It's not fantastic, but it's healthy. Interest is dragging that down. We made significant investments in buying back our stock and in acquisition. There's an interest bill that comes with that. That's dragging down the conversion. Our maintenance capital continues to Although in the second quarter, we actually spent less than last year, comparable period. Year to date, we're up CAD 300,000 because of our systems investments and our people, process, and systems initiatives. That does drag down your conversion rate, and it's going to continue to do that until we level off, get our debt paid down, and level off on our spending on our maintenance capital. Yeah. We have just a little bit of organic investment in there as well, right? With the DermapenWorld business, some new products in development. Yeah. We've had some significant capital outlays just in the last quarter. Yeah for some products we're hoping to launch in 2027. More to come on that when we're a little closer to the launch date. Teaser. Yeah, teaser. You touched on interest briefly. Yeah. We should talk quickly about the balance sheet. There's a few things that. Yeah have moved around, specifically our long-term debt number will have popped up quite a bit. Yeah. Obviously, that's a result of the M&A and the NCIB. Absolutely. We should touch working capital briefly. Yeah. The leverage is at one and a half times now. That's a level that's still well within our range of comfort. We're happy with where we've deployed that capital. We've deployed it in, as you'd alluded to, our acquisitions and our buyback program, both expected to be very significant in terms of what the returns are going to be on that, and the embedded multiples that we've paid for those capital outlays. We're happy with that. Working capital, we did generate some cash out of working capital in the second quarter. Some of that is timing. Our payables were up, and we dropped our prepaid so that will get caught up in the third quarter. All in all, our debt did go up, our gross debt did go up to CAD 95 million. Net, it's CAD 85 million. Again, we're still comfortable with that level at this stage. That being said, we do expect to just drive that number down over the next couple of quarters with operating cash. Yeah. Well, I think we've done a little bit of movement on inventories. Yeah This is going to lead into our operating update. We've got a lot expected in the future. We've got a little bit more cleanup on the aged ware, which is remaining to do, but the team's been making great progress. As we think about absorbing and right-sizing inventories from the various acquisitions, we think we can get a little bit more of that. Absolutely. Hopefully, we generate a little extra cash out of the working capital over the next six to 12 months there. Correct. Yeah. That leads us into the operating update. At a high level, two things that I think stuck out to me this quarter, which is DermapenWorld and PharmaSystems Inc. are both in their J curve, where we talked about it last quarter. Sure. If you went back and listened to that, we talked about this idea that when we acquire a business, we sort of expect for six to 12 months as we absorb it and integrate it, that financial performance can sometimes come down a little bit. It obviously comes back up the other side, hence the J curve. It's not all downhill. It just needs that time to sort of integrate and stabilize. We're definitely in the middle of the J curve there. There's a few big points that we're going through. First is leadership integration. Most of the businesses that we buy are often entrepreneur-led. Right. There's usually one very strong voice in the room. We like to operate our businesses on a bit more of a round table of experts, each covering their piece and create a sort of balance. That culture shift takes time. People have to get used to operating in a new way. That's kind of underway with those businesses now. The other piece is then corporate functions. Folks have to learn how to collaborate with this idea of corporate central functions, right? Like the finance departments. Absolutely need to come up to speed not only to manage reporting, but to figure out that there's these new corporate resources they can pull on. Right. I mentioned inventory. We have our own set of inventory controls going in. We're going to be looking through potential aged ware, anything that needs to be written off or right-sized. We may see a little bit of that in the second half. Yep. I think that's really the core set of operating changes in those businesses. Did I miss anything? That's all. Yeah, no, I think you've captured it, John. I think at the end of the day, we're still driving at a sort of 15% adjusted EBITDA level. At the end of the day, our efficiencies in all those operating areas that you're alluding to are eventually going to drive that number up. That's the exciting part of those initiatives, really, in our minds, is that we've got all this activity going on. We do have low-lying fruit there that we can dig our teeth into. We're excited about that. At the end of the day, it's going to lead to a healthy return from an earnings perspective, and that's what we're shooting for. Yeah. That brings us to today's interview, where a lot of investors since last quarter have been asking us what's going on with the packaging business. I had a chance to run an interview with Scott Maxwell, our VP of Sales and Marketing here at Richards. We actually walked through this very office. Let's take a look. Welcome to the Richards head office here in Toronto, Ontario. This is both our head office, and it serves as one of our biggest packaging locations. I'm here today with Scott Maxwell, VP of Sales and Marketing for Richards. Scott, welcome to the podcast. Thanks for having me. Just before we get started and go inside, we're going to take a little tour around. A lot of our investors, when they first find us, can be a little bit confused about what we do in packaging. Why don't we start with this overview? What do we really do here? Yeah. It's sometimes a misconception when you try to find us through the Bloomberg filters. You'll see that we're listed under manufacturing when in fact, that couldn't be farther from the truth. We really are holistically a distributor from design to delivery. Tell me a little bit more about what it means to be a distributor. Distribution varies by industry, but for us at Richards, what we do is we holistically buy in bulk, using our various locations throughout North America and distribute amongst our customers' needs. When we get inside, I know we're going to walk around and check out a few things. What do you think we're going to see in there? You're going to see a range of products that are going to show from case pack, large quantities, to the pick and pack small stuff that we do with e-commerce as well. Awesome. Let's go take a look. Sounds great. All right. Welcome to the warehouse. This is very typical of what one of our warehouses would look like in any one of our 12 locations across North America. You'll see here that we got a variety of stacked items depending on the customer size and needs. All right. I know we have a wide variety of customers, some very large, some very small, and servicing those can look a little bit different. Take us through some of the operations. What does it feel like to serve a big and a small customer? Right. When it comes to our large customers, we really do have a very managed inventory for them. They'll come in in full truckloads, and they'll actually go out in full truckloads. When it comes to our medium-sized customers, they're going to mix and pack different items on a pallet. That's where we take and break down the cases so that we can cater whatever the ask is for the individual end use application. Moving forward on that scale, we go down to e-commerce, where we have our pick, pack, and ship. Again, a little bit more of a transactional customer base, not nearly as volume-centric as the large ones that we've typically had in the past. Right now, we're getting a quick look at our front office here. When you walk into any of the Richards offices, what do you normally see? Yeah, we really run a very lean office for the most part. Our salespeople we really encourage to be out on the road and obviously in front of our customers, which is really important. We really have a small contingent of people that actually work in our offices. You'll probably see less than half a dozen in most locations. Our Toronto office, however, does dual act as our headquarters for all of Canada and the U.S., it's going to be a little larger than normal. The office is broken up into different locations. One area is our sales pit, where we have salespeople that are coming in and out to grab samples and spend a little bit of research time. Then we have another area that's located for just our finance and purchasing and sourcing people. One of the things you'll find is we also encourage remote work from home because we do find that the distribution business doesn't require everybody to have the hands-on-deck mentality. Even though from a culture standpoint, we still have our days where everybody comes in together and we celebrate with wins and we have some great times. I think the most important piece is getting the job done, and for a lot of people, it's being efficient at home or in the office, whichever their preference is. All right. Thanks, Scott, for taking us through the warehouse there. It was a great walkthrough. Let's turn to some components of strategy, let's start with something big, basic, but very important. Why do people choose Richards? We really double down on our mantra, which is "See the Richards difference." That's really comprised of three things, which is our service, experience, and our expertise. A company that's been around for as long as we have, we really do have a sales force and technical acumen that's second to none. Awesome. Turning for a moment to some financial performance recently. We're getting a lot of questions. Revenue's been going down for a little while. Our margin profile's been improving, and we've been doing some work to control our operating expenses. It can make for a bit of a difficult story to parse. What's happening? Well, we've seen some real issues in the U.S. through the macroeconomics that are happening. Supply chain issues have come into play as well with our Asian manufacturers really feeling the long lead times that are impacting us. We also have the byproduct of just discretionary spending being pulled back in the U.S. I think as a part of that, the revenue numbers are obviously reflecting that. Take us into this improvement in gross margin a little bit because we're seeing some significant upswings. What's driving that? Really margin management has come from better data and better analytics. We've really had an opportunity to dive into where the leaky parts of our bucket were on a margin perspective and really start to put some real governance and SOPs on how to actually maintain that. That leads us to the all-important question of what comes next. You mentioned briefly the U.S. We obviously don't control the macro market. When you get your crystal ball out, you're the closest to the business. What does the second half of the year look like? I think it's a tale of two stories. The Canadian side of our business seems to be holding up fairly well, even though there's a throughput in the U.S. that's definitely slower than what we're used to. Our Canadian contingents seem to be holding firm, and we hope that's going to last through the end of the second half. On the U.S. side, we're seeing a slight pull-up in certain areas because of discretionary spending coming back to somewhat normalcy, but I think we're going to still see some issues and headwinds because of the economy in the U.S. Longer term, if we think about 2027, 2028, if you take that time horizon off of it, what are we expecting to see out of our packaging business over the next two, three, maybe five years? Well, for the first time in a long time, I think we really now have the people, process, and systems in place to be really effective and manage the margins in the way we want to and also drive the revenue in the way we want to. From my perspective, I really think that we're in a really good spot to win as long as the economy really shakes our hand and that we do well. At the same point in time, I think that we have to be really careful about where we want to play and who with. Our focus is on the small and medium-sized business for that reason. Scott, thank you for the time and the tour today. It's been wonderful walking through the business and giving people a bit of insight as to where we're headed. Thanks so much. Cheers. Thank you once more to Scott for taking us through the packaging business here. We hope that deep dive gave all our investors just a little bit more flavor as to what we actually do in our packaging business. Looking at the docket, that's all for today. Thank you, everyone, and we'll see you next time. Thanks, everyone.