On Wednesday, K-Bro Linen (TSX:KBL) discussed first-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

Keebler Foods Co reported its eighth consecutive quarter of record results with a revenue of $139 million and adjusted EBITDA of $22.6 million.

The company saw a 53% year-over-year increase in consolidated total revenue, driven significantly by the acquisition of Stellar Mayan.

Healthcare revenue increased by 67% while hospitality revenue rose by 35%, with healthcare now representing 61% of consolidated revenue.

The integration of Stellar Mayan is progressing well, with 30% of anticipated synergies achieved, and the company expects to realize full synergies over 24 months.

Adjusted EBITDA margin slightly decreased by 0.3% due to Stellar Mayan's margin profile, offset by labor efficiencies and the elimination of the Canadian carbon tax.

The company maintains a strong balance sheet with a debt to EBITDA ratio of approximately 2.5 times and strong cash generation capabilities.

Future outlook remains positive with stable volume trends in healthcare and hospitality, though diesel and natural gas prices pose potential margin risks.

Management highlighted a disciplined approach to capital allocation, focusing on growth through acquisitions and a potential reactivation of the NCIB.

The company is proactively addressing potential energy cost impacts with customers, though not all contracts allow for automatic cost pass-through.

Full Transcript

OPERATOR

Good morning ladies and gentlemen and welcome to the K-Bro Linen Inc. first quarter 2026 results conference call. At this time all lines are in listen only mode. If at any time during the call you require immediate assistance, please press Star zero for an operator. This call is being recorded on Wednesday, May 6, 2026 and I would now like to turn the conference over to Kristi Plaquin. Please go ahead.

Kristi Plaquin

Thank you operator and good morning everyone. Thank you for joining us today and welcome to our first quarter results conference call. On the line with me today is Linda McCurdy, President and Chief Executive Officer. Before we begin, I'd like to remind everyone that statements made during our prepared remarks to the conference call with reference to management's expectations or our predictions of the future are forward looking statements. All statements made today which are not statements of historical fact are considered to be forward looking statements. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward looking information. Investors are also cautioned not to place undue reliance on these statements. Actual results could differ materially from those anticipated Risk factors that can affect the results are detailed in the corporation's public filings. I'll now turn the call over to our CEO Linda McCurdy who will provide her insights and remarks on the quarter.

Linda McCurdy (President and Chief Executive Officer)

Linda thank you very much Kristi and good morning to everyone. Thank you for joining us today to review our 2026 first quarter results. I'll touch on some of the highlights of the first quarter. I'll then hand it over to Kristi who will provide more details on our financial performance and the balance sheet. So we are delighted to have reported our eighth consecutive quarter of record results with revenue of 139 million and adjusted EBITDA of 22.6 million. We have steady trends in both our healthcare and hospitality segments and volumes for the quarter were generally in line with our expectations. Our Q1 results highlight the benefits of our strategic national platforms in both Canada and the UK. Stellar Myron, which we acquired in June 2025, is highly complementary to our existing UK businesses District and Fort Ridge and creates a top three national UK healthcare and hospitality platform. As our Stellar Myron first anniversary approaches, we're pleased with the progress of our ongoing integration efforts. We continue to anticipate run rate cost synergies will be realized over the contemplated 24 month timeframe and we've seen great results so far. We estimate that we've achieved 30% of the anticipated synergies. Consolidated total revenue for the first quarter increased by 53% compared to 2025, with healthcare revenue having increased by 67% and hospitality revenue by 35%. Healthcare revenues represented approximately 61% of consolidated revenue, which is higher compared to approximately 56% in 2025 due to the acquisition of Stellar amid a more volatile global backbackdrop backdrop we're pleased with our Q1 results underscoring our resilient growth

Linda McCurdy (President and Chief Executive Officer)

model and business performance. I'll now turn the call over to Kristi to discuss our detailed financial results for the quarter, after which I'll return to talk about our outlook and of course we'll open it up to any questions. Chris Kristi, over to you.

Kristi Plaquin

Thank you, Linda. The information we are discussing today is also highlighted in our 2026 first quarter earnings press release issued yesterday and detailed supplemental financial information can be found on our Investor Relations website under the heading Financials. April's consolidated revenue for Q1 of 2026 increased by 52.9% year over year to 1 39.1 million in Canadian dollars. Quarterly revenue for both The Canadian and UK divisions were roughly equal.

Kristi Plaquin

90% of the increase in consolidated revenue was due to the acquisition of stellar Mayan in June 2025 and the remaining portion was made up of price increases and volume increases. Strategic acquisitions of high quality operators with leading market positions in key regions continues to be an important contributor to K-Bro's overall and as we actively pursue these growth opportunities, we will continue to incur certain transaction, transition and financing costs.

Kristi Plaquin

In this context, we believe adjusted EBITDA before these adjusting items will assist investors to assess our performance on a consistent basis as it is an indication of our capacity to generate income from operations. Consolidated adjusted EBITDA for Q1 of 2026 increased by 50.4% year over to 22.6 million. Consolidated adjusted EBITDA margin decreased 0.3% year over year to 16.2% largely due to the combination of the Stellar Mayan margin profile offset by labor efficiencies and the elimination of the Canadian carbon tax in Q2 of 2025. For the Canadian division, the adjusted EBITDA margin for Q1 of 26 increased by 2.2% year over year 20 to 20.1%. The increase in adjusted EBITDA margin is largely due to labor efficiencies and the elimination of the Canadian carbon tax in Q2 of 25. As a reminder to all Q1 of 2026 will be the last quarter where we see the year over year benefit due to the elimination of the carbon tax which again was eliminated in Q2 of 25. For the UK division, the adjusted EBITDA margin for Q1 of 26 was relatively flat, decreasing by 0.1% year over year to 12.4%.

Kristi Plaquin

Adjusted net earnings increased in 1Q26 to 4.3 million from 3.4 million in 25 and included adjusting items of 2.3 million. The adjusting items in the quarter include transaction costs, transition costs and intangible asset amortization related to the acquisition of Stellar. Mayan K-Bro has a strong cash flow generation profile and a disciplined approach to capital allocation which allows us to both invest in growing the business and return capital to shareholders.

Kristi Plaquin

Distributable Cash flow for Q1 of 26 was 9.4 million and our payout ratio was 41.5%. Our trailing twelve month payout ratio was 29.7%. The company paid out 0.3 per share in dividends during the quarter for total consideration of 3.9 million post acquisition debt and leverage levels have been consistent with our expectations. We have a strong balance sheet with ample undrawn capacity on our syndicated revolving credit facility with an operating line of 175 million and an amortizing turn loan of 1 34.6 and a further $50 million accordion for growth purposes. At the end of the first quarter of 2026 we had an undrawn balance of close to 68.2 million on our operating line without taking into account the accordion reinforcing our strong liquidity. This represents a pro forma debt to EBITDA ratio excluding leases of approximately 2.5 times on a pro forma basis. Debt to total capitalization for the period ended 3-31-26 with 49.5% total debt net of cash decreased from 214.2 million to 204.5 million primarily attributable to the timing of business activities and the acquisition of Stellar.

Kristi Plaquin

I'll now turn things back over to Linda for additional commentary.

Linda McCurdy (President and Chief Executive Officer)

Linda thank you very much Christy. So we're very pleased with our start to 2026 and we see a positive outlook in the context of an evolving macro landscape. We've built national platforms with coast to coast coverage in Canada and the UK. We're able to deliver industry leading service to healthcare and hospitality customers from a network of strategically located facilities. Our services are essential to the continuity of our customers operations and we're embodying sustainable practices to support them for the long term.

Linda McCurdy (President and Chief Executive Officer)

We have a highly experienced team and we're focused on disciplined operational performance. We're making good progress on our UK integration efforts following our acquisition of Stellar in June 2025, our Canadian and UK platforms platforms are roughly the same size in terms of employees and Canadian dollar revenues. Over the past year, we've implemented various improvements at Stellar, including adopting seven day operations at certain facilities, insourcing maintenance that was previously outsourced, workflow optimization, realigning compensation structures, changing certain managers and leveraging deep bench strength of talent.

Linda McCurdy (President and Chief Executive Officer)

Our national UK platform is a top three player and we're well positioned for long term growth in healthcare and hospitality. On a consolidated basis, we continue to monitor the evolving global economic and political forces. From where we stand today, both healthcare and hospitality segments continue to experience stable volume trends. Going forward, we expect combined adjusted EBITDA margins will remain at similar levels to seasonally adjusted combined historical margins in line with management's expectations. Due to the lower EBITDA margin profile of Stellar, the consolidated UK divisional adjusted EBITDA margins will be lower than seasonally adjusted historical margins. We continue to monitor the volatile energy pricing environment and the impact on diesel prices and our margins. In the UK, 50% of our diesel usage is hedged and 50% is floating. In Canada, our diesel usage is floating. If current diesel prices were to continue, management anticipates the anticipated impact to adjusted EBITDA margins would be a decrease of 0.5% to consolidated margins.

Linda McCurdy (President and Chief Executive Officer)

Putting people first, being dependable partners and embracing environmental stewardship have always been part of our culture. We're committed to a sustainable future and we're proud of our talented, diverse and motivated team of over 4,500 employees that share our values and represent our local communities. We're working to integrate our recently acquired businesses and as always, we collaborate with our stakeholders who appreciate their priorities, solicit and receive feedback and align around common goals. We'll now open it up to any questions you might have regarding our first quarter results.

OPERATOR

Excellent. Thank you, Linda. Ladies and gentlemen, we'll now begin the question and answer session. Should you have a question, please press star followed by 1. On your touchtone phone you will hear a prompt that your hand has been raised. Should you wish to remove your hand from the cue, please press STAR followed by two. If you are using a speakerphone, please lift the handset before pressing any keys. Just a moment for our first question. And our first question comes from Ahmed Abdullah with National bank of Canada. Please go ahead.

Ahmed Abdullah (Equity Analyst)

Yeah, good morning. Thank you for taking my question. On the UK margins. It seems that the dilution is less than we had anticipated. Can you give us a bit more color on how the integration is going for Stellar Myron Last time you mentioned a 25% realization of synergies. Where are we today and was that the main contributor of kind of the stable margin profile versus last year?

Linda McCurdy (President and Chief Executive Officer)

Great morning Ahmed. Thank you for your question. So I would make the comment that while on the surface it looks like there is not a lot of dilution on the margin as the result of Stellar, it is also the seasonally weakest order for Fort Ridge. So that will be a more dramatic impact as we enter into the higher margin Stellar Myron and Fort Ridge periods or the hospitality part of the business for Q2 and Q3 which are the strongest. So we didn't see it in Q1 but it will be greater impact we'll see in Q2 and Q3 in terms of integration. It has been a lot of heavy lifting. All the heavy lifting that we knew created opportunities for us. As I mentioned, we've made changes in management. We've moved to seven day working in certain of our operations. We haven't done it yet in all of them. That is in the works and requires notice periods and working with staff schedules. But all are unfolding as planned. We have brought meetings back in house which we are has gone very, very well. So we're very pleased with the progress. It has been a lot of heavy lifting. However, there's more to come we feel or we're seizing and experiencing about and seeing the impact of about 30% of the savings in our results.

Ahmed Abdullah (Equity Analyst)

Okay, that's great. Color Just on the comment around the diesel price impacts, how have discussions been progressing with your customers? We're seeing it across a lot of industries where fuel surcharges are becoming more of a acceptable discussion point with customers. Is that 0.5% impact net of adding fuel surcharges or could you offset that 0.5% with fuel surcharges?

Linda McCurdy (President and Chief Executive Officer)

Sure. Good question. We are sort of priming the customer base to know that this could be coming down the pike. We in some of our contracts have the ability to pass it on. In many of them we don't. It is factored in in our annual price increase through depending on what the mechanism is. But in the UK that cost increase is reflected in the textile rental which is generally used as the base for our price increases. However, there is some lag in that being reflected in an actual price increase because they're generally annual. Having said that, we have historically worked very closely with our customers to pass some of these dramatic increases on whether it's natural gas or diesel. So I would say it's something that is on our radar. It's something that we work towards. But in a lot of cases there's no automatic, no automatic increase that happens as a result of it. Okay, that's good color. I'll queue up. Thank you.

OPERATOR

Thanks, Ahmed. Your next question comes from Cheryl Zhang with TD Cowan. Please go ahead.

Cheryl Zhang (Equity Analyst)

Hey, good morning Linda and Christy, thank you for taking our questions and congrats on a great quarter. Thank you. Morning Cheryl. Good morning. So first on Stellar Myron just on back of the envelope math, it appears that stellar mine revenue was in the high single digit range year over year. If my math makes sense. I'm curious what's driving the strong growth there? Was there any market share gains or penetration growth that you can point out?

Linda McCurdy (President and Chief Executive Officer)

I think the from a revenue perspective and I'll ask Christy to weigh in, it was somewhat as advertised. It was in line with our expectations. We have certainly re signed a number of our contracts with anticipated CPI type increases. So I would say it's as expected with no significant major wins. Kristi, do you have any additional color to add?

Kristi Plaquin

No, Linda, I think you've characterized it well as being really in line with where we thought it would be.

Cheryl Zhang (Equity Analyst)

Okay, thank you for that. That's helpful. And then just curious on the hospitality side, just given where fuel costs are trending and also the geopolitical uncertainties. Curious if you have seen or heard any impact on businesses, sorry, business and leisure travel demand or anything. You've any early reads from your hospitality customers? Thank you.

Linda McCurdy (President and Chief Executive Officer)

Yeah, I'd say Canada is a little more insulated. Certainly we do have a part of our business, of course in the UK that is airline business. Having said that, it is a small percent of our business. We have definitely seen some impact on flights that are going from Heathrow to, to the Middle East. So no surprise there. But it is not material in terms of overall revenue impact. I would say that we have not. We're not anticipating a dramatic impact on rooms sold from our hospitality customers, but there is definitely a general awareness and concern about jet fuel and the impact potentially on summer travel. So all that to say there's no alarm bells yet, but it is on people's radar and there's a general awareness of it.

Cheryl Zhang (Equity Analyst)

Okay, that's helpful. That's helpful. Thank you. I'll reach you.

OPERATOR

Your next question comes from Kyle McPhee with ATB Cormark. Please go ahead.

Kyle McPhee (Equity Analyst)

Hello. To start, just to follow up on the diesel cost exposure discussion, we already had that 50 basis points margin hit. When would that start to show in your results. Is that when the hedges roll off or is that kind of right away into Q2 here? If prices don't alleviate

Linda McCurdy (President and Chief Executive Officer)

pretty quickly, Kyle, because of the 50% that are unhedged in the UK so we're certainly seeing the impact and there is a little bit of an impact in Canada, but the all wrapped into the 50 basis points, but we're experiencing that now.

Kyle McPhee (Equity Analyst)

Got it. And can you provide any color on the length of these hedges that are in place?

Linda McCurdy (President and Chief Executive Officer)

Yeah. So we're not hedged in Canada on diesel. We are hedged until the end of 26 in the UK.

Kyle McPhee (Equity Analyst)

Got it. Okay. And then just to follow up on the UK organic growth, we talked about it already. You know, by my math, it was 6.1%, so very strong. Again, keep tracking ahead of what I thought you indicated it was. It was mostly pricing gains. Was there any organic volume gains in the UK that's feeding into that 6%?

Linda McCurdy (President and Chief Executive Officer)

Yeah, I'd say, I'd say, you know, certainly there was. It's half and half, to be fair. It's half price, half, half volume more. So existing customers, a few new wins, but nothing material. But it is, it is half and half.

Kyle McPhee (Equity Analyst)

Okay, thank you. And then last one for me, I'd like to discuss the natural gas price exposure. You know, your UK business, I think, is fully hedged through this year, but exposed into 2027 to whatever prices may be at that time. Canada has some exposure as well, I think. Can you help us just understand the margin at risk in 2027? You know, if, for instance, natural gases prices stay at these levels, kind of similar to the math you're doing on the diesel exposure, if it's not too early to do that here with natural gas.

Linda McCurdy (President and Chief Executive Officer)

Yeah. So, you know, what I would say is if we look out at what pricing is into 2027. Well, I'm going to say it differently. The impact is likely a 1% to just over 1% increase overall. If we had to hedge at today's rate. But of course, if we were looking at re hedging into 27, those rates come down. But if we actually had to pay today's prices for natural gas and diesel, it would be about a 1.2% increase. Christy, you agree with that number? Yes, I do. Got it. But that doesn't take into account, however, any price increases that would offset that obviously.

Kyle McPhee (Equity Analyst)

Got it. That was my next question. Can you, you have so much lead time here in this energy category. So can you proactively kind of deal with it. And is any of that automatic in this category, kind of contrasting the diesel?

Linda McCurdy (President and Chief Executive Officer)

Well, most of our price increases come either at the beginning of the year or in, you know, April. Yes. So certainly the increased cost will be reflected in the percent increase we get. So it will reduce the 1.2% impact if we had to re hedge at today's crisis. Got it. And yes, we will signal to all of. Yep. And just a final point on your question. Yes, we absolutely are telegraphing to our customers that energy is having an impact on the business and they know that.

Kyle McPhee (Equity Analyst)

Okay, thank you. That's it.

OPERATOR

Thanks, Kyle. Your next question comes from Michael Glenn with Raymond James. Please go ahead.

Michael Glenn (Equity Analyst)

Hey, Linda, are you able to update us at all? I know that you've spoken about this disposable conversion opportunity in the uk. Is there anything that you can share with those conversations at this point in time?

Linda McCurdy (President and Chief Executive Officer)

You know, we really are just getting started on that. We've been very focused on the synergy achieving the synergy target. You know, we've moved. We're moving some volume from a relocation from a small plant. So yes, it is in the work, but I would say it is in terms of priorities, kind of secondary on the list, but we still see it as a significant opportunity, Michael.

Michael Glenn (Equity Analyst)

Okay, and then are you able to provide us, is there any update that you are able to share with respect to the lower mainland renewal process?

Linda McCurdy (President and Chief Executive Officer)

I would say that, you know, their process is unfolding and there wouldn't be any real meaningful news until I think at the very earliest Q4 and possibly Q1.

Michael Glenn (Equity Analyst)

Okay. And maybe just on your capital allocation thoughts or updates. You're deleveraging, I think faster than. I think you're characterizing it as in line, but it feels like it's faster than I was certainly expecting, down at two and a half now, pro forma. So are you able to speak to how we should think about capital allocation in the second half of the year?

Linda McCurdy (President and Chief Executive Officer)

Absolutely. So we continue to look at the various alternatives with the highest priorities being, you know, growth through acquisition in our existing market. And of course, we don't depend, we don't control planning on that front. But a very close second priority would be reactivating the NCIB that we had put in place several years ago, but stopped to preserve balance sheet flexibility for the stellar acquisition. So I would say that we're pleased with how it's deleveraged and those those two priorities remain the top priorities which we'll continue to focus on.

Michael Glenn (Equity Analyst)

Okay, thank you for taking the questions.

OPERATOR

Thanks, Michael. Your next Question comes from Justin Keywood with Stifle. Please go ahead.

Justin Keywood (Equity Analyst)

Good morning. Thanks for taking my call. Morning, Justin. Thanks. Nice to see the big step up in growth. Are we able to parse out the organic contribution both in Canada and the uk?

Kristi Plaquin

Christy, do you want to address that? Yeah, absolutely. So, Justin, again, most of the revenue growth, about 90% of it would have came from the stellar acquisition. The remaining 10% would be split approximately, even, evenly between price and volume growth

Justin Keywood (Equity Analyst)

and the split Canada versus the uk. Would that be roughly half?

Linda McCurdy (President and Chief Executive Officer)

Yeah, yeah, that, that would be a fair assumption.

Justin Keywood (Equity Analyst)

Would it be fair to assume mid single digit organic growth for the rest of 2020?

Linda McCurdy (President and Chief Executive Officer)

Yeah, that, that would be. Sorry, mid single. Yeah, we would say kind of in the, in the 5 to 5 ish percent range would be, would be a reason, like mid. Mid would be reasonable.

Justin Keywood (Equity Analyst)

Mm, okay, great. And then we understand that there's several competitive RFPs that have been ongoing for quite a while in Ontario. Are we able to get an update on the stages of those opportunities?

Linda McCurdy (President and Chief Executive Officer)

Thanks, Justin. I wouldn't expect anything meaningful to, you know, be out to the market at the earliest until end of Q3 and, or by Q4. We know that there are various health organizations considering alternatives, but there's, there wouldn't be anything until that point in time.

Justin Keywood (Equity Analyst)

And are these like, are they a couple of RFPs, like 5 to 10 or more?

Linda McCurdy (President and Chief Executive Officer)

You know, it's hard to determine. Well, each, each hospital or health system somewhat acts on their own behalf and would use a group purchasing organization, but each of them would determine their own path forward. So it is a little hard to tell what each of them has in their. We know there will be some, but they don't act together as a consolidated group. And you know, there's at least 10 health organizations that would be impacted by that minimum, probably 15 actually. So that's very large.

Justin Keywood (Equity Analyst)

Anything from very large to very small, quite substantial. Like if this gets pushed a little farther. Is it fair to assume that most of these RFPS will come to market in 2027?

Linda McCurdy (President and Chief Executive Officer)

I would say that some will, some may opt not to go to RFP and look for short term extensions. It, you know, it really, I would say will become much more in focus in the back half of the year.

Justin Keywood (Equity Analyst)

Okay, interesting. And just finally for Christy, what do you anticipate the exit leverage ratio to be for 2026?

Kristi Plaquin

Justin? I would say somewhere in the mid, in the mid 2s would be a reasonable leverage exit ratio based on where we're at today.

Justin Keywood (Equity Analyst)

So would that, if I understand we're at 2.5 right now or is that already.

Kristi Plaquin

We're around 2.5 now. Yes. So kind of in the, in the mid mid 2s would be. Would be reasonable. Reasonable.

Justin Keywood (Equity Analyst)

So relatively flat then would be the way to look at it.

Kristi Plaquin

Slightly lower right than we are right now. We would anticipate free cash flow before dividend of about 45 million. So there will still be some repayments of debt so mid to like in the, you know it'll come down a little bit throughout the quarters.

Justin Keywood (Equity Analyst)

Okay. Thank you. Very helpful. Appreciate it.

OPERATOR

Thank you. There are no further questions at this time. I would like to turn the call back over to Linda McCurdy.

Linda McCurdy (President and Chief Executive Officer)

Thank you everyone. Look forward to any follow up if you have it. Feel free to reach out to Kristi and I and have a great day.

OPERATOR

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.