Good afternoon, ladies and gentlemen, and welcome to the Premium Brands Holdings Corporation First Quarter 2025 Earnings Conference Call. Question-and-answer session. [Operator Instructions] This call is being recorded on Wednesday May 7th, 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, Alan. Good morning, and welcome, everyone, to our 2025 First Quarter Conference Call. With me here today is our CFO, Will Kalutycz. Hopefully, you've had a chance to listen to our prerecorded call posted on our website this morning. We will now take your questions.

[Operator Instructions] Your first question comes from Martin Landry of Stifel.

My first question 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 a sign of decreasing consumer confidence. We've seen some QSR reporting slower traffic. I was wondering if you're seeing at product retail and with some of your clients, any sign 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. So that's still continuing. And obviously, we're benefiting from that. And then in terms of consumers overall in North America, there is no question that consumers are looking for more value. They're still leading the same products, but they're changing the channel that they buy from. So they in some cases, will switch from retail to club. And anyway, so 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. State by state, I'd say it differs. But anyway, I hope I kind of covered your question.

Okay. So overall, not much weakness to report so far in -- at your end customers.

Yes. 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. But it is the one area we have seen some softness, consistent with the industry statistics...

Again, we need to be -- yes, we need to be careful, Martin, with generalizations. Because different categories are performing differently based on the macro trends. 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. So that's -- it's important to understand that.

Yes. Okay. And then just a second question, Will, you reiterated your annual guidance, it calls for revenue growth of 11% to 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.

Yes. So 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. So yes, so you should still see some growth in Q2. But really the much stronger growth being increased Q3 and Q4.

Which, again, Martin will also be driven by capacity coming on board as well throughout the ecosystem.

Best of luck.

Your next question comes from Derek Lessard of TD Cowen.

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 5-year target. It's going to take some healthy compounded annual growth to get there. So I'm just wondering I guess, how you guys are thinking about the drivers of that growth, particularly as we kind of look out longer term? And how you're thinking about the cadence of that?

Yes. So it really is -- it goes back to George's previous comment around capacity. So first, you got to build the capacity before you can start pursuing the opportunities. The opportunities have been there for a while now. And we hold that out earlier. I think our pipeline at that point was about $1.2 billion of sales opportunities we were pursuing, and it's since grown. So it's really the capacity is now in place. We are now sort of working with our customers on launches and specifics around product design. And so you really should see that pick up over the course of '25 and then continue to accelerate '26. Once we finish Tennessee, the Tennessee facility, which is actually now in commercial production. And then when we -- our GTA facility comes on in 2026, from starting from the 2024 sales of about $6.5 billion, that gives us about $1.7 billion of capacity from these new projects, incremental to any other capacity that was in the system. So it's really now leveraging that capacity, accelerating our growth. So you're going to see some good strong growth in the back half of this year, continue to accelerate '26 and then '27 sort of come down a bit. But our internal organic target of that $10 billion in sales is roughly $9.2 million to $9.5 million. And then we expect some acquisitions to figure it out. So we are nicely on track for that...

And 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 our -- although that business has grown a lot for us. And historically, the only reason we haven't grown more is access to capacity. And 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. Just -- so maybe just two housekeeping questions for me before I requeue, Well, more on the corporate cost, it's fluctuated between, I guess, around $4 million to $10 million in the recent quarters. Just whether what's the best way to think about the corporate costs? And then maybe on the investment income, it jumped a little bit to $15 million this quarter. Just wondering what the run rate should be.

Yes. So our corporate costs fluctuate. Generally, Q4 is a when we adjust a lot of our bonus accruals. So given that last year didn't 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 to -- $10 million, $10.5 million in a normal situation. In terms of the bump in the interest on the interest income, that really came -- we referred to in advance to Clearwater. We did do a temporary advance to them in the -- at the -- early in the quarter, and that drove our interest costs up a little higher.

Your next question comes from Kyle McPhee of Cormark Securities.

Just a little bit more on the U.S. organic volume growth that keeps turning on. So we can kind of annualize the U.S. growth that's turned on, get a picture for what a contribution would look like in 2026 from a full year of all this new stuff. And can you maybe give us a picture for what that annualized run rate of all this new U.S. growth turning out might look like exiting this year? Presumably, it's a much bigger number than we're at now.

Yes. 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. Well, is it fair to say like in that old pipeline side, you gave $700 million of highly likely revenue coming 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, a highly likely to. Will that all be on by the end of this year?

That should all be on by the end of this year, yes. .

Got it. Okay. And your Tennessee sandwich plant sounds like it's all tracking as expected, will be ramping up later this year. Can you give us any comments on utilization target for all that new capacity by the end of this year, end of next year? How visible is that for you?

Yes. When we build the IRRs on these projects, we generally use a 5-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. And then last one for 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 now partial offset to otherwise very impressive U.S. organic volume growth. Can you give us any color on the impact of this client and your year-over-year trend for the sandwich platform? Like what was their impact in your U.S. sandwich organic volume growth of 8% that you posted this quarter?

Yes. 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. But the reality is their business is improving, and we're sort of seeing our core SKUs improving. But 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 a drag with those clients, but probably diminishing drag..

I wouldn't call it a drag. I would say stable. I would say stable. Stable to growing.

Stable to growing based on there -- the innovation we have in the pipeline. .

Your next question comes from Stephen MacLeod of BMO Capital Markets.

Just -- so lots of great color and 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's actually expanded from where it was before.

No. The highly like -- as I mentioned earlier, about $130 million of that $700 million is now realized and in play. But most of that incremental stuff is in the likely or 2026 buckets.

Okay. And -- but how would we think about like 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.

Yes. Okay. Okay. That's great. And then 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 the foodservice and retail channel gets impacted quite dramatically. But we're cautiously optimistic in that the new fisheries is starting. We're expecting a reasonably strong fisheries and that should help address that and reverse that trend through the course of Q2. .

Your next question comes from Ty Collin of CIBC.

So 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? Like 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've 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're able to do that. And obviously, we had a regency 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? So again, the bottom line is that we're in a lot of very, very good discussions with regards to M&A.

Okay. Got it. That's helpful. And then 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? And is this kind of a onetime thing? Or does that business potentially need more funding going forward?

Yes. So Clearwater is -- their core Canadian operations, which is the heart of the business, the most profitable part of their business. They're at the low point in a number of their species of sort of natural commodity cycles, natural cash cycles. And so it's 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. So that hit their cash flows pretty hard, hit their -- and their available credit is a function of their cash flows. So their availability of credit is impacted by that as well. So 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 catches come back. We've seen some really optimistic signs in the second quarter. And so we're 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. So lots of good things happening in the business. We are a temporary low, but we truly do see that as temporary.

Your next question comes from Michael Glen of Raymond James.

Well, I just want to pin you down maybe a little bit on how to think about Q2 because Q1 will organic volume growth was quite good. And then you have this back half acceleration. So you indicated that you are launching some programs in Q2. So 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?

Yes. Well -- and it's a little tricky, too, right, Michael, because Q1 is a seasonally slow quarter. So when you're looking at percentages, things can get a little distorted. So you shouldn't expect to see the same percentages necessarily. But you should still continue to see some good strong growth. And the only other comment I would make is the fact that the key QSR customers we're talking about earlier. Again, we're not expecting to see the same strong sales growth in Q2 that we saw in Q1. So I guess, 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 $7.2 billion to $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. And 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. .

Yes. Okay. And then 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? And then number two, can you remind us of the amounts associated with the sale leaseback that you're pursuing?

Yes. So on the inventory that when we tore apart our inventory increase for the first quarter. $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 against and protect pricing with their customers. And then we also had a couple of product launches we're building inventory for. So we expect that to normalize out in Q2 because Q2 is the big quarter for a lot of -- launch of these speed programs with summer months coming. So $40 million of it is fairly simple. And then there's probably another $40 million of just work to be done to get our day sales -- our days purchases and inventory back to a more normal level.

Okay. And on the sale leaseback amounts?

And the sale leaseback. We're preliminarily estimating about $230-plus million on the sale leaseback. Again, the plant is just sort of starting commercial production. It just finished. And so we're 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 as depending on timing, but we are pushing to get it done in Q2.

Your next question comes from Ian of Scotiabank.

So my first question is the press release called out no material impact from trade developments and tariffs for Q1. I know it's early, but what have you seen quarter-to-date in Q2?

Again, consistent with Q1, Ian, certainly, lots of noise. As I said earlier, our companies have been trying to plan and gain 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. And you caught out over 30% growth in the U.S. bakery in the quarter. Can you say approximately what percent of capacity your bakery division upgrades that?

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. And anyway, probably they're out there looking to acquire more capacity as we speak. .

Your next question comes from Vishal Shreedhar of National Bank.

This is Anshul in for Vishal Shreedhar. We wanted to come back on the discussion on protein and Specialty Foods. So 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 the beef jerky through 2025? And could you give us a sense of how big the category is for PBH?

Yes. And when we talk about the sensitivity, it's mainly on the U.S. component of our jerky business. And 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. So you put those two together and it is quite challenged. It's about -- the impact on the quarter was nominal. It was like -- that sales are down like $2 million to $3 million, not very much. The key is it's not a growing category. Overall, the category reps on a quarterly basis is probably about $40 million to $50 million in sales. So it's nice, but it's not a core part of our growth strategies.

[Operator Instructions] Your next question comes from Ryland Conrad of RBC Capital Markets.

So 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 and then just some timing lags on mitigating that through price increases. So 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.

Yes. We expect it to continue to be a headwind in Q2, chicken prices are continuing to rise. Beef is continuing to be hit new record highs. But 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 sees, again, knows, but the possibility of some easing of costs. The chicken has really been avian influenza story has really hit the U.S. blocks hard. And -- but you are started starting to see some improvement in terms of things come back. So that leads to our expectations around Q3. But -- so in summary, some continuing headwinds in Q2, but sort of neutral to maybe even slightly positive in Q3, 4.

Okay. Got it. That's helpful. And could you just provide an update on the integration of some of the recent acquisitions? I believe some of those were around setting additional capacity to offset some of the tariff exposure. So just how are you progressing with that plan as well?

Yes. 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. Yes, 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 we're in the process of doing that. And again, we're really excited by having access to that capacity. .

Your next question comes from Kyle McPhee of Cormark Securities.

Just a couple of quick follow-ups. I mean, maybe I'll 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 the M&A?

Yes. We're pushing to get within our targeted range by the end of the year, but that -- depending on how the EBITDA comes out and how we make up 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 all the way...

Yes, yes, yes.

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?

Well, 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, be, I would guess, maybe $100 million-ish...

Yes, about that.

Got it. Okay. So the loss period dynamic in your PFD segment is largely North American retail.

Yes, it is. And 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, but 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. .

Your next question comes from Stephen MacLeod of BMO Capital Markets.

Just a quick follow-up question from me. Just putting together, I guess, reading between the lines on the commodity price discussion. Would you -- is it fair to assume that you'd expect sort of ongoing margin pressures continuing in Q2, but maybe to a lesser degree?

Yes. No, that's a fair statement, Steve. We are -- as we've talked about in our opening comments, we are putting through selling price increases, but we're always playing catch up in these inflationary cycles. And Ideally, what happen is in Q2, we catch up towards the end of the quarter and then my earlier comment about seeing some stability or even tailwinds in the third quarter.

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, Alan. I would 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.