ADENTRA Announces Second Quarter 2024 Results

Second quarter 2024 sales of US$549.5 million

Earnings per share increase to US$0.74 and Adjusted EBITDA grows to US$48.5 million

ADENTRA Inc. (“ADENTRA” or the “Company”) announced financial results for the three and six months ended June 30, 2024. ADENTRA is one of North America’s largest distributors of architectural building products to the residential, repair and remodel, and commercial construction markets. We currently operate a network of 86 facilities in the United States and Canada. All amounts are shown in United States dollars (“US $” or “$”), unless otherwise noted.

Highlights for Q2 2024 (as compared to Q2 2023, unless otherwise stated)

• Generated sales of $549.5 million (C$751.9 million), as compared to $585.9 million (C$786.8 million)
  
• Gross margin of $119.2 million, similar to $119.4 million in Q2 of 2023
  
• Gross margin percentage increased to 21.7%, a 130 basis points improvement
  
• Operating expenses decreased by $2.2 million, or 2.4%
  
• Net income increased by 81.6% to $17.0 million; Basic earnings per share grew 76.2% to $0.74 (C$1.01)
  
• Adjusted net income increased by 47.3% to $24.4 million; Adjusted basic earnings per share increased 43.2% to $1.06 (C$1.45)
  
• Adjusted EBITDA grew 5.1% to $48.5 million (C$66.3 million)
  
• Operating cash flow before changes in working capital increased $12.8 million to $37.5 million, from $24.7 million
  
• Declared a dividend of C$0.14 per share, payable on October 25, 2024 to shareholders of record as of October 15, 2024
  
• On June 12, 2024, issued in aggregate 2,582,900 common shares at a price of $28.27 (C$38.75) per common share through a bought deal treasury public offering (“Equity Raise”) resulting in gross proceeds of $73 million (C$100 million).
  
• On July 29, 2024, announced the US$130 million acquisition of Woolf Distributing Company, Inc. (“Woolf”), a US Midwest-based value-added distributor of architectural building and millwork products for residential and commercial markets.
  
• On August 7, 2024 the U.S Department of Commerce (“Commerce”) announced preliminary results of a further administrative review with respect to certain hardwood plywood products produced in Vietnam that they believe are circumventing a previously established duty order against hardwood plywood from China. Based on these results, we believe that we may be eligible for a refund on a significant portion of duties paid. Commerce’s results are provisional and subject to change, with a final decision expected in early 2025.

“This past quarter has been an eventful period for ADENTRA, marked by several significant developments. In May, after 11 years of service Mr. Peter Bull stepped down from our Board of Directors and reduced his share ownership in the Company to just under 10%, in order to achieve certain personal financial and estate planning objectives. The development is expected to enhance our market float and trading liquidity over time, which is a positive outcome for all stakeholders,” said Rob Brown, ADENTRA’s President and CEO. 

“In June we successfully completed an equity offering of $73 million. This strategic move strengthened our balance sheet and positioned us well to execute on our promising M&A pipeline. In line with this strategy, we were pleased to announce the acquisition of Woolf subsequent to quarter-end, on July 29, 2024.” 

“On August 7th we received some positive news as Commerce announced the preliminary results of their administrative review. We have paid duties of $25.7 million and we believe we may be eligible for a refund on a significant portion of this. While Commerce’s results are provisional and could change upon becoming final, we view this as an encouraging development with potential positive cash flow impacts for 2025.”

“From an operations perspective, our bottom-line results continued to strengthen in the second quarter as tight operating management, successful strategy execution, and our significant diversification across products, geographies, customers and end-markets delivered predictably robust performance, despite softer markets.”

“Adjusted basic earnings per share of $1.06 grew 43.2% year-over-year. We also increased Adjusted EBITDA to $48.5 million, up 5.1% year-over-year. Our strong gross margin percentage of 21.7% was a key driver of these results and reflects the continued success of strategies targeting a gross margin above 20%, something we have achieved in each of the past 13 quarters. Additionally, we lowered expenses by $2.2 million during the quarter, a significant achievement in what has been an inflationary cost environment.”

“On the topline, our sales volumes were generally stable year-over-year. Product price deflation accounted for most of the 6.2% decrease in total sales as compared to the same period last year. As the North American industry returns to a more balanced supply and demand environment, product pricing has been gradually adjusting and normalizing in step.”

“Overall, our second quarter results underscore the resiliency of our business model and the deep experience of ADENTRA’s team in managing diverse market conditions. Our results also continued to demonstrate our strong cash generating capabilities, with $74 million of cash flow generated in the first half of 2024 before changes in working capital. This represents a highly efficient 79% conversion rate from Adjusted EBITDA.”

“While focused on  future growth, we also remain committed to providing near-term value for investors. During the first six months of 2024 we returned $4.6 million to shareholders via dividend payments, and today our Board of Directors approved a dividend of C$0.14 per share to be paid October 25, 2024 to shareholders of record as at October 15, 2024,” said Mr. Brown. 

Outlook

On an organic basis, we anticipate third quarter Adjusted EBITDA will be similar to what we achieved in Q2 2024. Acquisition-based growth is expected to build on that performance as we benefit from the inclusion of Woolf’s operations for August and September 2024.

Overall, the inflation and interest rate hikes of recent years are expected to continue to moderately impact residential, repair and remodel, and commercial construction markets in the second half of 2024. Despite this, we expect our strategies will continue to support strong and stable sales volumes as we demonstrated in Q1 and Q2 under similar conditions. The size, scale and sophistication of our business model allows us to implement comprehensive initiatives that drive our success and are difficult to replicate by smaller regional competitors. Key strategies include our global sourcing program and vendor management programs that provide us access to branded, exclusive, and semi-exclusive products with attractive terms. Additionally, our digital engagement initiatives with customers have been effective, with approximately 20% of our transactions occurring online. Our proprietary ADENTRA University training programs further ensure that our team is well-equipped to deliver exceptional service and maintain our competitive edge. 

These strategies are core components of our Destination 2028 plan, which targets an additional $800 million in run-rate acquired revenues between 2024 to 2028. The acquisition of Woolf puts us right on pace to achieve this goal and we will continue to evaluate additional acquisition opportunities going forward.  As one of the largest distributors of architectural building products in North America with approximately 6% market share, there remains significant opportunity for growth and we maintain a robust pipeline of acquisition targets. 

Over the longer term our business is supported by strong end-market fundamentals, including historic under-building of homes, positive demographic factors, strong home equity, and an aging housing stock. Decreases in interest rates could further support end-market demand for our products. We continue to see a multi-year runway for growth in our core repair and remodel, residential, and commercial markets.

For the full second quarter results, click here.

About ADENTRA

ADENTRA is one of North America’s largest distributors of architectural building products to the residential, repair and remodel, and commercial construction markets. The Company operates a network of 82 facilities in the United States and Canada. ADENTRA’s common shares are listed on the Toronto Stock Exchange under the symbol ADEN.

Source: ADENTRA Inc.