ADENTRA Announces Annual and Fourth Quarter 2024 Results

Fourth quarter 2024 sales of US$530.8 million

Earnings per share of US$0.34 and Adjusted EBITDA of US$42.2 million

ADENTRA Inc. (“ADENTRA” or the “Company”) announced financial results for the three and twelve months ended December 31, 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.

Financial Highlights

• Generated full-year sales of $2.18 billion (C$2.99 billion), as compared to $2.24 billion (C$3.02 billion) in the 2023, a decrease of 2.5%. Q4 sales grew to $530.8 million (C$742.2 million), from $514.9 million (C$701.4 million) in Q4 2023, up 3.1%.
• Gross margin percentage grew to 21.7% in 2024, a 90 bps increase from 20.8% in 2023; Q4 2024 gross margin percentage increased slightly to 21.7%, from 21.6% in Q4 2023.
• Operating expenses increased by $3.4 million to $377.2 million, from $373.8 million in 2023. Q4 2024 operating expenses increased by $8.3 million, or 9.7%.
• Basic earnings per share increased to $1.95 (C$2.67) in 2024, from $1.61 (C$2.19) in 2023. Q4 basic earnings per share decreased to $0.34 (C$0.48), from $0.40 (C$0.54) per share in Q4 2023.
• Adjusted basic earnings per share of $3.01 (C$4.12) in 2024, compared to $3.18 (C$4.33) in 2023; Q4 2024 adjusted basic earnings per share of $0.51 (C$0.71), compared to $0.66 (C$0.90) per share in Q4 2023.
• Achieved full-year Adjusted EBITDA of $184.3 million (C$252.4 million), similar to $185.2 million (C$250.0 million) in 2023; Q4 2024 Adjusted EBITDA of $42.2 million (C$59.0 million) decreased 5.1% from $44.5 million (C$60.6 million) in Q4 2023.
• Generated strong cash flow from operating activities of $142.8 million in 2024, including $41.0 million in Q4 2024.
• Effectively deployed capital, reducing our leverage ratio, purchasing Woolf Distributing Company, Inc. (“Woolf”), and returning $9.6 million in cash to shareholders via dividends during the year.
• Increased quarterly dividend by 7% to C$0.15 per share, or C$0.60 annually, effective November 13, 2024
• On July 29, 2024, announced the US$130 million acquisition of Woolf, a US Midwest-based value-added distributor of architectural building and millwork products for residential and commercial markets.

“We achieved solid operational performance in 2024, executing effectively on our strategy and building on our track record of resilience and success,” said Rob Brown, President and CEO of ADENTRA.

“We achieved our results in a year that brought substantial market headwinds, including affordability constraints, a slower-than-anticipated pace of mortgage interest rate reductions in the US, and the negative impact of product price deflation, the latter of which reduced organic sales by 4%. Despite these challenges, we maintained steady product volumes, improved our gross margin percentage by 90 basis points to 21.7%, and achieved solid Adjusted EBITDA and Adjusted net income results. We also continued to generate strong cash flows with 80% of our Adjusted EBITDA converting efficiently to $142.8 million of operating cash flow before changes in working capital.”

“Our strong performance supported effective execution of our capital allocation strategies. In July we closed our acquisition of Woolf, leveraging our cash flow, credit facilities and an equity raise to complete the $130 million transaction while also bolstering our balance sheet. Woolf, which was immediately accretive to EPS, expanded our footprint in the US Midwest, enhanced our product offerings in the outdoor living category, and strengthened our presence in the ProDealer channel with its favorable long-term demand profile.”

“Adding to the year’s achievements, we increased our dividend by 7% in November, our twelfth dividend increase in as many years. And we ended the year with a reduction in our leverage ratio to 2.4x, from 2.6x a year earlier.”

“Market headwinds are expected to persist in 2025, and our business is positioned for stability. We are in nine distinct product categories, with an expanded reach across multiple end markets. This broad participation strengthens our ability to respond to shifting demand patterns across different regions. In addition, our potential tariff exposure could be limited, with 90% of our operations based in the US and an estimated 92% of purchases not impacted by tariffs that were declared in March, or those expected to come into effect in April. And in the event tariffs lead to renewed inflationary pressures, we operate a pricing pass-through revenue model, and expect to adjust pricing in response to market fluctuations within a reasonable timeframe.”

“While the economic outlook remains unpredictable, we are confident in our ability to navigate these conditions from a position of strength, leveraging our scale, financial discipline, and operational excellence to continue driving value for our stakeholders,”  said Mr. Brown.

Outlook

In the first two months of Q1 2025 our organic sales were down 6% as compared to the same period in the prior year, primarily due to lower volumes. Unfavorable winter weather resulted in fewer sales days for some of our operations in January. In addition, market headwinds have persisted into early 2025, with elevated US mortgages rates and constrained housing supply contributing to continued affordability issues, and the onset of a trade war between the US and its key trading partners increasing the prospect of renewed inflationary pressure and economic uncertainty.

Despite these challenges, we believe ADENTRA’s potential tariff exposure at this time is limited, with 90% of our operations based in the US and an estimated 92% of purchases not anticipated to be impacted by tariffs that were declared in March, or those expected to come into effect in April. In the event tariffs are implemented that lead to renewed inflationary pressures, the Company operates under a pricing pass-through revenue model, allowing it to adjust pricing in response to market fluctuations within a reasonable timeframe.

The broader economic impact of tariffs, including inflationary pressures and potential constraints on growth, adds uncertainty to the near-term outlook. US housing activity, already facing affordability challenges, may experience further headwinds. Long-term fundamentals however remain intact, supported by historic undersupply, favorable demographics, strong home equity levels, and an aging housing stock.

With pricing trends stabilizing following declines in 2024, we remain focused on enhancing operational efficiency and implementing our strategic plan. Our focus on cost control, global sourcing, vendor management, and high-value, installation-ready products, combined with advanced data analytics and digital capabilities, strengthens our ability to optimize asset management, maintain pricing discipline, and capitalize on market opportunities as they arise.

ADENTRA’s strong balance sheet, diversified portfolio, national presence, and robust supplier network, set it apart from the smaller, regional competitors that comprise the majority of the industry. Well-equipped to navigate any potential near-term volatility, the company remains steadfast in its commitment to long-term growth and value creation for shareholders.

Results from Operations – Year Ended December 31, 2024

For the year ended December 31, 2024, we generated total sales of $2.18 billion, compared to $2.24 billion in 2023, a decrease of $55.1 million or 2.5%. Organic sales decreased by $118.2 million, or 5.3%, with product prices representing 4% of the decrease and lower sales volumes representing approximately 1%. The decline in organic sales was partially offset by $65.7 million, or 2.9%, of acquisition-based revenue growth generated by the acquired Woolf business. Foreign exchange fluctuations in the Canadian dollar negatively impacted sales results by $2.6 million.

Our US operations generated annual sales of $2.01 billion in 2024, compared to $2.07 billion in 2023. This included a $123.5 million, or 6.0%, year-over-year decrease in organic sales, with product price deflation representing approximately 4% of the decrease and lower sales volumes accounting for approximately 2%. The decrease in organic sales was partially offset by the addition of the Woolf operations, which added $65.7 million, or 3.2% to 2024 US sales.

In Canada, sales for the 2024 year increased to C$235.9 million, up C$6.9 million, or 3.0%, from 2023. The year-over-year improvement reflects an approximate 8% increase in sales volume, partially offset by a 5% decrease in product prices.

Gross margin for the year ended December 31, 2024 increased to $474.1 million, up $8.0 million, or 1.7%, from 2023. This improvement was driven by an increase in gross margin percentage to 21.7%, from 20.8% in 2023, partially offset by lower sales year over year. The improvement in gross margin percentage primarily reflects the positive impact of our strategic initiatives, operating efficiency, and a reduction in inventory write-downs.

For the year ended December 31, 2024, operating expenses increased to $377.2 million, up modestly from  $373.8 million in 2023. The $3.4 million, or 0.9% increase, reflects $7.6 million of additional operating expenses and $1.9 million of transaction costs related to the Woolf acquisition, together with an $8.4 million increase in people costs related to inflation. These increases were partially offset by $15.6 million of accrued trade duties recognized in 2023, which did not recur in the current year (discussed further in section 7.0) and a $5.1 million reduction in premise costs. 

For the year ended December 31, 2024, depreciation and amortization increased to $76.1 million, up from $69.9 million in 2023. The year-over-year increase was attributed to higher depreciation of premise leases and additional amortization of intangible assets. Included in the depreciation and amortization was $24.1 million of amortization on acquired intangible assets, an increase of $2.1 million from 2023, driven by intangible assets acquired as a result of the Woolf acquisition.   

For the year ended December 31, 2024, net finance expense was $7.8 million lower at $41.6 million, as compared to $49.4 million in 2023. This improvement was primarily driven by a reduction in our average bank indebtedness balance and, to a lesser extent, lower interest rates during the period. The decrease in net finance expense was partially offset by higher interest associated with leases.

For the year ended December 31, 2024, income tax expense was $8.8 million, up from $6.9 million in 2023. This equates to an effective tax rate 15.9% for 2024, and 16.0% for 2023. In May 2024, Canada substantively enacted the Excessive Interest and Financing Expenses Limitation (“EIFEL”) legislation which limits our ability to deduct interest and increases our expected taxable income in Canada.  During the year ended December 31, 2024, we recognized $4.3 million (C$5.8 million) of deferred tax assets based on the expected utilization of operating loss carry forwards.

Excluding this tax recovery, income tax expense was $13.1 million, representing an effective tax rate of 23.7%, compared to 16.0% in 2023. The increase in the effective tax rate is due to the EIFEL legislation, and the OECD Pillar Two global minimum tax (“Pillar Two tax”), which came into effect in 2024 and added $2.7 million to our current income tax expense.

For the year ended December 31, 2024, we generated Adjusted EBITDA of $184.3 million, a $1.0 million or 0.5% decrease from $185.2 million in 2023. The modest year-over-year decrease reflects the $8.9 million increase in operating expenses (before changes in depreciation and amortization, LTIP expense, accrued trade duties, and transaction costs), largely offset by the $8.0 million increase in gross margin.

Net income for the year ended December 31, 2024 grew 28.9% to $46.5 million (basic earnings per share of $1.95), from $36.0 million (basic earnings per share of $1.61) in 2023. The $10.4 million increase was driven by the $10.8 million improvement in  EBITDA and the $7.8 million decrease in net finance expense, partially offset by the $6.2 million increase in depreciation and amortization and income tax expense that was $2.0 million higher year over year.  

Adjusted net income grew 0.8% to $71.8 million in 2024, from $71.3 million in the prior year. Adjusted basic earnings per share were $3.01, compared to $3.18 in 2023, a decrease of 5.4%.

Results from Operations – Three Months Ended December 31, 2024

For the three months ended December 31, 2024, total sales grew by $16.0 million to $530.8 million, from $514.9 million in Q4 2023. The year-over-year growth was driven by our the acquired Woolf business, which contributed sales of $34.3 million during the Q4 2024 period. This was partially offset by a $17.3 million, or 3.4%, decrease in organic sales, reflecting an approximate 1% decrease in product prices and a 2% decrease in sales volumes compared to Q4 2023. Foreign exchange fluctuations in the Canadian dollar had an additional $1.1 million unfavorable impact on sales results.

In our US operations, fourth quarter sales increased by $13.9 million to $489.9 million, from $476.0 million in the same period in 2023. The year-over-year improvement was driven by the $34.3 million contribution from the acquired Woolf business, partially offset by a $20.4 million, or 4.3%, decrease in organic sales. Approximately 1% of the change in organic sales was due to product price deflation, with 3% attributable to lower sales volumes.

In Canada, fourth quarter sales of C$57.1 million increased by C$4.1 million, or 7.8%, from Q4 2023 levels. The year-over-year improvement in Canadian sales reflects an approximate 11% increase in sales volumes, partially offset by a 3% decrease in product prices.

Third quarter gross margin increased to $115.2 million, a $3.9 million, or 3.5%, improvement from Q4 2023, primarily driven by higher sales. Gross margin percentage of 21.7% was 10 basis points higher than the same period in 2023.

For the three months ended December 31, 2024, operating expenses increased to $94.4 million, from $86.1 million in Q4 2023. This $8.3 million, or 9.7%, increase reflects the addition of $4.5 million of expense related to the acquired Woolf business. People costs were also $2.5 million higher in the current period, primarily due to inflationary adjustments and an increase in employee benefits expense.  The remaining $1.3 million increase is mainly attributable to a one-time insurance accrual reversal in Q4 2023.

For the three months ended December 31, 2024, depreciation and amortization increased to $20.5 million, from $17.7 million in Q4 2023. The year-over-year increase was mainly due to higher premise lease costs and an additional $1.2 million in amortization of acquired intangible assets related to the Woolf acquisition. Depreciation and amortization included $6.7 million of amortization on acquired intangible assets.

For the three months ended December 31, 2024, net finance expense decreased to $8.9 million, from $12.4 million in Q4 2023. The $3.5 million improvement was partially attributable to a $1.7 million change in unrealized foreign exchange gains (losses) from intercompany loans held in foreign currencies.  Lower interest rates also contributed to the reduced finance expense.

For the three months ended December 31, 2024, income tax expense was $3.5 million, representing an effective tax rate of approximately 29.7%, comparable to 29.8% in Q4 2023. 

We generated fourth quarter Adjusted EBITDA of $42.2 million, as compared to $44.5 million in Q4 2023. This $2.3 million, or 5.1%, change reflects a $6.2 million increase in operating expenses (before changes in depreciation and amortization, LTIP expense, accrued trade duties, and transaction expense), partially offset by the $3.9 million improvement in gross margin.

Net income for the fourth quarter of 2024 decreased 6.8% to $8.4 million (basic earnings per share of $0.34), from $9.0 million (basic earnings per share of $0.40) in Q4 2023. The $0.6 million decrease reflects the $1.7 million decrease in EBITDA and a $2.8 million increase in depreciation and amortization, partially offset by a $3.5 million reduction in net finance expense and a $0.3 million decrease in income tax expense.

Fourth quarter adjusted net income was $12.7 million, a decrease of 14.3% from $14.8 million in the same period in 2023. Adjusted basic earnings per share for Q4 2024 were $0.51, compared to $0.66 in Q4 2023, a decrease of 22.7%.

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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 86 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.