(TSX:KBL) EDMONTON, AB, Aug. 6, 2024 /CNW/ - K-Bro Linen Inc. ("K-Bro" or the "Corporation") today announces its Q2 2024 financial and operating results. Q2 2024 Financial and Operating Highlights Consolidated revenue increased 15.8% compared to Q2 2023, with healthcare revenue having increased by 5.5% and hospitality revenue by 28.9%. Adjusted EBITDA, Adjusted EBITDA Margin & Adjusted Net Earnings Adjusted EBITDA increased in the second quarter of 2024 by $3.6 million to $18.2 million compared to $14.6 million over the comparable 2023 period, a 25.2% increase. Adjusting items include costs of $1.7 million in the quarter related to non-recurring transaction, transition and syndication/structural financing costs. Adjusted EBITDA margin increased to 19.5% from 18.1% in the comparable period. Adjusted net earnings in the second quarter increased by $1.4 million to $6.2 million compared to $4.8 million in the comparative period of 2023. EBITDA, EBITDA Margin & Net Earnings EBITDA increased in the second quarter of 2024 by $2.1 million to $16.6 million compared to $14.5 million over the comparable 2023 period, a 14.3% increase. EBITDA margin decreased to 17.7% from 18.0% in the comparable period as the result of the adjusting items discussed above. Net earnings in the second quarter of 2024 decreased by $0.2 million to $4.5 million compared to $4.7 million in the comparative period of 2023. For the second quarter of 2024, K-Bro declared dividends of $0.300 per common share. Long-term debt at the end of Q2 2024 was $134.8 million compared to $70.2 million at the end of fiscal 2023 due to the acquisitions of Shortridge and C.M. K-Bro entered into a three-year, $175 million committed, syndicated revolving credit facility on March 26, 2024. K-Bro repurchased and cancelled 49,060 shares in Q2 2024 under the normal course issuer bid. To date, a total of 312,676 shares have been repurchased and cancelled. Linda McCurdy, President & CEO of K-Bro, commented that "I'm delighted with our record second quarter results and continued momentum in both healthcare and hospitality segments.  Both of K-Bro's segments continue to experience steady growth trends and we remain focused on delivering industry-leading service to our existing and new customers.  We're pleased with the early contributions of our acquisitions and see a positive outlook for K-Bro. We're excited about our organic growth prospects and potential future M&A.  We remain well positioned from a balance sheet and liquidity perspective and will continue to be disciplined as we evaluate acquisitions.  As K-Bro actively pursues its growth opportunities, we will continue to incur certain non-recurring or one-time transaction, transition and financing costs.  In this context, we believe Adjusted EBITDA, before non-recurring or one-time costs, will assist investors to assess our performance on a consistent basis as it is an indication of our capacity to generate income from operations.  Going forward, we expect Adjusted EBITDA margins to follow historical seasonal trends." Highlights and Significant Events for Q2 2024 Acquisition of Shortridge On April 30, 2024 the Corporation completed the acquisition of 100% of the share capital of Shortridge Ltd. ("Shortridge Acquisition"), a private hospitality laundry provider based in the North West of England, expanding K-Bro's geographic footprint in the UK.  The Shortridge Acquisition was completed through a share purchase agreement consisting of existing working capital, fixed assets, contracts and an employee base. The contracts acquired are in the hospitality sector in England and Scotland, which complements the existing business of the Corporation. Based on the Corporation's evaluation of the Shortridge Acquisition and the criteria in the identification of a business combination established in IFRS 3, the Shortridge Acquisition has been accounted for using the acquisition method, whereby the purchase consideration is allocated to the fair values of the net assets acquired. At the time the financial statements were authorized for issue, and due to the timing of the Acquisition, the Corporation has not yet completed the accounting for the Shortridge Acquisition. This includes the accounting for the amounts attributable to property, plant and equipment, intangible assets and the associated goodwill. The Corporation financed the Shortridge Acquisition and transaction costs from the syndicated revolving credit facility. The preliminary purchase price allocated to the net assets acquired, based on their estimated fair values, is as follows: Cash consideration 35,426 Contingent consideration 9,275 Total purchase price 44,701 The assets and liabilities recognized as a result of the Shortridge Acquisition are as follows: Net Assets Acquired: Accounts receivable 2,698 Prepaid expenses and deposits 912 Linen in service 1,943 Accounts payable and accrued liabilities (5,134) Lease liabilities (57) Deferred income tax asset 8 Property, plant and equipment (1) 8,986 Intangible assets 15,181 Net identifiable assets acquired 24,537 Goodwill 20,164 Net assets acquired $            44,701 1) Includes ROUA from the UK Division of $57 related to buildings The provisional intangible assets acquired are made up of $13,149 related to customer relationships and $2,032 related to the brand. The goodwill is attributable to the workforce, and the efficiencies and synergies created between the existing business of the Corporation and the acquired business. Goodwill will not be deductible for tax purposes. Contingent consideration The contingent consideration consists of amounts related to achieving certain profitability and operational targets. An amount of $7,684 was funded in cash on April 30, 2024 and is held in trust with a third party escrow agent. The remaining $1,591 will be payable in cash. The estimated fair value of the payments has been classified as contingent consideration by exercising significant judgment as to whether it should be classified as such, or as remuneration to the former owners, who will be employed subsequent to the close of the transaction. The Corporation has determined by considering all relevant factors included in the agreements as it pertains to employment terms, valuation of the business, and other relevant terms that the additional consideration is most appropriately reflected as contingent consideration. For the contingent consideration, in the event that certain profitability and operational targets are achieved by Shortridge, additional undiscounted consideration will be released from escrow or paid in cash before December 31, 2025. The fair value of the contingent consideration of $9,275 was estimated by considering the probability-adjusted future expected cash flows in regards to Shortridge achieving the targets that would result in consideration being paid. Acquisition related costs For the six months ended June 30, 2024, $508 in professional fees associated with the Shortridge Acquisition has been included in Corporate expenses. Revenue and profit information The acquired business contributed revenues of $4,402 to the Corporation for the period from April 30, 2024 to June 30, 2024. If the Acquisition had occurred on January 1, 2024, consolidated pro-forma revenue for the period ended June 30, 2024 would have been $179,676. The acquired business contributed net earnings of $761 to the Corporation for the period from April 30, 2024 to June 30, 2024. If the Acquisition had occurred on January 1, 2024, consolidated pro-forma net earnings for the period ended June 30, 2024 would have been $6,778. Acquisition of Buanderie C.M. On June 21, 2024 the Corporation completed the acquisition of 100% of the share capital of Buanderie C.M. Inc. ("C.M. Acquisition"), a private laundry and linen operator located in Montréal serving the healthcare market. The acquisition will enable K-Bro to operate with two facilities in Montreal to service its growing healthcare and hospitality business. Based on the Corporation's evaluation of the C.M. Acquisition and the criteria in the identification of a business combination established in IFRS 3, the C.M. Acquisition has been accounted for using the acquisition method, whereby the purchase consideration is allocated to the fair values of the net assets acquired. At the time the financial statements were authorized for issue, and due to the timing of the Acquisition, the Corporation has not yet completed the accounting for the C.M. Acquisition. This includes the accounting for the amounts attributable to property, plant and equipment, intangible assets and the associated goodwill. The Corporation financed the C.M. Acquisition and transaction costs from the syndicated revolving credit facility. The preliminary purchase price allocated to the net assets acquired, based on their estimated fair values, is as follows: Cash consideration $           11,795 Total purchase price $           11,795 The assets and liabilities recognized as a result of the C.M. Acquisition are as follows: Net Assets Acquired: Accounts receivable 742 Prepaid expenses and deposits 20 Linen in service 201 Accounts payable and accrued liabilities (377) Deferred income taxes (561) Property, plant and equipment 7,055 Intangible assets 1,800 Net identifiable assets acquired 8,880 Goodwill 2,915 Net assets acquired $           11,795 The provisional intangible assets acquired are made up of $1,800 related to customer relationships. The goodwill is attributable to the workforce, and the efficiencies and synergies created between the existing business of the Corporation and the acquired business. Goodwill will not be deductible for tax purposes. Acquisition related costs For the six months ended June 30, 2024, $538 in professional fees associated with the C.M. Acquisition has been included in Corporate expenses. Revenue and profit information The acquired business contributed revenues of $176 to the Corporation for the period from June 21, 2024 to June 30, 2024. If the Acquisition had occurred on January 1, 2024, consolidated pro-forma revenue for the period ended June 30, 2024 would have been $177,308. The acquired business contributed net earnings of $17 to the Corporation for the period from June 21, 2024 to June 30, 2024. If the Acquisition had occurred on January 1, 2024, consolidated pro-forma net earnings for the period ended June 30, 2024 would have been $6,180. Revolving Credit Facility On August 31, 2023, the Corporation completed an amendment to its existing revolving credit facility to extend the agreement from July 31, 2026 to July 31, 2027, as previously amended on July 18, 2022. In addition, the agreement expanded the revolving credit facility from $100,000 to $125,000 plus a $25,000 accordion. On March 26, 2024, the Corporation entered into a three-year committed Syndicated Credit Facility Agreement from March 26, 2024 to March 25, 2027. The new agreement consists of a $175,000 revolving credit facility plus a $75,000 accordion. The Corporation's incremental borrowing rate under its existing credit facility is determined by the Canadian prime rate plus an applicable margin based on the ratio of Funded Debt to EBITDA as defined in the credit agreement. Capital Investment Plan For fiscal 2024, the Corporation's planned capital spending is expected to be between $15.0 and $17.0 million on a consolidated basis, including the expenditures associated with the Villeray acquisition. This guidance includes both strategic and maintenance capital requirements to support existing base business in both Canada and the UK. We will continue to assess capital needs within our facilities and prioritize projects that have shorter term paybacks as well as those that are required to maintain efficient and reliable operations. Economic Conditions Since 2020, due to changing government restrictions to mitigate the ongoing COVID-19 pandemic, supply chain disruption, geopolitical events impacting key inputs such as natural gas, electricity and diesel and inflationary impacts to labour and materials the Corporation has faced varying degrees of financial impact within Canada and the UK. The COVID-19 pandemic has also contributed to unusually competitive labour markets, causing inefficiencies in attracting, training and retaining employees.While labour markets have been stabilizing, certain regional markets continue to experience constrained labour availability. The Corporation's Credit Facility is subject to floating interest rates and, therefore, is subject to fluctuations in interest rates which are beyond the Corporation's control. Increases in interest rates, both domestically and internationally, could negatively affect the Corporation's cost of financing its operations and investments. Uncertainty about judgments, estimates and assumptions made by management during the preparation of the Corporation's consolidated financial statements related to potential impacts of the COVID-19 pandemic, geopolitical events and rising interest rates on revenue, expenses, assets, liabilities, and note disclosures could result in a material adjustment to the carrying value of the asset or liability affected. Financial Results For The Three Months Ended June 30, (thousands, except per share amountsand percentages) CanadianDivision2024 UKDivision2024 2024 CanadianDivision2023 UKDivision2023 2023 $ Change % Change Revenue $             64,669 $              28,798 $             93,467 $              59,161 $              21,584 $             80,745 12,722 15.8 % Expenses included in EBITDA 53,682 23,212 76,894 48,456 17,788 66,244 10,650 16.1 % EBITDA(1) 10,987 5,586 16,573 10,705 3,796 14,501 2,072 14.3 % EBITDA as a % of revenue 17.0 % 19.4 % 17.7 % 18.1 % 17.6 % 18.0 % -0.3 % -1.7 % Adjusted EBITDA(1) 12,244 6,003 18,247 10,782 3,796 14,578 3,669 25.2 % Adjusted EBITDA as a % of revenue 18.9 % 20.8 % 19.5 % 18.2 % 17.6 % 18.1 % 1.4 % 7.7 % Net earnings 1,775 2,760 4,535 2,829 1,862 4,691 (156) -3.3 % Basic earnings per share $                0.169 $                0.263 $               0.432 $                0.264 $                0.174 $                0.438 $              (0.006) -1.4 % Diluted earnings per share $                0.169 $                0.262 $               0.431 $                0.263 $                0.173 $                0.436 $              (0.005) -1.1 % Dividends declared per diluted share $                 0.30 $                0.300 $                       - 0.0 % Adjusted net earnings (1) 3,032 3,177 6,209 2,906 1,862 4,768 1,441 30.2 % Adjusted basic earnings per share (1) $                0.290 $                0.304 $               0.594 $                0.271 $                0.174 $                0.445 $                0.149 33.5 % Adjusted diluted earnings per share (1) $                0.288 $                0.302 $               0.590 $                0.270 $                0.173 $                0.443 $                0.147 33.2 % Total assets 444,380 346,532 97,848 28.2 % Long-term debt (excludes lease liabilities) 134,789 63,598 71,191 111.9 % - Cash provided by  operating activities 7,863 1,122 6,741 600.8 % Net change in non-cash working capital items (6,093) (11,615) 5,522 47.5 % Share-based compensation expense 546 443 103 23.3 % Maintenance capital expenditures 1,064 1,143 (79) -6.9 % Principal elements of lease payments 2,668 2,340 328 14.0 % Distributable cash flow 9,678 8,811 867 9.8 % Dividends declared 3,169 3,237 (68) -2.1 % Payout ratio 32.7 %