Transcontinental (TSX:TCL.A) Q3 2026 Earnings Call

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10:41 Mesdames et messieurs, merci d'avoir patienté et bienvenue à la conférence téléphonique de TC Transcontinental. Une période de questions suivra la présentation et des directives vous seront données à ce moment. Nous désirons vous rappeler que cette conférence est enregistrée aujourd'hui le 9 septembre 2026. Welcome to the TC Transcontinental Earnings Conference Call. After management's remarks, we will conduct a question-and-answer session, and instructions will be provided at that time. As a reminder, this conference is being recorded today, September 9, 2026. I would like to turn the conference over to Yan Lapointe,

11:28 Senior Director, Investor Relations and Treasury. J'aimerais maintenant céder la parole à Yan Lapointe, Directeur Relations avec les Investisseurs et Trésorerie. Monsieur Lapointe, please go ahead. Thank you Sylvie, and good afternoon everyone on the call. Welcome to Transcontinental's third quarter of fiscal 2026 earnings call. Before we begin, please note that you can find on our website our quarterly report, including financial statements and related notes, as well as the slides supporting management's remarks. A replay of this conference call will also be available on our website shortly after a call. We have with us today our Chief Executive Officer, Sam Bendavid, and our Executive Vice President and Chief Financial Officer, Donald LeCavalier.

12:18 As referenced on slide 2, some of the financial measures discussed over the course of this conference call are non-IFRS. You can refer to the MD&A for a definition and reconciliation of these measures to IFRS. In addition, this conference call might also contain forward-looking statements. These statements are based on the current expectations of management and information available as of today. Forward-looking statements also involve numerous risks and uncertainties, known and unknown. The risks, uncertainties, and other factors

12:53 that could influence actual results are described in the fiscal 2025 annual MD&E and in the annual information form. With that, I will turn the call over to Sam. Thank you, Yan, and good afternoon, everyone. Our improved third quarter performance reinforces our confidence in our ability to close fiscal 2026 in line with our financial outlook.

13:20 In retail services and printing, two highlights are particularly noteworthy. First, our ISM and specialty business delivered revenue and profitability

13:32 growth over and above the contribution from recent acquisitions. Integration is progressing ahead of plan. We have completed the consolidation of our operations into our existing platforms, and we continue to capture synergies that are supporting margin expansion. Second, we successfully completed the nationwide rollout of radar in mid-June, with strong participation from both existing and new customers. This represents a significant milestone and strengthens our retail services offering through this cost-effective national mass media platform.

14:17 With national coverage now in place, the distribution build-out is complete

14:22 and the revenue opportunity lies ahead. Every week, Radar is delivered to approximately three in four Canadian households. a reach that is hard to rival in today's media landscape. We are encouraged by advertisers' interest, particularly among retailers in grocery, pharmacy, and home improvement.

14:47 I also want to acknowledge the strong execution of our many teams involved in the launch, expanding from roughly 5 million to more than 11 million households in a single step. That was a significant operational undertaking.

15:03 Our teams executed with discipline and delivered. In books and education, the slight decrease in revenue was related to the timing of orders, which we expect to recover in the fourth quarter. Looking ahead, we remained focused and disciplined on commercial execution,

15:24 cost management, operational efficiency, and technology initiatives, including AI-enabled projects that support long-term productivity and growth. Our transformation continues to build momentum, and the progress we're making across the organization gives us confidence in our ability to deliver. With that, I turn it over to Donald to review our financial performance in more

15:49 detail. Thank you, Sam, and good afternoon, everyone. Moving to slide five of the earnings call presentation. For the third quarter of fiscal 2026, revenues were 3.8% higher versus the same quarter last year, mainly as a result of acquisitions in ISM, partially offset by lower volume in our traditional activities. Regarding profitability, consolidated adjusted EBITDA at $60.9 million was 4.1%

16:21 higher than last year. The increase was mainly due to the acquisitions and our cost reduction initiatives partially offset by lower volume. This first performance is in line with our anticipations of having a stronger second half of fiscal year, and we remain confident in our outlook to generate an adjusted EBITDA for fiscal 2026 in line with the previous year. Despite a significant decrease in our debt level, net financial expense increased by $5.3 million following the impact of foreign exchange loss on financial instruments, accounting to $12 million. This FX loss is not related to our current operation, as it related

17:06 to the sale of our packaging business. Excluding this, our financial expense would have been Adjusted income tax increased by $3.7 million to $14.4 million and represented

17:21 an effective rate of 32.3%. The increase is mainly due to timing and different income tax expenses and we continue to expect to have an effective tax rate in the mid-20s.

17:34 This led to adjusted earnings per share from continuing operation of $0.32 compared to $0.27 in Q3 last year, at 18.5% improvement.

17:47 Now, moving to the sector review on slide 6. Revenues for the retail services and printing sector increased by 7.1% to $233.3 million. This increase is mainly due to the recent acquisitions and the nationwide rollout of radar, partially offset by lower volume, mostly in traditional flyer printing activities. I would like to highlight that our in-store marketing and specialty products activities had a strong quarter with 38% revenue growth reaching $99.7 million.

18:23 While a significant portion of the growth came from our acquisitions, this activity generated close to 7% organic growth in the quarter. Adjusted EBITDA increased by 2.3% to $49.4 million. Improvement came mainly from the recent acquisitions and our cost reduction initiative, partially offset by the lower volume in our traditional flying printing activities. Moving to our books and education sector on slide 7.

18:54 Despite the tough comparable, the sector delivered solid results with revenues of $73.1 million down from $77.5 million the same quarter last year. The 5.7% decrease is mainly due to timing and should recover in the fourth quarter.

19:12 Adjusted EBITDA decreased by $1.1 million to $20.5 million as a result of temporary shift in volume and exchange rate. Now turning to cash flow. In the third quarter of 2026, we generated $25 million in cash flow from operating activities compared to $36.5 million for the same quarter last year. The $11.5 million difference is mainly due to higher tax pay, partially offset by improved

19:41 working capital. In line with our normal seasonality, we expect an important portion

19:47 of the negative working capital we have year-to-date to reverse in the fourth quarter of fiscal year. Our capex at $19.8 million were higher than last year, but remain in line with our target of about $60 million

20:02 for the full year. The sale of two buildings, including the sale of Boucherville Warehouse early in the third quarter, generated net inflow of $36.5 million in the quarter

20:15 and contributed to lower our net debt to 2.06 times at the end of the quarter compared to 2.14 times three months ago. We continue to expect bringing this ratio lower for year-end at around 1.75 times. These sales bring our total monetization of real estate to $60 million since we launched

20:37 the program over two years ago. In addition to Saint-Hyacinthe, we are reporting for sale another building in Montreal. We expect to sell these two buildings over the next 12 months, and together, this

20:50 should allow us to reach our original target of $100 million. On that note, we will now proceed with the question period. Mesdames et messieurs, nous allons maintenant procéder à la période de questions et réponses. Si vous avez une question, veuillez appuyer sur les touches étoiles suivies du 1 sur

21:11 votre clavier téléphonique. Thank you. Ladies and gentlemen, we will now conduct a question and answer session. If you have any questions, please press star followed by 1 on your touchtone phone. Nous avons notre première question de Adam Schein, National Bank Financial. Our first question is from Adam Schein at National Bank Financial. Please go ahead, Adam. Thanks a lot. Good afternoon. Maybe we could start with the newspaper outsourcing mandates. I think there were two of them that were announced earlier in the spring.

21:41 And some new business was ultimately going to transition, I think, into your facilities maybe by the end of August, which spills into the Q4. But can you just talk about how that's going?

21:54 How... Thank you very much. In terms of number of households reached, but maybe just talk to the fact that revenue

22:23 might have been a contributor in the Q3, but perhaps not necessarily any real profitability quite yet, and what expectations around that might evolve going into next year. Thanks. Great. Thank you. Thank you, Adam. Good afternoon. So on your first question regarding the newspaper insourcing, two phases to that. Phase one is pretty much complete. while we expect, well phase two is also complete but that started in August for the insourcing of the newspaper within our Halifax plant. So you'll see most of those benefits effectively in Q3. On the radar side of things, I'm happy to share that the interest from our advertisers is there.

23:18 Current advertisers, potential advertisers, there's good feedback from the market on Radar and the launch, so happy to report that. And we do see The increase in revenue on the radar for the product versus the traditional retail flyers. We do expect down the road things to settle down, but it's a little bit early to say what is the exact put and takes of what it means in terms of profitability and revenue growth going forward, but the feedback is pretty good.

23:57 Oh, sorry. Go ahead. Just to add, regarding your assumption for Q3, you were right in saying it is a tech news, but regarding a bottom line, no real impact, but too early to see what will be the impact in the near future. Okay, so the presumption there is that, you know, obviously some puts and takes, but perhaps maybe, Donald, you can just further elaborate, you know, any investments were

24:22 required in regards to, you know, the Q3 rollout? No, nothing major regarding that. We have made some investment in Quebec for the first phase. There were some investment to be ready for the phase two, but nothing major in Q3 regarding that. Okay. And just one last comment going back to your reference to leverage at 1.75 or thereabouts, you know, a nice step down as you've telegraphed sub two times going into the Q4. I'm just curious, though, because, you know, from what I'm looking at in terms of the forecast and maybe there's some items below EBITDA to reflect upon but Any update on where either CapEx is going and or free cash flow? I mean is free cash flow poised to be more perhaps closer to let's say a 50 overall for the year than necessarily maybe a 70 or 80 to get you to 175 rather than let's say a 1.6 leverage or lower? Thanks.

25:29 I would say the most, as I said, my opening remark is the usual positive movement we see in Q4 on the working cap. That's the big impact that will help us to achieve the 175 target. There's no real estate impact and capex. We said that we figured that we should be in a 60 million region. So our model is mostly on the working cap that you'll see the big improvement in Q4. Perfect. Thank you very much. The next question is from Stephen McLeod at BMO Capital Markets. Please go ahead, Stephen. Thank you. Good evening, everyone. I just wanted to ask about just some of the shift in orders that you saw into Q3 from Q4 in the B&E segment. And I'm just curious if you can quantify for what that amount was so we can model it back into Q4.

26:31 We won't comment on the amount, but I would say that, you know, it's mostly coming from our educational sector, and sometimes it's just school ordering,

26:40 depending on the timing of their ordering. There were some issues regarding also some delivery from one of our suppliers. So what we said is overall we should catch the miss in Q3 and Q4. Okay. Okay, that's helpful. And then maybe just turning to the ISM business, you had some nice organic growth in that business in the quarter. And I was just two follow-up questions regarding ISM. The first one is, can you just comment a little bit about what the acquisition pipeline looks like currently? And Sam, you mentioned just some of the synergies you're seeing from some of the acquisitions. And I'm just wondering if you can get some commentary around sort of where you're seeing synergies and what the margin profiles of of the fully synergized business look like?

27:30 Great, thanks. Good afternoon, Stephen. So, regarding your first question, the pipeline remains strong for the ISM business. We do expect to have a continuing trend of Q3 into Q4. With regards to synergies, we see synergies within many levels as we're integrating the platforms mostly within the We see synergies on the procurement side. We see synergies on the operational side. And that lifts margins by a couple of percentage points. That's great. Thank you. And maybe just finally, I'm just wondering if you can comment a little bit about what you're seeing on the inflationary pressure side and how you're

28:20 managing through higher costs, if you're seeing them. We do have, across our lines of business, we do have strong contracts, long-term contracts in some cases. Therefore, inflationary pressures and impact is very limited for us at this moment. Great. Thanks so much.

28:48 La prochaine question. The next question is from Sean Stewart at TD Cowen.

28:52 Please go ahead, Sean. Thanks. Good afternoon, everyone. Just one question. Sam, now that the dust has settled after the packaging sale and the dividends, any perspective on the board's view with respect to the company's trading valuation, which looks cheap to us, and I guess opportunities to address that discount at a faster pace? Are you content just to let free cash flow build and pick off both on ISM acquisitions

29:26 or other bigger picture initiatives you're thinking about to address the valuation. Thanks for the question, Sean. Good afternoon. I'm not really in a position to comment on the valuation. Obviously, the higher the better. That being said, what we're focused on is growing the business and making sure EBITDA trance for the rest of the year and in 2027. So the valuation will take care of itself.

30:00 And, you know, appreciating your smaller float now. Does buybacks enter the discussion at any point? Do you worry about lack of trading liquidity undermining the valuation further? How do you weigh that option longer term? I would say that for a moment, capital allocation for us, we announced the dividend payment. That was the first thing, the return to the shareholders, obviously following the big payment of $20. So

30:28 on the short term, it's going to be dividend and then ISM acquisition or maybe education acquisition or not if we now don't do any acquisition pay down the debt and obviously we'll have a capex program but in line with what we had in recent years so that's that's the strategy for the moment and and donald the capex we should assume going forward similar level to what you you had this year well it will depend also if we The timing of acquisition, if we do acquisition, but that should be in line. Having said that, you know, if we see opportunity to defend ourselves or maybe to support radar with some technology, we might increase

31:06 in following years, but that's something that we will see with the deployment of radar. Okay. Thanks very much, everyone. That's all I have. Thank you. La prochaine question. The next question will be from Amir Patel at CRBC Capital Markets. Please go ahead. Hi, good afternoon. Sam, as you look out to 2027, I realize the top line might have less visibility just depending on how that radar's growth plays out. But do you see the base business

31:39 being capable of organic EBITDA growth next year? Good afternoon, Amir. Really, right now, our focus and laser focus is... is on Q4 for the rest of the year. Really a little bit too early to talk about Outlook for 2027. Fair enough. And just on the ISM side, how big could you see that business growing over time? And maybe if you could give us a sense as to the potential scale of acquisition opportunities that you see in that market. Sure. There is definitely a world where the ISM business we currently have could double in size.

32:32 That's within reach. And there's a good pipeline of potential deals. So we're active. And when the right opportunity comes forward, we'll act on it. Fair enough. Thanks. That's all I had. I'll turn it over. Next question, la prochaine question, Drew McReynolds, RBC. Please go ahead. Yeah, thanks very much. Donald, can you just... Sorry, I missed the real estate that's still outstanding with respect to the 100 million target. Can you just kind of clarify your comments on that? And then secondly, just on the book printing volume side, I think in Q3, book printing volumes were up.

33:19 Just wondering what Q4 looks like in... It seems like I think last quarter you were pretty confident in that pipeline of buildings, so if you could just provide an update on that. Thank you. Yes, for the real estate, the $40 million that we'll get to the $100 million is by the addition of the new building in Montreal. That's a building that we used to actually print La Praise on the printing site that we transferred. We're putting this building for sale. That was not in the plan at the beginning, but we know we have some other buildings that will come in play. We just confirmed this one this week. It is for sale as we speak.

34:05 We're confident that both buildings, the other one is Saint-Hyacinthe. We closed that plant in April 2025. It's in the market right now. We have some movement and we're confident that the next 12 months. Obviously, the market is slower right now than two years ago when we launched that program, but we're still confident in the transaction in the next 12 months. As far as the question regarding book, I think there's something to highlight in that business is last year we were It was a strong year for TC because we had a one-timer and we mentioned it a couple of quarters, Q2 and Q3 last year. It was a great impact for us. So this year, this one-timer was not there, so we're really encouraged by the third quarter and the forecast for that business because we were able, with the team, to get out there and replace that business, and that business that's getting in in our plant right now is not a one-timer.

35:04 Very encouraged to see the forecast for that business. Okay, just thank you. And one follow-up just on the corporate costs post-packaging and kind of the running off of the transition agreement. Where are you in kind of hitting or landing where you want to be ultimately with corporate costs? Yeah, we'll give more color at your end regarding that, regarding the way we will present a number because management fees will change also. But I would say the good news is if you look in the MD&A right now, year-to-date, after three quarters, what is the real decline in cost is $3 million. Obviously, there was noise coming from the share for management. and if you look at Q3 there's 2.1 million so that we're definitely going in the good direction so we're not up to the run rate that we should have but we we see the movement in the right direction so you know we we obviously we should maintain that that momentum in Q4 and it should uh even get bigger next year so great momentum on that side we start to see the impact of what was recently done okay got it thank you very much Ladies and gentlemen, if there are any additional questions at this time, please press the star followed by the one. As a reminder, if you're using a speakerphone, please lift the handset before pressing the keys. Thank you.

36:30 La prochaine question. The next question is from Maher Yagi at Scotiabank. Please go ahead. Merci d'avoir pris mes questions. I wanted to ask you in terms of your previous question on You know, how do we grow EBITDA? I know you, David, you mentioned that we're not in a situation to talk about that yet for 2027. But maybe just if I wanted to double down, what needs to happen for us to see EBITDA grow?

37:17 Is it Do we need a combination of revenue growth and margin improvement, or that can happen just on the cost side, improving margins? Maybe, Sam, if you can elaborate a little bit on your strategy for growing revenue next year, that would help us maybe just understand where you're heading. Thank you. Thanks for the question. It's a heavy question to answer because we've got a mixed portfolio, right? So hard to pinpoint the answer. Obviously, if there's revenue growth, then that solves the problem. But again, this is looking ahead, right?

38:13 for really, really remaining focused on Q4 and the rest of the year. So it's hard at this point to provide more callers than that the teams are really working on changing the trajectory of Summit Legacy business and continue to grow the ISM business. That's as much as I can share at this point. And maybe just to add some color on it, you might recall some of the presentation we did, where we encourage is that if you look at the pie of our business 10 years ago regarding our pie today, the portion that's growing is getting bigger and bigger, mostly ISM, but we see education also, like we said a couple of times, being probably growing in the future either by organic growth or acquisition.

39:03 So that portion is getting bigger and bigger. And what was your, you know, the old printing business, the magazine, the flyer, newspaper, obviously still important for us, but in terms of percentage of business, that is much lower than it used to be. So where exactly that organic growth on one side will compensate for the negative, we're not there to make the call today, but we like the direction we're going with the portfolio. Okay, thanks, Donald, for that. Sam, maybe I can go back to you. I think you mentioned earlier that you saw growth in ISM both from organically and through the M&A side. Is there a way to give us maybe a sense of how much organic growth you saw in ISM in revenues in the quarter?

39:54 Sure. That organic growth for the business was roughly 7%. Okay, nice. Okay. Okay, perfect. And maybe just a follow up on an earlier question on the books and education. I know, I understand you didn't want to quantify how much revenue got pushed into Q4. But have those orders been signed and firmed up since they got pushed out or we're still waiting for them to be finalized? I'll say that the Q4, the momentum is there. Are we going to catch everything back? We're confident.

40:39 Having said that, our year-end this year will be October 2024. The timing of one week might be an impact, but we're confident. This is why I reiterate our confidence to deliver year-over-year flat. This is part of the reason why we're confident to deliver that. We expect education to name them to get back to their normal level of sale in Q4 to compensate for the missing Q3. Just one last question on radar. So there was an earlier question regarding how that is maybe starting to help on the revenue side. We did see some pressure in printing on the margin side. Is that because of this launch and this rollout that you're doing or it's because of other reasons that we saw that pressure come in?

41:39 I would say that it's a mix, so what you just said has an impact. Also, recall that the ISM business, through the year, we've been increasing and we're confident to increase the margin, but the margin of the ISM business is not at the level of what I'll call the flyer business and newspaper business. But the good news is that the margin is growing in that sector, so it was a very strong quarter for that group. Okay, and on the revenue contribution side from Radar, is that additive to your total revenue generation, or there's some puts and takes in terms of, you know, yes, you're making more money from doing it, but there could be some revenue contribution?

42:37 for some of your existing client base. How should we think about the revenue opportunity in that segment for 2027? Like Sam said, we'll have definitely more callers regarding 2027 for the entire impact of Radar, but what I can tell you, it does have an impact right now on the revenues, like we said earlier, because Thank you. Mr. Lapointe, there are no further questions at this time. Thank you everyone for joining us on the call today and we look forward to speaking to you soon.

43:36 Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.