High Liner Foods Q3 2024 Earnings Report

High Liner Foods EPS Results

• Actual EPS: C$0.27
• Consensus EPS: C$0.38
• Beat/Miss: Missed by -C$0.11
• One Year Ago EPS: C$0.19

High Liner Foods Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

High Liner Foods Announcement Details

• Quarter: Q3 2024
• Date: 11/8/2024
• Time: After Market Closes
• Conference Call Date: Friday, November 8, 2024
• Conference Call Time: 2:00PM ET

High Liner Foods (TSE:HLF) is the leading North American processor and marketer of value-added frozen seafood. Their retail branded products are sold throughout the United States, Canada and Mexico under the High Liner, Fisher Boy, Sea Cuisine and C. Wirthy & Co. labels, and are available in most grocery and club stores. They also sell branded products under the High Liner, Icelandic Seafood, and FPI labels to restaurants and institutions, and are a major supplier of private-label, value-added frozen seafood products to North American food retailers and foodservice distributors.

High Liner Foods Q3 2024 Earnings Call Transcript

Key Takeaways

• Adjusted EBITDA Growth: Adjusted EBITDA rose 7.5% year-over-year to $21.5 million in Q3, with gross profit margin up 200 bps to 21.1% driven by lower raw material costs and operational efficiencies.
• Sales and volumes declined year-over-year in Q3, with revenues down 11.9% to $228.9 million and volumes down 6.9% due to consumer pullback, competitive pressures and exiting low-margin contracts.
• High Liner Foods increased its quarterly dividend by 13.3%, marking the fifth consecutive annual raise, and applied to expand its normal course issuer bid as management believes the shares are undervalued.
• Commercial initiatives gained traction, including expanded distribution in club and premium channels, new product innovations in retail and foodservice, and growth in alternative species like Southern Blue Whiting.
• The company refinanced its Term Loan B ahead of schedule at improved rates, reducing net debt to its lowest level in over a decade and improving the net debt/EBITDA ratio to 2.4x.

Presentation

[Operator]

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the High Liner Foods Incorporated conference call for results of the third quarter of 2024. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will conduct a question-and-answer session. Instructions will be provided at that time for you to go up for questions. If anyone has any difficulties hearing the conference, please press the star key followed by zero for operator assistance at any time. This conference call is being recorded today, Friday, November 8, 2024, at 2:00 P.M. Eastern Time for replay purposes. I would now like to turn the conference over to Kimberly Stephens, Vice President of Finance for High Liner Foods. Please go ahead.

[Kimberly Stephens, VP of Finance at High Liner Foods]

Good afternoon, everyone. Thank you for joining the High Liner Foods conference call today to discuss our financial results for the third quarter of 2024. On the call from High Liner Foods are Paul Jewer, Chief Executive Officer, Darryl Bergman, Chief Financial Officer, and Anthony Rasetta, Chief Commercial Officer. I would like to remind listeners that we use certain non-IFRS measures and ratios when discussing our financial results, as we believe those are useful in assessing the company's financial performance. These measures are fully described and reconciled to IFRS measures in our MD&A. Listeners are also reminded that certain statements made on today's call may be forward-looking statements under applicable securities law. Management may use forward-looking statements when discussing the company's strategy, business, and markets in which the company operates, as well as operating and financial performance in the future.

[Kimberly Stephens, VP of Finance at High Liner Foods]

These statements are subject to risks and uncertainties and based on assumptions that are believed to be reasonable at the time that they were made and with currently available information. Actual results or events, including auditing or financial results, could differ materially from those anticipated in these forward-looking statements. High Liner Foods includes a thorough discussion of the risks and other factors that could cause its anticipated outcomes to differ from actual outcomes in its publicly available disclosure documents, including its most recent annual MD&A and annual information form. Please note that High Liner Foods is under no obligation to update any forward-looking statements discussed today. Before the market opened today, November 8, High Liner Foods reported its financial results for the third quarter ended September 28, 2024.

[Kimberly Stephens, VP of Finance at High Liner Foods]

That news release, along with the company's MD&A and unaudited condensed interim consolidated financial statements for the third quarter of 2024, have been filed on Cedar+ and can also be found on the investor section of the High Liner Foods website. If you'd like to receive our news releases in the future, please visit the company's website to register. Lastly, please note that the company reports financial results in U.S. dollars, and therefore the results to be discussed today are also stated in U.S. dollars unless otherwise noted. High Liner Foods common shares trade on the Toronto Stock Exchange and are quoted in Canadian dollars. I will now turn the call over to Paul for his opening remarks.

[Paul A. Jewer, CEO at High Liner Foods]

Thank you, Kimberly. Hello, everyone, and welcome to our Q3 2024 conference call. I'm joined today by our Chief Financial Officer, Darryl Bergman, and our Chief Commercial Officer, Anthony Rasetta. Before I hand over to Darryl to discuss the details of our financial results, I will begin today's call with some high-level commentary on the quarter and the progress we are making to drive improved performance across the business. Nine months ago, when we first started to feel the pressure of market headwinds and consumer pullback on our business, I shared that we would adopt an aggressive yet balanced response. Our goal then, as it is now, is to support a sustainable recovery for our business that did not drive volume at the expense of profitability or vice versa.

[Paul A. Jewer, CEO at High Liner Foods]

We focused on ensuring that our commercial activities supported improved near-term performance and the longer-term upside for branded and value-added seafood category in North America. Our third-quarter results show promising signs that this approach is working. Our commercial strategies are gaining traction, driving sequential improvement in sales and volume compared to Q2, while holding on to margin. We increased Adjusted EBITDA by 7.5%, or $1.5 million for the quarter, and grew gross profit as a percentage of sales by 200 basis points. Consistent with the second quarter, our EBITDA growth in Q3 was supported by lower raw material costs and normalized inventory levels. We continue to drive efficiencies across our business, and as previously announced, we were pleased to complete a refinancing of our Term Loan B ahead of schedule, which resulted in interest savings.

[Paul A. Jewer, CEO at High Liner Foods]

Nonetheless, and as expected, sales and volume continued to decline in the third quarter compared to the prior year, largely driven by some customer and consumer pullback, the continued impact of a decline in contract manufacturing, and exiting of low-margin business. Despite the continued headwinds, we are encouraged by signs of progress in both our retail and food service businesses. We are expanding distribution and leveraging innovation to showcase the versatility and convenience of our products to customers and consumers. We also continue to capitalize on the diversification of our business, leaning into areas of greatest market stability as consumers shift between channels with a focus on value and premium offerings. Anthony will share more details about this shortly. Overall, the strong execution by the team during the third quarter reinforces my confidence in our continued resilience and improving outlook performance.

[Paul A. Jewer, CEO at High Liner Foods]

In the fourth quarter, we will continue to keep a careful eye on costs, mix, and efficiencies to support profitable volume recovery and year-over-year Adjusted EBITDA growth, despite continued headwinds and anticipated fluctuations in pricing and demand. As we drive towards improved performance, we continue to invest in our business to return to profitable growth. We are in the fortunate position to be able to do so while also increasing the dividend. The 13.3% dividend increase this quarter is the fifth consecutive year in which the board has increased the dividend between 2019 and 2024, a period that encompassed significant market turmoil from the pandemic to supply chain crises. Our ability to continue to support the dividend against the backdrop of market turmoil validates our strategy, as do the results generated in the third quarter.

[Paul A. Jewer, CEO at High Liner Foods]

That said, we continue to believe that our share price does not reflect the underlying value of our company, which is why today we announced an application to once again increase our share buyback program. The growing dividend and continued share buyback program are important elements of our approach to capital allocation, which also includes ongoing investment in our business as we continue to pursue potential M&A opportunities. In the near term, we are focused on continuing the momentum of the third quarter to strengthen revenue while preserving profitability in these dynamic market conditions. I will now hand it over to Darryl to discuss our financial results. Darryl?

[Darryl Bergman, CFO at High Liner Foods]

Okay. Thanks, Paul, and hello, everyone. Further to Paul's opening remarks, I would like to add that once again, our results this quarter are a good indicator of the company's resilience and our ability to drive year-over-year Adjusted EBITDA growth. That said, I will now turn to our financial results for the third quarter of 2024. Sales volume decreased in the third quarter by 4.2 million pounds, or 6.9%, to 56.8 million pounds. The company continued to operate in challenging market conditions driven by consumer pullback and increased competitive pressures. In the company's retail business, while High Liner Foods experienced year-over-year decline in volumes, the company once again expanded distribution and strategic areas, including club and premium offerings.

[Darryl Bergman, CFO at High Liner Foods]

The company's food service business, High Liner Foods, saw continued success of new value-added innovations in terms of volume and expanded distribution, and saw continued growth in alternative species despite the overall year-over-year decline in volume. The sales decreased in the third quarter by $30.8 million, or 11.9%, to $228.9 million, driven by volume declines amid challenging marketing conditions and reduced pricing reflecting deflationary markets. Given the highly promotional and price-sensitive retail and food service markets, the company continues to take actions on promotions, innovations, and distribution to strengthen its competitive position and mitigate the impact of external pressures while preserving profitability, which Anthony will provide more insight on here shortly. The weaker Canadian dollar in the third quarter of 2024, compared to the same period in 2023, decreased the value of reported U.S.

[Darryl Bergman, CFO at High Liner Foods]

dollar sales from our Canadian-denominated operations by approximately $1 million relative to the conversion impact last year. Gross profit decreased in the third quarter by $1.3 million, or 2.6%, to $48.3 million, and gross profit as a percentage of sales increased by 2% to 21.1% as compared to 19.1% in the third quarter of 2023. The decrease in gross profit is due to lower raw material costs, normalized inventory levels, a more profitable mix, and a balanced approach to pricing focused on supporting both the bottom and top line of the business. High Liner Foods continues to drive continuous improvement across operations to ensure prudent cost management. In addition, the weaker Canadian dollar decreased the value of reported U.S. dollar gross profit from our Canadian operations in 2024 by $200,000 relative to the conversion impact last year.

[Darryl Bergman, CFO at High Liner Foods]

Adjusted EBITDA increased in the quarter by $1.5 million, or 7.5%, to $21.5 million, and adjusted EBITDA as a percentage of sales increased favorably to 9.4% compared to 7.7%. The increase in adjusted EBITDA is due to favorable distribution expenses and lower net SG&A expenses, partially offset by lower gross profit. In addition, the weaker Canadian dollar decreased the value of reported adjusted EBITDA in USD from our Canadian operations in 2024 by $100,000 relative to the conversion impact last year. Reported net income decreased in the third quarter by $12.8 million to $18.3 million, and diluted earnings per share increased by $0.45 to $0.61. The increase in net income is due to an increase in adjusted EBITDA, an increase in business acquisition integration and other expenses, and a decrease in finance costs and lower depreciation and amortization costs partially offset an increase in income tax expense.

[Darryl Bergman, CFO at High Liner Foods]

Excluding the impact of non-routine or non-cash expenses that are explained in our MD&A, adjusted net income in the third quarter of 2024 increased by $700,000, or 14.3%, to $5.6 million, and correspondingly, adjusted diluted earnings per share increased by $0.06 to $0.20 in the third quarter of 2024. Turning now to cash flows from operations and the balance sheet. Net cash flows from operating activities in the third quarter of 2024 decreased by $40.6 million to an inflow of $13.4 million compared to an inflow of $54 million in the same period in 2023, despite higher net income and lower interest paid. This is due to lower changes in non-cash working capital balances compared to the previous year, lower finance costs due to a gain on the modification of the long-term debt, and lower depreciation and amortization.

[Darryl Bergman, CFO at High Liner Foods]

The decrease is partially offset by increased cash flows provided by operations. Capital expenditures were $17.2 million in the first three quarters of 2024 compared to $13.1 million in the prior year, reflecting the continued investment in our business. Net debt of the third quarter of 2024 decreased by $10.3 million to $239.6 million compared to $249.9 million at the end of fiscal 2023, reflecting lower bank loans, long-term debt, lease liabilities, and a higher cash balance as at September 28, 2024, as compared to December 31, 2023. Net debt to Adjusted EBITDA was 2.4 times at September 28, 2024, compared to 2.6 times at the end of fiscal 2023. The ratio has continued to improve in 2024 due to lower net debt and a higher rolling 12-month Adjusted EBITDA compared to fiscal 2023.

[Darryl Bergman, CFO at High Liner Foods]

In the absence of any major acquisitions or unplanned capital expenditures in 2024, we expect this ratio to continue to be lower than the company's long-term target of three times at the end of fiscal 2024. Notably as well, the early refinancing of High Liner's Term Loan B, which was completed in the quarter. This provides a stable platform for organic and accelerated growth strategies. In fact, the refinancing was not only at improved rates but also oversubscribed, demonstrating the confidence of our lender community that has in High Liner Foods. Also, during the third quarter, our net debt continued at the lowest levels the company has seen in more than 10 years. Before I wrap up, I'll provide details on our intention to increase the size of our normal course issuer bid.

[Darryl Bergman, CFO at High Liner Foods]

Our application, which is subject to the approval of the TSX, would increase the number of shares that the company intends to purchase from 700,000 to 1,643,340, an increase of 943,340 shares. Our move to increase the NCIB, as Paul noted, reflects the board and management's belief that the share price currently does not reflect the true value of the company. In closing, our strong balance sheet, supportive financial partners, focused team, and demonstrated ability to consistent EBITDA performance amid a dynamic economic backdrop positions us well to support our strategy and capitalize on future growth opportunities. I will now turn the call over to Anthony to discuss our operational highlights.

[Anthony Rasetta, Chief Commercial Officer at High Liner Foods]

Thanks, Darryl. And hello, everyone. The third quarter largely played out as expected in terms of market conditions, challenges, and emerging opportunities. We continue to operate in a highly competitive and promotional market on both sides of the border. Consumers remain price-sensitive, and seafood continues to be a more expensive option for protein, and certainly in comparison to other grocery staples. In food service, traffic continued to decline across the industry, and consumers traded down within food service and dined out less frequently. This is driven in part by the higher cost of dining outside of the home, with the average check size for a meal from home rising 4% in the quarter. While our diversified business enabled us to benefit from the related improvement in the retail frozen seafood category, we did experience pressure on our food service business during Q3.

[Anthony Rasetta, Chief Commercial Officer at High Liner Foods]

In particular, this quarter, we lapped a successful limited-time offer in QSR that ran in Q3 2023. However, we continue to experience relative stability in non-commercial, and we saw strong performance within the school system, where we won additional business this year. We also expanded distribution, which will help us offset continued near-term pressure. Turning now to our retail business, in which distribution gains were also a bright spot. Our distribution gains continue to be tied to innovation and value and demonstrate how the core attributes of our strategy are working together and supporting improved performance compared to Q2 and laying the groundwork for recovery. In U.S. retail, we have continued to make inroads with major club retailers driven by product innovation and value associated with club-sized purchases.

[Anthony Rasetta, Chief Commercial Officer at High Liner Foods]

Pairing value with volume allows us to appeal to the value-conscious consumer while preserving margin and will remain a key tenet of our strategy moving forward. We are supporting this strategy with targeted marketing activation in partnership with our retailers. We are encouraged by the results so far, both in terms of the number of marketing impressions and how this is translating into expanded distribution, especially in the club channel. While it is early days, retailers have responded positively to developing mutually beneficial campaigns. I am confident in the opportunities here to support sales and volume recovery and growth over time. We have some exciting campaigns timed to roll out in partnership with retailers to coincide with the Lenten period. From a portfolio perspective, the bright spots I shared in Q2 continued in the third quarter. In our U.S.

[Anthony Rasetta, Chief Commercial Officer at High Liner Foods]

Retail business, where the category continues to improve overall, our Seaworthy Premium Atlantic Salmon brand continues to be a top performer and is, in fact, the fastest-growing brand in the category. During the third quarter, we secured new listings and expanded distribution for our value Catch of the Day and Fisher Boy brands, along with our premium Sea Cuisine and Seaworthy brands. The strong response to these products, coupled with the increasing demand by consumers for value and convenience offered by frozen restaurant-quality seafood, bodes well for our future performance in retail. We will continue to focus on our Barbell Strategy of leaning into value and premium ends of our portfolio moving forward. In Canadian retail, the category is also improving, albeit not at the same pace as in the U.S., and remains highly competitive.

[Anthony Rasetta, Chief Commercial Officer at High Liner Foods]

While competitive pressures continue to negatively impact our share during the third quarter, we are capitalizing on the strength of our customer relationships and the opportunities associated with our innovation, brand heritage, and customer marketing partnerships to push back against competitive pressure. We also continue to deepen our footprint in the Canadian club category during the third quarter, with performance in that channel leading to overall growth in shipments in Q3. Innovation continues to support performance and listings across mainstream retailers, with our two new value-added shrimp innovations off to a promising start as the number one and number three branded innovations in the category this year. Turning now to alternative species, where the trends we saw in the second quarter continued into the third. Southern Blue Whiting growth continued in both the U.S.

[Anthony Rasetta, Chief Commercial Officer at High Liner Foods]

and Canada in retail and food service, and we converted another SKU over this species during the quarter. Southern Blue Whiting is a promising value-based species that attracts consumers given its cost and taste, and we expect this growth to continue, particularly in our food service business going forward. Overall, I'm encouraged by the progress we made in the third quarter to support the top line while protecting margins. Looking ahead, we intend to build the momentum underway, supported by strong consumer customer engagement and innovation success. I look forward to updating you on our progress in Q4, and with that, I'll hand it back to Paul for his concluding remarks.

[Paul A. Jewer, CEO at High Liner Foods]

Thank you, Anthony. As you've heard today, we are executing well against our targeted strategy to offset headwinds and return to profitable growth. Despite continued market challenges, we are encouraged by our financial and operational performance in the quarter, and especially our ability to make progress on the top line while continuing to strengthen profitability. We are well positioned to build on our progress in the fourth quarter as we partner with our customers to support category growth and deliver value, convenience, and innovation to consumers seeking seafood as a healthy and affordable source of protein. Our strong balance sheet remains a source of competitive advantage and priority for us. It strengthens our resilience through challenging times and affords us the ability to be measured and strategic in our response.

[Paul A. Jewer, CEO at High Liner Foods]

Similarly, it allows us to be patient and disciplined as we explore opportunities for M&A, waiting for the right opportunity to accelerate our growth across the value chain while continuing to return capital to our shareholders and invest in our business. We are focused on building on our third-quarter progress, delivering year-over-year increase in Adjusted EBITDA and pushing towards a return to top-line growth while surfacing value for shareholders. With that, I will hand the call over to the operator to open it up for our question-and-answer period. Operator.

[Operator]

Thank you. And ladies and gentlemen, we will now begin the question-and-answer session. To ask a question, you may press a star followed by the number one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press a star followed by the number two. Once again, please press star one to ask a question. One moment, please, for your first question. And your first question comes from the line of Kyle McPhee with Cormark Securities. Please go ahead.

[Kyle McPhee, Analyst at Cormark Securities]

Hi, everyone. To start, I want to unpack some of the moving parts feeding your volume performance, which was better than I thought this quarter. It seems like some of these High Liner-specific growth initiatives you're outlining are masking more and more of the macro headlines. So first, on that topic, can you help us quantify the new wins that you're landing? If we isolate the volume wins in retail and food service that you're calling out, what does that look like in terms of year-over-year growth? And is it snowballing versus the wins you talked about in recent quarters, or are you just kind of benefiting largely from the same wins?

[Darryl Bergman, CFO at High Liner Foods]

Yeah. No, I think there is some benefit from wins we had earlier in the year in food service and retail. And we're also continuing to win some new business, including some new distribution and also from the effect of, I think, some good promotional activity that's helped support volume. And you're right, Kyle. The trend has improved. We're still not back to top-line growth, although certainly have moved in that direction compared to where we were earlier in the year.

[Kyle McPhee, Analyst at Cormark Securities]

Okay. And can you help us kind of quantify when we isolate this moving part, the wins? Is it kind of low single-digit, like 1-2% type volume win isolating this stuff?

[Darryl Bergman, CFO at High Liner Foods]

Yeah. I think that's probably right. We did pick up some volume related to USDA's school business, which is larger volume, so that would be on top of that. But that helped offset some of the contract manufacturing declines that we talked about earlier in the year.

[Kyle McPhee, Analyst at Cormark Securities]

Got it. Okay, and then on the macro moving part impacting your top line, would you describe it as the intensity of the macro headwinds staying the same? Is it getting worse? I'm trying to figure out when macro kind of stops showing as a headwind in your moving parts. Because if it's not getting worse, I think you will have largely lapped it after your next quarter.

[Anthony Rasetta, Chief Commercial Officer at High Liner Foods]

Yeah. Kyle, it's Anthony. I think that there's a couple of different things happening. Foodservice has been down the last few quarters and continues to be down. So that is definitely a headwind for us as the larger part of our business and portfolio. As traffic was down a couple of percentage points, we're seeing declines in QSR on the value side of foodservice for the first time this quarter. And average check is up overall. So that's headwind for us. Offsetting that, though, is within foodservice, as you can imagine, as customers are looking for value, they're shifting into distributor label or private label.

[Anthony Rasetta, Chief Commercial Officer at High Liner Foods]

We do a good chunk of that business in private label, and so have been able to have some relatively stable performance associated with that, in addition to our business in non-commercial, like Paul talked about, with what we picked up in schools and in school feeding in particular. And then the other side of it is that retail is improving. So as consumers are eating out less and at home more, which is getting worse in foodservice, better in retail, then we're seeing the pickup in retail and some traction with both our innovation as well as with the distribution and promotional tactics that we have going on.

[Kyle McPhee, Analyst at Cormark Securities]

Thanks for all that color on the moving parts. Last thing I wanted to talk about with you, the gross margin percentage. So increased promotional activity is one of the moving parts impacting this line item, offsetting some of the lower inventory cost dynamics that you're getting those benefits. So I know Q3 marked a point for increased promotional activity, and that likely continues. But I guess my question is, is the intensity of promotion accelerating going forward? What should we expect there? Or are you just kind of holding on to the existing intensity of promotion?

[Darryl Bergman, CFO at High Liner Foods]

No, I think we'll continue with the promotional activity, perhaps at a slightly higher pace in Q4, because we're seeing the positive effects of that promotional activity, and that's driving overall higher gross margin dollars. The other piece, though, Kyle, to factor in for sure, is just the impact of mix, right? So as we see an increase in some of the private label or bid business, that may come at lower margins, but certainly is supportive to the overall gross margin dollar growth.

[Kyle McPhee, Analyst at Cormark Securities]

Okay. That's it for me for now. Thank you.

[Operator]

Thank you. And your next question comes from the line of Nevan Yarkin with BMO Capital Markets. Please go ahead.

[Nevan Yarkin, Analyst at BMO Capital Markets]

Thank you and good afternoon, guys. First, I just wanted to clarify quickly, Paul. I think you mentioned year-over-year EBITDA growth. Was that in reference to 2024, or was that also including the fourth quarter of this year?

[Darryl Bergman, CFO at High Liner Foods]

Yeah. It's certainly year-to-date. We've had EBITDA growth over the prior year, and as we've really been saying through the year, we expect to be able to deliver EBITDA growth for the full year, and obviously, with the performance we put up in the first three quarters, we are even more confident of that performance on an annual basis.

[Nevan Yarkin, Analyst at BMO Capital Markets]

Okay. Perfect. And then just on sales in the quarter, so beyond the volume decline, can you parse out the impact from price deflation as well as mix this quarter?

[Darryl Bergman, CFO at High Liner Foods]

From a deflation perspective, there's probably not a lot that's factored in. I think it's more of an impact of the volume decline and mix. Because we are starting to see some species, the prices actually come back up off lows earlier in the year. So I would say it's more of a mixed impact than a deflationary price impact. Other than, obviously, promotional activity can have some impact on the net sales outcome.

[Nevan Yarkin, Analyst at BMO Capital Markets]

Okay. That makes sense. And then I guess just sort of as you think about Q4 on a year-over-year basis, when we're looking at volumes here, a nice sequential improvement there in Q3. Would you expect to see a further improvement into Q4 as well? Still down year-over-year, but sequentially improved?

[Darryl Bergman, CFO at High Liner Foods]

We certainly expect to see a sequential improvement. As we've been saying, we're really working to get back to top-line growth. We've had a good start to the quarter, but we need to continue to work on having a strong finish to the year.

[Nevan Yarkin, Analyst at BMO Capital Markets]

And then I think we already touched on gross margins. So just on SG&A, it was quite steady on a year-over-year basis. I was looking for a bit of an increase there. Maybe you can talk about just how SG&A dollars, excluding the DNA component, are expected to trend into Q4.

[Darryl Bergman, CFO at High Liner Foods]

Yeah. Nothing that I would highlight that should swing the amounts to any degree. The only thing I would caution, we always look at what I'll call adjusted SG&A. So we exclude any impact of long-term incentive programs, those kinds of things. So when you exclude that, I wouldn't expect any significant change quarter over quarter. The one area that there can be some seasonality in is our marketing spend. But again, nothing significant between Q3 and Q4 that I'd highlight.

[Nevan Yarkin, Analyst at BMO Capital Markets]

And so I guess if it's really relatively steady sequentially, you'd be looking for a larger year-over-year increase into Q4. Is that right?

[Paul A. Jewer, CEO at High Liner Foods]

In SG&A as a % of sales?

[Paul A. Jewer, CEO at High Liner Foods]

I guess I'm not sure I understand the question.

[Nevan Yarkin, Analyst at BMO Capital Markets]

Yeah. More on SG&A dollars. If your comment was in relation to SG&A dollars being relatively flat sequentially, or were you referring to SG&A as a percentage of sales?

[Paul A. Jewer, CEO at High Liner Foods]

I was thinking of SG&A as a percentage of sales. Yeah. Yeah.

[Nevan Yarkin, Analyst at BMO Capital Markets]

I see. Okay. Perfect. That makes sense. That's it for me. Thank you.

[Operator]

Thank you, and there are no further questions at this time. I would like to turn it back to Paul Jewer, President and CEO, for closing remarks.

[Paul A. Jewer, CEO at High Liner Foods]

Thank you, Operator. To close, I want to thank you for joining our call today. We look forward to updating you with our results for the fourth quarter of 2024 on our next conference call in February.

[Operator]

Thank you, presenters. And this concludes today's conference call. Thank you all for participating. You may now disconnect.

Participants

Executives

• Anthony Rasetta, Chief Commercial Officer
• Darryl Bergman, CFO
• Kimberly Stephens, VP of Finance
• Paul A. Jewer, CEO

Analysts

• Kyle McPhee, Analyst at Cormark Securities
• Nevan Yarkin, Analyst at BMO Capital Markets