ADENTRA Q2 2026 Earnings Report

ADENTRA EPS Results

• Actual EPS: $0.96
• Consensus EPS: $0.98
• Beat/Miss: Missed by -$0.02
• One Year Ago EPS: N/A

ADENTRA Revenue Results

• Actual Revenue: $607.13 million
• Expected Revenue: $838.14 million
• Beat/Miss: Missed by -$231.01 million
• YoY Revenue Growth: N/A

ADENTRA Announcement Details

• Quarter: Q2 2026
• Date: 8/5/2026
• Time: After Market Closes
• Conference Call Date: Thursday, August 6, 2026
• Conference Call Time: 11:00AM ET

ADENTRA (TSE:ADEN) Inc is a distributor of architectural products to fabricators, home centers and professional dealers servicing the new residential, repair and remodel, and commercial construction end markets. The company operates a network in North America of 86 facilities in the United States and Canada.

ADENTRA Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Solid second-quarter execution: Sales rose 1.7% to $607.1 million as 2.9% pricing growth more than offset a 1.2% volume decline. Adjusted EBITDA increased 6.2% to $57.7 million, margin expanded to 9.5%, and adjusted EPS grew 11.4% to $0.98.
• Positive Sentiment: Pricing and cost discipline supported profitability: Gross margin reached 22%, while normalized operating expenses were essentially flat year over year. Management said prior footprint and headcount actions should provide sustainable operating leverage if low-single-digit growth continues.
• Positive Sentiment: Acquisition activity remains active: The Mount Storm tuck-in acquisition, expected to contribute approximately $20 million in annualized sales, is immediately accretive and adds value-added milling capabilities in Northern California. Management said multiple opportunities remain in the pipeline, including small, medium, and larger potential transactions.
• Neutral Sentiment: Demand remains uncertain: Management remains cautious about second-half demand, with current volumes reflecting subdued macroeconomic conditions and elevated mortgage rates. However, July sales growth of approximately 3% was encouraging, and diversified customer channels have remained resilient.
• Positive Sentiment: Balance sheet and strategic initiatives provide flexibility: Leverage ended at 2.5 times, with $5.6 million returned through dividends and buybacks during the quarter and the share count down more than 2% since July 2025. Digital tools, AI-enabled pilots, supply-chain diversification, and tariff pass-through are expected to support margins and returns over time.

Presentation

[Operator]

Good morning. Welcome to the ADENTRA second quarter 2026 results conference call. All lines have been placed on mute to prevent background noise. Following management's prepared remarks, we will open the line for questions. With me on today's call are Rob Brown, President and Chief Executive Officer, as well as Faiz Karmally, Vice President and Chief Financial Officer. ADENTRA's earnings release, financial statements, and MD&A for the quarter ended June 30th, 2026 and are available on the investor relations section of its website and on SEDAR+. Before we begin, I'd like to remind listeners that management's comments today may include forward-looking statements. Actual results could differ materially due to risks and uncertainties discussed in our public filings. All dollar amounts referenced today are in US dollars unless otherwise noted. I'll now turn the call over to Rob Brown.

[Rob Brown, President and CEO at ADENTRA]

Thanks, operator, and good morning, everyone. We delivered another strong quarter despite continued macroeconomic uncertainty and a demand environment that remains below historic levels. Our second quarter results demonstrate the strength of ADENTRA's operating model and the benefits of remaining focused on the areas within our control. We generated low single-digit organic sales growth, achieved a strong gross margin, exercised disciplined cost control, and delivered meaningful operating leverage, resulting in healthy growth in both adjusted EBITDA and adjusted earnings per share. Importantly, these results reflect the work we've done over the past several years to build a stronger, more resilient business capable of creating value across market cycles. They also reflect several attributes we believe are important for long-term value creation. Positive organic growth in a soft market, gross margin expansion, positive operating leverage, double-digit adjusted basic earnings per share growth, and disciplined capital returns.

[Rob Brown, President and CEO at ADENTRA]

Before discussing the quarter in more detail, I'd like to briefly revisit the strategic priorities guiding our decisions. These priorities remain unchanged and continue to be centered on creating sustainable long-term shareholder value rather than reacting to short-term market fluctuations. The first is advancing an AI and digitally enabled operating model. Over the past several quarters, we've continued developing digital capabilities that support pricing, inventory management, and commercial decision-making. Certain of these tools are now in pilot programs, and we believe they have the potential to improve consistency across our network while driving structurally higher margins, stronger organic growth, and higher returns on invested capital over time. Second is strengthening our global supply chain. We continue to diversify sourcing across more than 30 countries while expanding access to differentiated and proprietary products. Third is maintaining a disciplined approach to capital allocation and acquisitions.

[Rob Brown, President and CEO at ADENTRA]

Our balance sheet remains in an excellent position, providing us with the financial flexibility to invest in our business, return capital to shareholders, reduce leverage where appropriate, and pursue strategically aligned acquisitions. Shortly after quarter end, we completed the tuck-in acquisition of Mount Storm in Northern California, which is expected to add approximately $20 million of annualized sales, strengthens our existing platform, and is expected to be immediately accretive to earnings. We also continue to maintain a deep pipeline of acquisition opportunities and will remain disciplined in pursuing businesses that enhance our platform, generate attractive returns on invested capital, and create long-term shareholder value. Taken together, these priorities are designed to make ADENTRA a stronger business, regardless of where we are in the cycle. Now, turning to the quarter. Sales increased 1.7% to $607.1 million, reflecting organic growth despite a softer demand environment.

[Rob Brown, President and CEO at ADENTRA]

Improved pricing more than offset modestly lower volumes, while our price pass-through model continued to support a strong gross margin of 22%. Just as importantly, we maintained disciplined cost control. Excluding tariff recoveries and other comparable items, operating expenses were essentially flat year-over-year, despite an inflationary environment. That discipline generated positive operating leverage, allowed adjusted EBITDA to grow more than 6%, with adjusted EBITDA margin expanding 40 basis points to 9.5%. Strong operating performance, lower financing costs, and our ongoing share repurchase program contributed to adjusted basic earnings per share growth of more than 11% year-over-year. Our capital allocation strategy also continued to deliver results. During the quarter, we returned capital to shareholders through dividends and share repurchases and continued to strengthen the balance sheet and maintain significant financial flexibility to execute on our strategic priorities. The quarter demonstrates that our strategy is working.

[Rob Brown, President and CEO at ADENTRA]

While we cannot control the macroeconomic environment, we can control how we operate the business, allocate capital, and position ADENTRA to create long-term value. I'll turn the call over to Faiz.

[Faiz Karmally, VP and CFO at ADENTRA]

Thanks, Rob, good morning, everyone. As a reminder, all figures discussed today are in U.S. dollars unless otherwise noted. For the second quarter, sales increased 1.7% year-over-year to $607.1 million. The increase was driven by a 2.9% improvement in pricing, partially offset by a 1.2% decline in sales volumes. In the U.S., sales increased 1.7% as stronger pricing more than offset lower volumes. Canadian sales increased 1.4% in Canadian dollars, driven by higher sales volumes despite lower pricing. Gross profit increased to $133.4 million, and gross margin expanded 20 basis points to 22%, demonstrating the effectiveness of our pricing strategy and our ability to maintain profitability in a softer demand environment. Operating expenses increased 2.7% year-over-year. This comparison includes differences in tariff recoveries between periods.

[Faiz Karmally, VP and CFO at ADENTRA]

Excluding these items, normalized operating expenses increased only 0.1%, reflecting continued discipline across the organization and the benefits of our ongoing efficiency initiatives. Reported EBITDA also benefited from a $7.5 million net recovery of trade duties and tariffs. Because this recovery was non-recurring in nature, it is excluded from adjusted EBITDA, which better reflects the underlying operating performance of the business this quarter. This operating discipline translated into strong operating leverage. Adjusted EBITDA increased 6.2% to $57.7 million, while adjusted EBITDA margin improved to 9.5% from 9.1% last year. Net income increased 6.5% to $23.5 million, or $0.97 per basic share. Adjusted net income increased 7.8% to $23.6 million, while adjusted basic earnings per share increased 11.4% to $0.98, benefiting from stronger operating performance, lower interest expense, and the positive impact of our share repurchase program.

[Faiz Karmally, VP and CFO at ADENTRA]

For the first half of 2026, sales increased 2.6% to $1.17 billion, including 0.6% volume growth, demonstrating that ADENTRA has continued to grow despite a market environment that remains below historic levels. Cash flow from operations before changes in working capital remains strong at $55.7 million. As expected, seasonal inventory purchases resulted in higher working capital investment during the quarter, which is typical for this time of year and supports customer demand heading into the second half. From a balance sheet perspective, we ended the quarter with a leverage ratio of 2.5 times. This continues to provide significant financial flexibility while supporting our balanced capital allocation strategy. During the quarter, we returned approximately $5.6 million to shareholders through dividends and share repurchases. Since July of last year, our outstanding share count has declined by just over 2%, supporting continued growth in earnings per share. Our capital allocation priorities remain unchanged.

[Faiz Karmally, VP and CFO at ADENTRA]

First, investing in the business to support long-term organic growth. Second, maintaining a strong and flexible balance sheet. Third, pursuing disciplined, strategically aligned acquisitions. Finally, continuing to return capital to shareholders through dividends and opportunistic share repurchases. With that, I'll turn the call back to Rob. Rob?

[Rob Brown, President and CEO at ADENTRA]

Thanks, Faiz. As we look to the balance of 2026, the macro environment remains uncertain, we remain cautious on near-term demand. That said, our focus remains on disciplined execution and on the areas of the business that we can control. We will continue to manage pricing, costs, purchasing, and inventory carefully while advancing the strategic initiatives that we believe will strengthen ADENTRA over time, including our digital and AI-enabled capabilities, supply chain diversification, and disciplined capital allocation. Our balance sheet remains strong, giving us the flexibility to invest in the business, return capital to shareholders, pursue strategically aligned acquisitions where they enhance our platform and create attractive long-term returns. While the near-term environment is difficult to predict, the long-term fundamentals supporting residential construction remain compelling.

[Rob Brown, President and CEO at ADENTRA]

We believe ADENTRA is well-positioned to continue compounding value through the cycle, supported by organic growth, margin durability, operating leverage, disciplined capital allocation, accretive acquisitions. Thank you for joining us this morning. Operator, we'd now be pleased to take any questions.

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star button followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star button followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment for your first question. First question comes from Kyle McPhee from ATB Cormark. Please go ahead.

[Kyle McPhee, Analyst at ATB Cormark]

Hi, everyone. I'm hoping to get some color on M&A. Nice to see a deal get done in August. It was small. Curious how active the pipeline is for more deals, maybe larger deals. I know timing is tough to control, but is it back to the drawing board now ahead of another deal, or do you have some advanced talks going on and not too far from being able to deploy your very healthy capital position?

[Rob Brown, President and CEO at ADENTRA]

Hey, morning, Kyle. On the M&A front, yes, it was very positive to complete the Mount Storm acquisition. It's a really nice tuck-in, and we got a number of good employees joining the company that I think is going to be a very nice fit regionally for our business. With respect to further M&A, yes, we're always active. I think as most people know, we've got a full-time senior VP who's always curating and feeding and developing the pipeline. This one got to the finish line just after the quarter ended, but we've always got multiple efforts in motion in parallel. With respect to your comment about size, there's always going to be a range in there of small, medium, and large opportunities that we're pursuing.

[Rob Brown, President and CEO at ADENTRA]

There's obviously more small and medium than there are large. There are more scale opportunities that are always also either in play or relationships being managed for when they might be in play in future. I would not describe it at all as a restart now that we've completed Mount Storm.

[Kyle McPhee, Analyst at ATB Cormark]

Got it. Okay. Thanks for that. On Mount Storm, you disclosed revenue. What can you tell us about the margin profile pre- and post-integration? I know it's a small moving piece, but it would still be helpful to have some color on that, notably given that I think they have some value add in the mix.

[Rob Brown, President and CEO at ADENTRA]

Yeah. I would describe the margin profiles gross and EBITDA as similar to our core business. No big outliers there. As it relates to synergies, yes, we're bringing a very strong, albeit regional competitor into a larger scale company at ADENTRA that's going to bring certain skills and strengths and synergies to it, which we will capture over time. We typically describe those as taking four to six quarters. We are keeping in mind, of course, the size of this acquisition, but we do think we improve margins over time just by bringing it into the fold of what ADENTRA can bring to the table.

[Kyle McPhee, Analyst at ATB Cormark]

Okay. Thanks for that. I'll pass it on.

[Rob Brown, President and CEO at ADENTRA]

Thanks.

[Operator]

Next question is from Nikolai Gorobets from CIBC. Please go ahead.

[Nikolai Gorobets, Analyst at CIBC]

Hi there. Last quarter, I believe you mentioned a pull forward in roofing product demand. Is the volume decline this quarter a normalization of that dynamic, or is that a function of a lower general demand or something else?

[Rob Brown, President and CEO at ADENTRA]

Good morning, Nikolai. The first quarter was slightly unusual in that we did have a lot more roofing sales, particularly just in the month of March, that some of those were oriented towards folks getting ahead of a price increase. I would not describe it as a significant move in terms of pull-forward demand. There's a little bit of timing in there, and it related to, or it results of rather in roofing, which is really only about 5% of our sales being closer to 7% or 8% in the first quarter. That's more normal now in the second quarter, I would say, with respect to your volume comment. I think that's just reflective of underlying demand conditions that we're seeing in the economy. We're doing a good job on pricing, price pass-through through the model that more than offset any weakness in that area.

[Nikolai Gorobets, Analyst at CIBC]

Okay, thanks. I guess you touched on this briefly, you're seeing divergent price and volume trends between U.S. and Canada. Could you elaborate some more on the underlying dynamics driving the difference there?

[Rob Brown, President and CEO at ADENTRA]

Some of that just relates to mix and timing, I would maybe step back from that and just say there's more tariff-related inflation in the U.S. than in Canada for reasons we all understand. That's finding its way into the price pass-through in a more meaningful way than we're seeing in Canada.

[Nikolai Gorobets, Analyst at CIBC]

Thanks. I'll turn it over.

[Rob Brown, President and CEO at ADENTRA]

Thank you.

[Operator]

Next question is from Ian Gillies from Stifel. Please go ahead.

[Ian Gillies, Analyst at Stifel]

Morning, everyone.

[Rob Brown, President and CEO at ADENTRA]

Hi, Ian.

[Ian Gillies, Analyst at Stifel]

I was hoping to maybe start on organic growth. It was obviously a bit better than we thought in the second quarter. It seems to be going pretty well through July. Are you able to provide much in the way of insight on where you think it's heading in August, September, or even if you want to step a little further out, like Q3, Q4? It feels like the pricing seems to have a pretty good tailwind on it right now.

[Rob Brown, President and CEO at ADENTRA]

Yeah. It's helpful stepping into the third quarter to be able to describe how July went. We're encouraged by the 3%. If you remember back when we reported Q1, at that time, we reported the first month of Q2, and it was actually off a little bit. Then of course, we ended up with some growth. We gained momentum through the second quarter, is fair to say, through the latter half, I would say. That's continued into Q3, certainly through July. It's hard to say how that plays out over the full second half, but I think it's encouraging here for now. It just displays what we described with the business model that we're able to pass through price inflation as it comes to us in cost of sales. That's obviously helpful.

[Rob Brown, President and CEO at ADENTRA]

I also think we're doing some things to help ourselves around pricing and going to market in a more organized and better fashion than perhaps we were able to achieve in the past. Some of that is digitally enabled. The teams are just also doing a very good job at the moment.

[Ian Gillies, Analyst at Stifel]

Okay. That's helpful. There's no great way to do trend analysis on how margins move from two Q to three Q over the last few years for a variety of reasons. With that in mind, can you maybe talk a little bit about the durability of the cost controls you have in place and the impact on margins, or whether a whole bunch of stuff maybe went right in the second quarter and it may not hold in the future quarters?

[Faiz Karmally, VP and CFO at ADENTRA]

Yeah. Hey, Ian, it's Faiz here. I can answer that. When you say margins, you're talking about bottom line margins, presumably?

[Ian Gillies, Analyst at Stifel]

Gross or EBITDA because they were both, quite frankly, quite good.

[Faiz Karmally, VP and CFO at ADENTRA]

Yeah. Okay. On the gross margin percentage line, it was very good performance at 22%. As you know by now, there's a number of things in there. There's not one item we've talked about. Price pass-through. You're going to have timings of rebates as an example, which aren't always perfect through the year. Mix was different in Q2 than Q1, which Rob line-talked. We just talked about dynamics in Q1. A number of things that were really contributing to the gross margin percentage strength. It's not abnormal for us to see that move around a little, just depending on some of those things, particularly with just the number of SKUs we sell. As you know, over 160,000 SKUs that can have different dynamics. I think we're in a range. The Q2 was maybe towards the top end of the range, I would say.

[Faiz Karmally, VP and CFO at ADENTRA]

Notwithstanding the mix considerations we talked about in Q1, our business has been in the 21% now for well over three years. I think we feel very good about the range we've performed in, and I think certainly this quarter was maybe top end of the range. We're very pleased with the performance in Q2. From a bottom-line margin perspective, we're really talking about operating costs, and we've done a number of things on operating costs. A lot of that was done in the prior year. We're seeing the benefits of that now. One example would be we took out certain locations last year where it made sense to do so, either combining or closing down locations. Our footprint was still 81 locations, but not the 86 we had at the beginning of 2025. Five locations less I think has been meaningful.

[Faiz Karmally, VP and CFO at ADENTRA]

You're seeing some of that now in terms of our ability to control rent inflation. We're also down two years now in terms of headcount as well. Really right-sizing the headcount for the level of demand we're seeing today. If you take our rent costs and our people costs, that's about 70% of our operating expenses. We've done things in the majority of our expenses here to really control how that's unfolding this year, and I think we're seeing the benefits of that now. Your question around sustainability of those operating costs, as an example. I think they're quite sustainable. We've not cut so deep that we're in a position where we need to add more square footage or more people if we continue to see some sort of low single-digit growth here, particularly if that's price.

[Faiz Karmally, VP and CFO at ADENTRA]

You really don't need those things for price and our models passing through additional costs now. Overall, I think you saw in Q2 what the power of a little bit of top line can do in terms of positive operating leverage. I think you should expect that to continue.

[Ian Gillies, Analyst at Stifel]

Understood. Thanks very much. I'll turn it back over. Thanks for the detail.

[Faiz Karmally, VP and CFO at ADENTRA]

Yeah, no problem.

[Operator]

Next question comes from Zachary Evershed from National Bank of Canada. Please go ahead.

[Zachary Evershed, Analyst at National Bank of Canada]

Morning, everyone. Congrats on the quarter.

[Rob Brown, President and CEO at ADENTRA]

Thanks, Zach. Good morning to you.

[Faiz Karmally, VP and CFO at ADENTRA]

Good morning.

[Zachary Evershed, Analyst at National Bank of Canada]

As things stand now, any more to come on the tariff front that you're keeping your eye on, either on the recovery front or incremental investigation conclusions?

[Rob Brown, President and CEO at ADENTRA]

It's a fairly dynamic trade and tariff environment right now, so it probably should be safe to say something new will transpire. I think we saw the big move, though, with the replacement of the Section 122 tariffs with the 301 tariffs. That gives a lot of operating certainty going forward. For reminder, call it 30% of our sales being imported into the U.S. from countries that would be subject to the tariff, and it ranges from 10%-12.5%. That's very manageable for us. It's a level playing field within our industry and frankly, across economies, and we'll manage that through the price pass-through mechanism as we have in the past. I don't think those numbers are prohibitive to what we need to do in terms of global sourcing.

[Rob Brown, President and CEO at ADENTRA]

We'll keep our eye on the other various separate and distinct trade cases that arise from time to time that we note in the financial statements as they come up.

[Zachary Evershed, Analyst at National Bank of Canada]

Great color. Thanks. Combining the question of price pass-throughs with the strong gross margins in Q2, was there a bit of a tailwind from taking price ahead of cost increases?

[Rob Brown, President and CEO at ADENTRA]

Not really. It's a good question. It's something you saw more meaningfully back in COVID times when we topped out at, I think, at one time, at a 24% gross profit margin. I would not characterize that as a thing in Q2. Yeah, nothing more to add on that.

[Zachary Evershed, Analyst at National Bank of Canada]

Got you. Thanks. Last one for me. What's the ideal pace for Mount Storm-sized tuck-ins? How many of those would you like to do in a year?

[Rob Brown, President and CEO at ADENTRA]

Yeah. I would probably go back to our long-term value creation framework as a stepping back, maybe even not from a year, but a multi-year. In that framework, the intention is to spend between $50 million-$150 million of capital placed into acquisitions on an annual basis. We've done three significant acquisitions since 2021 with Novo, then Mid-Am, followed by Woolf that has us at that pace or close to that pace. It's hard to say how many per year and what size per year, but I would probably focus more on that as your long-term guide that we think is still very achievable based on the pipeline of opportunities that we've developed.

[Zachary Evershed, Analyst at National Bank of Canada]

Great. Thanks. I'll turn it over.

[Operator]

Next question comes from Kasia Kopytek from TD Cowen. Please go ahead.

[Kasia Kopytek, Analyst at TD Cowen]

Hi, good morning, everyone. One question from me. You've had success to this point with your price pass-throughs, given broad inflationary pressures that escape no one really, to what do you attribute your customers' ability or appetite, if you will, to absorb these increases? It doesn't seem like to this point you're seeing much, if any, adverse mix changes as a response.

[Rob Brown, President and CEO at ADENTRA]

I think that that's fair. There seems to be frankly, a base level of demand and activity in the United States, in particular, a floor, if you will, that's just there, despite the fact that we still have the 30-year mortgage rate being elevated and some general affordability pressures across the consumer. The other thing I would point out is our inputs to the manufactured process, the final good, whether that's a cabinet that's going into a home or finishing millwork or a stair system, et cetera. We are providing raw materials that are a portion of the overall cost, so we are not the overall driver to the installed solution to the product. This is a well-trod road for us that we're a distributor. We will get paid for the significant value we're bringing to the channel.

[Rob Brown, President and CEO at ADENTRA]

If product prices go up, our intention within a range is to pass those through. We've exhibited that through a number of cycles and through some shock periods around COVID, et cetera. Our team is quite skilled at this and has so far continued to be successful.

[Kasia Kopytek, Analyst at TD Cowen]

Thanks, Rob. One follow-on. Appreciating this may be impossible to answer given how many SKUs you have, do you have an estimate of what percentage of the final product your cost would encompass for the ultimate consumer?

[Rob Brown, President and CEO at ADENTRA]

Well, I will try not to swashbuckle here too much. I would say that if you think of the manufacturing process, you may have a third of that being raw material costs, a third of that being labor, and a third being fixed overhead, et cetera. We would be obviously in that raw material cost, and we would be a portion thereof. We're providing certain inputs. Ours are in the architectural building products part of that, but there's going to be other inputs to manufacturing beyond just our core materials. It would be somewhat less than that, would be my answer.

[Kasia Kopytek, Analyst at TD Cowen]

That's very helpful. Thank you very much. Another question I had, can you provide a broader update on diversifying your sources. Obviously, that's not just a Q2 phenomenon. It's been happening for a while, but if you could just provide a broad update on that, including how the supply chain has possibly adjusted to this point from the duty and tariff backdrop.

[Rob Brown, President and CEO at ADENTRA]

Yeah. It's an ongoing process for us. I would describe it, frankly, as a core competency of our business. We are a direct import distributor, so we're not buying from brokers and other intermediaries. We're going around the globe to countries and setting up our own direct-to-mill supply chains and typically following those up with quality assurance people to make sure what we go over and set up to buy as a program ends up what arrives in North America. That's a very durable and well-established playbook for us. We continue to roll it out across new countries as they become capable. By capable, they have manufacturing footprint and fiber that can feed new manufacturing facilities. We're always doing that. We're always on the lookout for new product development, things that might be close substitutes to existing products that can open up new supply.

[Rob Brown, President and CEO at ADENTRA]

Within countries that we're already in, we're always pre-qualifying and, in many cases, helping mills develop to the standard that would be a standard that ADENTRA would be willing to be a partner and, in some cases, house brand products to bring to North America. The quality aspect is very important. It is a price-quality discussion in all cases. I would probably describe it that way. It's very core to what we do, and we've got a very good team engaged with that every day.

[Kasia Kopytek, Analyst at TD Cowen]

Okay. Thanks very much for that. I'll turn it over. Enjoy the rest of your day.

[Rob Brown, President and CEO at ADENTRA]

Thanks, Kasia.

[Operator]

Next question comes from Christian Reiter from Raymond James. Please go ahead.

[Christian Reiter, Analyst at Raymond James]

Morning, everyone. Just two quick ones from me here. Could you provide any additional color on how much of the digital program/AI is already reflected in your current earnings versus what's still to come? Could you share any medium-term EBITDA targets so far? Is that too early?

[Rob Brown, President and CEO at ADENTRA]

I'll answer your second question first, which is too early, but I appreciate you asking. I would say on the digital encompasses many things. I think sometimes AI is misused or overused, and I probably prefer digital as the broader strategic description of what we're doing. In terms of how much that's reflected in earnings, included in digital would be even things like e-commerce. Today, that's roughly 20% of our sales are executed through an e-commerce channel across ADENTRA. There's lots of room for that to continue to grow. If you look at best practice distributors in other places like Europe, it's a much higher number than that, even within our industry. We like the potential for that as a way of doing business for customers, if that's how they choose to do it.

[Rob Brown, President and CEO at ADENTRA]

As it relates to, though, more of the harnessing of the computing power, that is basically what AI has brought us in practical terms, we're still very early in that. We've got concrete business optimization projects that are showing promise. They're developed, and they're now in pilot, and we need to tweak those, then leverage them over time across the balance of the 81-location system. I would describe that again as quite early. Which is good. It gives us lots of upside to grow, which is why when we talk about the three cornerstones, it's digital, it's supply chain, and it's M&A for a reason.

[Christian Reiter, Analyst at Raymond James]

Awesome. That's great color. Just lastly, obviously pricing has been a tailwind here, but if you're looking, for example, into some of your customers, like Builders FirstSource, they recently cut their guidance. Has that shifted your volume expectations for the back half or not?

[Rob Brown, President and CEO at ADENTRA]

Not really. We have a very diversified business by product mix, by geography, but also by customer channel. BFS is a very good customer to us, but it's a proportion of what we do that's going into the pro channel. We're doing relatively well with our home center business as well. What we would call our industrial business, which is those tens of thousands of small to mid-size fabricators around North America that rely on distributors every day to get them just-in-time product. They've been very resilient, very stable, notwithstanding maybe the macro conditions have not been fully released at this point. As Faiz noted earlier This quarter, I think, gives a little bit of a taste that when we get some top-line help, there's significant operating leverage that can uncoil through the P&L and drop heavy to the bottom line.

[Rob Brown, President and CEO at ADENTRA]

We look forward to that in future. We can't control that. We can only control what we do around market share and capturing our organic growth opportunities as they present themselves, and then of course, the M&A catalyst on top of that.

[Christian Reiter, Analyst at Raymond James]

Awesome. Let's all turn it over.

[Rob Brown, President and CEO at ADENTRA]

Thanks, appreciate it.

[Operator]

We have an additional question from Kasia Kopytek from TD Cowen. Please go ahead, Kasia.

[Kasia Kopytek, Analyst at TD Cowen]

Hi. Thanks. Wanted to come back to Mount Storm. I think you referenced milling capabilities. Can you provide additional detail on that?

[Rob Brown, President and CEO at ADENTRA]

Yeah. That would be within their warehouse. They have some light, what we would call light remanufacturing equipment. Instead of selling random length, random width, undressed piece of hardwood lumber, as an example, they would be putting together specific milling packages where they're cutting and preparing packages to length and width and putting a surface on them so they can be more readily consumed by our customers. It's a way of bringing some of the downstream work that needs to be done with those products into our own facilities. We like that. It makes us stickier to customers. There's a margin uplift that goes with that, and you become more of a solution provider than a product provider. This is not new to us, by the way. We have this in multiple other facilities across the network.

[Rob Brown, President and CEO at ADENTRA]

The Mount Storm piece fits really well in Northern California because it adds a capability where we didn't have that previously within that regional footprint before.

[Kasia Kopytek, Analyst at TD Cowen]

Is that a feature that you actively seek out, or is it just sort of nice to have if it happens to come along with an acquisition?

[Rob Brown, President and CEO at ADENTRA]

It's very nice to have. With our acquisitions, as we've talked about, we cast a super wide net, and we don't kind of narrow the filter. If a business came without that's fine too. In this case, it's a super nice fit, and they are very well established with this business in market there, and so we're really pleased that they chose to join with ADENTRA for the company going forward.

[Kasia Kopytek, Analyst at TD Cowen]

Gotcha. Okay. Thank you.

[Rob Brown, President and CEO at ADENTRA]

Thanks, Kasia.

[Operator]

As we await for additional questions, just would like to remind ladies and gentlemen, should you have a question, please press the star button followed by the number one on your touchtone phone. There appears to be no further questions at this time. I'd now like to turn the call back over to Rob Brown.

[Rob Brown, President and CEO at ADENTRA]

That's great, appreciate everybody joining today. Always appreciate the questions. Do follow up with Faiz or I if there's things we can help with further. Otherwise, Josh, thanks for hosting the call today, and I hope everybody has a good day.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.

Participants

Executives

• Rob Brown, President and CEO
• Faiz Karmally, VP and CFO

Analysts

• Kyle McPhee, Analyst at ATB Cormark
• Nikolai Gorobets, Analyst at CIBC
• Ian Gillies, Analyst at Stifel
• Zachary Evershed, Analyst at National Bank of Canada
• Kasia Kopytek, Analyst at TD Cowen
• Christian Reiter, Analyst at Raymond James