Earnings call transcript: Cable and Systems Inc. sees 16.4% revenue boost in 2024

Cable and Systems Inc. reported its financial results for 2024, showcasing a notable revenue increase of 16.4% to $374 million compared to the previous year. The company’s adjusted EBITDA climbed 24.2% to $72.1 million, with an improved margin of 19.3%. According to InvestingPro analysis, the company is currently undervalued and maintains a "GOOD" overall financial health score, supported by strong fundamentals including a healthy current ratio of 2.08. The earnings call highlighted strong performance across key sectors, including healthcare and hospitality, and outlined strategic plans for future growth.

Key Takeaways

• Total revenue for 2024 rose 16.4% to $374 million.
• Adjusted EBITDA increased by 24.2%, reaching $72.1 million.
• Healthcare segment contributed 52% of total revenue.
• Hospitality revenue saw a significant 30.3% increase.
• Strategic focus on mergers and acquisitions (M&A) and reusable products.

Company Performance

Cable and Systems Inc. demonstrated robust growth in 2024, with revenue and EBITDA both showing substantial year-over-year increases. The healthcare segment continues to be a major revenue driver, accounting for more than half of the company’s total income. Additionally, the hospitality sector experienced a strong rebound, reflecting broader industry trends and increased demand. The company’s strategic acquisitions and focus on operational efficiencies have positioned it well against competitors in the Canadian and UK markets.

Financial Highlights

• Revenue: $374 million (up 16.4% year-over-year)
• Adjusted EBITDA: $72.1 million (up 24.2%)
• Adjusted EBITDA Margin: 19.3% (up 1.2 percentage points)
• Net Earnings: $18.7 million (up 6.3%)

Outlook & Guidance

The company expects EBITDA margins to maintain historical levels, with potential organic growth in the healthcare segment. No major contract renewals are anticipated until 2027, but there is a potential for $10 million in annual contract renewals in 2025-2026. Analyst consensus from InvestingPro shows strong confidence in the company’s outlook, with price targets ranging from $31.39 to $34.87. The company remains vigilant about geopolitical and trade developments, which may impact future performance.

Executive Commentary

• "We are delighted to have reported our results for 2024 with revenue of $374 million," said Linda McCurdy, CEO. This statement underscores the company’s strong financial performance.
• McCurdy also noted, "We continue to monitor the evolving geopolitical and trade landscape," highlighting the company’s proactive approach to external challenges.
• "We have an active M&A pipeline and will look to leverage our strong liquidity position," McCurdy added, emphasizing the company’s strategic growth initiatives.

Risks and Challenges

• Geopolitical and trade uncertainties could affect market conditions.
• Fluctuations in consumer confidence may impact future revenue.
• Potential cost inflation, although currently managed effectively, remains a risk.
• Dependency on the healthcare sector for a significant portion of revenue.
• Currency fluctuations, particularly concerning the Canadian dollar, may influence financial results.

Cable and Systems Inc. remains optimistic about its growth prospects, backed by a strong financial foundation and strategic initiatives aimed at expanding its market presence and enhancing operational efficiencies.

Full transcript - KBL Mining Ltd (KBL) Q4 2024:

Conference Operator: Good morning, ladies and gentlemen, and welcome to the Cable and Systems Inc. Fourth Quarter twenty twenty four Results Conference Call. At this time, all lines are in a listen only mode.

Following the presentation, we will conduct a question and answer session. Also note that this call is being recorded on 03/21/2025. And I would like to turn the conference over to Christie Plaquem. Please go ahead.

Christie Plaquem, Financial Officer/Spokesperson, Cable and Systems Inc.: Thank you, operator, and good morning, everyone. Thank you for joining us today, and welcome to our Fourth Quarter Results Conference Call. On the line with me today is Linda McCurdy, President and Chief Executive Officer. Following our remarks today, we will open it up for questions. Before I begin, I’d like to remind everyone that statements made during our prepared remarks or in the Q and A portion of the conference call with reference to management’s expectations or our predictions of the future are forward looking statements.

All statements made today, which are not statements of historical fact, are considered to be forward looking statements. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward looking information. Investors are also cautioned not to place undue reliance on these statements. Actual results could differ materially from those anticipated. Risk factors that could affect the results are detailed in the corporation’s public filings.

I’ll now turn the call over to our CEO, Linda Vicurdi, who will provide the insights and remarks on the quarter. Linda?

Linda McCurdy/Vicurdi, President and Chief Executive Officer, Cable and Systems Inc.: Thank you, Christy. Good morning, everyone, and thank you for joining us today to review our twenty twenty four fourth quarter and our annual results. I’ll focus on the main highlights of the fourth quarter and Christy will provide more details on our financial performance and our balance sheet. I’ll come back to you and update you on our outlook for 2025 and we’ll follow that with a Q and A. We are delighted to have reported our results for 2024 with revenue of $374,000,000 and adjusted EBITDA of $72,100,000 for the year, our record results are the product of our disciplined proven growth strategy.

As an essential service provider to top tier customers, Cabro has stable recurring revenue profile with its ability to offset cost inflation. In 2024, we saw steady volume trends in both our Healthcare and Hospitality segments and are pleased with the early contributions of our acquisitions. Overall consolidated revenue increased by 16% compared to 2023 with healthcare revenue increasing by 6% and hospitality revenue increasing by 30%. Healthcare represented approximately 52% of our consolidated revenue for the year compared to 58% in 2023 due to the acquisition of Shortridge and continued strong activity in the Hospitality segment. We’ve worked hard over the past years to meet the changing needs of our new and existing customers while managing the impact of inflation, volatile energy prices and labor market disruptions and have restored adjusted EBITDA margins to twenty nineteen levels with disciplined management of the business.

Strategic acquisitions of high quality operators with leading market position in key regions continue to be an important contributor to Capro’s overall growth profile and we actively pursue these growth opportunities and as we actively pursue these growth opportunities, we’ll continue to incur certain transaction transition and financing costs. In this context, we believe adjusted EBITDA before adjusting items will assist investors to assist our performance on a consistent basis as it’s an indication of our capacity to generate income from operations. EBITDA before adjusting items was $69,690,000 for the year. 2024 was a record year for Cabral on all key metrics and we’re excited about our future. As always, we’re focused on delivering industry leading service and we’re proud of our growing diverse workforce that operates with our customers in mind.

I’ll now turn the call over to Christie to discuss our detailed financial results for the year, after which I’ll return to talk about our outlook. Christie, over to you.

Christie Plaquem, Financial Officer/Spokesperson, Cable and Systems Inc.: Thank you, Linda. The information we are discussing today is also highlighted in our twenty twenty four fourth quarter earnings press release issued yesterday and detailed supplemental financial information can be found on our Investor Relations website under the heading Financials. As a result of the Shortridge and Centimeters acquisitions, price increases implemented in the full year of Parinet and VILRAY operations in 2024, consolidated hospitality revenue for 2024 increased by 30.3% over the comparable 2023 period. And the corporation saw a 6.2% increase in consolidated healthcare revenue for an overall increase in consolidated revenue of 16.4%. As we discussed in previous quarters, when reporting adjusted EBITDA, we have revised our adjusting items to reflect certain amounts, which are not indicative of ongoing operating performance.

This includes transaction costs, structural finance costs, transition and integration costs, restructuring costs and gains and losses on settlements of contingent consideration as well as any other nonrecurring transactions as defined within our MD and A. We believe adjusted EBITDA will assist investors to assess our performance on a consistent basis. Details of the calculations and adjustments can be found in our MD and A under the heading terminology. Consolidated adjusted EBITDA increased in 2024 to $72,100,000 or by 24.2% compared to $58,000,000 in 2023. Adjusted EBITDA margin increased by 1.2% to 19.3% in 2024 from 18.1% in 2023.

Adjusting items include transaction, transition, syndication and structural financing costs restructuring costs gains on settlements of contingent consideration and other non operating gains. Consolidated EBITDA in 2024 increased to $69,000,000 or by twenty one point five percent compared to $56,800,000 in 2023. On a consolidated basis, EBITDA margin increased to 18.5% in 2023 from 17.7% in 2023 sorry, 18.5% in 2024 from 17.7% in 2023. For the Canadian division, the adjusted EBITDA margin remained relatively consistent at 19.1% in 2024 compared to 18.9% in 2023. EBITDA margin decreased slightly to 18.1% in 2024 from 18.5% in 2023.

The decrease in margin is primarily related to adjusting items, including higher syndication and transition costs incurred in 2024 compared to 2023. For The UK division, the adjusted EBITDA margin increased to 19.8% in 2024 from 15.7% in 2023. The EBITDA margin for The UK division increased to 19.3% in 2024 from 15.2%. The improvement in adjusted EBITDA and EBITDA margin is primarily related to the acquisition of Shortridge in April 2024 as well as delivery and labor cost efficiencies and the impact of price increases implemented in 2023. Net earnings increased by $1,100,000 on a year to date basis or 6.3% from $17,600,000 in 2023 to $18,700,000 in 2024.

And net earnings as a percentage of revenue decreased by 0.5% to 5% in 2024 from 5.5% in 2023. Wages and benefits increased by $18,800,000 to $142,200,000 compared to $123,400,000 in the comparative period of 2023 and as a percentage of revenue decreased by 0.4 percentage points to 38.1. The decrease as a percentage of revenue is primarily related to the integration of the corporation’s acquisition targets as well as certain efficiencies achieved. Linen increased by $3,200,000 to $36,200,000 compared to $33,000,000 in the comparative period of 2023 and as a percentage of revenue decreased by 0.6 percentage points to 9.7%. The decrease as a percentage of revenue is primarily related to the changes in the mix of linen and higher hospitality volumes processed relative to the prior year.

Utilities increased by $2,800,000 to $27,900,000 compared to $25,100,000 in the comparative period of 2023 and as a percentage of revenue decreased by 0.3 percentage points to 7.5. The decrease as a percentage of revenue is primarily related to the impact of price increases secured across various markets. Delivery increased by $6,000,000 to $44,700,000 compared to $38,700,000 in the comparative period of 2023 and as a percentage of revenue remained relatively constant at 12%. Occupancy costs increased by $1,000,000 to $6,400,000 compared to $5,400,000 in the comparative period of 2023 and as a percentage of revenue remained constant at 1.7. Materials and supplies increased by $1,700,000 to $13,800,000 compared to $12,100,000 in the comparative period of 2023 and as a percentage of revenue remained relatively consistent at 3.7%.

Repairs and maintenance increased by $3,000,000 to $15,800,000 compared to $12,800,000 in the compared period of 2023 and as a percentage of revenue remained relatively constant at 4.2%. Corporate costs increased by $4,800,000 to $19,200,000 compared to $14,400,000 in the comparative period of 2023 and as a percentage of revenue increased by 0.5 percentage points to 5.1%. The increase as a percentage of revenue is primarily related to transition and transaction costs, including legal, professional and consulting fee expenditures related to the acquisitions as well as syndication costs for the corporation’s credit facility. These costs are considered to be adjusting items and are further defined within our MD and A. Our acquisitions of VILRAY and PARANET have performed in line with expectations.

However, contingent consideration related to these transactions have been derecognized as certain targets were not achieved. The gain on settlement of contingent consideration of $500,000 in 2024 relates to the derecognition of the contingent consideration for VILRAY since this was not paid out. In 2023, the gain on settlement of contingent consideration of $900,000 related to the derecognition of the contingent consideration for ParaNet and that also was not paid out. The derecognition of these liabilities resulted in non recurring non cash gains and are classified as adjusted items adjusting items as defined within our MD and A. Other income increased by $1,100,000 to $1,100,000 in 2024 from nil in 2023.

This increase is primarily related to our reimbursement from a supplier in Q4 related to a program implementation payment. The supplier reimbursement is an adjusting item and is non reoccurring in nature and outside of the normal course of operations and therefore also adjusted and further defined within our MD and A. Now looking at our capital resources, distributable cash flow for the fourth quarter of twenty twenty four was $9,800,000 and our payout ratio was 32.5%. The company paid out $0.3 per share in dividends during the quarter for total consideration of $3,200,000 and the corporation had net working capital of $54,100,000 at 12/31/2024 compared to its working capital position of $41,400,000 at 12/31/2023. With regards to credit and liquidity, we have a strong balance sheet and ample un drawn capacity under our syndicated revolving credit facility with an operating line of $175,000,000 and a further $75,000,000 accordion for growth purposes.

At December 31, we had an undrawn balance of close to $46,200,000 on our operating line without taking into account the accordion, reinforcing our strong liquidity. This represents a debt to EBITDA ratio, excluding leases, of around 2.2 times. Debt to total capitalization for the period ended 12/31/2024, was 40.7 percent. The debt increased in the year from $72,200,000 to $123,800,000 which was primarily due to the acquisition of full Shortridge NCM. I’ll now turn things back over to Linda for additional commentary.

Linda?

Linda McCurdy/Vicurdi, President and Chief Executive Officer, Cable and Systems Inc.: Thank you very much, Christy. We see a positive outlook for our business in 2025 and are focused on organic growth and potential M and A opportunities. Both of Cabro’s Healthcare and Hospitality segments continue to experience steady growth trends. In the Healthcare segment, we expect activity levels to remain strong from continued focus on reducing wait times and enhancing patient care. In the Hospitality segment, we expect solid activity levels from both business and leisure travel, reflecting historical seasonal trends.

We continue to monitor the evolving geopolitical and trade landscape. Currently, we are not expecting meaningful impacts on our business as key customers and suppliers are based in Canada and The UK. Going forward, we expect EBITDA margins will remain at similar levels and follow historical seasonal trends. Strategic acquisitions of high quality operators with leading market position in key regions continue to be an important contributor to Cabral’s overall growth profile. We are very pleased with the early contribution of our acquisitions and believe they will further enhance our growth profile.

We have an active M and A pipeline and will look to leverage our strong liquidity position, balance sheet and access to the capital markets to execute on these opportunities should they arise. We’re committed to a sustainable future and we’re proud of our seven decades of responsible innovative growth. Putting people first, supporting our partners and environmental stewardship have always been part of our culture and priorities for Cabral. We collaborate with our stakeholders to appreciate their priorities, solicit and receive feedback and align our common goals. Our services are essential to the continuity of our customers’ operations and we’re embodying sustainable practices to support them for the long term.

I’ll now open it up to any questions you have with regards to our twenty twenty four fourth quarter and our annual results.

Conference Operator: Thank And your first question will be from Derek Lefren at TD Cowen. Please go ahead.

Derek Lefren, Analyst, TD Cowen: Yes. Good morning, Linda and Christy. And congratulations both on the quarter and a year. Pretty impressive job given the operating environment.

Linda McCurdy/Vicurdi, President and Chief Executive Officer, Cable and Systems Inc.: Thank you, Derek. Good morning.

Derek Lefren, Analyst, TD Cowen: Linda, I know you talked briefly maybe about the geopolitical situation. I think that was maybe to say that you have no tariff implications in your opening remarks. But maybe, I’d like to get your view maybe on the hospitality side of the business as it relates potentially to or maybe to a potential bump in Canada and maybe The UK just given the recent political backdrop?

Linda McCurdy/Vicurdi, President and Chief Executive Officer, Cable and Systems Inc.: Yes. So it’s a good point, Derek. I think for us it’s really hard to look into the crystal ball. I think there is the potential for upside with a weaker Canadian dollar and increased travel into Canada and The UK. In speaking with our partners, I think it’s too early to really tell.

There’s a lot of consumer confidence has declined certainly in Canada, but to the extent we experience travel from The U. S, that could obviously be a positive. I think the point is, it’s we’re cautiously optimistic, but it seems to change by the day. So, we’re not going to put a marker on the ground until we hear from our hospitality partners that bookings are substantially higher than they have expected.

Derek Lefren, Analyst, TD Cowen: Okay. That’s fair, Linda. And maybe just maybe another politically based question, but I was curious if you’ve given any thought to what a dropping of the carbon tax in Canada could mean potentially mean for you guys?

Linda McCurdy/Vicurdi, President and Chief Executive Officer, Cable and Systems Inc.: Yes, absolutely, Derek. Christy, actually, I’ll pass that over to you.

Christie Plaquem, Financial Officer/Spokesperson, Cable and Systems Inc.: Yes, sure. Thanks, Derek. Yes, we certainly have. I think on the consolidated it would obviously have a positive impact. From a consolidated perspective, probably a pickup in the margin of around 0.5%, just over 0.5%.

Derek Lefren, Analyst, TD Cowen: Okay. Thank you. I’ll reach you. Congratulations again.

Conference Operator: Awesome. Thanks. Next question will be from Michael Glenn at Raymond James. Please go ahead.

Michael Glenn, Analyst, Raymond James: Hey, good morning. Christy, can you remind us for the hedges over in The UK, the impact is that like how that plays out in 2026 versus 2025? Yes,

Christie Plaquem, Financial Officer/Spokesperson, Cable and Systems Inc.: absolutely. So our previous hedge here did roll off at the December 2024 and we entered into a new hedge as of January 1, a two year hedge, which also will have a positive impact on the margin, overall similar to what I just quoted in the range of about 0.5%.

Michael Glenn, Analyst, Raymond James: That 0.5% on a consolidated

Christie Plaquem, Financial Officer/Spokesperson, Cable and Systems Inc.: basis? Correct.

Michael Glenn, Analyst, Raymond James: Okay. And then just going through the healthcare organic growth in Canada. I know you don’t break it out. It does feel like it has been a I apologize if this is wrong, but it does feel like it has been a lower figure recently. I’m just wondering if there’s anything impacting healthcare organic in Canada.

And do you expect healthcare organic in Canada to move higher in the coming year?

Linda McCurdy/Vicurdi, President and Chief Executive Officer, Cable and Systems Inc.: There’s nothing that stands out, Michael, as notable. I would say there is some possibility for upside going forward, but there’s nothing that truly stands out. Obviously, over the last number of years, we saw the bump up in terms of conversions from disposable to reusable. That work has been done. So, we’re certainly comfortable in the mid single digit, but I would say there is some possibility of upside there.

Michael Glenn, Analyst, Raymond James: Okay. And then Christy, can you just repeat the metric? You said that excluding the leases, leverage was 2.2 times exiting the quarter? Correct.

Christie Plaquem, Financial Officer/Spokesperson, Cable and Systems Inc.: Correct. On a pro form a basis, yes.

Michael Glenn, Analyst, Raymond James: On a pro form a basis. And can you remind us what the comparable figure was in Q3, if you have it in front of you?

Christie Plaquem, Financial Officer/Spokesperson, Cable and Systems Inc.: It was slightly higher than that. I don’t have it in front of me, but just around two point between two point three and two point four, just slightly higher than that. Okay.

Michael Glenn, Analyst, Raymond James: Okay. Thank you for taking the questions.

Conference Operator: Thanks, Michael. Next, we will hear from Justin Keywood at Stifel. Please go ahead.

Justin Keywood, Analyst, Stifel: Good morning. Thanks for taking my call.

Linda McCurdy/Vicurdi, President and Chief Executive Officer, Cable and Systems Inc.: Good morning, Justin.

Justin Keywood, Analyst, Stifel: Just to round out the tariff discussion, any impact as far as the linens? Is that subject to potential tariffs?

Linda McCurdy/Vicurdi, President and Chief Executive Officer, Cable and Systems Inc.: So we have contracts in place for the very large majority of our linen purchases for several more years. So, we really don’t expect an impact in the short term. When those renewals come up several years from now, hopefully, we’re in a different operating environment, but there is the impact of cotton that plays a role in that, The U. S. Exchange that plays a role in that, but for the foreseeable future, we don’t expect any impact.

Justin Keywood, Analyst, Stifel: Okay. Thank you. And then on the discussion of renewals, any contracts that are up for renewal for Cabral or competing opportunities?

Linda McCurdy/Vicurdi, President and Chief Executive Officer, Cable and Systems Inc.: From a CabRELL perspective, for 2025 and 2026, there are not a lot of renewals and certainly nothing that would be on a singular contract basis material. The first major piece of business that comes up that would be larger in scope would be in 2027. So we have a few years extending out and throughout this year and next year, we would expect contract renewals that we would have opportunities for to be somewhere in the $10,000,000 range.

Justin Keywood, Analyst, Stifel: This year and next that would be $10,000,000 in combined revenue to potentially when?

Linda McCurdy/Vicurdi, President and Chief Executive Officer, Cable and Systems Inc.: Annually, sorry.

Justin Keywood, Analyst, Stifel: Annual, is that does that consist of a number of contracts or is it one big one?

Linda McCurdy/Vicurdi, President and Chief Executive Officer, Cable and Systems Inc.: I would no, I would say it’s broken out by a number of different hospitals.

Justin Keywood, Analyst, Stifel: Okay. And is there one of those opportunities that are coming up in the near term?

Linda McCurdy/Vicurdi, President and Chief Executive Officer, Cable and Systems Inc.: Not I would say back half ended and into 2026, Justin.

Justin Keywood, Analyst, Stifel: Okay. All right, great. Thank you.

Christie Plaquem, Financial Officer/Spokesperson, Cable and Systems Inc.: Thank you.

Conference Operator: Next question will be from Kyle Micksey at Cormark Securities. Please go ahead. Just one more on the topic of the moving pieces feeding into your margins. So you’ve already talked about the carbon tax, the gas hedge price. What about pricing?

Is that going to help margins on a year over year basis in 2025? I guess the question is, was 2024 a full year benefit of the real pricing gains that you were realizing or were some of those throughout the year and we’ll see the full year benefit in 2025?

Linda McCurdy/Vicurdi, President and Chief Executive Officer, Cable and Systems Inc.: I’d say most of the one time and exceptional price increases that we’ve experienced are fully baked into 2024, maybe a little bit heavier on the back half of twenty twenty four, but we are entering an environment where I would suggest we would see more typical CPI increases going forward and not a large increase as the result of annualization of price increases from last year.

Derek Lefren, Analyst, TD Cowen: Okay. Thank you for that color. That’s it for me.

Linda McCurdy/Vicurdi, President and Chief Executive Officer, Cable and Systems Inc.: You bet.

Conference Operator: Thank you. And at this time, Ms. McCurdy, we have no other questions registered. Please proceed.

Linda McCurdy/Vicurdi, President and Chief Executive Officer, Cable and Systems Inc.: Well, thank you everyone for joining today. We look forward to another update just around the corner after Q1. Thank you everyone and have a great weekend.

Conference Operator: Thank you. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.

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