Decisive Dividend Corporation (DE) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Decisive Dividend Corporation Second Quarter 2026 Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, July 30, 2026. I would now like to turn the conference over to Jeff Schellenberg, Chief Executive Officer. Please go ahead.

Thank you, operator. Hello, and good morning, everyone. This is Jeff Schellenberg. I want to welcome everyone to our Q2 2026 earnings conference call. Q2 2026 marked an important quarter for Decisive as some significant initiatives were completed in support of both organic growth and growth by acquisition. These completed initiatives included an on-strategy acquisition in our highest returning industry vertical, an $8 million private placement with a strategic investor, a $25 million upsize in our credit facility and a 6% increase in quarterly sales versus Q2 2025, driven by both organic growth and growth by acquisition. Be Fire, which goes to market in Europe under the well-known historic brands, Jidé and Bodart & Gonay, was acquired on June 3, 2026. Be Fire designs and manufactures a broad range of European ecoDesign-compliant wood burning stoves, fire places and fireplace inserts in a vertically integrated facility in Belgium. This acquisition marked a major milestone for Decisive as our first transaction in Europe, a strategically important move as it helps diversify Decisive's revenue streams into non-North American markets where trade uncertainty has created volatility. Further, the acquisition of Be Fire complements the company's other Hearth businesses, Blaze King and ACR, as each business within the vertical has unique brands representing products that access a varied range of market segments within their specific geographic markets. The opportunities to introduce the different brands, product designs and capabilities within those brands across the geographies we operate in is a significant driver of future organic growth potential for these businesses and Decisive. The existing leader who built Be Fire's group of businesses, Jean-Philippe Couasnard, is continuing to lead this business over the next 3 years. Jean-Philippe's ongoing leadership, combined with the existing expertise we already have in this segment, will help minimize post-transaction disruption, positioning us to immediately focus on pursuing cross-selling, geographic expansion and new product development opportunities among the 3 Hearth businesses, including a pellet stove product in development at Be Fire. Further, our existing Hearth industry leaders, Alan Murphy with Blaze King and Jason Surrell with ACR, together with Chris Goodchild, our COO, have been working closely with Jean-Philippe to build an integration plan for this acquisition, including with respect to cross-selling opportunities for existing and new products each business produces within the network of dealers we have relationships with in the U.K., Belgium, France and North America. The first cross-selling opportunities to be pursued are in the European and U.K. markets, given the similar regulatory environments and geographic proximity, and we look forward to updating our investors as initiatives in these areas progress. Another significant initiative completed in Q2 2026 was the private placement we completed with L6 in early April. Adding another anchor institutional investor with a long-term approach to investing, including holding an investor rights agreement that allows them to maintain their ownership interest in Decisive in the event of the completion of future capital raises meant that we are able to complete the Be Fire acquisition while maintaining significant balance sheet strength with our post-acquisition leverage ratio sitting at 3x. Further, following the announcement of the Be Fire acquisition, we announced a $25 million upsizing of our credit facility with our banking syndicate, which provides us with $47.5 million in available capacity entering the second half of the year that we can use to fund both organic growth opportunities and support our M&A program. Doing a material acquisition while adding a new anchor investor and upsizing our credit facility are all foundational changes that will provide support for our growth journey as an organization in the future. We saw early returns from the acquisitions we've completed in the last 4 quarters in Q2 2026 as overall sales increased 6% in the quarter to $38.5 million compared to $36.3 million in Q2 2025. Be Fire, along with Venger, which was added to the merchandising vertical in August 2025, contributed to this revenue growth. These contributions, combined with organic growth in hearth, agriculture and merchandising product sales and stable wear parts sales more than offset the oil and gas and commercial vehicle customer-specific softness that has been discussed over the past year. I'll provide a little more detail on how each business vertical performed in the quarter relative to Q2 2025. The Hearth businesses realized a 48% increase in sales compared to Q2 2025, with 60% of that increase a result of organic sales growth from Blaze King and ACR and the remainder generated by Be Fire in its first month post acquisition. The agriculture businesses, specifically Slimline's Orchard and Vineyard sprayer product in IHT generated a 24% increase in sales relative to Q2 2025 based on continuing strong order activity at IHT as well as increases in sprayer sales for Slimline. Merchandising product sales increased by 72% in the quarter compared to Q2 2025, with about 1/4 of the increase attributable to organic growth in sales, while Venger contributed to the other half of the growth in this vertical, both on the back of ramped up lead generation activity over the last couple of months. Our group of wear parts businesses, Unicast, Procore and Techbelt, generated consistent sales relative to Q2 2025 as demand for the wear parts these businesses produce remained resilient. Lastly, and as we mentioned earlier, the Industrial Products businesses, which include Northside, Hawk, Capital I and Slimline evaporators, continue to be impacted by demand declines from certain commercial vehicle and oil and gas customers that began in the second half of 2025, although the impact has been less than originally expected. Having other businesses mitigate the impact of these declines the way they have reinforces the benefits of the diversified nature of the portfolio of businesses we own and the differentiated products these businesses produce. Over the last few quarters, we've been making investments in leadership succession, sales teams, facility capacity and organizational capability enhancements across our operating companies. Even with the increase in operating costs driven by these investments, the overall increase in sales translated to a 1% increase in adjusted EBITDA compared to Q2 2025. At the same time, we have made moves that should result in reduced operating costs in future periods like the move of Procore into Northside and the enhanced cooperation between Capital I and Hawk. We are confident these deliberate decisions will strengthen the quality, resilience and earnings power of our business, delivering long-term benefit as we move forward. In this quarter, we generated free cash flow less maintenance CapEx of $2.6 million, a 7% decrease relative to Q2 2025 due primarily to the current income tax and operating premise lease payment increases. As a result, and with the increased share count from the private placement and only 1 month of contribution from the Be Fire acquisition, the trailing 12-month dividend payout ratio increased to 83% at the end of Q2 2026. As cash flow contributions from Be Fire ramp up in the coming quarters, we expect this ratio to improve. In terms of our outlook for the remainder of 2026, we expect to benefit from the investments we are making in new products, sales capabilities, facility capacity and productivity over the last number of quarters. Higher energy prices and uncertainty tend to drive strength in our Hearth businesses, which provide a source of alternative low-cost, secure energy and where we have new products poised to more meaningfully penetrate the market. We are still awaiting EPA approval for the new North American Hearth products that launched in Canada earlier this year. When received, these should provide meaningful tailwinds to Blaze King. However, timing of approvals remains uncertain as a result of ongoing organizational changes at the EPA. Overall, Q3 is off to a good start with consolidated backlogs and orders in July 2026 ahead of July 2025, and we are especially encouraged by the quoting and order activity within our agriculture and merchandising businesses. However, we continue to face some ongoing uncertainty, especially in the near term, including the threat of new tariffs, the impact of CUSMA renegotiations and global upheaval in different regions, resulting in some specific challenges in a few of our subsidiaries. For example, we are seeing softer order levels and backlog in our cast steel wear parts as we enter the quarter, which has a longer sales cycle due to the international supply chain we work in. As a result, discipline in cost control and efficiency will be critical in the upcoming quarter. We also continue to attract numerous acquisition opportunities as our buy, build and hold model continues to resonate with exiting legacy minded business owners who value our long-term approach. With that, I now open up the call for questions.

[Operator Instructions] And your first question comes from Kyle McPhee of ATB Cormark.

First one from me. You've been executing hiring, adding sales resources. It adds new expenses to support forward growth. So a temporary margin headwind all else equal. Are you now at the tail end of that investment phase and we should now expect to see some favorable cost leverage going forward? Or is there more investment needed for capacity or sales resources?

Yes. Kyle, I think the real ramp-up is probably tailing off. I think we are still looking to invest in certain businesses and for sales capacity improvement just because we see great opportunity there. But I think that the real ramp-up is probably behind us. And like Jeff mentioned, we are working on the back end. These are small businesses that we buy that have small teams. And really as we turn into a growth phase for these businesses post acquisition, we do need to add capability throughout their organization. But we are making moves like we have with Procore moving into a joint facility with Northside, combining or increasing cooperation with Capital I and Hawk that are starting to yield results here that will kind of provide an offset of some of those increases as well.

Yes, I was going to layer on to that. Like we added sales capabilities and personnel broadly across the group, like made -- it's not just a single organization, it's kind of across the group. And I think with the added personnel, I think what we'll be seeing more so is performance management. At this stage, we've added the capabilities. If there's -- if they're delivering results, that's part -- in the sales function, that's a critical element, and there might be some turnover as we -- but that would be a redeployment of existing investment more so than necessarily major new additional investment. So I think that's a point I would make on that as well.

Got it. Okay. And then second one for me. Just on your hearth platform, it was very impressive organic growth. I think when we back out the M&A, it was like high 20% range organic growth. What do you attribute that to? Is it a demand surge on the back of the inflationary energy price environment that's typically a tailwind for this platform? Or are you seeing maybe some early payoffs from your M&A cross-sell synergies and new product launches? Just give us your thoughts on that growth attribution for Hearth.

Yes. I think what we saw, we had a really strong take-up in our early buy program this year. We have a program just given the seasonality of that business where we go to market with an incentive program designed to capture order activity that helps support manufacturing activity throughout what would traditionally be slower sales periods. And I think the performance in that, especially in Canada, actually for the North American business was really strong. So that, I think, drove some of that activity. I think we saw better performance at ACR as well, so I think just -- and so yes, is it directly a result of war and energy prices? It's hard to draw a straight line between the two, but that definitely -- I mean, we've done the correlation math around that. Higher energy prices and that type of uncertainty drives stronger revenue in that. So it has to be an element of the contribution we saw there for sure.

And your next question comes from Russell Stanley of Beacon Securities.

Maybe first on Be Fire and the integration. I understand you just closed it. You noted that the first priority is cross-selling in Europe and the U.K. I'm wondering if you can elaborate on the other growth opportunities in front of you and rank order them in terms of timing? Can they be pursued at the -- more or less in parallel with the initial cross-selling effort? Or do you need to do them sequentially just to manage resources?

Yes. It's Chris Goodchild speaking here. So I'll take this question. I think it's a matter of prioritization. Obviously, we want to focus on levers that can have some immediate near-term impact. And when you have a regulated product like we do, being able to cross-sell within regions that share those regulations helps us accelerate those synergies. So we're primarily focused on introducing products of ACR into Belgium and France markets that Be Fire represent and inversely, some of the Be Fire products into the U.K. In parallel, we are working on a product strategy and go-to-market strategy that would bring Be Fire product over into the North American market. But it will be a longer period of time. There is some product redesign that's required and revalidation and testing before we'd be able to introduce that.

And that's really a function of a very different regulatory environment, including the test measures are totally different between North America and Europe, and that's what drives the required.

Got it. That's great. Maybe just a question just on the M&A strategy. Be Fire is the largest to date, I believe. To what extent do the integration needs effectively sideline you perhaps from meaningfully sized acquisitions in the near term? Should we think about your bias perhaps being towards smaller tuck-ins or could similarly sized targets still be pursued at this point?

Yes. No, Russ, it's a great question. I think what I would say about Be Fire is the strongest -- that acquisition is into the industry with our strongest performance in our portfolio from a returns perspective. So we have good teams in place around that who have specific industry expertise, product expertise and knowledge that are really instrumental in driving the execution around and regulatory, I should say, like very, very deep regulatory knowledge and expertise in those sectors as well. So they are very hands-on with respect to the inner workings of deploying the resources to set ourselves up to execute on these cross-selling opportunities across these different markets. So that's huge. We're supporting them and engaged in that. But that does leave us with some additional capacity to take on more acquisitions. And I would say the acquisitions of the size of Be Fire more materially move the needle. And yes, it takes time for that to ramp into our payout ratio as an example, for sure. But I think the benefit over the medium term and then long term with respect to those larger-sized acquisitions is very meaningful. So we continue to look at those sized opportunities. And then within the verticals, as we I think some of the smaller opportunities are more easily to generate through, I'll call it, noncompetitive deal processes as well. As our business leaders in the different spaces traffic in the market and talk to competitors and suppliers and all those types of things, that's often where the source of non-dealer -- like non-broker-led processes comes from. But those tend to be a little bit smaller as well. So those can be really a good opportunity. So we'll continue to look at them as well. So I think it's going to be -- what we're looking at is a mix of both types of deals that you described, but really all focused within the five industry verticals that we're operating in.

Got it. Maybe if I could sneak in one more, just on the 5 verticals. You've been pretty consistent in talking to that. I'm wondering how much variation is there in terms of valuation expectations from targets within each vertical? Is one vertical categorically more expensive than the others? Any color there would be great.

Yes. I think in recent activity, what we're seeing is probably stronger valuation or higher valuation expectations in the wear parts vertical, which you could develop a thesis around why that is pretty quickly. You have these reoccurring streams of revenue to typically pretty low CapEx businesses. So we're seeing some stronger and more competitive valuation levels in that space that we're operating in. I think as you look at -- if you're looking at lumpier, more project-type of manufacturing businesses like businesses producing products that are deployed in more lumpy kind of larger contract sizes, you're seeing some softness in multiples. Right? So I think, yes, it definitely does differ by vertical that we're seeing for sure across the different deals we're looking at.

And your next question comes from Steve Hansen of Raymond James.

Jeff, I was just wondering if you could just maybe dig into or provide a little additional color on some of that pressure you were seeing in the wear parts and the extended supply chain and where that's sort of driving from. Just curious to get a sense for how long that might last and where the ultimate source of the pressure is.

Yes. So I think just with some of the uncertainty as the market was waiting to see what would happen in July with CUSMA. There was definitely some pullback in complete or actual order activity. There was a lot of quoting activity, but customers were a little bit reticent to pull the trigger on the order. We've seen those orders start to come through now. And Jeff mentioned that we do have a higher backlog at this point this year than we did last year. And so what we're expecting is a bit of softness in Q3 for that case steel wear parts business, but are seeing some pretty good activity levels into Q4 just based on the long tail on those orders.

Okay. That's helpful. And just on the flip side, Ag was called out as sort of one of the stronger categories. I know IHT has been strong for a fair bit of time now, but I just curious as it extends beyond that into the other parts of the platform as well.

Yes. I think we saw a fairly material ramp-up in sprayer sales in the quarter here. And that's on the back of some extended work by the team at Slimline to really build, expand and broaden our dealer relationship network. We now have reestablished a presence in Georgia that had gone pretty quiet for a period of time as well as in the California market. I think we've definitely strengthened our positioning in the California market, which has always been a source of weakness, which is the largest orchard and vineyard market in North America and the world. So a huge market opportunity in that. And so there's very focused efforts on kind of improving our positioning in that market, and we're seeing some early wins there. And so that's really what's been driving. And I think the -- I would say, the Pacific Northwest market has continued to be a real challenge, which has been historically the biggest driver of activity for Slimline in the sprayer business. And that's on the back of some oversupply in the apple market, some regulatory and trade-related issues in the apple market as well and the slowdown, I would say, in deployment of some of the government support resources in BC that farmers have traditionally used to buy sprayer products in this market. And so a few factors that on there that impact that business, but really pleased with the progress in some of these markets that are really large Orchard and vineyards markets, especially California, that's really important there.

That's very helpful. And just one last one, if I may, is just around the energy business. I know there's been some challenges there. Do you think it's -- is it the absolute pricing backdrop, the volatility in the pricing backdrop that's driving things? Is it a product shift that's happening? Energy prices have been elevated recently, and I know there's been a lot of volatility out there, but I'm just trying to get a sense for where the source of weakness is coming from the energy spot patch relative to your product set.

Yes. I mean I think with that, what the market we operate in is third-party manufacturing like machine product work. And there's a lot of -- I would say there's overcapacity in that market, which drives a high level of competitiveness. And really, it's just kind of about spindle time, that availability of that and what's the cost of that and people in a more capital-intensive space are bidding out rates to keep their machines turning and cash flow supporting the purchase of the assets that they've purchased, right? So that's -- the competitive nature of that market is a major challenge. I think that's part of the vision around having Capital I and Hawk work more closely together is that we do have a really highly differentiated, high gross margin product that faces less of that kind of competitive threat just from additional capacity with a proprietary product that drives some of our efforts in having those businesses work more closely together. But I think that's a big part of it is kind of the competitiveness and oversupply of the type of service that we offer. And then I think -- then there's customer-specific stuff, right? So having a large group of customers, it really depends on the demand or take-up for their product that drives some of the fluctuation in demand. And we've seen some softness, especially from some of Hawk's largest customers who have really pulled back in their activity levels. And so that's the other...

Or moved manufacturing, like Jeff said.