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Q2 - Fiscal 25

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Q2 - Fiscal 25.pdf

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Selkirk Signs: Quarterly Report to Board of Directors Q2 2025 Meeting Date: April 17, 2025

To the Board of Directors,

We are pleased to present the quarterly report for Selkirk Signs for Q2 2025. This quarter has been a period of solid performance, continuous improvement, and strategic development. Below, we have outlined key financial and operational highlights, challenges, and our goals for the upcoming quarter.

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1. Financial Performance

Year over Year

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Income Statement Q2 2022-2025.pdf

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Budget 2024 - Q2 Report.pdf

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Revenue:

In Q2 2025, our total revenue was $2.28 million, marking a 31.83% decrease compared to the same period last year. This decline is primarily due to insufficient sales activity from fiscal 2023, requiring significant efforts in fiscal 2024 to develop the new pipeline we are only beginning to experience now in fiscal 2025. Additionally, the sales cycle has proven to be longer than anticipated, further delaying revenue generation and exacerbating the impact on overall financial results. These factors combined have significantly contributed to the notable drop in revenue.

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Gross Profit:

Our gross profit for the quarter stood at 33.2%, an improvement of 17.2% over Q2 2024. This increase is attributed to more efficient manufacturing and project management processes, as well as reductions in warranty claims.

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Net Profit:

Our net profit for the quarter stood at $-51,798.77, reflecting a 49.9% improvement over Q2 2024. This increase is attributed to better cost control, improved project management margins, and stronger client retention.

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Operating Expenses:

Operating expenses came in at $805,235.35, which is 6% lower than the same period last year. This improvement is largely due to our implementation of cost cutting measures, such as reducing staff, reduced overhead costs (Calgary office) minimizing travel and entertainment expenses.

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Cash Flow:

Despite efforts to improve financial performance, cash flow continues to be a significant challenge this quarter. Low sales order numbers are contributing to a reduced operating line of credit. The decline in sales has limited our cash inflows, asking the bank to lock in our margin. Addressing this issue is crucial to ensure we have the necessary financial resources to support ongoing operations and growth initiatives.

Year to date:

Revenue:

In the first half of the year, our total revenue amounted to $4.94 million, representing a 27.94% decrease compared to the same period last year. This decline continues to distance us from our annual revenue target of $13.5 million

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However, the revenue forecast for the second half of the year indicates a substantial increase, projecting that we will meet our annual target by year-end. This optimistic outlook suggests that our strategic initiatives and market conditions will drive the necessary growth to achieve our financial goals.

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Net Profit:

Our net profit for the year stands at -$105,708.99, reflecting a 148% decrease compared to the previous year. Despite these unfavorable figures, we remain optimistic that the recent strategic changes and the acquisition of new clients with higher profit margins will gain traction. We are confident that these developments will enable us to achieve our net profit target of $765,104 by year-end.

Operating Expenses:

Our operating expenses for the year to date amount to $1,628,476.67, reflecting a 5.55% reduction compared to the same period last year. This decrease has contributed to several break-even months and minimized losses during the most challenging periods. By maintaining these reduced operating expenses throughout the remainder of the year, we anticipate achieving higher-than-normal profits.

Inventory Management:

Q2 closing inventory valued at $2.4M, with normalized operating levels estimated around $2M.

Significant progress continues in reducing obsolete/repurposed stock, with approximately $250k depleted year-to-date and a further ~$50k reduction targeted in the second half of the fiscal year.

Ongoing cleanup and rationalization of inventory items within the Odoo system (item count reduced by ~14% from 2100 to 1807) is enhancing data accuracy, improving inventory control, and reducing ordering errors (further refinements planned).

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Budget:

Our budget indicates that we have utilized only 37% of the anticipated cost of goods sold (COGS) for the year and 46% of our total expenses. The lower-than-expected revenue directly correlates with the reduced COGS. However, the expenses highlight that our cost-cutting measures are proving effective, ensuring better-than-expected cost management at this point in the year.

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2. Key Operational Achievements

New Projects:

7-Eleven to Esso Rebrand

The 7-Eleven to Esso rebrand is a continuation from Q2 with 26 locations in the queue for the remainder of fiscal 2025. This program is projected to bring approximately $5M in revenue with 70% ($3.5M) to be realized this fiscal.

We have partnered with Pattison ID as a Starbucks supplier, providing $54k in pended bids in Q2 and being awarded $36k thus far in our growing relationship.

We have completed a bid for a new Calgary CO-OP location (Greystone) of approximately $506k in revenue. This has been approved; completion anticipated for Q3.

We have engaged and activated KFC bid opportunities with Soul Foods, FMI, Canbian, Pirani Group, and Hi-Flyer Foods as an officially accredited vendor. This has resulted in $461k in bid opportunities and $155k in newly awarded revenue (Q2 numbers only)

RBI (parent company of Tim Hortons, Burger King, and Popeyes) has engaged us to become an official Western Canada vendor for Burger King. In addition to our Burger King Wetaskiwin location ($82k in revenue), we’ve been engaged by other franchisees (Crossfield, AB and Cranbrook, BC) to service their branding refreshes

Win/Loss Ratio of BD projects:

Q2 Funnel Data: Based on BD data for 62 opportunities tracked in Q2: 26% Won, 37% Lost, 38% Still in Negotiation.

Loss Driver - Price Sensitivity (43% of losses): Lost opportunities due to price often occurred where strong client relationships were not yet established, leading us to quote protectively higher margins (e.g., Foot Locker US specifically indicated our pricing was uncompetitive). Our strategy continues to prioritize relationship-building pre-bid.

Loss Driver - Competitor Relationships (22% of losses): Existing strong relationships between prospects and competitors, particularly regional incumbents in the KFC market (e.g., involving franchisees like Soul Foods or FMI), were another key factor. Differentiation through superior service and process efficiency is crucial here.

KFC Market Strategy (Sales Focus): Successfully engaging new KFC franchisees requires meeting demands for rapid response times, lean installation/permitting costs, and fast production turnaround. To improve win rates, we are actively streamlining internal processes (project overview, estimating, design packages) and emphasizing proactive customer service.

Reporting Enhancements: Improved reporting and analytics for BD performance are anticipated following the stabilization of the Odoo 17 system.

Market Analysis:

Local Competition Obstacles: Will be addressed by emphasizing Selkirk’s quality, warranty, and full turnkey service differentiators against price-focused local competitors.

Ontario KFC Market Entry: Hurdles for securing work include overcoming established relationships and ensuring cost competitiveness. Actions being explored include faster internal quotation/revision turnarounds, implementing leaner margins on outsourced services (install/freight), and identifying new Eastern installation partners.

Client Margin Variability: Significant differences exist in client pricing expectations (e.g., standard rates accepted by clients like Reitmans/Panago versus slim margins demanded by others like FDF Brandz/BarBurrito).

Client Viability Assessment: New client opportunities ("auditions") are assessed systematically based on key criteria: projected profit margin, quality of communication, potential for partnership (vs. purely transactional vendor relationship), and alignment on expectations (timelines, scope).

Technology & Innovation:

The upgrade from Odoo 13 to Odoo 17 was successfully completed this quarter. Despite the extensive time and effort invested by the team in testing and preparing for the new version, the transition encountered several challenges. A significant portion of these issues originated from Bista's end, where functionalities that worked in the test environment failed to perform as expected in the live environment. While there are still some issues to resolve, the day-to-day functionality is nearly perfect, with occasional unexpected problems.

During our initial period with Odoo 17, our primary focus has been on ensuring its successful implementation. In the upcoming quarters, we will concentrate on leveraging the new features now available to us. This will include more comprehensive financial and KPI reporting, accessible in real-time. Additionally, we will renew our efforts to integrate all teams into using Odoo as the central hub for information and data storage. This transition will reduce our reliance on Smartsheets and other applications, thereby enhancing cross-departmental communication and visibility.

Marketing Activities & Performance

Resource Allocation: Marketing bandwidth continues to be constrained, particularly with increased support required for recent business development opportunities. Resources are prioritized towards activities demonstrating the highest return on investment.

Content Strategy & Results: Focusing on identified high-engagement content (primarily short-form video) combined with strategic paid promotion on key platforms enabled the achievement of Q2 social media growth goals (including 6% follower growth on Instagram and meeting LinkedIn targets).

Industry Recognition: We continue to receive positive feedback from industry contacts regarding our marketing initiatives, affirming effective brand visibility and positioning within our sector.

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3. Challenges Faced

Staffing Levels and Capacity Constraints

Lean Staffing Levels: Both Manufacturing and Design/Drafting have operated under intentionally lean staffing models for approximately two years (Design currently at ~50% of peak levels).

Recruitment Difficulties: Securing skilled production personnel remains challenging, particularly in the Cranbrook labor market. Standard recruitment avenues like job fairs have shown limited effectiveness.

Capacity Strain & Impact: Recent increases in workload (late Q2/early Q3) have significantly strained Design/Drafting capacity. This has resulted in project backlogs, extended turnaround times impacting PMO schedules, and has prompted negative feedback from customers regarding delays.

Purchasing

Managed Q2 purchasing activities amidst significant challenges including tight cash flow, specific material needs for the 7-Eleven project, tariff threats, and unfavorable currency exchange (CAD weakness). Many of these pressures are expected to continue into Q3, & Q4.

Spending was consciously constrained early in the quarter (Dec/Jan under budget) due to cash flow limitations, followed by a necessary, strategic over-budget material acquisition in February for the 7-Eleven project. This early purchase secured materials, mitigated tariff risks, and supported manufacturing workflow.

Proactive supply chain management continues, with no disruptions encountered in Q2. Efforts include expanding the vendor network (adding new aluminum and frame suppliers) and establishing readiness for potential large-scale overseas aluminum sourcing, which offers significant cost savings (~15-20%), pending a suitable use case.

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Equipment Maintenance, End of Life and Capital Investment Planning for Manufacturing

Ongoing Maintenance: Costs for key production equipment totaled $24k YTD through Q2 Fiscal 25. While these costs are significant, this year-to-date figure suggests we are trending in the right direction and on track for lower total spending compared to the $92k total cost incurred in Fiscal 24."

Impending Replacement: A key concern is the Fort Saskatchewan flatbed printer. It is nearing end-of-life with high associated upkeep costs. Replacement is anticipated within the next 1-2 years, possibly sooner, representing a major capital need of approximately $120k (like-for-like) to $240k (upgraded model).

Future Capital Investments: Potential future equipment investments totaling ~$500k (e.g., laser cutter, channel letter equipment, Cranbrook paint booth) have been identified to enhance capacity or market access. These investments are currently deferred, pending robust business case development, prioritization in line with our cash flow strategy, and assessment of borrowing capacity.

Efficiency Focus: We continue to pursue operational efficiencies as alternatives to immediate capital spending, such as optimizing processes with key suppliers (e.g., utilizing pre-cut steel).

Project Management Capacity

Our Selkirk PM for the FCL account went on medical leave end of January, anticipated to return end of April. Given cashflow constraints, the decision was made to hold off on hiring additional support. However, this required other team members both within and outside of the department to fill in and ensure the FCL was kept to standard, resulting in diminished overall capacity for acquiring new business. Process flow is being examined to free up additional capacity within the department, and as sales increase we are exploring additional outside hires to create capacity for new business.

Revenue Forecasting Methodology

The transition to Odoo 17 highlighted several issues with the current method of forecasting. PMO and Finance were pulling numbers from different locations and with different parameters resulting in discrepancies, and several legacy reports were not ported over from Odoo 13 creating reduced visibility to real time actuals vs. forecasted amounts. As a result, discrepancies were often caught at month-end with insufficient time to correct information. PMO and Finance are developing new financial compliance measures to ensure forecasting is accurate and consistent for Q3.

Cash Flow

Despite concerted efforts to enhance financial performance, cash flow remained a significant challenge this quarter. The persistently low sales order numbers directly impacted our operating line of credit, leading to a reduction in available funds. This decline in sales severely limited our cash inflows, prompting our financial controller to renegotiate our operating line of credit for the short term.

The cash shortage hindered our ability to operate effectively. It restricted our capacity to pay suppliers early to ensure discounts, and other operational expenses, potentially disrupting production and service delivery. Additionally, limited cash flow impeded our ability to invest in growth opportunities, such as marketing campaigns, research and development, and expansion projects. It also affected our ability to take advantage of opportunities to purchase large quantities of products at discounted rates. If the cash flow issues continues, there is a risk of compromising our stability and reputation. Ensuring adequate cash flow remains crucial for maintaining operational continuity, supporting strategic initiatives, and fostering long-term growth.

As sales revenue increases through Q3 and into Q4, it is imperative that we closely monitor our spending and maintain stringent cost controls. By doing so, we can maximize cash generation and position Selkirk Signs more favorably. Effective cost management will not only enhance our financial stability but also enable us to reinvest in strategic initiatives that drive growth and innovation. Additionally, maintaining robust cost controls will help us navigate any unforeseen financial challenges and ensure we are well-prepared for future opportunities. This disciplined approach to financial management is crucial for sustaining our competitive edge and achieving long-term success.

Business Development Scalability

As noted above by PMO and Design, we have run a “lean” model for over a year now due to rebuilding our processes, maximizing efficiency, and mitigating wasted OE. As such, we have not yet been able to have the discussion about scaling the BD department as our PMO still needs to healthily scale, as well as our design and estimating capacity, to allow for a new BD member to be brought on board.

With this reality, BD’s efforts have been scattered between national outreach, local networking, and local/small business intake/handling. All 3 lanes are essential, and showing growth, but are spreading BD’s bandwidth thin and thus limiting optimization for each category.

Shipping:

Q2 shipping volumes and activities were consistent with typical operational cycles and historical performance for the period. No issues were reported.

2025 (Q2)

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2024 (Q2)

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4. Strategic Initiatives for Q3/Q4 2025

Expansion into New Markets

US Market Assessment:

Assessment of service expansion viability into the Northern/Pacific US continues.

Discussions with key prospects (Fix Auto, 7-Eleven) are currently stalled due to external factors (tariff/trade uncertainty); 7-Eleven talks are anticipated to resume by the end of May 2025.

A recent RFP opportunity (Foot Locker) highlighted significant pricing challenges for direct service provision into the US market, making this approach appear infeasible at present.

Potential as a US-based service coordination partner is still being explored, pending identification of a viable first use case.

Canadian QSR Market-Share Expansion:

Successfully engaged as an accredited KFC supplier by multiple major franchisee groups, marking significant progress in this target segment.

Actively pursuing official supplier status with several other major QSR brands, including Burger King, Taco Bell, Jersey Mike's, Subway, and Edo Japan.

Multiple opportunities are currently in late-stage vetting or negotiation, with key determinations or initial project engagements anticipated in the near term (primarily late April / early May 2025).

Employee Development:

Manufacturing Initiatives:

An updated Training Matrix is in use by Shop Supervisors to systematically evaluate employee skill levels and identify training needs.

A Subject Matter Expert (SME) program is being formalized, initially focusing on Print Operators, to deepen specialized skills within the production team (pending final documentation and rollout). Due: Q3

Cross-training initiatives are ongoing to increase functional depth, including proficiency in Odoo administrative tasks and key front-end manufacturing processes.

Production Foreman are receiving targeted development to increase their input and oversight on complex custom builds, improving collaboration with Design/Drafting.

Enhanced cross-functional communication processes, including regular structured meetings between Production, Design, and Estimating, have been implemented.

A team of five have been identified and tasked with strategizing, formalizing work flows and executing complex custom projects. The goals of this team is pioneering new products, production techniques and efficiencies relevant to emerging market requirements.

Staff Development/Rating Program (Company-Wide):

A formal, company-wide initiative is underway (target completion: end of Q4 Fiscal 25) to enhance talent management and performance assessment.

Key Objectives: Define clear performance standards tied to core competencies (e.g., decision-making, accountability); assess current staff capabilities (SWOT analysis); establish structured processes for performance management; develop succession plans for key roles; and identify future staffing/skill needs aligned with growth strategies.

Expected Outcomes: Deliver comprehensive, agreed-upon standards for employee expectations; provide objective data to support performance reviews; and create a defined rating system suitable for potential integration with future incentive structures.

Improving Efficiency in front line departments (BD, PMO, Design, Estimating)

Addressing Bottlenecks: Efforts are focused on mitigating project turnaround delays stemming from capacity constraints within lean front-line departments (Design, Estimating, PMO).

Process Optimization: A key inefficiency identified – significant upfront design time invested in large opportunities that are ultimately lost – is being addressed. A streamlined process is currently being implemented involving closer collaboration between Estimating and Design to determine the minimum viable information needed for initial quoting on complex packages.

Expected Outcomes: This process change is anticipated to free up critical Design capacity and reduce turnaround times for project estimates.

Flexible Resourcing: The viability of engaging contract design professionals to manage workload fluctuations during peak seasons is actively being explored, including necessary consultations with IT and HR regarding implementation logistics and potential hurdles.

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6. Outlook for Q3 2025

Financial Projections:

A significant increase in revenue (projected 50-55% vs Q2) and strong profitability are anticipated for Q3 Fiscal 25.

Key Revenue Drivers: This projected growth is based on several factors:

Seasonal ramp-up in construction-related activity.

Execution of the large-scale 7-Eleven rebrand project.

Anticipated work from key returning clients (e.g., Canco, Calgary Co-Op).

Initial revenue contributions from newly onboarded QSR clients (KFC, Burger King, Wendy's).

Continued efforts to expand into new industries.

Risk Factors:

Potential headwinds from ongoing economic uncertainty, supply chain vulnerabilities, and persistent labor market tightness remain key areas of focus and management attention.

Mitigation Strategy:

Management is confident that existing proactive measures, including strategic planning and rigorous cost controls (as detailed in previous sections), provide a solid framework to mitigate these external risks, maintain operational efficiency, and capitalize on identified growth opportunities.

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7. Conclusion

Q2 Fiscal 25 presented a challenging revenue environment, impacted significantly by prior sales cycles, yet demonstrated measurable progress in operational efficiency. Disciplined cost management and enhancements in project execution led to stronger gross margins and reduced net losses compared to the prior year period, validating key strategic initiatives undertaken. Successful major project execution and initial traction in targeted market expansion efforts provide positive operational momentum heading into the second half of the fiscal year.

Looking ahead, management's primary fiscal focus will be navigating our critical cash flow situation while executing the Q3 & Q4 revenue plan necessary to meet annual targets.

Key priorities include implementing reliable forecasting methodologies, fully leveraging the capabilities of the new Odoo ERP system, addressing departmental capacity constraints, and capitalizing on market expansion opportunities. Continued emphasis on employee development remains integral to supporting these objectives.

While acknowledging ongoing market risks and internal challenges, management is committed to the strategic direction outlined and the disciplined execution required to achieve stated goals and ensure long-term value creation.

Please feel free to reach out with any questions or further clarifications.

Sincerely,

Adam Doll - Design & Marketing Manager

Cacey Byrd - PMO Manager

Donny Clarricoates - Production Manager

Jared McMillan - Logistics Manager

Kort Mehrle - Technology, Innovation & Estimating Manager

Russell Byrd - Business Development Manager

Scott Peters - Strategic Operations Manager

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