Mr. Joe Abbandonato reports

IMAFLEX ANNOUNCES Q2 2023 RESULTS AND PROVIDES BUSINESS UPDATE

Imaflex Inc. has released its consolidated financial results for the second quarter ended June 30, 2023, and provided a business update.

Q2 2023 highlights:

• Revenues of $24.5-million versus $32.1-million in Q2 2022;
• Net income of $400,000 versus $3.4-million in prior year;
• Cash available for operating activities totalled $14.3-million at quarter-end, including a cash balance of $3-million and another $11.3-million under Imaflex's $12-million revolving line of credit;
• New extruder and metalizer at the company's Victoriaville facility are now fully operational.

"We successfully navigated another challenging quarter in a demanding operating environment," commented Joe Abbandonato, president and chief executive officer of Imaflex. "Sales volumes strengthened versus the first quarter of 2023 and we remain cautiously optimistic they will continue to build over the remainder of the year. The new extruder and metalizer at our Victoriaville facility are now fully operational and we are working hard to boost equipment utilization levels across the business, while also heightening profitability."

Financial review: Quarter ended June 30

Revenues

Revenues were $24.4-million for the second quarter of 2023, down 23.7 per cent from $32.1-million in 2022. The decrease was driven by lower volumes and reduced selling prices, resulting from the passthrough of a drop in resin costs and a competitive pricing environment. This was partially offset by favourable year-over-year movements in foreign exchange. As Imaflex has no long-term contracts, it can adjust product pricing in accordance with resin input costs.

Revenues came in at $47.7-million for the first six months of 2023, down 24.5 per cent versus the corresponding prior-year period. The decrease was driven by the same factors outlined for the quarter.

Gross profit

Gross profit came in at $3.4-million (14 per cent of sales) in the current quarter, versus $5.6-million (17.4 per cent of sales) in the prior year. For 2023 year-to-date, the gross profit came in at $6.6-million (13.8 per cent of sales), versus $10.4-million (16.4 per cent of sales) in 2022.

For both the current quarter and first half of 2023, the impact of the decreased gross profit on the gross margin was reduced by the lower 2023 sales base and favourable year-over-year movements in foreign exchange.

Operating expenses

Selling and administrative expenses were $2.4-million (9.8 per cent of sales) for the quarter, up 14.6 per cent from $2.1-million (6.6 per cent of sales) in 2022. For the year to date, selling and administrative expenses came in at $4.4-million (9.1 per cent of sales) up from $4-million (6.4 per cent of sales) in 2022. The year-over-year expense increases for the quarter and first six months of 2023 were largely due to new employee hires, salary increases to remain competitive in the market and higher non-cash stock-based compensation expenses. Selling expenses as a percentage of sales were also impacted by the lower sales base in 2023.

Imaflex recorded other losses of $400,000 for the current quarter, versus a gain of $600,000 in the prior-year quarter, resulting in a $1-million unfavourable year-over-year variance. The current quarter includes $31,000 of interest income (nil in 2022), along with a $400,000 foreign exchange (FX) loss. For 2023 year-to-date, the company had losses of $400,000 versus gains of $300,000 in the corresponding prior-year period, resulting in a year-over-year unfavourable variance of $700,000. The first six months of 2023 include $86,000 of interest income (nil in 2022) and a $500,000 foreign exchange loss.

A majority of the corporation's foreign exchange gains and losses are non-cash impacting and largely relate to intercompany balances for which Imaflex can control the time of settlement.

Net income and EBITDA (earnings before interest, taxes, depreciation and amortization)

Net income was $400,000 for the current quarter, down from $3.4-million in the second quarter of 2022. The year-over-year decrease was driven by the lower 2023 gross profit, along with the aforementioned foreign exchange losses, and higher selling and administrative expenses. For the year-to-date, net income stood at $1.4-million, down from $5.5-million in the corresponding period of 2022. The decrease from 2022 was due to the same factors outlined for the quarter.

EBITDA came in at $1.7-million (6.9 per cent of sales) for the current quarter, down from $5.1-million (15.9 per cent of sales) in 2022. On a constant-currency basis, EBITDA came in at $2.1-million (8.6 per cent of sales) for the current quarter, down from $4.5-million (13.9 per cent of sales) in 2022. For the first six months of 2023, EBITDA stood at $3.9-million (8.2 per cent of sales) versus $8.7-million (13.7 per cent of sales) in the corresponding prior-year period. On a constant-currency basis, EBITDA came in at $4.3-million (9 per cent of sales) for 2023 year-to-date, compared with $8.3-million (13.1 per cent of sales) in 2022.

Liquidity and capital resources

Net cash flows generated by operating activities, before movements in working capital and taxes paid, stood at $2.3-million for the current quarter, down from $4.6-million in 2022. The $2.2-million decrease was largely due to the lower year-over-year profit, partially offset by movements in foreign exchange. Including movements in working capital and taxes paid, the company recorded net cash outflows by operating activities of $1.8-million for the current quarter. This compares with cash inflows of $3.7-million in the corresponding prior-year period. The decrease versus 2022 is mainly due to the lower profit, along with movements in inventories, prepaid expenses and trade receivables.

For the year-to-date, cash flows generated by operating activities, including movements in working capital and taxes paid, stood at $1.7-million, versus $7-million in the corresponding prior-year period. The decrease versus 2022 is mainly due to the lower profit in 2023, along with movements in inventories and prepaid expenses, partially offset by movements in trade and other payables.

As at June 30, 2023, cash available for operating activities totalled $14.3-million, including a cash balance of $3-million and another $11.3-million under Imaflex's $12-million revolving line of credit. This strong position was achieved despite $2.8-million of payments in the quarter, largely toward the major equipment purchases announced in Q2 2022. These investments further enhance the company's production capacity and capabilities to heighten sales and profitability.

Outlook

"Economic headwinds, customer destocking and a competitive pricing environment impacted results for the first half of 2023," said Mr. Abbandonato. "While these challenges persist, we anticipate their impact to ease as the year unfolds. We are optimistic market softness will gradually stabilize, resulting in stronger performance for the latter half of 2023. Our financial position remains strong, and we are working hard to fill unused capacity and find new opportunities. We remain steadfast in our approach, and believe we are well positioned to navigate these dynamic markets and build for a promising future."

About Imaflex Inc.

Founded in 1994, Imaflex is focused on the development and manufacturing of innovative solutions for the flexible-packaging space. Concurrently, the corporation develops and manufactures films for the agriculture industry. The corporation's products consist primarily of polyethylene (plastic) film and bags, including metallized plastic film, for the industrial, agricultural and consumer markets. Headquartered in Montreal, Que., Imaflex has manufacturing facilities in Canada and the United States.

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