Mr. Joe Abbandonato reports

IMAFLEX ANNOUNCES Q3 2023 RESULTS AND PROVIDES BUSINESS UPDATE

Imaflex Inc. has released its consolidated financial results for the third quarter (Q3) ended Sept. 30, 2023, and provided a business update.

"In the face of economic headwinds and a competitive market, our business fundamentals are improving slower than originally anticipated, as reflected in Imaflex's third quarter results," said Joe Abbandonato, president and chief executive officer of Imaflex. "Despite these challenges, we continue to invest in the future, and we are enthusiastic about our growth opportunities. With a robust financial position and a strong set of offerings, we are confident in our ability to navigate evolving market dynamics and deliver sustainable growth."

Financial review: Quarter ended Sept. 30

Revenues

Revenues were $22.9-million for the current quarter, down 14 per cent from $26.7-million in 2022. For the year to date, revenues came in at $70.6-million, down 21.4 per cent from the corresponding prior-year period. The decrease for the quarter and first nine months of 2023 was largely driven by lower volumes and reduced selling prices resulting mainly from a competitive pricing environment. This was partially offset by favourable year-over-year movements in foreign exchange.

Gross profit

Gross profit came in at $2.2-million (9.8 per cent of sales), versus $4.3-million (16.4 per cent of sales) in the third quarter of 2022. For 2023 year-to-date, the gross profit was $8.8-million (12.5 per cent of sales) versus $14.7-million (16.4 per cent of sales) in the corresponding prior-year period.

Gross profit for the current quarter and year-to-date was impacted by reduced selling prices, higher labour and training costs related to new equipment purchases and employee hires. Due to year-over-year timing differences, the corporation also incurred additional repair and maintenance costs in the current quarter, while they were essentially in line for the year to date.

Operating expenses

Selling and administrative expenses were $2.2-million (9.7 per cent of sales) for the quarter, up 14.2 per cent from $1.9-million (7.3 per cent of sales) in 2022. For the year-to-date, selling and administrative expenses came in at $6.6-million (9.3 per cent of sales), up 10 per cent from $6-million (6.7 per cent of sales) in 2022. The year-over-year expense increases for the quarter and first nine 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 (year to date only, no impact on Q3). Selling expenses as a percentage of sales were also impacted by the lower sales base seen during 2023.

Imaflex recorded other gains of $400,000 for the current quarter, versus a gain of $1.4-million in the corresponding prior-year quarter, resulting in a $1-million unfavourable year-over-year variance. The current quarter includes $38,000 of interest income (nil in 2022), along with a $300,000 foreign exchange (FX) gain ($1.4-million gain in 2023).

For 2023 year to date, the company had other losses of $15,000 versus a $1.7-million gain in 2022, resulting in a year-over-year unfavourable variance of $1.7-million. The first nine months of 2023 include $100,000 of interest income (nil in 2022) and a $100,000 foreign exchange loss ($1.7-million gain in 2022).

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 $200,000 for the current quarter, down from $3.1-million in the third quarter of 2022. The year-over-year decrease was driven by the lower 2023 gross profit, along with movements in foreign exchange, and higher selling and administrative expenses.

For the year to date, net income stood at $1.5-million, down from $8.6-million in the corresponding period of 2022. The decrease from last year was due to the same factors outlined for the quarter.

EBITDA came in at $1.5-million (6.4 per cent of sales) for the current quarter, down from $4.8-million (18.2 per cent of sales) in 2022. On a constant currency basis, EBITDA came in at $1.1-million (4.9 per cent of sales) for the current quarter, down from $3.5-million (13 per cent of sales) in 2022. For the first nine months of 2023, EBITDA stood at $5.4-million (7.6 per cent of sales) versus $13.5-million (15 per cent of sales) in the corresponding prior-year period. On a constant-currency basis, EBITDA came in at $5.5-million (7.8 per cent of sales) for 2023 year to date, compared with $11.8-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 $1-million for the current quarter, down from $3.5-million in the corresponding quarter of 2022. The $2.5-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 inflows by operating activities of $700,000 for the current quarter versus inflows of $5.5-million in the corresponding prior-year period. The $4.8-million decrease versus 2022 is mainly due to the aforementioned factors, along with year-over-year movements in trade and other receivables, and trade and other payables, partially offset by movements in inventories.

For the year to date, cash flows generated by operating activities, before movements in working capital and taxes paid, stood at $5.6-million, versus $11.9-million in the corresponding prior-year period. The decrease versus 2022 is mainly due to the lower profit in 2023, along with movements in income tax expense, partially offset by movements in foreign exchange. Including movements in working capital and taxes paid, the company recorded net cash inflows by operating activities of $2.3-million, versus inflows of $12.5-million in the corresponding prior-year period. The decrease is due to the aforementioned factors, along with movements in trade and other receivables, inventories, and prepaid expenses.

As at Sept. 30, 2023, cash available for operating activities totaled $12-million, including a cash balance of $2-million and another $10-million under Imaflex's $12-million revolving line of credit. This strong position was achieved despite $2.2-million of payments in the quarter, largely toward the major equipment purchases announced in Q2 2022. These investments will further enhance the company's production capacity and capabilities to heighten sales and profitability.

Outlook

"Imaflex continues to face challenges posed by economic conditions and a competitive operating environment," said Mr. Abbandonato. "Consequently, business fundamentals are taking longer to improve than originally anticipated. This said, the corporation continues to focus on the future, and we are encouraged by our progress. The remaining equipment purchases are scheduled to arrive over the coming months, heightening our ability to meet future demand expectations as markets recover. To bolster our market position, we have augmented our sales force in recent quarters and are actively working to fill unused capacity, while exploring new opportunities. Moreover, securing U.S. EPA [Environmental Protection Agency] approval of ADVASEAL remains a priority and we are hopeful that a decision will be taken by the end of the first quarter of 2024. These initiatives underscore our commitment to innovation and market expansion. We remain excited about our medium-term growth opportunities and, with a strong financial position, we are confident in our ability to navigate evolving market dynamics and deliver sustainable growth."

Strengthened financial leadership with new director of finance

"We are pleased to announce the appointment of Mr. Robert Therrien to our leadership team," said Mr. Abbandonato. With over 35 years of experience, Robert has a proven track record in senior financial management roles across various industries.

"Known for his results-driven approach and leadership, Mr. Therrien has a proven track record in strategic financial management. His experience spans manufacturing, distribution, retail, food and beverage, and resort and real estate development, with notable achievements.

"A CPA, CA, with an accounting degree from Universite du Quebec a Montreal (UQAM), Robert is recognized for his leadership, strategic acumen and financial expertise.

"Robert's extensive experience and strategic insights further strengthen our business, and he will play a key role in advancing our financial objectives."

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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