Mr. Joe Abbandonato reports

IMAFLEX ANNOUNCES Q4 AND FY 2023 RESULTS AND PROVIDES BUSINESS UPDATE

Imaflex Inc. has released consolidated financial results for the fourth quarter and fiscal year (FY) ended Dec. 31, 2023, and provides a business update.

Highlights:

• FY 2023 revenues of $93.6-million, down from $111.5-million in 2022; Q4 2023 up 5.6 per cent to $23-million;
• FY 2023 net income of $500,000 (EPS (earnings per share): one cent) versus $9.1-million (EPS: 18 cents) in 2022;
• Q4 net loss of $1-million (includes $1-million non-cash write-off of obsolete production equipment), down from net income of $500,000 in prior year;
• Strong balance sheet with cash available for operating activities totalling $9.9-million at year-end, including a cash balance of $800,000 and another $9.1-million under Imaflex's $12-million revolving line of credit;
• During 2023, Imaflex made $13-million in equipment investments to secure future growth and profitability.

"As we reflect on 2023, I want to acknowledge the year's complexities," commented Joe Abbandonato, president and chief executive officer of Imaflex. "Resin price fluctuations, lagging demand growth and intense price competition impacted sales and profits across the flexible packaging industry. Imaflex was not immune, experiencing a 16.1-per-cent decline in revenue and a 94.4-per-cent decrease in net income compared to fiscal 2022. Adding to this, mounting concerns about the health and environmental impact of PFAS [per- and polyfluorinated substances], a long-used additive to enhance film properties, pressured the industry to adopt alternatives, although it came with reformulation and extrusion production challenges."

"While our short-term performance was impacted by these headwinds, I am proud of the resilience and commitment our team demonstrated throughout the year as we continued to lay the groundwork for sustainable growth."

Financial review -- quarter and year ended Dec. 31

Revenues

Revenues were $23-million for the fourth quarter of 2023, up 5.6 per cent from $21.8-million in 2022. The increase was driven by higher volumes, partially offset by reduced selling prices resulting largely from a competitive pricing environment.

For fiscal 2023, revenues totalled $93.6-million, down 16.1 per cent from the corresponding prior-year period. The year-over-year decrease was driven by lower volumes and product pricing, partially offset by favourable year-over-year movements in foreign exchange.

Gross profit

Gross profit came in at $2.2-million (9.4 per cent of sales) versus $3.3-million (15.3 per cent of sales) in the fourth quarter of 2022. For fiscal 2023, the gross profit totalled $11-million (11.8 per cent of sales) versus $18-million (16.2 per cent of sales) for 2022.

Gross profit for the current quarter was impacted by reduced selling prices due to strong price competition. In addition, certain charges were reclassified from selling and administrative expenses to cost of sales, including non-cash depreciation expenses largely related to right-of-use assets. Similarly, this affected results for fiscal 2023, along with higher labour and training costs related to new equipment purchases and employee hires.

Operating expenses

Selling and administrative expenses were $1.5-million (6.4 per cent of sales) for the current quarter, down from $2-million (9.4 per cent of sales) in the fourth quarter of 2022. The decrease largely relates to the aforesaid reclassification to cost of sales. For fiscal 2023, selling and administration expenses totalled $8-million (8.6 per cent of sales) versus $8.1-million (7.3 per cent of sales) in 2022. Results for 2023 were impacted by the aforesaid reclassification, largely offset by new employee hires, salary increases to remain competitive in the market and higher non-cash stock-based compensation expenses. As well, selling expenses as a percentage of sales were impacted by the lower year-over-year sales base seen during the first nine months of 2023.

Imaflex recorded other losses of $500,000 for the quarter, resulting largely from foreign exchange losses. For fiscal 2023, the company recorded other losses of $600,000 versus a gain of $1.5-million in 2022, resulting in an unfavourable year-over-year variance of $2.1-million. Fiscal 2023 includes foreign exchange losses of $600,000 and a loss on capital assets disposal of $200,000, partially offset by interest income of $200,000. This compares with a foreign exchange gain of $1.5-million in 2022, along with interest income of $41,000.

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.

Write-off of obsolete production equipment

During the fourth quarter of 2023, Imaflex recorded a one-time non-cash impairment charge of $1-million for obsolete production equipment at its U.S. manufacturing facility.

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

The company recorded a net loss of $1-million for the fourth quarter of 2023, down from net income of $500,000 in 2022. The year-over-year decrease was driven by the lower 2023 gross profit, the write-off of obsolete production equipment and movements in foreign exchange.

Net income stood at $500,000 for fiscal 2023, down from $9.1-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 $700,000 (2.9 per cent of sales) for the fourth quarter of 2023, down from $2.1-million (9.8 per cent of sales) in 2022. On a constant-currency basis, EBITDA came in at $1.1-million (4.8 per cent of sales) for the current quarter, down from $2.3-million (10.7 per cent of sales) in 2022.

For fiscal 2023, EBITDA stood at $6-million (6.4 per cent of sales) versus $15.6-million (14.0 per cent of sales) in the corresponding prior-year period. On a constant-currency basis, EBITDA came in at $6.6-million (7.1 per cent of sales) for 2023, compared with $14.1-million (12.6 per cent of sales) in fiscal 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 fourth quarter of 2023, down slightly from $2.4-million in the corresponding quarter of 2022. The lower profits in the current quarter were largely offset by a one-time write-off of obsolete production equipment, along with movements in the depreciation and amortization of non-current assets and foreign exchange. Including movements in working capital and taxes paid, the company recorded net cash inflows by operating activities of $3.1-million for the current quarter versus inflows of $4.8-million in the corresponding prior-year period. The $1.7-million decrease versus 2022 is mainly due to year-over-year movements in trade and other receivables and inventories, partially offset by movements in trade and other payables, prepaid expenses, and income taxes paid.

For the year to date, cash flows generated by operating activities, before movements in working capital and taxes paid, stood at $7.9-million versus $14.3-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 and the write-off of obsolete production equipment. Including movements in working capital and taxes paid, the company recorded net cash inflows by operating activities of $5.4-million in fiscal 2023, down from $17.3-million in the corresponding prior-year period. The decrease is due to the aforementioned factors along with movements in trade and other receivables and inventories, partially offset by movements in trade and other payables and income taxes paid.

As at Dec. 31, 2023, cash available for operating activities totalled $9.9-million, including a cash balance of $800,000 and another $9.1-million under Imaflex's $12-million revolving line of credit. During the quarter, the corporation invested $4.6-million, largely toward the new extrusion equipment announced in Q2 2022. These investments enhance the company's production capacity and capabilities, which should ultimately drive sales growth and profitability.

Advaseal update

While securing U.S. Environmental Protection Agency (EPA) approval of Advaseal is taking longer than expected, Imaflex remains committed. As is typical with the EPA's review process, no specific decision timeline has been provided. However, Imaflex is confident in Advaseal's value proposition and its potential to significantly expand its market reach and growth.

Outlook

"The past year has presented its challenges but it has also showcased our commitment to building a stronger company," said Mr. Abbandonato. "The two remaining multilayer extruder purchases have arrived and will be coming on line in the second half of 2024, further expanding our capacity for producing specialty films. In today's highly competitive market, differentiated offerings are a key to success. With a solid foundation, a dedicated team, and a clear vision for the future, Imaflex is poised to capitalize on upcoming opportunities. We are confident that 2024 will see a gradual improvement in profitability, though the pace and magnitude remain uncertain."

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 metalized plastic film, for the industrial, agricultural and consumer markets. Headquartered in Montreal, Que., Imaflex has manufacturing facilities in Canada and the United States. The corporation's common stock is listed on the TSX Venture Exchange under the ticker symbol IFX.

We seek Safe Harbor.