Mr. Stewart Emerson reports

SUPREMEX ANNOUNCES Q3 2023 RESULTS

Supremex Inc. has released its results for the third quarter ended Sept. 30, 2023. The company will hold a conference call to discuss these results, today at 10 a.m. (Eastern Time).

Third quarter financial highlights and recent events:

• Total revenue increased by 2.8 per cent to $69.8-million, from $67.9-million in the third quarter of 2022.
• Envelope segment revenue up 0.4 per cent to $49.3-million, from $49.1-million in the prior year.
• Packaging and specialty products segment revenue of $20.5-million, up 9.1 per cent from $18.8-million last year.
• Net earnings were $5-million, compared with $8.1-million last year.
• Earnings per share of 19 cents versus 31 cents a year ago.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $11.7-million, or 16.8 per cent of revenue, versus $15.5-million, or 22.8 per cent of revenue, a year ago.
• On Oct. 17, 2023, the company announced optimization initiatives in the packaging segment to enhance efficiency and yield synergies, resulting in annual cost savings of $1.5-million once all measures are implemented.
• On Nov. 8, 2023, the board of directors declared a quarterly dividend of 3.5 cents per common share, payable on Dec. 22, 2023, to shareholders of record at the close of business on Dec. 7, 2023.

"Demand continues to improve but somewhat slower than expected with high inflation and interest rates still affecting direct mail and consumer product spending. With continuous efforts to drive efficient working capital management, Supremex generated a solid free cash flow during the third quarter. Taking into consideration the business acquisitions, Supremex reimbursed over $9-million of long-term debt and repurchased shares," said Stewart Emerson, president and chief executive officer of Supremex. "We entered the fourth quarter with the right level of inventory to support our customers in the current market conditions. Meanwhile, our teams are focused on completing the integration of the packaging operations and achieving the planned efficiencies and synergies related to our most recent optimization initiatives."

Summary of three-month period ended Sept. 30, 2023

Revenue

Total revenue for the three-month period ended Sept. 30, 2023, was $69.8-million, representing an increase of $1.9-million, or 2.8 per cent, from the equivalent quarter of 2022.

Envelope segment

Revenue was $49.3-million, representing an increase of $200,000, or 0.4 per cent, from $49.1-million in the third quarter of 2022. The increase reflects a $11.1-million contribution from the Royal Envelope Corp. acquisition, an average selling price increase of 22.1 per cent from last year's third quarter primarily reflecting a more favourable customer and product mix in U.S. operations and price increases implemented throughout 2022 to mitigate input cost inflation, as well as a favourable currency conversion effect. These factors were offset by a lower volume of units sold following last year's overordering in a time of tight supply, and the effects of higher interest rates and inflation. The envelope segment represented 70.6 per cent of the company's revenue in the quarter, compared with 72.3 per cent during the equivalent period of last year.

Packaging and specialty products segment

Revenue was $20.5-million, up 9.1 per cent from $18.8-million for the corresponding quarter of 2022. The increase is attributable to a $6.8-million contribution from the Impression Paragraph Inc. acquisition, the integration of the Graf-Pak Inc. activities into the pre-existing operations of the company and higher demand for e-commerce packaging solutions. These factors were partially offset by the wind-down of the Durabox operations in 2022 and lower demand from certain sectors more closely correlated to economic conditions. Packaging and specialty products represented 29.4 per cent of the company's revenue in the quarter, up from 27.7 per cent during the equivalent period of last year.

EBITDA and adjusted EBITDA

EBITDA was $13-million, down from $15.1-million in the third quarter of 2022. Adjusted EBITDA amounted to $11.7-million, compared with $15.5-million for the same period last year. The decrease reflects higher revenue and operating expenses partially offset by lower selling, general and administrative expenses. The adjusted EBITDA margin was 16.8 per cent of revenue, compared with 22.8 per cent in the equivalent quarter of 2022.

Envelope segment

Adjusted EBITDA was $9.5-million, compared with $13.5-million in the third quarter of 2022. This decrease mainly reflects a lower volume of units sold following last year's overordering in a time of tight supply, which negatively impacted the absorption of fixed costs. As a percentage of segmented revenue, adjusted EBITDA from the envelope segment was 19.3 per cent, compared with 27.4 per cent in the equivalent period of 2022.

Packaging and specialty products segment

Adjusted EBITDA was $1.7-million versus $3.8-million in the third quarter of 2022. This decrease is mainly explained by lower demand from certain sectors more closely correlated to economic conditions, which negatively impacted the absorption of fixed costs. As a percentage of segmented revenue, adjusted EBITDA from the packaging and specialty operations was 8.4 per cent, compared with 20.4 per cent in the equivalent period of 2022.

Corporate and unallocated recovery/costs

Corporate and unallocated recovery amounted to $500,000 in the third quarter of 2023, as opposed to costs totalling $1.8-million in the third quarter of 2022. The variation is essentially attributable to a favourable adjustment related to the deferred share units (DSUs) and performance share units (PSUs) during the quarter and lower provisions for performance-based remuneration.

Net earnings, adjusted net earnings, net earnings per share and adjusted net earnings per share

Net earnings were $5-million or 19 cents per share for the three-month period ended Sept. 30, 2023, compared with $8.1-million or 31 cents per share for the equivalent period last year.

Adjusted net earnings were $4-million or 16 cents per share for the three-month period ended Sept. 30, 2023, compared with $8.5-million or 32 cents per share for the equivalent period last year.

Summary of nine-month period ended Sept. 30, 2023

Revenue

Total revenue for the nine-month period ended Sept. 30, 2023, was $229.9-million, representing an increase of $36.2-million, or 18.7 per cent, from the equivalent period of 2022.

Envelope segment

Revenue was $163-million, representing an increase of $23.4-million, or 16.7 per cent, from $139.6-million in the nine-month period ended Sept. 30, 2022. The increase is attributable to a $32.2-million contribution from Royal Envelope, an average selling price increase of 31.6 per cent from last year primarily reflecting a more favourable customer and product mix in U.S. operations and price increases implemented throughout 2022 to mitigate input cost inflation, as well as a favourable currency conversion effect. These factors were partially offset by lower volume. Envelope represented 70.9 per cent of the company's revenue in the period versus 72.1 per cent during the equivalent period of last year.

Packaging and specialty products segment

Revenue was $66.9-million, up 23.7 per cent from $54.1-million in the corresponding period of 2022. The increase reflects a $22.4-million contribution from the Paragraph acquisition, the integration of the Graf-Pak activities into pre-existing operations and higher demand for e-commerce packaging solutions. These factors were partially offset by the wind-down of the Durabox operations in 2022, lower demand from certain sectors more closely correlated to economic conditions and the effect on sales from inefficiencies of consolidating the folding carton operations in Lachine concurrently with integrating acquisitions earlier in the year. Packaging and specialty products represented 29.1 per cent of the company's revenue in the first nine months of 2023, compared with 27.9 per cent during the equivalent period of last year.

EBITDA and adjusted EBITDA

EBITDA was $40.8-million, down slightly from $41-million in the first nine months of 2022. Adjusted EBITDA was $40.1-million, down slightly from $41.5-million for the same period a year ago, reflecting higher operating expenses and selling, general and administrative expenses, partially offset by higher total revenue. The adjusted EBITDA margin reached 17.5 per cent in the first nine months of 2023 versus 21.4 per cent in the corresponding period of 2022.

Envelope segment

Adjusted EBITDA was $36.4-million, up from $35.1-million in the first nine months of 2022. This increase was primarily due to higher revenue, driven by an increase in the average selling price and a more favourable product mix in U.S. operations, partially offset by the effect of lower volume on the absorption of fixed costs. As a percentage of segmented revenue, adjusted EBITDA from the envelope segment was 22.4 per cent, compared with 25.1 per cent in the equivalent period of 2022.

Packaging and specialty products segment

Adjusted EBITDA was $7.2-million, compared with $11.3-million in the first nine months of 2022. This decrease mostly reflects lower demand from certain sectors more closely correlated to economic conditions which impacted the absorption of fixed costs, and the effect on profitability of inefficiencies from consolidating the folding carton operations in Lachine concurrently with integrating acquisitions earlier in the year. As a percentage of segmented revenue, adjusted EBITDA from the packaging and specialty operations was 10.8 per cent, compared with 20.9 per cent in the equivalent period of 2022.

Corporate and unallocated costs

Corporate and unallocated costs were $3.5-million compared with $4.8-million in the first nine months of 2022. The decrease mainly reflects a favourable adjustment related to DSUs and PSUs and lower provisions for performance-based remuneration, partially offset by a foreign exchange loss and severances.

Net earnings, adjusted net earnings, net earnings per share and adjusted net earnings per share

Net earnings were $16.6-million or 64 cents per share for the nine-month period ended Sept. 30, 2023, compared with $21.8-million or 83 cents per share for the equivalent period last year.

Adjusted net earnings amounted to $16.1-million or 62 cents per share for the nine-month period ended Sept. 30, 2023, compared with $22.1-million or 84 cents per share for the equivalent period in 2022.

Liquidity and capital resources

Cash flow

Net cash flows from operating activities were $11.5-million for the three-month period ended Sept. 30, 2023, compared with $4.5-million for the same period in 2022. The increase is attributable to a working capital release of $1.4-million this year, as opposed to a working capital requirement of $7.3-million last year, partially offset by lower profitability this quarter compared with the equivalent period of 2022.

For the nine-month period ended Sept. 30, 2023, net cash flows from operating activities reached $29.1-million, compared with $15.2-million in the equivalent period of 2022. The increase is mainly attributable to a lower working capital requirement, partially offset by lower profitability.

Free cash flow amounted to $11.6-million in the third quarter of 2023 compared with $4-million for the same period last year. The increase mirrors the variation in cash flows related to operating activities.

Free cash flow amounted to $24.9-million in the nine-month period ended Sept. 30, 2023, compared with $14.2-million in the corresponding period of 2022. The increase is mainly attributable to higher cash flows from operating activities, partially offset by higher acquisitions of property, plant and equipment.

Normal course issuer bid (NCIB)

During the three- and nine-month periods ended Sept. 30, 2023, the company repurchased 102,900 and 159,600 common shares for cancellation under NCIB programs for total considerations of $500,000 and $800,000, respectively.

On Aug. 29, 2023, the company announced the renewal of its NCIB program. Under the new program, Supremex is authorized to purchase, for cancellation, up to 1,294,058 common shares, representing approximately 5 per cent of issued and outstanding common shares of the company as at Aug. 18, 2023. Purchases will be made over a 12-month period ending on Aug. 30, 2024. Under the previous program, Supremex repurchased 185,700 common shares at an average weighted price per share of $4.7963.

Subsequent to the end of the period, an additional 45,200 shares were purchased for cancellation for total consideration of $200,000.

Debt and leverage

The company's total debt reached $69.2-million as at Sept. 30, 2023, compared with $54.7-million as at Dec. 31, 2022. The increase is essentially attributable to the acquisitions of Paragraph and Graf-Pak for considerations of $25.7-million and $5.9-million, respectively, net of cash acquired, partially offset by debt repayment resulting from a solid free cash flow generation.

Dividend declaration

On Nov. 8, 2023, the board of directors declared a quarterly dividend of 3.5 cents per common share, payable on Dec. 22, 2023, to the shareholders of record at the close of business on Dec. 7, 2023. This dividend is designated as an eligible dividend for the purpose of the Income Tax Act (Canada) and any similar provincial legislation.

Outlook

As customers continue to work through excess inventory, the pace of market recovery remains adversely impacted by higher interest rates and inflation. The company expects these conditions to influence its fourth quarter results, although they appear to have levelled off. Supremex will rely on its solid reputation and geographic reach to assist in mitigating a slowdown while continuing to pro-actively control expenses.

The company remains focused on capturing all sales and cost synergies from recent business acquisitions. As such, the optimization initiatives announced on Oct. 17, 2023, for the packaging and specialty products segment are expected to yield annual cost savings of approximately $1.5-million once all measures are implemented, while a new management structure will enhance capacity to drive value in each target market and maintain proximity with customers.

With respect to capital deployment, the company will continue to look for strategic acquisitions, mainly in the packaging and specialty products segment, while sustaining capital returns to shareholders.

Nov. 9, 2023 -- third quarter results conference call

A conference call to discuss the company's results for the third quarter ended Sept. 30, 2023, will be held Thursday, Nov. 9, 2023, at 10 a.m. Eastern Time.

A live broadcast of the conference call will be available on the company's website in the investors section under webcast.

To participate (professional investment community only) or to listen to the live conference call, please dial the following numbers. The company suggests that participants call in at least five minutes prior to the scheduled start time:

• Confirmation No.: 10022342;
• Local (Vancouver) and international participants, dial: 604-638-5340;
• North American participants, dial toll-free: 1-800-319-4610.

A replay of the conference call will be available on the company's website in the investors section under webcast. To listen to a recording of the conference call, please call toll-free 1-855-669-9658 or 604-674-8052 and enter the code 0383. The recording will be available until Thursday, Nov. 16, 2023.

About Supremex Inc.

Supremex is a leading North American manufacturer and marketer of envelopes and a growing provider of paper-based packaging solutions. Supremex operates 10 manufacturing facilities across four provinces in Canada and six manufacturing facilities in four states in the United States employing approximately 1,000 people. Supremex's growing footprint allows it to efficiently manufacture and distribute envelope and packaging solutions designed to the specifications of major national and multinational corporations, direct mailers, resellers, government entities, small and medium enterprises, and solutions providers.

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