Supremex Announces Results for the First Quarter of 2024

MONTREAL, May 08, 2024 (GLOBE NEWSWIRE) — Supremex Inc. (“Supremex” or the “Company”) (TSX: SXP), a leading North American manufacturer and marketer of envelopes and a growing provider of paper-based packaging solutions, today announced its results for the first quarter ended March 31, 2024. The Company will hold a conference call to discuss these results tomorrow at 8:30 a.m. (Eastern Time).

First Quarter Financial Highlights and Recent Events

• Total revenue of $73.3 million, down from $88.4 million in the first quarter of 2023, but up sequentially from $72.3 million in the fourth quarter of 2023.
• Envelope segment revenue of $53.4 million, versus $64.5 million a year ago and $50.6 million three months ago.
• Packaging and Specialty Products segment revenue of $19.8 million, versus $24.0 million last year and $21.7 million in the fourth quarter of 2023.
• Net earnings of $3.5 million, or $0.14 per share, versus $9.5 million, or $0.37 per share, in the first quarter of 2023, and $0.7 million, or $0.03 per share in the fourth quarter of 2023.
• Adjusted EBITDA¹ was $10.5 million, or 14.3% of revenue, versus $18.8 million, or 21.3% of revenue, last year, and 9.0 million, or 12.4% of sales, in the fourth quarter of 2023.
• On May 1^st, 2024, the Company announced the acquisition of the assets of Forest Envelope Group (“Forest Envelope”), a regional leader in specialty envelope manufacturing located in Bolingbrook, Illinois.
• On May 8, 2024, the Board of Directors declared a quarterly dividend of $0.04 per common share, payable on June 21, 2024, to shareholders of record at the close of business on June 6, 2024.

^{(1)Non-IFRS financial measures or ratios. Non-IFRS financial measures do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other entities. Refer to the non-IFRS financial measures section for definitions and reconciliations.}

“The first quarter of 2023 was a record revenue and adjusted EBITDA quarter for Supremex. We are encouraged with our first quarter performance, highlighted by sequential increases in adjusted EBITDA and net earnings from the fourth quarter of 2023,” said Stewart Emerson, President and CEO of Supremex. “Our envelope business generated a solid adjusted EBITDA margin, while our recent acquisition in the U.S. Midwest should offer opportunities to expand our market reach and rapidly achieve synergies. In packaging, we are gaining momentum in the food market and overall efficiency continues to gradually improve, although volume growth remains modest. Looking ahead, our healthy balance sheet and solid cash flow generation provide us with the flexibility to pursue strategic initiatives that create shareholder value, while continuing to methodically pay down debt, pay dividends and repurchase our shares.”

Summary of three-month period ended March 31, 2024

Revenue

Total revenue for the three-month period ended March 31, 2024, was $73.3 million, representing a decrease of $15.2 million, or 17.1%, from the equivalent quarter of 2023.

Envelope Segment

Revenue was $53.4 million, representing a decrease of 17.1%, from $64.5 million in the equivalent quarter of 2023, which was positively affected by the tailwinds of the company’s ability to capitalize on the supply-chain issues of 2022. The variation mainly reflects the lower volume of units sold due to the effects of higher interest rates and inflation on market demand partially offset by a slightly higher average selling price. The Envelope segment represented 72.9% of the Company’s revenue in the quarter, unchanged from the equivalent period of last year.

Packaging and Specialty Products Segment

Revenue was $19.8 million, down 17.2% from $24.0 million in the first quarter of 2023. The decrease reflects lower demand from certain sectors more closely correlated to economic conditions partially offset by higher demand for e-commerce packaging solutions. The Packaging and Specialty Products segment represented 27.1% of the Company’s revenue in the quarter, unchanged from the equivalent period of last year.

EBITDA² and Adjusted EBITDA²

EBITDA was $10.5 million, compared to $18.5 million in the first quarter last year. Adjusted EBITDA was $10.5 million, versus $18.8 million in the first quarter of 2023. This decrease reflects lower revenue, as well as lower fixed cost absorption, partially offset by lower operating expenses as well as lower, general and administrative expenses. The Adjusted EBITDA margin was 14.3% of revenue, versus 21.3% in the equivalent quarter of 2023.

Envelope Segment

Adjusted EBITDA was $10.9 million, down from $17.3 million in the first quarter of 2023. The decrease is primarily the result of the lover volume of units sold which negatively impacted the absorption of fixed costs. On a percentage of segmented revenue, Adjusted EBITDA from the Envelope segment was 20.4%, compared to 26.8% in the equivalent period of 2023.

Packaging and Specialty Products Segment

Adjusted EBITDA was $1.2 million, compared to $3.8 million in the first quarter of 2023. The decrease is largely explained by the effect of lower volume on the absorption of fixed costs. On a percentage of segmented revenue, Adjusted EBITDA from the Packaging and Specialty Products segment was 6.1%, compared to 16.1% in the equivalent period of 2023, and 6.1% sequentially compared to the fourth quarter of 2023.

Corporate and other non-allocated expenses

Corporate and other non-allocated expenses were $1.6 million compared to $2.3 million in the first quarter of 2023. The decrease is mostly due to a favourable adjustment related to DSUs and PSUs and severance costs in the first quarter of 2023.

Net Earnings, Adjusted Net Earnings², Net Earnings Per Share and Adjusted Net Earnings Per Share²

Net earnings were $3.5 million or $0.14 per share for the three-month period ended March 31, 2024, compared to $9.5 million or $0.37 per share for the equivalent period last year.

Adjusted net earnings were $3.5 million or $0.14 per share for the three-month period ended March 31, 2024, compared to $9.8 million or $0.38 per share for the equivalent period in 2023.

Liquidity and Capital Resources

Cash Flow

Net cash flows from operating activities were $5.1 million during the three-month period ended March 31, 2024, compared to $7.5 million in the equivalent period of 2023. The decrease is mainly attributable to lower profitability partially offset by lower working capital requirements this year compared to last year.

Free cash flow³ amounted to $4.7 million in the first quarter of 2024, compared to $3.4 million for the same period last year, mainly attributable to lower net addition to property, plant and equipment partially offset by lower cash flow from operations.

Debt and Leverage

Total debt decreased to $54.9 million as at March 31, 2024, compared to $56.8 million as at December 31, 2023. The variation is essentially attributable to debt repayment resulting from free cash flow generation.

Normal Course Issuer Bid (“NCIB”)

During the three-month period ended March 31, 2024, the Company repurchased and cancelled 318,600 common shares through its NCIB program for total consideration of $1.4 million. Subsequent to the end of the period, an additional 250,400 shares were purchased for cancellation for total consideration of $1.0 million.

Dividend Declaration

On May 8, 2024, the Board of Directors declared a quarterly dividend of $0.04 per common share, payable on June 21, 2024, to the shareholders of record at the close of business on June 6, 2024. This dividend is designated as an “eligible” dividend for the purpose of the Income Tax Act (Canada) and any similar provincial legislation.

Subsequent Event

On May 1^st, 2024, the Company announced acquisition of the assets of Forest Envelope Group (“Forest Envelope”) a regional leader in specialty envelope manufacturing and lithography located in Bolingbrook, Illinois. The transaction was concluded for a total consideration of approximately US$1.8 million, on a cash-free and debt-free basis, subject to customary adjustments, financed through the Company’s existing credit facility.

Outlook

Following a challenging market environment year in 2023, the Company anticipates demand to gradually return to historical patterns, although the pace of market recovery could be further impacted by persisting high interest rates and inflation. As it continues to expand in the vast and fragmented U.S. envelope market, Supremex will be increasingly subject to competitive pressures, but the Company will rely on its solid reputation and geographic reach to stimulate sales while continuing to proactively control expenses.

The Company remains focused on capturing all sales and cost synergies from recent business acquisitions. As such, the optimization initiatives announced in October 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.

May 9, 2024 – First Quarter Results Conference Call:

A conference call to discuss the Company’s results for the first quarter ended March 31, 2024, will be held Thursday, May 9, 2024, at 8:30 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. We suggest that participants call-in at least 5 minutes prior to the scheduled start time:

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 0784. The recording will be available until Thursday, May 16, 2024.

Non-IFRS Financial Measures

Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies and should not be viewed as alternatives to measures of financial performance prepared in accordance with IFRS. Management considers these metrics to be information which may assist investors in evaluating the Company’s profitability and enable better comparability of the results from one period to another.

These Non-IFRS Financial Measures are defined as follows:

The following tables provide the reconciliation of Non-IFRS Financial Measures:

Forward-Looking Information

This press release contains “forward-looking information” within the meaning of applicable Canadian securities laws, including (but not limited to) statements about the EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net earnings, Adjusted net earnings per share, free cash flow⁴, capital expenditures, dividend payments and future performance of Supremex and similar statements or information concerning anticipated future results, circumstances, performance or expectations. Forward-looking information may include words such as anticipate, assumption, believe, could, expect, goal, guidance, intend, may, objective, outlook, plan, seek, should, strive, target and will. Such information relates to future events or future performance and reflects current assumptions, expectations and estimates of management regarding growth, results of operations, performance, business prospects and opportunities, Canadian economic environment and ability to attract and retain customers. Such forward-looking information reflects current assumptions, expectations and estimates of management and is based on information currently available to Supremex as at the date of this press release. Such assumptions, expectations and estimates are discussed throughout the MD&A for the year ended December 31, 2023, and in the Company’s Annual Information Form dated March 28, 2024. Supremex cautions that such assumptions may not materialize and that economic conditions such as heightened inflation and central banks’ large interest rate hikes, economic downturns or recessions, may render such assumptions, although believed reasonable at the time they were made, subject to greater uncertainty.

Forward-looking information is subject to certain risks and uncertainties and should not be read as a guarantee of future performance or results and actual results may differ materially from the conclusion, forecast or projection stated in such forward-looking information. These risks and uncertainties include but are not limited to the following: decline in envelope consumption, growth and diversification strategy, key personnel, labour shortage, contributions to employee benefits plans, raw material price increases, cyber security and data protection, operational disruption, dependence on and loss of customer relationships, increase of competition, economic cycles, exchange rate fluctuation, interest rate fluctuation, credit risks with respect to trade receivables, availability of capital, concerns about protection of the environment, potential risk of litigation, no guarantee to pay dividends and other external risks such as global health crisis and pandemic and inflation. Such risks and uncertainties are discussed throughout the MD&A for the year ended December 31, 2023, and in the Company’s Annual Information Form dated March 28, 2024 in particular in “Risk Factors”. Consequently, the Company cannot guarantee that any forward-looking information will materialize. Readers should not place any undue reliance on such forward-looking information unless otherwise required by applicable securities legislation. The Company expressly disclaims any intention and assumes no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

The Management Discussion and Analysis and Financial Statements can be found on www.sedarplus.ca and on Supremex’ website.

About Supremex

Supremex is a leading North American manufacturer and marketer of envelopes and a growing provider of paper-based packaging solutions. Supremex operates ten manufacturing facilities across four provinces in Canada and six manufacturing facilities in four states in the United States employing approximately 1,000 people. Supremex’ 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, SMEs and solutions providers.

For more information, please visit www.supremex.com.