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“Continued strong free cash flow generation enabled Supremex to further reduce debt and repurchase shares during the second quarter,” said Stewart Emerson, President and CEO of Supremex. “Our envelope volume increased almost 10% from last year driven by successful initiatives to expand our reach in the vast U.S. market. In packaging, profitability improved significantly from prior quarters reflecting measures to optimize efficiency, however volume continues to lag. Although market recovery and business development initiatives are taking longer than anticipated, we are proactively managing our asset utilization and cost structure to foster efficiency and productivity gains across our network, as we continue to methodically execute our business strategy to create lasting value for shareholders.”

Summary of three-month period ended June 30, 2024

Revenue

Total revenue for the three-month period ended June 30, 2024, was $69.3 million, representing a decrease of $2.3 million, or 3.3%, from the equivalent quarter of 2023.

Envelope Segment

Revenue was $49.5 million, representing an increase of 0.4%, from $49.2 million in the second quarter of 2023. The variation is mainly attributable to a 9.8% increase in the volume of units sold, reflecting the Company’s efforts to further penetrate the U.S. market, and the contribution from the purchase of the Forest Envelope assets. These factors were partially offset by an average selling price decrease of 8.5% compared to last year. The Envelope segment represented 71.3% of the Company’s revenue in the quarter, versus 68.7% of revenue in the equivalent period of last year.

Packaging & Specialty Products Segment

Revenue was $19.9 million, down 11.4% from $22.4 million in the second 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 & Specialty Products segment represented 28.7% of the Company’s revenue in the quarter, versus 31.3% of revenue in the equivalent period of last year.

EBITDA² and Adjusted EBITDA²

EBITDA was $8.8 million, compared to $9.4 million in the second quarter last year. Adjusted EBITDA was $9.1 million, versus $9.6 million in the second quarter of 2023. The decrease reflects lower revenue and higher selling, general and administrative expenses, partially offset by lower operating expenses. The Adjusted EBITDA margin was 13.1% of revenue, versus 13.3% in the equivalent quarter of 2023.

Envelope Segment

Adjusted EBITDA was $8.0 million, down from $9.7 million in the second quarter of 2023. The decrease is primarily attributable to lower average selling prices, mainly in the U.S. market, partially offset by a higher volume of units sold. On a percentage of segmented revenue, Adjusted EBITDA from the Envelope segment was 16.2%, compared with 19.6% in the equivalent period of 2023.

Packaging & Specialty Products Segment

Adjusted EBITDA was $2.8 million, versus $1.7 million in the second quarter of 2023. This increase mainly reflects benefits from cost reduction measures implemented in late 2023 to improve profitability and efficiency and, to a lesser extent, the reversal of a provision related to a previous acquisition. On a percentage of segmented revenue, Adjusted EBITDA from the Packaging & Specialty Products segment was 13.7%, compared to 7.4% in the equivalent period of 2023.

Corporate and other non-allocated expenses

Corporate and other non-allocated expenses for the second quarter of 2024 remained relatively stable at $1.7 million, versus $1.8 million a year ago.

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

Net earnings were $2.0 million or $0.08 per share for the three-month period ended June 30, 2024, compared to $2.1 million or $0.08 per share for the equivalent period last year.

Adjusted net earnings were $2.1 million or $0.08 per share for the three-month period ended June 30, 2024, compared to $2.3 million or $0.09 per share for the equivalent period in 2023.

Summary of six-month period ended June 30, 2024

Revenue

Total revenue for the six-month period ended June 30, 2024, was $142.6 million, representing a decrease of $17.5 million, or 10.9%, from the equivalent period of 2023.

Envelope Segment

Revenue was $102.9 million, representing a decrease of $10.8 million, or 9.5%, from $113.7 million in the six-month period ended June 30, 2023. The variation is attributable to a 5.7% decrease in the volume of units sold compared to last year, with a reduction in the first quarter partially offset by an increase in the second quarter, and to an average selling price decrease of 4.0%. These factors were partially offset by the contribution from the Forest Envelope assets. Envelope represented 72.2% of the Company’s revenue in the period, versus 71.0% during the equivalent period of last year.

Packaging & Specialty Products Segment

Revenue was $39.7 million, down $6.7 million, or 14.4%, from $46.4 million in the corresponding period of 2023. The variation reflects lower demand from certain sectors more closely correlated to economic conditions, partially offset by higher demand for e-commerce packaging solutions. Packaging & Specialty Products represented 27.8% of the Company’s revenue in the first half of 2024, compared with 29.0% during the equivalent period of last year.

EBITDA³ and Adjusted EBITDA³

EBITDA was $19.3 million, down from $27.8 million in the first six months of 2023. Adjusted EBITDA was $19.5 million, down from $28.4 million for the same period a year ago. The decrease reflects lower revenue, partially offset by lower operating expenses as well as lower selling, general and administrative expenses. The Adjusted EBITDA margin reached 13.7% in the first half of 2024, versus 17.7% in the first half of 2023.

Envelope Segment

Adjusted EBITDA was $18.9 million, down from $26.9 million in the first half of 2023. The decrease was primarily attributable to lower average selling prices, mainly in the U.S. market. On a percentage of segmented revenue, Adjusted EBITDA from the Envelope segment was 18.4%, compared to 23.7% in the equivalent period of 2023.

Packaging & Speciality Products Segment

Adjusted EBITDA was $3.9 million, compared to $5.5 million in the first half of 2023. This decrease mostly reflects lower demand from certain sectors more closely correlated to economic conditions which impacted the absorption of fixed costs. This factor was partially offset by benefits from cost reduction measures and, to a lesser extent, the reversal of a provision related to a previous acquisition. On a percentage of segmented revenue, Adjusted EBITDA from the Packaging & Specialty Products segment was 9.9%, compared to 11.9% in the equivalent period of 2023.

Corporate and other non-allocated expenses

Corporate and other non--allocated expenses were $3.4 million compared to $4.0 million in the first half of 2023. The decrease resulted mainly from a favourable adjustment related to DSUs and PSUs and a foreign exchange gain.

Net Earnings, Adjusted Net Earnings³, Net Earnings Per Share and Adjusted Net Earnings Per Share³

Net earnings were $5.5 million or $0.22 per share for the six-month period ended June 30, 2024, compared to $11.6 million or $0.45 per share for the equivalent period last year.

Adjusted net earnings amounted to $5.6 million or $0.22 per share for the six-month period ended June 30, 2024, compared to $12.1 million or $0.47 per share for the equivalent period in 2023.

Liquidity and Capital Resources

Cash Flow

Net cash flows from operating activities were $10.2 million for the three-month period ended June 30, 2024, compared to $10.0 million in the equivalent period of 2023. The increase is mainly attributable to lower working capital requirements this year compared to last year, partially offset by lower profitability.

For the six-month period ended June 30, 2024, net cash flows from operating activities reached $15.3 million, compared to $17.5 million in the equivalent period of 2023. The decrease essentially reflects lower profitability, partially offset by lower working capital requirements this year compared to last year.

Free cash flow⁴ amounted to $10.9 million in the second quarter of 2024, compared to $9.8 million for the same period last year. The increase is mainly attributable to net disposals of property, plant and equipment this year, as opposed to net additions last year, and to slightly higher cash flow from operating activities.

For the six-month period ended June 30, 2024, free cash flow reached $15.7 million, compared to $13.2 million for the same period in 2023. The increase reflects net disposals of property, plant and equipment this year, as opposed to net additions last year, partially offset by lower cash flow from operating activities.

Debt and Leverage

Total debt decreased to $51.8 million as at June 30, 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 and six-month periods ended June 30, 2024, the Company repurchased 492,800 and 811,400 common shares for cancellation under its NCIB program for total considerations of $1.9 million and $3.3 million, respectively. Subsequent to the end of the period, an additional 157,800 shares were purchased for cancellation for total consideration of $0.6 million.

Dividend Declaration

On August 7, 2024, the Board of Directors declared a quarterly dividend of $0.04 per common share, payable on September 20, 2024, to shareholders of record at the close of business on September 5, 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 July 24, 2024, the Company announced optimization initiatives aimed at improving costs, overall efficiency, productivity and achieving synergies within its Envelope segment operations. First, the Company ceased production at its very small facility in Niagara Falls, New York, and maintained the premises as a distribution centre. Additionally, Supremex will close its facility in Concord, Ontario, as its lease expires in February 2025 and will transfer the most efficient production equipment, primarily to its other Greater Toronto area envelope plants in Mississauga and Etobicoke over the coming months.

Related to these moves, Supremex will record restructuring charges of approximately $2.7 million before taxes for a period extending from the third quarter of 2024 through the first quarter of 2025. These initiatives are expected to result in annual cost savings in excess of $2.0 million once all measures are implemented, primarily from the reduction of rent and other fixed costs, and modest productivity improvements.

Outlook

Demand for the Company’s products is gradually returning to historical patterns, although market recovery is taking more time than anticipated as it remains somewhat 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 optimizing operating efficiency, productivity and capacity utilization throughout its network, as well as on capturing all sales and cost synergies from recent business acquisitions. In this regard, initiatives announced on July 24 for the Envelope segment are expected to result in annual cost savings in excess of $2.0 million once all measures are implemented, while 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.

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.

August 8, 2024 – Second Quarter Results Conference Call:

A conference call to discuss the Company’s results for the second quarter ended June 30, 2024, will be held Thursday, August 8, 2024, at 10:00 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 0748. The recording will be available until Thursday, August 15, 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 flow⁵, 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 five manufacturing facilities in three states in the United States employing approximately 900 people. Supremex’ extensive network 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.

¹ Non-IFRS financial measures or ratios. Refer to the non-IFRS financial measures section for definitions and reconciliations.
² Non-IFRS financial measures or ratios. Refer to the non-IFRS financial measures section for definitions and reconciliations.
³ Non-IFRS financial measures or ratios. Refer to the non-IFRS financial measures section for definitions and reconciliations.
⁴ Non-IFRS financial measures or ratios. Refer to the non-IFRS financial measures section for definitions and reconciliations.
⁵ Non-IFRS financial measures or ratios. Refer to the non-IFRS financial measures section for definitions and reconciliations.