SXP Supremex Inc

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 second quarter ended June 30, 2024. The Company will hold a conference call to discuss these results today at 10:00 a.m. (Eastern Time).

Second Quarter Financial Highlights and Recent Events

• Total revenue of $69.3 million, down 3.3% from $71.7 million in the second quarter of 2023.
• Envelope segment revenue of $49.5 million, up 0.4% from $49.2 million in the prior year.
• Packaging and specialty products segment revenue of $19.9 million, down 11.4% from $22.4 million last year.
• Net earnings were $2.0 million, compared to $2.1 million last year.
• Earnings per share of $0.08, stable from a year ago.
• Adjusted EBITDA1 of $9.0 million, or 13.0% of revenue, versus $9.6 million, or 13.3% of revenue, a year ago.
• Acquisition on May 1, 2024, of the assets of Forest Envelope Group (“Forest Envelope”), a regional leader in specialty envelope manufacturing located in Bolingbrook, Illinois.
• On July 24, 2024, the Company announced optimization initiatives designed to improve costs, overall efficiency, productivity and achieving synergies within its Envelope segment operations which are expected to result in annual cost savings in excess of $2.0 million once all measures are implemented.
• 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.

Financial Highlights (in thousands of dollars, except for per share amounts and margins)	Three-month periodsended June 30				Six-month periodsended June 30
	2024		2023		2024		2023
Statement of Earnings
Revenue	69,337		71,666		142,605		160,088
Operating earnings	3,905		4,471		9,668		18,842
Adjusted EBITDA(1)	8,998		9,562		19,481		28,403
Adjusted EBITDA margin(1)	13.0	%	13.3	%	13.7	%	17.7	%
Net earnings	1,980		2,113		5,476		11,609
Basic and diluted net earnings per share	0.08		0.08		0.22		0.45
Adjusted net earnings(1)	2,105		2,270		5,619		12,050
Adjusted net earnings per share(1)	0.08		0.09		0.22		0.47
Cash Flow
Net cash flows related to operating activities	10,222		10,006		15,318		17,547
Free cash flow(1)	10,920		9,808		15,653		13,211

(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.

“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:

•		Confirmation number:		10023550
•		Local (Toronto) and international participants, dial:		647 484-8814
•		North American participants, dial toll-free:		1 844 763-8274

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:

Non-IFRS Measure	Definition
EBITDA	EBITDA represents earnings before net financing charges, income tax expense, depreciation of property, plant and equipment and right-of-use assets and amortization of intangible assets. The Company uses EBITDA to assess its performance. Management believes this non-IFRS measure provides users with an enhanced understanding of its operating earnings.
Adjusted EBITDA	Adjusted EBITDA represents EBITDA adjusted to remove items of significance that are not in the normal course of operations. These items of significance include, when applicable, but are not limited to, charges for impairment of assets, restructuring expenses, value adjustment on inventory acquired and business acquisition costs. The Company uses Adjusted EBITDA to assess its operating performance, excluding items that are not in the normal course of operations. Management believes this non-IFRS measure provides users with enhanced understanding of the Company’s operating earnings and increases the transparency and clarity of the Company’s core results. It also allows users to better evaluate the Company’s operating profitability when compared to previous years.
Adjusted EBITDA margin	Adjusted EBITDA margin is a percentage corresponding to the ratio of Adjusted EBITDA divided by revenue. The Company uses Adjusted EBITDA margin for the purpose of evaluating business performance, excluding items that are not in the normal course of operations. Management believes this non-IFRS measure provides users with enhanced understanding of the Company’s results and related trends.
Adjusted net earnings	Adjusted net earnings represents net earnings excluding items of significance listed above under Adjusted EBITDA, net of income taxes. The Company uses Adjusted net earnings to assess its business performance and profitability without the effect of items that are not in the normal course of operations, net of income taxes. Management believes this non-IFRS measure provides users with an alternative assessment of the Company’s earnings without the effect of items that are not in the normal course of operations making it valuable to assess ongoing operations and trends in the business performance. Management also believes this non-IFRS measure provides users with enhanced understanding of the Company’s results and provides better comparability between periods.
Adjusted net earnings per share	Adjusted net earnings per share represents Adjusted net earnings divided by the weighted average number of common shares outstanding for the relevant period. The Company uses Adjusted net earnings per share for purposes of evaluating performance and profitability, excluding items that are not in the normal course of operations of the Company, net of income taxes, on a per share basis.
Free cash flow	This measure corresponds to net cash flows related to operating activities according to the consolidated statements of cash flows less additions (net of disposals) to property, plant and equipment and intangible assets. Management considers Free cash flow to be a good indicator of the Company’s financial strength and operating performance because it shows the amount of funds available to manage growth, repay debt and reinvest in the Company. Management considers this measure useful to provide investors with a perspective on its ability to generate liquidity, after making capital investments required to support business operations and long-term value creation.
Net debt	Net debt represents the Company’s total debt, net of deferred financing costs and cash. The Company uses Net debt as an indicator of its indebtedness level and financial leverage as it represents the amount of debt that is not covered by available cash. Management believes that investors could benefit from the use of net debt to determine a company’s financial leverage.
Net debt to Adjusted EBITDA ratio	Net debt to Adjusted EBITDA ratio represents Net debt divided by trailing 12-month (TTM) Adjusted EBITDA. This ratio is used by management to monitor the Company’s financial leverage and management believes certain investors use this ratio as a measure of financial leverage.

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

Reconciliation of Net earnings to Adjusted EBITDA (in thousands of dollars, except for margins)	Three-month periodsended June 30				Six-month periodsended June 30
	2024		2023		2024		2023
Net earnings	1,980		2,113		5,476		11,609
Income tax expense	631		850		1,784		4,255
Net financing charges	1,294		1,508		2,408		2,978
Depreciation of property, plant and equipment	1,730		1,722		3,363		3,269
Depreciation of right-of-use assets	1,478		1,380		2,832		2,726
Amortization of intangible assets	1,716		1,777		3,425		2,970
EBITDA	8,829		9,350		19,288		27,807
Acquisition costs related to business combinations	111		72		111		263
Asset impairment	75		—		75		—
Restructuring expenses	37		129		61		255
Value adjustment on acquired inventory through a business combination	(54	)	11		(54	)	78
Adjusted EBITDA	8,998		9,562		19,481		28,403
Adjusted EBITDA margin (%)	13.0	%	13.3	%	13.7	%	17.7	%

Reconciliation of Net earnings to Adjusted net earnings and of Net earnings per share to Adjusted net earnings per share (in thousands of dollars, except for per share amounts)	Three-month periodsended June 30				Six-month periodsended June 30
	2024		2023		2024		2023
Net earnings	1,980		2,113		5,476		11,609
Adjustments, net of income taxes
Acquisition costs related to business combinations	82		53		82		194
Asset impairment	56		—		56		—
Restructuring expenses	27		95		45		188
Value adjustment on acquired inventory through a business combination	(40	)	9		(40	)	59
Adjusted net earnings	2,105		2,270		5,619		12,050
Net earnings per share	0.08		0.08		0.22		0.45
Adjustments, net of income taxes, per share	—		0.01		—		0.02
Adjusted net earnings per share	0.08		0.09		0.22		0.47

Reconciliation of Cash flows related to operating activities to Free cash flow (in thousands of dollars)	Three-month periodsended June 30				Six-month periodsended June 30
	2024		2023		2024		2023
Cash flows related to operating activities	10,222		10,006		15,318		17,547
Acquisitions (net of disposals) of property, plant and equipment	764		(164	)	401		(4,297	)
Acquisitions of intangible assets	(66	)	(34	)	(66	)	(39	)
Free cash flow	10,920		9,808		15,653		13,211

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.

Contact:
François Bolduc, CPA		Martin Goulet, M.Sc., CFA
Chief Financial Officer		MBC Capital Markets Advisors
investors@supremex.com		mgoulet@maisonbrison.com
514 595-0555, extension 2316		514 731-0000, extension 229

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.