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 1st, 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.
| | Three-month periods ended | |||||
| Financial Highlights (in thousands of dollars, except for per share amounts and margins) | March 31, 2024 | December 31, 2023 | March 31, 2023 | |||
| Statement of Earnings | ||||||
| Revenue | 73,268 | 72,301 | 88,422 | |||
| Operating earnings | 5,763 | 1,936 | 14,371 | |||
| Adjusted EBITDA(1) | 10,483 | 8,986 | 18,841 | |||
| Adjusted EBITDA margin(1) | 14.3 | % | 12.4 | % | 21.3 | % |
| Net earnings | 3,496 | 724 | 9,497 | |||
| Basic and diluted net earnings per share | 0.14 | 0.03 | 0.37 | |||
| Adjusted net earnings(1) | 3,514 | 2,236 | 9,780 | |||
| Adjusted net earnings per share(1) | 0.14 | 0.09 | 0.38 | |||
| Cash Flow | ||||||
| Net cash flows related to operating activities | 5,096 | 14,814 | 7,541 | |||
| Free cash flow(1) | 4,733 | 15,113 | 3,403 | |||
(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 1st, 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:
| • | Confirmation Number: | 10023227 |
| • | 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 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:
| 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 periods ended March 31 | |||
| 2024 | 2023 | |||
| Net earnings | 3,496 | 9,497 | ||
| Income tax expense | 1,153 | 3,404 | ||
| Net financing charges | 1,114 | 1,470 | ||
| Depreciation of property, plant and equipment | 1,633 | 1,547 | ||
| Depreciation of right-of-use assets | 1,354 | 1,346 | ||
| Amortization of intangible assets | 1,709 | 1,193 | ||
| EBITDA | 10,459 | 18,457 | ||
| Acquisition costs related to business combinations | — | 191 | ||
| Restructuring expenses | 24 | 126 | ||
| Value adjustment on acquired inventory through a business combination | — | 67 | ||
| Adjusted EBITDA | 10,483 | 18,841 | ||
| Adjusted EBITDA margin (%) | 14.3 | % | 21.3 | % |
| 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 periods ended March 31 | |||
| 2024 | 2023 | |||
| Net earnings | 3,496 | 9,497 | ||
| Adjustments, net of income taxes | ||||
| Acquisition costs related to business combinations | — | 140 | ||
| Restructuring expenses | 18 | 93 | ||
| Value adjustment on acquired inventory through a business combination | — | 50 | ||
| Adjusted net earnings | 3,514 | 9,780 | ||
| Net earnings per share | 0.14 | 0.37 | ||
| Adjustments, net of income taxes, per share | — | 0.01 | ||
| Adjusted net earnings per share | 0.14 | 0.38 | ||
| Reconciliation of Cash flows related to operating activities to Free cash flow (in thousands of dollars) | Three-month periods ended March 31 | |||
| 2024 | 2023 | |||
| Cash flows related to operating activities | 5,096 | 7,541 | ||
| Acquisitions (net of disposals) of property, plant and equipment | (363 | ) | (4,133 | ) |
| Acquisitions of intangible assets | — | (5 | ) | |
| Free cash flow | 4,733 | 3,403 | ||
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.
| 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. |
