TSE:SXP Supremex Q4 2023 Earnings Report C$3.81 -0.11 (-2.81%) As of 05/2/2025 04:00 PM Eastern Earnings History Supremex EPS ResultsActual EPSC$0.09Consensus EPS N/ABeat/MissN/AOne Year Ago EPSN/ASupremex Revenue ResultsActual Revenue$72.30 millionExpected Revenue$68.90 millionBeat/MissBeat by +$3.40 millionYoY Revenue GrowthN/ASupremex Announcement DetailsQuarterQ4 2023Date2/22/2024TimeN/AConference Call DateThursday, February 22, 2024Conference Call Time10:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress ReleaseEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Supremex Q4 2023 Earnings Call TranscriptProvided by QuartrFebruary 22, 2024 ShareLink copied to clipboard.There are 5 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Supremax Inc. 4th Quarter 2023 Earnings Conference Call. At this time, all participants are in listen only mode. Operator00:00:11Following the presentation, we will conduct a question and answer session. Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded on Thursday, February 22, 2024. I would now like to turn the conference over to Martin Goulet of MBC Capital Markets Advisors. Please go ahead. Speaker 100:00:58Good morning, ladies and gentlemen. Thank you for joining this discussion of SurpRemix's financial and operating results for the Q4 fiscal year ended December 31, 2023. The press release reporting these results was published earlier this morning. It can also be found in the Investors section of the company's website at supremex.com, along with the MD and A and financial statements. These documents will be available on SEDAR Plus as well. Speaker 100:01:26A presentation supporting this conference call has also been posted on the website. Let me remind you that all figures expressed on today's call are in key in dollars unless otherwise stated. Presenting today will be Stuart Emerson, President and CEO of Supremex as well as Francois Bolszuk, Chief Financial Officer. With that, I would like you to turn to Slide 40 of the presentation for an overview of the Q4, and I turn the call over to Stuart. Thank you, Martijn, and good morning, everyone. Speaker 100:01:56After an exceptional and record 2022, 2023 was a challenge across the envelope and packaging industries as customers work through significant overstock positions and curtailed demand as an outcome of high interest rates, inflation and weaker consumer confidence. While a demand reset was forecasted for the first half of twenty twenty three, the widely anticipated and expected second half bounce back did not occur and demand remained much softer than expected. As a result, our Q4 results and the full year for that matter are below what we are designed for, capable of and where we expect them to be. It's easy to be disappointed, but I remind listeners that due to several well documented factors and Supremex's ability to capitalize on them in 2022 was an unrealistic comparable for 2023 out of the gate and it became less relevant as 2023 demand fell to below pre COVID levels after the 2022 spike. Despite the volume challenges across the industries we participate in, and I don't want this to get lost in the noise, we generated a very impressive $15,000,000 in free cash flow in the quarter and $40,000,000 in free cash flow in the calendar year. Speaker 100:03:18This impressive cash generation machine allowed us to buy back shares, pay down a significant amount of debt and allowed the Board to confidently declare another dividend increase, our 3rd increase in the past 36 months. That said, to continue to be the strong performer we are, we need to continue to evolve and adjust to our reality and to realign proactively, we have taken several steps necessary to minimize the temporary negative impact of soft revenue numbers. In the envelope business, and as I said earlier, our ability to capitalize on unprecedented conditions in 2022 created an extremely tough comparative for 2023 in a stable environment and 2023 was anything but stable. While not a perfect proxy, the calendar year United States Postal Service classifications that are typically associated with envelopes were down double digit percentages and over 12,000,000,000 units. A double digit decline in mail volumes plus the impact of destocking would point to a U. Speaker 100:04:27S. Envelope purchasing reduction of over 20,000,000,000 units in the calendar year. While destocking is difficult to quantify and doesn't affect all manufacturers to the same degree, with our customer mix of wholesalers and resellers, destocking was material to Supremex. Despite the weighting of destocking and the temporary reduction in demand, we view our volume and market share in line with or slightly better than the overall market. Are we delighted with our sales numbers? Speaker 100:04:59No. Did we beat the temporary market adjustment? All indicators say, yes, we beat the market. Importantly, our team did an exceptional job in maintaining margins in a period of soft demand and overcapacity, with average selling price in Canada and the U. S. Speaker 100:05:16Up over 14% in 2023 versus 2022, excluding Royal Envelope. And with Royal Envelope's premium product mix, average selling price in the envelope segment was up in excess of 21% in 2023 from the strong 2022. Did our quest to hang on to average selling price and margin affect our volume? Perhaps, and it's something we discuss regularly. But we are firm believers that you can price your way out a weak volume much easier than you can volume your way out of poor pricing. Speaker 100:05:52It's just in our DNA. While we have a ways to go, those same USPS numbers show that the mail classifications closely linked to envelope volume are improving, with 1st class and marketing mail posting a 10 plus percent improvement in the rate of decline over Q2 and Q3, and we are seeing this in our incoming quoting and order activity. Despite all of the temporary but prolonged headwinds, thanks to a strong team and a nimble cost structure, our envelope business generated impressive margins in the high teens in the back half of the year. Our envelope teams continue to demonstrate the resiliency and adaptability. Turning to packaging. Speaker 100:06:33I'll start with we are not happy or satisfied with our results. We have terrific assets, products and participate in desirable verticals and geographic markets. And the packaging industries have the same headwinds as envelopes. We were not nimble enough or deep enough to overcome the challenges to the same degree. We like to say there's no whining in envelope and packaging, and it was instilled in me a long time ago that it's a very fine line between an explanation and an excuse, but I'll take a stab at giving you some color while trying hard not to make excuses or whine. Speaker 100:07:08While we don't have the same empirical evidence we do with the United States Postal Service, we do have a number of anecdotal data points, including industry associations, M and A reviews and maybe most importantly, contractual business that generally tracks with the wider industry. And all indications are that CPG focused packaging businesses have been experiencing virtually the same volume related challenges that Supreme X Packaging has been facing. I believe I used the analogy last quarter that for many right now as weekly grocery bills significantly outpaced wage gains that bounced dryer sheets are a luxury item that many are foregoing as budgets get pinched. And consequently, the box manufacturer is getting squeezed as well and this repeats itself across a number of verticals, including health and beauty, vitamins and e commerce purchases. It is fair to say that sales in volume road was bumpier than anticipated and it's been and it has been for longer than anticipated time. Speaker 100:08:08However, like the envelope segment, the packaging segment also appears to be slowly coming out of a long slumber. And with significantly improved operations and a revamped sales team, we are well positioned to capitalize. We had a lot on our plate for 2023 with acquisitions to integrate and plants to relocate. In Q1 and Q2, we were completing the move and commissioning of our flagship folding carton location in Lachine and had much more cost overhang and inefficiencies than we would have liked. In January, we completed the acquisition of Paragraph and Domain and initiated integration. Speaker 100:08:42In May, we made a very small acquisition with great assets in Graf Pak and integrated it into the machine location within 90 days. In June, we installed a new to us 6 color 40 inches UV press in our over the counter pharma packaging business in Lavelle. And as announced, we completed the closure of the Saint Diasaint facility during the Q4, sold excess equipment and transferred production to other locations in the Greater Montreal area. We expect these initiatives to result in total annual cost savings of approximately $1,500,000 In addition to that busy calendar, we also modified our packaging management structure and leadership team to operate a leaner and more focused business with general managers responsible for our folding carton, print communications and e commerce activities. We have been able to attract some experienced top talent to lead the business units, including a 30 year print and packaging executive that has moved into the General Manager role at Paragraph, a 30 plus year print and manufacturing executive that has moved into the general manager role at Quebec folding carton and a former colleague of mine in the envelope business that left the organization a couple of years ago agreed to bring his 25 years of sales and operation experience back to the packaging unit in Indianapolis. Speaker 100:10:02All of these changes have occurred in the last 90 days. Furthermore, we are recruiting for new sales leadership in the e commerce business unit and expect to have someone in place in the next 45 days. As part of this process, each business unit was refocused, right sized and made more flexible to adapt to evolving market conditions and business needs. Yes, it was a busy year in our Quebec packaging operations. In fact, maybe too busy, particularly in a sales environment that could have used more management attention in the business development area, but that's looking in the rearview. Speaker 100:10:37As with Envelope, volume remains the short term challenge, but we have put in place a structure that has brought decision making closer to the shop floor and local sales office, which should enhance throughput and reduce costs, and these changes will allow us to leverage the scale, efficiency and expertise of our facilities to be better positioned to capture growth opportunities in the markets we're targeting and generate synergies with the rest of our operations. With that, I turn the call over to Brad Schwab for a review of our Q4 results. Speaker 200:11:07Thank you, Stuart. Good morning, everyone. Please turn to Slide 41 of the presentation. Total revenue reached $72,300,000 down from $78,800,000 last year. Envelope revenue was 50,600,000 dollars versus $60,700,000 last year. Speaker 200:11:26The decrease mainly reflects lower volume following a strong 2022 and an average selling price decrease of 1.7 percent resulting from lower pricing for our legacy operations partially offset by an increase from Royal Envelopes business. Royal contributed for $11,100,000 in the period versus $9,700,000 over 2 months last year. Packaging and specialty products revenue was $21,700,000 up more than 20% from $18,100,000 last year. This increase reflects a $6,600,000 contribution from Paragraph and the integration of our Graf Pak operations in Leshin. These were partially offset by lower demand from certain markets more closely related to economic conditions and by the closing of the Saint Yacine facility in October. Speaker 200:12:19Moving on to Slide 42, adjusted EBITDA totaled $9,000,000 compared to $15,200,000 a year ago. As a percentage of revenue, the adjusted EBITDA margin was 12.4 percent, down from 19.5% last year. Envelope segment adjusted EBITDA reached $8,700,000 compared to $14,900,000 last year. The decrease mainly reflects the effect of lower volume and the absorption of fixed costs. As a percentage of revenue, sorry, the adjusted EBITDA margin was 17.2% compared to 24.5% last year. Speaker 200:12:59In the Packaging and Specialty Products segment, adjusted EBITDA was $1,300,000 versus $3,900,000 last year. The decrease is mainly due to lower demand from sectors more closely related to the economy that affect fixed cost absorption. Adjusted EBITDA margin was 6.1% compared to 21.6% for the same period a year ago. Corporate and unallocated costs amounted to $1,000,000 in the Q4 of 2023 versus $3,500,000 last year. The decrease reflects a favorable adjustment to stock based remuneration expenses and lower provisions for performance based remuneration. Speaker 200:13:42Turning to Slide 43, net earnings reached $700,000 or $0.03 per share versus $6,700,000 or $0.26 per share last year. Adjusted net earnings amounted to $2,200,000 or $0.09 per share in Q4 2023 versus $7,900,000 or $0.31 per share a year ago. Moving on to cash flow, Slide 44. Our net cash flow from operations activities totaled $14,800,000 in Q4 of 2023 compared to $11,700,000 last year. This improvement is due to lower working capital requirements this year compared to last, mainly as a result of inventory reductions. Speaker 200:14:29Meanwhile, reflecting net disposals of property, plant and equipment this year compared to last, 4th quarter free cash flow reached $15,100,000 up from $10,000,000 a year ago. For the full year, Supramix generated solid cash flows from operating activities of $43,900,000 and free cash flow of $40,000,000 for the year. This enabled us to gradually reduce our debt, especially during the second half of the year. Turning to Slide 45. The left hand of the chart shows that after peaking in the Q1 following the acquisition of Paragraph, our net debt gradually diminished as the year moved on. Speaker 200:15:16We therefore concluded 2023 with a debt of $55,400,000 dollars down from $68,100,000 at the end of Q3. This represents a net debt to adjusted EBITDA ratio of 1.1 times as at December 31, 2023, down from 1.2 times 3 months earlier and well within our comfort zone of keeping the ratio below 2x. At the end of the year, we have more than $64,000,000 in available liquidity under our secured senior secured revolving credit facility, leaving us sufficient flexibility to finance our operations and investments. In 2023, we continued to return excess cash flow to shareholders as $3,600,000 was paid out in dividends, while $1,400,000 was used to repurchase over 310,000 common shares, nearly half of which were repurchased in the 4th quarter. Since the start of 2024, we have remained active on our NCIB by repurchasing an additional 255,000 shares for a total consideration of $900,000 Finally, the Board of Directors declared a quarterly dividend of $0.04 per common share payable on April 5 to shareholders of record at the close of business on March 21. Speaker 200:16:38This represents the 3rd dividend increase since reinstating payouts to shareholders 2 years ago. I turn the call back to Stuart for the outlook. Stuart? Speaker 100:16:50Thank you, Francois. Operationally, Supreme X entered 2024 on a much more solid ground than it did 2023. From a geography and product diversification standpoint and from an operational stability and depth of talent position, we are significantly advanced from where we were at this time last year. 2023 was an active year as we continued our commitment to methodically build the business for the long term and our teams are committed to executing their respective plans. Business is poised and ready to go. Speaker 100:17:21And as I stressed earlier, right now it's essentially about finding new volume and being ready for when the macroeconomic conditions ease and there is normalization, which we believe is not a matter of if, but a matter of when. Until that time, when volume pressures ease, we will continue to be vigilant in controlling costs and aligning expenses with both activity and revenue. In Envelope, we'll continue to nurture the Canadian market and add additional value for customers, while driving expansion in the U. S. Market. Speaker 100:17:56We are firmly rooted as the 2nd largest manufacturer in North America, yet our U. S. Market share remains in single digits. We've done a great job in the U. S. Speaker 100:18:05And we continue to have an excellent runway as reliable go to supplier in this vast market. In packaging, our optimized asset base improves absorption, reduces duplicate costs and brings us closer to our customers. The combination of new management team running business units that they can get their arms around will ensure improved focus on cost, quality of execution and streamlined and nimble decision making. No doubt I sound like a broken record, but in both segments, volume is key. In this regard, we can see a slow movement towards normalized levels and we will be ready, willing and able, but we are not waiting and continue to secure source new opportunities in both existing sectors and geographies. Speaker 100:18:57Meanwhile, a solid financial position allows us to seek accretive opportunities to expand our reach in packaging and leverage our presence in strategic markets. We continue to target a fifty-fifty balance between envelope and packaging. Additionally, as Francois mentioned, we'll continue to use our strong cash flow to methodically pay down debt and repurchase what we believe to be underappreciated shares. In closing, I'd like to say 2 things. 1st, I want to thank our dedicated teams for navigating us through a challenging year in 2023. Speaker 100:19:302nd, I want to reiterate what I said at the outset and we cautioned of on this call exactly 1 year ago. 2022 was not a realistic comparable for a normal follow-up year and 2023 volumes were below normal. I appreciate that there needs to be comparables, but 2022 isn't it. The business continues to be a strong, resilient, well diversified, low leverage cash generator. We do not control when market conditions will turn favorable, but I believe we have taken required actions to optimize our cost structure and strengthen our teams. Speaker 100:20:08The fundamentals of our two businesses remain sound and Supremex is well positioned to benefit from a volume rebound. This concludes our prepared remarks. We will now be pleased to answer any questions you may have. Operator? Operator00:20:22Thank Our first question is from Max Ingram from Canaccord Genuity. Please go ahead. Speaker 300:20:49Hey, good morning, guys. Thanks for taking my questions. My first question is on the Packaging side. When you think about the Packaging business and the puts and takes heading into 2024, can you talk to some industries where you expect to see strength of demand and perhaps others that feel a bit softer? Speaker 100:21:10Yes. So it's hi, Max, it's Stuart. Thanks for your question. That's a tough one. I mean, we're basically monitoring. Speaker 100:21:20We think health and beauty is still going to lag a little bit until consumer confidence catches up to the increased inflation and just people feel better about sort of discretionary spending. We're already seeing it in our pharma business, pharma all over the counter business, where that volume has started to rebound a little bit quicker. E commerce, still our e commerce offering, which is a very small segment of the overall e commerce packaging market, continues to lag and it just can't put our finger on exactly why that is. We've had a couple of e commerce subscription customers that have taken on how much discretionary spending people have and how much how much discretionary spending people have and how much confidence they have in the economy. I know that's not a very good answer, but we just we don't have a good spot where we did talk about in the last call that where we're looking for that new business is in the food segment, where it tends to be a little less discretionary and much more stable. Speaker 100:22:45But anyway, a lot of words there, maybe not a very good answer, but it's really tracking sort of consumer confidence. Yes. No, that's helpful. Speaker 300:22:53Thanks for that. And then my question is on Emblem side. I noticed that revenue was down modestly year over year. We know last year's pricing was particularly strong as a result of supply constraints. How should we think about the decrease this quarter? Speaker 300:23:10Is it due to product mix? Or is pricing coming down given supply dynamics? Speaker 100:23:17Yes, it's exactly that. I mean, we all learned in Business School 101 that supply and demand is going to affect your pricing. And I think the other caution there and probably could have called it out in the call was, we're comparing end of Q4 last year to end of Q4 this year, but the dynamic has been quarter to quarter sequential quarter to quarter right from Q1 onward as there's been downward pressure on prices, demand has been weak and the same supply is there. So we are seeing from Q3 to Q4, we did see a reduction in average selling price, particularly in the U. S. Speaker 100:23:59Market where it tends to be more volatile. Speaker 400:24:03Okay. That's helpful. Thanks, Drew. Speaker 100:24:05Good news is sorry, Max, just to add a little bit more color there. The good news is there's sort of down the supply chain, there's downward pressure as well and those cost increases have been abated a little bit as well. Help offset the impact of the selling price. Speaker 300:24:26Yes. Okay. That makes sense. I will pass the line. Thanks very much. Speaker 100:24:30Thanks, Max. Operator00:24:37The next question is from Adam Schott with Beacon Securities. Sorry, Ahmed Schatz. Please go ahead. Speaker 400:24:45Good morning, Stuart. I guess the first question would be how much of a headwind did the closure in Quebec have on the quarter? Speaker 100:25:00Not material. In terms of revenue you're talking about? Speaker 400:25:05Yes, yes. Speaker 100:25:06Yes. Not material. Relatively small operation, right? I mean, relatively small sales. So we were and I guess the silver lining of not being terribly busy in the other factories, you can sort of slide the volume in fairly quickly. Speaker 100:25:21I would say it was more of a distraction than it was a revenue impact. Speaker 400:25:27Got it. That's helpful. And then I guess on the envelope segment, a follow-up just on the pricing environment. Have you started seeing impact from lower paper prices and asking for further price reductions going into Q1, especially given the lag effect? Historically, we've seen that your prices are just a little bit faster than your costs. Speaker 400:25:52Should we expect a little bit more margin pressure in Q1? Speaker 100:25:57Yes. So we are sequentially as I said to Max, we are sequential. There's pressure on price sequentially from quarter to quarter. Paper costs are coming down or you're able to get sort of spot tonnage from here to there that help abate that. The other thing is as volume comes back, the absorption rate in the plants should give us a margin boost as well. Speaker 100:26:30So from a pure cost to pricing ratio, I don't think we're going to see significant margin squeeze. But it is dependent upon getting more volume into the plant so you get the better absorption rate. So on the pure price to cost standpoint, it would be a little squeeze, but we think we can make that back in absorption. Speaker 400:26:55Got it. That's very helpful. But net net sounds a little bit negative, right, on margin, if I understood your comment correctly? Speaker 100:27:02Yes. Yes, for sure. I mean, we have to have more volume going through and better productivity. Speaker 400:27:11I don't know. And just on Speaker 100:27:13And then more volume, if the market sort of comes back to more normal levels, there will be less price on or pressure on price. Speaker 400:27:25That's very helpful. And I guess on the volume side, now that you have Royal under your belt for a year, I expected maybe a little bit better Q4. So can you talk to us a little bit about the dynamic, let's go at Royal in the U. S? How have you seen it over the 1st year? Speaker 400:27:46And maybe give us a little bit color on the seasonality patterns? And what should we expect into 2024? I guess that's probably the biggest avenue for growth for you, if I remember correctly. Speaker 100:28:00Right. So if you think about we operate in 2 segments, bills and statements and then with Royal, the direct mail segment. Bills and statements weren't radically impacted. I mean, TD Bank and Capital One and Bank of America still have to send out the same number of Visa statements and bank statements and so on and so forth. Utilities are still sending out bills and statements. Speaker 100:28:29The real pressure on volume was in direct mail, which is the market that Royal participates in. The integration went super, went fantastic. The team down there is very strong. The vendors stayed on board and are completely engaged. But due to consumer confidence and interest rates and so on and so forth, the direct mail industry is the one that got hammered. Speaker 100:28:57And as a result, we didn't get the lift from Royal that we would have expected. It's temporary. The economy goes in cycles. So our largest customer in that space, it's a very large financial institution, told us that their mail volumes mail volume plan is up for 2024, not back to 2022 levels, but up from 2023. And I think that's consistent with, sort of the industry at large on the direct mail side. Speaker 400:29:31That's helpful, Stuart. And last one's for me. If I look at the Packaging segment, is it fair to say and I'm trying just to parse out some of the acquisitions, but in general, most of your pressure has been faced in the U. S. As opposed to Canada? Speaker 400:29:51Or how would you describe that in terms of geography wise in the packaging side? Speaker 100:29:56I would say it's equal. So in the U. S. Packaging, it's largely e commerce. So as a percentage, e commerce and sort of health and beauty were sort of down at the same level. Speaker 100:30:15So I don't think geographically it was material one way or the other. Speaker 400:30:21Got it. That's Operator00:30:29This concludes the question and answer session. I'd like to turn the conference back over to Stuart Emerson for any closing remarks. Speaker 100:30:39Great. Thank you, operator, and thanks to all that joined the call today. Really appreciate it. We look forward to speaking to you again at our next quarterly call after Q1. Thank you very much. Speaker 100:30:50Have a great day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallSupremex Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release Supremex Earnings Headlines3 TSX Penny Stocks With Market Caps Under CA$200M To WatchMarch 31, 2025 | finance.yahoo.comSupremex Inc. (SXP.TO)March 22, 2025 | finance.yahoo.comHere’s How to Claim Your Stake in Elon’s Private Company, xAII predict this single breakthrough could make Elon the world’s first trillionaire — and mint more new millionaires than any tech advance in history. 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The company operates in two business segments that are Manufacturing and Sale of Envelopes, and the manufacturing and sale of paper-based packaging solutions and specialty products. The majority of the revenue is generated from the Envelope segment. Its product portfolio consists of translucent envelopes, custom envelopes, stock envelopes, poly mailers, enviro-Logix flat mailers, board mailers, custom labels, affixing, repositionable notes and others. 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There are 5 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Supremax Inc. 4th Quarter 2023 Earnings Conference Call. At this time, all participants are in listen only mode. Operator00:00:11Following the presentation, we will conduct a question and answer session. Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded on Thursday, February 22, 2024. I would now like to turn the conference over to Martin Goulet of MBC Capital Markets Advisors. Please go ahead. Speaker 100:00:58Good morning, ladies and gentlemen. Thank you for joining this discussion of SurpRemix's financial and operating results for the Q4 fiscal year ended December 31, 2023. The press release reporting these results was published earlier this morning. It can also be found in the Investors section of the company's website at supremex.com, along with the MD and A and financial statements. These documents will be available on SEDAR Plus as well. Speaker 100:01:26A presentation supporting this conference call has also been posted on the website. Let me remind you that all figures expressed on today's call are in key in dollars unless otherwise stated. Presenting today will be Stuart Emerson, President and CEO of Supremex as well as Francois Bolszuk, Chief Financial Officer. With that, I would like you to turn to Slide 40 of the presentation for an overview of the Q4, and I turn the call over to Stuart. Thank you, Martijn, and good morning, everyone. Speaker 100:01:56After an exceptional and record 2022, 2023 was a challenge across the envelope and packaging industries as customers work through significant overstock positions and curtailed demand as an outcome of high interest rates, inflation and weaker consumer confidence. While a demand reset was forecasted for the first half of twenty twenty three, the widely anticipated and expected second half bounce back did not occur and demand remained much softer than expected. As a result, our Q4 results and the full year for that matter are below what we are designed for, capable of and where we expect them to be. It's easy to be disappointed, but I remind listeners that due to several well documented factors and Supremex's ability to capitalize on them in 2022 was an unrealistic comparable for 2023 out of the gate and it became less relevant as 2023 demand fell to below pre COVID levels after the 2022 spike. Despite the volume challenges across the industries we participate in, and I don't want this to get lost in the noise, we generated a very impressive $15,000,000 in free cash flow in the quarter and $40,000,000 in free cash flow in the calendar year. Speaker 100:03:18This impressive cash generation machine allowed us to buy back shares, pay down a significant amount of debt and allowed the Board to confidently declare another dividend increase, our 3rd increase in the past 36 months. That said, to continue to be the strong performer we are, we need to continue to evolve and adjust to our reality and to realign proactively, we have taken several steps necessary to minimize the temporary negative impact of soft revenue numbers. In the envelope business, and as I said earlier, our ability to capitalize on unprecedented conditions in 2022 created an extremely tough comparative for 2023 in a stable environment and 2023 was anything but stable. While not a perfect proxy, the calendar year United States Postal Service classifications that are typically associated with envelopes were down double digit percentages and over 12,000,000,000 units. A double digit decline in mail volumes plus the impact of destocking would point to a U. Speaker 100:04:27S. Envelope purchasing reduction of over 20,000,000,000 units in the calendar year. While destocking is difficult to quantify and doesn't affect all manufacturers to the same degree, with our customer mix of wholesalers and resellers, destocking was material to Supremex. Despite the weighting of destocking and the temporary reduction in demand, we view our volume and market share in line with or slightly better than the overall market. Are we delighted with our sales numbers? Speaker 100:04:59No. Did we beat the temporary market adjustment? All indicators say, yes, we beat the market. Importantly, our team did an exceptional job in maintaining margins in a period of soft demand and overcapacity, with average selling price in Canada and the U. S. Speaker 100:05:16Up over 14% in 2023 versus 2022, excluding Royal Envelope. And with Royal Envelope's premium product mix, average selling price in the envelope segment was up in excess of 21% in 2023 from the strong 2022. Did our quest to hang on to average selling price and margin affect our volume? Perhaps, and it's something we discuss regularly. But we are firm believers that you can price your way out a weak volume much easier than you can volume your way out of poor pricing. Speaker 100:05:52It's just in our DNA. While we have a ways to go, those same USPS numbers show that the mail classifications closely linked to envelope volume are improving, with 1st class and marketing mail posting a 10 plus percent improvement in the rate of decline over Q2 and Q3, and we are seeing this in our incoming quoting and order activity. Despite all of the temporary but prolonged headwinds, thanks to a strong team and a nimble cost structure, our envelope business generated impressive margins in the high teens in the back half of the year. Our envelope teams continue to demonstrate the resiliency and adaptability. Turning to packaging. Speaker 100:06:33I'll start with we are not happy or satisfied with our results. We have terrific assets, products and participate in desirable verticals and geographic markets. And the packaging industries have the same headwinds as envelopes. We were not nimble enough or deep enough to overcome the challenges to the same degree. We like to say there's no whining in envelope and packaging, and it was instilled in me a long time ago that it's a very fine line between an explanation and an excuse, but I'll take a stab at giving you some color while trying hard not to make excuses or whine. Speaker 100:07:08While we don't have the same empirical evidence we do with the United States Postal Service, we do have a number of anecdotal data points, including industry associations, M and A reviews and maybe most importantly, contractual business that generally tracks with the wider industry. And all indications are that CPG focused packaging businesses have been experiencing virtually the same volume related challenges that Supreme X Packaging has been facing. I believe I used the analogy last quarter that for many right now as weekly grocery bills significantly outpaced wage gains that bounced dryer sheets are a luxury item that many are foregoing as budgets get pinched. And consequently, the box manufacturer is getting squeezed as well and this repeats itself across a number of verticals, including health and beauty, vitamins and e commerce purchases. It is fair to say that sales in volume road was bumpier than anticipated and it's been and it has been for longer than anticipated time. Speaker 100:08:08However, like the envelope segment, the packaging segment also appears to be slowly coming out of a long slumber. And with significantly improved operations and a revamped sales team, we are well positioned to capitalize. We had a lot on our plate for 2023 with acquisitions to integrate and plants to relocate. In Q1 and Q2, we were completing the move and commissioning of our flagship folding carton location in Lachine and had much more cost overhang and inefficiencies than we would have liked. In January, we completed the acquisition of Paragraph and Domain and initiated integration. Speaker 100:08:42In May, we made a very small acquisition with great assets in Graf Pak and integrated it into the machine location within 90 days. In June, we installed a new to us 6 color 40 inches UV press in our over the counter pharma packaging business in Lavelle. And as announced, we completed the closure of the Saint Diasaint facility during the Q4, sold excess equipment and transferred production to other locations in the Greater Montreal area. We expect these initiatives to result in total annual cost savings of approximately $1,500,000 In addition to that busy calendar, we also modified our packaging management structure and leadership team to operate a leaner and more focused business with general managers responsible for our folding carton, print communications and e commerce activities. We have been able to attract some experienced top talent to lead the business units, including a 30 year print and packaging executive that has moved into the General Manager role at Paragraph, a 30 plus year print and manufacturing executive that has moved into the general manager role at Quebec folding carton and a former colleague of mine in the envelope business that left the organization a couple of years ago agreed to bring his 25 years of sales and operation experience back to the packaging unit in Indianapolis. Speaker 100:10:02All of these changes have occurred in the last 90 days. Furthermore, we are recruiting for new sales leadership in the e commerce business unit and expect to have someone in place in the next 45 days. As part of this process, each business unit was refocused, right sized and made more flexible to adapt to evolving market conditions and business needs. Yes, it was a busy year in our Quebec packaging operations. In fact, maybe too busy, particularly in a sales environment that could have used more management attention in the business development area, but that's looking in the rearview. Speaker 100:10:37As with Envelope, volume remains the short term challenge, but we have put in place a structure that has brought decision making closer to the shop floor and local sales office, which should enhance throughput and reduce costs, and these changes will allow us to leverage the scale, efficiency and expertise of our facilities to be better positioned to capture growth opportunities in the markets we're targeting and generate synergies with the rest of our operations. With that, I turn the call over to Brad Schwab for a review of our Q4 results. Speaker 200:11:07Thank you, Stuart. Good morning, everyone. Please turn to Slide 41 of the presentation. Total revenue reached $72,300,000 down from $78,800,000 last year. Envelope revenue was 50,600,000 dollars versus $60,700,000 last year. Speaker 200:11:26The decrease mainly reflects lower volume following a strong 2022 and an average selling price decrease of 1.7 percent resulting from lower pricing for our legacy operations partially offset by an increase from Royal Envelopes business. Royal contributed for $11,100,000 in the period versus $9,700,000 over 2 months last year. Packaging and specialty products revenue was $21,700,000 up more than 20% from $18,100,000 last year. This increase reflects a $6,600,000 contribution from Paragraph and the integration of our Graf Pak operations in Leshin. These were partially offset by lower demand from certain markets more closely related to economic conditions and by the closing of the Saint Yacine facility in October. Speaker 200:12:19Moving on to Slide 42, adjusted EBITDA totaled $9,000,000 compared to $15,200,000 a year ago. As a percentage of revenue, the adjusted EBITDA margin was 12.4 percent, down from 19.5% last year. Envelope segment adjusted EBITDA reached $8,700,000 compared to $14,900,000 last year. The decrease mainly reflects the effect of lower volume and the absorption of fixed costs. As a percentage of revenue, sorry, the adjusted EBITDA margin was 17.2% compared to 24.5% last year. Speaker 200:12:59In the Packaging and Specialty Products segment, adjusted EBITDA was $1,300,000 versus $3,900,000 last year. The decrease is mainly due to lower demand from sectors more closely related to the economy that affect fixed cost absorption. Adjusted EBITDA margin was 6.1% compared to 21.6% for the same period a year ago. Corporate and unallocated costs amounted to $1,000,000 in the Q4 of 2023 versus $3,500,000 last year. The decrease reflects a favorable adjustment to stock based remuneration expenses and lower provisions for performance based remuneration. Speaker 200:13:42Turning to Slide 43, net earnings reached $700,000 or $0.03 per share versus $6,700,000 or $0.26 per share last year. Adjusted net earnings amounted to $2,200,000 or $0.09 per share in Q4 2023 versus $7,900,000 or $0.31 per share a year ago. Moving on to cash flow, Slide 44. Our net cash flow from operations activities totaled $14,800,000 in Q4 of 2023 compared to $11,700,000 last year. This improvement is due to lower working capital requirements this year compared to last, mainly as a result of inventory reductions. Speaker 200:14:29Meanwhile, reflecting net disposals of property, plant and equipment this year compared to last, 4th quarter free cash flow reached $15,100,000 up from $10,000,000 a year ago. For the full year, Supramix generated solid cash flows from operating activities of $43,900,000 and free cash flow of $40,000,000 for the year. This enabled us to gradually reduce our debt, especially during the second half of the year. Turning to Slide 45. The left hand of the chart shows that after peaking in the Q1 following the acquisition of Paragraph, our net debt gradually diminished as the year moved on. Speaker 200:15:16We therefore concluded 2023 with a debt of $55,400,000 dollars down from $68,100,000 at the end of Q3. This represents a net debt to adjusted EBITDA ratio of 1.1 times as at December 31, 2023, down from 1.2 times 3 months earlier and well within our comfort zone of keeping the ratio below 2x. At the end of the year, we have more than $64,000,000 in available liquidity under our secured senior secured revolving credit facility, leaving us sufficient flexibility to finance our operations and investments. In 2023, we continued to return excess cash flow to shareholders as $3,600,000 was paid out in dividends, while $1,400,000 was used to repurchase over 310,000 common shares, nearly half of which were repurchased in the 4th quarter. Since the start of 2024, we have remained active on our NCIB by repurchasing an additional 255,000 shares for a total consideration of $900,000 Finally, the Board of Directors declared a quarterly dividend of $0.04 per common share payable on April 5 to shareholders of record at the close of business on March 21. Speaker 200:16:38This represents the 3rd dividend increase since reinstating payouts to shareholders 2 years ago. I turn the call back to Stuart for the outlook. Stuart? Speaker 100:16:50Thank you, Francois. Operationally, Supreme X entered 2024 on a much more solid ground than it did 2023. From a geography and product diversification standpoint and from an operational stability and depth of talent position, we are significantly advanced from where we were at this time last year. 2023 was an active year as we continued our commitment to methodically build the business for the long term and our teams are committed to executing their respective plans. Business is poised and ready to go. Speaker 100:17:21And as I stressed earlier, right now it's essentially about finding new volume and being ready for when the macroeconomic conditions ease and there is normalization, which we believe is not a matter of if, but a matter of when. Until that time, when volume pressures ease, we will continue to be vigilant in controlling costs and aligning expenses with both activity and revenue. In Envelope, we'll continue to nurture the Canadian market and add additional value for customers, while driving expansion in the U. S. Market. Speaker 100:17:56We are firmly rooted as the 2nd largest manufacturer in North America, yet our U. S. Market share remains in single digits. We've done a great job in the U. S. Speaker 100:18:05And we continue to have an excellent runway as reliable go to supplier in this vast market. In packaging, our optimized asset base improves absorption, reduces duplicate costs and brings us closer to our customers. The combination of new management team running business units that they can get their arms around will ensure improved focus on cost, quality of execution and streamlined and nimble decision making. No doubt I sound like a broken record, but in both segments, volume is key. In this regard, we can see a slow movement towards normalized levels and we will be ready, willing and able, but we are not waiting and continue to secure source new opportunities in both existing sectors and geographies. Speaker 100:18:57Meanwhile, a solid financial position allows us to seek accretive opportunities to expand our reach in packaging and leverage our presence in strategic markets. We continue to target a fifty-fifty balance between envelope and packaging. Additionally, as Francois mentioned, we'll continue to use our strong cash flow to methodically pay down debt and repurchase what we believe to be underappreciated shares. In closing, I'd like to say 2 things. 1st, I want to thank our dedicated teams for navigating us through a challenging year in 2023. Speaker 100:19:302nd, I want to reiterate what I said at the outset and we cautioned of on this call exactly 1 year ago. 2022 was not a realistic comparable for a normal follow-up year and 2023 volumes were below normal. I appreciate that there needs to be comparables, but 2022 isn't it. The business continues to be a strong, resilient, well diversified, low leverage cash generator. We do not control when market conditions will turn favorable, but I believe we have taken required actions to optimize our cost structure and strengthen our teams. Speaker 100:20:08The fundamentals of our two businesses remain sound and Supremex is well positioned to benefit from a volume rebound. This concludes our prepared remarks. We will now be pleased to answer any questions you may have. Operator? Operator00:20:22Thank Our first question is from Max Ingram from Canaccord Genuity. Please go ahead. Speaker 300:20:49Hey, good morning, guys. Thanks for taking my questions. My first question is on the Packaging side. When you think about the Packaging business and the puts and takes heading into 2024, can you talk to some industries where you expect to see strength of demand and perhaps others that feel a bit softer? Speaker 100:21:10Yes. So it's hi, Max, it's Stuart. Thanks for your question. That's a tough one. I mean, we're basically monitoring. Speaker 100:21:20We think health and beauty is still going to lag a little bit until consumer confidence catches up to the increased inflation and just people feel better about sort of discretionary spending. We're already seeing it in our pharma business, pharma all over the counter business, where that volume has started to rebound a little bit quicker. E commerce, still our e commerce offering, which is a very small segment of the overall e commerce packaging market, continues to lag and it just can't put our finger on exactly why that is. We've had a couple of e commerce subscription customers that have taken on how much discretionary spending people have and how much how much discretionary spending people have and how much confidence they have in the economy. I know that's not a very good answer, but we just we don't have a good spot where we did talk about in the last call that where we're looking for that new business is in the food segment, where it tends to be a little less discretionary and much more stable. Speaker 100:22:45But anyway, a lot of words there, maybe not a very good answer, but it's really tracking sort of consumer confidence. Yes. No, that's helpful. Speaker 300:22:53Thanks for that. And then my question is on Emblem side. I noticed that revenue was down modestly year over year. We know last year's pricing was particularly strong as a result of supply constraints. How should we think about the decrease this quarter? Speaker 300:23:10Is it due to product mix? Or is pricing coming down given supply dynamics? Speaker 100:23:17Yes, it's exactly that. I mean, we all learned in Business School 101 that supply and demand is going to affect your pricing. And I think the other caution there and probably could have called it out in the call was, we're comparing end of Q4 last year to end of Q4 this year, but the dynamic has been quarter to quarter sequential quarter to quarter right from Q1 onward as there's been downward pressure on prices, demand has been weak and the same supply is there. So we are seeing from Q3 to Q4, we did see a reduction in average selling price, particularly in the U. S. Speaker 100:23:59Market where it tends to be more volatile. Speaker 400:24:03Okay. That's helpful. Thanks, Drew. Speaker 100:24:05Good news is sorry, Max, just to add a little bit more color there. The good news is there's sort of down the supply chain, there's downward pressure as well and those cost increases have been abated a little bit as well. Help offset the impact of the selling price. Speaker 300:24:26Yes. Okay. That makes sense. I will pass the line. Thanks very much. Speaker 100:24:30Thanks, Max. Operator00:24:37The next question is from Adam Schott with Beacon Securities. Sorry, Ahmed Schatz. Please go ahead. Speaker 400:24:45Good morning, Stuart. I guess the first question would be how much of a headwind did the closure in Quebec have on the quarter? Speaker 100:25:00Not material. In terms of revenue you're talking about? Speaker 400:25:05Yes, yes. Speaker 100:25:06Yes. Not material. Relatively small operation, right? I mean, relatively small sales. So we were and I guess the silver lining of not being terribly busy in the other factories, you can sort of slide the volume in fairly quickly. Speaker 100:25:21I would say it was more of a distraction than it was a revenue impact. Speaker 400:25:27Got it. That's helpful. And then I guess on the envelope segment, a follow-up just on the pricing environment. Have you started seeing impact from lower paper prices and asking for further price reductions going into Q1, especially given the lag effect? Historically, we've seen that your prices are just a little bit faster than your costs. Speaker 400:25:52Should we expect a little bit more margin pressure in Q1? Speaker 100:25:57Yes. So we are sequentially as I said to Max, we are sequential. There's pressure on price sequentially from quarter to quarter. Paper costs are coming down or you're able to get sort of spot tonnage from here to there that help abate that. The other thing is as volume comes back, the absorption rate in the plants should give us a margin boost as well. Speaker 100:26:30So from a pure cost to pricing ratio, I don't think we're going to see significant margin squeeze. But it is dependent upon getting more volume into the plant so you get the better absorption rate. So on the pure price to cost standpoint, it would be a little squeeze, but we think we can make that back in absorption. Speaker 400:26:55Got it. That's very helpful. But net net sounds a little bit negative, right, on margin, if I understood your comment correctly? Speaker 100:27:02Yes. Yes, for sure. I mean, we have to have more volume going through and better productivity. Speaker 400:27:11I don't know. And just on Speaker 100:27:13And then more volume, if the market sort of comes back to more normal levels, there will be less price on or pressure on price. Speaker 400:27:25That's very helpful. And I guess on the volume side, now that you have Royal under your belt for a year, I expected maybe a little bit better Q4. So can you talk to us a little bit about the dynamic, let's go at Royal in the U. S? How have you seen it over the 1st year? Speaker 400:27:46And maybe give us a little bit color on the seasonality patterns? And what should we expect into 2024? I guess that's probably the biggest avenue for growth for you, if I remember correctly. Speaker 100:28:00Right. So if you think about we operate in 2 segments, bills and statements and then with Royal, the direct mail segment. Bills and statements weren't radically impacted. I mean, TD Bank and Capital One and Bank of America still have to send out the same number of Visa statements and bank statements and so on and so forth. Utilities are still sending out bills and statements. Speaker 100:28:29The real pressure on volume was in direct mail, which is the market that Royal participates in. The integration went super, went fantastic. The team down there is very strong. The vendors stayed on board and are completely engaged. But due to consumer confidence and interest rates and so on and so forth, the direct mail industry is the one that got hammered. Speaker 100:28:57And as a result, we didn't get the lift from Royal that we would have expected. It's temporary. The economy goes in cycles. So our largest customer in that space, it's a very large financial institution, told us that their mail volumes mail volume plan is up for 2024, not back to 2022 levels, but up from 2023. And I think that's consistent with, sort of the industry at large on the direct mail side. Speaker 400:29:31That's helpful, Stuart. And last one's for me. If I look at the Packaging segment, is it fair to say and I'm trying just to parse out some of the acquisitions, but in general, most of your pressure has been faced in the U. S. As opposed to Canada? Speaker 400:29:51Or how would you describe that in terms of geography wise in the packaging side? Speaker 100:29:56I would say it's equal. So in the U. S. Packaging, it's largely e commerce. So as a percentage, e commerce and sort of health and beauty were sort of down at the same level. Speaker 100:30:15So I don't think geographically it was material one way or the other. Speaker 400:30:21Got it. That's Operator00:30:29This concludes the question and answer session. I'd like to turn the conference back over to Stuart Emerson for any closing remarks. Speaker 100:30:39Great. Thank you, operator, and thanks to all that joined the call today. Really appreciate it. We look forward to speaking to you again at our next quarterly call after Q1. Thank you very much. Speaker 100:30:50Have a great day.Read morePowered by