Supremex Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to SupremeX's Q4 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties during the conference, please press star followed by zero for operator assistance at any time. 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 extra results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded on Thursday, February 23rd, 2023. I will now turn the conference over to Mr. Stuart Emerson, President and CEO. Please go ahead, sir.

Good morning, ladies and gentlemen. I'm here with Mary Chronopoulos, Chief Financial Officer of Supremex. Thank you for joining us for this discussion of the financial and operating results for our fourth quarter and fiscal year ended December 31st, 2022. Our press release reporting these results was published earlier this morning. It can also be found in the investor section of our website at www.supremex.com, along with our MD&A. These documents will be available on CDAR as well. We also posted a presentation supporting this conference call on our website. Let me remind you that all figures expressed on today's call are in Canadian dollars unless otherwise stated. Let's turn to slide 39 for an overview of the fourth quarter. Supremex had another very solid quarter with revenue growth of 19%, a 12th consecutive quarter of year-over-year improvement in adjusted EBITDA, and a 36% increase in net earnings. This performance concludes a remarkable year in 2022 for the company, as we produce strong revenue growth, higher margins, and robust cash flow. Mary will provide additional details on our performance in a few minutes, but let me take a moment to discuss the business. Our envelope segment had another very solid quarter, although it was facing a tough comparable due to an exceptionally strong fourth quarter in 2021. This was our first period with Royal Envelope, which contributed close to $10 million in revenue over two months. The integration is going extremely well, and our teams are focused on ensuring we harvest all sales and cost synergies available to us and to drive efficiencies and cross-sell opportunities to meet a wide range of needs for existing and new customers. On the cross-sell side, I'm pleased that we've been successful in making inroads after just a few short months. But we have really only just begun to tap into this potential, and we're excited about what the future may bring. On the envelope side, as the second largest manufacturer in North America, we have the scale and know-how to further enhance our presence in the vast U.S. market through geographic and product expansion, and we see attractive growth opportunities both in direct mail and through conventional channels. Turning to packaging, just before Christmas, we successfully completed the forced relocation of our County Mount Royal folding carton operations to its new home in Lachine where the corrugate box activities were wound down. Decommissioning, moving and recommissioning all of the equipment was a distraction in the last half of the year and production was affected for approximately eight weeks in November and December. As anticipated, these disruptions had a negative impact on our packaging sales and profitability during the fourth quarter. Operations are largely back to normal and we are pleased with how well the team executed this move on an extremely tight timeline during a period of constrained supply chain for both supplies and a tight labor market. This relocation is an important step in our packaging strategy. We can increasingly focus our attention on profitably growing folding carton activities. By relocating into a much larger and efficient facility, we can also easily accommodate additional equipment and volume with existing or new customers. Another important development in our packaging business occurred in early 2023 with the acquisition of Paragraph, an integrated provider of folding carton packaging and point of sale displays for cosmetic, pharmaceutical, food, confectionery, and retail sectors. With two facilities, one on the island of Montreal and the other 50 kilometers to the east, Paragraph brings an excellent track record for quality, proven know-how and capabilities, as well as strong customer relationships. Speaking of customers, it's important to note there was no material overlap of customers between Paragraph and Legacy Supremex. Not only does this acquisition further enhance our folding carton offering in Quebec, but is also expected to yield important synergies with the rest of our network. For the 12-month period end of October 31st, 2022, Paragraph had generated sales of approximately $38.6 million. With that, I turn the call over to Mary for a review of the Q4 financial results.

Thank you, Stuart. Good morning, everyone. Please turn to slide 40 for our Q4 top-line review. Total revenue was up 19% to $78.8 million from $66.2 million last year. Revenue from the envelope segment rose 30.1% to $60.7 million. The strong growth reflects a $9.7 million revenue contribution from the acquisition of Royal Envelope completed on November 1st. Revenue was also favorably impacted by an average selling price increase of 48.8%, which mainly reflects more favorable customer and product mix in U.S. operations, as well as pricing adjustments to mitigate input cost inflation. These factors were partially offset by a volume reduction which is mainly due to very strong demand in the fourth quarter of 2021. Packaging and specialty product segments revenue amounted to $18.1 million versus $19.6 million last year. The decrease essentially reflects the wind-down of the DuraBox operations and the impact on sales of relocating the TMR folding curtain facility. These factors were partially offset by higher sales in our other folding curtain facility and in e-commerce-related activities. Moving on to slide 41, consolidated EBITDA stood at $13.7 million in the fourth quarter of 2022 versus $10.1 million in the previous year, while adjusted EBITDA amounted to $15.3 million, up from $12.2 million in the fourth quarter of 2021. As a percentage of revenue, the adjusted EBITDA margin reached 19.5% up from 18.5% a year ago. Envelope segment adjusted EBITDA totaled $14.9 million compared to $8 million last year. This sharp increase was driven by higher revenue, in part reflected by the Royal acquisition, as well as higher average selling price due to a more favorable customer and product mix in the U.S. Adjusted EBITDA margin was 24.5% up from 17.1% in the corresponding period of 2021. In the packaging and specialty product segment, adjusted EBITDA was 3.9 million compared with 6.2 million over the same period last year. This decrease is attributable to lower revenue from the DuraBox wind down, our folding carton relocation, which interrupted production over a six-week period, causing another absorption of fixed costs. Adjusted EBITDA margin was 21.6% compared to 31.7% for the same period in 2021. Corporate and unallocated costs were $3.5 million in the fourth quarter of 2022 compared to $2 million last year. The variation mostly reflects an unfavorable adjustment for deferred and performance share units due to share price appreciation. In Q4 2022, we incurred restructuring expenses of $1 million related to the relocation of the folding carton plant and the wind-down of your box. These expenses mainly consist of inventory write-down, severances, and expenses for decommissioning and moving equipment. Turning to slide 42, net earnings reached $6.7 million, or $0.26 per share, up from $4.9 million, or $0.18 per share, last year. Adjusted net earnings stood at $7.9 million, or $0.31 per share, in the fourth quarter of 2022, versus $6.4 million, or $0.24 per share, a year ago. Turning to cash flows on slide 43. Net cash flow from operating activities totals $11.7 million in the fourth quarter of 2022 versus $13.8 million in Q4 of 2021. The year-over-year variation is mainly attributable to higher working capital requirements, primarily due to an increase in inventories, partially offset by higher profitability. Reflecting the same factors, free cash flow was $10.2 million in the fourth quarter of 2022 compared to $12.3 million for the same period last year. Looking at our financial position, slide 44 shows that our total debt amounted to $54.7 million as of December 31, 2022, versus $44.6 million at the beginning of the year. The increase is essentially related to the acquisition of Royal Envelope for a consideration of $28.3 million, partially offset by debt repayment, totaling approximately $18 million for the year. Net debt, which includes deferred financing costs and cash, stood at $52.5 million. As a result, we concluded 2022 with a net debt to trailing 12-month adjusted EBITDA ratio of 0.9 times compared to one time in 2021. This improvement was achieved despite closing an acquisition at year-end, which added to debt without the corresponding EBITDA contribution, which speaks highly about our cash flow generation ability. At the end of the year, we had $65 million in available liquidity under our senior secured revolving credit facility of $120 million. Even factoring in the paragraph acquisition, we still have sufficient flexibility to finance our investments and operations. Yesterday, our Board of Directors declared a dividend of 3.5 cents per common share, stable on April 7, 2023, to shareholders of record at the close of the business on March 23rd. The declared dividend represents a 16.7% increase over the previous dividend paid and a 40% increase over the dividend paid a year ago, thus showing our board's confidence in our ability to generate solid cash flows while retaining sufficient resources to further grow the business. I turn the call back to Stuart for the outlook. Stuart?