Supremex Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to SUPREMEX's third quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then 0. 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 now like to remind everyone that this conference call is being recorded on Thursday, November 9th, 2023. I will now turn the call over to Martin Goulet of NBC Capital Markets Advisors. Please go ahead.

Martin Goulet Thank you, Operator. Good morning, ladies and gentlemen. Thank you for joining this discussion of Supremex's financial and operating results for the third quarter ended September 30, 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 www.supremex.com, along with the MD&A and financial statements. These documents will be available on CEDAR Plus as well. Note that a presentation supporting this conference call has also been posted on the website. Let me remind you that all figures expressed on today's call aren't in dollars unless otherwise stated. Presenting today will be Stuart Emerson, President and CEO of Supremex, as well as François Bolduc, Chief Financial Officer. With that, I invite you to turn to slide 39 of the presentation for an overview of the third quarter, and I turn the call over to Stuart. Stuart?

Thank you, Martin, and good morning, everyone. During the third quarter, we have experienced improved demand, but at a slower pace than initially anticipated. While disappointed, we adapted to the evolving market conditions by building finished goods inventory to maintain utilization and absorption rates as effectively as possible and close the quarter in a finished goods inventory position, which will allow us to take advantage of custom one-off opportunities as the market continues to reopen. Despite the increase in finished goods, by aggressively working through raw material inventories built during a time of tight supply, we finished the quarter with total inventory values down 14% from year-end 2022. As a result, we generated a strong free cash flow that we applied to debt reduction and share repurchases. Francois will provide additional details in a few minutes, but let me take a moment to discuss our market dynamics. The envelope business continues to be affected by customer inventory destocking, although we feel the worst of that is behind us and more predominantly by the effects of inflation on fundraising and direct mail and the impact of high interest rates on credit card solicitation mail. That said, conditions are improving and we can point to Royal Envelope's Q3 performance as empirical evidence. Sequentially, Royal Envelope, whose primary market is indirect mail, had a stronger Q3 with revenue of $11.1 million, up from $9.1 million in Q2. While it's clear the market conditions are improving and the mail continues to be an important vehicle for fundraisers and direct mailers, demand recovery is taking more time than expected and backlogs are soft throughout the envelope market. Our brand remains excellent and our position is still strong as a go-to, consistent, predictable and reliable supplier. We have maintained solid relationships with our core customers through these temporary challenges and continue to make inroads with new customers. This period we are in is temporary. Mail, and particularly direct mail, is an important communication vehicle and has proven itself to be resilient through multiple macroeconomic slowdowns over the years. While volumes have a direct correlation on earnings, for me, In envelope, the story of the quarter and, frankly, for the year is our ability to manage through the challenges on the EBITDA and cash flow generation side. Coming off a record Q3 2022 and volumes being down approximately 18%, we generated segment EBITDA in excess of 19% by working closely with customers, having a compelling value proposition, and managing costs tightly. It's been bumpy on the volume side for the past couple of quarters, particularly when compared to an astonishing 2022. But conditions have and continue to improve. We just have to have patience as we weather the storm. There's been one constant with Supremex. We have, time and time again, proven the strength and resilience of our envelope business. As a result of a sound proactive strategy and a lot of spade work, we have grown our share in the U.S. market for the last several years. before and through the pandemic and have positioned ourselves for long-term success in terms of both earnings and cash flow. Turning to the packaging and specialty product segment, much like the envelope business and for these same reasons, we continue to experience lower demand from markets that are driven by discretionary spending. Volumes in our over-the-counter pharma packaging business continue to perform well and our food packaging volumes remain stable. However, demand in the health and beauty and e-commerce packaging verticals have been adversely impacted by a reduction of disposable income. The volume reductions put pressure on utilization levels and cost absorption, and that shows in our numbers. On the positive side, and while there's still work to do, for the most part, we have largely emerged from the various inefficiencies that affected our Lachine facility following its location change in late 2022 and early 2023. Not that everything is where we'd like it to be, but it had no material effect on Q3 operating results and was capable of producing significantly more had the sales been there. The packaging business is steadfastly committed to enhancing efficiency and achieving the synergies from acquisitions completed earlier this year. To wit, the graph pack consolidation was executed on time and on budget within 90 days of acquisition and we announced last month the closure and production transfer from our Saint-de-Saint facility to our existing plants in the Montreal area, which we expect to generate savings of $1.5 million when fully implemented. With these consolidations, we will leverage the scale and expertise of the existing facilities, and they will be better positioned to efficiently support the inevitable bounce back in volumes and organic growth. In the quarter, we also revamped our packaging management structure moving to a more traditional entrepreneurial structure of three general managers responsible for, respectively, the folding carton, e-commerce, and commercial printing activities. They will report directly to me. Our belief is that a more focused and accountable local leadership will drive additional value in each sector and improve proximity and intimacy with the businesses and its customers and employees. With that, I'll turn the call over to Francois for review of the Q3 financial results.