Supremex Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Suclumex Inc. Second Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. Following the presentation, we'll 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 zero. 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, May 9th, 2020. Oh, sorry. On August 8th, 2024. I will now turn the call over to Martin Goulet of NBC Capital Market Advisors. Please go ahead.

Thank you and good morning. Thanks for joining us for this discussion of Supremix's financial and operating results for the second quarter ended June 30th, 2024. 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 also be available on CEDAR+. And 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 are in GAN dollars unless otherwise stated. Presenting today will be Stuart Emerson, resident and CEO, as well as François Bolduc, CFO. With that, I invite you to turn to slide 40 of the presentation for an overview of the second quarter, and I turn the call over to Stuart.

Hey, thank you, Martin. Good morning, everyone. I'm happy to report that both of SupremeX's two operating segments continued their recovery in the second quarter. Our envelope volume increased by high single digits, and after several challenging quarters, profitability from our packaging business showed significant improvement. And as has become fairly predictable at this point, we continue to generate strong free cash flow, enabling us to declare a dividend, further reduce debt, and buy back nearly a half a million shares. To get a little more granular, let's first look at our envelope business. As I said, envelope volumes were up high single digits in Q2, which was punctuated by a 25% increase in U.S. volume versus Q2 2023, and a 12% increase in U.S. volume over the first quarter of this year. U.S. envelope volume was 52% of units sold in the quarter, compared to 46% in Q1 and 45% in Q2 2023. We continue to make impressive progress in the important U.S. markets. While volumes seem to be steadily improving and pricing still volatile with the softness in the market, the reduction in the global envelope average selling price was driven almost predominantly by the change in mix between Canada and the U.S. and by the change of mix within the U.S. envelope market. While average selling price is generally a good indicator in envelope, in this particular instance, in this particular quarter, mix played a larger role than it normally does. The volume was also influenced very slightly downward by two months from the tuck-in of forest envelope. With respect to the forest envelope acquisition, I'm pleased to report that the integration process was completed according to plan, both on time and on budget. Their activities were seamlessly tucked into our Chicago operations within 90 days of close, and we were out of the facility within those 90 days. Approximately 40% of the employees were offered and accepted transfers, and operations and absorption in the existing Chicago facilities should see a nice bump as a result. While the production integration is complete, we remain focused on achieving sales and cost synergies by deploying efforts to grow our share of wallet with regional customers, both from the Chicago facilities and via the entire Supremex footprint. EBITDA margins in the segment remained above 16%, not as strong as in the first quarter, but still within historical precedence. That said, we continue to look for, explore, and find new ways to do things more efficiently and or in a more cost-effective manner. Supporting the latter, on July 24th, we announced initiatives to reduce costs, improve absorption and efficiency, and significantly reduce fixed costs within our envelope operations, primarily in the Greater Toronto Area. First, and with the least impact, we ceased manufacturing in a very small facility in Niagara Falls, New York, which was essentially catering to two customers in upstate New York. Only two machines and four employees were affected, and we are adapting the premises to operate as a very low-cost distribution center for U.S.-bound freight in advance of a larger reorganization in the Greater Toronto Area. The GTA announcement was of our intention not to renew the lease of the Concord facility upon expiry next February. The plan essentially calls for the most efficient equipment in the GTA to be concentrated in the two remaining facilities, Mississauga and Etobicoke, where we have talent, ability, and scale. With the concentration of equipment, we expect several well-producing machines will become redundant in Toronto, and they will be redeployed as replacement upgrades to two of the U.S. facilities, improving capabilities, capacity, and cost closer to U.S. customers. To be clear, this was, as always, a prudent, productive planning measure and not a move indicative of deteriorating business conditions. Quite the contrary. As I said earlier, the envelope market has improved steadily over the past three or four quarters, and we are coming off a quarter where we continue to grow and further penetrate a rebounding U.S. envelope market. In fact, we anticipate we will produce more envelopes in 2025 than in 2024, but we will do it with improved utilization levels on less equipment in a much smaller footprint with significantly less fixed costs. These initiatives are expected to deliver annual cost savings in excess of $2 million once all measures are in place. Let's move on to the packaging business. We are certainly pleased with the profitability improvement in the quarter, but we are not satisfied. This quarter's improvement is a result of several initiatives undertaken late last year to improve operations and achieve synergies within the Greater Montreal Area's three plants, and by cost reductions within the Indianapolis packaging facility. Our packaging EBITDA margin was just short of 14%, a level we had not seen in several quarters. To be very frank, these margins are nowhere near the true potential of the segment, given our equipment-based capabilities and capacity, but are improving. The operations are much improved, and there's a difference between where we are and where we think we should be is almost exclusively driven by the top line, or more succinctly, the soft top line. Volumes continue to be soft in some of our key verticals, including with our largest customer in the segment, and the effects of volume didn't transition with us after the close of the facility in Sainte-Sainte last fall. Those declines are still affecting absorption, which is a much different issue than not having the ability to produce efficiently and effectively. Volume is magic. Our teams work hard to improve network efficiency and optimize our asset base. These efforts must now be leveraged by an improved order flow, and we have a few impressive wins over the past few weeks, both in folding cart and in e-commerce, which should help backstop growth in the packaging segment in coming quarters. With that, I turn the call over to Francois for review of the financials.