Supremex Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the SuperMX, Inc. Third Quarter 2024 Earnings Conference Call. At this time, all participants are on your 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 are 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 this conference call is recorded on Thursday, November 7th, 2024. I now turn the call over to Martin Goulet of MVC Capital Markets Advisors. Please go ahead.

Martin Goulet, MVC Capital Markets Advisors Please, and good morning, ladies and gentlemen. Thank you for joining this discussion of Supremex's financial and operating results for the third quarter ended September 30th, 2024. The press release reporting these results was published yesterday after the market closed. 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 are available on CEDAR Plus as well. 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 Canadian 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 38 of the presentation for an overview of the third quarter, and I turn the call over to Stuart.

Hey, thank you, Martin, and good morning, everyone. Supremex's operating performance further improved in the third quarter. Our envelope volume was up year over year for the second consecutive quarter, and in packaging, both sales and profitability posted gains driven by gradual improvements in market conditions and internal efficiencies. Once again, our free cash flow generation was solid, enabling us to further reduce debt and buy back additional shares for cancellation. To get more granular, first let's look at the envelope business. Revenue was down slightly year over year as lower average selling prices outpaced volume gains. Volumes would have been even greater, but our ability to produce was negatively impacted by the previously announced facility consolidation in Toronto that we started in late August and was in full swing in September. I will provide you with more detail on that project shortly. Pricing pressure was anticipated given the significant bump during the supply shortage in 2022 and early 2023, as the market gives back some of the gains made and our mix between the Canadian and US markets continues to evolve. We're encouraged with the year-over-year volume gains as the market continues to recuperate from the artificial highs of 2022 and the resulting artificial trough of 2023. It should be noted that part of the volume increase also comes from the forest envelope acquisition, the small tuck-in completed in May of this year and now fully integrated into our Chicago operations. With this appreciable improvement in market conditions, the continued penetration of the large U.S. market and our business development initiatives, our backlog is significantly stronger now than it's been since Q1 of 2023. As I mentioned earlier, Q3 saw some unexpected disruption from equipment employees being shuffled between the three plants as part of our facility consolidation in the GTA. There are a lot of moving pieces and this effect is temporary, but given the significantly improved backlog and the drop in units produced, we left a fair bit of money on the table in September. Close off on the consolidation, the critical path of exiting the Concord facility is on track. We've decommissioned 20 pieces of equipment and have either sold or moved them to other Supremex locations. Approximately 75% of the primary equipment that was slated to move have in fact moved and been recommissioned, primarily in Mississauga, and are back in production. The remaining 25% are slated to be complete by early December. More importantly, the employees that are so critical to our success have given us a resounding response. 100% of the direct labor employees were offered transfers. 92 of them accepted, and the vast majority of those employees are already in their new locations. We are fortunate to have a talented and deep envelope team. This is a significant undertaking, but they are on time and on budget, and units produced in Toronto were up 25% in October versus the chaotic September. Even with those headwinds, and this is extremely important, Our envelope adjusted EBITDA margin was close to 17% in the quarter. Yes, it's below last year's Q3, but it's sequentially higher than the second quarter in spite of what was happening in the three large and materially important plants. While we're pleased with how the team navigated the quarter, and it may seem acceptable by historic standards, we can and will do better as we reap more benefits from the significantly improved backlogs and the consolidation once we exit the Concord facility next February. To remind listeners, we expect annual cost savings in excess of $2 million once all measures are in place. These will come primarily from the reduction of rent and various fixed costs, as well as some productivity improvements. Let's turn to our packaging business, where market conditions continue to gradually improve, which led to both higher sales and higher EBITDA. On the sales side, we've enjoyed gradual improvement in channels more closely correlated with the state of the economy, while our e-commerce fulfillment business continues to have solid momentum. Once again this quarter, margins have improved, reflecting the initiatives undertaken last year to improve operating efficiencies and achieve synergies within our network. Despite the gains made in both sales and EBITDA, margins remain below their true potential. Primarily related to revenue and absorption, and we have made important progress as we continue to build our depth to have the right people in the right seats and build our sales organization. We have added a general manager to our folding carton activities that brings with them a wealth of knowledge and experience, specifically in the Quebec and Ontario folding carton markets, and we're very excited about adding his talents to the group. With over two decades of experience in driving sales and operational excellence and a proven track record of managing multiple plants, We are very confident in his ability to leverage our solid customer base, an outstanding asset base, and the Supremex employees and reputation. In addition to the new general manager, we've added new plant managers in the three Montreal area plants and new sales talent in both Montreal and Indianapolis to double down on business development and customer re-engagement. Before turning the call over to Francois, let me say a few words about our intention to do a sale-leaseback transaction on two properties. Those of you that follow us closely know our real estate network includes two facilities that are owned, while all others are leased. These two facilities are located in LaSalle, Quebec and in Etobicoke, Ontario, and house our two primary envelope sales and manufacturing facilities, And in fact, the LaSalle facility also houses our corporate offices. Given the current state of commercial real estate market in the Greater Montreal and Toronto areas, the timing is right to initiate a sale-leaseback process, and today we announced our intentions to do just that. The net book value of the facilities is approximately $9 million, and the appraised value is approximately $57 million. We believe Upon a successful outcome, this process will unlock significant value that is not fully recognized by the market. With that, I turn the call over to Francois for a review of the financial results.