Supremex Inc.

She was previously Chief Financial Officer at Energir, a diversified energy company with over $2.5 billion in sales and to sell various executive roles in finance and with leading retail and consumer packaged goods companies, including Group BMR, Aldo Group and Saputo. I look forward to working with Mary channeling her energy, enthusiasm and experience to the Supremex growth strategy and diversification strategy.

She was previously Chief Financial Officer at Energir, a diversified energy company with over $2.5 billion in sales and to sell various executive roles in finance and with leading retail and consumer packaged goods companies, including Group BMR, Aldo Group and Saputo. I look forward to working with Mary channeling her energy, enthusiasm and experience to the Supremex growth strategy and diversification strategy.

This is an important driver of profitability in the quarter and historically. For added color on the packaging side, profitability was supported by a growth in sales as a result of the acquisition of Vista Graphic Communications, a COVID rebound, particularly in the health and beauty segment and the ability to quickly pass-through cost increases and by the continued improvement of our folding carton operations.

The revenue growth experienced in this segment overcame a sizable negative foreign exchange impact as an important and growing share of revenues in packaging comes from U.S. customers.

Continued ongoing growth experienced in the U.S. envelope market is the result of focused efforts and specific investments dedicated to strengthening our internal sales teams on both sides of the border and from the additional available capacity unlocked in the Royal Envelope acquisition, which allowed us to strengthen both our position in Canada and continue to slowly gain market share south of the border.

This growth was also in spite of negative FX conversion in both the quarter and year-to-date as 100% of it is transacted in U.S. dollars.

Canadian envelope continues to perform well as the economy starts to gain life. We are encouraged as we see customers starting to rebuild inventories and an improvement in the product mix.

Importantly, we are positioned to swiftly implement price increases in lockstep with rising cost and the team has executed well.

This is an important driver of profitability in the quarter and historically. For added color on the packaging side, profitability was supported by a growth in sales as a result of the acquisition of Vista Graphic Communications, a COVID rebound, particularly in the health and beauty segment and the ability to quickly pass-through cost increases and by the continued improvement of our folding carton operations.

The revenue growth experienced in this segment overcame a sizable negative foreign exchange impact as an important and growing share of revenues in packaging comes from U.S. customers.

Continued ongoing growth experienced in the U.S. envelope market is the result of focused efforts and specific investments dedicated to strengthening our internal sales teams on both sides of the border and from the additional available capacity unlocked in the Royal Envelope acquisition, which allowed us to strengthen both our position in Canada and continue to slowly gain market share south of the border.

This growth was also in spite of negative FX conversion in both the quarter and year-to-date as 100% of it is transacted in U.S. dollars.

Canadian envelope continues to perform well as the economy starts to gain life. We are encouraged as we see customers starting to rebuild inventories and an improvement in the product mix.

Importantly, we are positioned to swiftly implement price increases in lockstep with rising cost and the team has executed well.

Serving our growing American e-commerce customer base locally and added capacity will provide significant cost advantages and growth opportunities that we expect to recognize in 2022. We have a robust pipeline in both e-commerce and folding cartons.

And while both the labor and raw material markets remain extremely tight, we are well positioned for important continued growth in packaging. As always, our operational priorities remain: to manage the Canadian envelope platform to maximize its cash flow generation to grow into the U.S.

envelope market using both Canadian and U.S. assets and continued penetration and diversification in the growing value-added packaging segment.

I would now turn the call over to Mary Kinopolis, our Chief Financial Officer, to review our financial results. Mary?

Serving our growing American e-commerce customer base locally and added capacity will provide significant cost advantages and growth opportunities that we expect to recognize in 2022. We have a robust pipeline in both e-commerce and folding cartons.

And while both the labor and raw material markets remain extremely tight, we are well positioned for important continued growth in packaging. As always, our operational priorities remain: to manage the Canadian envelope platform to maximize its cash flow generation to grow into the U.S.

envelope market using both Canadian and U.S. assets and continued penetration and diversification in the growing value-added packaging segment.

I would now turn the call over to Mary Kinopolis, our Chief Financial Officer, to review our financial results. Mary?

Revenue for the U.S. envelope market increased by 14.1% or $1.4 million to $12 million.

The volume of units sold increased by 28.7% from efforts dedicated to gain market share and from the COVID-19 economic rebound. Although price increases were implemented in the United States market, our average selling price once translated in Canadian dollars actually decreased by 11.3% from the negative foreign exchange translation during the period.

Packaging and Specialty Products segment revenue grew by 11.1% or $1.7 million to $16.6 million, primarily from the acquisition of Vista Graphic Communications concluded on March 8, 2021. Our second quarter EBITDA and adjusted EBITDA increased by 24.1% and 24.2%, respectively, to $8.6 million from $6.9 million in the second quarter of 2020.

This resulted from higher revenue in both segments, operational efficiencies derived from the cost optimization plan and $900,000 recorded in subsidies. Adjusted EBITDA margins increased by 16.5% of revenue compared to 14.5% in the equivalent quarter of 2020.

Excluding the contribution of the subsidies, adjusted EBITDA margin stood at 14.9% of revenue in the second quarter of 2021. The Envelope segment adjusted EBITDA was up 10.6% to $6.3 million.

The operating profitability of the Canadian envelope operations improved with the operational efficiencies derived from the cost optimization plan in addition to higher sales volume. On a percentage of segmented revenue, adjusted EBITDA from the envelope segment was 18%, up from 17.5% in the equivalent period of 2020.

The Packaging and Specialty Products segments adjusted EBITDA grew by 20.6% to $2.4 million, primarily from the acquisition of Vista graphic communications. Adjusted EBITDA margins from the packaging and specialty operations increased by 14.5% to 13.3% in the equivalent quarter of 2020.

The balance of the variance results primarily from the contributions of QS. Q2 2021 net earnings and adjusted net earnings were $3.4 million or $0.12 per share compared to $1.9 million or $0.07 per share for the equivalent period in 2020.

Cash flows related to operating activities decreased by $4.9 million from $10.7 million in Q2 2020, resulting from a negative net change in working capital. Total net debt stands at $54 million, down from $56.8 million despite an amount of $2.7 million used to acquire Vista Graphics communication in Q1 2021.

During Q2 2021, the company also purchased 488,100 common shares for cancellation under its NCIB program for a total consideration of 1,16,683. And as Stewart mentioned, we intend to renew our normal course issuer bid expiring on August 16, 2021.

A press release will be issued upon its approval by the TSX. I would now like to turn the call over to analysts for questions.

Operator?

And is that like technological innovation because you do probably have bigger R&D budgets than some of the other competitors?

Right. So...

Across all the lines of business, not just U.S. envelope or packaging all of them.

Packaging now represents 32% of our revenues, and U.S. envelope represents 23%.

The aggregate of these markets brings our share of revenues from the Canadian envelope market to below 50%. And - the long-term objective remains to be a 50-50 split between packaging and envelope and this new milestone is an important step in reaching that objective.

While conditions are improving and governments are gradually lifting restrictions across the country and North America as a whole, the well-being of our employees and servicing our customers at a high level remains our number one priority.

Packaging now represents 32% of our revenues, and U.S. envelope represents 23%.

The aggregate of these markets brings our share of revenues from the Canadian envelope market to below 50%. And - the long-term objective remains to be a 50-50 split between packaging and envelope and this new milestone is an important step in reaching that objective.

While conditions are improving and governments are gradually lifting restrictions across the country and North America as a whole, the well-being of our employees and servicing our customers at a high level remains our number one priority.