Supremex Inc.

Thank you, and good morning, ladies and gentlemen. Thanks for joining this discussion of Supremex' financial and operating results for the third quarter ended September 30, 2025.

The press release reporting these results was published earlier this morning via the Globe Newswire News services. 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 SEDAR+ 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 Stewart Emerson, President and CEO of Supmax; as well as Norm Macaulay, CFO.

With that, I invite you to turn to Slide 37 of the presentation for an overview of the third quarter, and I turn the call over to Stewart.

Thank you, Martin, and good morning, everyone. I'm joined today by Norm Macaulay, Supremex' new Chief Financial Officer.

Norm joined us mid-September and brings more than 20 years of experience as a financial executive with large private and public companies. We're very pleased to have him on board as the company will benefit from his leadership, skills and expertise in all matters related to corporate finance, M&A, process optimization.

Welcome aboard, Norm. While the results may not have been where we wanted them to be, largely due to external forces, we have been under -- we have been uber active in building the business, returning value to shareholders and positioning ourselves to execute on our plan and long-term success.

First, I want to draw you to -- draw your attention to our financial position, which is as strong as it has ever been. As you know, during the quarter, we completed the sale leaseback of two owned properties in a transaction that grossed $53 million.

This transaction unlocks significant value for our shareholders who were rewarded with a $0.50 per share special dividend on top of the regular $0.05 quarterly payout. We also repaid a substantial amount of debt, leaving us with net debt of only $89 million at the end of Q3, which provides us with excellent flexibility to carry out our business strategy.

Norm will discuss the net debt position in more detail shortly. Now let's look more closely at operations, beginning with the Envelope business.

While revenue decreased 5% year-over-year, it was up 3% sequentially from Q2 as we battle significant headwinds. To provide color on those headwinds first, obviously, the Canada Post uncertainty continues to affect volumes, primarily in the high value-added direct mail and fundraising space.

I wish I could give you an exact number, but it's difficult. However, looking at the DM-centric accounts and anecdotally, it's clear that the uncertainty of when a time-sensitive piece will arrive in the mailbox has taken its toll on volumes.

Second, if you recall from last quarter, we highlighted a substantial volume decline with an important U.S. direct mail client, and that situation affected Q3 results considerably.

More on that later in the commentary. Finally, economic uncertainty, instability and a slowing economy, both in Canada and the U.S.

is not helpful to volumes, particularly in the direct mail and fundraising segment. Frankly, being minus 5% versus last year and up 3% sequentially can be viewed as a good outcome through our prism.

We worked hard to manage costs effectively, augment our position in the Canadian market with a tuck-in acquisition of Canada's third largest producer. And while nothing is in the bucket, our relationship with the aforementioned U.S.

direct mail account is solid. We continue to do work for them, and we are optimistic about 2026.

I understand quarter-to-quarter is an important measure. And as I said a moment ago, we view a 5% decline in revenue as a pretty good outcome given the challenges.

But to me, year-over-year is a better measure. And in that case, despite the headwinds created by Canada Post, which has persisted virtually all year and the slowing economies, that single U.S.

customer reduction has accounted for more than 100% of the revenue decline year-to-year. In fact, net of the impact of one customer, U.S.

units and revenue are up mid- to high single-digit percentages. And across the entire Supremex Envelope segment globally, units are down less than 1%, revenue is flat and average selling price is up year-over-year.

Our team has done a tremendous job, both operationally and on the sales side to mitigate the effects in a tough environment on both sides of the border. A few moments ago, I mentioned the acquisition of the third largest envelope manufacturer in Canada, and I wanted to provide a little more context.

In July, we acquired the assets of Enveloppe Laurentide in Saint Laurent, Québec, a suburb of a mere kilometers from our LaSalle envelope facility. Laurentide manufactured and brokered envelopes primarily in Eastern Canada.

As planned, we ceased production at their facility on August 15 and integrated both the manufactured and brokered volume within our existing network in Canada. This highly accretive acquisition will improve absorption and will deliver meaningful synergies going forward.

In a nutshell, while on the surface Enveloppe performance may not have been where we wanted or expected them to be, the team has done a good job navigating very choppy waters. Our underlying fundamentals are solid, and we have confidence in our ability to drive volume to maintain high levels of utilization and absorption across our highly efficient network.

Turning to packaging. Although revenue was down, we sustained our momentum with double-digit growth in both folding carton and e-commerce solutions, while Paragraph's commercial printing activities largely for the direct mail market, not surprisingly, had a difficult quarter.

In folding carton, double-digit growth both in the quarter and year-to-date was driven by continued strong performance in the health and beauty and over-the-counter pharmaceutical segments, new business wins from current and reactivated customers and revenue from the newly acquired Trans-Graphique folding carton business, which supports our strategic plan to enhance our presence in the food-grade packaging, where we see solid growth prospects. While the Enveloppe Laurentide transaction closed on July 14 and ceased production a month later, in this highly accretive transaction, we closed Trans-Graphique a week earlier on July 7 and ceased production 14 days later.

As planned, most of Trans-Graphique's activities have been transferred to the Lachine facility, which will allow us to grow in the food packaging space, improve efficiency and absorption as well as achieve meaningful synergies. It should be noted that we exited both facilities by the end of October.

In e-commerce and Specialty Packaging, momentum created by new customer wins and greater volume from existing customers produced well into double-digit revenue growth for yet another quarter and year-to-date. While the core of the packaging business continues to perform admirably both in terms of revenue and profitability, unfortunately, the less core commercial print business continues to have its challenges.

We haven't really spoken about Paragraph's customer and product base in the past. However, like envelope, this business has meaningful reliance on Canada Post, direct mail and fundraising with respect to the inner components and couponing.

Not surprisingly, these revenues have been materially impacted by Canada Post uncertainty, delivery of time-sensitive offers and promotions. And while we are focused, we just haven't been able to offset the precipitous drop in volume and revenue in the relatively small Québec market.

As for profitability in the segment, the drop in Paragraph revenue took the wind out of our sale after an encouraging first half and strong revenue performance of 2 of the 3 legs of the business in Q3. This quarter's adjusted EBITDA margin of 10.5% is clearly not acceptable.

The stark lack of volume and contribution from Paragraph has shaved off approximately 300 basis points of packaging margin on a year-to-date basis. I reiterate what I've said for several quarters now.

We have high-quality assets, available capacity, deliver quality products and service, have a premium diversified customer base on both sides of the border as well as the right leadership in the right seats. Volume is magic in terms of absorption, and we continue to look for profitable revenue growth, but there's also more to capture within our network in terms of efficiencies and synergies.

This is our priority. With that, I turn the call over to Norm for a review of the financial results.

Thank you, Stewart. Good morning, everyone.

I'm very pleased to join Supremex, a dynamic, well-managed and financially disciplined company. Please turn to Slide 38 of the presentation.

Q3 total revenue came in at $65.7 million compared to $69.4 million last year. Envelope revenue was $45.1 million, down from $47.5 million last year, but up sequentially from $43.8 million in the second quarter.

The year-over-year variation reflects a 4.2% decrease in average selling prices, mainly due to a less favorable customer and product mix between the U.S. and Canada.

Meanwhile, volume decreased 0.8%. And as Stewart mentioned, volume in Canada increased due to the Enveloppe Laurentide acquisition, while the U.S.

decline was essentially related to one customer. Packaging and Specialty Products revenue was $20.6 million versus $21.9 million last year.

The decrease is mostly attributable to lower revenue from commercial printing activities. This was offset by higher folding carton revenue, driven by greater demand from sectors more closely correlated to economic conditions, new business wins from existing customers and the contribution from Trans-Graphique, which was acquired in July.

Revenue from e-commerce-related packaging solutions also increased driven by higher demand from existing customers and new customer wins. Moving to Slide 39.

Adjusted EBITDA totaled $6.2 million or 9.4% of sales compared to $7.9 million or 11.4% of sales in last year's third quarter, but up sequentially from $5.8 million or 8.8% of sales in the second quarter of 2025. Envelope adjusted EBITDA was $5.3 million or 11.8% of sales versus $7.9 million or 16.7% of sales last year.

The decrease reflects lower selling prices and the effect of lower volume on the absorption of fixed costs. These factors were partially offset by benefits from optimization measures in the Toronto area and procurement optimization initiatives.

Packaging and Specialty Products adjusted EBITDA was $2.2 million or 10.5% of sales compared to $2.5 million or 11.3% of sales last year. The decrease is due to a less favorable revenue mix, partially offset by procurement optimization initiatives.

Finally, corporate and unallocated costs totaled $1.3 million versus $2.5 million last year. The decrease is attributable to a foreign exchange gain this quarter as opposed to last year and to lower professional fees.

Turning to Slide 40. During the quarter, Supremex recorded a $6.1 million gain on the sale-leaseback transaction, transaction, which resulted in increased right-of-use assets and lease liabilities, created a deferred tax asset, which gave rise to an income tax recovery of $3.1 million in Q3 2025.

As a result, Supremex concluded the third quarter with net earnings of $9.1 million or $0.37 per share versus a net loss of $23 million or a loss of $0.92 per share in last year's third quarter in which an asset impairment charge of $23 million was incurred. Adjusted net earnings were $4.7 million or $0.19 per share in Q3 2025, up from $1 million or $0.05 per share a year ago.

Moving to cash flow on Slide 41. Net cash flows from operating activities were negative $0.6 million compared to positive $7.6 million last year, mainly due to a lower working capital release this year compared to last.

Turning to Slide 42. Net debt stood at $8.9 million as at September 30, 2025, down significantly from $38.4 million 3 months ago, reflecting a long-term debt repayment of $31.5 million using proceeds from the sale leaseback.

Further, we used $13.5 million of the proceeds from the sale leasebacks to pay both the regular dividend and special dividend and $7.9 million to acquire both Enveloppe Laurentide and Trans-Graphique during the quarter. Our ratio of net debt to adjusted EBITDA was 0.3x versus 1.1x 3 months ago, well within our comfort zone of keeping our leverage ratio below 2x net debt to adjusted EBITDA.

Our strong financial position leaves us with significant flexibility to finance our operations and future investments, including acquisitions as well as to return funds to shareholders. In this regard, following the launch of a normal course issuer bid program in August, we repurchased approximately 44,000 shares in Q3 for a consideration of $0.2 million.

Subsequent to period end, we repurchased an additional 38,864 shares for consideration of $0.1 million. The NCIB program allows Supremex to purchase for cancellation more than 1.5 million shares, representing 10% of our public float until August 10, 2026.

Finally, the Board of Directors declared a quarterly dividend of $0.05 per common share payable on December 19, 2025, to shareholders of record at the close of business on December 4, 2025. I now turn the call back to Stewart for the outlook.

Great. Thanks, Norm.

Although our results were short of our potential, we're buoyed by the significant important improvements in our core business. Materially improved operations and the benefits of the tuck-ins completed partway through the quarter as we continue to methodically build the business for the long term.

As I've said previously, we can't control the economy and the trade environment, but we will focus on making our envelope and packaging networks more productive and efficient while actively driving sales and seeking additional revenue opportunities. We have a solid foundation ready to be further built on.

Our balance sheet is very strong, which provides us with the flexibility to execute our business strategy and sustain long-term profitable growth. We will also utilize our available capital and strong cash flow judiciously.

First, by looking for acquisition targets that we can rapidly and efficiently tuck into our existing footprint to enhance absorption to drive profitability or towards transactions that grow reach in our principal markets while enhancing absorption to drive profitability. And second, we are committed to returning value to shareholders via share repurchase and a fair yet conservative regular quarterly dividend payout that reflects our confidence in the ability to sustain free cash flow growth.

This concludes our prepared remarks. We're now ready to answer your questions.

Operator?

Just looking at the two acquisitions, just shy of $8 million spent. Just curious on what was the split between the two on a revenue basis and kind of what their trailing 12-month revenue and EBITDA profiles look like?

Well, so the Enveloppe, Don -- sorry, the Enveloppe acquisition was a little north of $10 million and the folding carton was somewhere around just shy of $3 million. So these are splits there.

Those are on a TTM basis.

On a TTM basis, yes. And both businesses were profitable, but with the synergies of the tuck-in, highly accretive for Supremex in a very short period.

Okay. Perfect.

And then just pivoting over to the packaging side. Can you just provide a little bit more color on the underperformance from the commercial printing?

Just curious how big this drag was and kind of what your outlook is over the coming quarters? Because how I'm looking at this is the folding carton and e-commerce packaging revenues are tracking above expectations.

Yes. So I mean, obviously, it was a significant drag with reference at both e-com and folding carton, both double-digit percentages, significant increases, but were more than offset by the decline in the commercial print operations.

And I wish I had talked a little bit more about what's inside that commercial print business. As you can imagine, anything in direct mail and fundraising has internal components that go in it.

And there's a fair bit of couponing. And that work is largely done by commercial printers and Paragraph was no exception to the rule.

So if there's no direct mail going out, there's no post cards showing up in your mailbox or significantly reduced numbers, it has a drag on the commercial print sector and Paragraph's top two customers are direct mail customers. And it just overshadowed significant growth on sort of the core piece of the business, if you will.

As Canada Post stabilizes and get this thing behind us and under our belt, that revenue should come back or a large chunk of it should come back. We're actively addressing the cost side of the business to align with the changes in revenue.

Okay. Perfect.

And then just pivoting over to, I guess, the geographic revenues. We were impressed with the revenues in Canada.

It's relatively flat year-over-year. The decline was mostly attributable to the U.S.

operations. I'm assuming it's through that one customer.

So I'm just -- can you talk to some of the dynamics you're seeing throughout the start of Q4 so far? Has there been any positive commentary from that one customer?

Or do we kind of expect the continued year-over-year declines over the next couple of quarters from the U.S. predominantly driven through that -- through the one customer?

There is a lot of questions wrapped up in that question there, Don.

I'm going to be asking a million questions.

Yes. I was writing them down, but I presume you're talking envelope predominantly.

But before I forget, I will reference packaging just a little bit. Both folding carton and e-commerce, they continue on a bit of a tear on the revenue side.

While we don't provide guidance specifically, both of them got out of the gate in Q4 and the backlogs are really good. So we're excited there.

On the envelope side, yes. So Canada envelope, I mean, it's a little engine that could.

There's not a lot of direct mail envelope in Canada. So the postal strike doesn't sort of affect as much as a lot of people would expect.

But the Canadian envelope business just chugs along. It got a little growth in average selling price, and it was buoyed by the 2.5 months, 2.25 months of Laurentide in the foundation, a little bit offset by some increased costs early in the acquisition that you sort of have to absorb, but the revenue of Laurentide certainly helped.

And it contributed exactly on pace of what we would have expected given their TTM revenue. On the U.S.

side, the team has done a heck of a job trying to offset and getting growth to try and offset, call it, customer pay, if you will, just to make it easier. And they've done a good job sort of offsetting it and the conversations with customer A are very encouraging.

And as I said in my comments, it's not like we lost the customer. That's an important consideration.

The customer changed some buying habits. Our share of the customer weren't at the same level that they've been previously.

But we continue to do business for them. We continue to execute on their behalf.

We're an important supplier to them, and we continue to be an important supplier. We think we're going to be an even more important supplier next year.

Did I catch them all?

You got them all. I appreciate that.

And then, final one for me, if I may. Just like with the cleaned up balance sheet post sale leaseback, can you just talk a little bit on the M&A pipeline at the moment?

Obviously, I understand that the focus is on the Packaging segment. I'm just curious on priority is Canadian focused or U.S.

focused or if it's -- if you're kind of indifferent between the two?

Yes. So our stated strategy has been we'll look for tuck-in acquisitions either in envelope or packaging, which we did in Q3.

We're not -- we're good at envelope. We're not afraid of envelope.

And if we can shore up absorption in a particular geographic market, we're excited to do that. And we're in and out 3 months bang we're gone.

So they're highly accretive very quickly. So with the balance sheet, we'll continue to look at some good tuck-ins.

It doesn't really matter. It can be envelope for packaging.

And on the packaging side, our stated strategy is predominantly Canada in folding carton, and that persists, then we've got a good solid pipeline.

Thank you, operator. Thanks very much for joining us this morning, folks.

We really appreciate you taking time out, and we look forward to speaking to you again at our next quarterly call. Have a great day.