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Redishred Capital Corp. ("Redishred") Announces Q4-2017 Results Highlighting Revenue and EBITDA Growth
April 18, 2018 9:16 AM EDT | Source: RediShred Capital Corp.
Mississauga, Ontario--(Newsfile Corp. - April 18, 2018) - Redishred Capital Corp. (TSXV: KUT)
Quarterly Earnings Call:
4:30pm EST, April 18, 2018, Participant call in number is 1-800-319-4610.
Annual Highlights:
Total system sales (the revenues produced by all franchise, license and corporate locations) increased 15% to $34 million USD in 2017, compared to 2016. (Of the $34 million USD, $16.2 million USD or 48% was recurring revenue).
The Company generated $11.3 million CDN in revenue during 2017, growing 18% over 2016.
2017 EBITDA was $2.9 million CDN, growing 22% over 2016 (normalized EBITDA was $3.2 million CDN, growing 26%).
Operating income for 2017 was $1.9 million CDN, growing 9% over 2016 (normalized operating income was $2.2 million CDN, growing 15%).
On January 23, 2017, Redishred closed its private placements and debt conversions, raising $4.03 million in cash before transaction costs. The Company also converted $1 million of debt into equity held by insiders of the Company.
In February 2017, the Company made a discretionary $3 million repayment on its line of credit, further enhancing the Balance Sheet.
On March 31, 2017, the Company purchased the Northern Virginia Proshred business from a retiring franchisee, marking the Company's 7th corporately operated location.
On July 28, 2017, Redishred secured senior credit facilities including an operating demand loan of $1 million and a non-revolving term in the amount of $3 million. The Company used $2 million of the BMO term loan to repay, in full, the outstanding balance on the Company's related party line of credit.
The improved Balance Sheet allows the Company to reduce non-truck related debt service and provides the resources required to conduct accretive acquisitions.
The Company reduced its interest costs by 53% in 2017 over 2016.
On September 30, 2017, the Company expanded its location footprint to include Buffalo and Rochester, NY. The Company conducted an acquisition of a small book of business in the Buffalo, NY market to anchor the expansion. Syracuse, NY will continue to serve as the Operational base for the Company's Up-State New York locations, which now totals four markets.
Fourth Quarter Highlights:
Total system sales (the revenues produced by all franchise, license and corporate locations) increased 6% to $8.1 million USD in Q4 2017, compared to Q4 2016.
The Company generated $2.8 million in revenue in Q4 of 2017, growing 17% over Q4 of 2016.
Q4 2017 EBITDA was $535,000, growing 92% over Q4 2016.
Management's Comments on Fiscal Year 2017
Jeffrey Hasham, the Company's CEO, had the following comments, "The Proshred system continued to set new records in the all-important Scheduled system sales category. This Scheduled system sales category provides our Franchisees and the Company with a more predictable source of revenue and cash flows than the Unscheduled and Recycling System Sales category. The Company will continue to focus its investments in sales resources, marketing resources and technology with the view to enhancing our recurring Scheduled client base. It is our view that our continued commitment to the on-site shredding method continues to resonate with our target market of small and medium size enterprises. The focus on scheduled and recurring revenues coupled with an emphasis on finding efficiency has led us to double digit growth on the EBITDA line. These strong results are the culmination of the efforts of our entire system." Mr. Hasham further commented that "In 2017 we embarked on the implementation of a new CRM and Workflow Management software system and process. The goal of this investment is to reduce time spent on data entry and allow for better communication with our clients. This investment will help our franchisees remain focused on building their scheduled revenue stream. This initiative was a collaboration with many of our franchisees, and we are appreciative of their contributions to the greater system. In closing, I would like to thank our dedicated Franchisees, Employees and our Shareholders for their efforts and support. We look forward to attaining new milestones and continuing to improve our performance going forward."
Financial Highlights:
| | For the 3 months ended December 31 | For the 12 months ended December 31 | |||||
| (in 000's, in CDN) | 2017 | 2016(5) | % change | 2017 | 2016(5) | % change | |
| Operating Performance | | | | | | | |
| | | | | | | | |
| Consolidated results: | | | | | | | |
| Revenue | $2,766 | $2,357 | 17% | $11,336 | $9,599 | 18% | |
| EBITDA(1) | $535 | $279 | 92% | $2,906 | $2,389 | 22% | |
| Normalized EBITDA(2) | $535 | $427 | 25% | $3,182 | $2,530 | 26% | |
| Operating Income(3) | $273 | $130 | 110% | $1,936 | $1,775 | 9% | |
| Normalized operating income | $273 | $256 | 7% | $2,213 | $1,916 | 15% | |
| As a percentage of revenue | 10% | 11% | | 20% | 20% | | |
| Normalized Operating Income per share fully diluted(4) | $0.01 | $0.01 | 0% | $0.05 | $0.06 | (17)% | |
| | | | | | | | |
| Corporate location results: | | | | | | | |
| | | | | | | | |
| Revenue | $2,280 | $1,876 | 22% | $9,315 | $7,481 | 24% | |
| EBITDA(1) | $768 | $515 | 49% | $3,594 | $2,608 | 38% | |
| Operating income(3) | $522 | $353 | 48% | $2,650 | $2,004 | 32% | |
| As a percentage of revenue | 23% | 19% | | 28% | 27% | | |
- EBITDA is determined as revenue less operating costs.
- Excludes a one-time cost related to the issuance of options relating to the equity financing conducted in the first quarter of 2017.
- Operating income is determined as revenue less operating costs less depreciation related to the tangible assets.
- The Company issued 17,962,929 common shares on January 23, 2017 through an equity raise for a total of $4.03 million. The Company made a discretionary $3 million repayment on its line of credit in February, improving the Company's Balance Sheet.
- Certain amounts have been reclassified to conform to the current period's presentation.
Stronger System Sales driving Revenue
System sales increased due to the Company's continued focus on providing recurring scheduled service to small and medium sized enterprise clients. In addition, the Company continued to invest in sales and marketing initiatives designed to capture scheduled revenue as well as one-time unscheduled revenue.
| | For the 3 months ended December 31 | For the 12 months ended December 31 | |||||
| (in 000's, in USD) | 2017 | 2016 | % change | 2017 | 2016 | % change | |
| | | | | | | | |
| Total locations in the United States | 29 | 29 | 0% | 29 | 29 | 0% | |
| System sales | $8,145 | $7,719 | 6% | $34,070 | $29,673 | 15% | |
| Percentage scheduled | 51% | 49% | | 48% | 48% | | |
Capital Management:
| As at December 31, | 2017 | 2016 | % change |
| | | | |
| Working capital (Normalized)(1) | $1,411 | $116 | 1120% |
| Debt to total assets ratio | 0.42 | 0.95 | 56% |
| Normalized Fixed Charge Coverage ratio — rolling 12 months(2) | 2.30 | 1.18 | 95% |
| Normalized Total Funded Debt to EBITDA ratio — rolling 12 months(2) | 1.28 | 3.39 | 62% |
- As at December 31, 2016, working capital has been increased by $4.5M for this calculation as the Line of Credit that was due to expire on November 27, 2017 was extended by 2 years shortly after year end. Under IFRS the Line of Credit was fully classified as current.
- The normalized ratios are calculated using normalized EBITDA and does not include one-time costs.
Debt Reduction, Equity Raise and Improving Balance Sheet
Over the last three years, the Company has repaid in full its related party line of credit of $6 million. As a result of this, the Company's rolling twelve-month total funded debt to EBITDA ratio has decreased by 62% since December 31, 2016. As at December 31, 2017, the Company's normalized working capital has improved by $1.3 million since December 31, 2016. Management will continue to balance investment in human resources, trucks and technology with continued management of its debt balances.
Franchise Operations
The Company's roots are founded in Franchising and at December 31, 2017, the Company supported 22 Franchisees across the United States. The Franchise system continued to perform well in 2017 with the following high level Sales results (Note: same location sales represent 99.4% of Total Sales):
| For the year ended December 31,(In 000's, in USD) | 2017 | 2016 | % Change |
| | | | |
| Total locations | 22 | 22 | |
| | | | |
| Total system sales (USD) | $26,325,089 | $22,506,586 | 17% |
| | | | |
| Total scheduled service sales (USD) | $12,591,568 | $10,540,247 | 19% |
| | | | |
| Total unscheduled service sales (USD) | $8,567,817 | $7,920,857 | 8% |
| | | | |
| Total recycling sales (USD) | $5,165,704 | $4,045,481 | 28% |
Corporate Operations
The Company operates seven shredding locations in Syracuse, Albany, Milwaukee, New York City, Charlotte, Miami and Northern Virginia. These locations represent the Company's corporately owned locations. The Company purchased the Northern Virginia franchise from a retiring franchisee on March 31, 2017.
During 2017, the total corporate location revenues grew by 24% over 2016. The Company also increased EBITDA and operating income by 38% and 32%, respectively, over 2016. Non-same corporate location results include the Northern Virginia results for the nine months ended December 31, 2017 (April 1, 2017 — December 31, 2017). Included in operating costs below is a non-recurring consulting fee of $65,000 paid in Northern Virginia.
Annual corporate operation results
| (In CDN, In 000's) | Total Corporate Locations | Same Corporate Locations | Non-same Corporate Locations | ||||||||||||||
| For the years ended December 31, | 2017 | 2016 | % Change | 2017 | 2016 | % Change | 2017 | 2016 | |||||||||
| | $ | $ | | $ | $ | | $ | $ | |||||||||
| Revenue: | | | | | | | | | |||||||||
| Shredding service | 7,826 | 6,421 | 22% | 7,031 | 6,421 | 10% | 795 | - | |||||||||
| Recycling | 1,489 | 1,061 | 40% | 1,302 | 1,061 | 23% | 187 | - | |||||||||
| Total revenue | 9,315 | 7,482 | 24% | 8,333 | 7,482 | 11% | 982 | - | |||||||||
| | | | | | | | | | |||||||||
| Operating costs | 5,721 | 4,874 | 17% | 4,979 | 4,874 | 2% | 742 | - | |||||||||
| EBITDA | 3,594 | 2,608 | 38% | 3,354 | 2,608 | 29% | 240 | - | |||||||||
| % of revenue | 39% | 35% | 4% | 40% | 35% | 5% | 24% | - | |||||||||
| | | | | | | | | | |||||||||
| Depreciation — tangible assets | 944 | 604 | 56% | 834 | 604 | 38% | 110 | - | |||||||||
| | | | | | | | | | |||||||||
| Corporate operating income | 2,650 | 2,004 | 32% | 2,520 | 2,004 | 26% | 130 | - | |||||||||
| % of revenue | 28% | 27% | 1% | 30% | 27% | 3% | 13% | - | |||||||||
| | | | | | | | | | |||||||||
Q4 corporate operation results
| (In CDN, In 000's) | Total Corporate Locations | Same Corporate Locations | Non-same Corporate Locations | |||||
| For the 3 months ended December 31, | 2017 | 2016 | % Change | 2017 | 2016 | % Change | 2017 | 2016 |
| | $ | $ | | $ | $ | | $ | $ |
| Revenue: | | | | | | | | |
| Shredding service | 1,955 | 1,604 | 22% | 1,694 | 1,604 | 6% | 261 | - |
| Recycling | 325 | 272 | 19% | 276 | 272 | 1% | 49 | - |
| Total revenue | 2,280 | 1,876 | 22% | 1,970 | 1,876 | 5% | 310 | - |
| | | | | | | | | |
| Operating costs | 1,512 | 1,361 | 11% | 1,271 | 1,361 | 7% | 241 | - |
| EBITDA | 768 | 515 | 49% | 698 | 515 | 36% | 71 | - |
| % of revenue | 34% | 27% | 7% | 35% | 27% | 8% | 23% | - |
| | | | | | | | | |
| Depreciation — tangible assets | 246 | 162 | 53% | 210 | 162 | 30% | 36 | - |
| | | | | | | | | |
| Corporate operating income | 522 | 353 | 48% | 488 | 353 | 38% | 34 | - |
| % of revenue | 23% | 19% | 4% | 25% | 19% | 6% | 11% | - |
| | | | | | | | | |
Corporate Locations Trend:
| | 2017 | 2016 | ||||||
| | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
| Corporate location revenue ($) | 2,280,150 | 2,349,342 | 2,579,361 | 2,106,123 | 1,876,057 | 1,870,736 | 1,842,693 | 1,892,024 |
| Quarter over quarter % change | (3)% | (9)% | 22% | 12% | 0% | 2% | (3)% | 22% |
| Corporate location EBITDA ($) | 768,539 | 952,118 | 967,171 | 905,789 | 514,917 | 707,997 | 688,142 | 696,514 |
| Quarter over quarter % change | (19)% | (2)% | 7% | 76% | (27)% | 3% | (1)% | 10% |
Community and Social Commitment
Our locations under the PROSHRED® banner conduct many community shredding events. These events provide an opportunity for our clients, clients' employees, local businesses and local residents to ensure their personal and confidential materials are securely destroyed. In addition to helping to reduce identity theft, several of these events allow for donations to various not-for-profit organizations. PROSHRED® is also proud that 100% of the shredded material is recycled, as our continued goal is to foster the use of fewer trees in the production of all paper products. Future community shredding event locations can be found at our website, www.proshred.com.
On June 2, 2018, PROSHRED® will hold its' 5th annual Shred Cancer event at most of its locations, raising money for the American Institute for Cancer Research ("AICR"). It is our goal as a Company and Franchise System to support the AICR in their endeavor to conduct research to prevent and possibly cure this disease. So far, PROSHRED® has raised in excess of $125,000 for this cause. Please visit www.proshred.com/aicr for more information on this effort.
Financial Statements
Redishred's December 31, 2017 Financial Statements, Notes and Management's Discussion and Analysis will be available at www.sedar.com and www.redishred.com.
Recent Items
On April 2, 2018, the Company completed the acquisition of Shred Con's business assets, located in Up-State New York, for a total purchase price of $530,000USD. The asset acquisition includes client relationships, two on-site paper shredding trucks, and other equipment. Redishred views this acquisition as accretive to cash flows and earnings per share. The acquisition was financed by utilizing the Company's cash reserves as well as a vendor take back. On April 16, 2018, the Company granted 300,500 stock options to key management. The stock options were granted at a price of $0.61 with a life of five years, expiring on April 15, 2023.
About Redishred
Redishred Capital Corp. is the owner of the PROSHRED® trademarks and intellectual property in the United States. PROSHRED® shreds and recycles confidential documents and proprietary materials for thousands of customers in the United States in all industry sectors. PROSHRED® is a pioneer in the mobile document destruction and recycling industry and has the ISO 9001:2015 certification. It is PROSHRED®'s vision to be the 'system of choice' and provide shredding and recycling services on a global basis. Redishred Capital Corp. grants PROSHRED® franchise businesses in the United States and by way of license arrangement in the Middle East. Redishred Capital Corp. also operates seven corporate shredding businesses directly. The Company's plan is to grow its business by way of both franchising and the acquisition and operation of document destruction businesses that generate stable and recurring cash flow through a scheduled client base, continuous paper recycling and concurrent unscheduled shredding service.
FOR FURTHER INFORMATION PLEASE CONTACT:
Redishred Capital Corp. (TSXV: KUT)
Jeffrey Hasham, MBA, CPA, CA
Chief Executive Officer
Jeffrey.hasham@redishred.com
www.redishred.com
Phone: (416) 849-3469
Fax: (905) 812-9448
or,
Redishred Capital Corp. (TSXV: KUT)
Kasia Pawluk, CPA, CA
Chief Financial Officer
kasia.pawluk@redishred.com
www.redishred.com
Phone: (416) 204-0076
Fax: (905) 812-9448
Note: Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
This news release contains forward looking statements that reflect the current expectations of management of Redishred and Redishred's future results, performance, achievements, prospects and opportunities. Wherever possible, words such as "may", "will", "estimate", "believe", "expect", "intend" and similar expressions have been used to identify these forward looking statements. These statements reflect current beliefs and are based on information currently available to management of Redishred. Forward looking statements necessarily involve known and unknown risks and uncertainties. A number of factors, including those discussed in the 2017 management discussion and analysis under "Risk Factors", could cause actual results, performance, achievements, prospects or opportunities to differ materially from the results discussed or implied in the forward looking statements. These factors should be considered carefully and a reader should not place undue reliance on the forward looking statements. There can be no assurance that the expectations of management of Redishred will prove to be correct. Readers are cautioned that such forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from these statements. Redishred can give no assurance that actual results will be consistent with these forward-looking statements.