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RediShred Capital Corp. (“RediShred”) Announces Q2-2017 Results Highlighting Continued Revenue and EBITDA Growth

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Mississauga, Ontario–(Newsfile Corp. – August 25, 2017) – Redishred Capital Corp. (TSXV: KUT)

Second Quarter Highlights – in Canadian Dollars except where noted:

  • The Company earned $3.1 million in revenue during the second quarter of 2017, growing 25% over the second quarter of 2016.

  • The Company generated $975,000 in normalized EBITDA during the three months ended June 30, 2017, growing 42% over the comparative 2016 period.

  • Total system sales (1) in the PROSHRED® system were $8.8 million USD in the second quarter of 2017, growing 16% over the comparative period in 2016. (Same location system sales also grew at 15% in Q2-2017 when compared to Q2-2016).

    • Scheduled (recurring) system sales for the second quarter reached a record of $4 million USD, growing 13% over the second quarter of 2016;

    • Unscheduled system sales for the second quarter reached a record of $3 million USD, growing 7% over the second quarter of 2016 and;

    • Recycling system sales for the second quarter were $1.8 million USD, growing 41% over the second quarter of 2016.

    • The PROSHRED® system shred and recycled 11,900 tons of paper during the second quarter of 2017, an increase of 10% over the second quarter of 2016.

  • Royalties and service fee revenue for the second quarter of 2017 was $522,000, growing 14% over the second quarter of 2016. This category of revenue is generated by franchisees and licensees of the PROSHRED®system, originally denominated in US dollars.

  • Subsequent to quarter-end, on July 28, 2017, the Company secured senior credit facilities from the Bank of Montreal (“BMO”). These facilities include 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. With an improved Balance Sheet, the Company will be able to reduce non-truck interest costs and have the ability to conduct accretive acquisitions.

(1) System sales are revenues generated from franchisees, licensees and corporate owned locations. Redishred Capital Corp. derives its royalty and service fee revenues based on a percentage of system sales from franchisees and licensees. Redishred Capital Corp. derives revenues from corporate location system sales.

Management’s Comments on the Second Quarter of 2017

Jeffrey Hasham, the Company’s CEO, had the following comments, “All of our locations continued to set new sales records, in particular, our scheduled (recurring) service sales continued to grow at a rate of 15%, indicating continued need in the market place for our on-site shredding solutions. Crucially, our sales growth continued to produce strong bottom lines, with Normalized Consolidated EBITDA growing by 42% over 2016. Our same store corporate locations achieved close to 40% EBITDA margin in the 2nd quarter of 2017 and 30% Operating Income margin. Our newest corporate location in Northern Virginia achieved 20% EBITDA margin and 9% Operating Income margin in its first quarter post acquisition. The investments made in supporting our franchisees and corporate locations have been the difference when comparing 2017 to 2016.” Mr. Hasham further noted, “The continued support from our shareholders have allowed us to reach this new milestone and we look forward to attaining new milestones and continuing to improve our performance going forward.”

Financial Highlights:

For the three months ended June 30 For the six months ended June 30
(in 000’s except as noted) 2017 2016 % change 2017 2016 % change
System Sales Performance — in USD
Total locations in the United States 29 28 4% 29 28 7%
System sales $8,773 $7,580 16% $17,193 $14,446 19%
Percentage scheduled 46% 47% 46% 48%
System sales — same location $8,721 $7,553 15% $17,072 $14,420 18%
Percentage scheduled 46% 47% 47% 48%

Operating Performance — in
CAD
Consolidated results:
Revenue $3,102 $2,476 25% $5,736 $4,824 19%
EBITDA(1) $699 $688 2% $1,506 $1,370 10%
One-time costs(2) $276 (100)% $276 (100)%
Normalized EBITDA $975 $688 42% $1,783 $1,370 30%
Operating Income(3) $434 $549 (21)% $1,054 $1,087 (3)%
Normalized operating income $710 $549 29% $1,331 $1,087 22%
As a percentage of revenue 23% 22% 23% 23%
Normalized Operating Income per share fully diluted(4) $0.015 $0.019 (21)% $0.029 $0.037 (21)%
Corporate location results:
Revenue $2,579 $1,843 40% $4,685 $3,735 25%
EBITDA(1) $967 $688 41% $1,873 $1,385 35%
Operating income(3) $703 $549 28% $1,537 $1,102 39%
As a percentage of revenue 30% 30% 33% 30%
(1) EBITDA is determined as revenue less operating costs.
(2) Excludes a one-time cost related to stock based compensation expense for the issuance of options to members of the Board of Directors and senior management.
(3) Operating income is determined as revenue less operating costs less depreciation related to the tangible assets.
(4) 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.

Capital Management:

As at June 30 and December 31, 2017 2016 % change
Working capital (Normalized)(1) $958 $116 272%
Debt to total assets ratio 0.49 0.95 47%
Normalized Fixed Charge Coverage ratio — rolling 12 months(2) 1.90 1.18 61%
Normalized Total Funded Debt to EBITDA ratio — rolling 12 months(2) 1.59 3.39 50%
(1) 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.
(2) The normalized ratios are calculated using normalized EBITDA and does not include one-time costs.

Stronger System Sales driving both Royalty and Corporate Location Revenue

System Sales: Redishred achieved 19% growth in total system sales during the first half of 2017 versus the first half of 2016. 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 investin marketing initiatives designed to capture one-time unscheduled revenue. During the six months ended June 30, 2017, service revenue grew by 13% over the same comparative period in 2016. Additionally, paper prices increased on average by 35% with paper tonnage increasing by 10% over the first half of 2016. This resulted in recycling revenue growth of 54%.

Royalties: As a result of the increase in system sales, royalty revenues grew by 15% in the first half of 2017 over the first half of 2016.

Corporate Locations: The corporate location revenues and EBITDA grew by 25% and 35%, respectively, during the first half of 2017 versus the first half of 2016. Same store corporate location revenues and EBITDA grew by 16% and 34%, respectively, during the six months ended June 30, 2017 over the same prior year period.

Corporate Location Investments and Centralization Plan — creating a scalable platform

During the six months ended June 30, 2017, corporate location EBITDA has grown 35% over the same comparative prior year period and operating income has grown by 39%. The Company’s investments in the later part of 2016 and early into 2017 have allowed the Company to grow both its’ sales and operating income in 2017. These investments included:

(1) enhancing corporate location management;
(2) centralizing inside sales functions, invoicing and accounts receivables; and
(3) purchasing new shredding trucks and refurbishing older trucks.

The Company’s centralization program was completed in the first half of 2017.

Debt Reduction and Improving Balance Sheet

Over the last three years, the Company has reduced the amount owing on its line of credit by $3.75 million. As a result of this, the Company’s rolling twelve-month total funded debt to EBITDA ratio has decreased by 53% since December 31, 2016. As at June 30, 2017, the Company’s normalized working capital has improved by $842,000 since December 31, 2016. Management will continue to balance investment in human resources, trucks and technology with continued management of its debt balances.

Subsequent to quarter-end, on July 28, 2017, the Company secured senior credit facilities from Bank of Montreal (“BMO”). These facilities include:

(1) An operating demand loan of $1 million bearing interest at BMO’s prime rate plus 1.7% and;
(2) A non-revolving term loan in the amount of $3 million with an amortization of 60 months from the date of drawdown, bearing interest at BMO’s prime rate plus 2.0%.

The Company used $2 million of the BMO term loan to repay in full the outstanding balance on the pre-existing related party line of credit.

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 the three months ended June 30, 2017, the total corporate location revenues grew by 40% over the prior comparative period. The Company also increased EBITDA and operating income by 41% and 28%, respectively, over the 2nd quarter of 2016. Same store locations grew sales by 21% and EBITDA by 30% in Q2-2017 over Q2-2016.

(In 000’s) Total Corporate
Locations
Same Corporate
Locations
Non-same Corporate
Locations
For the 3 months ended June 30, 2017 2016 % Change 2017 2016 % Change 2017 2016
Revenue: $ $ $ $ $ $
Shredding service 2,147 1,588 35% 1,877 1,588 18% 270
Recycling 432 255 69% 359 255 41% 73
Total revenue 2,579 1,843 40% 2,236 1,843 21% 343
Operating costs 1,612 1,155 40% 1,339 1,155 16% 273
EBITDA 967 688 41% 897 688 30% 70
% of revenue 37% 37% 0% 40% 37% 3% 20%
Depreciation – equipment 264 139 90% 226 139 63% 38
Corporate operating income 703 549 28% 671 549 22% 32
% of revenue 27% 30% (3)% 30% 30% 0% 9%

Corporate Locations Trend:

2017 2016 2015
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
Corporate location revenue ($) 2,579,361 2,106,123 1,876,057 1,870,736 1,842,693 1,892,024 1,549,379 1,554,557
Quarter over quarter % change 22% 12% 0% 1% (3)% 22% (1)% 7%
Corporate location EBITDA ($) 967,171 905,789 514,917 707,997 688,142 696,514 676,130 646,108
Quarter over quarter % change 7% 76% (27)% 3% (1)% 3% 5% (5)%

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 3, 2017, PROSHRED® held its’ 4th 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 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 $100,000 for this cause. Please visit www.proshred.com/aicr for more information on this effort.

Financial Statements

Redishred’s June 30, 2017 Financial Statements, Notes and Management’s Discussion and Analysis will be available at www.sedar.com and www.redishred.com.

Services

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 9001:2008 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 six 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 2016 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.