MISSISSAUGA, ON / ACCESSWIRE / November 26, 2020 / Redishred Capital Corp. (TSXV:KUT)
Quarterly Earnings Call:
8:30am EST, November 27, 2020, Participant call in number is 1-800-319-4610
Third Quarter Highlights:
Consolidated Highlights:
- The Company generated revenue of $6.7 million CAD during Q3-2020, growing 25% versus Q3-2019.
- Consolidated EBITDA for Q3-2020 was $1.9 million CAD, growing 65% versus Q3-2019.
- Consolidated EBITDA margin for Q3-2020 was 28%, a 700 basis points improvement versus Q3-2019, not including government assistance.
- The growth in consolidated EBITDA was driven by the acquisitions conducted in Connecticut and Chicago over the last 12 months.
Corporate Locations Highlights:
- Corporate location revenue in Q3-2020 grew 31% versus Q3-2019 to $6.1 million CAD.
- Corporate location EBITDA in Q3-2020 grew 47% versus Q3-2019 to $2.1 million CAD.
- Same corporate location EBITDA was flat in Q3-2020 versus Q3-2019, despite the impacts of COVID-19. Same corporate location EBITDA margin improved by 200 basis points to 33% in Q3-2020 versus Q3-2019.
- Total corporate location EBITDA margin was 35% in Q3-2020, a 400 basis points improvement versus Q3-2019.
Capital Management:
- The Company strengthened its balance sheet, with $9 million CAD in cash at September 30, 2020.
- The Company increased its cash balance by $141,000 in Q3-2020 over the prior quarter.
- During the third quarter, the Company repaid $1 million CAD on one of its term loans, extinguishing the Company's most costly term loan instrument before its due date.
- The Company ended the quarter with debt to total assets of 43%, a 200 basis points improvement from June 30, 2020.
Management's Comments on Q3 2020
Jeffrey Hasham, the Company's Chief Executive Officer, noted "The third quarter continued the steady progression of recovery that commenced in June of 2020. As the economy re-opened in June of 2020 and into the summer of 2020, the Company was prepared to seize the opportunity, by increased marketing leading to improved unscheduled shredding revenue, including more work in the residential market. Additionally, throughout the summer, the Company brought back furloughed sales employees to assist with new scheduled clients and our clients that continue to work remotely. This enabled the entire system to grow its unscheduled system sales versus Q3-2019 by 4% and our scheduled system sales saw a 9% decrease. More critically, the frontline team continued to visit our clients each day, and they did it safely and diligently, resulting in our ability to service clients quickly, and respond to last minute orders, resulting in corporate locations achieving stronger EBITDA margins versus Q3-2019."
Mr. Hasham further noted that "I am forever grateful for the dedications the entire team made during the last six months during the pandemic. The entire Redishred team has performed above and beyond expectations for the Company - they have deferred wages, initially worked fewer hours, and throughout, have provided safe service to our valued customers. I would like to take this moment to thank all of our employees, franchisees, management and board members for their unwavering support and contributions during these unprecedented times. We remain focused on doing the right things every day to drive a better tomorrow for Redishred."
Financial Highlights:
Three months ended September 30, | Nine months ended September 30, | ||||||
| 2020 | 2019 | Change(2) | 2020 | 2019 | Change(2) | ||
System Sales Performance - in USD, in $000's | |||||||
Total locations in the United States | 30 | 30 | 0% | 30 | 30 | 0% | |
Total system sales(1) | $10,694 | $10,954 | (2)% | $30,409 | $33,844 | (10)% | |
% of scheduled sales | 48% | 52% | 50% | 49% | |||
Consolidated Operating Performance, in CAD, in $000's | |||||||
Revenue | $6,665 | $5,353 | 25% | $19,293 | $16,125 | 20% | |
EBITDA | $1,866 | $1,129 | 65% | $4,790 | $4,440 | 8% | |
% of revenue | 28% | 21% | 700 bps | 25% | 28% | (300) bps | |
Operating income | $938 | $441 | 112% | $2,025 | $2,523 | (20)% | |
% of revenue | 14% | 8% | 600 bps | 10% | 16% | (600) bps | |
Operating income per weighted average share fully diluted | $0.012 | $0.006 | 100% | $0.026 | $0.036 | (28)% | |
Government assistance not included in above(3) | $494 | - | 100% | $1,757 | - | 100% | |
Corporate Location Performance, in CAD, in $000's | |||||||
Revenue | $6,093 | $4,662 | 31% | $17,630 | $14,002 | 26% | |
EBITDA | $2,103 | $1,432 | 47% | $5,631 | $4,859 | 16% | |
% of revenue | 35% | 31% | 400 bps | 32% | 35% | (300) bps | |
Operating income | $1,199 | $801 | 50% | $2,938 | $3,067 | (4)% | |
% of revenue | 20% | 17% | 300 bps | 17% | 22% | (500) bps | |
Operating income less recycling | $503 | $340 | 48% | $894 | $1,066 | (16)% | |
Capital Management:
| As of September 30 and December 31, | 2020 | 2019 | Change(2) | |
| In CAD, in $000's | ||||
Working capital | $3,543 | $4,432 | (20)% | |
Debt to total assets ratio | 0.43 | 0.44 | 2% | |
Normalized Fixed Charge Coverage ratio - rolling 12 months | 1.29 | 2.39 | (46)% | |
Normalized Total Funded Debt to EBITDA ratio - rolling 12 months | 3.29 | 2.94 | (12)% |
(1) Same location system sales were not materially different than total system sales.
(2) Change expressed as a percentage or basis point ("bps").
(3) The Company qualified for the Paycheck Protection Program loan ("PPP") in the United States which has been made available to eligible US businesses that have been affected by the COVD-19 pandemic. Based on preliminary calculations of the loan forgiveness, the Company believes that the entire PPP loan will be forgiven.
System Sales Recovery
Shredding system sales grew 28% in Q3-2020 versus Q2-2020 as COVID-19 restrictions eased across the United States and an increased number of customers returned to offices and recommenced service.
The Company also saw 4% growth in unscheduled sales in Q3-2020 versus Q3-2019, driven by pent up demand in many re-opened offices plus the targeting of residential clients. For the scheduled system sales category, many larger non-essential clients continue to provide work from home options to their employees which negatively impacted scheduled system sales, declining by 9% versus Q3-2019. Overall, total shredding system sales declined by 4% in Q3-2020 over Q3-2019.
The average paper price in the Proshred system increased 16% in Q3-2020 versus Q3-2019 which led to growth of 7% in recycling sales despite a decline in paper tonnage collected.
Growth in Consolidated EBITDA and Operating Income Despite the COVID-19 Pandemic
The Company achieved 65% and 113% growth in consolidated EBITDA and operating income in Q3-2020 as compared to Q3-2019 as a result of the acquisitions conducted in the last 12 months. Selling, general and administrative expenses were positively impacted by the implementation of cost reduction initiatives completed in the second quarter of 2020 which led to a 19% reduction in Q3-2020 as compared to Q3-2019. In addition to the double-digit growth in consolidated EBITDA and operating income, the Company received $1.76M from the PPP in the United States during Q2-2020.
Improved Same Corporate Location EBITDA and Operating Income Margins
The Company achieved same corporate location EBITDA margin of 33% during the quarter, growing 200 basis points over Q3-2019. The Company also achieved same corporate location operating income margin of 19% during the quarter, growing 200 basis points over Q3-2019. Despite the negative impacts of COVID-19 on corporate location sales, the Company managed its routes and related sales, marketing and support costs that resulted in the improvement in margins.
Franchise Operations
As at September 30, 2020, the Company supported 19 franchisees across the United States. The franchise system's high-level sales results are as follows:
For the 3 months ended September 30 | |||
In USD, In $000's | 2020 | 2019 | % Change |
Total same locations | 19 | 19 | 0% |
Total same location system sales | $5,732 | $5,772 | (1)% |
Total same location scheduled service sales | $2,977 | $3,143 | (5)% |
Total same location unscheduled service sales | $2,039 | $2,020 | 1% |
Total same location recycling sales | $715 | $609 | 17% |
Corporate Locations
As of September 30, 2020, the Company operates eleven locations in Syracuse, Albany, Milwaukee, New York City, Charlotte, Miami, Northern Virginia, North New Jersey, Kansas, Chicago and Connecticut.
As a result of the acquisitions completed over the last 12 months, total corporate location revenues grew by 31% in Q3-2020 versus Q3-2019, despite the negative impacts related to the COVID-19 Pandemic. Total EBITDA grew 47% in Q3-2020 versus Q3-2019 with an improvement in EBITDA margin of 400 basis points. The corporate locations continued to optimize routes through the use of new routing software implemented in late 2019 along with agile marketing programs that allowed for the capture of more unscheduled revenue, coupled with continued execution of cost containment programs.
Same corporate location shredding revenue was negatively impacted by COVID-19 resulting in a 10% decline in Q3-2020 versus Q3-2019. However, the Company reduced costs and curtailed all discretionary expenditures resulting in same corporate location EBITDA for Q3-2020 to be $40,000 less than the result achieved in Q3-2019. Same corporate location EBITDA margin improved by 200 basis points in Q3-2020 as compared to Q3-2019.
In CAD, in $000's | Total Corporate Locations | Same Corporate Locations | Non-same Corporate Locations | |||||
For the three months ended September 30, | 2020 | 2019 | % Change | 2020 | 2019 | % Change | 2020 | 2019 |
$ | $ | $ | $ | $ | $ | |||
Revenue: | ||||||||
Shredding sales | 5,397 | 4,200 | 29% | 3,762 | 4,200 | (10)% | 1,635 | - |
Recycling sales | 696 | 461 | 51% | 438 | 461 | (5)% | 258 | - |
Total sales | 6,093 | 4,661 | 31% | 4,200 | 4,661 | (10)% | 1,893 | - |
Operating costs (note 1) | 3,991 | 3,229 | (24)% | 2,804 | 3,229 | 13% | 1,187 | - |
EBITDA | 2,102 | 1,432 | 47% | 1,396 | 1,432 | (3)% | 706 | - |
% of revenue | 35% | 31% | 400 bps | 33% | 31% | 200 bps | 37% | - |
Depreciation - tangible assets | 904 | 631 | (43)% | 612 | 631 | 3% | 292 | - |
Operating income | 1,198 | 801 | 50% | 784 | 801 | 2% | 414 | - |
% of revenue | 20% | 17% | 300 bps | 19% | 17% | 200 bps | 22% | - |
Operating income less recycling | 503 | 340 | 48% | 347 | 340 | 2% | 156 | - |
% of revenue | 9% | 8% | 100 bps | 9% | 8% | 100 bps | 10% | |
EBITDA - in USD | 1,583 | 1,077 | 47% | 1,051 | 1,077 | (2)% | 532 | - |
% of revenue | 34% | 31% | 300 bps | 33% | 31% | 200 bps | 37% | |
Note 1: During Q3-2020, acquisition/vendor-related consulting fees of $34,290 are included in the total and non-same operating costs.
Corporate Locations Trend:
2020 | 2019 | 2018 | |||||||
In CAD, in $000's | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 |
Revenue ($) | 6,093 | 5,532 | 6,003 | 5,734 | 4,661 | 4,833 | 4,507 | 3,608 | 2,978 |
Quarter over quarter % change | 10% | (8)% | 5% | 23% | (4)% | 7% | 25% | 21% | 2% |
EBITDA ($) | 2,102 | 1,744 | 1,782 | 1,376 | 1,432 | 1,704 | 1,723 | 1,170 | 1,038 |
Quarter over quarter % change | 21% | (2)% | 30% | (4)% | (16)% | (1)% | 47% | 12% | (12)% |
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. Our annual national Shred Cancer event was held in the fall of 2020. These events are held to raise research funds for the American Institute for Cancer Research ("AICR"). It is our goal as a Company and Franchise System to support AICR in their endeavor to prevent cancer and possibly cure this disease. So far, PROSHRED® has raised almost USD$200,000 for this cause. Please visit www.proshred.com/aicr for more information on this effort.
Financial Statements
Redishred's September 30, 2020 Financial Statements, Notes and Management's Discussion and Analysis will be available at www.sedar.com and www.redishred.com.
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 eleven 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. (TSX.V - 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. (TSX.V - 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, uncertainties and other factors including risks and uncertainties relating to the COVID-19 pandemic. A number of factors, including those discussed in the 2019 and Q3-2020 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.
SOURCE: Redishred Capital Corp.
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