Redishred Capital Corp. (“Redishred”) Announces Q1-2019 Results

MISSISSAUGA, ON / ACCESSWIRE / May 28, 2019 / Redishred Capital Corp. (TSX-V: KUT)

Quarterly Earnings Call:

9:30am EST, May 30, 2019, Participant call in number is 1-800-319-4610

First Quarter Highlights:

Consolidated Highlights:

  • Consolidated EBITDA for Q1-2019 was $1.6 million CAD, growing 103% over Q1-2018.
  • Q1-2019 consolidated operating income was $1 million CAD, growing 87% over Q1-2018.
  • Consolidated operating income margin for Q1-2019 was 20% growing 300 basis points (“BPS”) over Q1-2018.
  • The Company generated revenue of $5.2 million CAD during Q1-2019, growing 65% over Q1-2018.
  • Over the past 9 months, the Company completed four acquisitions worth $19 million CAD, which have been accretive to operating income and cash flow.

Corporate Locations Highlights:

  • The Company completed the acquisition of the Proshred Kansas and Secure E-Cycle businesses on January 31, 2019, for a total of $11 million CAD. With this acquisition the Company now has 9 corporate locations in the United States.
  • Corporate locations revenue in Q1-2019 grew 80% over Q1-2018 to $4.5 million CAD.
  • Corporate locations EBITDA in Q1-2019 grew 69% over Q1-2018 to $1.7 million CAD.

Capital Management:

  • Redishred utilized $6 million CAD of its new senior credit facility (total facility is $12.8 million CAD)(1). The advance on the $6 million CAD term loan bears interest at a fixed rate of 3.50% with an amortization period of 60 months.

Note 1 – the new senior credit facility is denominated in US dollars and total to $9.5 USD.

Management’s Comments on the Q1 2019

Jeffrey Hasham, the Company’s Chief Executive Officer, noted, “The Company made significant progress on its business plan during the first quarter of 2019. Scheduled system sales on a same location basis grew by 12%. This metric is important as scheduled system sales is a recurring and sustainable cash flow stream for franchisees and Corporate locations. Furthermore, Redishred’s acquired locations have driven operating income on a consolidated basis to $1M in Q1 of 2019 versus $551,000 in Q1 of 2018. The newest acquisitions in New Jersey and Kansas City are performing as expected and Redishred will continue to pursue expansion through franchising and further acquisitions.

In closing, we would like to highlight Redishred’s Shred Cancer events being held on June 1, 2019. These events raise much needed funds for the American Institute for Cancer Research. We look forward to adding to the $150,000 we have raised to date. Our gratitude goes out to our franchisees and employees who contribute to this very worthy cause.”

Financial Highlights:

For the 3 months ended March 31
(in 000’s except as noted)
2019
2018(1)
% change
System Sales Performance – in CAD
Total locations in the United States
30 29 3 %
System sales
$ 14,921 $ 11,392 31 %
Percentage scheduled
47 % 49 %
Consolidated Operating Performance – in CAD
Revenue
$ 5,203 $ 3,154 65 %
EBITDA(2)
$ 1,620 $ 799 103 %
As a percentage of revenue
31 % 25 % 6 %
Operating Income(3)
$ 1,032 $ 551 87 %
As a percentage of revenue
20 % 17 % 3 %
Operating Income per share fully diluted
$ 0.015 $ 0.011 38 %
Corporate Locations Performance – in CAD
Revenue
$ 4,507 $ 2,506 80 %
EBITDA(2)
$ 1,723 $ 1,022 69 %
Operating income(3)
$ 1,212 $ 780 55 %
As a percentage of revenue
27 % 31 % (4 )%

(1) With the adoption of IFRS 15 for the year ended December 31, 2018, the Company has restated the comparative information in accordance with this standard.
(2) EBITDA is determined as revenue less operating costs.
(3) Operating income is determined as revenue less operating costs less depreciation related to tangible assets.

Capital Management – in CAD

As at March 31 and December 31,
2019
2018
% change
Working capital
$ (3,276 ) $ 7,288 (145 )%
Debt to total assets ratio
0.35 0.29 22 %
Normalized Fixed Charge Coverage ratio – rolling 12 months
2.39 1.94 23 %
Normalized Total Funded Debt to EBITDA ratio – rolling 12 months
1.88 1.69 11 %

Redishred acquired the Kansas City location for $11M CAD on January 31, 2019. Subsequent to Q1-2019, the Company secured an additional senior credit facility of $12.8M CAD and drew down $6M CAD to fund the acquisition. The term loan bears interest at a fixed rate of 3.50% with an amortization period of 60 months.

Stronger System Sales driving both Royalty and Corporate Location 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 marketing initiatives designed to capture one-time unscheduled revenue.

During Q1-2019 Redishred’s System Sales growth over Q1-2018 is as follows:

Total System Sales increased by 25% (Same Store 16%)

By Service Type:
Scheduled sales increased by 19% (Same Store 12%)

Unscheduled sales increased by 21% (Same Store 11%)

Recycling sales increased by 47% (Same Store 38%)

By Location Type:
Franchise location sales increased by 18%
(Same Store 18%)

Corporate location sales increased by 80%
(Same Store 10%)

Franchise Operations

The Company’s roots are founded in franchising and at March 31, 2019, the Company supported 21 franchisees through the United States. The franchise system continued to perform very well in Q1-2019 with the following high sales results highlighted:

For the 3 months ended March 31
In USD
2019
2018
% Change
Total same store locations
21 21 0 %
Total same store system sales
$ 7,416,733 $ 6,304,367 18 %
Total same store scheduled service sales
$ 3,521,748 $ 3,098,739 14 %
Total same store unscheduled service sales
$ 2,370,500 $ 2,113,599 12 %
Total same store recycling sales
$ 1,524,484 $ 1,092,029 40 %

Corporate Operations

As of March 31, 2019, the Company operates nine shredding locations in Syracuse, Albany, Milwaukee, New York City, Charlotte, Miami, Northern Virginia, North New Jersey and Kansas. These locations represent the Company’s corporately owned locations.

On January 31, 2019, the Company acquired the Proshred Kansas City and Secure E-Cycle businesses from its franchisee. The results of these acquisitions are included under non-same corporate locations.

The Company adopted IFRS 16 effective January 1, 2019. As a result, the lease rental expense previously included in operating costs has now been replaced with a charge for depreciation of the leased assets and imputed interest. As the Company has not restated the prior year balances, the impact of this accounting change on the operating costs is included in Redishred’s March 31, 2019, Management’s Discussion & Analysis.

In CAD, In 000’s
Total Corporate
Locations
Same Corporate
Locations
Non-same Corporate
Locations
For the 3 months ended March 31,
2019
2018
% Change
2019
2018
% Change
2019
2018
$ $ $ $ $ $d
Revenue:
Shredding service
3,644 2,120 72% 2,366 2,120 12% 1,278
Recycling
863 386 124% 526 386 36% 337
Total revenue
4,507 2,506 80% 2,892 2,506 15% 1,615
Operating costs
2,784 1,484 88% 1,803 1,484 22% 981
EBITDA
1,723 1,022 69% 1,089 1,022 6% 634
% of revenue
38% 41% (3)% 38% 41% (3)% 39%
Depreciation – tangible assets
548 242 126% 333 242 38% 215
Operating income
1,175 780 51% 756 780 (3)% 419
% of revenue
26% 31% (5)% 26% 31% (4)% 26%

Same corporate location operating income margins declined year over year due to the following:

(1) The Company’s revenue mix has shifted towards higher recurring revenue while our unscheduled revenue declined moderately; and

(2) The Company has invested in additional sales human resources with a view to driving increased recurring scheduled revenue.

Corporate Locations Trend:

2019
2018
2017
Q1(1) Q4 Q3 Q2 Q1 Q4 Q3 Q2
Corporate location revenue ($)
4,507,462 3,607,617 2,977,170 2,924,082 2,506,453 2,280,150 2,349,342 2,579,361
Quarter over quarter % change
25 % 21 % 2 % 17 % 10 % (3 )% (9 )% 22 %
Corporate location EBITDA ($)
1,602,650 1,169,290 1,038,069 1,178,971 1,022,647 768,539 952,118 967,171
Quarter over quarter % change
37 % 12 % (12 )% 15 % 33 % (19 )% (2 )% 7 %

(1) The Q1-2019 amounts exclude the IFRS 16 adjustments.

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.

In June 2019, PROSHRED® will hold its 6th 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 prevent cancer and possibly cure this disease. So far, PROSHRED® has raised in excess of $150,000 for this cause. Please visit www.proshred.com/aicr for more information on this effort.

Financial Statements

Redishred’s March 31, 2019 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 nine 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 and uncertainties. A number of factors, including those discussed in the 2018 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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