© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you for standing by. This is the conference operator. Welcome to the RediShred Capital Corp. First Quarter 2023 Financial Results and Business Update Conference Call. [Operator Instructions] and the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Jeffrey Hasham, Chief Executive Officer. Please go ahead.
Thank you, [ Arial ]. I appreciate it. Good morning, everyone on this Monday -- late Monday in May for those of you who are in Toronto, probably enjoying some great weather finally. I want to welcome everyone to our Q1 2023 investor call. I'm joined by Harjit Brar, who's our CFO, and we'll be reviewing the results. And of course, as always, we'll have the Q&A session at the end. Also note, our financials, MD&A, press release were issued last week on Thursday. And if you haven't done so, we encourage everyone to take a good read through them. It's interesting stuff in there, for sure.Q1 2023, so I would say we were pleased with the results for a number of reasons. First of all, both sales and EBITDA dollars grew double-digits. When we look back to the first quarter of last year, consolidated revenue was 36% and EBITDA 17%. We'll talk a little bit about margins in a moment. The growth was driven a lot from organic. So a lot from our same corporate locations performed well. And of course, we had 2 acquisitions on the books, including -- that were non-fame, including our PROSHRED Philadelphia franchise in November of 2022. And then last year, we also, at this time, conducted the SDD acquisition as well.On pipeline, we didn't do any deals in the first quarter of 2023. I'm sure my team is all going -- I mean, there -- may be at the last half of the year we're going to have more deals, hopefully, and the pipeline is good and remains strong and we've got a good mix of small, medium and large-sized acquisitions. So while we didn't conclude any deals in the first quarter, we were quite busy, and we'll continue to work on our 3-pronged approach to growth. And of course, 2 of those prongs are organic, same location, and, of course, through acquisitions. So we'll work that through, and we at the balance sheet -- [ I won't still ] -- Harjit underlay the balance sheet to continue to execute on our game plan there.As we look at organic and that sort of core shredding revenue results, 25%. So again, we were happy with seeing that growth on the shred side. And of course, the UA side was with solid growth as well.On our PROSCAN business, we were down versus last year, and this is more dependent on large contracts and these large contracts can initiate at varying times. And I will make a note that our pipeline is good, and we anticipate a rebound in that business, a little more of a chunky business. And so our view is that, that's moving along well, and we're going to be seeing better things from that business line.On the recycling sales, again, we had a good quarter there. And of course, that's 2 things. That's the price side, the PE and the tonnage, which is the queue. We're seeing a little bit of erosion on the paper prices coming down a little bit. I haven't seen the dramatic ups and downs that we saw for those of you that were with us in '17, '18, really '18, '19, '20 and '21 and even '22. That 4-year period was very volatile up and down. We're seeing a more gradual reduction in paper prices. And that's good. We planned on that. And so far and often, we're good to our plans.On the EBITDA side, corporate location margins, 37%, so that's a strong number. Especially if you look at sequentially, when you look at the latter half of 2022, we know that the latter half of 2022 is a challenge on a number of fronts. Probably the biggest front was truck supply and the impact that had to repair and maintenance, efficiency, the impact of labor and driving those labor costs. Those were all negative to that. And look, we still face some of those headwinds. I mean, fuel costs are still high when we look at historical levels. And again, I guess the good news right now is, if we look sequentially, they have come down, that's good.Wage inflation is still there. Again, when we look sequentially more moderate. When we look at truck supply and parts supply, still some truck supply challenges in the marketplace. Obtaining trucks on schedule has become a little more difficult over the last 1.5 years, and we continue to see that. We don't see it as acute as we did. Again, as we look sequentially in Q2, Q3, and even into Q4 a little bit last year, I don't see it as tough, but it is certainly not like it was in '19, '20 and even into '21 where we could get trucks readily available. And also the parts for those trucks that we're looking to get repaired were easier to obtain. So that's still playing a bit of a role here. Having said that, not as acute as the prior quarters, which we're pleased about.So you look at those types of things. And then we did 2 acquisitions last year. The [ FTD1 ], we're now finalizing a number of route optimization activities right now, which is great. And then, of course, the Philadelphia location is a location that bales. So yes, we're getting a higher paper revenue there. Obviously, there's cost associated with that, and that has a bit of impact on the margins as well. Overall, good, solid, strong quarter, also room to improve -- always room to improve, and the team is working on that improvement.So how are we going to improve. Number 1, price increases, we do them annually. We're going to be doing them again here in the next couple of months. So we're looking at those price increases. Route optimization, we continue to look at routes. All of our corporate locations now have a -- except for one, have the new workflow software. So that has a more real-time routing data, and we'll be able to optimize routes better.And of course, when you optimize routes, that really means we are densifying those rights, getting depth in marketplaces. That's critical for us. We view that as job #1 operationally, it's depth. And even when we look at geo-targeting from a marketing and sales perspective, that's job #1. How do we get more on our routes, get -- that depths leads to stronger margins. And , that's what we're working on.With that all being said, I'm going to turn it over to our CFO, who's watching our margins like a hawk and his team and others are doing the same. So Harjit, I'll turn that over to you.
Thank you, Jeff, and thank you again to everyone who is joining us on this call. So in terms of the results, revenue -- again, Jeff kind of touched upon it, very strong, finished up $17 million for Q1 compared to $12.5 million in Q1 2022. That's a 36% increase. From a bottom line EBITDA perspective, we were at $4.7 million for Q1 2023, and that compared to $4.1 million in Q1 2022. So if you kind of put that on a per share EBITDA -- on a per share basis, EBITDA per share was $0.26 for the quarter compared to $0.22 in Q1 2022.So in terms of the results and how they translate it from a cash flow perspective, our free cash flow for the quarter was $2.4 million. That compares to $1.6 million in Q1 2022. On a per share basis, free cash flow was $0.13 compared to $0.09 in the comparative quarter of Q1 2022. And again, the free cash flow was really driven by our EBITDA growth and some favorable changes in noncash operating working capital.And -- so that's the cash flow in the -- from a liquidity perspective. I know Jeff mentioned the pipeline is strong. And right now, we are -- we do have cash that we're sitting on, of approximately $6.3 million as at March 31st. We also have some capacity available under our existing banking facilities as well. And again, we're also generating positive cash flow from operations. So from a balance sheet perspective, we're fairly well positioned.And one of the other things that Jeff kind of alluded to is we're continuously looking to sort of improve our margins, drive efficiencies. And one of the projects on the goal that we do have is sort of our routing project, automating some of the workflows around that to create density in the routes, that should help drive up margins. And this is one of several other projects that we're looking at, to try to continuously see how can we improve operations, streamline things and just make things simpler and less cumbersome.And -- so on that note, I'm just going to turn it over to Jeff for some closing comments. Sorry, I think Jeff maybe on mute.
I'm off mute now.
Yes..
Some people might like it better that way. So it's okay. Look, thanks, Harjit, appreciate that. And I'll elaborate a little bit more. First of all, '23, a good start. And we know we have room to do better, and that's always a good thing. And I know the team, many of them on this phone call will continue to put their head down and work on these things. We've done a lot of acquisitions over the years. We've integrated a number of them. One of the nice things about having that is we have a lot of clients and lots of prospects in our pipeline. One of the things we just did, complete Phase 1 of a sales force --added sales force CRM.And why did we do that? So we can even more proactively and aggressively market to our client database. And if we think about the value of our client list on our balance sheet, they're big. And so for -- a top priority for us is marketing to our -- the clients that we bought and letting them know about all the services that we have, not just shredding, obviously, shredding being a big component of that. But there is another opportunity that we have with such a strong database of clients.So the CRM and sales automation is one part. We've got the workflow on the other part. And as we start to link these in and tie these in, that's where you get the scale, that's where you get cost improvement and operating leverage improvement because then we want to be able to input things into our systems once and let the system do the rest from cradle, which is order origination to grave, which is cash collection and everything in between. So by having a sales force, by having our new workflow software, tying that out into our client portals and collections automation platform, all of that is going to tie together.So this technology piece is going to be important to us. And we got a number of smart people on our team working on it, and I appreciate everything they're doing to move these things forward so we can hit on those priority items. So all these things together will allow us to be -- have a standard playbook, allow us to scale, allow us to obtain operating leverage and allow us to deliver the strong return on that invested capital and a strong return on equity that we all are looking for.So we're laser-focused on continuing to improve our metrics. We're going to put our head down, as we always do, after this phone call and work on the business and work on those top priorities.So I'm going to pause there. I'm sure that there might be a few questions out there. So [ Arial ], I'll turn it back to you for a moment.
{Operator Instructions] Our first question comes from David Ocampo of Cormark Securities.
Jeff, I guess a quick one for you before I go into a bigger picture question. When do you guys typically put forward the price increases? And do you expect at least for this year, for that to flow directly down to the bottom line because it does seem like driver inflation has taken a back seat here?
Certainly hoping for that. Look, so we're just popping the databases now. We typically do these price increases in the summer. We're going to try to do them sooner if we can. Again, with the new software, there is some user functionality there. But for us, yes, we're -- sort of the thesis for us is certainly more of that kind of drop to the bottom line, given a little bit of more stability in our cost structure.
And then if I take a look at the profitability for your franchise stores, it's almost been in decline, I guess, more or less in tandem with the drop in your location count. Just curious if franchisees are still part of your go-forward plan? And if not, when do you expect to roll all 15 of those stores into your platform?
Yes. That is a big, big question and a good one. So I guess from a franchising perspective, and I guess you're sort of looking at our segmented note that certainly, it's becoming a smaller component of our business logically. The franchisees, I just want to speak to this because I think it is important to make a note that the franchisees get the benefit of everything we do in our corporate locations, right? So sales force that -- once that Phase 1 is done, they'll have access to it. They'll be trained on it. They can buy into it, which is great.The workflow software, we're rolling up franchisees even now as we speak. Our safety -- everything we do, the franchisees get to leverage. And that's a great thing, right? And that's a great thing for them because that should enhance their profitability, number one. And number two, it's a great thing for -- then at the exit because we're buying a platform that we already operate the same.So number one, I think that's an important comment that our franchisees support has been very good. We're very pleased with it. It's very bespoke. But I think the proof is that the financial deals continue to grow at very good rates. So we're very -- so that's excellent and they get to leverage what we do.Bigger picture, look, our -- I guess it's capital allocators, right? Our -- We have to allocate 2 things. We have to allocate time and we have to allocate money. And best use of our -- both our time and money is to acquire. And -- so let me just talk about that in a little bit more depth. So number one, franchising. When you set up a new franchise in a new market, they're greenfielding, right? And that greenfielding takes time. And so we put in a lot of effort training them, getting them on the system and all of that, and we have 0 revenue, right? 6.5% of nothing is still nothing, right?And yes, they get there after 10 years, that's 10 years or 5 years or whatever the number is, takes a long time. So when I look at the end of our acquisition strategy, our acquisition strategy is really, number one, continue -- can buy our franchisees, right? Why they're hubs? So we buy something that can sustain. We can make money at it right out of the gate, number one.Number two, as you know, do the tuck-in acquisitions. Why? Because that helps with the [indiscernible] and we can knock out more costs. The return on investment capital is very strong. So a good use of our capital. Number three, buying a larger franchise like acquisitions in markets that we're not in. That's absolutely part of the footprint growth that we can get. If I'm going to prioritize the, 3 franchisees and tuck-ins end markets that we're in, those are really the top priorities because that's the ultimate return on invested capital that -- you look at a risk profile. You look at all that, that's -- and great use of our people's time, too, right? Because we're not having to bring on something and we convert it in totality.That doesn't mean, though -- and I want to come back to that there aren't great opportunities in Ohio or Kentucky or Alabama or Texas or wherever we're not. That doesn't mean there aren't large acquisition targets that we [ can't ] go after. And similar to -- I go back to Safe Shred in New Jersey, similar to that, we bought it. We weren't there. We bought it and off we went with it. And it was a great acquisition. So there are targets like that. But I want to give you a full answer on that just because it is important that everyone understands how we're allocating time capital and money capital.
And then, just a last one. Just out of curiosity, I took a look at paper pricing at least for May. It did check back a little bit. Just curious what's driving that and if we expect prices to continue to fall towards that longer-term average?
Yes. Look, there is more paper supply out there. Probably not alone, but more and more people are back in the offices, generating more of this type of paper. So you've got a bit more supply. So obviously, more supply does put some pressure on prices in the wrong way. We knew this was coming. We had a feeling this was coming. It's why we planned and budgeted for all of that. And again, to my other comment earlier, we're not seeing the volatility [ though ]. We're seeing a much more slow migration, probably that 10-year average. That's in our average for us, might be a bit higher going forward, and the reason why is we're bailing in 5 of our locations.And so when you sort of look at that, that means we're going to have a higher paper price. We also have a higher cost related to that incremental revenue because there's warehouse and people associated with that. So we probably will see a slightly higher tenure average for us. But I suspect that's going to happen just because there is more volume going through. People are back at work. We -- China still isn't buying a lot. And -- so that you don't have that valve back in [ EP ] when paper prices took off like a rocket. China was buying a lot of it. That's gone. And we've adjusted, right? So that's also good that we've adjusted to the missing demand piece.[ Arial ], I see Devin in the mix there. Harjit are you there?
Yes, I am here. Just…
Okay. Good. I think we lost [ Arial ]. I'll just shoot her a note.
Yes.
I think Devin is waiting to ask a question. Sorry everyone, let's give our operator a few moments.
The next question comes from Devin Schilling from PI Financial.
Obviously, very strong quarter here. Just looking at your same location shredding revenue growth during the quarter, was there any large onetime per shredding events? Or is this really just a mix of new client wins and the recently implemented price increases?
Harjit, do you want to answer that one?
Sure. There was -- so I think in terms of -- I guess the question comes down to run rate, yes. So this is -- there's no special sort of onetime jobs or anything like that. It's sort of more reflective of sort of the price increases and sort of new customer wins. So more organic. That's expected to be sort of more recurring in nature.
And just maybe could you remind us what is the size of the recently implemented price increases?
Sure. So there was no price increases that we've implemented in 2023. So some of the effects you're seeing are actually some of the price increases that came into effect in 2022. So it really varies by -- there is some sort of geographical and sort of -- considerations that we do. But all in all, we're kind of looking at about a 4% to 5% increase on average, if you're looking at between the 2 quarters. Yes.
You guys mentioned further route optimization initiatives coming down the pipe here. How much more upside on margins do you think exists from these initiatives?
Sure. So...
Go ahead, Harjit.
Sure. So in terms of the route densification, so there are opportunities in a few of our markets -- a few of our larger markets. And then there's particular opportunity, especially in the newer acquisitions that we do. In the newer acquisitions, just integrating those routes and sort of assimilating them onto some of our -- sort of our existing routes. Sometimes that does take time. So we're probably going to see more opportunity on the sort of the new acquisitions. And then there are a few markets right now that we're looking at very closely, which would help drive margins.And so it really depends, but it would be meaningful. So definitely, I could see it maybe being 1% or 2% impact on margins potentially. And so maybe even more depending on how this go. And then, yes, Jeff, I'm not sure you want to add anything to that. But that's sort of my view.
Yes. It's exactly it. [ I mean ] we go back to into '21 with American and then reasonable size tuck-ins. And probably the learning model for us is the data side of it. Getting the data side of that integrated sooner and faster is way more important. We've invested heavily in our technology team, and they're heavily involved in these integrations now. Philadelphia went much slower. Yes, it was a franchise, so it should. But even their data when migrated, migrated much smoother and then we actually did tuck-in from route into there not too long ago.So that's critical for us. So that's -- the good news is we've learned from a few bloody noses on how to do this better. And then I think to Harjit's point, that sort of continuous improvement, looking at all these different locations and looking at the right -- and really honing in on where can we be a little better and using the technology that we've deployed to drive that, that's going to be critical. That's really the next stage for us, is we've got the technology, we've got the data, now let's use it and be -- scalpel out the [ fat ] or costs that you don't need, of course, and then use the sales and marketing weapon and the databases that we bought and drive more accounts into the same routes. That's where you get the magic.So then there's more to come on both the integration side and on just the -- sort of thinking through our business in a better way. So I hope that helps. Devin, do you have a follow-up question?
Yes. I guess last one for me, just a bit of a housekeeping item. I see your electronic waste segment is now listed as electronic waste and product shredding services. Maybe you guys can just touch base on what's changed there?
Sure...
Go ahead, Harjit.
Yes, not much. I think it was -- there's obviously a bit of a nomenclature change there. But I think that was more cosmetic if you take a look at sort of our SEC business, it's essentially unchanged. And -- so when you're kind of looking at the results, I would kind of look at them from sort of that lens.
[Operator Instructions] This concludes the question-and-answer session. I would like to turn the conference back over to Jeffrey Hasham for any closing remarks.
Great. Thank you, [ Arial ]. I want to thank everyone again for joining the call. I know everyone is busy on a Monday morning. Thank you for doing that, number one. Number two, so many of you on this phone call have been longtime supporters of RediShred. And of course, our shareholders, we appreciate all the support over the many, many years for many of you. And there's always -- the team will go put their head down and keep working on the business.[ I'll ] see a lot of members of the RediShred team on this call. I want to thank them for everything they do. Without them, Harjit and I don't get to come on this phone call and give you the message of what we've been doing well, where we need to improve, of course. And -- but overall, a good news message that didn't happen by accident. That happened because a lot of people did a lot of good work. So I want to thank them.So long and short, thank you again. We have a bit of an Investor Relations night tonight. So for those of you that are going to be there, I'll see you there tonight. For those that of you are not -- or would like to come, not too late, just e-mail Pamela Gray, Pamela.gray@proshred.com, [ we'll ] get you on that list tonight. Nice way to thank you all again.So everyone, do well, have a great Monday.
Thanks, everyone. This concludes today's conference call. You may disconnect your lines. Thanks for participating, and have a pleasant day.