Redishred Capital Corp.

Thank you for standing by. This is the conference operator. Welcome to the Ready Shred Capital Corp. second quarter 2020 financial results and business update conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Jeffrey Hashim, Chief Executive Officer. Please go ahead.

Great. Thank you very much. Appreciate everyone joining this morning. Good morning, everyone. We got a nice quarter to announce, and I didn't think it was going to be a nice quarter. I guess a nice quarter given everything that's happened. So, What I will do is I'll run through the overall consolidated highlights. I'll have Kasia jump into the details on the corporate locations and on the balance sheet, and then I'll wrap it up with a COVID-19 update just to give everyone sort of where we are and what we're doing. So as I said, overall, when we spoke, Back in May and as I'd given many of you highlights in March into April I guess all of us did not know what was going to transpire and how it was going to transpire and the quarter did not get off to an auspicious start and April and May Overall in terms of same location shredding revenue, and I won't steal too much of cautious thunder, but we were we were down in in and around 40% on a same location basis and in June we were down 7%. So the quarter completely turned around for us with respect to June and a lot of reasons for that. Obviously the big reason for that is easing of restrictions, number one. Number two, pent up demand. There were a number of purges and one-time purges and events that were going to happen in the end of March and into April that were put to pasture for a little while, and we were able to get those back in June. And I think the good news is we're continuing some of that momentum into the summer time here. Summer is usually a little slow, and it is a little flat, but it's certainly... nowhere near what we saw in April and May. Overall, we generated $6 million in revenue. That was up 8%. Why was that up 8%? We'll dig into those numbers in a moment. Obviously, Chicago and Connecticut were new stores, new locations for us, and both added to the revenue um which is great just you know one of the things that i think is important to note now is that 91 of our revenues are from corporate locations uh and then the remaining nine percent are from franchise related fees and royalties so so there's certainly been a shift by buying some of our larger locations over the last 24 months uh obviously towards corporate and in that That's part of the overall process and strategy that we're following. Consolidated EBITDA was $1.6 million Canadian, and that was down 7%. Obviously, we were down 7% in the second quarter. That was COVID-related. Again, Connecticut and Chicago mitigated against further EBITDA declines. Obviously, both Chicago and Connecticut were impacted by COVID-19. They were down when we look at their prior year numbers when they were franchisees. Of course, they were down. However, they were additive to our consolidated results. And again, we'll walk through both same store and new store in a moment. Important to note, as we were going into April, we did not know what any government would do for us. So we took it amongst ourselves to do anything and everything possible to make sure that the company had as much runway as possible. Looking out, we did not know how long it was going to last. So we went and we shored up our balance sheet by working with our truck financing companies and deferring some debt and working with our bank and deferring some debt and Given our longstanding positive relationship and positive track record, those things were done and done collaboratively and cooperatively. And of course, we continue to work with our institutions. Truck financing payments have recommenced and bank payments will commence in the fall. The big thing I think for us here is the wage programs, the subsidy programs, both in Canada and the U.S. have provided support to us and we've used that support. We've used that support to make sure we keep our employees working and producing programs for the future to keep our drivers on the road safe and to make sure our drivers who, they're hourly, to make sure that we talk them up to get them to where they were before. The loyalty and the dedication that we've seen from our drivers as we've now got into June and into July and August has been excellent. So the government programs certainly helped us do what we need to do as a company to look forward and to take advantage of some market opportunities in the marketplace. going forward. And we'll talk a little bit about that at the end when I give my COVID-19 update. So the consolidated results were better than we expected. June came out roaring and the summer has been so far so good. And I think we don't know where the fall will be, but it's certainly so far we're feeling better and the results are better than what we expected. So let me turn this over to Kasia, and she can talk about the corporate location details and the balance sheet details.

Good morning, everyone. Thanks for joining the call. So I'll dig into a little bit on the corporate location results for the second quarter and talk about the U.S. dollar results just to eliminate the foreign exchange impact. So the same location, shredding revenue declined 25% in Q2. 2020 over Q2 2019 and that was due to the stay-at-home orders that prevented us from servicing our non-essential clients which were closed. This also then impacted our recycling revenue as our tonnage declined due to the fact that we serviced less clients year over year. We did however see paper prices increase substantially in Q2. over Q1 of this year, which helped mitigate the overall decline in recycling revenue. In total then, same location, total revenue declined by 26% in Q2 over last year. However, we did reduce costs in most areas of the business wherever possible and curtailed all our discretionary expenditures. And so as a result, our EBITDA margin held quite strong with same location margin of 31% and non-same location margin of 33%. And in addition, we did receive the U.S. government funding, and therefore we were able to make a one-time payment, which we call the COVID payment, to our frontline staff and other staff to compensate for the reduced wages during the initial months of the pandemic. So included in our EBITDA and MUN number was $130,000 in COVID payments related to same locations and $45,000 in COVID payments related to the acquired locations or non-same locations. And so that was a total combined of $175,000. Our same location EBITDA margin excluding these COVID payments was 36% in comparison to 35% in the prior year. So overall, our margins were strong, although the quantum of the EBITDA or the dollar amount of EBITDA declined as the sales decline was substantial. And our results from acquisitions or non-same locations included Chicago and Connecticut results, as Jeff mentioned, and these results were not in the comparative period. So the EBITDA from acquisitions was $399,000 in Q2, and the EBITDA margin was 33%. And excluding the COVID payments that we made, the EBITDA from acquisitions was $444,000, with an EBITDA margin of 37%. And as a result of these acquisitions we did over the last nine months, our total location revenue grew by 7%, and our EBITDA was down 4%. And now I'll briefly just speak to the corporate location results for the first half of the year. So in the first half of 2020, same location shredding revenue declined 11%, and that's in comparison to 25% in Q2. And that's really because we did have growth in the first quarter, which was not heavily impacted by COVID-19 yet. Recycling revenue declined 49% for same locations in the first half of the year over last year. And that's due to the fact that paper prices in Q1 were down $109 per ton over the prior year. And then that, of course, coupled with the decline in the tonnage in Q2. Same location, operating costs declined 8% year-over-year, given all the cost-cutting measures taken in Q2. However, this was not enough to mitigate against the sales declines due to COVID and the decline in paper prices. So, as a result, same location EBITDA declined 34% in the first half over last year, with an EBITDA margin of 30% inclusive of the COVID payments. Our EBITDA from acquisitions for the first six months was $868,000 with a 33% margin. And in total, our corporate location sales grew 20% during the first six months of the year. And that's due to the acquisitions that we added. And EBITDA excluding the COVID payments grew 7%. And lastly, I'll speak a little bit about our capital management. So during the quarter, our cash balance increased by $1.8 million to 8.8 million Canadian. And this was due to a couple of factors, the government funding that we received, the fact that we were able to defer our term loan principal payments, as well as most of our truck loans. And also we did grow our operating cash flow as well by $420,000 despite the COVID impacts. And as Jeff mentioned, we have the term loan principal payments that are deferred for six months, and those started in April. And the truck loans were deferred for three months back in April. So those are now back online to be paid starting in July. And we do also still have access to $4 million Canadian of additional capital through our credit facilities. And I'll pass it back over to Jeff on the COVID update.