Redishred Capital Corp.

Thank you for standing by. This is the conference operator. Welcome to the Ready Shred Capital Corp. First Quarter 2022 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'll 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.

Thank you, Arielle. Good morning, everyone. Welcome to the first quarter of 2022 ReadyShred update call. As everyone knows, we released the first quarter results yesterday afternoon, just before our annual general meeting. I would like to very first and foremost, before I get into the numbers, because they were quite solid, is to thank my team, our board, our shareholders. None of this happens by itself. Everyone did outstanding work during a pretty challenging quarter to produce results that exceeded expectations. and we'll talk about some of the challenges that we faced and what we did to overcome them, because for every challenge that's out there, we do believe that there's a solution or an opportunity embedded in that. So I wanna thank the team, our employees, our franchisees, our board and our shareholders, because we'd all do it together. Just at a very high level, our consolidated EBITDA was $4.1 million. That was, that grew, almost 100%, almost double the last year. And I'm going to speak high level to some of the drivers. And then what I will do is I'll pass this over to Harjeet in a moment to discuss these items in more detail. I will also do a little bit of a twist just to refresh everyone on our strategy and the execution of our strategy because we're well into executing the strategy that many of you have heard from me many, many times over many, many years. And I think what we're seeing here now is the results of executing the strategy, which is excellent. And again, that doesn't happen by itself. It happens because of a great team and great execution. So again, $4.1 million in EBITDA. All around, we had great organic growth in the shredding business, the scanning business, the e-waste business. We also have to acknowledge that paper prices were at, again, all-time highs. If you refer to our MD&A at some point, you'll see that we've put an extended chart to outline the paper prices from 2018 to today because what you'll see is the peaks and the valleys. like anything we've in my career here at 17 years we've seen peaks and valleys in the paper prices so we're back here at another peak and nice to be at again close to historical highs on paper prices irregardless and Harjeet will explain we'll go through this in more detail irregardless of the paper operationally the business performed despite a number of headwinds such as Omicron such as fuel prices and I'll let Harjeet get the the good stuff in terms of why that happened. That $4.1 million in EBITDA was generated from $12.5 million in revenue. Again, another record, and that grew 71% versus the first quarter of 2021. So EBITDA was 98% up. And of course, revenue was 71% up. I do want to speak a little bit just to the drivers of our growth and our strategy here. Because it's been a while, I think, since I've done that on this call, so I want to take a few moments. And really, three items are very important to us as we drive our growth. And I'll talk to the growth drivers and how we're executing on them. Number one, and you can see this in the results, is driving same location revenue in EBITDA. We focus on recurring revenue streams. Not only in the paper side, but even in the scanning side, we're looking at repeat and trying to get recurring clients. And again, small mean size enterprise tends to be an underserviced market. So that doesn't mean we don't have large clients, but it's an underserviced market. These sticky clients are great because they're the perfect base to grow from. They're the perfect base to go and offer other services. If we do a good job in one service, why wouldn't they trust us to do a good job in other services? And as we all know, the more complementary services, the more entwined you are with the client, the more sticky they are. And we've certainly found that. So it's number one. Number two, accretive acquisitions. We all know we've conducted a lot of acquisitions over the last four years. We'll talk a little bit more about that later. We're going to be continuing to purchase franchisees when they wish to exit or retire. And, of course, independence. In these independents, there's 750 of them, and many of them are in markets that we are operating in, and that provides an opportunity to realize... Pardon me, this is the operator.

Please stand by while we reconnect Mr. Hashim.

Pardon me, this is the operator. Please stand by while we get Mr. Hashim reconnected.

Pardon me, I have Mr. Hashem back on the line.

Yes, my apologies, everyone. Time for investment in a new phone system on our end. So my apologies there. I hope you can hear me okay. I'll just sort of start off to the long-term drivers of growth. I'll keep it a little briefer this time. Really three areas. Number one, drive same location revenue in EBITDA, focusing on recurring revenue streams. focusing on sales and marketing programs that drive the revenue, which no doubt drives the EBITDA, particularly in our paper shredding business where we get route density. Number two, accretive acquisitions. As everyone knows, we've been in very big-time acquisition mode, and we're going to continue to do that. And that allows us to obtain route synergies, especially when we buy small independents. And, of course, we get back office and marketing synergies as well. Last but not least is to support our franchisees and help them grow their own durable and sustainable revenue and EBITDA streams because we want them to win along the way as franchisees. And when they wish to exit, we're buying a quality business with durable cash flows and revenues. Just thinking about the execution and sort of where we are today, we've conducted 66 million in acquisitions. We've had strong same location growth. We're right now at a $45 million revenue run rate. We have 25% plus consolidated EBITDA margin. You can see in this quarter, and I'll let Harjeet speak to that, it was better than that, and very strong compound annual growth rates. We're executing on the game plan. That is our game plan. We're executing on it. We have 16 franchisees that at some point would like to exit or retire, and that accounts for another $10 million plus in EBITDA. And again, I mentioned 750 independents. They have $750 million in market share. The majority are in pro-shred markets or adjacent markets. And we obtained 5% of that at some point. Again, there's another $35 million in revenue and about $10 million in EBITDA. So there's opportunity awaiting for us. We've been executing on that. We've been taking advantage of that. So I wanted to make these comments here because now I'm going to turn it over to Harjeet and he gets the good job of explaining how this is all translating to the bottom line because at the end of the day, that's what it's about. So Harjeet, I'll pass the next couple points and comments over to you.

Hi, good morning, everyone. Thank you, Jeff. So in terms of performance for Q1, Jeff touched upon it earlier, but a very strong quarter. from a performance perspective, even after we exclude revenue. If you look at our same corporate location EBITDA, it was actually up 1.6 million to about 3.98 million compared to Q1 2021. EBITDA margin was 42%, a 700 basis points improvement. But as Jeff alluded to, a part of that does have to do with the historically high paper prices. But even after you strip out the paper, same corporate location EBITDA is actually still up over 500K. or 30%. And EBITDA margin, excluding paper revenue, it's 29%, which is actually 100 basis points better than Q1 2021. If you look at our acquisitions or our acquired corporate location EBITDA, that's about a million dollars in Q1 2022. That's being driven primarily by American, which we acquired in December 1st, 2021, and also the acquisition of our Richmond and Atlanta franchisees, which we did back in 2021. But, you know, they're not in the comparative Q1 2021 period. And if you look at, you know, our Q1 2022, you know, EBITDA, some things to keep in mind is that, you know, obviously we have strong organic growth. And, you know, with paper prices, they have, you know, in a sense, you know, fallen the course in terms of fuel costs. So our increase in paper prices or the increase in paper prices has more than offset the the increase in fuel costs that we've sort of faced. And so we're still able to not only maintain, but have slightly been able to improve our EBITDA margins. And Q1 2022, we were impacted a little bit by Omicron early in the year, which impacted some of our routes and our ability to deliver on customers, but we were more than able to overcome that. So those are the corporate location results. If we go to the consolidated results, You know, consolidated EBITDA, it's actually up to $4.1 million for Q1 2022. And if you look at it from a historical perspective, from back in 2012, we've actually, if you look at our CAGR compounded annual growth rate, it's actually 80% over that period. And, you know, so very strong bottom line results. From a revenue perspective, again, you know, very strong, you know, If you look at our revenues again, the primary growth was sort of driven by our shredding, our core shredding business, as well as obviously recycling and also our newer sort of complimentary product offerings, which sort of Jeff was alluding to as well. Those have grown very healthy. That would be our sort of our scanning space and our secure e-cycle space. And if you look at our organic revenue, same corporate location shredding revenue is actually up 21% versus Q1 2021. And again, scanning revenue, which I was alluding to is actually grown by 126% or 0.4 million versus the comparative quarter in 2021. And, you know, of course, in that number, we have American, Richmond, Atlanta, or sort of our acquisition related growth, which is, you know, which acquisition related revenue growth, which was about 1.9 million for the quarter. And again, You know, if you look at sort of the acquisitions, you know, we've obviously done a number over the years, and I'll let Jeff sort of talk about them a little bit more in detail as to sort of how they've helped the company grow.

Thanks. Thanks, Harjeet. I appreciate that. So, obviously, the strategy that we've deployed organically, we're growing the sales and marketing is – working well. Omicron, of course, had a bit of an impact, a pretty good impact on January, but we certainly picked it up February and into March. If I look at the acquisitions here, you know, we've done $66.2 million in acquisitions in the last four years, 16.3 in 2021, and a very small acquisition so far year to date. in Chicago. That was an ideal acquisition. In fact, it was a tuck-in acquisition. We simply took over their routes and added them to our own. We had only one month of impact from that. Again, it's small, but many of these small deals will continue to affect our bottom line in a very positive way. So, you know, overall, we're very pleased about that. One of the things that, and I'll refer folks to our investor presentation, you know, we have seen as a result of the acquisitions that we did in 2019 and that we did in 2020, they're now part of the same store pool. And of course, I mentioned that we buy it, we must build it. And of course, here we are, certainly beyond the pandemic times. And we've seen very strong double digit growth, organic growth from our same locations, excluding paper revenue. And that's very important because one of the things we know is paper goes up and paper goes down. We want to know that the operations are performing from a revenue perspective and an EBITDA perspective, irregardless of the paper. And in this quarter, they did, despite headwinds of of Omicron, despite headwinds of fuel, the business performed. And I think that attributes to the strategy of doing the acquisitions and buying our franchisees and then adding the tuck-ins and getting the route density and then getting the back office operating leverage. So these have all come together to allow us to have a very solid quarter despite headwinds. And so we're very pleased about that. And then again, but by no accident, because everyone participates in that. Harjeet, did you want to talk to just the GNA and the balance sheet to wrap up the presentation here?

Sure. Sounds good. So in terms of... you know, our GNA, that's one of the things we sort of track from an operating leverage perspective. And I'm happy to report in Q1 2022, our GNA costs, if you look at them as a sort of percentage of revenue, they're actually at 10%, which is a very good number. And what's driving that is sort of a bunch of things is, you know, one is obviously getting synergies, you know, centralizing things as much as possible, building on our technology stack and, you know, really the scale that we're able to achieve through our growth helps us achieve some of that. And, you know, so very solid from a G&A perspective, 10% for the quarter. And in terms of some of the other sort of items that we sort of, you know, talk about and look at sort of from a key performance perspective is, you know, obviously revenue and EBITDA, which we talked about earlier. You know, another thing that I do want to point out is our EBITDA per share was actually very strong for the quarter. It's about four and a half cents. And, of course, our oily number, which is our operating income less interest, that was at $2.349 million. And so, you know, that's the P&L. We look at our balance sheet, you know, well positioned. We have about $9.4 million in cash, which, again, positions us well from a – company perspective to help us continue to grow and achieve some of the, um, operational sort of initiatives and growth initiatives that we've set for ourselves. And, um, yeah, I, I think saying that, um, Jeff, I'm not sure, should we open up to questions or any last words before we open it up to questions?

Yeah, I'll, I'll make a couple, couple last comments. Uh, of course the questions are always the best part. Um, you know, one thing, um, Just to make note of this, as everyone knows, we've got a couple things going on. Number one, we did do an equity raise at the end of the year. We went well over two and a half years of that, and equity raise conducted many acquisitions. We put it, for your information, chart in our investor presentation that gives an EBITDA share reconciliation and the impact of the dilution. The American acquisition plus the organic growth plus the acquisitions we did last year, have all overcome the diluted impact of that equity raise. So we're already well ahead of that, which is wonderful. And the nice thing is, to Harjeet's point, we have almost $10 million on the balance sheet waiting for us to deploy on new acquisitions. So we're in a very, very good position. We have debt capacity of $4.4 million. So we've got the capacity to do more deals with the resources that we have. So the strength in the balance sheet, I think, is very important. And that's one of the things that I think to be mindful of is we're looking at always how do we deploy the right amount of capital and the right structure of capital on our deals. And the typical way we do it is bank debt, earn out, and our capital. And I think we've got a good formula working for us. It's allowing us to stretch out the equity when we raise it. Many of you have supported us over the years, and we thank you for that. And we're also mindful that we need to have the right capital structure as we go forward. And I think we do, and we have the right approach. And as the global macro environment shifts, We may need to shift with it, but right now the formula is working quite well. So with that being said, again, thank you to everyone. Thank you to all of our teams. And I would love to open it up to some Q&A.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. Our first question comes from Amar Azad of Echelon Partners. Please go ahead.

Jeff, Harjeet, good morning and congrats to you and the team on the Blockbuster quarter.

Good morning. Thank you very much, Amar.

My first one's on the 21% growth in same corporate location shredding services. How do I think about that in terms of price increases versus just increased activity you guys had?

Yeah, we did a small price increase at the end of 21. That was in the order of 2% or 3%. So I think the good news here is the majority of the increase should, the credit should go to our marketing team and our sales team, the marketing team for generating the leads and our sales team for converting them at high level. A lot of credit there. And then of course the service team for servicing them in a very tough environment, right? Because Omicron created a tough environment for us in January. So really, really the kudos go there. Having said that, we're doing price increases right now, May, June, and into July. Given that fuel prices are high, some input costs are higher, we need to do that. We also have to recognize that paper is way more than overcompensated for those fuel costs. Again, these commodities of fuel and paper tend to couple, so they tend to go up and down together. Having said that, we want to mitigate some risk here just in case it ever decouples. If it decouples and fuel goes down and paper stays where it is, we're more than pleased. But we are going to be taking some position here. because it can decouple, and these are real operating costs for us on the fuel side. And again, I don't want to overemphasize fuel. I mean, fuel is not our biggest cost by any means, but it is an important cost, and so we are being mindful of that. So price increase really didn't play a big role in the first quarter. They won't play a very big role in the second quarter, they will play a role in the third quarter. But I think if the sales and marketing team continue to do what they're doing, and kudos to them, then we're hoping to see a good result because of the two being coupled together.

Can you give us a sense of the magnitude of the price increases you're instituting there?

Yeah. You know, it's hard to say right now. So really, a couple things. So number one, on existing markets, scheduled clients that increase will be anywhere from five to ten percent and and obviously we do this very surgically so we look at all of our scheduled clients and You know, those under contract, some of them can't be increased. But the good news is a lot of them can. And then we look at where they are in the marketplace, you know, what zone. And so we have a bit of a formula that we use to try to grab that. So, you know, our goal on the existing schedule of clients is to get, you know, to the, you know, rate of inflation of 70 percent. That's the goal. And we're working through that now. On the go-to-market pricing, so pricing for new clients, and you think about it, all of our unscheduled clients, or not all of them, but 70-some-odd percent of them are new or net new. So we're already going to the market with higher pricing. And that's in the order of 5% to 10%. That we can be very elastic with, though, because sometimes we will win a client with a discount, an unscheduled purge client with a discount because we have a great opportunity to convert them to a scheduled client. And of course, we know that's the gold standard from the revenue spectrum of what's gold and what's not gold and recurring revenue is that too. But we are going to market generally for new acquisition of clients in all of our areas. Scanning, we've gone up with higher pricing. as we have with new scheduled clients, as we have with unscheduled purge clients. So the good news is we're going to market with higher pricing.

Great. Maybe you just spoke to scanning. I'm looking at it. It looks like sales were flattish from last quarter, if my numbers are correct. Can you give us a sense of the dynamics there? Are you guys fully utilized, or is there spare capacity to generate more revenues in scanning?

Yes, good question. Q4 and Q1 tend to be a little bit of the softer quarters in scanning. I was actually quite pleased with how we performed because, yes, quarter of a quarter it was flat, but Q1 versus Q4 it was flat. If we look at how we did comparing the first quarter of this year to last year, remember last year we'd had purchase pro scan essentially January 1st, so We do have the same store comparative and obviously knocked it out of the park, which is great. So capacity is an issue in our Massachusetts location. We are going very strong in that location. The good news is the nature of that service is that right now we couple the services. scan index component, which is fine. Ideally, you want the same rep doing the same agent doing the same work. We can decouple it. So we have capacity in Richmond, Virginia and or in Charlotte, which are two other shredding scanning centers. You know, we can shift work to those locations. So as much as capacity can be an issue, we have ways to solve capacity issues We have invested in the second quarter in more equipment in Massachusetts. We have the space to do it, so we have. We have the client pipeline to do it, so we were confident in making those investments. And just recently, we've added a small station, a two-person station in the New York market as well. So now we're in the Big Apple. So, you know, yes, scanning... For us, scanning was great. Consecutive quarter was flat, but certainly year over year, it was quite strong, and we were happy about that.

Yes, I didn't mean to underplay the year over year, obviously, which is impressive. Current capacity, can we see you generate $700,000 or $800,000 in a quarter out of scanning?

We can. It won't be all out of one location, but we can.

But that is very feasible. Okay. On American Shredding, first full quarter of contribution in the P&L, how far along are you guys in consolidating the routes, facilities, and operations during Q1? I'm trying to get a sense if there are more efficiencies to be gained in the next couple of quarters.

Yeah, we're looking forward to gaining more efficiencies. Really, the first quarter was wrap our arms around the business, migrate the databases, because in order to put tickets on trucks and to determine which truck is right, you need all the data together. So that data migration occurred during the first quarter at the end of February. So March was really the first month. So we took a little bit of low-hanging fruit. That doesn't mean we weren't trying to consolidate stuff manually, but the real deal is when you consolidate the databases, which happened. So now, April and May and June, what we're now doing is, okay, now we can route American stops on ProShred trucks and ProShred stops on American trucks. Now that's the power, right? So we anticipate to see continued migration of the route consolidation, and we continue to look forward to getting better results from that. The one thing, and we speak facilities, the one thing that American brought to us right out of the gate is the bailing operations. We did start to migrate some of the pro shred paper into those bailing operations, not all of it. So there's going to be more to come there. The former owner at American had some additional contacts to help us get better paper pricing loose in the Bronx because he had a relationship with an exporter and we've now migrated to that, which is great. So again, every time you do an acquisition, as much as we can bring to the table with an acquisition, the acquisition often can bring us something to the table too, which is why you do these, right? I mean, ideally you do these to get synergies both ways. And so that was great that we were able to get that opportunity when buying American. So really just the infancies, our plan was it was going to take 12 to 15 months to integrate this fully. I would say we're on plan in doing so. And the good news is that we did see in April a bit of a reduction in the workforce in terms of driver labor. just when you're migrating routes you don't always need as much labor so we did see the start of some rationalization there as well so um now the good news is we're also organically growing so uh you know we don't have to we don't have to knock out too many folks which which um in this labor environment is a good thing um maybe one last one for me like you spoke to bailing can you help us quantify

the impact of bailing on your recycling revenues, both in terms of the tonnage processed and paper pricing. Like if I look at the quarter system-wide, you guys process like 15,000 tons at an average price per ton of 226 roughly, you know, like how do these metrics look like without bailing?

Yeah, so that 226 would be a blend of loose and bail. So With bailed paper, we're getting a bit more. So again, because of the weighted average, our bailing operations are closer to 250 or more. And loose, we would still be sub 200. So for example, in Chicago, Kansas, and now in New York and New Jersey, we're bailing So we're now in the mid-200s and even a little bit higher in some cases, particularly in New York, where in some markets, it's interesting, in some markets, they're barely getting $100 per ton loose, particularly, for example, in Southern California. They're struggling with paper exports. So again, there's a lot of regionality to this. There is power in bailing, but you need to have a certain tonnage to bail because you've got to have warehouses and bailing equipment. So there's a fixed cost component to bailing. So the nice thing in New York is we have the tonnage to do it and then some. Same in Chicago, same in Kansas. We have a handful of franchisees also bailing, three at this time, because they have the volumes to do so. But those that are not bailing are still sub-200. And again, in some markets, particularly the West Coast, and in particular the Southern California and the Pacific Northwest, they're actually getting fairly low paper prices. So it is very regional in nature.

Fantastic. Thanks, guys. I'll pass the line. Congrats again. Thank you again very much.

Our next question comes from David Ocampo of Cormark Securities. Please go ahead.

Thank you. Good morning, everyone. Good morning, David. Jeff, I just wanted to circle back on the organic shredding growth on a same-store basis. You touched a little bit on the pricing side of the equation, but on the the volume side of it, how should we bucket that remaining lift in profitability that you're seeing between your customers coming back, gaining market share from your competitors, and the third bucket I would classify as converting the shredders that are doing it themselves. How should we think about those three buckets?

Yeah, good question, David. So the the COVID return is more or less done now. Um, I mean, we would have picked up a little bit in the quarter, but not a lot. Um, again, in January, there was just that slight pause, two components, right? One component was us because, uh, drivers are getting COVID. And then the other part was, uh, some clients paused in January, went back into, you know, a mini lockdown, if you will, in January. Uh, but they quickly came back, which was great. And again, that was fairly regional too, right? Um, Florida, there was really no shutdown. And in New York, there was a bit of a slowdown that we saw. But that, for the most part, is now done. So, you know, whatever we lost, it was probably about 4% or 5% of our customers are never coming back. And so the good news then is it's really the latter two buckets. It's the new clients that have never shred before or never shred with a vendor before, like ours, and then the steals. And I would, and this is an approximation, but I would say it's about a 50-50 mix between those two. We're stealing customers. We're stealing customers particularly from the larger competitors, whether it's a Shred It, an Iron Mountain, and or some of the other mid-tier players. And I think there's a number of reasons why that's happening. Number one, again, the way they've gone to market and particularly Shredit going from on-site to off-site. Their invoices are very confusing. We're going to do a price increase, we're going to do a price increase. Great. But clients do get irritated when there's a number of different surcharges. And so we're winning there. We're winning also because there's more and more realization that there's risk associated with an off-site platform. So we're obtaining market share there. And then the other is, look, there's still new businesses starting up. And like all new businesses, new businesses need services, whether they need internet or coffee or alarm systems, and shredding is one of them. And now those clients tend to be smaller in nature, but that's perfect because then we grow with them, right? They need a purge, we've got them. They need a scanning. We've got them. So, so that's the nice thing is once we get them in, we can market other things to them.

No, that's a, that's great color there. Then when I think about the, the organic growth guidance or targets that you guys set for this year, I think it's close to 10% and we've gotten off to a pretty strong start to the year. And that's, that's before factoring in the price increases that come into Q3 and So are we expecting this to be a little bit lighter or, you know, as we start to lap more difficult comps in the latter parts of the year, that 10% is still a pretty good guidepost?

Yeah, that's exactly it, right? I mean, look, Q2 and Q3 last year were very good quarters. And, you know, for us to crack 10% on those would be a very good result because they were very good quarters and we would be very pleased with that. And if we can do a little bit better than that, you're right, we're off to a good start. We're off to good, even if we compare to, you know, 2019, same store, even 2020, because that first quarter of 2020 wasn't bad. It was, you know, COVID was just starting. But yes, the comp this time was a bit easier. No doubt about it. Having said that, we blew it out of the water for sure. Q2 and Q3, I think we're going to see continued strength. Q4 is always a tough quarter, right? We have fewer days. You know, your fixed costs don't go anywhere in the quarter, right? I still got to get paid and my team still has to get paid and the revenues tend to drop in particularly the event-based revenues. So the Q4 is always the tough quarter. So always our goal is, hey, let's make it in the first three quarters. And so far, so good. And then, you know, we'll deal with the fourth quarter. Our job there is really to protect. And so far, we've done a good job in those four quarters protecting.

That's perfect. And then a last one for me on the M&A environment. Just given the uncertainty that we're seeing out there, does that create more opportunity for you guys or does it reduce the willingness to sell just given maybe compressed multiples that are happening in the space?

Yeah, I mean, you know what? For us, we're seeing good opportunity with independence. Again, franchisees will be there. And franchisees, as we know, have extremely well-run, well-operated businesses. They follow our program so that they should They use the same tools, so they should. But the independents, we sort of really think hard about this. And there's a couple things out there that I think are worth mentioning in this. So number one, you know, the average age of our trucks is under five years, corporately. And most of our franchisees follow the same program, which is great. Independents are not always the case. So the small tuck-in we did in Chicago, we didn't buy the trucks. We ordered a new one for us. We needed one anyhow. We were ordering one anyhow. But older trucks have supply chain issues getting parts. So what we're going to continue to see with a lot of these independents is they've got a decision to make. Do they sell because now they don't want to invest in a new truck or are they going to invest in a new truck or two? So there's some of that going on. And, of course, newer trucks, that doesn't mean they don't have supply chain issues getting parts. But, of course, a newer truck, the likelihood of a part going down is much, much lower. So the reliability is there. And so we've seen that. We've actually gone to some of our competitors and helped them out in the jam, which is great. And so I think we're going to see some of that. That's number one. Number two, of course, interest rates are going up. In the context of history, we're still very low historical interest rates. Interest rates are going up, so the cost of a new truck has just gone up. So now you've got that. And they don't buy the trucks at the same price as we do because, of course, we work with our vendors and lock in our production slots well ahead of time. And so you've got that as well playing a factor. And I think most independents know due to the recency effect that paper prices can go up and down. So I think they are wary. They're tired from COVID. They know there's volatility of paper. Yes, they're making some money on paper. But again, we adjust for that. When we're valuing these things, we're adjusting for the volatility either way. And then you've got these other things here coming at them. And then if they're struggling hiring people, uh there's another so yeah david there's so many things here that are really uh impacting the psyche of the independent uh and and so we are seeing good deal flow we're seeing our pipeline is still strong um you know we're looking forward to to um executing on more deals this year um you know we've only done one so far this year you know like anything there's timing to these things and work to be done on these, but we're looking forward to doing more and we have the balance sheet to execute on it. Uh, and, uh, you know, the idea of deploying debt and again, it's historically low fixed interest rates. That's pretty good. Uh, you know, we can, we, we, we model these things at typically higher rates anyhow. So, uh, no, we're in a good position and, uh, in independence, unfortunately, You know, they've just been through the rain over the last two and a half years, and I think we'll continue to see good opportunity from an acquisition view.

Oh, that's perfect. Thanks so much, guys.

Thank you.

Our next question comes from Devin Schilling of PI Financial. Please go ahead.

Well, hi, guys. Congrats on these very strong quarters here. Just wondering if you could provide a bit more of a paper outlook here moving into Q2. Obviously, it looks like prices stayed pretty strong in April, but any insight into May thus far?

Harjeet, what have you seen? I think it's similar, but have we seen much change there?

No, it's actually been pretty consistent. So no significant variation in terms of paper pricing through to sort of as of today's date. So pretty sort of stable so far, yeah.

Okay, and then I guess kind of following on that path as well, are you guys seeing any near-term growth opportunities to take advantage of this current paper price, or do you not really want to get any more, I guess, reliant on higher prices moving forward?

Can you say that again, Devin?

Yeah, I was just asking if there's any near-term growth opportunities in the business to really take advantage of this higher paper price today.

Yeah, look, you know, yes, there is. We do, especially when you're bailing paper. So if you've got a plant-based shredder and you're bailing, you know, there's opportunity to go out and get more paper. And so, you know, what do we do? We work with our clients, our existing clients, say, hey, you know, how do we, how do we, you know, if you've got a purge to do, let's do it now. Right. I mean, you know, and, and yeah, you can, and I talked about the elasticity of purge pricing. We can come down a little bit on that knowing we're going to make more on paper. We are not coming down to like 50 cents a box or a buck a box or, or anything like that, because then that bites you later. Right. Because when paper prices are low, you don't want to be going down to those levels. You don't make money. So yes, we, We like to go to some of our larger clients and go, hey, why don't we do it now? If you've got something stored up, let's do it now. We talk to them about that. Our salespeople are talking to them about that. It's nice to see our unscheduled event-based revenue growing. Of course, that attracts the higher paper price, which helps with our bottom line as well. Some of that paper revenue is by design, to your point. We have to be careful about on that so yes we we try to take advantage by getting more purges and getting uh and getting that into the system now because paper prices could go down in a month i don't knock on wood people always ask you what do you think it's going to do right now the economy is pretty hot people are traveling uh that away market does drive a lot of paper consumption um our type of paper then product of our papers so um and um you know the supply of our type of paper sop is you know not you know it's it's growing at a very very low rate so uh the good news is that creates a good equation for us from a demand perspective so so yeah i look i um i wish i could predict the paper markets every time because i'd be i'd be very rich rich man

Yeah, no, that's helpful. And I guess just turning back to your scanning division here, is that work thus far largely spot work or are you starting to see some, I guess, more scheduled recurring work like your traditional shredding business?

Yeah, there's so, you know, there's a bit. So when I look at the spectrum of revenue, you know, there's event-based, there's repeat, and there's recurring work. I would put scanning more in the repeat. We have a lot of clients that are doing repeat work with us. So the very nature of it is, especially government clients, and we have a lot of government clients, that they have paper of the yin-yang. And so we'll work with them over many, many years to get rid of archived paper and digitize it and the like. So that's the nice thing. There's a repeat component. We do have recurring clients. They tend to be smaller, but we have recurring clients. You know, we've just hired a new dedicated ProScan salesperson, and what we're asking them to do is really focus not on government but on our traditional client base because that's where I think we'll get more recurring revenue. And so, you know, to your point, we'd like to move on that spectrum more to recurring in the ProScan business. Having said that, repeat is good. Nothing wrong with repeat either. And we do have events. We have events spot business as well that comes in and out.

Okay, Daniel, that's everything for me. Again, congrats on the very strong quarter here.

Thanks, Devin.

Once again, if you have a question, please press star, then one.

Our next question comes from Nick Corcoran of Acumen Capital. Please go ahead.

Good morning and congrats on the record quarter. Thanks, Nick. Just the first question for me, I think you mentioned in your prepared remarks that you had a revenue run rate of about $45 million. You just did $12.5 million in the quarter. Can you maybe help us understand how you get to that number with maybe seasonality or paper price normalizing?

Yeah, so, I mean, obviously, Q4 tends to be lighter, so we discount that. You know, I'm still using lower paper prices as well, just trying to be a bit conservative here, Nick. Yes, I mean, look, if you take that lovely number of $12.5 million or, you know, very darn close to that, you know, and multiply that by four, of course, you know, you're sitting here at a $50 million price. almost $50 million run rate. We want to be a bit more conservative at the moment there, just because Q4 tends to be lighter and paper could come down. Again, we don't know. So that's how I got there. But yes, we're doing better than that. And I guess you know me well, and so do many of our shareholders. We want to make sure that we're factoring in some of the unknowns that are out there and those are definitely unknown. So, um, Hey, uh, every knock on wood, we can continue to do these types of things. Great. And then of course, later on some acquisition, even better.

Great. And then maybe think about the second quarter. I think in your MDNA, you say that paper price or S may be about 230 a ton with paper prices at that level. Should we expect, um, kind of similar performance in the second quarter, or would there be anything that might impact the results?

Yeah, look, no, I mean, and I alluded to this earlier, the only thing that's impacting a bit right now is truck parts supply. You know, that's in some markets, you know, we're facing the same thing independents are, where we're waiting for some truck parts, so we have trucks on the sidelines. And that does impact our ability to service clients. I think the good news for us, obviously, is especially the strategy of sort of targeting the Northeast and the East Coast from an acquisition perspective. We do have fleet sharing opportunities. And, you know, we had a couple older trucks that we wanted to turn back in as we bought new trucks. And we said, nope, put them, you know what, can't do that now. Send them to the other market because they're in need. So, So we're able to minimize that disruption, obviously much better than independence, but that still causes some disruption. I don't think that's as material as Omicron was to us in December and January. So look, I think overall... You know, those are those are positive. You know, we're in a good position to continue to perform at a good level here. And of course, Q2 and Q3 are typically good quarters for us, as you've seen in the past. So the only thing is, and the comment was made earlier, just the only thing is the comp is harder, right? Because last year, Q2 and Q3 were better. They were excellent. And so the comp is harder. So I think the growth rate is going to be, you know, closer to that 10%, maybe a bit better if we continue doing what we're doing. And of course, that's on the same location, you know, service basis paper, of course, could uplift that, which is great.

That's helpful. And then maybe you think about the consolidated even margins. They came in really strongly, about 32%. How should we think about a stable level of consolidated even margins for the business if paper prices and fuel normalize?

Yeah, well, look, I mean, I think obviously paper has caused some of this. I mean, you know, again, when you strip out the paper and the like, you know, we were still high 20s. which is great. And, you know, obviously, and you saw from Harjeet's earlier chart that, you know, our G&A costs have come down. Now, again, paper played a role, but also just the fact that we have more service revenue. So I think, you know, 32%, that's a, That's a pretty high number. Of course, the paper continues to stay there and the like. Then, yeah, we can be in the 30s. I think longer term as paper normalizes and fuel normalizes, where we are today in terms of our size, not adding other acquisitions, being in that mid-high 20s. Q4 will typically be lower. where two, one, two, and three are typically higher. And so those, we think that the mid-high 20s are reasonable. And then, of course, as we add acquisitions, the opportunity for us to start touching 30% on a normalized basis, that becomes real as we do acquisitions. And we can see that in the charts and in the numbers that as we've migrated from sort of 2018, 2019 to now, we are seeing improvement in our EBITDA margins, which was the plan all along. Great. That's helpful.

Thanks for taking my questions.

Thanks, Mick. Appreciate it.

This concludes the question and answer session. I would like to turn the conference back over to Jeffrey Hashim for any closing remarks.

Thank you, Arielle, and thank you for the great questions, everyone. again a great quarter we don't do it alone so thank you everyone thank you to our shareholders our board of directors our franchisees most importantly our team our employees done amazing work hasn't been easy and so really want to make note of that because this is an absolute team effort so Thank you to my team. Thank you, everyone. For those in the U.S., have a great Memorial Day long weekend. For those of us in Canada, enjoy the weekend. And thank you for joining the call.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.