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spk00: Thank you for standing by. This is the conference operator. Welcome to the Ready Shred Capital Corp Second 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.
spk03: Great. Thank you very much. Good morning, everyone. I want to welcome everybody to the second quarter 2022 analyst call and shareholder call. Really appreciate you joining us this morning. First and foremost, before I jump into the discussion of the results and what drove those results, I think everyone can see we had a pretty good quarter and that doesn't happen by accident. So first and foremost, I want to thank the team, our employees, our franchisees, our board members, our partners and our shareholders. It's a team effort. We do it together. And without all of their participation in this, we would not have had a good quarter as we did. And so thank you to them. We appreciate all their efforts. As you can imagine, this was an interesting quarter. And for us to have a good quarter the way we did is quite something. We were able to thrive in a very tough economic environment. As everyone is very aware from the news, there's strong inflation, supply chain issues. These things impacted us too. We had higher input costs, namely fuel, also driver wages. We also had truck supply challenges, getting new trucks. We seem to be getting some new trucks now, which is great, but the trucks that were supposed to be delivered in the second quarter, very few of them were delivered. But now we're getting some movement there. So I think there's some grease going into the system, which is great. And repairs on older trucks, that was tough too, because trying to get parts for those, that also caught up in a lot of the supply chain issues, thankfully. Uh, our strategy of having good depth and density, uh, in, in the Eastern seaboard in particular, where we have many corporate locations and particularly in the Northeast, uh, we're allowed to be able to share, uh, assets and, and one location was able to help the other location that helped mitigate. Uh, and, uh, so, uh, the long-term strategy of what we're doing in terms of, uh, driving route density, driving. density in regions driving that drives ability to share fleets. And you know, we certainly had to do that. We didn't trade in older trucks, but those trucks came in to help us achieve a good quarter. So in spite of all of these challenges, and why do I start with these challenges? Because they think they're well known, they're well documented. However, we had strong results and we're very pleased about that. So we sort of look at the second quarter here, same location EBITDA was up 47%, consolidated EBITDA 73% when we compared to 2021. These are, you know, these are great numbers. And we'll talk about why, how we achieved them from, you know, a top line perspective, we had record revenue of 14.6 million. in the second quarter and we're at 27.1 year to date. Many of you who were on the very first analyst calls probably remember when our numbers weren't even that for the year. And here we are in just the first half of the year putting up these types of revenue numbers and EBITDA numbers. How have we gotten there? Acquisitions, no doubt about it. We've been We've been acquiring a lot. We go back to even last year. We acquired some franchisees. We acquired American. And going into this year, we've done some tuck-ins, some small ones and some big ones or medium-sized ones. SDD we did on June 1st. So that one really hasn't impacted the results fully, but it will. Organic growth from shredding. We've had great organic growth on the shredding side. ProScan. and higher revenue from recycled paper. Let's not ignore that. Paper prices are significantly higher this year to last, no doubt about it. However, there's a bit of a difference in terms of this increase in paper prices for us. And that's when we go back to 2018, we didn't have any bailing facilities. 2019 really only had one. Here we are in 2022, we have four, and they're in our biggest markets. We already have one in Chicago, one in Kansas, and through the American acquisition, New York and New Jersey. And the increased tonnage is now from our facilities in New York and New Jersey are being diverted into those American purchased bailing facilities, and that helps us increase our paper revenue. And our paper prices, because when you bail paper, you get a paper price premium. And so that American acquisition, we knew that was one of the opportunities. And that opportunity came at the right time as paper prices were going up and the premiums were there. And so that is, of course, one of the reasons why we wanted to buy American, not the only. We wanted to densify our routes and solidify our market presence in the region. And we've done that, and we continue to do that. It was a big acquisition. We continue to do that. So that's having a positive impact. And so we're thrilled about that. What's happening is what we thought would happen. And so we're pleased about that. So, again, some tough times. macroeconomic environment. What can we do? All we can do is control what we can control, and the team really did do that. We mentioned safeguard document destruction end of the second quarter. Again, good base of customers in New Jersey and Florida. We're integrating that as we speak. So far, so good. We're glad about that. the other big thing that we did and, uh, just, just happened is that many of, you know, we did a five to one, uh, uh, reverse split or a consolidation, uh, and, uh, uh, you know, uh, just, just so you know, the MDNA and the financial statements for the second quarter are all stated, uh, with the new share basis. So, um, on a, on a post consolidation basis. So, uh, overall, And I'm going to turn it over to Harjeet in a moment. He'll provide more color and detail on the financial results. You know what? I think the team did very well to respond to the challenges. We've also just raised our prices here in the third quarter in July, August. And so that will have a positive impact. So our scheduled recurring clients. have seen a price increase due to these input costs. Other companies are doing that and of course we have followed suit. We have good relationships with our customers and so far we're happy to report that we haven't seen significant churn to date. And that's a good sign. And so I think that talks to the client service that we provide. It talks to, you know, how we go about doing it. We don't do fuel surcharges. We don't do delivery charges. We don't do any other charges. We keep it clean, but we do the price increase. And I think our clients appreciate that transparency in how we do it. So I'm going to turn it over to Harjeet. Harjeet, you get the fun part, so go ahead.
spk04: Thank you, Jeff. So hi, everyone. As Jeff noted, we had a very strong period of financial performance for the three and six months ended 2022. If we look at Q2 2022, we generated revenue of $14.6 million. Our EBITDA was 4.5 and operating income $3.2 million. And Even with the input cost increases that Jeff spoke about, our margins, they remain strong. Recycled paper, of course, had a contribution to that, and that helped. But even without that, very strong results for the quarter. And then if we look at the year-to-date results through June, again, Jeff spoke to it, $27.1 million in revenue. You know, record highs there, EBITDA 8.6 million, operating income of $5.9 million. And, you know, we sort of translate that on a per share basis. You know, we look at our operating income on a per share fully diluted basis. Year to date, we're at 32.4 cents. That's up almost 100% compared to the comparative period in 2021. And, of course, these figures are on a, you know, post-share consolidation basis. So, you know, quite impressive, you know, because we're looking at apples to apples here. And, you know, how did that translate to the cash flow? Well, we generated, you know, $3.3 million in cash flow from operations for Q2. Year to date, $5.4 million. And again, the strong EBITDA results, you know, translating to our cash, translating to strong cash flows as well. You know, looking at our balance sheet, Our liquidity position is pretty solid. We have $5.8 million in working capital. We do have $9.5 million in cash, and that's going to put us in a position to execute on our plans, our strategic objectives, and we do highlight those in the MD&A. So all in all, very good results. We are all pleased to report, and I will now turn it over to Jeff just for some final comments before we open it up to the Q&A.
spk03: Thanks, Harjeet. Appreciate it. So, as Harjeet noted, we're in a very good position to execute on our plans and to remind everyone our strategic initiatives. Number one, whatever we own, we want to build by growing our organic products. Revenue, same location sale, that's important. As you know, we have some new services relatively new to us, such as ProScan, and we continue to see a good quarter on the ProScan side, which was excellent. Our e-waste business also continued to grow. So growing organically is important, and we've been able to do that despite some of the pre-noted challenges. So that's a great outcome. Of course, we have two pools of M&A targets. The first pool of M&A targets is our franchisees. When they wish to retire or exit, whichever comes first, we have that opportunity. There's also 750 independents in the marketplace, and many of them are retirees. fatigued in this environment. If you think about it, they've gone through the ups and downs of paper. They've gone through COVID. Now they're going through inflation. Trucks are costing more for them. The reality is we get front of the line on the truck supply and that's why we're seeing some movement there. And so there's a lot of challenges there and that creates the opportunity for us to buy these. So we have a strong pipeline. So we want to speak to that. We've got a good pipeline and The nice thing is we have the financial capacity, capability, and willingness to deploy the capital to execute on that part of it. And, of course, we know when we execute on those parts of it, we can bring things to the table, back office savings, route density opportunities. In the case of American enhanced bailing on pre-existing tonnage, all those things are great. As noted, we had to respond to cost increases. They are real, they are there, and we've raised prices in line with that, and that's very important. And again, I can't emphasize enough that having a good relationship with our truck suppliers is paying dividends now in third quarter, because we're starting to see the flow of trucks again, Yes, we're delayed in getting them. However, we're getting them. And so we're very pleased about that. And again, one of our strategies that we've mentioned is we want to make sure we have a modern truck fleet. And now that is even more important. And why is that more important? Because procuring truck parts for older trucks is much more difficult due to the supply chain. And so having a newer fleet allows the trucks to be under warranty. There's more availability of parts. There's still sometimes challenges there, but there is much more availability of parts. And so having a modern truck fleet not only enhances client service, creates uptime, reduces repair maintenance, more fuel efficient, and, of course, the ease of repair and maintenance from a parts perspective, that's critical. So... And the last piece, and I think it's important, is we've seen fuel prices go up, we've seen paper prices go up, and fuel is still at record highs, and paper continues to follow that. I think the paper market is, just to comment on that, it went up again slightly in the first month of the third quarter. The away market that I spoke about many times is still demanding the tissue paper. And of course, the primary component of that is our supply of paper. And so that's a good news for us is that we continue to provide that supply. We're also providing that supply in a bailed format. And so those are very positive things for us is that the economy and the away economy continues to grow in the United States. Anyone who's been to Toronto Pearson Airport knows that fairly heavily at the moment. I'm sorry I've been caught in that as well. So I'm going to pause there. Again, I want to thank everyone. I want to thank everyone for joining this call. I want to thank everyone for their support. And I open this up to questions.
spk00: Thank you. We will now begin the question and answer session. To join the question queue, You may press star, then one 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.
spk06: Jeff Harjeet, good morning and congrats on another strong quarter. Thank you. My first one is on your organic growth for shredding services. 20% year on year. Can you quantify how much of that is price increases versus just increased activity? I know there's a new price increase now, but I believe you had one earlier this year as well.
spk03: Yeah, so we increased prices at the very tail end of 2021. Um, it was a smaller price increase, two to 3%, uh, at that point in time. So, uh, you know, the good news here, uh, is the vast majority, uh, of our, um, increase has been new client acquisition. Uh, one of the things that we've spoken about, uh, uh, for many years, I would say now, and we've known each other for a couple of years is, um, There's two components to our business in terms of driving revenue. Number one is, of course, the digital advertising that brings in the leads. Most of the leads are for one-time service. However, the idea, and we're executing on this well in the outside sales team in particular, is how do you convert those one-time event-based shredding into other services or recurring shredding service? And so this database that we have of past clients, new clients that we can convert, and then buying lists and looking for route densification opportunities, that's really been the driver of our growth so far year to date, our organic same location growth. That's been the driver. And so kudos to marketing and sales and to the service team as well for helping converting that during some tough times in terms of truck challenges and all that. I mean, they did a great job, everybody working together to make sure our clients and those new clients get a good experience. So I know it's a long answer, but yeah, you know, going forward, we're going to see obviously more of a price increase uptick because we put through a more significant price increase just recently.
spk06: I'm just perplexed in a good way at this revived growth. I think you had like a period of strong same location service revenues in 2015 or 16. Then we were just like running at 10% or 5-10% for a pretty long period. And now we're back at that sort of 20-ish percent level, which is good to see.
spk03: Yeah, no, it is. And I think one thing just maybe to comment on, I like it when we're perplexed in a good way because it's a nice outcome. And look, the reality in the marketplace is we start to, again, get more punished. As we get larger in the marketplace, you have more trucks running around. The digital presence is there. The sales presence is there. The brand presence is there. The service reliability is there. What starts to happen is, of course, we've got competitors and we've got some large competitors that do struggle in the on-site model. They struggle with the small, medium-sized enterprise client. We're there to take away that revenue from them, right? We're also now starting to see larger opportunities. And again, from a risk management perspective, we are seeing a little bit more purchasing agents going, wait, time out. There's a difference in on-site and off-sites. And look, our competitors can do a good job, you know, protecting the information from an offsite perspective. We do some offsite as well, a very small amount. We do some offsite and we follow the NAID procedures and it's secure, but onsite is very secure. And our research has showed that small, medium-sized enterprise is more sensitive to that than larger companies. So I think, you know, maybe that helped just maybe give you a little bit of explanation on some of how we're getting there and why we're getting there.
spk06: Thanks. That's helpful. Then can you refresh my memory? What is the magnitude of the new price increase?
spk03: Uh, it'll be on the scheduled clients. So just on our scheduled clients, um, exclude American at the moment, uh, just because, um, or any acquired stuff over the last year, because, um, we, we typically like to get our arms wrapped around them and then do a price increase. Uh, so American is excluded from that. Um, We are looking at about 8% to 10% pretty much every single market that we operate in. Great.
spk06: Thanks. Switching gears to the cost structure, there are a few moving parts that you guys spoke about, wage, fuel, and let's call it input cost inflation. Then you guys are also investing in the business technology sector. I'm just trying to get a sense of how much of the cost increases we're seeing is really input cost inflation versus you guys proactively investing in the business.
spk03: Yeah, I mean, the GNA is more where you will see the investments being made. There's some investments made more direct at the face of it, but the GNA is where you have your IT folks and your developers and those types of folks working on the technology. We're right now in the middle of a complete workflow software rollout. And we went from something that was good for us really five years ago to something that's now the industry standard. It's called Total Recall. The big guys use that software. Uh, and, uh, so it's a, it's a much more robust software. So why, why, why do we need that? That's the center of everything, right? So the, the getting the, and I'll quote Ron Gable, our, our V senior VP of ops, you know, we're getting trucks and people to our clients. That's the heart of what we do. And so we're in the middle of that rollout. Uh, the Southeast has been completed, which is good. Uh, and so, um, then what happens, we're also now starting a migration to Salesforce. Again, the CRM and marketing automation platform was, again, for a smaller company. The nice thing with Salesforce is it's a SaaS-based, you know, it's pay-as-you-go, and there's a million integrators for it. So the key there is now integrating that in with the routing software. So now you have one point of entry. You've got the data going into the different platforms We're getting more robust real-time dashboards. We do get dashboards now, but more real-time dashboards. So now the decision-making will be more robust. And again, the ability to squeeze more into a route or understand our route dynamics will only be better. And so that G&A technology investment is very critical because it'll allow us to scale. It'll allow us to build that business better. better uh and as you know um we we don't we don't want to ever sit uh we keep if we stand still for a second someone else will catch up to us so uh for a company of our size we want to be nimble and agile and and this is the time to make those investments while paper prices are good uh these are the time to make the investments while we're still agile and nimble because these are technology platforms And we're also moving to Azure as well. That's the backbone of it. These are time-making investments that allow us to scale for a long time because Salesforce is the ultimate total recall. These are the ultimate finishing software. So again, long answer, but I think it's important for all of us to know and all of our shareholders and partners to know that these investments we're making in technology, while we have a good opportunity to do it, these will pay dividends for many, many years. So it's a good time to do it. No, that's great, Keller, and I fully agree.
spk06: Can we go back to your comments on your M&A pipeline? How are discussions with targets evolving in light of the high paper prices? Is that sort of hindering discussions, or do you feel there's a good appetite to sell in what is a tough operational environment?
spk03: Yeah, you know, I mean, obviously, there's some folks out there that... They go, well, paper prices are high. This is a great time to sell. My valuation is going to be super high, all that. I think those that know myself and Harjeet and us generally at ReadyShred, we recognize that you've got to sort of normalize that out. You've got to sort of say, okay, what is sort of that 10-year average of paper and use that as part of the valuation methodology. Now, some you lose folks because of that right because there's folks that go oh you know i'm paper's paper and i'm getting it now and that's fine i you know someone else might buy you and give you credit for that that's fine That's not the way we do it. That's not the way we approach it. And I think it's logical. The good news is there's lots of independents that do understand that. And so, and franchisees understand that for sure. And so, you know, we do that piece of it, which is good. Of course, look, I mentioned earlier, there's fatigue out there. It's been... It's been a tough three years. If you're an independent, it's, boy, it's been tough. And I feel for those small business owners, they've worked hard. They've done everything they can. Hopefully, you know, when they're looking to sell and they knock on our door, they get a good outcome and we get a good outcome. And that's been our approach. um and uh but yeah we we have to be we still have to run the numbers we still have to be have a methodology to this which we do and uh the good news is uh the pipeline is good we've been we've been working this industry for now uh uh in an m a view for the last five seven years and you there's so many people that now come to us and go yeah i spoke to you four years ago I'm ready. Great. And, of course, we have a methodology to keep in touch with them throughout all along as well, including subcontracting accounts to them. So, again, long answer, Amar. You're asking all the loaded questions here. Okay. Thanks for all the details.
spk07: Congrats again. I'll pass the line.
spk05: Thank you. Thank you, Amar. Good day.
spk00: Our next question comes from David O'Campo of Cormark Securities. Please go ahead.
spk05: Thanks. Good morning, everyone. Good morning, David. I just had one question and one follow-up. Just on the rate increases that you guys implemented for July and August, do we expect that rate increase to fall directly down to the bottom line since you guys have been eating those inflationary pressures over the last one or two quarters? Yes.
spk03: Yeah, a good chunk of it. I mean, the only one downside there is we do our wage increases. We do a July to June sort of performance evaluation timetable. So there was some wage increases that went through in July. On the driver's side, we've been a little more agile. We weren't waiting for that period of time, and for good reason that we didn't. did wait we wouldn't have drivers so uh so um look we should see a good chunk of that flow to the bottom line i can't say all of it because because of course we did do wage increases in in the uh to start the third quarter and jeff i know you talked about this in the past but but any thoughts on on implementing fuel surcharges just given the volatility that we're seeing with with fuel Right now, not right now. We did the price increase and that price increase is more than enough to cover that fuel increase. And the reality is that fuel does go up and down. And when fuel goes down, I still want to, you know, I don't want to. The fuel surcharge has to come down with the fuel. It does. And we've seen many of our competitors' invoices and it goes up and down. The price increase we do not get back. And the reality is that there could be other costs that go up over time. And so we have to protect our margins. And so we view that price increase as a more permanent protection program, if you will. And I think that's the best approach. And you know what, from a client perspective, remember, we're talking small medium sized enterprise and small medium sized enterprise, they think more consumer like and I don't know about you, but I hate seeing any type of fuel surcharge or things on my cell phone bill, cable bill, all those wonderful things. So the psychology of that client is a little bit different than, say, you know, a Royal Bank of Canada that, you know, might be more understanding of fuel surcharge. So it's a great question. I get asked that all the time. And you know what? I think the approach we're taking is a good one. It's a transparent one. And knock on wood, the churn so far has been very, very, almost nothing. Okay.
spk05: That's it for me. Thanks a lot, Jeff. Thanks, have a good one.
spk00: Our next question comes from Nick Corcoran of Acumen Capital. Please go ahead.
spk07: Good morning and congratulations on the strong quarter. A few of my questions were already asked, but maybe just to start on the cost side, have you seen any improvement in fuel?
spk03: Slight, yes. Slight improvement, which is good. Look, it's still way higher than we'd ever seen, but it has come down a little bit. We'll see if it continues that way. I guess the only good news here right now is paper continued to go up and fuel came down a little bit. This is just the last month. One month doesn't make a trend, but that's good news.
spk07: And then think about your drivers. Have you seen a loosening in that market, or does it still remain really tight? Say that one more time, Nick. Sorry, I didn't read that. Yeah, I'm just trying to think of the market for drivers. Has that loosened up at all, or does that still remain really tight? I know you've done some wage increases as well.
spk03: Yeah, there's some regionality to that. But overall, we've seen a little bit of loosening up in some markets, but not all. But we're... I would say it's gotten a little bit better. Uh, and I think again, that's a sign of what might be to come, uh, as, um, uh, a couple of things happen there. Right. So again, a lot of folks came out of the market during COVID, um, uh, and now they're coming back in and, uh, our, our goal though, frankly, is to hire the best drivers and the best drivers weren't sitting at home during COVID. Um, and, uh, By hiring the best drivers, they take care of your trucks, they take care of your clients. So that's been our approach. And, yes, there's been a little bit of loosening up to find those good drivers, which we're really happy about.
spk07: Good. And then a housekeeping item, just looking at your MD&A, it looks like the tonnage process was – and maybe the wording, but it was revised from $13,700 to about $16,000 in the comparable period last year. Can you help me understand what the reason for that was? The uptick, total uptick? Well, no, it's the comparable period last year was revised up.
spk03: Yeah, I'll have to get back to you on that. I don't have the hard sheet or your own life. Sure.
spk04: I've got that number if you want to talk to Nick. Sure. I think on that one, there was a bit of a mathematical issue in the comparative period last year. So we just adjusted it to reflect the updated tonnage because we had access to some additional information subsequent to when we released in the comparative period, subsequent to when we released in the prior year. So we did update that number to reflect the correct number.
spk07: Good. And then thinking of the tonnage, $16,500 this quarter, is that a sustainable level or do you have a... purge revenue or kind of one-time tonnage that might have boosted that up?
spk04: Sure. So I think, sure, in terms of the tonnage, so that's more sort of tied to our sort of shredding business, right, more so? So if you look at our shred business, so as that generally grows, you know, the tonnage will generally increase as well in line. Well, it won't exactly match, but, you know, that's the general trend. And so if you look at those tonnage levels, you those will be more sustainable than some of the other metrics which are more based or dependent on things like commodity pricing and such. But the core tonnage is tied to the shredding, so that should be a more sustainable measure going forward as well.
spk07: That's good, Keller. And then you mentioned in your remarks that the truck deliveries have been delayed, but you start to see them in Q3. Can you give any indication of what you expect for deliveries in the back half of the year?
spk03: Yeah, we should catch up. We should catch up. That's what our vendors are telling us. And, again, the proof's always in the pudding. But we are, you know, I've been signing a few more documents recently, so that's a good thing. And trucks are getting into markets and are being deployed. So that makes our operations team happy. It makes our sales team happy, too. They have more capacity to sell into. So, so far, so good. So we're hoping to make up the backlog soon. here in the third quarter and into the fourth quarter, positions ourselves well for early 2023 for sure. We also have been proactive. We've been planning out our truck buys for next year and working with our truck manufacturers to have dedicated slots for us. Now, we did have dedicated slots this year and look, they couldn't control part supply in their production. But I think I saw some recent reports, manufacturing inventory reports, and there seems to be a bit of a better news on the inventory side. And I think we're seeing that ourselves through the delivery of these new trucks.
spk07: Good. And can you give any ballpark what number you expect? On the number of trucks?
spk03: Yeah, exactly. Good question. Yeah, you know what? I'll get back to you on that. I just want to confirm, there's got a couple vendors we're buying from, but I do, I mean, it's double digits for sure. I mean, I think we've got another 10 coming in and around 10, but I'll confirm that, Nick, with you.
spk04: Yeah, but that sounds about right, though, Nick. Yeah.
spk07: Great. That's good, Keller. Thanks for taking my question.
spk04: Thanks, Nick.
spk07: Thanks, Nick.
spk00: Our next question comes from Ben New, a private investor. Please go ahead.
spk01: Good morning. Thank you for taking my questions and congrats on another great quarter. I was wondering if you could please comment on the status of your new franchisee development pipeline. I think it's been some years since we've seen new activity there. Curious what kind of white space you're seeing in that market and any challenges or opportunities you're seeing in that initiative.
spk03: Yeah, you know, you're right. We haven't developed many new franchise territories over the last little while. Our growth and footprint could be franchisees. It could also be M&A. And I think that's really, you know, I want to really bring it to that, is that footprint growth. There's more probability of it being M&A. than it is franchising. And I'll tell you the reason why. By the way, we have great franchisees. We have wonderful franchisees. They do a great job. We want them to build a great business. And one of the things I didn't mention early on is one of our strategic objectives is to support our franchisees and help their unit economics be the very best that they can be. But having said that, launching and initiating a franchise is heavy lifting on the front end. And, and, and it's also tough on the franchisee too. You know, they got to go through 18 to 24 months of negative cashflow before they get to cashflow positive. And then of course there's a couple more lean years and then it gets really good by the way. I mean, the last five years of our franchise agreements, we find 10 year franchise agreements are very, very good. So franchisees need to have the financial capability and capacity to do this. So one of the challenges we've run into the last five years is the type of franchisee, the profile of our franchisee are typically high net worth individuals from corporate America. They've had very good positions in corporate America, typically VP or higher. They're earning a lot of money in corporate America. And so it's, it's difficult for them to make the decision to say, well, I want to burn cash for a few years and give up this very lucrative, you know, highly successful six-figure job. And then we also look at the demographic. Typically, our franchisees, by the time they're in that position, they're late 40s and early 50s. And, you know, then they got kids in college and all that, where when we typically win on the franchising side is during recessions, because... corporate america has released some very great talent and that's a lot of our great franchisee all of our franchisees and all of them are great it's where they come from uh for the most part and uh so that's been the challenge that we've had uh so uh why not refocus our energies and efforts to something we also do very well which is acquisitions uh and acquire franchisees in open and new sorry not franchisees independence and open and new markets a good example of that was in 2018 we bought safe shred we weren't in that market in in new jersey we wanted to be in that market we bought it and we continue to buy in new jersey uh which is great there's lots of independence here um and we're targeting a number of locations along the east coast that we're not in and in the midwest that we're not in we don't have a presence we're targeting them In those cases, we're going to look to buy larger independents so we can have the right base of operations, because what we don't want to do is go cash flow negative on those either. So Ben, great question. I hope that answers it. If it doesn't, keep coming for me.
spk01: No, really helpful context. Thank you. And maybe a nice segue into my next question, which is, as we think about the current M&A pipeline, Could you give us any color on how you're thinking about financing for acquisition targets, just given the rate environment?
spk03: Yeah. Look, I guess the position we're in right now is we've got the cash resources, we've got the financing with our bank, and our banking relationships are strong, our balance sheet is strong. Yes, rates are going up, and so we have to be mindful of that. that plays a role in how we look at these and how we value these, of course. Uh, and, um, uh, having said that, uh, you know, in the historical context, and I mean, even if you go back five or six years, we were financing acquisitions at six, seven, 8%, uh, debt. Uh, and, and we're not quite there yet. Uh, we're not seven, eight, 9%. I mean, way back when we were at 10 and we were still making money. Um, so if you look at the context of this historically, um, we're in a very good position. And as Farjeet mentioned, we're also producing cash flow. So if you think about the smaller deals, we do the smaller deals out of cash flow. We're able to do it and win at that. And then, of course, the bigger deals, larger franchisees, larger independents, we're going to have to come in with debt and equity. And the good news is the financing is there and we continue to work with those partners. And we have to assess, we have to look at where rates are and if If rates go back way, way high, well, then we're going to have to be agile and think of the right way to go about it. Now, the good news is, I guess, as rates go higher, valuations come down, and so the equation typically works out.
spk01: Thanks again for taking my questions, and congrats again on the great quarter. Thanks, Ben. Appreciate it.
spk00: Once again, if you have a question, please press star, then 1. Our next question comes from Devin Schilling of PI Financial. Please go ahead.
spk02: Good morning and congrats on the strong quarter here again, Jeff. Just looking at your scanning and your e-waste business, it was obviously another really strong quarter of growth here. Maybe you can share just some maybe internal targets on where you see this growing as a percentage of overall revenue in kind of the years to come.
spk03: Yeah, if I think about scanning, I will start there long term. And the scanning business is one that that's actually more agile. And so the idea here is we've got a great hub and base of operations in Massachusetts, that we bought that from a franchisee almost two years ago now, 18 months ago, more than 18 months ago. And then The nice thing is now the team, we've got a good team leading that. Our VP of marketing, Francesco, is now leading that on the ProScan side, which is great. And so he's replicating, he's creating the playbooks to replicate this the right way. Now, here's the good news. We land a big contract in Chicago, as an example. We can deploy people and scanners typically within six weeks to start executing on a contract. Why do I make this statement? Because then that sort of leads to, okay, well, we just sort of do the simple math, right? You know, we can get, and again, the overheads in this, we're using existing space. Typically, we're using existing space, unless you get very large, you know, once you get past a million bucks, you might need more space to house more people and more paper, but you can use existing space. which is great. So you can use that base of operations. So we're not burdening a ton of overhead here. In fact, we're getting better return on invested capital. So now let's do some math, right? $250,000 times 10 location. That's $2.5 million on top of the trend right now. We're going to be cranking over $2 million this year on the scanning side of all things go as planned. So now you're at a $4.5 million business, right? Get to half a million dollars, right? Now you're at a $9 million business. The key here for us is creating the playbooks. We have a dedicated ProScan salesperson. They're based out of Mass, but they're not just selling into Mass. And that's the other beauty of this. We can leverage that person. We've enabled all of our salespeople and our shredding salespeople, our landings, scanning jobs now why they're going to our existing database of clients those clients trust us and we're getting share a wallet and we're getting those clients so we're starting to land that way and again the team is agile to go out and and get that so you know kudos to dave knowles who's our vp of sales so i'm on you know working with a sales team to enable them on on something new uh kudos to francesco for replicating creating the playbooks here um And kudos to our local management to, you know, identify these opportunities as well and be ready to take them on. So, Devin, does that give you a little color where this can go?
spk02: Yeah, that's very helpful on the scanning side. Maybe you could just touch on the e-waste side as well.
spk03: Yeah. E-waste is, you know, so e-waste, one challenge with e-waste, and it's a reality, is you need warehouse space, right? And so... that return on invested capital is not as good because initially uh so where does e-waste make sense so why is it in kansas kansas it makes a lot of sense we've got uh we're bailing paper there we have the warehouse space um you know uh it's a it's a hub in the midwest we can go from there and go and get e-waste from chicago oklahoma all over the place we can get the waste which is great um But there's a bit of a fixed cost component because of the warehouse. So right now, what we're trying to do is just expand in the Midwest, sort of going north and going south. That's the idea. And the U.S. business is responding well. There are a lot of buyers for the refurbed items. Of course, hard drives and everything like that is destroyed securely. So that's That's positive. I think with e-waste, we will look at other centers. And the nice thing is all of our pro-shred locations do a bit of e-waste. We collect e-waste in every location, smaller volumes. We typically will work with a partner. But if we start to sense demand in an area and we can obtain real estate in a lower cost manner, and then add bailing at the same time then it sort of makes sense for us so so i think uh with e-waste you know we'll that one may not grow as fast out of the gate as scanning but i think over time as we get larger on the pro shred side and need warehouse space for bailing paper then this will make a lot of sense because why not just add another 5 000 square feet of warehouse space and now you're gonna and now we can deploy an e-waste business so so i think that'll be slower But in the long run, you know, it'll catch up as we grow our shred business.
spk02: Yeah, no, that's great color. I guess last one for me, just a bit of a housekeeping item as well. Maybe if you could just refresh what your 10-year average paper price is sitting at now.
spk03: Probably a little higher. It used to be $135. I think it's around $140-ish, $135 to $140 is sort of where we're sitting.
spk02: Okay, yeah, no, that's great. Thanks again, and congrats on the awesome quarter.
spk03: Yeah, thanks, Devin. Appreciate it.
spk00: This concludes the question and answer session. I would like to turn the conference back over to Jeffrey Hashem for any closing remarks.
spk03: Yeah, first of all, thank you to all those that asked questions. Great questions. And of course, we appreciate those. And again, thank you to everybody on the call. Thank you to the team, all of our employees, all of our franchisees, all of our board members, all of our shareholders. Can't do it without you all. And look, we're around if there's any follow-up questions. Otherwise, everyone have a great end of summer, have a great Labor Day weekend, and we'll talk soon. Bye-bye.
spk00: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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