Redishred Capital Corp.

Thank you for standing by. This is the conference operator. Welcome to the ReadyShred Capital Corp third quarter 2023 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. This is Jeff Hashim. Good morning, everyone. I wanted to welcome you to our third quarter investor call for ReadyShred Capital Corp. I want to thank everyone for attending on Friday morning, especially those that wake up early on the West Coast, which are a number of you. And, of course, it's Black Friday in the U.S., so a number of you might still be recovering from Turkey Day. So thank you for joining us. I'm also joined by Harjeet Bharar, who's our CFO. Together, we'll be reviewing the third quarter 2023 results. And, of course, we'll have a Q&A session at the end of the presentation. I do want to let everyone know that, of course, our financial statements, MD&A, and press release are all available on CDAR for your consumption as you need it. I would say for the third quarter, an okay quarter. I think, you know, when I look at the operations, operations were solid. Operations we made solid. very solid strides, particularly versus last year, even versus the first quarter of this year. Very strong strides. We grew our trading revenue by 21% versus last year in the same quarter. EBITDA, though, of course, came in lower by 16%. Now, if you strip out paper out of that, our EBITDA without paper grew by almost a million dollars that's 121 increase over the third quarter of 2022 hence my comment it was an okay quarter um strong operational profitability offset by a strong decline in the paper prices so how did that happen how did the paper prices impact our results so uh our sop is the class of paper sort of office pack is our our class of paper and those paper prices reverted back to their long-term average uh if you recall uh a year ago um we were hovering close to 300 per ton uh and now we're half that um uh or just a little just a little shy of half that um a little better though um however um That has had a significant impact, of course, on the results. And we've seen a decrease by $600,000 when we compare this quarter versus last year's quarter. So those historical highs from last year now are close to the 10-year average. I will say, thankfully, you know, we're at that 10-year average and not somewhere below that. And I think that's the good news in all of this is that the paper prices seem to be plateauing or flattening out as we sit at this point in time. So, again, if we sort of look at what we can control, we can control our core business. We can hone in on doing the right things every day. And if you look at our EBITDA margins without the paper, you'll see this. Our margins and percentage of revenue improved 500 basis points. And our corporate location operating income, again, less recycling margins, also improved by 1,000 basis points when we compare to last year at this time. How has that happened? This has happened by very good right densification rates. This was helped by, in particular, in a few regions where we finished the implementation of some very large acquisitions. The team has done an amazing job of integrating these acquisitions in the first half of this year. ones that we did in late 21 and into 22. So seeing that happen has been quite satisfying for all of us and quite timely, if you ask me. When you also look out and look forward, we acquired ProShift Baltimore in September. And of course, you know, we're looking at bringing that in and integrating that into with our North Virginia, existing North Virginia corporate location. So Baltimore is a very good operation. We're going to look to bring those two operations together over the first six, seven months of ownership. But Baltimore is performing as expected. So, you know, we look at that. We also did a smaller acquisition, Security Shred, The day before we did the Baltimore acquisition, that one I can safely say has been integrated. The team in New York, New Jersey, the ops team, the finance team, the marketing sales team have done an amazing job. integrating that acquisition. In fact, the trucks that we received for those acquisitions were distributed to other markets. So, very happy about that acquisition as well. So, looking forward, building on a strong operational platform and operational results We have a couple acquisitions which we only saw a little bit of in the third quarter. We'll see more of their results in the fourth quarter and, of course, into 2024. I would be remiss if I didn't take the opportunity here to speak about the investments we've been making. As we've been growing, we need to continue to create the right environment for us to scale our without burdening ourselves from extra cost that's associated with growth. And the best way to do that is to use technology. And we've invested in technology. Number one, earlier this year, we went with a new customer relationship management tool, Salesforce. It's the best in the business. Integrated into that, we used Peridot, which is our marketing automation platform. All of this together is going to allow us not only to have better closing rates and better efficacy on the sales side, but allow us to nurture market our clients going forward. So we saw that investment. We also took, in this quarter, we migrated to Azure and And why do we migrate to Azure? Azure is the leading cloud platform. And having the right cloud platform is the foundation of our technology stack. Azure is the language that allows us to link all our platforms. So Azure provides a number of things, speed, security, and linkage between our platforms so we can have them talking to each other reducing double data entry, reducing administrative burden that comes with our type of business where you have thousands of transactions on any given day and they're all small. So having these things talk to each other, this is going to help us for many, many years because we're using the best in the business. We're using a Salesforce Azure, our workflow software is the best in the business, our routing and tracking systems are the best in the business. So these will pay dividends for many, many, many years, which we've done this year. The last thing we've invested in this year is a SOC 2 certification as an information protection company. You know, having this certification allows us to do more business with governments, both on the shredding side as well as in particular the scanning side. Our scanning business is growing, which you can see in the financial statements. Harjeet will talk to that. And Having that certification will allow us to capitalize on larger scanning clients, government, large institutions. So this year, the investments that we've made are going to really, really pay off. I think the team has done a great job at polishing our rocks. They've done a great job at finding those operational opportunities and savings and efficiencies and route densities. I can't thank everyone enough for what they've done there. And now the ability to invest in these technologies to allow us to be even better, that's pretty exciting for us. So we're looking forward to, we've already started deploying Salesforce. Azure has just been deployed. The integration of those tools will be next year in terms of our workflow and our Salesforce. There's a number of things that that are on the go that are going to be very beneficial to us and allow us to scale with more leverage. And that's really what we want to do, scale with more leverage. So on that note, I want to turn it over to Harjeet, who will give us the incremental color on our financial results.

Thank you, Jeff, and thank you again, everyone, who was able to join this call. So in terms of our financial results, our top-line revenue grew by – 5% grew to 15.4 million compared to 14.7 million in the third quarter of 2022. If we look at the revenue growth from a service line perspective, our shredding revenue grew 21%, as Jeff noted, with scanning sales growing by 17% and our e-waste revenue being comparable to the third quarter of 2022. Recycling revenue, of course, decreased, as Jeff noted, and that's, of course, driven by lower SOP pricing, which has now reverted to sort of its longer-term average. If you sort of translate the results on a per share basis, EBITDA came in at $0.17 per share for the quarter. That compared to $0.20 per share in the third quarter of 2022. Stripping out paper, EBITDA less net recycling revenue, that grew by $0.9 million. So almost $1 million there to $1.7 million. So in terms of how the results translated from a cash flow perspective, so our free cash flow was $2.7 million for the quarter or $0.15 per share. So a strong FCF conversion rate. If you look at Q2 2022, we were at $0.03 per share from a free cash flow perspective. So if you look at the free cash flow, what was that sort of being generated by? So that's, again, driven by strong cash generated from operations. So our EBITDA was translating to strong cash flow from operations. And that's offset by some CAPEX, which we had $0.8 million in CAPEX As you know, our CapEx is primarily comprised of shredding truck purchases. That is our largest CapEx item. If you look at our capital resources right now that we have on hand, we have $3.6 million. We still have some additional capacity under existing banking facilities as well. Again, some strong capital that we can deploy to continue to grow the business and to execute on any items in the M&A pipeline And so that's an overview of the financials. I will turn it over now to Jeff for some closing remarks.

Thank you, Harjeet. I wanted to let everyone know that we always put our head down, put our hard hats on, work on the business. And I do want to take a moment to thank a number of our employees and leaders for doing that. And that's what we're going to go do right after this call. We're going to go work on the business. see how we can improve what we've been doing how we can continue to deploy the technology to be even better at what we've been doing like anything things get thrown at you in a business in this case paper prices coming down that's certainly been a challenge and So you have to just be smarter about how you run your business, and we are taking the moment to do that. So going forward, we're even better off when paper prices go back up and then when paper prices eventually come back down. We want to be in a better position every time that happens, and I will say we're certainly in a better position this time around. Then when it happened last time around in 2019, we're in a much, much better position, much better operationally. And with the technology rollouts that are happening, we're going to be much better off the next time this happens. So I want to state that, you know, look, the year is still a good year. The year is still performing. The company is producing cash flow. The company management leadership are being mindful of everything, and we will continue to do so, and we'll continue to work hard on the behalf of our shareholders and behalf of all our stakeholders to finish the year very strongly. So I want to thank everyone for their support. and I will pass it to Arielle to open it up for 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 2. To join the question queue, please press star, then 1 now. Our first question comes from Devin Schilling of PI Financial. Please go ahead.

Good morning, guys. Good morning, Devin. Just so we could talk on paper tonnage here a little bit, I see tonnage was down a little bit this quarter versus both Q1 and Q2 of this year. Maybe if you could just comment on what was the driver here and I guess how should we be looking at tonnage going forward?

Yeah, a little bit. Our scheduled revenue growth has been quite good. Our recurring revenue has been quite good. Our purge revenue has been a little, it's still growing, just didn't grow as much as we anticipated. Some larger purges that we typically get in the Q3, we're working on those for Q4. And so typically those purges drive a lot of your tonnage because you get more packed paper in the boxes. So our take on that is there's a little bit of timing that's happened there. Again, Q4 seems to be a little bit better start so far to Q4 than we typically have. Again, everyone's really gunning for it, and I think we'll see a few extra purges in the fourth quarter. That's what we missed out on, a few of those larger purges in Q3. And that's the problem. We actually had more number of purges, this Q3 than last Q3, just they happen to be smaller this year than they were the prior year. And then some quarters you get some big ones that are, so that chunkiness does appear, and that's why the tonnage was a little bit reduced.

Okay, so that's more of a revenue mix item here. Okay, just a second question on the scanning revenue. It was obviously a pretty nice increase this quarter. Can you comment, was this like some new customer wins or I guess just timing of some existing business?

Yeah, you know what? No, I think the team there has done a very good job at A, number one, with our existing clients, mining those existing clients. We have a number of long-term repeat type clients that continue to – uh continued to buy uh we had some newer clients some smaller newer clients which we love those are you know pro shred clients uh and then some smaller clients that have joined up so so some net new client gains there which is which is very good um and um you know as we've bought this business you know our our goal here is to uh really um create pipeline This is a business where you're trying to look out forward and you're trying to create pipeline of boxes, essentially, to bring into your facility. So right now, we're not working on Q4 pipeline. We're working on Q1 and Q2 pipeline. That's what we're working on right now. So I'd say that the entire team has done a very good job at driving pipeline more in advance. managing the box flow for production. Obviously, we earn revenue not on what we book, but on what gets produced. And the team is much more consistent there. And so, you know, kudos to them. That's why we've had the growth. And, you know, we view this business as one that we can continue to grow in a very good way.

Okay, yeah, I know that makes sense here. I guess just last one for me here, just on the soft two certification, did you say this was already completed or just underway right now?

This year is preparation year. So doing all the preparation, part of the move to Azure was preparation. We need to move to something that was faster, more secure, all those kinds of things in any event. But we figured if we're going to do all this work, let's get a certification. So we're a good chunk of the way in. By Q1, we'll be ready for the Type 1 certification. So that's great. Type 1 means something. It means something to those clients that we're trying to attract and a number of clients that have already said that they would love to work with us. if we had that certification. And then the type two happens about a year later because the type two is sort of an annual audit. So the type one that sort of gets you into the dance floor and type two keeps you in the dance floor. So we're well underway. We've made a lot of progress both on the technology side, the process side, the control side. So this is a very good thing, and we're getting close to finishing the job there.

Okay, perfect. That's everything for me. Thanks, guys.

Thanks, Devin.

Once again, if you have a question, please press star, then 1. Our next question comes from Nick Corcoran of Acumen Capital. Please go ahead.

Good morning, Jeff and Harjit. Just a quick question for me. The first is on the CapEx. I saw it came down quarter over quarter. Can you just comment on how many trucks were delivered in the quarter and your target for the year? Rajit, do you want to take that one?

Sure, Nick. So in terms of the truck CapEx, so we did purchase two trucks in the quarter. So the way our CapEx works, obviously, is that, you know, there is some timing sometimes. So, you know, depending on sort of when the orders come in, when we're able to get the trucks, it does create some timing issue. But saying that, I think we're very prudent on the CapEx front. So we're really kind of making sure we're sort of getting trucks, you know, as we truly need them. very mindful there. And I think as we continue to grow and scale the business, I think that capex percentage, especially if you compare it as a percentage of revenue, that will sort of continue to sort of slowly come down. If we sort of look at that from sort of a medium to longer term lens.

And can you just remind us how many trucks are being delivered year to date?

So year to date, we've had about, I think about approximately 12 to 15 trucks. So sort of in that range.

And do you have any more trucks expected through year end?

We do. We're probably going to have another three to four trucks coming in in Q4.

Okay, that's great, Keller. And then if you think about the margins, I think they came down more sequentially than I had expected. Can you comment what the impact of diesel prices might be in the quarter?

Sure. So when you're saying margins are coming down, are you looking at what margins are you referring to specifically?

Yeah, sorry. I'm looking at consolidated EBITDA margins between the second and third quarter.

So that consolidated EBITDA margin, that's actually all driven by paper, that decrease. If you actually look at the consolidated EBITDA without the recycling, our margins actually went up 500 basis points. So that EBITDA decrease is actually driven more by recycling prices. Fuel costs were actually pretty decent for the quarter, so there wasn't a lot of volatility over the summer. So they were pretty comparable to the first few quarters. So that decreases. Operationally, we did improve quite a bit. So that's just a function of SOP prices, more so.

That's helpful. And then maybe thinking of the fourth quarter, I think there's been some seasonality. How should we think about the margins? Sure.

Sure. So in terms of Q4, historically, yes, it's been the margins have been sometimes sort of been a little bit more compressed relative to especially when you look at Q2, sort of the summer and sort of earlier in the year. Part of that has to do with sort of the timing of when things happen, the number of business days and such. What we're noticing this year is some of the stuff that typically happens in Q3. I think Jeff just alluded to it as well. There's some of its timing, some of it has gotten pushed out to Q4. So we are seeing a bit of a stronger start to Q4 than we typically expect for Q4. So that's positive news for us. So all in all, it's sort of difficult to say where we're going to land. But yes, historically, Q4 is a little bit lighter. But this year, again, we started off a little bit stronger than we were expecting.

Thanks, Abbas. Thank you.

Thank you.

Once again, if you have a question, please press star then 1. This concludes the question and answer session. I would like to turn the conference back over to Jeffrey Hashim for any closing remarks.

Great, thank you very much. Thank you again everyone for joining the call. Right after this call, we'll go back to finding ways to finish the year in a strong way. We want to win Q4. Everyone has that mantra this year is to win Q4, and we're looking to win it and set us up well also for Q1 and Q2. And so everyone on the sales team is working on driving more scheduled revenue. We're going to win Q4 not only by winning scheduled revenue but by winning more projects. event-based revenue, closing more, uh, executing on our scanning side of the revenue and being mindful of our operating costs and all our costs. So we're, um, we're all going to go put our head down and go polish those rocks in a better way and, uh, try to come out of the year, uh, as strong as possible, uh, Paper prices will be what they are, so we'll deal with what we can do and what we can control, and the team has done a great job. So I want to thank the team. I want to thank our board of directors. I want to thank our shareholders. I want to thank our partners. I want to thank everybody who's worked with us. And for our American friends, happy Thanksgiving, and we'll talk to each other soon, I'm sure. Bye-bye.

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